14.Shareholders’ Equity and Capital Stock

 

Common share issuances

 

On August 19, 2014, we filed a universal shelf registration statement on Form S-3 in order that we may offer and sell, from time to time, in one or more offerings, at prices and terms to be determined, up to $100 million of our common shares, warrants to purchase our common shares, our senior and subordinated debt securities, and rights to purchase our common shares and/or our senior and subordinated debt securities.  The registration statement became effective September 12, 2014. The 12,921,000 common shares offered in the February 2016 financing were sold for $0.50 per share raising $5.7 million (net of issue costs of $0.8 million) under the shelf registration statement. 

 

On May 27, 2016, we entered into an At Market Issuance Sales Agreement with MLV & Co. LLC and FBR Capital Markets & Co. under which we may, from time to time, issue and sell common shares at market prices on the NYSE MKT or other U.S. market through the distribution agents for aggregate sales proceeds of up to $10,000,000. During 2016, we sold 164,979 common shares under the sales agreement at an average price of $0.65 per share for gross proceeds of $108 thousand. After deducting transaction fees and commissions we received net proceeds of $105 thousand.  After deducting all other costs associated with the completion of the agreement and filing the related prospectus supplement, we received $13 thousand.

 

During the year ended December 31, 2016, the Company exchanged 385,010 common shares for vested Restricted Share Units (“RSUs”). In addition, 16,620 stock options were exercised for proceeds of less than $0.1 million.

 

During the year ended December 31, 2015, the Company exchanged 215,168 common shares for vested RSUs. In addition, 608,531 stock options were exercised for proceeds of $0.4 million.

 

During the year ended December 31, 2014, the Company exchanged 182,194 common shares for vested RSUs. In addition, 1,623,139 stock options were exercised for proceeds of $1.3 million.

 

Stock options

 

In 2005, the Company’s Board of Directors approved the adoption of the Company's stock option plan (the “Option Plan”). Eligible participants under the Option Plan include directors, officers, employees and consultants of the Company. Under the terms of the Option Plan, stock options generally vest with Option Plan participants as follows: 10% at the date of grant; 22% four and one-half months after grant; 22% nine months after grant; 22% thirteen and one-half months after grant; and the balance of 24% eighteen months after the date of grant.

 

Activity with respect to stock options is summarized as follows:

 

 

The exercise price of a new grant is set at the closing price for the stock on the Toronto Stock Exchange (TSX) on the trading day immediately preceding the grant date so there is no intrinsic value as of the date of grant. The fair value of options vested during the year ended December 31, 2016 was $0.7 million.

 

As of December 31, 2016, outstanding stock options are as follows:

 

 

The aggregate intrinsic value of the options in the preceding table represents the total pre-tax intrinsic value for stock options with an exercise price less than the Company’s TSX closing stock price of CAD $0.71 as of the last trading day in the year ended December 31, 2016, that would have been received by the option holders had they exercised their options as of that date. There were no in-the-money stock options outstanding or exercisable as of December 31, 2016.

 

Restricted share units

 

On June 24, 2010, the Company’s shareholders approved the adoption of the Company’s restricted share unit plan (the “RSU Plan”). The RSU Plan was approved most recently by our shareholders on May 5, 2016.

 

Eligible participants under the RSU Plan include directors and employees, including officers, of the Company. Under the terms of the RSU Plan, RSUs vest with participants as follows: 50% on the first anniversary of the date of the grant and 50% on the second anniversary of the date of the grant.  In March 2015, the Board approved amendments to the plan that (a) extend the redemption period so that, going forward, all RSUs vest 100% on the second anniversary of the date of the grant; (b) provide for redemption, instead of cancellation, of outstanding RSUs at the date of redemption for retiring directors and executive officers, which is defined as a threshold of combined service and age of 65 years, and a minimum of five years of service to the Company; and (c) update the RSU Plan for compliance with applicable laws. The amendments were approved and ratified by shareholder vote on May 28, 2015.  Grants made subsequent to May 28, 2015 have been made pursuant to the described amendments.

 

Activity with respect to RSUs is summarized as follows:

 

 

As of December 31, 2016, outstanding RSUs are as follows:

 

 

As of December 31, 2016,  8,374 RSUs had been vested and redeemed but not issued due to the timing of transferring them to the brokers designated by the related employees.  They were subsequently issued in January and February 2017.

 

As of December 31, 2015, 212,803 RSUs had been vested but not redeemed.  In January 2016, 197,374 were redeemed for common shares while the balance of 15,429 were retained and not redeemed to pay the related taxes due on redemption.

 

As of December 31, 2014, 280,529 RSUs had been vested but not redeemed.  In January 2015, 215,168 were redeemed for common shares while the balance of 65,361 were retained and not redeemed to pay the related taxes due on redemption.

 

Upon RSU vesting, the holder of an RSU will receive one common share, for no additional consideration, for each RSU held.

 

Warrants

 

The warrants were issued in Canadian dollars and have been converted to their US$ equivalent for presentation purposes. The First Loan Facility accounts for the warrants expiring in 2018.

 

Activity with respect to warrants is summarized as follows:

 

 

As of December 31, 2016, outstanding warrants are as follows:

 

 

Share-based compensation expense

 

Stock-based compensation expense was $0.9 million, $0.9 million and $0.9 million for the years ended December 31, 2016, 2015 and 2014, respectively.

 

As of December 31, 2016, there was approximately $0.9 million of total unrecognized compensation expense (net of estimated pre-vesting forfeitures) related to unvested share-based compensation arrangements granted under the Option Plan and $0.6 million under the RSU Plan. The expenses are expected to be recognized over a weighted-average period of 1.3 years and 1.6 years, respectively.

 

Cash received from stock options exercised during the years ended December 31, 2016, 2015 and 2014 was less than $0.1 million, $0.4 million and $1.3 million, respectively.

 

Fair Value Calculations

 

The initial fair value of RSUs, options and warrants granted during the years ended December 31, 2016, 2015 and 2014 was determined using the Black-Scholes option pricing model with the following assumptions:

 

 

The Company estimates expected volatility using daily historical trading data of the Company’s common shares, because this is recognized as a valid method used to predict future volatility. The risk-free interest rates are determined by reference to Canadian Treasury Note constant maturities that approximate the expected option term. The Company has never paid dividends and currently has no plans to do so.

 

Share-based compensation expense is recognized net of estimated pre-vesting forfeitures, which results in recognition of expense on options that are ultimately expected to vest over the expected option term. Forfeitures were estimated using actual historical forfeiture experience.

 

The fair value used for each RSUs issued in 2016 was CAD $0.73. Those issued in 2015 ranged from CAD $0.80 to CAD $1.22 per unit, while the RSUs issued in December 2014 were $0.96 per unit.  Each of the issuance prices were the closing prices of the stock on the TSX as of the trading day immediately preceding the grant date.