| Incentive stock plans and stock based compensation | 7. Incentive stock plans and stock based compensation Common stock options The Company had initially adopted a stock-based compensation plan for employees and non-employee members of its Board of Directors in November 2003 (the “2003 Plan”), which was subsequently amended in March 2007 (the “2003 Plan Amendment”). In December 2007, the Company adopted the National Patent Development Corporation 2007 Incentive Stock Plan (the “2007 NPDC Plan”). The plans provide for up to 3,500,000 and 7,500,000 awards for shares under the 2003 Plan Amendment and 2007 NPDC Plan, respectively, in the form of discretionary grants of stock options, restricted stock shares, restricted stock units (RSUs) and other stock-based awards to employees, directors and outside service providers. The Company’s plans are administered by the Compensation Committee of the Board of Directors, which consists solely of non-employee directors. The term of any option granted under the plans will not exceed ten years from the date of grant and, in the case of incentive stock options granted to a 10% or greater holder of total voting stock of the Company, three years from the date of grant. The exercise price of any option granted under the plans may not be less than the fair market value of the common stock on the date of grant or, in the case of incentive stock options granted to a 10% or greater holder of total voting stock, 110% of such fair market value. The Company recorded compensation expense of $4,000 and $9,000 for the three and nine months ended September 30, 2016, respectively, under these plans. There was no compensation expense related to option grants for the three and nine months ended September 30, 2015. As of September 30, 2016, the number of shares reserved and available for award under the 2007 NPDC Plan is 6,141,786 and under the 2003 Plan Amendment is 700,000. During the nine months ended September 30, 2016, the Company issued 100,000 options to a consultant on March 28, 2016 and 25,000 options to an employee on March 31, 2016. The options issued on March 28, 2016 vest equally over 3 years, and are subject to post vesting restrictions for sale for three years. The options issued on March 31, 2016 vest on the third anniversary of their issuance. The options were issued at an exercise price of $1.29 and $1.34 per share for the options issued on March 28, 2016 and March 31, 2016, respectively, which price was equal to the market value at the date of the grant. The 25,000 options issued on March 31, 2016 were canceled in the third quarter of 2016, upon the termination of the employee. The grant-date fair value of the options were $0.50 and $0.52, respectively, which was estimated on the date of grant using the Black-Scholes option pricing model using the following assumptions:
Dividend yield
0
%
Expected volatility
48.24
%
Risk-free interest rate
1.21
%
Expected life (in years)
4 The fair value of the options granted on March 28, 2016 were reduced by an 8% discount for post vesting restrictions. The value of the options granted to the consultant are re-measured at each balance sheet date until performance is complete with the final measurement of fair value of the options made on the vesting dates. The revised fair value is amortized over the remaining term of the option. The value of the options at September 30, 2016 was changed to $0.23 which revised value did not have a material effect on the related compensation expense recognized for the periods ended September 30, 2016. As of September 30, 2016, there were outstanding options to acquire 3,350,000 common shares, 3,250,000 of which were vested and exercisable, having a weighted average exercise price of $2.27 per share, a weighted average contractual term of 1.25 years and zero aggregate intrinsic value. As of September 30, 2016, the unrecognized compensation expense related to non-vested options was $42,000. Restricted stock units As a result of the Winthrop acquisition, the Company issued a total of 849,280 RSUs on the Closing Date to be settled in shares of Company common stock as follows:
a) 479,280 RSUs were granted to four key executives of Winthrop, which vested as of the Closing Date and are subject to post-vesting restrictions on sale for three years. The RSUs were valued at the closing price of the Company’s common stock of $2.52, less a 20% discount for post vesting restrictions on sale, or $2.02 per share. The total value of these RSUs of $966,000, were accounted for as compensation and charged to retention bonus expense on the Closing Date.
b) 370,000 RSUs were granted to four key executives, which vest equally over three years, with the first third vesting one year from the Closing Date. The RSUs were valued based on the closing price of the Company’s common stock on the Closing Date of $2.52, less an average discount of 11% for post-vesting restrictions on sale until the three year anniversary of the grant date, or an average price per share of $2.25. The Company recorded compensation expense of $69,000 and $208,000 for the quarter and nine months ended September 30, 2015 related to these RSUs. At December 19, 2015, the above RSUs were fully vested. In December 2015, the Company repurchased 252,767 RSUs for a total cost of $369,000. The remaining 596,513 RSUs were settled by the issuance of 596,513 shares of common stock in the first quarter of 2016. Such issuable shares of common stock are included in the outstanding shares of common stock at December 31, 2015 in the accompanying financial statements. In addition, the following RSUs were granted to employees of the Company:
c) 17,738 RSUs were granted to certain employees on February 4, 2013, which vest equally over three years, with the first third vesting on February 4, 2014. At September 30, 2015, 11,701 of the RSU’s were still outstanding. The RSUs are valued based on the closing price of the Company’s common stock on February 4, 2013 of $2.40, less an average discount of 11% for post-vesting restrictions on sale until the three year anniversary of the grant date, or an average price per share of $2.25. The Company recorded compensation expense of $0 and $1,000 for each of the three and nine months ended September 30, 2016, respectively, and $3,000 and $8,000, respectively, for each of the three and nine months ended September 30, 2015 related to these RSUs.
d) 30,000 RSUs were granted to an employee on June 10, 2014, which were to vest on the third anniversary of the individual’s employment, assuming the individual was still employed at that time. The RSUs are valued based on the closing price of the Company’s common stock on June 10, 2014 of $1.90. The Company did not record any compensation expense for the nine months ended September 30, 2015, but reversed $11,000 of compensation expense previously recorded during the year ended December 31, 2014 related to these RSUs since in the first quarter of 2015, the individual was no longer employed by the Company and the 30,000 RSUs were cancelled.
e) 100,000 RSUs were issued on each of January 19, 2015 and March 31, 2015, to two newly appointed directors of the Company. The RSUs will vest equally over 3 years. The RSUs are valued based on the closing price of the Company’s common stock on January 19, 2015 and March 31, 2015 of $1.70 and $1.85, respectively, less an average discount of 8% for post-vesting restrictions on sale until the three year anniversary of the grant date, or an average price per share of $1.56 and $1.70, respectively. The Company recorded compensation expense of $27,000 and $81,000 for the three and nine months ended September 30, 2016, respectively, and $27,000 and $65,000, respectively, for the three and nine months ended September 30, 2015 related to these RSUs. The total unrecognized compensation expense related to these unvested RSUs at September 30, 2016 is $152,000, which will be recognized over the remaining vesting period of approximately 1.5 years. |
