16.Equity

Registered offering

On September 10, 2014 the Company completed a registered public offering (the “Offering”) of 3,692,000 Units (the “Units”), with each Unit consisting of one share of the Company’s common stock (the “Shares”) and a warrant to purchase .50 of a share of the Company’s common stock (the “Warrants”). Each Unit was priced at $0.86 per Unit, before discount to the underwriters. The Warrants became exercisable on March 11, 2015 at an exercise price of $1.21 per share and will expire on September 10, 2019, five years from the date of issuance. The Shares and the Warrants are immediately separable and were issued separately. The Company received net proceeds from the Offering of approximately $2.7 million after the underwriter commissions and expenses of approximately $0.5 million.

In arriving at the value of the Shares and Warrants the Company first valued and recorded the Warrants as a liability on the balance sheet as a result of anti-dilution clauses in the warrant agreements that could result in a resetting of the warrant exercise price in the event the Company were to issue additional shares of its common stock in a future transaction at an offering price lower than the current exercise price of the warrants. A third party expert determined a value for the Warrants at September 4, 2014, the date prior to the announcement of the Offering, using a Monte Carlo simulation, which falls within Level 3 of the fair value hierarchy (see Note 14). The valuation model takes into account the probability that the Company could issue additional shares in a future transaction at a lower price than the current exercise price of the Warrants. Significant inputs to the valuation model included the Company’s closing stock price at September 4, 2014 of $1.01, the exercise price for the Warrants disclosed above, the Company’s stock volatility measured as of September 30, 2014, the applicable risk free interest rate of 1.6%, and the probability of an additional issuance of the Company’s common stock at a lower price than the current warrant exercise price. The fair value of the Warrants was determined to be $1.2 million, with the remaining $1.5 million of net proceeds from the Offering being allocated to additional paid in capital.

Private placement

On September 10, 2014 the Company also completed a private placement (the “Private Placement”) with The Sentient Group (“Sentient”), the Company’s largest stockholder, pursuant to which Sentient purchased, pursuant to Regulation S under the U.S. Securities Act of 1933, a total of 5,800,000 Units (the “Private Placement Units”), with each Private Placement Unit consisting of one share of the Company’s common stock (the “Sentient Shares’) and a warrant to purchase 0.50 of a share of the Company’s common stock (the “Sentient Warrants”). The Sentient Warrants became exercisable on March 11, 2015 at an exercise price of $1.21 per share and will expire on September 10, 2019, five years from the date of issuance. Each Private Placement Unit was priced at $0.817, the same discounted price paid by the underwriters in the Offering. The Company received net proceeds from the Private Placement of approximately $4.7 million after the discount and expenses of approximately $0.3 million. Following the completion of the Private Placement and the Offering, Sentient held approximately 27.2% of the Company’s outstanding common stock (excluding restricted common stock held by the Company’s employees).

In arriving at the value of the Sentient Shares and Sentient Warrants the Company first valued and recorded the SentientWarrants as a liability on the balance sheet as a result of anti-dilution clauses in the warrant agreements that could result in a resetting of the warrant exercise price in the event the Company were to issue additional shares of its common stock in a future transaction at a an offering price lower than the current exercise price of the Sentient Warrants. A third party expert determined a value for the Sentient Warrants at September 4, 2014, the date prior to the announcement of the Offering, using a Monte Carlo simulation, which falls within Level 3 of the fair value hierarchy (see Note 14). The valuation model takes into account the probability that the Company could issue additional shares in a future transaction at a lower price than the current exercise price of the Sentient Warrants. Significant inputs to the valuation model included the Company’s closing stock price at September 4, 2014 of $1.01, the exercise price for the Sentient Warrants disclosed above, the Company’s stock volatility measured as of September 30, 2014, the applicable risk free interest rate of 1.6%, and the probability of an additional issuance of the Company’s common stock at a lower price than the current warrant exercise price. The fair value of the Sentient Warrants was determined to be $1.9M, with the remaining $2.7M of net proceeds from the Private Placement being allocated to additional paid in capital.

Equity Incentive Plans

In May 2014, the Company’s stockholders approved amendments to the Company’s 2009 Equity Incentive Plan, adopting the Amended and Restated 2009 Equity Incentive Plan (the “Equity Plan”), pursuant to which awards of the Company’s common stock may be made to officers, directors, employees, consultants and agents of the Company and its subsidiaries. The Company recognizes stock-based compensation costs using a graded vesting attribution method whereby costs are recognized over the requisite service period for each separately vesting portion of the award.

