9. Stockholders' Equity

6 Months Ended

Jun. 30, 2015

Stockholders Equity

Stockholders' Equity

Note 9. Stockholders' Equity

Capital Stock

In April 2015, the Company issued 1,682,086 shares of Common stock for approximately $11.9 million in connection with the acquisition of Zohydro ER, see note 13, Business Combination.

In April 2015, the Company issued 2,338,129 shares of Common stock for approximately $19.5 million for the inducement and 18,055,556 shares for $65.0 million in connection with the conversion of the outstanding 8.00% Convertible Notes, see note 8, Debt and Lines of Credit.

Warrants

In March 2015, Pozen exercised all 500,000 of their warrants in a cashless exercise for which 315,835 shares were issued. In February 2015, Frontline exercised 222,631 of their 500,000 warrants in a cashless exercise for which 133,257 shares were issued. There are 277,369 warrants remaining for Frontline. As of June 30, 2015, the Company assumed approximately 464,564 outstanding warrants in connection with the acquisition of Somaxon in March 2013.

Stock Option Plans

In June 2015, the Company's shareholders approved the 2015 Omnibus Incentive Plan (the "2015 Plan"). The maximum number of shares that can be offered under this plan is 7.0 million. Incentives may be granted under the 2015 Plan to eligible participants in the form of (a) incentive stock options, (b) non-qualified stock options, (c) restricted shares, (d) restricted stock units, (e) share appreciation rights and (f) other share-based awards. Incentive grants under the 2015 Plan generally vest based on four years of continuous service and have 10-year contractual terms.

Stock-Based Compensation

Stock-based compensation expense is recognized, net of an estimated forfeiture rate, on a straight-line basis over the requisite service period, which is the vesting period.

The Company currently uses the Black-Scholes option pricing model to determine the fair value of its stock options. The determination of the fair value of stock-based payment awards on the date of grant using an option pricing model is affected by the Company's stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include the Company's expected stock price volatility over the term of the awards, actual employee exercise behaviors, risk-free interest rate and expected dividends.

The weighted average fair value of stock options granted during the periods and the assumptions used to estimate those values using the Black-Scholes option pricing mode were as follows:

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2015			2014			2015			2014
Weighted average expected
stock price volatility		73.2	%		75.5	%		73.3	%		74.5	%
Estimated dividend yield		-	%		-	%		-	%		-	%
Risk-free interest rate		1.6	%		2.0	%		1.6	%		1.9	%
Expected life of option (in years)		6.3			6.3			6.3			6.2
Weighted average grant date
fair value per option	$	5.16		$	4.59		$	5.59		$	2.74

The expected stock price volatility for the stock options is based on historical volatility of the Company's stock. The Company has not paid and does not anticipate paying cash dividends; therefore, the expected dividend rate is assumed to be 0%. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected life assumption. The expected life of the stock options granted was estimated based on the historical exercise patterns over the option lives.  

Stock-based compensation expense was $1.2 million and $3.1 million for the three and six months ended June 30, 2015 and $740,000 and $2.5 million for the three and six months ended June 30, 2014, respectively. Stock-based compensation expense for the periods presented are included within the selling, general and administrative expenses in the consolidated statements of operations.

Stock Options

As of June 30, 2015, approximately 5.4 million options are outstanding that have been issued to current officers and employees under the Company's 2007 Stock Option Plan and the 2009 Plan. As of June 30, 2015, there was approximately $12.8 million of total unrecognized compensation cost related to non-vested stock options issued to employees and directors of the Company, which is expected to be recognized ratably over a weighted-average period of 3.3 years.

The following table shows the option activity, described above, during the six months ended June 30, 2015 (share and intrinsic values in thousands):

				Weighted Average
			Average	Remaining		Aggregate
			Exercise	Contractual Life		Intrinsic
	Shares		Price	years		Value
Options Outstanding at December 31, 2014	4,551	$	5.35
Granted	1,088		8.49
Exercised	(39)		3.92		$	211
Cancelled	(208)		8.68
Expired	-		-
Options outstanding at June 30, 2015	5,392	$	5.86	8.9	$	7,227
Options vested and expected to
vest as of June 30, 2015	4,578		5.80	8.8	$	6,293
Options vested and exercisable as of June 30, 2015	1,044	$	4.85	8.0	$	1,910

Restricted Stock

The following table shows the Company's non-vested restricted stock activity during the six months ended June 30, 2015 (share and intrinsic values in thousands):

			Weighted Average		Aggregate
			Grant Date Fair		Intrinsic
	Shares		Value		Value
Non-vested restricted stock outstanding at December 31, 2014	140	$	4.52
Granted	-		-
Vested	(56)		6.09	$	539
Forfeited	(19)		3.16
Non-vested restricted stock outstanding at June 30, 2015	65	$	3.56

As of June 30, 2015, there was approximately $0 of total unrecognized compensation cost related to non-vested restricted stock issued to employees and directors of the Company due to the acceleration of restricted stock expense related to the restructuring during the six months ended June 30, 2015.