Equity | 12 Months Ended |
Dec. 31, 2014 |
Equity | |
Equity | |
15.Equity |
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Registered offering |
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On September 10, 2014 the Company completed a registered public offering (the “Offering”) of 3,692,000 Units (the “Units”), with each Unit consisting of one share of the Company’s common stock (the “Shares”) and a warrant to purchase .50 of a share of the Company’s common stock (the “Warrants”). Each Unit was priced at $0.86 per Unit, before discount to the underwriters. The Warrants become exercisable on March 11, 2015 at an exercise price of $1.21 per share and will expire on September 10, 2019, five years from the date of issuance. The Shares and the Warrants are immediately separable and were issued separately. The Company received net proceeds from the Offering of approximately $2.7 million after the underwriter commissions and expenses of approximately $0.5 million. |
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In arriving at the value of the Shares and Warrants the Company first valued and recorded the Warrants as a liability on the balance sheet as a result of anti-dilution clauses in the warrant agreements that could result in a resetting of the warrant exercise price in the event the Company were to issue additional shares of its common stock in a future transaction at a an offering price lower than the current exercise price of the warrants. A third party expert determined a value for the Warrants at September 4, 2014, the date prior to the announcement of the Offering, using a Monte Carlo simulation, which falls within Level 3 of the fair value hierarchy (see Note 13). The valuation model takes into account the probability that the Company could issue additional shares in a future transaction at a lower price than the current exercise price of the Warrants. Significant inputs to the valuation model included the Company’s closing stock price at September 4, 2014 of $1.01, the exercise price for the Warrants disclosed above, the Company’s stock volatility measured as of September 4, 2014, the applicable risk free interest rate of 1.6%, and the probability of an additional issuance of the Company’s common stock at a lower price than the current warrant exercise price. The fair value of the Warrants was determined to be $1.2 million, with the remaining $1.5 million of net proceeds from the Offering being allocated to additional paid in capital. |
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Private placement |
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On September 10, 2014 the Company also completed a private placement (the “Private Placement”) with The Sentient Group (“Sentient”), the Company’s largest stockholder, pursuant to which Sentient purchased, pursuant to Regulation S under the U.S. Securities Act of 1933, a total of 5,800,000 Units (the “Private Placement Units”), with each Private Placement Unit consisting of one share of the Company’s common stock and a warrant to purchase 0.50 of a share of the Company’s common stock. The Warrants become exercisable on March 11, 2015 at an exercise price of $1.21 per share and will expire on September 10, 2019, five years from the date of issuance. Each Private Placement Unit was priced at $0.817 the same discounted price paid by the underwriters in the Offering. The Company received net proceeds from the Private Placement of approximately $4.7 million after the discount and expenses of approximately $0.3 million. Following the completion of the Private Placement and the Offering, Sentient holds approximately 27.2% (on a non-diluted basis) of the Company’s outstanding common stock (excluding restricted common stock held by the Company’s employees). |
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In arriving at the value of the Shares and Warrants the Company first valued and recorded the Warrants as a liability on the balance sheet as a result of anti-dilution clauses in the warrant agreements that could result in a resetting of the warrant exercise price in the event the Company were to issue additional shares of its common stock in a future transaction at a an offering price lower than the current exercise price of the warrants. A third party expert determined a value for the Warrants at September 4, 2014, the date prior to the announcement of the Offering, using a Monte Carlo simulation, which falls within Level 3 of the fair value hierarchy (see Note 13). The valuation model takes into account the probability that the Company could issue additional shares in a future transaction at a lower price than the current exercise price of the Warrants. Significant inputs to the valuation model included the Company’s closing stock price at September 4, 2014 of $1.01, the exercise price for the Warrants disclosed above, the Company’s stock volatility measured as of September 30, 2014, the applicable risk free interest rate of 1.6%, and the probability of an additional issuance of the Company’s common stock at a lower price than the current warrant exercise price. The fair value of the Warrants was determined to be $1.9 million, with the remaining $2.7 million of net proceeds from the Offering being allocated to additional paid in capital. |
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Equity Incentive Plans |
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In May 2014, the Company’s stockholders approved amendments to the Company’s 2009 Equity Incentive Plan, adopting the Amended and Restated 2009 Equity Incentive Plan (the “Equity Plan”), pursuant to which awards of the Company’s common stock may be made to officers, directors, employees, consultants and agents of the Company and its subsidiaries. The Company recognizes stock-based compensation costs using a graded vesting attribution method whereby costs are recognized over the requisite service period for each separately vesting portion of the award. |
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The following table summarizes the status of the Company’s restricted stock grants issued under the Equity Plan at December 31, 2014 and 2013 and changes during the years then ended: |
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| | The Year Ended December 31, | |
| | 2014 | | 2013 | |
