(7) STOCK‑BASED COMPENSATION

Stock‑Based Compensation Plans

The Company maintains the 2010 Omnibus Long‑Term Incentive Plan, the 2010 Employee Stock Purchase Plan, the 2015 Inducement Award Plan and the 2000 Stock Option and Incentive Plan (collectively, the “Stock Plans”).

2000 Stock Option and Incentive Plan The Company adopted the 2000 Option and Incentive Plan (the “2000 Option Plan”) on October 17, 2000. The 2000 Option Plan expired October 17, 2010 and after such date no further awards could be granted under the plan. Under the terms of the 2000 Option Plan, the Company was authorized to grant incentive stock options, as defined under the Internal Revenue Code, non‑ qualified options, restricted stock awards and other stock awards to employees, officers, directors, consultants and advisors. Options granted under the 2000 Option Plan expire ten years from the date of grant. Grants made from the 2000 Option Plan generally vest over a period of three to four years.

The 2000 Option Plan was administered by the compensation committee of the Company’s board of directors, which selected the individuals to whom equity‑based awards would be granted and determined the option exercise price and other terms of each award, subject to the provisions of the 2000 Option Plan. The 2000 Option Plan provides that upon an acquisition of the Company, all options to purchase common stock will accelerate by a period of one year. In addition, upon the termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all options then outstanding under the 2000 Option Plan held by that employee will immediately become exercisable. At December 31, 2015, options to purchase 3,345,800 shares were outstanding under the 2000 Option Plan. There were no shares of restricted stock outstanding under the 2000 Option Plan.

2010 Omnibus Long‑Term Incentive Plan The Company adopted the 2010 Omnibus Long‑Term Incentive Plan (the “2010 Stock Plan”) on July 16, 2010. The 2010 Stock Plan will expire on July 16, 2020 and after such date no further awards may be granted under the plan. Under the terms of the 2010 Stock Plan, the Company is authorized to grant incentive stock options, as defined under the Internal Revenue Code, non‑ qualified options, restricted stock awards and other stock awards to employees, officers, directors, consultants and advisors. Options granted under the 2010 Stock Plan expire ten years from the date of grant. Grants made from the 2010 Stock Plan generally vest over a period of three to four years.

The 2010 Stock Plan is administered by the compensation committee of the Company’s board of directors, which selects the individuals to whom equity‑based awards will be granted and determines the option exercise price and other terms of each award, subject to the provisions of the 2010 Stock Plan. The 2010 Stock Plan provides that upon an acquisition of the Company, all equity will accelerate by a period of one year. In addition, upon the termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all equity awards then outstanding under the 2010 Stock Plan held by that employee will immediately vest. At December 31, 2015, options to purchase 1,590,794 shares were outstanding under the 2010 Stock Plan and 3,200,845 shares of restricted stock and restricted stock units were outstanding. On July 23, 2015 the Company’s stockholders approved an amendment to the 2010 Stock Plan to increase the number of shares available for issuance thereunder by 8,360,000 shares. At December 31, 2015, there were 6,159,082 shares available for future grant under the 2010 Stock Plan.

2015 Inducement Award Plan The Company adopted the 2015 Inducement Award Plan (“the 2015 Inducement Plan”) on February 9, 2015. The 2015 Inducement Plan expired on July 27, 2015 and after such date no further awards may be granted under the plan. Under the terms of the 2015 Inducement Plan, the Company is authorized to grant incentive stock options, as defined under the Internal Revenue Code, non-qualified options, restricted stock awards and other stock awards to employees who were not previously an employee of the Company or any of its Subsidiaries. Options granted under the 2015 Inducement Plan expire ten years from the date of grant. Grants made from the 2015 Inducement Plan generally vest over a period of three to four years.

