Equity Incentive Plans | 9 Months Ended |
Sep. 30, 2013 |
Equity Incentive Plans | ' |
Equity Incentive Plans | ' |
12. Equity Incentive Plans |
|
The Company’s equity incentive plans are broad-based retention programs. The plans are intended to attract talented employees, directors and non-employee consultants. |
|
2013 New Employee Stock Inducement Plan |
|
On June 6, 2013, the Company’s Board of Directors approved the Company’s 2013 New Employee Stock Inducement Plan (the “2013 Plan”), under which 500,000 shares of common stock were reserved for issuance. The 2013 Plan is designed to attract new employees by providing for awards in the form of restricted stock units, restricted stock awards, stock options (which shall be nonstatutory stock options) or stock appreciation rights. As of September 30, 2013, 315,000 shares of restricted stock units were issued and outstanding and 185,000 shares of common stock were available for future issuance under the 2013 Plan. |
|
Inducement Plan and Agreement with Chief Executive Officer |
|
In March 2012, the Company granted options to purchase 600,000 shares of common stock under the Inducement Stock Option Plan and Agreement, 50,000 shares of restricted stock units under the Service-Based Restricted Stock Unit Plan and Agreement and 50,000 shares of restricted stock units under the Performance-Based Restricted Stock Unit Plan and Agreement, to Dr. Bami Bastani, Chief Executive Officer (“CEO”), as a material inducement to the acceptance of employment with the Company. The grants were approved by the Company’s compensation committee of the board of directors, as specified under the Listing Rules of the Nasdaq Stock Market. As of September 30, 2013, options to purchase 600,000 shares of common stock were issued and outstanding under the Inducement Stock Option Plan and Agreement and a total of 80,000 shares of restricted stock units were issued and outstanding under the Restricted Stock Unit Plans and Agreements. |
|
Stock Incentive Plans |
|
In March 2010, the Company’s board of directors and its stockholders approved the 2010 Stock Incentive Plan (the “2010 Plan”), effective upon the completion of the Company’s initial public offering (“IPO”) on April 6, 2010. The 2010 Plan provides for the granting of stock options, restricted stock, restricted stock units and stock appreciation rights. The number of shares reserved for issuance under the 2010 Plan is increased on the first day of each of the Company’s fiscal years by the lesser of 4% of the Company’s outstanding common stock on the last day of the immediately preceding fiscal year or the number of shares determined by the Company’s board of directors. |
|
The Company’s stock-based compensation expense was $1.3 million and $1.8 million during the three months ended September 30, 2013 and 2012 and was $4.6 million and $5.8 million during the nine months ended September 30, 2013 and 2012, respectively. |
|
Determining Fair Value of Stock Options |
|
The fair value of stock options granted during the three and nine months ended September 30, 2013 and 2012 were determined by the Company using the methods and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment to determine. |
|
Valuation Method—The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model. |
|
Expected Term— The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. The expected term is derived from historical data on employee exercises and post-employment exercises taking into account the contractual life of the award. |
|
Expected Volatility—The expected volatility was calculated based on the historical stock volatilities of a peer group of publicly listed companies combined with the Company’s historical data over a period equal to the expected terms of the options as the Company did not have a sufficient trading history to use the volatility of its own common stock. |
|
Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the option’s expected term. |
|
Expected Dividend—The Company has never paid dividends and currently does not expect to pay dividends. |
|
Forfeiture Rate—The Company estimates its forfeiture rate based on an analysis of its actual forfeitures and will continue to evaluate the adequacy of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover, and other factors. The impact from a forfeiture rate adjustment will be recognized in full in the period of adjustment, and if the actual number of future forfeitures differs from that estimated by the Company, the Company may be required to record adjustments to stock-based compensation expense in future periods. |
|
Summary of Assumptions — The fair value of each employee stock option was estimated at the date of grant using a Black-Scholes option-pricing model, with the following weighted-average assumptions for grants of options during the three and nine months ended September 30, 2013 and 2012: |
|
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | | | | |
| | 2013 | | 2012 | | 2013 | | 2012 | | | | | |
Dividend rate | | 0 | % | 0 | % | 0 | % | 0 | % | | | | |
Risk-free interest rate | | 1 | % | 0.7 | % | 0.7 | % | 0.9 | % | | | | |
Expected life (in years) | | 4.2 | | 4.8 | | 4.1 | | 4.9 | | | | | |
Expected volatility | | 72.8 | % | 65.6 | % | 71.5 | % | 61.7 | % | | | | |
