Stockholders' Equity

12 Months Ended

Dec. 31, 2011

Stockholders' Equity [Abstract]

Stockholders' Equity

7. Stockholders' Equity

On June 1, 2010, the Company's Certificate of Incorporation was amended to increase the number of authorized shares of capital stock from 65,000,000 shares to 105,000,000 shares and to increase the number of authorized shares of common stock from 60,000,000 shares to 100,000,000 shares.

Preferred Stock

The Company's Certificate of Incorporation provides that the Board of Directors of the Company has the authority to issue up to an aggregate of 5,000,000 shares of preferred stock in one or more classes or series and to determine, with respect to any such class or series, the designations, powers, preferences and rights of such class or series, and the qualifications, limitations and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption prices, liquidation preferences and the number of shares constituting any class or series or the designation of such class or series, without further vote or action by the stockholders.

As of December 31, 2011, no shares of preferred stock were issued and outstanding.

Common Stock

In April 2008, the Company issued 30,612 shares of its common stock, subject to trading restrictions, at a value of approximately $4.90 per share, as consideration for the $150,000 anniversary milestone payment due under its product license agreement with Dr. M. Gopal Nair (see Note 6).

In April 2007, the Company issued 26,643 shares of its common stock, subject to trading restrictions, at a value of approximately $5.63 per share, as consideration for the $150,000 anniversary milestone payment due under its product license agreement with Dr. M. Gopal Nair (see Note 6).

In May 2006, the Company issued 63,131 shares of its common stock as consideration for a product license agreement with DSP (see Note 6), with a value of approximately $4.35 per share, or $274,621.

During April 2004, the Company issued 471,816 common shares as consideration in the product license agreement (see Note 6) and 478,330 shares were sold to Simon Pedder, the Company's President and Chief Executive Officer under the terms of his employment agreement. These shares were valued at what was, at that time, Chelsea's common stock's estimated aggregate fair value of $402 and $408, respectively, with such nominal values reflecting an asset-based valuation methodology.

During 2002, the Company issued 5,428,217 shares of its common stock for a subscription receivable of $4,625.

Warrants

At December 31, 2011 and 2010, the Company had outstanding warrants to purchase 2,875,022 and 5,255,588 shares, respectively, of the Company's common stock. Warrants outstanding as of December 31, 2011 were issued at prices ranging from $2.79 to $5.66 per share.

On March 5, 2010, in conjunction with the 2010 Offering, the Company issued warrants for the purchase of 2,345,000 shares of its common stock. These warrants had an aggregate fair value of approximately $3.9 million, permit the holders to purchase the underlying common shares at $2.79 each or elect a net share settlement and are exercisable in whole at any time, or in part from time to time, during the period commencing six months after the date of issuance and ending three years from the date of issuance. At December 31, 2011, warrants for the purchase of 1,286,764 shares of the Company's stock remained outstanding.

In March 2007, in conjunction with the 2007 Placement (see Note 5), the Company issued warrants for the purchase of 794,492 shares of its common stock. The aggregate fair value of these warrants was approximately $1.3 million. The warrants permit the holders to purchase the underlying common shares at $5.66 each and are exercisable in whole at any time, or in part from time to time, for cash, for five years from the date of issuance. The warrants are redeemable at par value at the Company's option in the event that the volume weighted-average closing price of the Company's common stock is greater than $12.00 per share for any 20 consecutive trading days provided the Company gives 60 business days' written notice to the holders and simultaneously call all warrants on the same terms. At December 31, 2011, all of these warrants remained outstanding.

In May 2006, in conjunction with and as compensation for activities related to the product license agreement with DSP (see Note 6) and under a finder's agreement, the Company issued warrants to purchase 250,000 shares of its common stock, with an exercise price of $4.31 per share. The exercise of these warrants was conditioned on an event that did not occur until January 2007. As such, in January 2007, the Company recorded a charge based on the warrants' aggregate fair value at that date of $433,750. The warrants permit the holders to purchase the underlying common shares at $4.31 per share, and are exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance. At December 31, 2011, all of these warrants remained outstanding.

In February 2006, in conjunction with the 2006 Placement (see Note 5), the Company issued warrants for the purchase of 2,149,999 shares of its common stock. The allocated aggregate fair value of these warrants was approximately $1.1 million. The warrants permitted the holders to purchase the underlying common shares at $4.20 each and were exercisable in whole at any time, or in part from time to time, for cash, for five years from the date of issuance. In addition, these warrants were redeemable at the Company's option in the event that the volume weighted average closing bid price of its common stock for any 20 consecutive trading days was at least $9.00 per share. These warrants were scheduled to expire in February 2011 and, prior to that date, warrants for the purchase of 2,131,399 shares of common stock had been exercised by the holders. The remaining warrants for the purchase of 18,600 share of common stock remained unexercised and expired in February 2011.

The Company also issued warrants to its placement agent for the 2006 Placement to purchase 716,666 shares of its common stock with an exercise price of 110% of the purchase price per share based on shares sold in the 2006 Placement, or $3.30 per share and an aggregate fair value of approximately $705,000. These warrants are exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance. At December 31, 2011, warrants for the purchase of 543,766 shares of the Company's tock remained outstanding.

