Share Capital | 12 Months Ended |
Dec. 31, 2013 |
Equity [Abstract] | ' |
Share Capital | ' |
8 | | SHARE CAPITAL | | | | | | | | | | |
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(a) | Authorized Shares | | | | | | | | | | | |
There were no changes to the authorized share capital of QLT for the years ended December 31, 2013 and 2012. |
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(b) | Cash Distribution | | | | | | | | | | | |
On June 27, 2013, we completed a $200.0 million special cash distribution, by way of a reduction of the paid-up capital of the Company’s common shares (the “Cash Distribution”). The Cash Distribution was approved by the Company’s shareholders at QLT’s annual and special shareholders’ meeting on June 14, 2013. All shareholders of record as at June 24, 2013 (the “Record Date”) were eligible to participate in the Cash Distribution and received a payment of approximately $3.92 per share based upon the 51,081,878 common shares issued and outstanding on the Record Date. |
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(c) | Share Repurchase Program | | | | | | | | | | | |
On October 2, 2012, we commenced a normal course issuer bid to repurchase up to 3,438,683 of our common shares, which represented 10% of our public float as of September 26, 2012. All purchases were effected in the open market through the facilities of the NASDAQ Stock Market in accordance with all applicable regulatory requirements. During the years ended December 31, 2013 and 2012, we repurchased 1,691,479 and 1,747,204 common shares under the terms of this bid at a cost of $13.5 million (average price of $7.97 per common share) and $13.7 million (average price of $7.84 per common share), respectively. The bid was completed on March 12, 2013. We retired all of these shares as they were acquired. In connection with this retirement, we recorded an increase in additional paid-in capital of $2.0 million in 2013 and $2.4 million in 2012. |
On December 16, 2010, we commenced a normal course issuer bid to repurchase of up to 3,615,285 of our common shares, which represented 10% of our public float as of December 9, 2010. All purchases were effected in the open market through the facilities of the NASDAQ Stock Market, and in accordance with all applicable regulatory requirements. Under the terms of the bid, we repurchased 2,678,517 common shares during the year ended December 31, 2011 at a cost of $18.8 million (average price of $7.03 per common share). This bid expired on December 15, 2011. We retired all of these shares as they were acquired. In connection with this retirement, we recorded an increase in additional paid-in-capital of $6.3 million in 2011. |
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(d) | Stock Options | | | | | | | | | | | |
We currently have one equity compensation plan, the QLT 2000 Incentive Stock Plan (as amended, the “Plan”), which provides for the issuance of common shares to directors, officers, employees and consultants of QLT and its affiliates. Effective on April 25, 2013, the Company’s Board of Directors amended and restated the Plan to increase the number of the Company’s common shares, without par value, available for grant under the Plan from 7,800,000 to 11,800,000 and make certain other amendments to the Plan. The amendment and restatement of the Plan was subject to shareholder approval, which was obtained on June 14, 2013. On July 29, 2013, the Company filed a registration statement to register the issuance of up to 4,000,000 additional common shares that may be issued under the Plan as a result of the amendment to the Plan. No financial assistance is provided by us to the participants under the Plan. Below is a summary of the principal terms of the Plan: |
Awards. The Plan provides for grants of stock options (both incentive stock options and nonqualified stock options) and RSUs to eligible persons. Each award must be evidenced by a written award agreement with terms and conditions consistent with the Plan. |
Share Reserve. We have reserved an aggregate of 11,800,000 common shares for issuance under the Plan. Common shares subject to an award of stock options or RSUs that terminates, expires or lapses for any reason are made available under subsequent awards under the Plan. The number of common shares with respect to one or more stock options that can be granted to any one individual in any one calendar year is 2,000,000 common shares. |
Administration. The Compensation Committee of the Board of Directors administers the Plan. |
Eligibility. The directors, officers, employees and consultants of QLT or its affiliates who are or will be considered important to our success, as determined by the Compensation Committee, are eligible to participate in the Plan. |
Grant of Awards. Subject to the terms of the Plan, the Compensation Committee may grant to any eligible person one or more options or RSUs as it deems appropriate. The Compensation Committee may also impose such limitations or conditions on the exercise or vesting of any award as it deems appropriate. |
Options expire automatically on the earlier of (i) the date on which such option is exercised in respect of all of the common shares that may be purchased under the Plan, and (ii) the expiration date fixed by the Compensation Committee at the granting of such options, which date will not be more than ten years from the date of grant. Options that would otherwise expire within, or within two business days after the end of, a “black-out” period established by QLT will not expire until the tenth business day after the earlier of the end of such black-out period or, provided the black-out period has ended, the expiry date. Early termination of stock options or RSUs in the event of termination of service, death or disability are subject to the specific terms of each applicable award agreement. Generally, unvested options cease to vest immediately on termination of service and vested options terminate 90 days after termination of service. Unvested RSUs are automatically forfeited, terminated and cancelled immediately on termination of service without payment of any consideration by the Company. |
