Stock Compensation Plan

In 2011 the Company adopted the 2011 Stock Option Issuance Plan (the “2011 Plan”) and subsequently amended it to authorize the Board of Directors to issue up to 4,714,982 incentive stock option and non-qualified stock option awards.

The 2018 Stock Option and Incentive Plan (the "2018 Plan") was adopted by the Board of Directors in April 2018 and approved by the Company's stockholders in June 2018 to award up to 1,822,000 shares of common stock. This plan became effective on the date immediately prior to the effectiveness of the Company's IPO registration statement. The 2018 Plan replaced the 2011 Plan as the Board of Directors determined not to make additional awards under the 2011 Plan following the closing of the IPO, which occurred in June 2018. The 2018 Plan allows the compensation committee to make equity-based and cash-based incentive awards to the Company's officers, employees, directors and other key persons (including consultants).

The 2018 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2019, by 4% of the outstanding number of shares of our common stock on the immediately preceding December 31, or such lesser number of shares as determined by the compensation committee. This number is subject to adjustment in the event of a stock split, stock dividend or other change in the Company's capitalization. On January 1, 2019, the number of shares of common stock available for issuance under the 2018 Plan was automatically increased by 835,728 shares. As of December 31, 2019, there were approximately 809,000 shares of common stock available for future issuance under the 2018 plan.

The 2018 Employee Stock Purchase Plan (the "ESPP") was adopted by the Board of Directors in April 2018 and approved by the Company's stockholders in June 2018 to issue up to 193,000 shares of common stock to participating employees. Through the ESPP, eligible employees may authorize payroll deductions of up to 15% of their compensation to purchase up to the number of shares of common stock determined by dividing $25,000 by the closing market price of Xeris common stock on the offering date. The purchase price per share at each purchase date is equal to 85% of the lower of (i) the closing market price per share of Xeris common stock on the employee’s offering date or (ii) the closing market price per share of Xeris common stock on the purchase date. Each offering period has a six-month duration and purchase interval with a purchase date of the last business day of June and December each year. This plan became effective on the date immediately prior to the effectiveness of the Company's IPO registration statement. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2019 and each January 1 thereafter through January 1, 2028, by the least of (i) 1% of the outstanding number of shares of our common stock on the immediately preceding December 31; (ii) 386,000 shares or (iii) such lesser number of shares as determined by the ESPP administrator. On January 1, 2019, the number of shares of common stock available for issuance under the ESPP increased by 208,932 shares. The number of shares reserved under the ESPP is subject to adjustment in the event of a stock split, stock dividend or other change in capitalization. The Company issued 73,607 shares at a weighted average price of $7.22 per share during the year ended December 31, 2019. As of December 31, 2019, there were approximately 328,000 shares available for issuance under the ESPP.

The Equity Inducement Plan (the "Inducement Plan") was adopted by the Board of Directors in February 2019. The Inducement Plan was adopted without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. The Inducement Plan allows the Company to make stock option or restricted stock unit awards to prospective employees of the Company as an inducement to such individuals to commence employment with the Company. The Company intends to use this Inducement Plan to help it attract and retain prospective employees who are necessary to support the commercial launch of Gvoke and the expansion of the Company generally. The Company initially reserved 750,000 shares of common stock for the issuance of awards under the Inducement Plan. This number is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization. As of December 31, 2019, there were approximately 340,000 shares of common stock available for future issuance under the Inducement Plan.

Stock options are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Stock option awards typically vest over either two, three or four years after the grant date and expire ten years from the grant date.

The fair value of each option is estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table. The expected term of options represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods during the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected stock price volatility assumption is based on the historical volatilities of a peer group of publicly traded companies as well as the historical volatility of the Company's common stock since the Company began trading subsequent to its IPO in June 2018 over the period corresponding to the expected life as of the grant date. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of the Company’s ordinary shares as of the grant date. The Company uses historical data to estimate employee terminations within the valuation model.

The fair value of stock options granted was estimated with the following weighted average assumptions:



	Years Ended December 31,
	2019		2018
Expected term (years)	6.0		6.0
Risk-free interest rate	2.14	%	2.48	%
Expected volatility	60.27	%	56.84	%
Expected dividends	—		—

Stock option activity under the 2011 Plan, 2018 Plan and Inducement Plan for the year ended December 31, 2019 was as follows:



	OPTIONS	WEIGHTED AVERAGE EXERCISE PRICE		WEIGHTED AVERAGE CONTRACTUAL LIFE (YEARS)
Outstanding - January 1, 2019	3,130,700	$	8.06	8.69
Granted	1,600,650	12.21
Exercised and vested	(128,307)	1.99
Forfeited	(172,655)	16.33
Expired	(1,403)	19.77
Outstanding - December 31, 2019	4,428,985	$	9.40	8.19
Exercisable - December 31, 2019	1,647,911	$	6.07	7.31
Vested and expected to vest at December 31, 2019	4,202,205	$	9.32	8.16

The weighted average fair value of awards granted during the year ended December 31, 2019 was $6.97 per share. The total intrinsic value of options exercised during the year ended December 31, 2019 was $1.0 million. The aggregate intrinsic value of awards vested and expected to vest as of December 31, 2019 was $7.8 million.

At December 31, 2019, there was a total of $14.1 million of unrecognized stock-based compensation expense related to stock options that is expected to be recognized over a weighted average period of 2.3 years.

Restricted stock unit ("RSU") awards for the year ended December 31, 2019 were as follows:



	Units
Unvested balance - January 1, 2019	0
Granted	125,000
Unvested balance - December 31, 2019	125,000

Restricted stock unit awards are measured based on the fair market value of the underlying stock on the date of grant and recognized as expense on a straight-line basis over the employee’s requisite service period (generally the vesting period). As of December 31, 2019, there was $1.3 million of unrecognized stock-based compensation expense related to RSUs, which is expected to be recognized over the weighted-average remaining vesting period of 3.1 years.

The fair value of the ESPP Plan shares was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:



	Year Ended December 31, 2019
Expected term (years)	0.5
Risk-free interest rate	1.85%
Expected volatility	70.70%
Expected dividends	—

The following table summarizes the reporting of total stock-based compensation expense resulting from stock options, restricted stock units and the employee stock purchase plan (in thousands):



	Years Ended December 31,
	2019		2018

Research and development	$	1,168	$	518
Selling, general and administrative	5,316		1,210
Total stock-based compensation expense	$	6,484	$	1,728