The 2015 Inducement Plan is administered by the compensation committee of the Company’s board of directors, which selects the individuals to whom equity-based awards will be granted and determines the option exercise price and other terms of each award, subject to the provisions of the 2015 Inducement Plan. The 2015 Inducement Plan provides that upon an acquisition of the Company, all equity will accelerate by a period of one year. In addition, upon termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all equity awards then outstanding under the 2015 Inducement Plan held by that employee will immediately vest. At December 31, 2015, there were 243,849 shares of restricted stock and restricted stock units outstanding. At December 31, 2015, there were no shares available for future grant under the 2015 Inducement Plan.

2010 Employee Stock Purchase Plan The 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”) was adopted by the Company on July 16, 2010. The 2010 Purchase Plan provides participating employees the right to purchase common stock at a discount through a series of offering periods. The 2010 Purchase Plan will expire on October 31, 2020. On July 24, 2014 the stockholders of Exact Sciences Corporation approved an amendment to the 2010 Employee Stock Purchase Plan to increase the number of shares available for purchase thereunder by 500,000 shares. At December 31, 2015, there were 363,392 shares of common stock available for purchase by participating employees under the 2010 Purchase Plan.

The compensation committee of the Company’s board of directors administers the 2010 Purchase Plan. Generally, all employees whose customary employment is more than 20 hours per week and more than five months in any calendar year are eligible to participate in the 2010 Purchase Plan. Participating employees authorize an amount, between 1% and 15% of the employee’s compensation, to be deducted from the employee’s pay during the offering period. On the last day of the offering period, the employee is deemed to have exercised the employee’s option to purchase shares of Company common stock, at the option exercise price, to the extent of accumulated payroll deductions. Under the terms of the 2010 Purchase Plan, the option exercise price is an amount equal to 85% of the fair market value, as defined under the 2010 Purchase Plan and no employee can purchase more than $25,000 of Company common stock under the 2010 Purchase Plan in any calendar year. Rights granted under the 2010 Purchase Plan terminate upon an employee’s voluntary withdrawal from the 2010 Purchase Plan at any time or upon termination of employment. At December 31, 2015, there were 436,608 cumulative shares issued under the 2010 Purchase Plan, and 176,785 shares were issued in the year ended December 31, 2015, as follows:


		Weighted Average
Offering period ended	Number of Shares	price per Share
April 30, 2015	56,635	$	13.02
October 31, 2015	120,150	$	7.72

Stock‑Based Compensation Expense

The Company recorded approximately $18.1 million, $11.5 million and $7.7 million in stock‑based compensation expense during the years ended December 31, 2015, 2014 and 2013, respectively, in connection with the amortization of restricted stock and restricted stock unit awards, stock purchase rights granted under the Company’s employee stock purchase plan and stock options granted to employees, non‑employee consultants and non‑employee directors. Non‑cash stock‑based compensation expense by expense category for the years ended December 31, 2015, 2014, and 2013 are as follows, and amounts included in the table are in thousands:


	December 31,
	2015		2014		2013
Cost of sales	$	876	$	279	$	—
Research and development		3,744		4,149		2,817
General and administrative		9,358		5,575		3,054
Sales and marketing		4,072		1,517		1,873
Total stock-based compensation	$	18,050	$	11,520	$	7,744

In connection with the June 7, 2013 resignation of the Company’s former Chief Commercial Officer, the Company modified the vesting of 100,000 shares of her previously unvested restricted stock units whereby 41,250 of the restricted stock units vested upon the execution of the separation agreement, 10,000 vested in March 2014, and the remaining 48,750 vest in twenty‑four equal monthly installments beginning in April 2014, subject to her continuing compliance with the terms of the separation agreement. She forfeited all other unvested restricted stock units and stock option awards. It was determined that the continuing compliance and service to be provided to the Company under the separation agreement was not substantive and, as a result, the Company recorded the full value of the modified restricted stock units as additional stock‑based compensation expense in the second quarter of 2013.

Determining Fair Value

Valuation and Recognition—The fair value of each option award is estimated on the date of grant using the Black‑Scholes option‑pricing model based on the assumptions in the table below. The estimated fair value of employee stock options is recognized to expense using the straight‑line method over the vesting period.

