| Stockholders' Equity | 9. Stockholders’
Equity
Common
Stock
On May 19,
2015, the Company’s stockholders approved an amendment to the
Company’s Amended and Restated Certificate of Incorporation
to increase the number of authorized shares of the Company’s
common stock from 100,000,000 shares to 200,000,000 shares. The
increase in the number of authorized shares of the Company’s
common stock was effected pursuant to a Certificate of Amendment of
Amended and Restated Certificate of Incorporation filed with the
Secretary of State of the State of Delaware on May 19, 2015
and was effective as of such date.
On
January 29, 2014, the Company completed an underwritten public
offering of 12,000,000 shares of its common stock at a price to the
public of $6.00 per share. Net cash proceeds from the public
offering were $67,300,000, after deducting the underwriting
discounts and commissions and offering expenses payable by the
Company. On February 21, 2014, the underwriters exercised in
full their option to purchase 1,800,000 additional shares resulting
in additional net cash proceeds of $10,100,000, after deducting the
underwriting discounts and commissions and offering expenses
payable by the Company.
Stockholders’ Rights Plan
On
December 16, 2005, the Company adopted a preferred stock
rights plan, or the Rights Plan, pursuant to which each share of
the Company’s common stock outstanding has attached to it a
preferred stock purchase right, or a right, that confers the right
to purchase one one-hundredth of a share of Series A junior
participating preferred stock at an exercise price of $140.00 per
right, subject to adjustment, and will be exercisable only if a
person or group acquires beneficial ownership of 15% or more of the
Company’s common stock or announces a tender offer for 15% or
more of the Company’s common stock. If such a person acquires
15% or more of the Company’s common stock, all rights
holders, except such person, will be entitled to acquire the
Company’s common stock at a discount through the exercise of
the right. The rights plan has been designed to discourage
acquisitions of more than 15% of the Company’s common stock
without negotiations with the board of directors. The rights
expired on January 13, 2016. The rights trade with the
Company’s common stock, unless and until they are separated
upon the occurrence of certain future events. The board of
directors may terminate the rights plan at any time or redeem the
rights prior to the time the rights are triggered.
On
January 29, 2015, the Company entered into an amendment to the
Rights Plan. The amendment was entered into in connection with the
2022 Notes offering (described in Note 7) and accommodates the
structure of a blocker in the 2022 Notes such that no holder of the
2022 Notes will be entitled to receive shares of the
Company’s common stock deliverable upon conversion of the
Notes to the extent, that such receipt would cause the holder to
become, directly or indirectly, the beneficial owner of more than
14.99% of the shares of the Company’s common stock
outstanding at such time.
Equity
Incentive Plans
On
June 11, 2014, the Company’s stockholders approved the
2014 Equity Incentive Plan, or the 2014 Plan. The 2014 Plan is
intended to be the successor to the 2005 Equity Incentive Plan, the
2005 Non-Employee Directors’ Stock Option Plan and the 2010
Inducement Award Plan, collectively referred to as the Prior Plans.
All outstanding stock awards granted under the Prior Plans will
continue to be subject to the terms and conditions as set forth in
the agreements evidencing such stock awards.
2005 Equity
Incentive Plan
In January
2005, the Company’s board of directors adopted the 2005
Equity Incentive Plan, or the 2005 Plan. Under the terms of the
2005 Plan, options vest as determined by the board of directors,
generally at the rate of 25% at the end of the first year, with the
remaining balance vesting ratably over the next three years for
initial employee grants and ratably over four years for subsequent
grants. Options granted under the 2005 Plan expire no more than ten
years after the date of grant.
