14.

Stockholders’ equity:

Common Stock

On July 2, 2015, the Company filed a shelf registration statement which registered up to $150 million of the Company’s securities for potential future issuance, and such registration statement was declared effective on July 13, 2015. Concurrent with the filing of the registration statement, the Company established an “at-the-market” offering program utilizing the universal shelf registration for up to $40 million of Common Stock. Due to the Company’s late filing of certain financing information related to its reacquisition of BELBUCA^®, the Company is unable to utilize its universal shelf registration statement and associated at-the-market offering program until April 2018.

On December 16, 2015, the Company and Dr. Andrew Finn entered into a retirement agreement (the “Retirement Agreement”) setting forth their mutual understandings regarding Dr. Finn’s retirement from the Company. Pursuant to the Retirement Agreement, all unvested RSUs previously issued under the Company’s equity incentive plans and held by Dr. Finn as of the retirement date were cancelled and, in lieu thereof, Dr. Finn was awarded a one-time issuance of shares of Common Stock based upon a net present valuation of the cancelled RSUs as set forth in the Retirement Agreement (which resulted in an issuance in January 2016 of 513,221 shares of Common Stock).

Following its review of the Company’s corporate performance for 2015, the Compensation Committee of the Board of Directors approved in early 2016, equity awards for 2015 in the form of RSUs to its named executive officers (including Dr. Finn) and other senior executives in amounts at or below the 25th% percentile of the Company’s peer group. Dr. Finn, who retired on December 31, 2015, received an immediate award of 150,000 shares of Common Stock in fulfillment of the Company’s contractual obligation to him under the Retirement Agreement. Such shares were issued in March 2016.

During the years ended December 31, 2017, 2016 and 2015, Company employees, directors and affiliates exercised approximately 0.2 million, 0.1 million and 0.2 million stock options, respectively, with net proceeds to the Company of approximately $0.4 million, 0.3 million and $0.8 million, respectively.

Preferred Stock

The Company had authorized five million “blank check” shares of $.001 par value convertible preferred stock. On December 3, 2012, the Company closed a registered direct offering, issuance and sale of Series A Preferred. The final amount of Series Preferred issued in the offering was an aggregate of 2,709,300 shares of Series A Preferred. In the event of the Company’s liquidation, dissolution or winding up, holders of the Series A Preferred will receive a payment equal to $.001 per share of Series A Preferred before any proceeds are distributed to the holders of common stock. After the payment of this preferential amount, and subject to the rights of holders of any class or series of capital stock hereafter created specifically ranking by its terms senior to the Series A Preferred, the holders of Series A Preferred will participate ratably in the distribution of any remaining assets with the common stock and any other class or series of our capital stock hereafter created that participates with the common stock in such distributions.

At December 31, 2017, 2,093,155 shares of Series A Preferred were outstanding and 2,290,700 shares of “blank check” preferred stock remain authorized but undesignated. During the year ended December 31, 2015, 45,845 shares of Series A Preferred were converted to equal shares of the Company’s common stock. There were no conversions of Series A Preferred during the years ended December 31, 2017 or 2016.

Restricted stock units

During the year ended December 31, 2017, 2,357,315 RSUs, were granted to members of the Company’s executive officers, board of directors and employees, with a fair market value of approximately $4.7 million. The fair value of restricted units is determined using quoted market prices of the Common Stock and the number of shares expected to vest. These RSUs were issued under the Company’s 2011 Equity Incentive Plan, as amended, and vest as following: (i) For executive officers, half of the grant vests in equal installments over three years and the remaining half vests subject to performance criteria over three years, (ii) for employees, the grants vest in full June 2018, (iii) and for the board of directors grants vest one-half in August 2017 and one-half in August 2018.

Restricted stock activity during the year ended December 31, 2017 was as follows:


	Number of Restricted Shares			Weighted Average Fair Market Value Per RSU
Outstanding at January 1, 2017		4,584,297		$	7.29
Granted:
Executive officers		1,640,000			1.85
Directors		162,315			2.80
Employees		555,000			2.10
Vested		(1,568,042	)		2.17
Forfeitures		(666,675	)		2.71

Outstanding at December 31, 2017		4,706,895		$	5.20

Performance Long Term Incentive Plan

In December 2012, the Company’s Board of Directors (the “Board”) approved the BDSI Performance Long Term Incentive Plan (“LTIP”). The LTIP is designed as an incentive for the Company’s senior management to generate revenue for the Company. The LTIP consists of RSUs (which are referred to in this context as Performance RSUs) which are rights to acquire shares of Common Stock. All Performance RSUs granted under the LTIP will be granted under the Company’s 2011 Equity Incentive Plan (as the same may be amended, supplemented or superseded from time to time) as “Performance Compensation Awards” under such plan. The participants in the LTIP are either named executive officers or senior officers of the Company.

The term of the LTIP began with the Company’s fiscal year ended December 31, 2012 and lasts through the fiscal year ending December 31, 2019. The total number of Performance RSUs covered by the LTIP is 1,078,000, of which 978,000 were awarded in 2012 (with 100,000 Performance RSUs being reserved for future hires and of that reserve, 35,000 Performance RSUs were awarded in 2015). No additional Performance RSUs were awarded in 2016 or 2017. The Performance RSUs under the LTIP did not vest upon granting, but instead are subject to potential vesting each year over the 8-year term of the LTIP depending on the achievement of pre-defined revenue amounts by the Company, as reported in its Annual Report on Form 10-K. During the years ended December 31, 2017, 2016 and 2015, a total of 9,958, 13,347 and 21,356 RSUs vested, respectively, subject to performance criteria.