Restricted Stock Grants | | Number of | | Weighted | | Number of | | Weighted | |
Shares | Average | Shares | Average |
| Grant Date | | Grant Date |
| Fair Value | | Fair Value |
| Per Share | | Per Share |
Outstanding at beginning of year | | 915,971 | | $ | 2.47 | | 823,500 | | $ | 5.67 | |
Granted during the year | | 140,000 | | 0.52 | | 637,000 | | 0.76 | |
Restrictions lifted during the year | | (455,133 | ) | 3.18 | | (200,029 | ) | 6.54 | |
Forfeited during the year | | — | | — | | (344,500 | ) | 4.6 | |
Outstanding at end of year | | 600,838 | | $ | 1.48 | | 915,971 | | $ | 2.47 | |
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In connection with performance and reductions in work force, the Company’s Compensation Committee and Board of Directors approved a 10% annual salary reduction effective June 1, 2013 for certain officers of the Company. In conjunction with the salary reduction, to be in effect for one year, the Compensation Committee approved a grant of an aggregate of 149,500 restricted shares to the officers effective June 1, 2013. The stock vested one year from the grant date. In addition, 2,500 shares of restricted stock were granted to a new employee hired during the period. One third of the restricted stock granted to the employee vests on each of the first, second and third anniversaries of the grant dates, provided the employee continues to serve the Company at that time. The remaining 485,000 shares were granted to officers during December 2013 as a portion of their annual compensation. One third of the December 2013 restricted stock grants will vest on each of the first, second and third anniversaries of the grant dates, provided the officer continues to serve the Company at that time. |
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Restrictions were lifted on 444,633 shares during the year ended December 31, 2014 on the anniversaries of grants made to officers and employees in prior years and restrictions were lifted on an additional 10,500 shares during 2014 in connection with the termination of employment of two employees. Restrictions were lifted on 187,629 shares during the year ended December 31, 2013 on the anniversaries of grants made to officers and employees in prior years and restrictions were lifted on an additional 12,400 shares during 2013 related to an employee’s retirement. |
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Included in the forfeitures for 2013 are 199,500 unvested shares related to the resignation of two officers of the Company during the year. Also, included in the forfeitures for 2013 are 145,000 unvested shares that were surrendered to the Company on December 13, 2013 by an officer of the Company. The surrender is the result of the determination by the Board of Directors of the Company that the officer had been granted shares of common stock during 2012 in excess of the 150,000 share limit per the Equity Plan on grants to any one individual in one calendar year. In addition the officer also surrendered 27,500 vested shares that were granted in 2010 and vested in 2011 that were also determined to be in excess of the 150,000 share limit. Per the terms of a Stock Surrender and Grant Agreement entered into on December 13, 2013 with the officer, the officer was granted 172,500 KELTIP Units (see Note 10). |
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For the years ended December 31, 2014 and 2013 the Company recognized approximately $0.5 million and $1.0 million, respectively, of compensation expense related to the restricted stock grants. The Company expects to recognize additional compensation expense related to these awards of approximately $0.2 million over the next 35 months. |
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The following table summarizes the status of the Company’s stock option grants issued under the Equity Plan at December 31, 2014 and 2013 and changes during the years then ended: |
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| | The Year Ended December 31, | |
| | 2014 | | 2013 | |
Equity Plan Options | | Number of | | Weighted | | Number of | | Weighted | |
Shares | Average Grant | Shares | Average |
| Date Fair | | Grant Date |
| Value Per | | Fair Value |
| Share | | Per Share |
Outstanding at beginning of year | | 110,810 | | $ | 8.02 | | 118,810 | | $ | 8.02 | |
Granted during the year | | — | | — | | — | | — | |
Restrictions lifted during the year | | — | | — | | — | | — | |
Forfeited during the year | | (15,000 | ) | $ | 8 | | (8,000 | ) | $ | 8 | |
Outstanding at end of year | | 95,810 | | $ | 8.02 | | 110,810 | | $ | 8.02 | |
Exercisable at end of period | | 95,810 | | $ | 8.02 | | 110,810 | | $ | 8.02 | |
Granted and vested | | 95,810 | | $ | 8.02 | | 110,810 | | $ | 8.02 | |
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The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model using the assumptions noted in the following table. Expected volatilities are based on the historical volatilities of the Company’s shares. The Company uses historical data to estimate option exercises and forfeitures within the Black-Scholes model. The expected term of the options granted represents the period of time that options granted are expected to be outstanding, based on past experience and future estimates and includes data related to both employees directors. The risk-free rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company currently does not foresee the payment of dividends in the near term. |
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| | Grant Date | | | | | | | | | |
| | April 12 | | | | | | | | | |
| | 2010 | | | | | | | | | |
Expected volatility | | 73.20 | % | | | | | | | | |
Weighted average volatility | | 73.20 | % | | | | | | | | |
Expected dividend yield | | — | | | | | | | | | |
Expected term (in years) | | 5 | | | | | | | | | |
Risk-free rate | | 1.50 | % | | | | | | | | |
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The options that expired during 2014 were options issued to former ECU stock option holders to replace options previously issued to them by ECU. |
