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v2.4.0.6
SHARE-BASED COMPENSATION
3 Months Ended
Mar. 31, 2012
Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]  
Disclosure of Share-based Compensation Arrangements by Share-based Payment Award [Table Text Block]
22. SHARE-BASED COMPENSATION

 

Stock Options

 

The Company has two stock option plans:  the 2009 Stock Incentive Plan (the “2009 Plan”) and the 2003 Stock Incentive Plan (the “2003 Plan”).  The Company applies authoritative guidance issued by the Financial Accounting Standards Board regarding share-based payments in accounting for the 2009 Plan and the 2003 Plan, which requires that compensation for services that a corporation receives through share-based compensation plans be measured based on the fair value of options on the date of grant.

 

(1) 2009 Stock Incentive Plan

 

On May 7, 2009, the Company’s Board of Directors approved the 2009 Plan, which was approved by the Company’s shareholders at the Company’s 2009 Annual Meeting of Shareholders. The 2009 Plan permits grants of certain equity incentives, including incentive stock options, nonqualified stock options, restricted stock awards, performance stock awards and other equity-based compensation, to certain employees, directors, officers, consultants, agents, advisors and independent contractors of the Company and its subsidiaries. The total number of shares of the Company’s common stock initially authorized for issuance under the 2009 Plan is 2,000,000 plus any authorized shares that, as of May 7, 2009, were available for issuance under the Company’s 2003 Stock Incentive Plan.

  

On May 7, 2009, the Compensation Committee of the Board of Directors (the “Compensation Committee”) granted an aggregate of 2,073,190 performance stock options to certain officers and employees of the Company under the 2009 Plan. The performance stock options each have an exercise price of $16.86 and a contractual life of 6 years. The performance stock options will vest in two equal tranches on the fourth and fifth anniversaries of the date such options were granted, provided that the recipient has met the performance criteria established in accordance with the 2009 Plan, including performance targets that must be met in each of the Company’s 2009, 2010 and 2011 fiscal years, and the recipient continues to be an employee of, or service provider to, the Company or its subsidiaries at the time of the relevant vesting dates. If the performance criteria are not met, the shares that would otherwise vest on vesting dates are forfeited and cancelled.

 

The performance targets for the year ended December 31, 2009 were not met for any option recipient. Accordingly, the options granted were to be forfeited and cancelled. In December 2009, the performance targets were amended in order to limit the amount of options that would otherwise be forfeited and cancelled due to the failure to satisfy the annual performance goals to one-third of stock options granted for each of fiscal year 2009, 2010, and 2011. The incremental cost or benefit resulting from the modification is measured as the excess of the fair value of the modified award over the fair value of the original award immediately before its terms were modified and the effect on the number of instruments expected to vest. 421 employees were affected by this modification. In 2010 and 2011, the amended performance targets were not met for any option recipient.

 

The fair value of the option awards was estimated on the date of grant using the Black-Scholes option valuation model to be $22,106,218. The valuation was based on the assumption noted in the following table.

 

Expected volatility     74.94 %
Expected dividends     0 %
Expected term (in years)     5.25  
Risk-free rate     2.27 %

 

On October 15, 2009, an option to purchase 50,000 shares was granted to an employee that vests on the 12-month anniversary of the date of grant, conditioned upon continued employment on such date, and has an exercise price of $16 and contractual life of 4 years. 

 

On October 23, 2009, the Compensation Committee granted an aggregate of 30,000 new performance stock options to an employee of the Company under the 2009 Plan. The performance stock options have an exercise price of $27.69 and a contractual life of 6 years and vest in two equal tranches on the fourth and fifth anniversaries of the date such options were granted, provided that the recipient has met the performance criteria established in accordance with the 2009 Plan, including performance targets that must be met in each of the Company’s 2009, 2010 and 2011 fiscal years, and the recipient continues to be an employee of, or service provider to, the Company or its subsidiaries at the time of the relevant vesting dates. If the performance criteria are not met, the options that would otherwise vest on the vesting dates are forfeited and cancelled.

 

The fair value of the option awards are estimated on the date of grant using the Black-Scholes option valuation model to be $565,900. The valuation was based on the assumptions noted in the following table.

