Stockholders' Equity | 4. Stockholders’ Equity On May 11, 2015, the Company completed an underwritten offering of 23,000,000 shares of its common stock at a price to the public of $2.00 per share. The Company received net proceeds of approximately $42.8 million after deducting underwriting discounts, commissions and offering expenses paid by the Company. The Company intends to use the net proceeds from the offering for general corporate purposes including business development, in-licensing and acquisitions. The Company’s 2008 Equity Compensation Plan (the “Plan”) allows for grants in the form of incentive stock options, nonqualified stock options, stock units, stock awards, stock appreciation rights, and other stock-based awards. All of the Company’s officers, directors, employees, consultants and advisors are eligible to receive grants under the Plan. The maximum number of shares authorized for issuance under the Plan is 21,000,000 and the maximum number of shares of stock that may be granted to any one participant during a calendar year is 1,000,000 shares. Options to purchase shares of common stock are granted at exercise prices not less than 100% of fair market value on the dates of grant. The term of each option is ten years and the options typically vest in quarterly installments over a three-year period. As of June 30, 2015, the Plan had 365,599 shares available for grant. Stock Options A summary of stock option activity under the Plan as of June 30, 2015, and the changes during the six months then ended is as follows: Number of Shares Weighted Weighted Average Aggregate Outstanding at December 31, 2014 7,245,485 2.25 Granted 2,801,510 2.23 Exercised — — — Cancelled/Forfeited (170,754 ) 3.19 Outstanding at June 30, 2015 9,876,241 2.22 7.2 2,818,000 Exercisable at June 30, 2015 5,657,117 2.04 5.4 2,818,000 The per share weighted average fair values of all options granted during the first half of 2015 and 2014 were estimated as $1.10 and $3.08, respectively, on the date of grant using the Black-Scholes option pricing model based on the assumptions noted in the table below. Expected volatilities are based on the historical volatility of the Company’s stock price. The weighted average expected life is based on both historical and anticipated employee behavior. June 30, 2015 2014 Risk-free interest rate 1.3 % 1.7 % Annualized volatility 53.8 % 62.0 % Weighted average expected life, in years 6.0 6.0 Expected dividend yield 0.0 % 0.0 % There were no stock option exercises in the first six months of 2015. In the first six months of 2014, 699,678 stock options with a weighted average exercise price of $1.24 were exercised which generated proceeds of $870,726 to the Company. Total recognized compensation expense for stock options was $1,411,005 and $807,727 for the first six months of 2015 and 2014, respectively and totaled $770,214 and $447,831 for the three month periods ended June 30, 2015 and 2014, respectively. As of June 30, 2015, there was $4,557,345 of total unrecognized compensation cost related to nonvested outstanding stock options that is expected to be recognized over a weighted average period of approximately 2.16 years. Long Term Incentive Program (LTIP) The Company’s Board of Directors has approved a long term incentive program (“LTIP”) for the benefit of the Company’s senior executives. Pursuant to the LTIP, the Company’s senior executives have been awarded stock options, restricted stock units (“RSU”) and performance stock units (“PSU”) with targeted values based on values granted by the Company’s peer group. The stock options have a ten-year term, have an exercise price equal to the closing price of the Company’s common stock on the date of grant, vest in quarterly installments over three years, were otherwise granted on the same standard terms and conditions as other stock options granted pursuant to the Plan and are included in the stock options table above. The RSUs vest in three equal annual installments. The PSU awards made to the senior executives vest and convert into shares of the Company’s common stock based on the Company’s attainment of certain performance goals over a performance period of three years. The performance stock unit awards and restricted stock unit awards granted under the long term incentive program are summarized in the following table: Performance Stock Units Restricted Stock Number of Weighted Number of Weighted Outstanding at December 31, 2014 463,542 3.08 231,124 3.07 Granted 664,391 2.09 664,391 2.18 Vested — (80,781 ) 3.11 Forfeited/Expired (40,453 ) 3.09 (13,485 ) 3.09 Outstanding at June 30, 2015 1,087,480 2.59 801,249 2.33 In 2015 and 2014, the LTIP awards include PSUs that will be earned based on the Company’s total shareholder return (“TSR”) as compared to the Nasdaq Biotechnology Index (“NBI”) at the end of the performance period, which performance period is January 1, 2014 to December 31, 2016 for the 2014 award and January 1, 2015 to December 31, 2017 for the 2015 award. Depending on the outcome of the performance goal, a recipient may ultimately earn a number of shares greater or less than their target number of shares granted, ranging from 0% to 150% of the PSUs granted. The fair values of the TSR PSUs granted in May 2015 and 2014 was determined using a Monte Carlo simulation and utilized the following inputs and assumptions: 2015 2014 Closing stock price on grant date $ 2.18 $ 3.09 Performance period starting price $ 2.57 $ 4.08 Term of award (in years) 2.59 2.59 Volatility 60.45 % 50.87 % Risk-free interest rate 0.83 % 0.61 % Expected dividend yield 0.00 % 0.00 % Fair value per TSR PSU $ 1.71 $ 2.64 The performance period starting price is measured as the average closing price over the last 20 trading days prior to the performance period start. The Monte Carlo simulation model also assumed correlations of returns of the prices of the Company’s common stock and the common stocks of the NBI companies and stock price volatilities of the NBI companies. The fair value of the target number of shares that can be earned under the TSR PSUs is being recognized as compensation expense over the performance period. Total compensation expense recognized in connection with PSU awards totaled $62,638 in the first six months of 2015. The Company recognized a net expense reduction of $47,955 in the first six months of 2014 due to the forfeiture of PSU awards in connection with the departure of the former CEO. Compensation expense recognized in the first six months of 2015 and 2014 in connection with the RSUs was $177,275 and $100,752, respectively. Shares issued in connection with PSU and RSU awards that vested in the first half of 2015 and 2014 were net-share settled such that the Company withheld shares with a value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld to satisfy tax obligations were 29,914 and 38,768 in the six months ended June 30, 2015 and 2014, respectively, and were based on the fair value of the shares on their vesting date as determined by the Company’s closing stock price. Total payments for the employees’ tax obligations to the taxing authorities were $67,924 and $154,397 in the six months ended June 30, 2015 and 2014, respectively, and are reflected as a financing activity within the consolidated statements of cash flows. These net-share settlements had the effect of share repurchases by the Company as they reduced the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company. Warrants In the first six months of 2014, the Company received proceeds of $545,000 from the exercise of 545,000 warrants. There were no warrants outstanding at June 30, 2015 or December 31, 2014. Stock Awards At times, the Company makes discretionary grants of its common stock to members of management and other employees in lieu of cash bonus awards or in recognition of special achievements. There were no discretionary grants of common stock in the first six months of 2015. In the first six months of 2014, there were 150,000 shares of common stock granted to members of executive management as bonus compensation for achievements in 2013. In addition to the shares granted to members of management and employees, at times directors receive a portion of their annual compensation in shares of Company common stock. In 2015 and 2014, no shares were granted to the directors, as all directors’ compensation was paid in cash and stock options. Expense is recognized on a straight line basis over the one-year period in which the compensation is earned. Expense recognized in connection with shares granted to directors in 2013 was $163,456 and $343,073 for the three and six month periods ended June 30, 2014, respectively. |