In February 2005, in conjunction with and as compensation for facilitating the Merger (see Note 1), the Company issued warrants for the purchase of 105,516 shares of its common stock at an exercise price of approximately $2.62 per share. The aggregate fair value of these warrants was approximately $26,700. These warrants were exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance. At December 31, 2011, all of these warrants had been exercised by the holders.

In December 2004, as compensation for fundraising efforts related to the 2004 Placement (see Note 5), the Company issued warrants to purchase 483,701 shares of its common stock, with a purchase price of 110% of the purchase price per share based on shares sold in the 2004 Placement, or, as converted under terms of the Merger Agreement, approximately $2.89 per share. The aggregate fair value of these warrants was approximately $14,000. The warrants permit the holders to purchase the underlying common shares at $2.88 per share, and were exercisable in whole at any time, or in part from time to time, for cash or in a net share settlement, for seven years from the date of issuance. These warrants were scheduled to expire in December 2011 and, prior to that date, all had been exercised by the holders.

Exercise of Common Stock Warrants

During January and February 2011, various warrant holders exercised their rights to purchase an aggregate of 1,993,444 shares of the common stock of the Company, with an exercise price of $4.20 per share, pursuant to cash exercises whereby the Company received proceeds of approximately $8.4 million. In addition, in December 2011, a warrant holder exercised its right to purchase 37,277 shares of the common stock of the Company, with an exercise price of approximately $2.89 per share, pursuant to a cash exercise whereby the Company received proceeds of approximately $0.1 million.

During 2011, various warrant holders exercised the rights to purchase 331,245 shares of the common stock of the Company, with exercise prices of $2.89 per share, pursuant to cashless exercises whereby the Company, in net share settlements, issued 149,950 shares of its common stock to the various warrant holders based on the excess of the market price over the exercise price on the dates of exercise.

During 2010, a warrant holder exercised the right to purchase 26,379 shares of the common stock of the Company, with an exercise price of $2.62 per share, pursuant to a cashless exercise whereby the Company, in a net share settlement, issued 14,298 shares of its common stock to the warrant holder based on the excess of the market price over the exercise price on the date of exercise. Also in 2010, a warrant holder exercised the right to purchase 1,058,236 shares of the common stock of the Company, with an exercise price of $2.79 per share, pursuant to a cashless exercise whereby the Company, in a net share settlement, issued 661,930 shares of its common stock to the warrant holder based on the excess of the market price over the exercise price on the date of exercise.

During 2010, various warrant holders exercised their rights to purchase an aggregate of 65,555 shares of the common stock of the Company at an exercise price of $4.20 per share pursuant to cash exercises whereby the Company recorded proceeds of approximately $275,000.

During 2009, various warrant holders exercised rights to purchase 119,691 shares of the common stock of the Company, with an average exercise price of approximately $3.27 per share, pursuant to cashless exercises whereby the Company, in net share settlements, issued 63,927 shares of its common stock to the warrant holders based on the excess of the market price over the exercise price on the respective dates of exercise.

During 2008, various warrant holders, on various dates, exercised rights to purchase 100,487 shares of the common stock of the Company, with an average exercise price of approximately $2.91 per share, pursuant to cashless exercises whereby the Company, in net share settlements, issued 57,983 shares of its common stock to the warrant holders based on the excess of the market price over the exercise price on the respective dates of exercise.

During 2008, various warrant holders, on various dates, exercised rights to purchase 11,200 shares of the common stock of the Company at an exercise price of $4.20 per share pursuant to a cash exercise whereby the Company recorded proceeds of $47,040.

During 2007, various warrant holders, on various dates, exercised rights to purchase 116,596 shares of the common stock of the Company, with an average exercise price of approximately $2.90 per share, pursuant to cashless exercises whereby the Company, in net share settlements, issued 68,136 shares of its common stock to the warrant holders based on the excess of the market prices over the exercise prices on the respective dates of exercise.

During 2007, various warrant holders, on various dates, exercised rights to purchase 61,200 shares of the common stock of the Company at an exercise price of $4.20 per share pursuant to a cash exercise whereby the Company recorded cash proceeds, net of expenses, of $252,040.

During 2006, various warrant holders, on various dates, exercised rights to purchase 30,422 shares of the Company's common stock, with an exercise price of approximately $2.89 per share, pursuant to cashless exercises whereby the Company, in net share settlements, issued 15,461 shares of its common stock to the warrant holders based on the excess of the market prices over the exercise prices on the respective dates of exercise.

Stock Options

The Company has a stock incentive plan (the "Plan") under which incentive stock options for 7,400,000 shares of the Company's common stock may be granted. Grants under the Plan may be made to employees (including officers), directors, consultants, advisors or other independent contractors who provide services to the Company or its subsidiary.

Options awards to employees and directors are granted with an exercise price equal to or greater than the market price of the Company's stock at the date of the grant and generally have 10-year contractual terms.