Exercise Price. The exercise price of options granted is determined by the Compensation Committee, but is in no event less than the closing price of our common shares on the Toronto Stock Exchange (“TSX”) on the date of grant. RSUs may be granted pursuant to the Plan with no consideration from the participant. |
Vesting. Vesting of awards is determined on the grant date in the discretion of the Compensation Committee. With certain exceptions, our general practice has been to grant options that vest over thiry-six (36) months. RSU grants to date have been awarded only to our directors and vest in three (3) successive and equal yearly installments on the date of each of the first three annual general meetings of the Company held after the date of grant. Upon vesting, each RSU represents the right to receive one common share of the Company. In certain circumstances, such as a change of control, the vesting provisions applicable to unvested options and RSUs may be accelerated subject to the Compensation Committee and/or board’s discretion and approval. |
Transferability. No award may be transferred or assigned except by will or by operation of the laws of devolution or distribution and descent or pursuant to a qualified domestic relations order, as defined by the U.S. Internal Revenue Code of 1986, and may be exercised only by a grantee during his or her lifetime. |
Amendments or Terminations. The Plan will terminate on April 25, 2023. The Compensation Committee, subject to approval of the Board of Directors, may terminate, amend or modify the Plan at any time prior to this; provided, however, that shareholder approval will be obtained (i) to increase the number of common shares available under the Plan, (ii) to amend the terms of any outstanding option to reduce the per share exercise price, (iii) to cancel any outstanding option in exchange for cash or another option or award having an exercise price that is less than the exercise price of the original option, (iv) to extend the term of any option beyond the original expiration date, (v) to permit the transfer or assignment of any award in any manner other than as permitted by the Plan, (vi) to grant any award under the Plan if the Plan has been suspended or terminated, and (vii) to make any amendments to the powers of the Compensation Committee to suspend, amend or terminate the Plan as specified in the Plan. Any other amendments can be made to the Plan by the Compensation Committee without shareholder approval. |
Valuation. We use the Black-Scholes option pricing model to estimate the value of the options at each grant date. The Black-Scholes option pricing model was developed for use in estimating the value of traded options that have no vesting restrictions and are fully transferable. In addition, option pricing models require the input of highly subjective assumptions, including the expected stock price volatility. We project expected volatility and expected life of our stock options based upon historical and other economic data trended into future years. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected life of our stock options. |
As at December 31, 2013, options to purchase an aggregate total of 1,407,529 million common shares were outstanding under the Plan and exercisable in the future at prices ranging between CAD $4.54 and CAD $7.23 per common share. |
Stock option activity with respect to our Plan is presented below: |
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(In CAD dollars) | | Number | | | Weighted | | | Weighted Average | | |
of | Average | Remaining Contractual | | |
Options | Exercise Price | Term (Years) | | |
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Outstanding at January 1, 2011 | | | 6,100,101 | | | $ | 5.49 | | | | | |
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Granted | | | 1,430,900 | | | | 7.19 | | | | | |
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Exercised | | | (451,867 | ) | | | 4.98 | | | | | |
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Forfeited and expired | | | (1,030,937 | ) | | | 8.36 | | | | | |
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Outstanding at December 31, 2011 | | | 6,048,197 | | | | 5.44 | | | | | |
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Granted | | | 889,250 | | | | 7.06 | | | | | |
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Exercised | | | (4,408,867 | ) | | | 4.82 | | | | | |
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Forfeited and expired | | | (1,112,564 | ) | | | 8.12 | | | | | |
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Outstanding at December 31, 2012 | | | 1,416,016 | | | | 6.25 | | | | | |
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Granted | | | 1,312,000 | | | | 4.76 | | | | | |
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Exercised | | | (1,183,952 | ) | | | 7.99 | | | | | |
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Forfeited and expired | | | (136,535 | ) | | | 6.28 | | | | | |
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Outstanding at December 31, 2013 | | | 1,407,529 | | | | 4.94 | | | 9.1 | | |
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Exercisable at December 31, 2013 | | | 257,332 | | | $ | 5.37 | | | 7.79 | | |
As of December 31, 2013, the number of options issued and outstanding under the Plan represents 2.8% (2012 – 2.7%, 2011 – 12%) of the issued and outstanding common shares. |
