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Stock-Based Compensation Arrangements | 12 Months Ended
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Dec. 31, 2011
Stock-Based Compensation Arrangements |
Stock-Based Compensation Arrangements |
11 Stock-Based Compensation Arrangements ASC 718 requires compensation expense associated with share-based awards to be recognized over the requisite service period, which for the Company is the period between the grant date and the date the award vests or becomes exercisable. Most of the awards granted by the Company (and still outstanding), vest ratably over four years, with ¼ of the award vesting one year from the date of grant and 1/48 of the award granted vesting each month thereafter. Annual awards granted in December 2010 vest 1/48 of the award each month after the grant date. Certain awards made to executive officers vest over three to five years, depending on the terms of their employment with the Company. The Company recognizes all share-based awards issued after the adoption of ASC 718 under the straight-line attribution method. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company evaluates its forfeiture assumptions quarterly and the expected forfeiture rate is adjusted when necessary. Ultimately, the actual expense recognized over the vesting period is based on only those shares that vest. Stock based compensation has been reported within expense line items on the consolidated statement of operations for 2009, 2010 and 2011 as shown in the following table:
|  | Year ended December 31, 2009 |  | Year ended December 31, 2010 |  | Year ended December 31, 2011 |
|  | $000 |  | $000 |  | $000 |
Research and development |  | 271 |  | 351 |  | 171 |
Selling, general and administrative |  | 539 |  | 1,395 |  | 711 |
Stock-based compensation costs before income taxes |  | 810 |  | 1,746 |  | 882 |
2006 Plans On March 16, 2006, Xcyte stockholders approved the adoption of the 2006 Plans, under which Cyclacel, may make equity incentive grants to its officers, employees, directors and consultants. On May 14, 2008, at the Company’s annual stockholders meeting, the stockholders increased the number of shares reserved under the 2006 Plans to 5.2 million shares of common stock from 3.0 million shares of common stock. During 2011, the Company granted approximately 0.2 million options to employees and directors with a grant date fair value of approximately $0.2 million, of which approximately $24,000 has been recorded as compensation cost in the consolidated statement of operations for the year ended December 31, 2011. During 2010, the Company granted approximately 0.6 million options to employees and directors with a grant date fair value of approximately $0.6 million, of which approximately $50,000 was expensed in 2010. During 2009, the Company granted approximately 0.2 million options to employees and directors with a grant date fair value of $0.1 million, of which approximately $28,000 was expensed in 2009. The weighted average grant-date fair value of options granted during 2011, 2010, and 2009 was $1.15, $1.40 and $0.39, respectively. As of December 31, 2011, the total remaining unrecognized compensation cost related to the non-vested stock options amounted to approximately $0.5 million, which will be amortized over the weighted-average remaining requisite service period of 2.88 years. During the years ended December 31, 2009, 2010 and 2011, the Company did not settle any equity instruments with cash. The Company received $3,000 from the exercise of 6,638 stock options during 2011. The total intrinsic value of options exercised during 2011 was approximately $1,000. The Company received approximately $0.1 million from the exercise of 174, 311 stock options during 2010. The total intrinsic value of options exercised during 2010 was approximately $0.2 million. The Company received $7,000 from the exercise of 17,180 options during 2009. The total intrinsic value of options exercised during 2009 was approximately $11,000. Outstanding Options A summary of the share option activity and related information is as follows:
Cyclacel Pharmaceuticals, Inc. |  | Number of options outstanding |  | Weighted average exercise price |  | Weighted average remaining contractual term (years) |  | Aggregate intrinsic value |
Options outstanding at December 31, 2009 |  | 3,349,876 |  | $ | 4.21 |  | 7.76 |  | $ | 698 |
Granted |  | 607,300 |  | $ | 1.82 |  |  |  |  |
Exercised |  | (174,311 | ) | $ | 0.43 |  |  |  |  |
Cancelled/forfeited |  | (292,933 | ) | $ | 4.54 |  |  |  |  |
Options outstanding at December 31, 2010 |  | 3,489,932 |  | $ | 3.96 |  | 7.22 |  | $ | 938 |
Granted |  | 199,500 |  | $ | 1.52 |  |  |  |  |
Exercised |  | 6,638 |  | $ | 0.41 |  |  |  |  |
Cancelled/forfeited |  | 167,053 |  | $ | 5.79 |  |  |  |  |
Options outstanding at December 31, 2011 |  | 3,515,741 |  | $ | 3.73 |  | 6.44 |  | $ | 140 |
Unvested at December 31, 2011 |  | 631,655 |  | $ | 1.73 |  | 8.75 |  | $ | 3 |
Vested and exercisable at December 31, 2011 |  | 2,884,086 |  | $ | 4.17 |  | 5.93 |  | $ | 136 |
The following table summarizes information about options outstanding at December 31, 2011:
Exercise price ($) |  | Number outstanding |  | Weighted Average remaining contractual life |  | Number exercisable |
0.29 — 1.98 |  | 1,519,913 |  | 7.77 |  | 1,013,387 |
2.15 — 4.95 |  | 377,878 |  | 7.15 |  | 256,989 |
5.26 — 5.81 |  | 508,213 |  | 5.82 |  | 503,973 |
6.30 — 6.95 |  | 891,237 |  | 4.57 |  | 891,237 |
7.80 — 15.00 |  | 218,500 |  | 4.93 |  | 218,500 |
|  | 3,515,741 |  |  |  | 2,884,086 |
The fair value of the stock options granted is calculated using the Black-Scholes option-pricing model as prescribed by ASC 718 using the following assumptions:
|  | Year ended December 31, 2009 |  | Year ended December 31, 2010 |  | Year ended December 31, 2011 |
Expected term (years) |  | 0.75 — 5 Yrs |  | 5 — 6 Yrs |  | 5 — 6 Yrs |
Risk free interest rate |  | 0.325 — .84% |  | 1.64 — 2.96% |  | 1.47 — 2.29% |