In January
2007, the Company’s board of directors approved the use of
grants of restricted stock units to employees, directors or
consultants under the 2005 Plan as part of the Company’s
long-term incentive compensation program. Restricted stock units
have no exercise price, are valued using the closing market price
on the date of grant and vest as determined by the board of
directors, typically either: (i) in annual tranches over a
four-year period at the rate of 25% at the end of each year;
(ii) in annual tranches over a three-year period at the rate
of 25%, 25% and 50%, respectively, at the end of each year;
(iii) in annual tranches over a three-year period at 50% on
the second anniversary and 50% on the third year anniversary; or
(iv) in one tranche on the one-year anniversary of the grant
date. Employees can elect to have the Company withhold a portion of
shares to pay for their payroll taxes in connection with the
vesting of restricted stock units, where the Company would then
make a cash payment for the associated payroll taxes on behalf of
the employees, or employees can elect to make the cash payment for
the associated payroll taxes.
In May 2010,
the Company granted performance stock unit awards to two executive
employees under the 2005 Plan. Each performance stock unit award
was scheduled to vest three years from the grant date, with
the actual number of shares of common stock of the Company
subject to issuance to be between 0% and 200% of the target amount,
based on the performance of the Company’s total shareholder
return as compared to the total shareholder returns of a group of
pre-selected pharmaceutical companies over a performance period
ending on the third anniversary of the grant date. The target
amount of shares of common stock of the Company that were subject
to issuance under the performance stock unit awards was 140,000,
and the grant date fair value using a lattice valuation model of
these performance stock unit awards was $2,675,000. In 2010, a
performance stock unit award representing a target amount of 40,000
shares was cancelled due to the departure of one of the two
executive employees. In 2013, 97,300 shares were cancelled based on
the performance of the Company’s total shareholder return as
compared to the total shareholder returns of a group of
pre-selected pharmaceutical companies over the three year
performance period. At December 31, 2015 and 2014, there were
no shares subject to these performance stock unit awards, and the
associated expense recognized in the years ended December 31,
2015, 2014 and 2013 was $0, $0 and $232,000,
respectively.
In February
2014, the Company granted performance stock options to its
executive officers under the 2005 Plan. Each performance stock
option is subject to two, equally weighted, performance conditions.
One performance condition relates to the achievement of a
pre-determined development criteria and the other relates to
achievement of a pre-determined revenue criteria. Each performance
stock option vests, if at all, upon achievement of the respective
performance condition during a performance period ending on
December 31, 2015. Shares associated with each performance
condition vest 50% upon achievement of the performance condition,
with the remaining 50% to vest on the one-year anniversary date of
the initial vest date. The target amount of shares of common stock
that are subject to issuance under these performance stock options
was 316,000, and the grant date fair value using a Black-Scholes
valuation model of these performance stock options was $1,334,000.
Both performance conditions were achieved during 2015, resulting in
the 50% vesting of each share. During the years ended
December 31, 2015 and 2014, the Company recognized $547,000
and $445,000, respectively, in expense associated with these
performance stock options.
Under the terms
of the 2005 Plan, the maximum number of shares that may be issued
shall not exceed the total of 2,000,000, plus any shares issuable
from options previously granted from the 1999 Plan at the date of
the Company’s initial public offering, plus an annual
increase equal to the lesser of (i) 2.5% of the total number
of common shares outstanding at the end of the preceding calendar
year and (ii) 2,000,000 common shares. In June 2014, in
connection with the Company’s adoption of the 2014 Equity
Incentive Plan, or the 2014 Plan, described below, no further
awards may be granted under the 2005 Plan. Although the 2005 Plan
has terminated, all outstanding options under the 2005 Plan will
continue to be governed by their existing terms.
2005
Non-Employee Directors’ Stock Option Plan
In January
2005, the Company’s board of directors adopted the 2005
Non-Employee Directors’ Stock Option Plan, or the
2005 Directors’ Plan, under which non-statutory options
are automatically granted to non-employee directors.
Before
May 1, 2012, any individual who first became a non-employee
director automatically received an option to purchase
25,000 shares subject to vesting in four equal successive
annual installments. From May 1, 2012 to June 10, 2014,
any individual who first became a non-employee director
automatically received an option to purchase 30,000 shares
subject to vesting in 24 successive equal monthly installments.
