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Stock-Based Compensation Arrangements | 12 Months Ended
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Dec. 31, 2014
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. 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 2013 and 2014 as shown in the following table (in $000s):
|  | Year Ended December 31, 2013 |  |  | Year Ended December 31, 2014 |
Research and development |  | $ | 75 |  |  | $ | 392 |
General and administrative |  |  | 282 |  |  |  | 831 |
Stock-based compensation costs before income taxes |  | $ | 357 |  |  | $ | 1,223 |
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. Stock option awards granted under the 2006 Plan have a maximum life of 10 years and generally vest over a one to four-year period from the date of grant. During 2014, the Company granted approximately 63,000 options to employees and directors with a grant date fair value of approximately $0.2 million, of which approximately $0.1 million has been recorded as compensation cost for the year ended December 31, 2014. During 2013, 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. The weighted average grant-date fair values of options granted during the year ended December 31, 2013 and 2014 were $3.25 and $2.48, respectively. As of December 31, 2014, the total remaining unrecognized compensation cost related to the non-vested stock options amounted to approximately $0.9 million, which will be amortized over the weighted-average remaining requisite service period of 1.89 years. During the years ended December 31, 2013 and 2014, the Company did not settle any equity instruments with cash. There were no stock option exercises during the years ended 2013 and 2014. No income tax benefits were recorded for the years ended December 2013 and 2014 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, 2013 and 2014 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, 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 |
Granted |  |  | 63,000 |  |  | $ | 3.11 |  |  |  |  |  |  |  |  |
Exercised |  |  | — |  |  |  |  |  |  |  |  |  |  |  |  |
Cancelled/forfeited |  |  | (2,387 | ) |  | $ | 31.08 |  |  |  |  |  |  |  |  |
Options outstanding at December 31, 2014 |  |  | 1,010,298 |  |  | $ | 14.24 |  |  |  | 6.58 |  |  | $ | — |
Unvested at December 31, 2014 |  |  | 402,900 |  |  | $ | 4.07 |  |  |  | 8.95 |  |  | $ | — |
Vested and exercisable at December 31, 2014 |  |  | 607,395 |  |  | $ | 20.99 |  |  |  | 5.00 |  |  | $ | — |
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, 2013 |  | Year ended December 31, 2014
Expected term (years) |  | 5 —6 |  | 6
Risk free interest rate |  | 0.84% - 1.865% |  | 1.835% - 2.005%
Volatility |  | 97—108% |  | 101%
Expected dividend yield over expected term |  | 0.00% |  | 0.00%
Resulting weighted average grant date fair value |  | $3.25 |  | $2.48
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, 2013 and 2014, the Company recognized an expense of approximately $40,000 and $0.5 million, 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 85,097 restricted stock units to employees during the year ended December 31, 2013, the vesting of which is dependent upon the fulfillment of certain clinical and financial conditions. The Company determined that the satisfaction of the clinical and financial conditions was probable at December 31, 2014 and, as a result, recorded an expense of $0.5 million related to 80,969 restricted stock units, net of forfeitures, for the year ended December 31, 2014. The restricted stock units were valued based on the fair value at the date of grant, which is equivalent to the market price of a share of the Company’s common stock. The expense was recognized entirely in the fourth quarter of 2014 as the awards both became probable of vesting, and actually vested, in that quarter. Summarized information for restricted stock units activity for the years ended December 31, 2013 and 2014 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 |  |  | (5,226 | ) |  | $ | 5.00 |
Non-vested at December 31, 2013 |  |  | 119,248 |  |  | $ | 5.62 |
Granted |  |  | — |  |  | $ | — |
Vested |  |  | (29,999 | ) |  | $ | 5.81 |
Forfeited |  |  | (233 | ) |  | $ | 5.39 |
Non-vested at December 31, 2014 |  |  | 89,016 |  |  | $ | 5.56 |

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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 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 2: 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 Reference 3: 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 4: 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 5: 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 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 + Details
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