On November 22, 2013 the Board of Directors granted an aggregate of 350,000 stock options. Of these stock options, 325,000 vest and become exercisable in six (6) successive and equal monthly installments from the grant date and 25,000 vest and become exercisable in thirty-six (36) successive and equal monthly installments from the grant date. Furthermore, the options have an exercise price of CAD$5.38 per common share, which is equal to the closing price of the Company’s common shares on the TSX on the date of grant. |
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On July 15, 2013, the Board of Directors granted an aggregate of 962,000 stock options. These stock options vest and become exercisable in thirty-six (36) successive and equal monthly installments from the grant date. Furthermore, they have an exercise price of CAD $4.54 per common share, which is equal to the closing price of the Company’s common shares on the TSX on the date of grant. |
The following weighted average assumptions (no dividends are assumed) were used to value stock options granted in each of the following years: |
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| | 2013 | | | 2012 | | | 2011 | |
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Annualized volatility | | | 46 | % | | | 46.8 | % | | | 48.8 | % |
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Risk-free interest rate | | | 2 | % | | | 1 | % | | | 2.1 | % |
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Expected life (years) | | | 6.5 | | | | 3.8 | | | | 3.7 | |
The weighted average grant date fair value of stock options granted during the year ended December 31, 2013 was CAD $2.28 (year ended December 31, 2012 – $2.55; year ended December 31, 2011 – CAD $2.78). |
The impact on our results of operations of recording stock option compensation for the years ended December 31, 2013, 2012, and 2011 is as follows: |
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(In thousands of U.S. dollars) | | 2013 | | | 2012(1) | | | 2011 | |
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Research and development | | $ | 358 | | | $ | 1,537 | | | $ | 708 | |
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Selling, general and administrative | | | 209 | | | | 1,783 | | | | 1,316 | |
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Discontinued operations | | | — | | | | 2,431 | | | | 949 | |
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Stock-based compensation expense before income taxes | | | 567 | | | | 5,751 | | | | 2,973 | |
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Related income tax benefits | | | — | | | | (539 | ) | | | (162 | ) |
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Stock-based compensation, net of income taxes(2) | | $ | 567 | | | $ | 5,212 | | | $ | 2,811 | |
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-1 | Approximately $4.3 million of the 2012 stock-based compensation expense relates to the accelerated vesting of 1,670,306 stock options in connection with the change in control resulting from the election of a new Board of the Directors at the Company’s annual meeting of shareholders on June 4, 2012. | | | | | | | | | | | |
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-2 | The total share-based compensation capitalized as part of inventory and the related tax benefits recorded were negligible for all periods presented. | | | | | | | | | | | |
As at December 31, 2013, 1,150,197 stock options were unvested (2012 – 143,965, 2011 – 1,801,803). As at December 31, 2013, the total estimated unrecognized compensation cost related to unvested stock options and the expected weighted average periods over which such costs are expected to be recognized is as follows: |
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| | December 31, | | | | | | | | | |
2013 | | | | | | | | |
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Unrecognized estimated compensation costs (in thousands of U.S. dollars) | | $ | 2,527 | | | | | | | | | |
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Expected weighted average period of recognition of compensation cost (in months) | | | 29 | | | | | | | | | |
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Expected weighted average period of compensation cost to be recognized (in years) | | | 1.99 | | | | | | | | | |
The aggregate intrinsic values of options outstanding and exercisable as at December 31, 2013, 2012 and 2011 are as follows: |
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(In thousands of CAD dollars) | | 2013 | | | 2012 | | | 2011 | |
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Aggregate intrinsic value of options outstanding | | $ | 1,572 | | | $ | 2,192 | | | $ | 12,406 | |
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Aggregate intrinsic value of options exercisable | | | 224 | | | | 2,083 | | | | 10,903 | |
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New common shares are issued upon exercise of stock options. The intrinsic value of stock options exercised and the related cash from exercise of stock options during the years ended December 31, 2013, 2012 and 2011 are as follows: |
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(In thousands of U.S. dollars) | | 2013 | | | 2012 | | | 2011 | |
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Intrinsic value of stock options exercised | | $ | 2,171 | | | $ | 13,184 | | | $ | 1,022 | |
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Cash from exercise of stock options | | | 7,217 | | | | 21,409 | | | | 2,295 | |
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(e) | Deferred Share Units | | | | | | | | | | | |