Prior to May 1, 2012, non-employee directors serving on the
date of each annual meeting of stockholders received an option to
purchase 10,000 shares subject to vesting in 12 successive
equal monthly installments measured from the grant date. From
May 1, 2012 to June 10, 2014, non-employee directors
serving on the date of each annual meeting of stockholders received
an option to purchase 15,000 shares subject to vesting in 12
successive equal monthly installments measured from the grant date.
Stock options were granted at exercise prices no less than the fair
value on the grant date and expired no more than ten years after
the date of grant. In addition, from May 1, 2012 to
June 10, 2014, any individual who served as a non-employee
director on the date of each annual meeting received a restricted
stock unit award of 5,000 shares. These restricted stock unit
awards vest in full on the one-year anniversary of the grant
date.
Under the terms
of the 2005 Directors’ Plan, the maximum number of
shares that may be issued shall not exceed the total of 150,000,
plus an annual increase equal to the excess of (i) the number
of shares subject to options granted in the preceding calendar
year, over (ii) the number of shares added back to the share
reserve from cancellations, provided that such increase shall not
exceed 150,000 shares. In June 2014, in connection with the
Company’s adoption of the 2014 Plan described below, no
further awards may be granted under the 2005 Directors’ Plan.
Although the 2005 Directors’ Plan has terminated, all
outstanding options under the 2005 Directors’ Plan will
continue to be governed by their existing terms.
2010
Inducement Award Plan
In May 2010,
the Company’s board of directors adopted the 2010 Inducement
Award Plan, or the 2010 Inducement Plan. Under the terms of the
2010 Inducement Plan, options vest as determined by the board of
directors or the compensation committee of the board of directors,
generally at the rate of 25% at the end of the first year, with the
remaining balance vesting ratably over the next three years.
Options granted under the 2010 Inducement Plan expire no more than
ten years after the date of grant. Restricted stock units have no
exercise price, are valued using the closing market price on the
date of grant and vest as determined by the board of directors or
the compensation committee of the board of directors, typically in
annual tranches over a four-year period at the rate of 25% at the
end of each year.
A total of
350,000 shares of common stock were initially authorized for
issuance under the 2010 Inducement Plan, and an additional 625,000
shares were authorized for issuance in 2011. Under the terms of the
2010 Inducement Plan, the maximum number of shares that may be
issued shall not exceed the total of 975,000. In June 2014, in
connection with the Company’s adoption of the 2014 Plan
described below, no further awards may be granted under the 2010
Inducement Plan. Although the 2010 Inducement Plan has terminated,
all outstanding options under the 2010 Inducement Plan will
continue to be governed by their existing terms.
2014 Equity
Incentive Plan
The terms of
the 2014 Plan provide for the grant of incentive stock options,
nonstatutory stock options, stock appreciation rights, restricted
stock awards, restricted stock unit awards, other stock awards and
performance awards that may be settled in cash, stock or other
property, that may be granted by the board of directors or the
independent compensation committee of the board of directors.
Options granted may be either incentive stock options or
non-statutory stock options. Incentive stock options may be granted
to employees with exercise prices of no less than the fair value,
and non-statutory options may be granted to employees, directors or
consultants at exercise prices of no less than fair value, of the
common stock on the grant date. Options vest as determined by the
board of directors or the compensation committee of the board of
directors, generally at the rate of 25% at the end of the first
year, with the remaining balance vesting ratably over the next
three years and ratably over four years for subsequent grants.
Options granted under the 2014 Plan expire no more than ten years
after the date of grant. The terms of the 2014 Plan also provides
for the grant of restricted awards, which have no exercise price,
are valued using the closing market price on the date of grant and
vest as determined by the board of directors or the compensation
committee of the board of directors, typically in annual tranches
over a four-year period at the rate of 25% at the end of each year.
