Restructuring Charge

3 Months Ended

Sep. 30, 2016

Restructuring Charge

Restructuring Charge

G.       Restructuring Charge

On September 26, 2016, the Board of Directors approved a plan to reengineer the business, resulting in a reduction of the workforce by approximately 17%, or 65 positions, which included the separation of 60 current employees.  Communication of the plan to the impacted employees was substantially completed on September 29, 2016. All of the workforce reduction is expected to be completed during the quarter ending December 31, 2016.  As a result of the workforce reduction, in the current period, the Company recorded a restructuring charge totaling $3.1 million related to termination benefits and other related charges, of which $2.5 million was recorded as a one-time termination benefit, and $593,000 recorded as a benefit under an ongoing benefit plan.  An additional one-time termination charge of approximately $257,000 is anticipated to be recorded in the quarter ending December 31, 2016.  No cash payments were made during the current period. The related cash payments will begin to be paid out in October 2016 and will be substantially paid out by June 30, 2017.  Additionally, approximately 762,000 stock options will forfeit in the quarter ending December 31, 2016 in connection with the workforce reduction, and as a result, the Company recorded an approximate $837,000 credit to stock compensation expense related to these known future forfeitures which is included in research and development expense and general and administrative expense for the current period.

In addition to the termination benefits and other related charges, the Company will seek to sub-lease 10,281 square feet of unoccupied office space in Waltham that was leased in February 2016. Based on an estimate of the potential time it will take to find a tenant of approximately nine months, the anticipated sub-lease terms, and consideration of the tenant allowance that was given to the Company to build out the space, the Company determined it did not need to record a loss on the sub-lease. The Company then evaluated the balance of the leasehold improvements for potential impairment as of September 30, 2016. In performing the recoverability test, the Company concluded that a substantial portion of the leasehold improvements were not recoverable. The Company recorded an impairment charge of $970,000 related to these assets after comparing the fair value (using probability weighted scenarios with discounted cash flows) to the leasehold improvements’ carrying value, leaving a remaining cost basis of $193,000 as of September 30, 2016.

In September 2016, the Compensation Committee of the Board of Directors approved cash and stock option retention incentive awards for certain remaining eligible employees who continue employment with the Company in order to execute the Company’s strategic priorities. The cash awards will be payable to these employees in either October 2017 or March 2018 based on continued employment and services performed during these periods. Stock option awards covering 847,000 shares were granted and will vest annually in equal installments over three years from the date of grant and are included in the option summary table within the “Stock-Based Compensation” section of Note B above.