Stock Appreciation Rights (SARs)
During the year ended December 31, 2010, the Company
granted 3,795,125 (2009: 753,384) SA Rs. SA Rs can be granted
with an exercise price less than, equal to or greater than the
stock's fair market value at the date of grant and require
the Company to issue stock to the employee upon exercise of
the SA R. The SA Rs have ten year terms and vest and become
fully exercisable over varying periods between one to four
years from the date of grant.
The fair value of each SA R was estimated on the grant date
using the Black-S choles option-pricing model that used the
assumptions in the following table. The fair value is amortized
to compensation expense on a straight-line basis over the
expected term. The Company estimated the expected term of
the SA Rs using an approach that approximated the "simplified
approach." Using this approach, the Company assigned an
expected term for grants with four-year vesting. The expected
stock price volatility was determined by examining the historical
volatilities for peers and using the Company's common
stock. Industry peers consist of several public companies in
the biotechnology industry similar in size, stage of life cycle
and financial leverage. The risk-free interest rate assumption is
based on the US Treasury instruments at grant date whose
term was consistent with the expected term of the Company's
SA Rs. The expected dividend assumption is based on the
Company's history and expectation of dividend payouts.
2010 2009
Valuation assumptions
E xpected dividend yield 0% 0%
E xpected volatility 85% 82%-86%
E xpected term (years) 5.2-6.3 5.5-7.0
Risk-free interest rate 1.3%-1.8% 2.1%-3.2%
SA R activity during the period indicated as follows:
Number
of Shares
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
Weighted Average
Grant-Date Fair Value
Balance at December 31, 2008 675,000 $ 7.90 9.20 $ 0 $ 6.04
Granted 753,384 0.39 0.27
E xercised - - -
E xpired - - -
Forfeited (496,324) 6.53 4.94
Balance at December 31, 2009 932,060 $ 5.44 8.99 $ 0 $ 4.19
Granted 3,795,125 0.24 0.19
E xercised - - -
E xpired - - -
Forfeited (575,736) 1.70 1.28
Balance at December 31, 2010 4,151,449 $0.96 9.45 $740,095 $0.74
Exercisable at December 31, 2009 111,250 $ 9.51 8.01 $ 0
Exercisable at December 31, 2010 842,157 $1.79 8.57 $184,671
The weighted average grant date fair value of SA Rs granted
during the year ended December 31, 2010 was US $0.7 million
(2009: US $0.2 million). During the year ended December 31,
2010, 754,657 (2009: 75,000) SA Rs vested and none were
exercised (2009: none) with a fair value of US $0.5 million
(2009: US $0.5 million). The SA Rs issued through December 31,
2010 have a maximum contract term of ten years.
As of December 31, 2010, there was US $1.2 million (2009:
US $1.5 million) of total unrecognized compensation cost
related to non-vested SA R arrangements granted under the
plan. That cost is expected to be recognized over a weighted
average period of 1.2 years. The total fair value of shares
vested during the year was US $0.5 million (2009: US $0.5 million).
The compensation recognized in operating expenses for
SA Rs for the year ended December 31, 2010 was US $0.7 million
(2009: US $1.2 million).
The Company plans to use authorized and un-issued shares to
satisfy SA R exercises.
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T y r a T e c h , I n c . : A n n u a l R e p o rt 2 0 1 0
