14.Shareholders’ Equity and Capital Stock

 

Stock options

 

In 2005, the Company’s Board of Directors approved the adoption of the Company's stock option plan (the “Option Plan”). The plan was most recently approved by the shareholders on April 29, 2014.  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 shares 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 nine months ended September 30, 2016 was $0.5 million.

 

As of September 30, 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 Cdn$0.64 as of the last trading day in the period ended September 30, 2016, that would have been received by the option holders had they exercised their options as of that date.  No options were in-the-money as of September 30, 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 by our shareholders most recently on May 5, 2016.

 

Eligible participants under the RSU Plan include directors and employees of the Company. Under the terms of the original RSU Plan, RSUs vested 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 in a grant are not redeemed until the second anniversary 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 amendments described.

 

Activity with respect to RSUs is summarized as follows:

 

 

 

As of September 30, 2016, outstanding RSUs are as follows:

 

 

 

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

 

Warrants

 

The following represents warrant activity during the period ended September 30, 2016.

 

 

 

As of September 30, 2016, outstanding warrants are as follows:

 

 

 

Share-based compensation expense

 

Share-based compensation expense was $0.2 million and $0.6 million for the three and nine months ended September 30, 2016 and $0.2 million and $0.7 million for the three and nine months ended September 30, 2015, respectively.

 

As of September 30, 2016, there was approximately $0.2 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 $0.3 million under the RSU Plan. The expenses are expected to be recognized over a weighted-average period of 0.6 years and 0.9 years, respectively.

 

Cash received from stock options exercised during the nine months ended September 30, 2016 was less than $0.1 million and $0.4 million for the nine months ended September 30, 2015.

 

Fair value calculations

 

The initial fair value of options and RSUs granted is determined using the Black-Scholes option pricing model for options and the intrinsic pricing model for RSUs.  There were no options or RSUs granted in the nine months ended September 30, 2016.  The following assumptions were used in the calculations:

 

 

 

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.