4. STOCK‑BASED COMPENSATION

Total stock‑based compensation expense related to all of our stock‑based awards was as follows (in thousands):

 

During the second quarter of 2016, we entered into severance agreements with certain employees. As part of the severance arrangements, we extended the date through which such former employees had the right to exercise their vested options.  In addition, we also accelerated the vesting of certain unvested stock options granted to a former employee.  As a result of these modifications, we recorded entire incremental stock-based compensation expense of $641,000 during the year ended December 31, 2016. The incremental compensation expense was computed based on the fair values of the modified awards on the respective modification dates.  This amount is included as part of “Research and development expense” in the accompanying Statements of Operations.

In September 2016, we entered into a severance agreement with a former executive (see Note 11). As part of the severance arrangement we offered, we extended the date through which such former executive had the right to exercise his vested options. In addition, we also accelerated the vesting of certain of his unvested stock options. As a result of these modifications, we recorded the entire incremental stock-based compensation expense of approximately $499,000 during the year ended December 31, 2016.  The incremental compensation expense was computed based on the fair values of the modified awards on the respective modification dates.  This amount is included as part of “Restructuring charges” in the accompanying Statements of Operations.

In December 2014, we entered into a severance agreement with our former CEO. As part of the severance arrangement we offered, we extended the date through which such former employees had the right to exercise their vested options. In addition, we also accelerated the vesting period of certain of his unvested stock options. As a result of these modifications, we recorded the entire incremental stock-based compensation expense of approximately $1.5 million during the year ended December 31, 2014.  The incremental compensation expense was computed based on the fair values of the modified awards on the respective modification dates.  This amount is included as part of “General and administrative expense” in the accompanying Statements of Operations.

Employee Stock Option Plans

We have four stock option plans, our 2011 Equity Incentive Plan (2011 Plan), 2000 Equity Incentive Plan (2000 Plan), 2000 Non‑Employee Directors Stock Option Plan (Directors’ Plan) and Inducement Plan. The 2011 Plan, 2000 Plan and Directors’ Plan provide for granting to our officers, directors and all other employees and consultants options to purchase shares of our common stock. The Inducement Plan is intended mainly to provide an inducement material for certain individuals to enter into employment with the Company. 

Options granted under our 2011 Plan expire no later than ten years from the date of grant. Options may be granted with different vesting terms from time to time, ranging from zero to five years. As of December 31, 2016, a total of 12,678,697 shares of common stock were authorized for issuance under the 2011 Plan. There were 335,895 options to purchase shares exercised during the year ended December 31, 2016 under the 2011 Plan. Options under the 2000 Plan may be granted with different vesting terms from time to time, ranging from zero to five years. As of December 31, 2016, a total of 12,299,050 shares of common stock were authorized for issuance under the 2000 Plan. There were 625 options to purchase shares exercised during the year ended December 31, 2016 under the 2000 Plan. Options under the Directors’ Plan may be granted for a maximum term 10 years. The exercise price of options under the Directors’ Plan is equal to the fair market value of the common stock on the date of grant. As of December 31, 2016, a total of 1,188,182 shares of common stock were authorized for issuance under the Directors’ Plan. There were no options to purchase shares exercised during the year ended December 31, 2016 under the Directors’ Plan. Options granted under our Inducement Grant expire no later than ten years from the date of grant and may be granted with different vesting terms from time to time. As of December 31, 2016, a total of 640,000 shares of common stock were authorized for issuance under the Inducement Plan. There were no options to purchase shares exercised during the year ended December 31, 2016 under the Inducement Plan.

Pursuant to FASB ASC 718, we are required to estimate the amount of expected forfeitures when calculating compensation costs. We estimated the forfeiture rate using our historical experience of actual forfeitures. We adjust our stock‑based compensation expense as actual forfeitures occur, review our estimated forfeiture rates each quarter and make changes to our estimate as appropriate.

The fair value of each option award is estimated on the date of grant using the Black‑Scholes option pricing model. We have segregated option awards into the following three homogenous groups for the purposes of determining fair values of options: officers and directors, all other employees, and consultants.

We determined weighted‑average valuation assumptions separately for each of these groups as follows:

The following table summarizes the weighted‑average assumptions relating to options granted pursuant to our equity incentive plans for the years ended December 31, 2016, 2015 and 2014:

 

 

The exercise price of stock options is determined to be the market price of our common stock on the date immediately preceding the date of grant. These stock options become exercisable at varying dates and generally expire ten years from the date of grant. At December 31, 2016, options to purchase 6,548,696 shares of common stock were available for grant and 26,805,929 reserved shares of common stock were available for future issuance under our stock option plans.

Stock‑Based Compensation Award Activity

Option activity under our equity incentive plans was as follows:

 

 

We granted options to purchase 5,251,185 shares of common stock during 2016. Of the 5,251,185 common stock options granted, 700,000 shares related to outstanding performance-based stock option awards with a grant date fair value of $1.1 million will vest upon the achievement of a corporate performance-based milestone, 100,000 shares related to performance-based stock option awards with a grant date fair value of $232,000 will vest upon achievement of other corporate performance-based milestones and 100,000 shares related to performance-based stock option awards with a grant date fair value of $240,000 will vest upon achievement of certain corporate sales target. For the 700,000 outstanding performance-based option awards, we considered the achievement of the corresponding corporate-based milestone as probable as of December 31, 2016.  Accordingly, we recognized the $1.1 million as stock-based compensation expense during 2016. We did not consider the other corporate-based milestones nor the corporate sales target as probable of achievement as of December 31, 2016.  Accordingly, for these performance-based option awards, no stock-based compensation expense was recognized during 2016.  

