Share-Based Compensation | 12 Months Ended |
Dec. 31, 2013 |
Share-Based Compensation | ' |
Share-Based Compensation | ' |
3. Share-Based Compensation |
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Share-based payments include stock option grants and, beginning in October 2013, RSUs under the Company’s stock option and equity incentive plans and deferred compensation arrangements for the Company’s non-employee directors. |
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The Company has granted and continues to grant to employees and non-employee directors options to purchase common stock under various plans, including the GTx, Inc. 2013 Equity Incentive Plan (the “2013 EIP”) and the GTx, Inc. 2013 Non-Employee Director Equity Incentive Plan (the “2013 NEDEIP”). On May 2, 2013, the Company’s stockholders approved the 2013 EIP and the 2013 NEDEIP, each of which became effective on that date. The 2013 EIP is the successor to the Company’s 2004 Equity Incentive Plan (the “2004 EIP”), and the 2013 NEDEIP is the successor to the Company’s Amended and Restated 2004 Non-Employee Directors’ Stock Option Plan (the “2004 NEDSOP”). The total number of shares of the Company’s common stock available for issuance under the 2013 EIP was initially 4,208,157 shares plus up to an additional 6,093,559 shares subject to outstanding awards granted under the 2004 EIP and each of the Genotherapeutics, Inc. Stock Option Plan, the GTx, Inc. 2000 Stock Option Plan, the GTx, Inc. 2001 Stock Option Plan and the GTx, Inc. 2002 Stock Option Plan (collectively, the “Prior Plans”) that, from and after the effective date of the 2013 EIP, expire or terminate for any reason prior to exercise or settlement, are forfeited because of the failure to vest in those shares or are otherwise returned to the 2013 EIP share reserve pursuant to the terms of the plan. In addition, the shares of the Company’s common stock available for issuance under the 2013 EIP will automatically increase on January 1st of each year, for ten years, commencing on January 1, 2014, in an amount equal to 4% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, or such lesser (or no) amount as may be approved by the Company’s Board of Directors. The total number of shares of the Company’s common stock available for issuance under the 2013 NEDEIP was initially 404,000 shares plus up to an additional 449,667 shares subject to outstanding awards granted under the 2004 NEDSOP that, from and after the effective date of the 2013 NEDEIP, expire or terminate for any reason prior to exercise or settlement, are forfeited because of the failure to vest in those shares or are otherwise returned to the 2013 NEDEIP share reserve pursuant to the terms of the plan. In addition, the shares of the Company’s common stock available for issuance under the 2013 NEDEIP will automatically increase on January 1st of each year, for ten years, commencing on January 1, 2014, in an amount equal to the lesser of 1% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year and 500,000 shares, or such lesser (or no) amount as may be approved by the Company’s Board of Directors. From and after the effective date of 2013 EIP and the 2013 NEDEIP, no further awards will be made under the Prior Plans and the 2004 NEDSOP. Stock options previously granted under the Prior Plans and the 2004 NEDSOP continue to be governed by the terms of the applicable plan. The 2013 EIP provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, RSU awards, other stock awards, and performance awards that may be settled in cash, stock, or other property. The 2013 NEDEIP provides for the grant of nonstatutory stock options, stock appreciation rights, restricted stock awards, RSU awards, other stock awards, and performance awards that may be settled in cash, stock, or other property. |
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Options granted under the 2013 EIP and the 2013 NEDEIP, and prior to May 2, 2013, the Prior Plans and the 2004 NEDSOP, are granted at prices equal to the fair market value of the stock on the dates the options are granted as determined in accordance with the terms of the applicable plan. The options have a term of ten years from the grant date and generally vest over three years from the grant date for director options and over periods of up to five years from the grant date for employee options. Under the terms of the Company’s stock option and equity incentive plans, employees generally have three months after the employment relationship ends to exercise all vested options except in the case of voluntary retirement, disability or death, where post-termination exercise periods are generally longer. As described below, however, certain of the Company’s outstanding options were modified to provide an extended post-termination exercise period. The Company issues new shares of common stock upon the exercise of options. The Company estimates the fair value of certain stock option awards as of the date of the grant by applying the Black-Scholes-Merton option pricing valuation model. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense. |
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The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date. The amount of share-based compensation expense recognized is reduced ratably over the vesting period by an estimate of the percentage of options granted that are expected to be forfeited or canceled before becoming fully vested. |
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The Company estimates the fair value of RSUs using the closing price of its stock on the grant date. The fair value of RSUs is amortized on a straight-line basis over the requisite service period of the awards. |
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As part of the October 2013 workforce reduction, the Company modified stock options of the terminated employees to accelerate the vesting of certain outstanding non-vested stock options and to extend the post-termination exercise period of their vested stock options. The terminated employees’ stock options were modified to accelerate the vesting of all outstanding and unvested stock options as if an employee had remained in continuous service as an employee of the Company through January 1, 2014. Further, the Company extended the post-termination exercise period of each terminated employee’s outstanding and vested options until the earliest to occur of (i) June 1, 2014, (ii) the expiration of the original term of the particular option, and (iii) a change of control of the Company (as defined in the applicable form of award agreement). |