Volatility |  | 65 — 169% |  | 90 — 102% |  | 93 — 99% |
Dividends |  | 0.00% |  | 0.00% |  | 0.00% |
|  | Year ended December 31, 2009 |  | Year ended December 31, 2010 |  | Year ended December 31, 2011 |
Resulting weighted average grant date fair value |  | $ | 0.39 |  | $ | 1.40 |  | $ | 1.15 |
The expected term assumption was estimated using past history of early exercise behavior and expectations about future behaviors. Starting with the December 2010 annual grants to the Company’s employees, the Company relied exclusively on its historical volatility as an input to the option pricing model as management believes that this rate will be representative of future volatility over the expected term of the options. Before December 2010, due to the Company’s limited existence of being a public company, the expected volatility assumption has been based on the historical volatility of peer companies over the expected term of the option awards. Estimates of pre-vesting option forfeitures are based on the Company’s experience. Currently the Company uses a forfeiture rate of 0 — 50% depending on when and to whom the options are granted. The Company adjusts its estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures are recognized through a cumulative adjustment in the period of change and may impact the amount of compensation expense to be recognized in future periods. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. During the years ended December 31, 2009, 2010 and 2011, the Company recognized income of $0.5 million, an expense of $0.5 million, and an expense of approximately $38,000, respectively, as a result of revised forfeiture rates. The weighted average risk-free interest rate represents interest rate for treasury constant maturities published by the Federal Reserve Board. If the term of available treasury constant maturity instruments is not equal to the expected term of an employee option, Cyclacel uses the weighted average of the two Federal Reserve securities closest to the expected term of the employee option. The Company received approximately $3,000 from the exercise of 6,638 options during 2011. The Company received approximately $0.1 million from the exercise of 174,311 options during 2010. No income tax benefits were recorded because ASC 718 prohibits recognition of tax benefits for exercised stock options until such benefits are realized. As Cyclacel incurred tax losses in 2010 and 2011, the Company was not able to benefit from the deduction for exercised stock options in the current reporting period. Related to the workforce reduction in the second and third quarters of 2009, the Company amended the exercise period in which the employees would be able to exercise their vested stock options from thirty (30) days post termination date to nine months. In addition, the Company allowed the individuals to continue to vest stock options until November 18, 2009 as if they were still employed in recognition of past work. In accordance with ASC 718, the Company considered this a Type III modification and thus recorded stock-based compensation expense of $0.3 million during the second and third quarters of 2009. Restricted Stock In November 2008, the Company issued 50,000 shares of restricted common stock to an employee subject to certain forfeiture provisions. Specifically, one quarter of the award vests one year from the date of grant and 1/48 of the award effectively vests each month thereafter. This restricted stock grant was accounted for at fair value at the date of grant and an expense is recognized during the vesting term. As of December 31, 2011, the total remaining unrecognized compensation cost related to the non-vested restricted stock amounted to approximately $3,000, which will be amortized over the weighted-average remaining requisite service period of 0.88 years. Summarized information for restricted stock activity for the years ended December 31, 2010 and 2011 is as follows:
|  | Restricted Stock |  | Weighted Average Grant Date Value Per Share |
Non-vested at December 31, 2009 |  | 36,458 |  | $ | 0.44 |
Vested |  | (12,504 | ) | $ | 0.44 |
Non-vested at December 31, 2010 |  | 23,954 |  | $ | 0.44 |
Vested |  | (12,504 | ) | $ | 0.44 |
Non-vested at December 31, 2011 |  | 11,450 |  | $ | 0.44 |
Restricted Stock Units The Company issued 91,700 and 238,000 restricted stock units each of which entitles the holders to receive a share of the Company’s common stock, to senior executives of the Company in November 2008 and December 2011, respectively. The 2008 grants vest over four years and the 2011 grants vest over three years. A restricted stock unit grant is accounted for at fair value at the date of grant which is equivalent to the market price of a share of the Company’s common stock, and an expense is recognized over the vesting term. As of December 31, 2011, the total remaining unrecognized compensation cost related to non-vested restricted stock amounted to approximately $0.1 million, which will be amortized over the weighted-average remaining requisite service period of 2.78 years. In December 2011, the Company issued restricted stock units to senior executives of the Company. Summarized information for restricted stock units activity for the years ended December 31, 2010 and 2011 is as follows:
|  | Restricted Stock Units |  | Weighted Average Grant Date Value Per Share |
Non-vested at December 31, 2009 |  | 54,687 |  | $ | 0.44 |
Vested |  | (18,756 | ) | $ | 0.44 |
Non-vested at December 31, 2010 |  | 35,931 |  | $ | 0.44 |
Granted |  | 238,000 |  | $ | 0.83 |
Vested |  | (18,756 | ) | $ | 0.44 |
Non-vested at December 31, 2011 |  | 255,175 |  | $ | 0.80 |

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 93-6 -Paragraph 53 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 123R -Paragraph 64, 65, A240 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 + Details
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