Under the DDSU Plan, at the discretion of the Board of Directors, directors can receive all or a percentage of their equity-based compensation in the form of DSU’s. DSU’s vest in thirty-six (36) successive and equal monthly installments beginning on the first day of the first month after the grant date. A vested DSU can only be settled by conversion to cash (no share is issued), and is automatically converted after the director ceases to be a member of the Board unless the director is removed from the Board for just cause. Prior to conversion, the value of each DSU, at any point in time, is equivalent to the latest closing price of QLT’s common shares on the TSX on that trading day. When converted to cash, the value of a vested DSU is equivalent to the closing price of a QLT common share on the trading day immediately prior to the conversion date. On July 15, 2013, 88,000 DSU’s were issued to directors in accordance with the terms of the DDSU Plan. |
DSU activity is presented below. |
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| | Number | | | | | | | | | |
of DSUs | | | | | | | | |
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Outstanding at January 1, 2011 | | | 270,000 | | | | | | | | | |
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Granted | | | 60,000 | | | | | | | | | |
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Redeemed | | | — | | | | | | | | | |
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Cancelled | | | — | | | | | | | | | |
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Outstanding at December 31, 2011 | | | 330,000 | | | | | | | | | |
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Granted | | | 88,000 | | | | | | | | | |
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Redeemed | | | (330,000 | ) | | | | | | | | |
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Cancelled | | | — | | | | | | | | | |
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Outstanding at December 31, 2012 | | | 88,000 | | | | | | | | | |
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Granted | | | 88,000 | | | | | | | | | |
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Redeemed | | | (6,111 | ) | | | | | | | | |
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Cancelled | | | (15,889 | ) | | | | | | | | |
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Outstanding at December 31, 2013 | | | 154,000 | | | | | | | | | |
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Vested at December 31, 2013 | | | 47,056 | | | | | | | | | |
The obligation to pay the cash amount is recorded as a liability in our financial statements and is marked-to-market in each reporting period. See Note 6 – Accrued Liabilities. Cash payments under the DDSU Plan during the years ended December 31, 2013, 2012 and 2011 were as follows: |
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(In thousands of U.S. dollars) | | 2013(2) | | | 2012(1) | | | 2011 | |
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Cash payments under the DDSU plan | | $ | 28 | | | $ | 2,523 | | | $ | 0 | |
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-1 | On June 4, 2012, a new Board of Directors was elected at the Company’s annual shareholders’ meeting. As a result, upon departure of the previous Board of Directors, $2.5 million was paid out to these former directors in accordance with the terms of the DDSU Plan. | | | | | | | | | | | |
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-2 | In connection with Vicente Anido Jr.’s resignation from the Board of Directors effective November 9, 2013, the Company paid $0.03 million to Mr. Anido in accordance with the terms of the DDSU Plan. | | | | | | | | | | | |
The impact on our results of operations of recording DSU compensation for the years ended December 31, 2013, 2012 and 2011 is as follows: |
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(In thousands of U.S. dollars) | | 2013 | | | 2012(1) | | | 2011 | |
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Research and development | | $ | 77 | | | $ | 246 | | | $ | 120 | |
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Selling, general and administrative | | | 129 | | | | 580 | | | | 322 | |
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Deferred share unit compensation expense | | $ | 206 | | | $ | 826 | | | $ | 442 | |
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(1) | The DSU compensation for the year ended December 31, 2012 includes $0.3 million related to accelerated vesting of 42,500 DSU’s held by the previous Board of Directors in connection with the election of a new Board of Directors at the Company’s annual meeting of shareholders on June 4, 2012 and consequent departure of the previous Board of Directors. | | | | | | | | | | | |
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(f) | Restricted Stock Units | | | | | | | | | | | |
On July 15, 2013, 48,000 RSU’s were issued to directors under the Plan in consideration of their provision of future services as directors. The RSU’s vest in three (3) successive and equal yearly installments on the date of each of the first three annual general meetings of the Company held after the date of grant. Upon vesting, each RSU represents the right to receive one common share of the Company. |
Restricted stock-based compensation expense was measured at fair value based on the CAD $4.54 market price of QLT’s common shares on the July 15, 2013 grant date. The weighted average grant date fair value of the RSU’s during the year ended December 31, 2013 was therefore CAD $4.54. The full cost of the restricted stock-based compensation expense will be recognized over the three year vesting period, which is the requisite service period. During the year ended December 31, 2013, we recognized $0.01 million and $0.02 million of restricted stock based compensation expense in research and development expense and selling, general and administrative expense, respectively. |
On November 9, 2013, 6,000 RSU’s were cancelled in connection with Vicente Anido Jr.’s resignation from the Board of Directors. As at December 31, 2013, 42,000 RSU’s remain unvested. As at December 31, 2013, the total estimated unrecognized compensation cost related to RSU’s was $0.2 million and the weighted average period over which such costs are expected to be recognized is 2.54 years. |