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Also, pursuant to the Equity Plan, the Company’s Board of Directors adopted the Non-Employee Director’s Deferred Compensation and Equity Award Plan (the “Deferred Compensation Plan”). Pursuant to the Deferred Compensation Plan the non-employee directors receive a portion of their compensation in the form of Restricted Stock Units (“RSUs”) issued under the Equity Plan. The RSUs vest on the first anniversary of the grant and each vested RSU entitles the director to receive one unrestricted share of common stock upon the termination of the director’s board service. |
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The following table summarizes the status of the RSU grants issued under the Deferred Compensation Plan at December 31, 2014 and 2013 and changes during the years then ended: |
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| | For the Year Ended December 31, | |
| | 2014 | | 2013 | |
Restricted Stock Units | | Number of | | Weighted | | Number of | | Weighted | |
Underlying | Average Grant | Underlying | Average |
Shares | Date Fair Value | Shares | Grant Date |
| Per Share | | Fair Value |
| | | Per Share |
Outstanding at beginning of year | | 585,285 | | $ | 2.97 | | 143,995 | | $ | 7.21 | |
Granted during the year | | 350,000 | | 0.58 | | 441,290 | | 1.59 | |
Restrictions lifted during the year | | — | | — | | — | | — | |
Forfeited during the year | | — | | — | | — | | — | |
Outstanding at end of year | | 935,285 | | $ | 2.08 | | 585,285 | | $ | 2.97 | |
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For the years ended December 31, 2014 and 2013 the Company recognized approximately $0.4 million and $0.6 million, respectively, of compensation expense related to the RSU grants. The Company expects to recognize additional compensation expense related to the RSU grants of approximately $0.1 million over the next six months. |
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Pursuant to the KELTIP (see Note 10) KELTIP Units may be granted to certain officers and key employees of the Company, which units will, once vested, entitle such officers and employees to receive an amount in cash or in Company common stock measured generally by the price of the Company’s common stock on the settlement date. The KELTIP Units are recorded as a liability as discussed in detail in Note 10. |
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Common stock warrants |
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The following table summarizes the status of the Company’s common stock warrants at December 31, 2014 and December 31, 2013 and changes during the years then ended: |
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| | For the Year Ended December 31, | |
| | 2014 | | 2013 | |
Common Stock Warrants | | Number of | | Weighted Average | | Number of | | Weighted | |
Underlying | Exercise Price Per | Underlying Shares | Average Exercise |
Shares | Share | | Price Per Share |
Outstanding at beginning of year | | 5,263,578 | | $ | 12.1 | | 5,263,578 | | $ | 12.1 | |
Granted during period | | 4,746,000 | | 1.21 | | — | | — | |
Dilution adjustment | | 599,760 | | 7.17 | | — | | — | |
Expired during period | | (1,831,929 | ) | 19 | | — | | — | |
Exercised during period | | — | | — | | — | | — | |
Outstanding at end of year | | 8,777,409 | | $ | 3.95 | | 5,263,578 | | $ | 12.1 | |
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The warrants granted during the period are related to the Offering and Private Placement of the Company’s securities completed on September 10, 2014 as discussed above. |
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In September 2012, the Company closed on a registered offering and concurrent private placement with Sentient in which it sold units, consisting of one share of common stock and a five-year warrant to acquire one half of a share of common stock at an exercise price of $8.42 per share (the “September 2012 Warrants”). Pursuant to certain dilution adjustment provisions in the warrant agreement governing the September 2012 Warrants, the number of shares of common stock issuable upon exercise of the September 2012 Warrants was increased from 3,431,649 shares to 4,031,409 shares (599,760 share increase) and the exercise price was reduced from $8.42 per share to $7.17 per share pursuant to a weighted average dilution calculation based on the pricing of the Offering and the Private Placement. |
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The warrants that expired during 2014 were warrants related to the merger with ECU on September 2, 2011 and were issued to former ECU warrant holders to replace warrants previously issued to them by ECU. |
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The warrants issued in September 2012 and September 2014 are being recorded as a liability on the balance sheet as a result of anti-dilution clauses in the warrant agreements that could result in a resetting of the warrant exercise price in the event the Company were to issue additional shares of its common stock in a future transaction at a an offering price lower than the current exercise price of the warrants. At December 31, 2014 the total liability for the warrants was $1.6 million, consisting of $1.5 million for 2014 warrants and $0.1 million for the 2012 warrants. The warrant liability has been recorded at fair value as of December 31, 2014 based primarily on a valuation performed by a third party expert using a Monte Carlo simulation, which falls within Level 3 of the fair value hierarchy. The valuation model takes into account the probability that the Company could issue additional shares in a future transaction at a lower price than the current exercise price of the warrants. Significant inputs to the valuation model included the Company’s closing stock price at December 31, 2014 of $0.54, the exercise prices for the warrants disclosed above, the Company’s stock volatility of 90%, the applicable risk free interest rate of 1.6%, and the probability of an additional issuance of the Company’s common stock at a lower price than the current warrant exercise price. The balances for warrant liability, paid-in capital, and accumulated earnings also reflect an adjustment made during 2014 to reflect the impact of recording the 2012 warrants as a liability. Paid in capital and accumulated deficit were reduced by $15.6 million $15.5 million respectively and warrant liability was increased by $0.2 million. The adjustments were determined to be immaterial to the Company’s financial statements filed in prior periods. |
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