Note 11 - Share-Based Payments

6 Months Ended

Jun. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

11. Share-Based Payments

2005 Equity Incentive Plan

The 2005 Equity Incentive Plan (the “2005 Plan”) was adopted on September 1, 2005, approved by stockholders on September 5, 2005 and became effective on January 4, 2006. The 2005 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to EpiCept’s employees and its parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, performance-based awards and cash awards to its employees, directors and consultants and its parent and subsidiary corporations’ employees and consultants. Options are granted and vest as determined by the Board of Directors. A total of 13,000,000 shares of EpiCept’s common stock are reserved for issuance pursuant to the 2005 Plan. No optionee may be granted an option to purchase more than 1,500,000 shares in any fiscal year. Options issued pursuant to the 2005 Plan have a maximum maturity of 10 years and generally vest over 4 years from the date of grant. The Company records stock-based compensation expense at fair value. There were no grants during the six months ended June 30, 2013.

The following table presents the total employee, board of directors and third party stock-based compensation expense resulting from stock options, restricted stock, restricted stock units and the Employee Stock Purchase Plan included in the condensed consolidated statement of operations and comprehensive income (loss) for the three and six months ended June 30, 2013 and 2012:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(in $000s)				(in $000s)
Selling, general and administrative	$	30	$	130	$	66	$	317
Research and development		11		29		22		87
Stock-based compensation expense before income taxes		41		159		88		404
Benefit for income taxes (1)		—		—		—		—
Net compensation expense	$	41	$	159	$	88	$	404

(1) The stock-based compensation expense has not been tax-effected due to the recording of a full valuation allowance against net deferred tax assets.

Summarized information for stock option grants for the six months ended June 30, 2013 is as follows:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Options outstanding at December 31, 2012		2,530,864		$	3.94		6.45	$	—
Granted		—			—
Exercised		—			—
Forfeited		(44,375	)		4.62
Expired		(208,500	)		2.78
Options outstanding at June 30, 2013		2,277,989		$	4.04		5.84	$	—
Vested or expected to vest at June 30, 2013		2,258,030		$	4.06		5.74	$	—
Options exercisable at June 30, 2013		2,078,401		$	4.30		5.74	$	—

There were no stock option exercises during each of the six months ended June 30, 2013 and 2012. There were no stock options granted during the six months ended June 30, 2013. The weighted average grant-date fair value of options granted for the six months ended June 30, 2012 was $0.35 and was estimated at the date of grant using the Black-Scholes option-pricing model and the assumptions noted in the following table:

	Six Months Ended June 30,
	2013	2012
Expected volatility	n/a	110%
Risk free interest rate	n/a	0.89%
Dividend yield	n/a	—
Expected life (Years)	n/a	5

Following the departure of three former directors in August 2012, the Company agreed to extend the period during which they would be entitled to exercise certain vested stock options to purchase its common stock from three months following the effective date of their resignations to the expiration date of each option granted to each former director. Additionally, all options and restricted stock units that were not vested on the date of their respective resignations will continue to vest. The Company recorded compensation expense related to the modification of the exercise period and vesting period of $23,000 in 2012. 

The total remaining unrecognized compensation cost related to the non-vested stock options, restricted stock and restricted stock units amounted to $0.1 million as of June 30, 2013, which will be amortized over the weighted-average remaining requisite service period of 1.08 years.

Restricted Stock

Restricted stock was issued to a certain non-employee member of the Company’s Board of Directors during the six months ended June 30, 2012, which entitled the holder to receive approximately 0.1 million shares of the Company’s common stock upon achieving certain objectives within a one year vesting period, which was achieved and vested in 2012. This restricted stock grant is accounted for at fair value at the date of grant and an expense was recognized during the vesting term. No restricted stock was granted during the six months ended June 30, 2013.

Restricted Stock Units

Restricted stock units were issued to certain employees and non-employee members of the Company’s Board of Directors during the six months ended June 30, 2012. Typically, restricted stock units entitle the holder to receive a specified number of shares of the Company’s common stock at the end of the vesting term, ranging from one year to four years. The restricted stock unit grant is accounted for at fair value at the date of grant and an expense is recognized during the vesting term. No restricted stock units were granted during the six months ended June 30, 2013. Summarized information for restricted stock unit grants for the six months ended June 30, 2013 is as follows:

	Restricted Stock Units			Weighted Average Grant Date Value Per Share
Nonvested at December 31, 2012		405,000		$	0.16
Granted		—			—
Vested		(405,000	)		0.16
Forfeited		—			—
Nonvested at June 30, 2013		—		$	—

2009 Employee Stock Purchase Plan

The 2009 Employee Stock Purchase Plan (the “2009 ESPP”) was adopted by the Board of Directors on December 19, 2008, subject to stockholder approval, and was approved by the stockholders at the Company’s 2009 Annual Meeting held on June 2, 2009. The 2009 ESPP was effective on January 1, 2009 and a total of 1,000,000 shares of common stock have been reserved for sale. The 2009 ESPP is implemented by offerings of rights to all eligible employees from time to time. Unless otherwise determined by the Company’s Board of Directors, common stock is purchased for accounts of employees participating in the 2009 ESPP at a price per share equal to the lower of (i) 85% of the fair market value of a share of the Company's common stock on the first day the offering or (ii) 85% of the fair market value of a share of the Company's common stock on the last trading day of the purchase period. The initial period commenced January 1, 2009 and ended on June 30, 2009. Each subsequent offering period will have a six month duration.

The number of shares to be purchased at each balance sheet date is estimated based on the current amount of employee withholdings and the remaining purchase dates within the offering period. The fair value of share options expected to vest is estimated using the Black-Scholes option-pricing model. There were no shares issued under the 2009 ESPP during the six months ended June 30, 2013 and 2012, so no expense was recorded. A total of 78,267 shares have been issued under the 2009 ESPP as of June 30, 2013.

Warrants

The following table summarizes information about warrants outstanding at June 30, 2013:

	Options			Weighted Average Exercise Price
Warrants outstanding at December 31, 2012		25,115,796		$	1.64
Issued		—			—
Exercised		—			—
Expired		(3,396,882	)		3.07
Warrants outstanding at June 30, 2013		21,718,914		$	1.42