Annual reports filed by certain Canadian issuers pursuant to Section 15(d) and Rule 15d-4

Shareholders' equity and capital stock

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Shareholders' equity and capital stock
 12 Months Ended
Dec. 31, 2012
Stockholders' Equity Note [Abstract]  
Shareholders' equity and capital stock
12. Shareholders’ equity and capital stock

 

Issuances

 

On February 23, 2012, the Company completed a private placement of 17,250,000 common shares at $1.00 per share raising gross proceeds of $17,250,000. Total direct share issue costs, including the placement agents’ commission, were $1,005,457.

 

During the year ended December 31, 2012, 88,473 common shares were issued pursuant to the exercise of stock options. In addition, the Company exchanged 120,359 common shares for vested RSUs.

 

Warrants

 

The Company issued 50,000 warrants to purchase stock at US$1.00 per share to its consultant EPOCH Financial Group Inc. on September 4, 2012. During the year ended December 31, 2012, the Company recorded $17,675 in non-cash warrant costs related to the services received.

 

Activity with respect to warrants is summarized as follows:

 

          Weighted-  
          average  
    Warrants     exercise price  
    #     $  
Outstanding, December 31, 2009     -       -  
Granted     100,000       1.20  
                 
Outstanding, December 31, 2010     100,000       1.20  
                 
Outstanding, December 31, 2011     100,000       1.20  
Granted     50,000       0.99  
                 
Outstanding, December 31, 2012     150,000       1.13  

 

As of December 31, 2012, outstanding warrants are as follows:

 

            Weighted-              
            average     Aggregate        
Exercise           remaining     Intrinsic        
price     Number     contractual     Value        
$     of warrants     life (years)     $     Expiry  
                                     
  0.99       50,000       2.7       -       September 4, 2015  
  1.20       100,000       2.8       -       November 1, 2015  
                                     
          150,000       2.8       -          

 

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:

 

          Weighted-  
          average  
    Options     exercise price  
    #     $  
Outstanding, December 31, 2009     8,361,452       1.65  
Granted     798,537       0.81  
Exercised     (3,057,444 )     1.15  
Forfeited     (75,470 )     0.84  
Expired     (361,507 )     2.06  
                 
Outstanding, December 31, 2010     5,665,568       1.79  
Granted     3,162,098       2.05  
Exercised     (1,677,432 )     2.00  
Forfeited     (241,332 )     2.11  
Expired     (495,000 )     2.59  
                 
Outstanding, December 31, 2011     6,413,902       1.79  
Granted     3,114,207       0.87  
Exercised     (88,473 )     0.85  
Forfeited     (145,414 )     1.99  
Expired     (782,500 )     3.25  
                 
Outstanding, December 31, 2012     8,511,722       1.32  

  

The weighted average grant date fair value was $0.43 per stock optionfor the year ended December 31, 2012. 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 total fair value of options vested during 2012, 2011 and 2010 were $1.9 million, $1.8 million and $0.7 million, respectively.

  

As of December 31, 2012, outstanding stock options are as follows:

 

      Options outstanding     Options exercisable      
            Weighted-                 Weighted-            
            average     Aggregate           average     Aggregate      
Exercise           remaining     Intrinsic           remaining     Intrinsic      
price     Number     contractual     Value     Number     contractual     Value      
$     of options     life (years)     $     of options     life (years)     $     Expiry
                                           
  1.65       680,000       0.4       -       680,000       0.4       -     May 8, 2013
  1.72       25,000       0.6       -       25,000       0.6       -     August 6, 2013
  0.71       437,268       1.1       52,472       437,268       1.1       52,472     February 9, 2014
  0.90       813,028       1.7       -       813,028       1.7       -     September 2, 2014
  0.81       554,074       2.2       11,081       554,074       2.2       11,081     March 5, 2015
  2.87       1,318,293       3.1       -       1,318,293       3.1       -     January 28, 2016
  1.57       645,000       3.5       -       490,200       3.5       -     July 7, 2016
  1.17       784,109       3.7       -       595,923       3.7       -     September 9, 2016
  1.16       200,000       3.8       -       152,000       3.8       -     October 24, 2016
  0.91       1,136,368       4.0       -       605,324       4.0       -     January 12, 2017
  1.39       200,000       4.1       -       108,000       4.1       -     February 1, 2017
  1.18       100,000       4.2       -       54,000       4.2       -     March 1, 2017
  0.76       1,618,582       4.9               161,862       4.9       11,330     December 7, 2017
                                                         
