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Stock-Based Compensation Arrangements
 12 Months Ended
Dec. 31, 2013
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 three to four years. 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 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 2011, 2012 and 2013 as shown in the following table (in $000s):

 

    Year ended
December 31,
2011		     Year ended
December 31,
2012		     Year ended
December 31,
2013		  
                   
Research and development   $ 171     $ 71     $ 75  
General and administrative     669       266       282  
Net (loss) income from discontinued operations     42       43       —  
Stock-based compensation costs before income taxes   $ 882     $ 380     $ 357  

 

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. 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 10,000,000 shares of the Company’s common stock, up from 5,200,000 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.

 

The Company granted approximately 494,663 options to employees and directors with a grant date fair value of approximately $1.6 million, of which approximately $0.4 million has been recorded as compensation cost in the consolidated statement of operations for the year ended December 31, 2013. During 2012, the Company granted approximately 33,571 options to employees and directors with a grant date fair value of approximately $0.1 million, of which approximately $12,000 has been recorded as compensation cost for the year ended December 31, 2012. During 2011, the Company granted approximately 28,500 options to employees and directors with a grant date fair value of approximately $0.2 million, of which approximately $24,000 was expensed during the year ended December 31, 2011. The weighted average grant-date fair values of options granted during the year ended December 31, 2011, 2012, and 2013 were $8.05, $2.52, and $3.25, respectively.

 

As of December 31, 2013, the total remaining unrecognized compensation cost related to the non-vested stock options amounted to approximately $1.5 million, which will be amortized over the weighted-average remaining requisite service period of 2.83 years.

 

During the years ended December 31, 2011, 2012 and 2013, the Company did not settle any equity instruments with cash.

 

There were no stock option exercises during 2013. The Company received $0.1 million from the exercise of 33,351 options during 2012. The total intrinsic value of options exercised during 2012 was approximately $0.1 million. The Company received $3,000 from the exercise of 948 stock options during 2011. The total intrinsic value of options exercised during 2011 was approximately $7,000. No income tax benefits were recorded for the years ended December 2011, 2012 and 2013 because ASC 718 prohibits recognition of tax benefits for exercised stock options until such benefits are realized. The Company was not able to benefit from the deduction for exercised stock options for the years ended December 31, 2011, 2012 and 2013 because the Company incurred tax losses in each of those years.

 

Outstanding Options

 

A summary of the share option activity and related information is as follows:

 

    Number of
Options
Outstanding		     Weighted
Average
Exercise
Price Per Share		     Weighted
Average
Remaining
Contractual
Term (Years)		     Aggregate
Intrinsic
Value ($000s)		  
Options outstanding at December 31, 2011     502,249     $ 26.11       6.44     $ 140  
Granted     33,571     $ 3.29                  
Exercised     (33,351 )   $ 3.09                  
Cancelled/forfeited     (39,446 )   $ 20.21                  
Options outstanding at December 31, 2012     463,023     $ 26.61       5.58     $ 347  
Granted     494,663     $ 4.22                  
Exercised     —                          
Cancelled/forfeited     (8,001 )   $ 18.55                  
Options outstanding at December 31, 2013     949,685     $ 15.02       7.38     $ 152  
Unvested at December 31, 2013     528,754     $ 4.49       9.76     $ 50  
Vested and exercisable at December 31, 2013     420,931     $ 28.25       4.40     $ 101  

 

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,
2011		   Year ended
December 31,
2012		   Year ended
December 31,
2013
Expected term (years)   5 — 6   6   5 —6
Risk free interest rate   1.47 — 2.29%   0.95%   0.84% - 1.865%
Volatility    93 — 99%   98%   97—108%
Expected dividend yield over expected term   0.00%   0.00%   0.00%
Resulting weighted average grant date fair value   $8.05   $2.52   $3.25

 

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.

 

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 years ended December 31, 2011, 2012 and 2013, the Company recognized an expense of $0.2 million, income of approximately $0.1 million, and expense of approximately $40,000, 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.

 

Restricted Stock Units

 

The Company issued 34,000 and 12,281 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 December 2011, and to employees in January 2012 and February 2012. The 2011 and 2012 grants vest over three years. The Company issued 85,097 restricted stock units to employees during the year end December 31, 2013. 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 December 31, 2013 and, as a result, did not record any expense related to these awards for the year ended December 31, 2013. 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, 2013, the total remaining unrecognized compensation cost related to the non-vested restricted stock amounted to $0.1 million, which will be amortized over the weighted-average remaining requisite service period of 1.06 years. Summarized information for restricted stock units activity for the years ended December 31, 2012 and 2013 is as follows:

 

    Restricted Stock
Units		     Weighted Average
Grant
Date Value Per Share		  
Non-vested at December 31, 2011     36,463     $ 5.60  
Granted     12,281     $ 3.85  
Forfeited     (6,904 )   $ 4.99  
Vested     (2,463 )   $ 3.08  
Non-vested at December 31, 2012     39,377     $ 5.34  
Granted     85,097     $ 5.71  
Forfeited     (5,226 )   $ 5.00  
Non-vested at December 31, 2013     119,248     $ 5.62