Expected Term—The Company uses the simplified calculation of expected life, described in the SEC’s Staff Accounting Bulletins 107 and 110, as the Company does not currently have sufficient historical exercise data on which to base an estimate of expected life. Using this method, the expected term is determined using the average of the vesting period and the contractual life of the stock options granted.

Expected Volatility—Expected volatility is based on the Company’s historical stock volatility data over the expected term of the awards.

Risk‑Free Interest Rate—The Company bases the risk‑free interest rate used in the Black‑Scholes valuation model on the implied yield currently available on U.S. Treasury zero‑coupon issues with an equivalent expected term.

Forfeitures—The Company records stock‑based compensation expense only for those awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. The Company’s forfeiture used in the twelve months ended December 31, 2015, 2014 and 2013 was 4.99%, 4.99%, and 2.76%, respectively.

The fair value of service-based awards for each restricted stock and restricted stock unit award is determined on the date of grant using the closing stock price on that day. The fair value of market measure-based share-based compensation plans are calculated using a Monte Carlo simulation pricing model. The fair value of each option award is estimated on the date of grant using the Black‑Scholes option pricing model based on the assumptions in the following table:


	Year Ended
	December 31,
	2015	2014	2013
Option Plan Shares
Risk-free interest rates	1.5% - 1.92%	1.96% - 2.01%	0.94% - 1.73%
Expected term (in years)	6.25 - 6.6	6	6
Expected volatility	67.1% - 73.2%	77.6% - 80.8%	82.9% - 84%
Dividend yield	0%	0%	0 %
Weighted average fair value per share of options granted during the period	$15.81	$ 10.05	$ 8.12
ESPP Shares
Risk-free interest rates	0.25% - 0.75%	0.1% - 0.5%	0.1% - 0.33%
Expected term (in years)	0.5 - 2	0.5 - 2	0.5 - 2
Expected volatility	51.2% - 110%	42.5% - 62.7%	39.1% - 45.6%
Dividend yield	0%	0%	0 %
Weighted average fair value per share of stock purchase rights granted during the period	$ 4.67	$ 6.3	$ 3.13

Stock Option, Restricted Stock, and Restricted Stock Unit Activity

A summary of stock option activity under the Stock Plans during the years ended 2015, 2014 and 2013 is as follows:


				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
Options	Shares	Price		Term (Years)	Value(1)
(Aggregate intrinsic value in thousands)
Outstanding, January 1, 2013	6,181,936	$	2.62
Granted	290,570		11.36
Exercised	(274,919)		5.17
Forfeited	(135,000)		10.08
Outstanding, December 31, 2013	6,062,587	$	2.78	6.6
Granted	266,477		14.28
Exercised	(1,378,372)		1.91
Forfeited	(16,375)		6.37
Outstanding, December 31, 2014	4,934,317	$	3.63	5.2
Granted	340,978		23.51
Exercised	(281,315)		4.44
Forfeited	(57,386)		16.99
Outstanding, December 31, 2015	4,936,594	$	4.80	4.5	$	28,126
Exercisable, December 31, 2015	4,219,865	$	2.69	3.9	$	27,585
Vested and expected to vest, December 31, 2015	4,900,829	$	4.71	5.2	$	27,601

(1)

The aggregate intrinsic value of options outstanding at December 31, 2015 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for the 4,936,594 options that had exercise prices that were lower than the $9.23 market price of our common stock at December 31, 2015. The aggregate intrinsic value of options exercisable at December 31, 2015 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for the 4,219,865 options that had exercise prices that were lower than the $9.23 market price of our common stock at December 31, 2015. The total intrinsic value of options exercised during the years ended December 31, 2015, 2014 and 2013 was $3.6 million, $29.2 million, $1.9 million, respectively, determined as of the date of exercise.

