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STOCK BASED COMPENSATION
 6 Months Ended
Jun. 30, 2013
STOCK BASED COMPENSATION  
STOCK BASED COMPENSATION

6. STOCK BASED COMPENSATION

 

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 solely on those shares that vest.

 

Stock based compensation has been reported within expense line items on the consolidated statement of operations for the three and six months ended June 30, 2012 and 2013 as shown in the following table (in $000s):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2012

 

2013

 

2012

 

2013

 

General and administrative

 

$

66

 

$

60

 

$

142

 

$

117

 

Research and development

 

16

 

14

 

33

 

29

 

Discontinued operations

 

27

 

—

 

36

 

—

 

Stock-based compensation costs before income taxes

 

$

109

 

$

74

 

$

211

 

$

146

 

 

2006 Plan

 

On March 16, 2006, the 2006 Plan was adopted, under which Cyclacel may make equity incentive grants to its officers, employees, directors and consultants. At the Company’s annual shareholder meeting on May 23, 2012, the stockholders approved and amended the number of shares reserved under the 2006 Plan to 1,428,571 shares of the Company’s common stock, up from 742,857 shares. Stock option awards granted under the 2006 Plan have a maximum life of 10 years and generally vest over a four-year period from the date of grant.

 

There were 235,000 and 32,697 options granted during the six months ended June 30, 2012 and 2013, respectively.

 

During the six months ended June 30, 2012, 77,062 options were exercised for proceeds of approximately $34,000. There were no stock options exercised during the six months ended June 30, 2013.

 

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 ($000)

 

Options outstanding at December 31, 2012

 

463,023

 

$

26.61

 

5.58

 

$

347

 

Granted

 

32,697

 

$

3.01

 

 

 

 

 

Exercised

 

—

 

$

—

 

 

 

 

 

Cancelled/forfeited

 

(8,001

)

$

17.10

 

 

 

 

 

Options outstanding at June 30, 2013

 

487,719

 

$

25.18

 

5.46

 

3

 

Unvested at June 30, 2013

 

85,606

 

$

6.47

 

8.78

 

—

 

Vested and exercisable at June 30, 2013

 

402,113

 

$

29.20

 

4.76

 

3

 

 

The fair value of the stock options granted is calculated using the Black-Scholes option-pricing model as prescribed by ASC 718.

 

The expected term assumption is estimated using past history of early exercise behavior and expectations about future behaviors

 

Estimates of pre-vesting option forfeitures are based on the Company’s experience. Currently the Company uses a forfeiture rate of 0 — 30% 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 six months ended June 30, 2012, the Company recognized an expense of approximately $1,000 as a result of revised forfeiture rates. There was no change in forfeiture rates during the six months ended June 30, 2013.

 

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.

 

Restricted Stock Units

 

The Company issued 85,974 and 85,097 restricted stock units to employees during the six months ended June 30, 2012 and 2013, respectively. 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. The 2013 restricted stock units will vest upon the fulfillment of certain clinical and financial conditions and will terminate if they have not vested by December 31, 2014. The Company determined that the satisfaction of the vesting criteria was not probable at June 30, 2013 and, as a result, did not record any expense related to these awards for the six months ended June 30, 2013.

 

Summarized information for restricted stock unit activity for the six months ended June 30, 2013 is as follows:

 

 

 

Restricted Stock
Units

 

Weighted Average
Grant
Date Value Per Share

 

Non-vested at December 31, 2012

 

39,377

 

$

5.34

 

Granted

 

85,097

 

$

5.71

 

Forfeited

 

(1,331

)

$

3.85

 

Non-vested at June 30, 2013

 

123,143

 

$

5.61