The 2014 Plan also provides for the grant of performance stock or
cash awards that may vest or become payable upon the attainment of
pre-determined performance goals during a performance
period.
In January
2015, the Company granted stock options subject to market
conditions to its executive officers under the 2014 Plan. Each
market condition stock option is subject to two, equally weighted,
market conditions. One market condition vests if the
Company’s common stock is greater or equal to $11.00 per
share for 30 consecutive trading days ending on or prior to
December 31, 2016. The other market condition vests if the
Company’s common stock is greater or equal to $13.00 per
share for 30 consecutive trading days ending on or prior to
December 31, 2018. The Company estimated the fair value of
these market condition stock options using a Monte Carlo simulation
model, which involves a series of random scenarios that may take
different future price paths over the award’s contractual
life. The grant date fair value is determined by taking the average
of the grant date fair values under each of many Monte Carlo
simulations. The determination of the fair value is affected by the
Company’s stock price, as well as assumptions regarding a
number of complex and subjective variables including its expected
stock price volatility over the expected term of the awards,
risk-free interest rates, and estimated forfeitures. The target
amount of shares of common stock that are subject to issuance under
these market condition stock options was 225,000 shares, and the
grant date fair value using the Monte Carlo simulation model was
$1,216,000. During the year ended December 31, 2015, the
Company recognized $1,156,000 in expense associated with these
market condition stock options.
Under the terms
of the 2014 Plan, any individual who first becomes a non-employee
director automatically receives an option to purchase 30,000 shares
subject to vesting in 24 successive equal monthly installments.
Non-employee directors serving on the date of each annual meeting
of stockholders receives an option to purchase 15,000 shares
subject to vesting in 12 successive equal monthly installments
measured from the grant date. Stock options are granted at exercise
prices no less than the fair value on the grant date and expire no
more than ten years after the date of grant. In addition, any
individual who serves as a non-employee director on the date of
each annual meeting receives a restricted stock unit award of 5,000
shares. These restricted stock unit awards vest in full on the
earlier of: (1) the one-year anniversary of the grant date or
(2) the date of the next annual meeting following the grant
date.
The total
number of shares of the Company’s common stock available for
issuance under the 2014 Plan is initially 4,471,059 shares plus up
to an additional 7,847,852 Returning Shares (as defined below) as
such shares become available from time to time. “Returning
Shares” means the shares subject to outstanding awards
granted under the Prior Plans and the 1999 Stock Plan that, from
and after the effective date of the 2014 Plan: (a) expire or
terminate for any reason prior to exercise or settlement;
(b) are forfeited, cancelled or otherwise returned to the
Company because of the failure to meet a contingency or condition
required for the vesting of such shares; or (c) other than
with respect to outstanding stock options and stock appreciation
rights granted under the Prior Plans or the 1999 Stock Plan with an
exercise or strike price of at least 100% of the fair market value
of the underlying Company common stock on the date of grant, are
reacquired or withheld (or not issued) by the Company to satisfy a
tax withholding obligation in connection with a stock award.
Eligible participants under the 2014 Plan include the
Company’s employees and directors, including the
Company’s executive officers and consultants. At
December 31, 2015, there were 2,900,588 shares remaining
and available for future grant under the 2014 Plan.
A summary of
option activity as of and for the year ended December 31, 2015
is presented below:
Shares Weighted- Average Weighted- Average Aggregrate Intrinsic
Value
(In Thousands)
Outstanding at
January 1, 2014 6,628,612 $ 14.49
Options granted 2,367,410 8.64
Options
cancelled (1,346,627 ) 11.77
Options
exercised (368,236 ) 5.24
Outstanding at
December 31, 2015 7,281,159 13.55 5.91 $ 452
Exercisable at
December 31, 2015 4,812,353 $ 16.52 4.42 $ 354
A summary of
restricted stock unit activity for the year ended December 31,
2015 is presented below:
Shares Weighted- Average
Outstanding at
January 1, 2015 1,021,344 $ 6.70
Awards granted 857,012 5.43
Awards cancelled (226,340 ) 7.62
Awards vested (458,102 ) 6.25
Outstanding at
December 31, 2015 1,193,914 $ 5.79
The
weighted-average grant date fair values of options granted in the
years ended December 31, 2015, 2014 and 2013 were $5.48, $4.05
and $5.22 per share, respectively. The weighted-average grant date
fair values of restricted stock units granted in the years ended
December 31, 2015, 2014 and 2013 were $5.44, $6.07 and $8.13
per share, respectively.