Warrants to purchase 75,000 shares of common stock were issued in connection with a consulting agreement in 2009 to provide specific assistance to the Company in attaining FDA approval of Cologuard. The 75,000 warrants vested in the third quarter of 2014 upon successful approval for Cologuard. The Company recorded $1.3 million, the fair value of the warrant on the vesting date as stock-based compensation expense during the third quarter of 2014 in connection with the vesting of this warrant.

A summary of restricted stock and restricted stock unit activity under the Stock Plans during the years ended December 31, 2015, 2014 and 2013 is as follows:


		Weighted
	Restricted	Average Grant
	Shares	Date Fair Value
Outstanding, January 1, 2013	813,955	$	8.51
Granted	1,147,553		11.76
Released	(344,611)		8.56
Forfeited	(466,203)		9.73
Outstanding, December 31, 2013	1,150,694	$	11.23
Granted	926,171		15.61
Released	(491,370)		11.17
Forfeited	(44,381)		12.44
Outstanding, December 31, 2014	1,541,114	$	13.86
Granted	2,895,818		15.23
Released	(578,033)		13.77
Forfeited	(414,205)		20.84
Outstanding, December 31, 2015	3,444,694	$	14.19

As of December 31, 2015, there was approximately $41.1 million of total unrecognized compensation cost related to non‑vested share‑based compensation arrangements granted under all equity compensation plans. Total unrecognized compensation cost will be adjusted for future changes in forfeitures. The Company expects to recognize that cost over a weighted average period of 2.8 years.

The Company received approximately $1.2 million, $2.6 million and $1.3 million from stock option exercises during the years ended December 31, 2015, 2014 and 2013, respectively. During the years ended December 31, 2015, 2014 and 2013, 176,785, 88,166 and 59,932 shares of common stock, respectively, were issued under the Company’s 2010 Purchase Plan resulting in proceeds to the company of $1.7 million, $0.8 million and $0.5 million, respectively.

The following table summarizes information relating to currently outstanding and exercisable stock options as of December 31, 2015:


	Outstanding				Exercisable
		Weighted
		Average	Weighted			Weighted
		Remaining	Average			Average
	Number of	Contractual	Exercise		Number of	Exercise
Exercise Price	Options	Life (Years)	Price		Options	Price
$0.00 - $3.00	3,186,500	3.3	$	1.10	3,186,500	$	1.10
$3.01 - $6.00	402,822	4.7		4.40	402,822		4.40
$6.01 - $9.00	146,991	5.5		7.89	146,991		7.89
$9.01 - $12.00	619,087	6.5		9.66	415,393		9.55
$12.01 - $15.00	233,000	8.2		13.96	58,250		13.96
$15.01 - $18.00	22,227	8.6		16.52	9,909		16.52
$18.01 - $24.00	313,359	9.2		23.38	—		—
$24.01- $26.98	12,608	9.1		26.98	—		—
	4,936,594	4.5	$	4.80	4,219,865	$	2.69

During the first quarter of 2013, the Company granted a total of 180,750 restricted stock units to certain executives that vest based upon the satisfaction of certain 2013 performance conditions. Based on the conditions that were met 100,800 shares were earned. The shares vest equally over three years with the first vesting date at December 31, 2013. The company recognized $0.4 million during the year ended December 31, 2013 related to this restricted stock unit grant.

During the first quarter of 2015, the Company granted a total of 203,100 restricted stock units to certain executives that would have vested based upon the satisfaction of certain service and performance conditions. The Company performed an evaluation of internal and external factors, and determined the number of shares that were most likely to vest based on the probability of what performance conditions were met. The expense for the fair value of the awards that were expected to vest of $0.4 million was recognized during the year ended December 31, 2015. The service and performance conditions were not met and the expense of $0.4 million was reversed in the fourth quarter of the year ended December 31, 2015.

Shares Reserved for Issuance

The Company has reserved shares of its authorized common stock for issuance pursuant to its employee stock purchase and stock option plans, including all outstanding stock option grants noted above at December 31, 2015, as follows:


Shares reserved for issuance
2010 Option Plan		6,159,082
2010 Purchase Plan		363,392
		6,522,474