 

We granted option to purchase 3,875,170 shares of common stock during 2015. Of the 3,875,170 common stock options granted, 1,175,000 shares were related to performance-based stock option awards which vested upon the achievement of a corporate performance-based milestone in the first quarter of 2016. 

 

In addition, as of December 31, 2016, we have 200,000 shares of outstanding performance-based stock option awards granted in 2014 with a grant date fair value of $520,000.  These performance-based stock option awards will vest upon the achievement of a corporate performance-based milestone. We considered the achievement of the corporate-based milestone as probable as of December 31, 2016. Accordingly, we recognized the $520,000 as stock-based compensation expense during the year ended December 31, 2016.

 

Weighted‑average grant date fair value of options granted during 2016, 2015 and 2014 was $1.72,  $1.40 and $2.32, respectively.

 

The aggregate intrinsic value of the stock options in the table above is calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock for the options that were in‑the‑money at December 31, 2016. At December 31, 2016 and 2015, we had 3,668,891 and 4,017,340, respectively, of nonvested stock options, with approximately $31,000 and $2.2 million intrinsic value at December 31, 2016 and 2015, respectively. During the years ended December 31, 2016 and 2015, aggregate intrinsic value of options exercised under our stock option plans was approximately $253,000 and $252,000, respectively, determined as of the date of the stock option exercise.

As of December 31, 2016, there was approximately $5.0 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested stock‑based compensation arrangements granted under our stock option plans and approximately $639,000 of total unamortized compensation cost related to our Purchase Plan. The unamortized compensation cost related to our stock option plans and our Purchase Plan is expected to be recognized over a weighted‑ average period of approximately 2.7 years and 0.9 years, respectively. For the years ended December 31, 2016 and 2015, there were 4,215,058 and 2,326,021 shares vested, respectively, with weighted‑average exercise price of $2.70 and $3.13, respectively.

Details of our stock options by exercise price are as follows as of December 31, 2016:

 

 

Employee Stock Purchase Plan

Our Employee Stock Purchase Plan (Purchase Plan) permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. The price at which the stock is purchased is equal to the lesser of 85% of the fair market value of the common stock on the first day of the offering or 85% of the fair market value of our common stock on the purchase date. The initial offering period commenced on the effective date of our initial public offering. We issued 482,746,  576,537 and 505,877 shares of common stock during 2016, 2015 and 2014, respectively, pursuant to the Purchase Plan at an average price of $1.89,  $2.03 and $2.24, respectively. For 2016, 2015 and 2014, the weighted average fair value of awards granted under our Purchase Plan was $0.98,  $1.05 and $1.42, respectively. As of December 31, 2016, we had 2,518,870 reserved shares of common stock available for future issuance under the Purchase Plan.

The fair value of awards granted under our Purchase Plan is estimated on the date of grant using the Black‑Scholes option pricing model, which uses weighted‑ average assumptions. Our Purchase Plan provides for a twenty‑four month offering period comprised of four six‑month purchase periods with a look‑back option. A look‑back option is a provision in our Purchase Plan under which eligible employees can purchase shares of our common stock at a price per share equal to the lesser of 85% of the fair market value on the first day of the offering period or 85% of the fair market value on the purchase date. Our Purchase Plan also includes a feature that provides for a new offering period to begin when the fair market value of our common stock on any purchase date during an offering period falls below the fair market value of our common stock on the first day of such offering period. This feature is called a “reset.” Participants are automatically enrolled in the new offering period. We had a “reset” on January 2, 2014 because the fair market value of our stock on December 31, 2013 was lower than the fair market value of our stock on July 1, 2013, the first day of the offering period. We applied modification accounting in accordance with ASC Topic No. 718, Stock Compensation, to determine the incremental fair value associated with this Purchase Plan “reset” and recognized the related stock‑based compensation expense according to FASB ASC Subtopic No. 718‑50, Employee Share Purchase Plan. The total incremental fair value for this Purchase Plan “reset” was approximately $577,000 which was recognized as expense during the period from January 2, 2014 to December 31, 2015. On January 2, 2015, we had another “reset” because the fair market value of our stock on December 31, 2014 was lower than the fair market value of our stock on July 1, 2014, the first day of another offering period. We applied modification accounting in accordance with the relevant guidance and determined that the incremental fair value associated with this Purchase Plan “reset” was approximately $792,000 which was recognized as expense during the period from January 2, 2015 to December 31, 2016.  We had another “reset” on July 1, 2016 because the fair market value of our stock on June 30, 2016 was lower than the fair market value of our stock on January 5, 2015, the first day of the offering period. We applied modification accounting in accordance with the relevant guidance and determined that the incremental fair value associated with this Purchase Plan “reset” was approximately $1.0 million which will be recognized as expense during the period from July 1, 2016 to June 30, 2018.

The following table summarizes the weighted‑average assumptions related to our Purchase Plan for the years ended December 31, 2016, 2015 and 2014. Expected volatilities for our Purchase Plan are based on the two‑year historical volatility of our stock. Expected term represents the weighted‑ average of the purchase periods within the offering period. The risk‑free interest rate for periods within the expected term is based on U.S. Treasury constant maturity rates.