  1.32       8,511,722       3.2       63,553       5,994,972       2.6       74,883      
 

 

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 $0.83 as of the last trading day in the year ended December 31, 2012, that would have been received by the option holders had they exercised their options as of that date. The total number of in-the-money stock options outstanding as of December 31, 2012 was 2,609,924. The total number of in-the-money stock options exercisable as of December 31, 2012 was 1,153,204.

  

Restricted Share Units (“RSUs”)

 

On June 24, 2010, the Company’s shareholders approved the adoption of the Company’s restricted share unit plan (the “RSU Plan”). Eligible participants under the RSU Plan include directors and employees 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.

 

Activity with respect to RSUs is summarized as follows:

 

          Weighted  
          average grant  
    RSU     date fair value  
    #     $  
Unvested, December 31, 2010     -       -  
Granted     355,662       2.87  
Vested     -       -  
Forfeited     (79,297 )     2.87  
                 
Unvested, December 31, 2011     276,365       2.87  
Granted     703,572       0.91  
Vested     (136,789 )     2.87  
Forfeited     (16,723 )     1.66  
                 
Unvested, December 31, 2012     826,425       1.53  

 

As of December 31, 2012, outstanding RSUs are as follows:

 

          Weighted-        
          average     Aggregate  
    Number of     remaining     Intrinsic  
    unvested     amortization     Value  
Grant date   options     life (years)     $  
January 28, 2011     133,147       0.08       110,512  
January 12, 2012     288,618       1.03       239,553  
December 7, 2012     404,660       1.93       335,868  
                         
      826,425       1.32       685,933  

 

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

 

Share-Based Compensation Expense

 

Stock-based compensation expense was $2.4 million, $2.5 million and $0.7 million for 2012, 2011 and 2010, respectively.

 

As of December 31, 2012, there was approximately $0.8 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 $0.4 million under the RSU Plan. The expenses are expected to be recognized over a weighted-average period of 1.0 years and 1.5 years, respectively.

 

Cash received from stock options exercised during the years ended December 31, 2012, 2011 and 2010 was less than $0.1 million, $3.4 million and $3.5 million, respectively.

  

Total share-based compensation included in capitalized construction cost for the year and in total is less than $0.1 million.

Fair Value Calculations

 

The fair value of options granted and warrants authorized during the years ended December 31, 2012, 2011 and 2010 was determined using the Black-Scholes option pricing model. The fair value of RSUs granted was determined using the intrinsic value at the date of grant. The following assumptions were used in performing the valuations:

 

    2012   2011   2010
             
Expected warrant life (years)   1.50   0   2.75
Expected option life (years)   3.29 - 3.37   3.24 - 3.28   3.12 - 3.14
Expected volatility   63-78%   79-82%   81-82%
Risk-free interest rate   1.0-1.3%   1.3-1.9%   1.7-1.9%
Forfeiture rate (warrants)   0.0%   0.0%   0.0%
Forfeiture rate (options)   4.6-4.8%   4.4-5.1%   4.3%
Forfeiture rate (RSUs)   12.5-22.3%   5.0%   5.0%
Expected dividend rate   0%   0%   0%

 

The Company estimates expected volatility using daily historical trading data of the Company’s common shares, because this method 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.

 

Although the estimated fair values of stock options are determined as outlined above, these estimates are based on assumptions regarding a number of complex and subjective variables, including the Company’s stock price volatility over the expected terms of the awards, estimates of the expected option terms, including actual and expected option exercise behaviors and estimates of pre-vesting forfeitures. Changes in any of these assumptions could materially affect the estimated value of stock options and, therefore the valuation methods used may not provide the same measure of fair value observed in a willing buyer/willing seller market transaction.

 

The fair value used for the RSUs issued in December 2012, January 2012 and 2011 was $0.76, $0.91 and $2.87, respectively, per unit which was the closing price of the stock on the TSX as of the trading day immediately preceding the grant date.