Stock options

The Company has a 2011 Equity Incentive Plan. During the 2017 Annual Meeting of Stockholders (the “Annual Meeting”), stockholders approved an amendment to the Company’s 2011 Equity Incentive Plan to increase the number of shares of common stock authorized for issuance under the plan by 7,100,000 shares from 11,050,000 to 18,150,000.

An additional 890,693 shares of Common Stock underlying options previously granted under the Company’s Amended and Restated 2001 Incentive Plan remain outstanding and exercisable as of December 31, 2017. The Company’s Amended and Restated 2001 Incentive Plan expired in July 2011 and no new securities may be issued thereunder. Options may be awarded during the ten-year term of the 2011 Equity Incentive Plan to Company employees, directors, consultants, sales force and other affiliates.

Stock option activity for the years ended December 31, 2017, 2016 and 2015 is as follows:


	Number of Shares			Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Outstanding at January 1, 2015		3,196,100		$	4.32	$	22,881

Granted in 2015:
Others		684,629			8.14
Exercised		(235,480	)		3.52
Forfeitures		(247,720	)		12.65

Outstanding at December 31, 2015		3,397,529		$	5.42	$	3,124

Granted in 2016:
Officers and Directors		95,000		$	2.34
Others		558,373			3.12
Exercised		(147,425	)		2.01
Forfeitures		(434,486	)		13.17

Outstanding at December 31, 2016		3,468,991		$	4.14	$	0

Granted in 2017:
Officers and Directors		83,658		$	2.64
Others		873,017			1.96
Exercised		(202,519	)		2.17
Forfeitures		(1,510,193	)		5.13

Outstanding at December 31, 2017		2,712,954		$	2.98	$	1,190

Options outstanding at December 31, 2017 are as follows:


Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Aggregate Intrinsic Value
$1.00 – 5.00		2,192,695		5.53	$	2.72
$5.01 – 10.00		430,149		5.38	$	6.29
$10.01 – 15.00		48,358		7.14	$	13.13
$15.01 – 20.00		41,500		6.75	$	16.27

		2,712,954					$	1,190

Options exercisable at December 31, 2017 are as follows:


Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Aggregate Intrinsic Value
$1.00 – 5.00		1,400,022		3.48	$	3.04
$5.01 – 10.00		345,257		5.43	$	6.28
$10.01 – 15.00		35,439		7.13	$	13.15
$15.01 – 20.00		41,500		6.75	$	16.27

		1,822,218					$	561

The weighted average grant date fair value of options granted during the years ended December 31, 2017, 2016 and 2015 was $1.46, $1.75 and $4.99, respectively. There were no options granted during the years ended December 31, 2017, 2016 or 2015 whose exercise price was lower than the estimated market price of the stock at the grant date.

Nonvested stock options as of December 31, 2017, and changes during the year then ended, are as follows:


Nonvested Shares	Shares			Weighted Average Grant Date Fair Value		Intrinsic Value
Nonvested at January 1, 2017		829,431
Granted		960,175
Vested		(363,701	)
Forfeited		(540,421	)

Nonvested at December 31, 2017		885,484		$	2.70	$	629

As of December 31, 2017, there was approximately $5.5 million of unrecognized compensation cost related to unvested share-based compensation awards granted. These costs will be expensed over the next three years.

Stock-based compensation

During the year ended December 31, 2017, a total of 956,675 options to purchase Common Stock, with an aggregate fair market value of approximately $1.4 million, were granted to Company employees, directors and contractors. The options granted have a term of 10 years from the grant date and vest ratably between a one and three-year period. The fair value of each option is amortized as compensation expense evenly through the vesting period.

The Company’s stock-based compensation expense is allocated between research and development and selling, general and administrative as follows as of December 31:


Stock-based compensation expense	2017		2016		2015
Research and Development	$	1.6	$	2.5	$	4.2
Selling, General and Administrative	$	13.2	$	12.4	$	10.0

Warrants:

The Company has granted warrants to purchase shares of Common Stock. Warrants may be granted to affiliates in connection with certain agreements.

During the year ended December 31, 2016, the Company granted warrants to purchase 84,986 shares of Common Stock at an exercise price of $3.53 per share to Midcap and its affiliates in connection with the Company’s extension agreement with MidCap. The warrants were valued using the Black-Scholes Model, which fair value is approximately $0.05 million. As of December 31, 2017, 84,986 warrants remain outstanding.

In February 2017, the Company granted warrants to purchase 1,701,583 shares of Common Stock at an exercise price of $2.38 per share to CRG and certain of its affiliates in connection with the Company’s term loan agreement with CRG. The warrants were valued using the Black-Scholes Model, which fair value is approximately $4.5 million.

In December 2017, the Company granted warrants to purchase 349,451 shares of Common Stock at an exercise price of $3.42 per share to CRG and certain of its affiliates in connection with the Company’s 2^nd tranche funding from its term loan agreement with CRG. The warrants were valued using the Black-Scholes Model, which fair value is approximately $1.5 million. As of December 31, 2017, a cumulative of 2,051,034 to CRG and affiliates remain outstanding.