 

Expected volatility     83 %
Expected dividends     0 %
Expected term (in years)     5.25  
Risk-free rate     2.59 %

 

On August 27, 2010, options to purchase 84,000 shares were granted to directors of the Company for their services provided for the period from August 1, 2010  through July 31, 2011, that vests in four equal amounts on each three-month anniversary of the grant date until all such shares are fully vested. The options have an exercise price of $7.25 and a contract life of 2 years.  The fair value of the option award is estimated on the date of grant using the Black-Scholes option valuation model to be $164,516. The valuation was based on the assumptions noted in the following table.

 

Expected volatility     54 %
Expected dividends     0 %
Expected term (in years)     0.81  
Risk-free rate     0.22 %

 

On July 29, 2011, the Compensation Committee granted performance options to acquire up to an aggregate of 1,332,000 shares of the Company’s common stock to certain officers and employees of the Company pursuant to the 2009 Plan.  The performance stock options each have an exercise price of $8.32 per share, a contractual life of 6 years, and vest in three tranches of 25%, 35% and 40% on each of the three years ended December 31, 2012, 2013 and 2014, provided that the recipient has met certain performance criteria, and the recipient continues to be an employee of, or service provider to, the Company or its subsidiaries at the time of the relevant vesting dates.  

  

The fair value of the option award was estimated on the date of grant using the Black-Scholes option valuation model to be $6,643,504. The valuation was based on the assumptions noted in the following table.

 

Expected volatility     77 %
Expected dividends     0 %
Expected term (in years)     5.15  
Risk-free rate     2.60 %

 

During the three months ended March 31, 2012 and 2011, there was $1,099,319 and $402,154 compensation cost related to 2009 Plan recognized in general and administrative expenses.

 

(2)  2003 Stock Incentive Plan

 

Effective May 7, 2003, the Company adopted and approved its 2003 Plan, which reserved 3,000,000 shares of common stock for issuance under the Plan. The Plan allows the Company to issue awards of incentive non-qualified stock options, stock appreciation rights, and stock bonuses to directors, officers, employees and consultants of the Company which may be subject to restrictions.

 

No stock appreciation rights have been issued under the 2003 Plan.

 

On October 15, 2008, an option to purchase 80,000 shares was granted to an employee that vests on the 12-month anniversary of the date of grant, conditioned upon continued employment on such date, and have an exercise price of $12.00 and a contractual life of 4 years.  

 

A summary of option activity under the 2009 and 2003 Plans as of March 31, 2012 and December 31, 2011 and movement during the three months ended March 31, 2012 were as follows:

 

    Options     Weighted 
average 
grant date 
fair value
per share
    Weighted 
average 
exercise price
per share
    Aggregate 
intrinsic 
value (1)
    Weighted 
average 
remaining 
contractual 
term (years)
 
          US$     US$     US$        
Outstanding as of January 1, 2012     1,446,000       5.31       8.66       -       5.25  
Granted     -                                  
Exercised     -                                  
Forfeited or expired     -                                  
Outstanding as of March 31, 2012     1,446,000       5.31       8.66       -       5.00  
Exercisable as of March 31, 2012     84,000       1.96       7.25       -       0.39  

 

(1) The intrinsic values of options at January 1, 2012 and March 31, 2012 were zero since the per share market values of the Company’s common stock of $2.51 and $3.16, respectively, were lower than the exercise price per share of the options.

 

A summary of the status of the Company’s non-vested options as of March 31, 2012 and December 31, 2011 and movement during the three months ended March 31, 2012 were as follows:

 

    Options     Weighted average 
grant date fair 
value per share
 
        US$  
Non-vested as of January 1, 2012     1,362,000       5.52  
Granted     -          
Vested     -          
Forfeited or expired     -          
Non-vested as of March 31, 2012     1,362,000       5.52  

 

As of March 31, 2012, there was a total of $4,636,554 of unrecognized compensation cost related to non-vested share-based compensation granted under the 2003 Plan and 2009 Plan.  The cost is expected to be recognized over various periods ranging from 31 months to 33 months. To the extent the actual forfeiture rate is different from the original estimate, actual share-based compensation cost related to these awards may be different from the expectation.

 

Warrants

 

As of March 31, 2012, the Company had 237,937 warrants outstanding with a weighted average remaining contractual life of 0.55 years and a weighted average exercise price of $14.50 per warrant. The warrants will expire on October 4, 2012. These warrants had no intrinsic value at March 31, 2012 since the per share market value of the Company’s common stock of $3.16 as of March 31, 2012 was lower than the exercise price per share of the warrants.

 

During the three months ended March 31, 2012 and 2011, no warrants were exercised.