The following table summarizes the status of the Company’s restricted stock grants issued under the Equity Plan at December 31, 2015 and 2014 and changes during the years then ended:

	The Year Ended December 31,
	2015				2014
Restricted Stock Grants	Number of Shares		Weighted Average Grant Date Fair Value Per Share		Number of Shares		Weighted Average Grant Date Fair Value Per Share
Outstanding at beginning of year	600,838		$	1.48	915,971		$	2.47
Granted during the year	—		—		140,000		0.52
Restrictions lifted during the year	(516,668	)	1.64		(455,133	)	3.18
Forfeited during the year	—		—		—		—

Outstanding at end of year	84,170		$	0.46	600,838		$	1.48

No restricted stock grants were made during the year ended December 31, 2015. During the year ended December 31, 2014 restricted stock grants were made to one officer and one new employee at the date of hire.

Restrictions were lifted on 336,334 shares during the year ended December 31, 2015 on the anniversaries of grants made to officers and employees in prior years. In addition, during 2015 restrictions were lifted on 163,334 shares related to the retirement of two officers during the year and restrictions were lifted on 12,000 shares during 2015 in connection with the termination of employment of two employees. Restrictions were lifted on 444,633 shares during the year ended December 31, 2014 on the anniversaries of grants made to officers and employees in prior years and restrictions were lifted on an additional 10,500 shares during 2014 in connection with the termination of employment of two employees.

For the years ended December 31, 2015 and 2014 the Company recognized approximately $0.2 million and $0.5 million, respectively, of compensation expense related to the restricted stock grants. The Company expects to recognize a nominal amount of compensation expense related to these grants over the next 12 months.

The following table summarizes the status of the Company’s stock option grants issued under the Equity Plan at December 31, 2015 and 2014 and changes during the years then ended:

	The Year Ended December 31,
	2015			2014
Equity Plan Options	Number of Shares	Weighted Average Grant Date Fair Value Per Share		Number of Shares		Weighted Average Grant Date Fair Value Per Share
Outstanding at beginning of year	245,810	$	3.47	110,810		$	8.02
Granted during the year	—	—		150,000		0.56
Restrictions lifted during the year	—	—		—		—
Forfeited during the year	—	$	—	(15,000	)	$	8.00

Outstanding at end of year	245,810	$	3.47	245,810		$	3.47

Exercisable at end of period	245,810	$	3.47	95,810		$	8.02
Granted and vested	245,810	$	3.47	95,810		$	8.02

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model using the assumptions noted in the following table. Expected volatilities are based on the historical volatilities of the Company’s shares. The Company uses historical data to estimate option exercises and forfeitures within the Black-Scholes model. The expected term of the options granted represents the period of time that options granted are expected to be outstanding, based on past experience and future estimates and includes data related to both employees and directors. The risk-free rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company currently does not foresee the payment of dividends in the near term.

	Grant Date
	November 12,
	2014
Expected volatility	82.64	%
Weighted average volatility	82.64	%
Expected dividend yield	—
Expected term (in years)	5
Risk-free rate	0.88	%

The grant made during 2014 was to a manager at our Velardeña Properties. The manager’s employment was terminated in conjunction with the suspension of operations at our Velardeña Properties and has six months from the termination date to exercise the options.

The options that expired during 2014 were options issued to former ECU stock option holders to replace options previously issued to them by ECU.

During the year ended December 31, 2015, the Company recognized expense of less than $0.1 million related to the outstanding options. The Company does not expect to record any additional expense related to these options.

Also, pursuant to the Equity Plan, the Company’s Board of Directors adopted the Non-Employee Director’s Deferred Compensation and Equity Award Plan (the “Deferred Compensation Plan”). Pursuant to the Deferred Compensation Plan the non-employee directors receive a portion of their compensation in the form of Restricted Stock Units (“RSUs”) issued under the Equity Plan. The RSUs vest on the first anniversary of the grant and each vested RSU entitles the director to receive one unrestricted share of common stock upon the termination of the director’s board service.

The following table summarizes the status of the RSU grants issued under the Deferred Compensation Plan at December 31, 2015 and 2014 and changes during the years then ended:

	For the Year Ended December 31,
	2015			2014
Restricted Stock Units	Number of Underlying Shares	Weighted Average Grant Date Fair Value Per Share		Number of Underlying Shares	Weighted Average Grant Date Fair Value Per Share
Outstanding at beginning of year	935,285	$	2.08	585,285	$	2.97
Granted during the year	310,000	0.39		350,000	0.58
Restrictions lifted during the year	—	—		—	—
Forfeited during the year	—	—		—	—

Outstanding at end of year	1,245,285	$	1.66	935,285	$	2.08

For the years ended December 31, 2015 and 2014 the Company recognized approximately $0.2 million and $0.4 million, respectively, of compensation expense related to the RSU grants. The Company expects to recognize additional compensation expense related to the RSU grants of less than $0.1 million over the next six months.

Pursuant to the KELTIP (see Note 10), KELTIP Units may be granted to certain officers and key employees of the Company, which units will, once vested, entitle such officers and employees to receive an amount in cash or in Company common stock measured generally by the price of the Company’s common stock on the settlement date. The KELTIP Units are recorded as a liability as discussed in detail in Note 10. All of the outstanding KELTIP Units were settled during 2015 upon the retirement of an officer of the Company. The Company issued 172,500 shares of its common stock under the Equity Plan to settle the outstanding KELTIP Units.

Common stock warrants

The following table summarizes the status of the Company’s common stock warrants at December 31, 2015 and December 31, 2014 and changes during the years then ended:

	For the Year Ended December 31,
	2015			2014
Common Stock Warrants	Number of Underlying Shares	Weighted Average Exercise Price Per Share		Number of Underlying Shares		Weighted Average Exercise Price Per Share
Outstanding at beginning of year	8,777,409	$	3.95	5,263,578		$	12.10
Granted during period	—	—		4,746,000		1.21
Dilution adjustment	—	—		599,760		7.17
Expired during period	—	—		(1,831,929	)	19.00
Exercised during period	—	—		—		—

Outstanding at end of year	8,777,409	$	3.95	8,777,409		$	3.95

The warrants issued during the period are related to the Offering and Private Placement of the Company’s securities completed on September 10, 2014 as discussed above.

In September 2012, the Company closed on a registered offering and concurrent private placement with Sentient in which it sold units, consisting of one share of common stock and a five-year warrant to acquire one half of a share of common stock at an exercise price of $8.42 per share (the “September 2012 Warrants”). Pursuant to certain dilution adjustment provisions in the warrant agreement governing the September 2012 Warrants, the number of shares of common stock issuable upon exercise of the September 2012 Warrants was increased from 3,431,649 shares to 4,031,409 shares (599,760 share increase) and the exercise price was reduced from $8.42 per share to $7.17 per share pursuant to a weighted average dilution calculation based on the pricing of the Offering and the Private Placement.

The warrants that expired during 2014 were warrants related to the merger with ECU on September 2, 2011 and were issued to former ECU warrant holders to replace warrants previously issued to them by ECU.

The warrants issued in September 2012 and September 2014 are being recorded as a liability on the balance sheet as a result of anti-dilution clauses in the warrant agreements that could result in a resetting of the warrant exercise price in the event the Company were to issue additional shares of its common stock in a future transaction at an offering price lower than the current exercise price of the warrants. At December 31, 2015 the total liability for the warrants was $210,000, consisting of $205,000 for 2014 warrants and $5,000 for the 2012 warrants. The warrant liability has been recorded at fair value as of December 31, 2015 based primarily on a valuation performed by a third party expert using a Monte Carlo simulation, which falls within Level 3 of the fair value hierarchy. The valuation model takes into account the probability that the Company could issue additional shares in a future transaction at a lower price than the current exercise price of the warrants. Significant inputs to the valuation model included the Company’s closing stock price at December 31, 2015 of $0.20, the exercise prices for the warrants disclosed above, the Company’s stock volatility of 85%, the applicable risk free interest rate of 1.5%, and the probability of an additional issuance of the Company’s common stock at a lower price than the current warrant exercise price. The balances for warrant liability, paid-in capital, and accumulated earnings also reflect an adjustment made during 2014 to reflect the impact of recording the 2012 warrants as a liability. Paid in capital and accumulated deficit were reduced by $15.6 million $15.5 million respectively and warrant liability was increased by $0.2 million. The adjustments were determined to be immaterial to the Company’s financial statements filed in prior periods.

Subsequent to December 31, 2015, two anti-dilution adjustments have been made to the warrants issued in September 2012 and September 2014, resulting from the January 19, 2016 approval by the Company’s stockholders of the convertibility of the Sentient Note and from the subsequent February 11, 2016 conversion by Sentient of a portion of the Sentient Note and accrued interest. (See Note 25.)