Annual report pursuant to Section 13 and 15(d)

Stock Plans and Stock-Based Compensation

v2.4.0.8
Stock Plans and Stock-Based Compensation
 12 Months Ended
Dec. 31, 2013
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock Plans and Stock-Based Compensation
13. Stock Plans and Stock-Based Compensation
 
The Company has three equity compensation plans, the Coronado Biosciences, Inc. 2007 Stock Incentive Plan (the “2007 Plan”), the Coronado Biosciences, Inc. 2013 Stock Incentive Plan, (the “2013 Plan”) and the 2012 Employee Stock Purchase Plan (the “ESPP”).  In 2013, the Company’s board of directors adopted and stockholders approved the 2013 Plan authorizing the Company to grant up to 2,300,000 shares of Common Stock to eligible employees, directors and consultants in the form of stock options, stock appreciation rights, restricted stock awards, and restricted stock unit awards.  In 2007, the Company’s board of directors adopted and stockholders approved the 2007 Plan authorizing the Company to grant up to 6,000,000 shares of common stock to eligible employees, directors, and consultants in the form of restricted stock, stock options and other types of grants. The amount, terms, and exercisability provisions of grants are determined by the board of directors.
 
The purpose of the Plans are to provide the Company with the flexibility to use shares, options or other awards based on the Company’s common stock as part of an overall compensation package to provide performance-based rewards to attract and retain qualified personnel. Such awards include, without limitation, options, stock appreciation rights, sales or bonuses of restricted stock, restricted stock units or dividend equivalent rights, and an award may consist of one such security or benefit, or two or more of them in any combination or alternative. Vesting of awards may be based upon the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions. There are 2,300,000 shares of common stock reserved for issuance under the 2013 Plan and 6,000,000 shares of common stock reserved for issuance under the 2007 Plan, of which 7,303,280 were granted, net of cancellations, and 996,720 shares were available for issuance as of December 31, 2013.
 
Incentive and nonstatutory stock options are granted pursuant to option agreements adopted by the plan administrator. Options generally have 10-year contractual terms and vest in three equal annual installments commencing on the grant date.
 
The Company estimates the fair value of stock option grants using a Black-Scholes option pricing model. In applying this model, the Company uses the following assumptions:
•
Risk-Free Interest Rate:  The risk-free interest rate is based on the yields of United States Treasury securities with maturities similar to the expected term of the options for each option group.
 
•
Volatility: As the Company has a very limited trading history for its Common Stock, the expected stock price volatility for its Common Stock was estimated by incorporating two years of the Company’s historical volatility and the average historical price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of several public companies in the biopharmaceutical industry similar in size, stage of life cycle and financial leverage. The Company’s historical volatility is weighted with that of the peer group and that combined historical volatility is weighted 80% with a 20% weighting of the Company’s implied volatility, which is obtained from traded options of the Company’s stock. The Company intends to continue to consistently apply this process using the same or similar public companies until it has sufficient historical information regarding the volatility of its Common Stock that is consistent with the expected life of the options. Should circumstances change such that the identified companies are no longer similar to the Company, more suitable companies whose share prices are publicly available would be utilized in the calculation.
 
•
Expected Term: Due to the limited exercise history of the Company’s stock options, the Company determined the expected term based on the stratification of option-holder groups. Employee options meet the criteria for the Simplified Method under SAB 107, while, while the expected term for non-employees is the remaining contractual life for both options and warrants.
 
•
Expected Dividend Rate: The Company has not paid and does not anticipate paying any cash dividends in the near future. 
 
The fair value of each option award was estimated on the grant date using the Black Scholes option-pricing model and expensed under the straight line method. The weighted-average grant date fair value per share relating to stock options granted during the year ended December 31, 2013 was $3.77.  The following assumptions were used:
 
Stock option plans
 
 
2013
 
 
 
2012
 
Exercise price
 
 
$1.71–$9.21
 
 
 
$4.75–$7.84
 
Expected stock price volatility
 
 
81.3%–112.7%
 
 
 
87.3%–114.3%
 
Risk free rate of interest
 
 
1.01%–3.04%
 
 
 
0.16%–2.23%
 
Expected life of options
 
 
6 years–10 years
 
 
 
2 years–10 years
 
 
The fair value for non-employee stock based awards are mark-to-market on each valuation date until vested using the Black Scholes pricing model.
 