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As part of the Company’s efforts to retain the essential employees continuing with the Company following the October 2013 workforce reduction, the Company modified certain stock options held by continuing employees to accelerate the vesting of certain outstanding non-vested stock options and to extend the post-termination exercise period of vested stock options. For these continuing employees, each of their outstanding stock options was modified to provide that if the employee’s service continues through the earlier to occur of (i) the end of business on May 31, 2014, and (ii) an involuntary termination of employment by the Company (excluding a termination for cause (as defined in the applicable form of retention benefits agreement) or a voluntary resignation) (the “Determination Date”), then, as of the Determination Date: (i) an additional number of shares subject to such option will immediately vest as if the employee’s service had continued through January 1, 2015 and (ii) the period during which the vested portion of such options will generally expire will be extended from 90 days to six months after the employee’s termination of service, subject in each case to the earlier expiration of the original term of the applicable stock option award. |
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Additionally, effective October 1, 2013, the Compensation Committee approved a grant of stock options and RSUs under the 2013 EIP to the continuing employees. Both the options granted and the RSUs vest in full on the earlier to occur of (i) June 1, 2014, (ii) an involuntary termination of the award holder’s continuous service by the Company other than for cause (as defined in the applicable form of award agreement) and (iii) a change of control of GTx (as defined in the applicable form of award agreement), except that vesting will not occur in the event of a voluntary resignation or involuntary termination for cause occurring prior to any of these events. |
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The following table summarizes share-based compensation expense included within the statements of operations for each of the three years in the period ended December 31, 2013: |
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| | Years Ended December 31, | | | | |
| | 2013 | | 2012 | | 2011 | | | | |
Research and development expenses | | $ | 1,875 | | $ | 1,046 | | $ | 1,972 | | | | |
General and administrative expenses | | 1,993 | | 1,771 | | 2,432 | | | | |
Total share-based compensation | | $ | 3,868 | | $ | 2,817 | | $ | 4,404 | | | | |
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Share-based compensation expense recorded in the statement of operations as general and administrative expense for the years ended December 31, 2013, 2012 and 2011 included share-based compensation expense related to deferred compensation arrangements for the Company’s non-employee directors of $135, $169 and $178, respectively. See Note 10, Directors’ Deferred Compensation Plan, for further discussion of deferred compensation arrangements for the Company’s non-employee directors. |
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As a result of the October 2013 modifications of certain stock options held by terminated employees, the Company recognized a net benefit of approximately $370 resulting from the reversal of previously recognized share-based compensation expense that was in excess of the modified fair value of the options. Of this amount, $81 was included as a benefit to general and administrative expenses and $289 was included as a benefit to research and development expenses for the year ended December 31, 2013. Additionally, share-based compensation expense for the year ended December 31, 2013 included expense related to the amortization of RSUs which were granted in the fourth quarter of 2013. The modifications of certain stock options held by the Company’s continuing employees did not have a material impact on share-based compensation expense recognized during the period. |
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Share-based compensation expense recorded as research and development expenses for the year ended December 31, 2012 was reduced by the reversal of previously recognized share-based compensation expense for non-vested stock options that were canceled in conjunction with the resignation of an executive officer during the year. |
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As part of a June 2011 workforce reduction, the Company modified certain stock options of three terminated non-executive officers to accelerate the vesting of certain outstanding non-vested stock options and to extend the post-termination exercise period of their vested stock options. As a result of these modifications, the Company incurred a one-time share-based compensation charge of $481, which was included in general and administrative expenses for the year ended December 31, 2011. This charge was offset by the reversal of $704 of previously recognized share-based compensation expense for non-vested stock options that were canceled in conjunction with the total workforce reduction. Of this amount, $646 was included in general and administrative expenses and $58 was included in research and development expenses for the year ended December 31, 2011. |
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Additionally, share-based compensation expense of $137 included in the table above as general and administrative expenses was reported as discontinued operations in the statement of operations for the year ended December 31, 2011. There was no share-based compensation expense included in discontinued operations for the years ended December 31, 2013 or 2012. |
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For the years ended December 31, 2013, 2012 and 2011, the weighted average grant date fair value per share of options granted was $2.13, $2.14 and $1.75, respectively. The weighted average for key assumptions used in determining the grant date fair value of options granted in 2013, 2012 and 2011, and a summary of the methodology applied to develop each assumption is as follows: |