|
A summary of the Company’s stock award activity during the nine months ended September 30, 2013 is presented below: |
|
| | | | | | | | Weighted- | | | |
| | | | | | Weighted- | | Average | | Aggregate | |
| | Shares | | Number | | Average | | Remaining | | Intrinsic | |
| | Available | | of Stock Options | | Exercise | | Contractual | | Value | |
| | for Grant | | Outstanding | | Price | | Life (Years) | | (in thousands) | |
Outstanding — January 1, 2013 | | 1,752,468 | | 3,515,952 | | $ | 5.07 | | 8.2 | | $ | 396 | |
Additional options authorized | | 738,559 | | — | | — | | | | | |
Inducement shares authorized | | 500,000 | | — | | — | | | | | |
Options granted | | (386,175 | ) | 386,175 | | 3.59 | | | | | |
Inducement restricted stock units granted | | (315,000 | ) | — | | — | | | | | |
Restricted stock granted | | (1,336,427 | ) | — | | — | | | | | |
Cancelled options | | 858,694 | | (858,694 | ) | 5.97 | | | | | |
Restricted stock returned | | 314,218 | | — | | — | | | | | |
Exercised options | | — | | (69,073 | ) | 3.88 | | | | | |
Outstanding — September 30, 2013 | | 2,126,337 | | 2,974,360 | | $ | 4.65 | | 8.1 | | $ | 594 | |
Vested and expected to vest — September 30, 2013 | | | | 2,325,044 | | $ | 4.77 | | 7.9 | | $ | 466 | |
Vested — September 30, 2013 | | | | 1,289,885 | | $ | 5.79 | | 7.2 | | $ | 186 | |
|
The aggregate intrinsic value of options exercised was $7,000 and $0.1 million for the three months ended September 30, 2013 and 2012 and was $86,000 and $0.1 million for the nine months ended September 30, 2013 and 2012, determined as of the date of option exercise. |
|
Additional information regarding the Company’s stock options outstanding and vested as of September 30, 2013 is summarized below: |
|
| | Options Outstanding | | Options Vested and Exercisable | |
| | | | Weighted-Average | | Weighted- | | | | Weighted- | |
| | | | Remaining | | Average | | | | Average | |
| | | | Contractual Life | | Exercise | | | | Exercise | |
Exercise Prices | | Shares | | (Years) | | Price per Share | | Shares | | Price per Share | |
$0.91 - $2.17 | | 331,738 | | 8.5 | | $ | 1.67 | | 106,921 | | $ | 1.67 | |
$2.18 - $4.33 | | 1,267,103 | | 8.8 | | $ | 3.4 | | 350,980 | | $ | 3.4 | |
$4.34 - $6.50 | | 938,486 | | 7.8 | | $ | 4.9 | | 427,904 | | $ | 4.9 | |
$6.51 - $8.67 | | 282,314 | | 6.2 | | $ | 7.88 | | 268,005 | | $ | 7.88 | |
$8.68 - $21.68 | | 154,719 | | 6.6 | | $ | 13.77 | | 136,075 | | $ | 13.66 | |
| | 2,974,360 | | 8.1 | | $ | 4.65 | | 1,289,885 | | $ | 5.79 | |
|
As of September 30, 2013, total compensation cost related to unvested stock-based awards granted to employees, but not yet recognized, was $8.8 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted-average remaining period of 2.5 years and will be adjusted for subsequent changes in estimated forfeitures. Future option grants increase the amount of compensation expense that will be recorded. |
|
Sale of Common Stock — On February 27, 2013, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with William Blair & Company, L.L.C (the “Underwriter”), pursuant to which the Company agreed to offer and sell 3,000,000 shares of its common stock with a par value of $0.0005 per share, at a price of $4.00 per share (the “Offering”). Under the terms of the Underwriting Agreement, the Company granted the Underwriters a 30-day option to purchase an additional 450,000 shares of the Company’s common stock to cover overallotments, which the Underwriter exercised on March 4, 2013. The Company completed the sale of 3,450,000 shares of its common stock and received $12.6 million in proceeds, net of underwriting discount, commission and other issuance costs, on March 4, 2013, which was the closing date of the Offering. |
|
Exchange Offer—On July 26, 2012, the Company commenced an offer to eligible employees to exchange options to purchase shares of the Company’s common stock outstanding on July 26, 2012, (a) which had an exercise price greater than $2.00 per share, (b) that were granted under the Company’s 2002 Stock Incentive Plan or the 2010 Plan, and (c) that did not vest upon the achievement of certain performance criteria (“Eligible Options”). The Company’s CEO and its non-employee directors were not eligible to participate in the offer. Eligible Options tendered were exchanged for an equal number of new nonqualified stock options to be granted under the 2010 Plan (the “New Options”) following the expiration of the offer; provided, however, that certain eligible officers received a lesser number of New Options, depending on the exercise price of the Eligible Options they tendered. Options to purchase 960,443 shares of common stock (the “Exchanged Options”) were cancelled and exchanged for options to purchase 692,682 shares of common stock with a new vesting schedule of 25% vest after the first year of service, and ratably monthly over the remaining 36 months contingent upon continued employment with the Company on the date of vest. The offer expired on August 22, 2012. The New Options were granted following the expiration of the offer with an exercise price of $3.40 per share, which was the closing price of the Company’s stock as reported by the Nasdaq Global Market on August 23, 2012. This modification resulted in an incremental charge of $0.5 million, which is being amortized over the 4-year vesting period of the New Options in addition to the unamortized expense related to the Exchanged Options. |