During the years ended December 31, 2011, 2010 and 2009, the Company granted stock options to employees and non-employee directors for the purchase of 1,190,500, 861,000 and 938,290 shares of its common stock, respectively. The grants made during the year ended December 31, 2011 had a weighted-average exercise price of $6.91 per share, a weighted average grant date fair value of $4.60 per share and an aggregate intrinsic value at December 31, 2011 of approximately $0.1 million. The grants made during the year ended December 31, 2010 had a weighted-average exercise price of $3.10 per share, a weighted average grant date fair value of $2.24 per share and an aggregate intrinsic value at December 31, 2011 of approximately $1.7 million. The grants made during the year ended December 31, 2009 had a weighted-average exercise price of $1.99 per share, a weighted average grant date fair value of $1.33 per share and an aggregate intrinsic value at December 31, 2011 of approximately $2.9 million. The aggregate intrinsic value is calculated as the difference between the exercise prices of the underlying awards and the quoted closing price of the common stock of the Company as of December 31, 2011 for those awards that have an exercise price below the quoted closing price. Each option granted to employees and non-employee directors during 2011, 2010 and 2009 vests as to 25% of the shares on each of the first, second, third and fourth anniversary of the vesting commencement date. Following the vesting periods, options are exercisable by employees until the earlier of 90 days after the employee's termination with the Company or the ten-year anniversary of the initial grant, subject to adjustment under certain conditions. Following the vesting periods, options are exercisable by non-employee directors until the earlier of 180 days after they cease to be a member of the Board of Directors or the ten-year anniversary of the initial grant, subject to adjustment under certain conditions.

A summary of the Company's stock option activity and related information since inception is as follows:

	Available For Grant			Activity/ Balance			Wtd Avg Exercise Price
Establish 2002 Option Plan		1,085,648			—		$	—
Balance at December 31, 2002		1,085,648			—
2003 Activity		—			—		$	—
Balance at December 31, 2003		1,085,648			—
Cancel 2002 Stock Option Plan		(1,085,648	)		—		$	—
Establish 2004 Stock Option Plan		1,085,648			—		$	—
2004 Option grants		(363,835	)		363,835		$	0.56
Balance at December 31, 2004		721,813			363,835
2005 Plan Amendment		410,784			—
2005 Option grants		(761,451	)		761,451		$	2.66
2005 Cancellations		58,683			(58,683	)	$	2.62
2005 Exercises		—			(14,663	)	$	0.07
Balance at December 31, 2005		429,829			1,051,940
2006 Plan Amendments		1,148,568			—
2006 Option grants		(668,085	)		668,085		$	3.61
2006 Cancellations		8,802			(8,802	)	$	2.62
2006 Exercises		—			(78,683	)	$	0.06
Balance at December 31, 2006		919,114			1,632,540
2007 Plan Amendments		1,500,000			—
2007 Option grants		(665,500	)		665,500		$	5.72
2007 Exercises		—			(17,868	)	$	0.88
Balance at December 31, 2007		1,753,614			2,280,172
2008 Option grants		(837,500	)		837,500		$	6.11
2008 Cancellations		148,802			(148,802	)	$	4.95
2008 Exercises		—			(94,230	)	$	0.63
Balance at December 31, 2008		1,064,916			2,874,640
2009 Plan Amendments		855,000			—
2009 Option grants		(938,290	)		938,290		$	1.99
Balance at December 31, 2009		981,626			3,812,930
2010 Plan Amendments		1,200,000			—
2010 Option grants		(861,000	)		861,000		$	3.10
2010 Cancellations		12,000			(12,000	)	$	2.93
Balance at December 31, 2010		1,332,626			4,661,930
2011 Plan Amendments		1,200,000			—
2011 Option grants		(1,190,500	)		1,190,500		$	6.91
2011 Cancellations		40,000			(40,000	)	$	5.07
Balance at December 31, 2011		1,382,126			5,812,430

As of December 31, 2011, there were 5,812,430 options outstanding under the Plan with a weighted average remaining contractual life of 6.4 years, a weighted average grant date fair value of $2.50 per share and an aggregate intrinsic value at December 31, 2011 of approximately $8.2 million. Also, options for 3,340,660 shares had vested and were exercisable at December 31, 2011 with a weighted average remaining contractual life of 5.1 years, a weighted average exercise price of $3.86 per share, a weighted average grant date fair value of $1.92 per share and an aggregate intrinsic value at December 31, 2011 of approximately $5.3 million. During the years ended December 31, 2011, 2010 and 2009, no options were exercised. The weighted average exercise price for all vested and unvested options outstanding as of December 31, 2011, 2010 and 2009 is approximately $4.32, $3.66 and $3.79 per share, respectively.

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance consists of the following:

	December 31,
	2011		2010
Common stock warrants outstanding		2,875,022		3,260,944
Common stock options outstanding		5,812,430		4,661,930
Common stock options available for future grants		1,382,126		1,332,626
		10,069,578		9,255,500

At December 31, 2011, the Company had warrants for the purchase of 2,080,530 shares of its common stock outstanding for which the warrant holders could elect a net share settlement. Based on the market price as of December 31, 2011 and the exercise prices of the warrants that ranged from $2.79 to $4.31 per share, the Company would have issued, in net share settlements, 820,881 shares of its common stock in settlement of these warrants.