|3 Months Ended|
Mar. 31, 2019
|Disclosure of Compensation Related Costs, Share-based Payments [Abstract]|
The Company recognized stock-based compensation expense of $9.9 million and $1.0 million in its operating income (loss) for the three months ended March 31, 2019 and 2018, respectively. During the three months ended March 31, 2019, the former President and Chief Executive Officer ("Mona") and the Company entered into a Settlement Agreement (the “Settlement Agreement”), pursuant to which the Company agreed that Mona’s resignation from the Company on January 22, 2019 was for Good Reason (as defined in Mona’s Employment Agreement) and agreed to extend the deadline for Mona’s exercise of his stock options for a period of five years. In exchange, Mona agreed that notwithstanding the terms of his Employment Agreement providing for acceleration of vesting of all stock options and restricted stock units (RSU's) upon a Good Reason resignation, certain of his unvested stock options would not immediately vest, but rather continue to vest if, and only if, certain Company milestones are achieved related to the Company’s drug development efforts. These stock options were issued in July 2016 (6,000,000 options) and March 2017 (5,000,000 options). The Company and Mona also agreed to mutually release all claims arising out of and related to Mona’s resignation and separation from the Company. As a result of the Settlement Agreement, the Company recorded stock-based compensation expense related to the accelerated vesting of the RSU's of $5.1 million and the modification of certain stock options of $2.7 million during the three months ended March 31, 2019.
As of March 31, 2019, total unrecognized compensation cost related to non-vested stock-based compensation arrangements was $6.8 million which is expected to be recognized over a weighted-average period of 1.8 years.
The following summarizes activity related to the Company's stock options and includes 7,250,000 options issued prior to December 31, 2018 outside of the Amended and Restated 2013 Equity Incentive Plan (the "Amended 2013 Plan") (in thousands, except per share data):
The total intrinsic value of stock options exercised during the three months ended March 31, 2019 was $3.3 million. Upon option exercise, the Company issues new shares of stock. There were no stock option exercises during the three months ended March 31, 2018.
The Company has established performance milestones in connection with the drug development efforts for its lead drug candidate CVSI-007. As of March 31, 2019, there were 10,750,000 remaining unvested stock options granted outside of the Amended 2013 Plan which vest upon the completion of future performance conditions, including those related to the Settlement Agreement with Mona.
The following table presents the weighted average grant date fair value of stock options granted and the weighted-average assumptions used to estimate the fair value on the date of grant using the Black-Scholes valuation model:
The risk-free interest rates are based on the implied yield available on U.S. Treasury constant maturities with remaining terms equivalent to the respective expected terms of the options. The Company estimates the expected term for stock options awarded to employees, non-employees, officers and directors using the simplified method in accordance with ASC Topic 718, Stock Compensation, because the Company does not have sufficient relevant historical information to develop reasonable expectations about future exercise patterns. Expected volatility is calculated based on the Company’s peer group, consisting of five companies in the industry in which the Company does business because the Company does not have sufficient historical volatility data. The Company will continue to use peer group volatility information until historical volatility of the Company is available to measure expected volatility for future grants. In the future, as the Company gains historical data for volatility of its own stock and the actual term over which stock options are held, expected volatility and the expected term may change, which could substantially change the grant-date fair value of future stock option awards, and, consequently, compensation of future grants.
The following summarizes RSU activity that contain only service requirements to vest for the Amended 2013 Plan (in thousands, except per share data):
The total fair value of RSU's vested during the three months ended March 31, 2019 was $6.3 million. The associated stock-based compensation expense is included in selling, general and administrative expense.
The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef