2012 Annual Report - Prometic - Life Science, Inc.

d) Stock-based compensation:
The Company uses the Black-Scholes option pricing model (a binomial model) to calculate the fair value of options at the date of grant, using
the following assumptions:
The fair value of each option granted was estimated on the grant date for purposes of determining stock-based compensation expense using
the binomial option pricing model. The volatility measured at the standard deviation of continuously compounded share returns is based on
statistical analysis of daily share prices over a historical period equal to the expected life of the option. The weighted average inputs into the
model and the resulting grant date fair values were as follows:
Years ended December 31,
2012 2011
Expected dividend yield $ 0.00 $ 0.00
Expected volatility of share price 88.52 % 90.16 %
Risk-free interest rate 1.32 % 1.72 %
Expected life in years 5 years 5 years
Weighted average grant date fair value $ 0.09 $ 0.09
A compensation expense of $365 was recorded in the stock-based compensation for the year 2012 ($198 for the year 2011) as a result of stock
options granted to directors, officers, employees and consultants.
The risk-free rate used in determining the fair value of the share option awards are based on the Government of Canada yield curve.
The resulting fair value is expensed over the service period of one to five years on the assumption that 5.35% (5.67% in 2011) of the options will
lapse over the service period as employees leave the Company.
e) Restricted share units
In May 2011, the Company granted a total of 3,200,000 equity-settled restricted share units (“RSUs”) to certain executive officers of the
Company, as part of its incentive program designed to align the interests of its executives with those of its shareholders, and in accordance with
its Long Term Incentive Plan (“LTIP”). The RSUs only vest upon achievement of various important corporate and commercial objectives that
would create significant shareholder value.
The expense is evaluated taking into consideration the probability of each objective being reached and the estimated date (which cannot
exceed December 31, 2013), upon which it is expected that each objective will likely be reached.
A compensation expense of $140 for the year ended December 31, 2012 ($113 for the year ended December 31, 2011) was recorded in the
stock-based compensation.
21. RELATED PARTY TRANSACTIONS
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on
consolidation and are not disclosed in this note. Details of transactions between the Company and other related parties are disclosed below
and in other notes accordingly.
Camofi Guarantee
On December 5, 2008, the Company entered into an agreement to provide a guarantee (the “Guarantee”) in favour of Camofi Master LDC
(“Camofi”), relating to an amended and restated loan agreement (the “Loan”) that Camofi had provided to a company (the “borrower”) whollyowned
by a senior officer of the Company. The Loan was originally contracted in December 2007 for the purposes of purchasing shares of the
Company.
The Guarantee provides that the Company must be prepared to fulfill the borrower’s obligations with respect to the full payment of capital and
interest for the Loan if the borrower is unable to do so. Any such payment shall be made within two days of receipt of notice of default from
Camofi. Alternatively, the borrower can force Camofi to liquidate some or all of the shares of the Company that are held as collateral to cover the
Loan. If called upon under the Guarantee, the Company may chose either to pay in cash or request that the borrower instruct Camofi to liquidate
up to 2,300,000 shares of the Company to repay the Loan.
PROMETIC LIFE SCIENCES INC.
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