The aggregate
intrinsic value of all options outstanding and exercisable at
December 31, 2015 was based on a closing stock price of
$5.49.
The total
intrinsic value of options exercised in the years ended
December 31, 2015, 2014 and 2013 was $683,000, $758,000 and
$304,000, respectively. The total fair value of options that vested
in the years ended December 31, 2015, 2014 and 2013 was
$6,904,000, $4,572,000 and $4,786,000, respectively. The total fair
value of restricted stock units that vested in the years ended
December 31, 2015, 2014 and 2013 was $2,864,000, $4,656,700
and $6,202,000, respectively.
As of
December 31, 2015, the total compensation cost related to
2,468,806 unvested options and unvested awards covering 1,193,914
shares not yet recognized was $15,375,000. This amount will be
recognized over an estimated weighted-average amortization period
of 2.68 years.
Employee
Stock Purchase Plan
In January
2005, the Company adopted the 2005 Employee Stock Purchase Plan, or
2005 ESPP, which became effective in June 2005 in connection with
its initial public offering. The 2005 ESPP allowed for qualified
employees to purchase shares of its common stock at a price equal
to the lower of 85% of the closing price of the Company’s
common stock at the beginning of the offering period or 85% of the
closing price of the Company’s common stock on the date of
purchase. A total of 250,000 shares of the Company’s
common stock were initially authorized for issuance under the 2005
ESPP. The Company’s board of directors could increase the
share reserve of the ESPP as of each January 1, from
January 1, 2006 through January 1, 2015, by an amount
determined by its board; provided, however that the increase for
any year could not exceed the lesser of (1) 1% of the total
number of shares of the Company’s common stock outstanding on
the December 31st of the preceding calendar year or
(2) 250,000 shares. During the years ended
December 31, 2015, 2014 and 2013, 236,657 shares, 227,720
shares and 142,455 shares, respectively, were purchased under the
2005 ESPP. In May 2015, in connection with the adoption of the 2015
Employee Stock Purchase Plan, described below, no further shares
may be granted under the 2005 ESPP.
On May 19,
2015, the Company’s stockholders approved the XenoPort, Inc.
2015 Employee Stock Purchase Plan, or the 2015 ESPP, which became
effective on May 19, 2015. The Company’s prior plan, the
2005 ESPP, was terminated as a result of this approval. The 2015
ESPP was implemented by offerings of rights to purchase the
Company’s common stock to all eligible employees. The plan
administrator will determine the duration of each offering period,
provided that in no event may an offering period exceed 27 months.
Each offering period will have one or more purchase dates, as
determined by the plan administrator prior to the commencement of
the offering period. The purchase price per share at which shares
of the Company’s common stock are purchased on each purchase
date during an offering period will not be less than the lower of
(i) 85% of the fair market value of a share of the
Company’s common stock on the first day of the offering
period or (ii) 85% of the fair market value of a share of the
Company’s common stock on the purchase date. The maximum
number of shares of the Company’s common stock that may be
issued under the 2015 ESPP is 4,000,000 shares, subject to
adjustment for certain changes in the Company’s
capitalization. During the year ended December 31, 2015,
89,254 shares were purchased under the 2015 ESPP. At
December 31, 2015, there were 3,910,746 shares available for
future grant under the 2015 ESPP. |