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| | Years Ended December 31, | | | | | | | |
| | 2013 | | 2012 | | 2011 | | | | | | | |
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Expected price volatility | | 82.9 | % | 69.6 | % | 64.9 | % | | | | | | |
Risk-free interest rate | | 1.27 | % | 1.22 | % | 2.54 | % | | | | | | |
Weighted average expected life in years | | 5.9 years | | 6.5 years | | 6.5 years | | | | | | | |
Dividend yield | | 0 | % | 0 | % | 0 | % | | | | | | |
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Expected Price Volatility - This is a measure of the amount by which a price has fluctuated or is expected to fluctuate. The Company based its determination of expected volatility on its historical stock price volatility. An increase in the expected price volatility will increase compensation expense. |
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Risk-Free Interest Rate - This is determined using U.S. Treasury rates where the term is consistent with the expected life of the stock options. An increase in the risk-free interest rate will increase compensation expense. |
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Expected Life - This is the period of time over which the options granted are expected to remain outstanding and is determined by calculating the average of the vesting term and the contractual term of the options. The Company has utilized this method due to the lack of historical option exercise information related to the Company’s stock option and equity incentive plans. Options granted have a maximum term of ten years. An increase in the expected life will increase compensation expense. |
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Dividend Yield - The Company has not made any dividend payments nor does it have plans to pay dividends in the foreseeable future. An increase in the dividend yield will decrease compensation expense. |
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The following is a summary of stock option transactions for all of the Company’s stock option and equity incentive plans for the three year period ended December 31, 2013: |
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| | Number of | | Weighted | | | | | | | | | |
Shares | Average | | | | | | | | |
| Exercise Price | | | | | | | | |
| Per Share | | | | | | | | |
Options outstanding at January 1, 2011 | | 4,430,495 | | 10.91 | | | | | | | | | |
Options granted | | 1,395,000 | | 2.82 | | | | | | | | | |
Options forfeited or expired | | (866,930 | ) | 8.23 | | | | | | | | | |
Options exercised | | (13,000 | ) | 4.2 | | | | | | | | | |
Options outstanding at December 31, 2011 | | 4,945,565 | | 9.12 | | | | | | | | | |
Options granted | | 1,141,250 | | 3.35 | | | | | | | | | |
Options forfeited or expired | | (675,755 | ) | 8.82 | | | | | | | | | |
Options exercised | | (28,201 | ) | 3.05 | | | | | | | | | |
Options outstanding at December 31, 2012 | | 5,382,859 | | 7.96 | | | | | | | | | |
Options granted | | 2,784,200 | | 3.12 | | | | | | | | | |
Options forfeited or expired | | (1,400,419 | ) | 5.86 | | | | | | | | | |
Options exercised | | (321,298 | ) | 3.81 | | | | | | | | | |
Options outstanding at December 31, 2013 | | 6,445,342 | | 6.58 | | | | | | | | | |
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Options vested and expected to vest at December 31, 2013 | | 6,378,284 | | 6.61 | | | | | | | | | |
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The following table summarizes information about stock options outstanding at December 31, 2013: |
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Options Outstanding | | Options Exercisable | |
Exercise Price | | Number | | Weighted | | Weighted | | Number | | Weighted | |
Outstanding | Average | Average | Exercisable | Average |
| Remaining | Exercise Price | | Exercise |
| Contractual | | | Price |
| Life (years) | | | |
$1.51 - $3.36 | | 2,662,100 | | 7.79 | | $ | 2.49 | | 642,501 | | $ | 2.96 | |
$3.44 - $9.71 | | 2,150,947 | | 5.77 | | 4.88 | | 1,023,482 | | 5.58 | |
$9.80 - $20.40 | | 1,632,295 | | 2.63 | | 15.48 | | 1,515,137 | | 15.43 | |
| | 6,445,342 | | 5.81 | | 6.58 | | 3,181,120 | | 9.74 | |
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At December 31, 2013, the aggregate intrinsic value of all outstanding options was less than $1 with a weighted average remaining contractual term of 5.81 years. Of the Company’s outstanding options, 3,181,120 options were exercisable and had a weighted average remaining contractual term of 2.92 years and no aggregate intrinsic value. Additionally, the Company’s vested and expected to vest options had a weighted average remaining contractual term of 5.78 years and an intrinsic value of less than $1. |
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Options to purchase 321,298 shares were exercised during the year ended December 31, 2013. The total intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was $688, $36 and $15, respectively. At December 31, 2013, the total compensation cost related to non-vested options not yet recognized was $4,390, with a weighted average expense recognition period of 1.97 years. Shares available for future issuance under the Company’s stock option and equity incentive plans were 3,239,443 at December 31, 2013. On January 1, 2014, shares available for future issuance under the 2013 EIP and 2013 NEDEIP increased by an aggregate of 3,027,416 shares in accordance with the automatic increase provisions of such plans. |
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The following is a summary of the Company’s RSUs for the year ended December 31, 2013: |
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| | Number of | | Weighted | | | | | | | | | |
Shares | Average Grant | | | | | | | | |
| Date Fair Value | | | | | | | | |
| Per Share | | | | | | | | |
Unvested RSUs at January 1, 2013 | | — | | — | | | | | | | | | |
RSUs granted | | 1,325,000 | | 1.87 | | | | | | | | | |
RSUs vested | | — | | — | | | | | | | | | |
RSUs forfeited | | (100,000 | ) | 1.88 | | | | | | | | | |
Unvested RSUs at December 31, 2013 2013 | | 1,225,000 | | 1.87 | | | | | | | | | |
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At December 31, 2013, the total compensation cost related to non-vested RSUs not yet recognized was $1,443, with a weighted average expense recognition period of five months. |