The following table summarizes the stock-based compensation expense from stock option, employee stock purchase programs and restricted common stock awards and warrants for the years ended December 31, 2013, 2012 and 2011, and from the period June 28, 2006 (Date of Inception) December 31, 2013:
 
 
 
 
 
 
 
 
 
Period from
 
 
 
 
 
 
 
 
 
June 28, 2006
 
 
 
 
 
 
 
 
 
(Date of Inception) to
 
 
 
2013
 
2012
 
2011
 
December 31, 2013
 
($ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee awards
 
$
4,867
 
$
2,408
 
$
520
 
$
8,072
 
Non-employee awards
 
 
897
 
 
664
 
 
662
 
 
4,310
 
Non-employee warrants
 
 
138
 
 
566
 
 
287
 
 
1,032
 
Total compensation expense
 
$
5,902
 
$
3,638
 
$
1,469
 
$
13,414
 
 
The following table summarizes stock option activity:
 
 
 
Outstanding Options
 
Weighted
 
 
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Total
Weighted
Average
Intrinsic
Value
 
Average
Remaining
Contractual
Life
(in years)
 
($ in thousands except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
Outstanding at December 31, 2012
 
2,519,070
 
$
3.37
 
$
2,860
 
8.54
 
Options granted
 
2,466,590
 
$
5.34
 
 
—
 
 
 
Options exercised
 
(550,157)
 
$
1.76
 
 
478
 
 
 
Options cancelled/forfeited
 
(1,317,726)
 
$
5.51
 
 
—
 
 
 
Outstanding at December 31, 2013
 
3,117,777
 
$
4.31
 
$
—
 
8.36
 
Options vested and expected to vest
 
3,117,777
 
$
4.31
 
$
—
 
8.36
 
Options vested and exercisable
 
2,169,444
 
$
3.75
 
$
—
 
7.87
 
 
As of December 31, 2013, the Company had unrecognized stock-based compensation expense related to all unvested stock options of $3.4 million, which is expected to be recognized over the remaining weighted-average vesting period of 1.3 years.
 
During the year ended December 31, 2013, exercises of stock options resulted in total proceeds of approximately $1.0 million. 
 
Restricted Stock
 
During 2013, the Company granted restricted shares of our common stock to an executive and a director of the Company. Such restricted stock awards shall vest based upon both the passage of time as well as certain pre-defined market conditions.  The fair value of the restricted stock awards of $7.6 million was estimated on the grant date using the Monte Carlo simulation model and expensed using a graded vesting methodology.  Significant assumptions included a volatility of 114.2% based upon an expected 5 year life and a risk-free rate of return of 1.55% associated with five year Treasury Securities yields. 
 
Stock-based compensation expense from restricted stock awards for the year ended December 31, 2013 and the period from inception to December 31, 2013 was $66,000 and $2.2 million, respectively.  There was no stock-based compensation expense related to restricted stock awards for the years ended December 31, 2012 and December 31, 2011.
 
The following table summarizes restricted stock activity:
 
 
 
Restricted Stock
 
 
 
 
 
Weighted
 
 
 
 
 
Average Grant
 
 
 
Number of
 
Date
 
 
 
Shares
 
Fair Value
 
Unvested balance at December 31, 2012
 
—
 
$
—
 
Restricted stock granted
 
3,958,692
 
 
1.93
 
Restricted stock vested
 
—
 
 
—
 
Restricted stock forfeited
 
—
 
 
—
 
 
 
 
 
 
 
 
Unvested balance at December 31, 2013
 
3,958,692
 
$
1.93
 
 
As of December 31, 2013, the Company had unrecognized stock-based compensation expense related to all unvested restricted stock awards of $7.6 million, which is expected to be recognized over the remaining weighted-average vesting period of 5.0 years.
 
Employee Stock Purchase Plan
 
On December 19, 2011, the board of directors approved the 2012 Coronado Employee Stock Purchase Plan the (“ESPP”) for the issuance of up to 200,000 shares of Common stock to eligible employees. Eligible employees can purchase the Company’s common stock at the end of a predetermined offering period at 85% of the lower of the fair market value at the beginning or end of the offering period. The first period commenced February 1, 2012 and ended on November 30, 2012. Thereafter offerings will be six months in duration and will commence on each December 1 and June 1. Employee contributions will be made through payroll deductions over the offering period and subject to certain limitations will be used to purchase shares at the end of each offering period. The ESPP is compensatory and will result in stock-based compensation expense. The ESPP was approved by stockholders at the Company’s Annual Meeting on August 16, 2012. As of December 31, 2013, 49,214 have been purchased and 150,786 are available for future sale under the ESPP. The Company recognized share-based compensation expense of $46,000 and $95,000 for the years ended December 31, 2013 and 2012, respectively.
 
On November 30, 2012, the Company issued 21,644 shares of common stock in connection with the first ESPP offering period. Common shares were issued at $4.02 per share, which represents 85% of the closing price of $4.73 of the Common Stock on November 30, 2012.
 
On May 31, 2013, the Company issued 21,505 shares of Common Stock under the Company’s ESPP. Common shares were issued at $3.88 per share, which represents 85% of the closing price of $4.56 of the Common Stock on December 3, 2012.
 
On December 1, 2013, the Company issued 6,065 shares of Common Stock under the Company’s ESPP.  Common shares were issued at $1.39 per share, which represents 85% of the closing price of $1.64 of the Common Stock on November 29, 2013.