|
Restricted StockAwards and Restricted Stock Units— The Company has issued restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) to employees and members of the board of directors. These restricted shares have vesting periods ranging from three months to four years from the date of issuance and vesting is subject to the recipient continuing to provide service to the Company for the duration of the vesting period. In addition, the vesting of some RSUs is performance based and the vesting of those RSUs is subject to the achievement of specific performance metrics in addition to continued service. |
|
During the nine months ended September 30, 2013, the Company issued 1,651,427 RSUs, of which 315,000 RSUs were issued from the 2013 Plan and 1,336,427 RSUs were issued from the 2010 Plan. The Company recognized stock-based compensation in the amount of $1.0 million for RSAs and RSUs awarded during each of the three months ended September 30, 2013 and 2012 and $3.0 million and $2.6 million for RSAs and RSUs awarded during the nine months ended September 30, 2013 and 2012, respectively. |
|
A summary of the Company’s RSA activity during the nine months ended September 30, 2013 is presented below: |
|
| | Number | | Weighted | | Aggregate | | | | | |
| | of Restricted | | Average Grant | | Intrinsic | | | | | |
| | Stock Awards | | Date Fair | | Value | | | | | |
| | Outstanding | | Value | | (in thousands) | | | | | |
Outstanding — January 1, 2013 | | 2,400 | | $ | 13.73 | | $ | 6 | | | | | |
Restricted stock awards granted | | — | | — | | | | | | | |
Restricted stock awards released | | (1,200 | ) | 13.73 | | | | | | | |
Restricted stock awards forfeited | | (1,200 | ) | 13.73 | | | | | | | |
Outstanding — September 30, 2013 | | — | | $ | — | | $ | — | | | | | |
|
A summary of the Company’s RSU activity during the nine months September 30, 2013 is presented below: |
|
| | Number | | Weighted | | Aggregate | | | | | |
| | of Restricted | | Average Grant | | Intrinsic | | | | | |
| | Stock Units | | Date Fair | | Value | | | | | |
| | Outstanding | | Value | | (in thousands) | | | | | |
Outstanding — January 1, 2013 | | 809,542 | | $ | 7.32 | | $ | 2,145 | | | | | |
Restricted stock units granted | | 1,651,427 | | 3.93 | | | | | | | |
Restricted stock units released | | (485,607 | ) | 5.94 | | | | | | | |
Restricted stock units forfeited | | (269,878 | ) | 5.9 | | | | | | | |
Outstanding — September 30, 2013 | | 1,705,484 | | $ | 4.65 | | $ | 5,577 | | | | | |
|
The majority of the RSUs that vested in the nine months ended September 30, 2013 were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld were based on the value of the RSUs on their vesting date as determined by the Company’s closing stock price. These net-share settlements had the effect of share repurchases by the Company as they reduced and retired the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company. For the nine months ended September 30, 2013, 486,807 RSUs and RSAs vested with an intrinsic value of approximately $1.9 million. The Company withheld 43,140 of these shares to satisfy approximately $0.2 million of employees’ minimum tax obligation on the vested RSUs. |
|
Employee Stock Purchase Plan — In March 2010, the Company’s board of directors approved the 2010 Employee Stock Purchase Plan (“ESPP”), effective upon the closing of the Company’s IPO. The price of the common stock purchased under the ESPP shall be the lower of 85% of the market value of the Company’s common stock at the beginning of the offering period or 85% of the market value of the Company’s common stock on the last trading day of the applicable offering period. On the first day of each of the Company’s fiscal years, beginning on January 1, 2011, additional shares equal to the lesser of 1% of the outstanding shares of the Company on such date or a lesser amount determined by the Company’s board of directors will be reserved for issuance under the ESPP; provided, however, that no annual increase shall be added after March 30, 2020. |
|
The Company calculated the compensation expense for the ESPP using the Black-Scholes option-pricing model with the following weighted-average assumptions during the three and nine months ended September 30, 2013 and 2012: |
|
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | | | | |
| | 2013 | | 2012 | | 2013 | | 2012 | | | | | |
Dividend rate | | 0 | % | 0 | % | 0 | % | 0 | % | | | | |
Risk-free interest rate | | 0.1 | % | 0.2 | % | 0.1 | % | 0.1 | % | | | | |
Expected life (in years) | | 0.8 | | 0.5 | | 0.8 | | 0.5 | | | | | |
Expected volatility | | 96 | % | 79.9 | % | 96 | % | 70.6 | % | | | | |
|
The Company recognized compensation expense related to the ESPP in the amount of $0.1 million and $67,000 for the three months ended September 30, 2013 and 2012 and $0.4 million and $0.3 million for the nine months ended September 30, 2013 and 2012. The Company issued 189,994 shares of common stock during the nine months ended September 30, 2013. The Company had 253,055 shares of its common stock available for future issuance under the ESPP as of September 30, 2013. |
|