Accounting for Share-based Payments

Stock Options

ASC Topic 718 “Compensation—Stock Compensation” requires companies to measure the cost of employee services received in exchange for the award of equity instruments based on the estimated fair value of the award at the date of grant. The expense is to be recognized over the period during which an employee is required to provide services in exchange for the award. Synergy accounts for shares of common stock, stock options and warrants issued to employees based on the fair value of the stock, stock option or warrant, if that value is more reliably measurable than the fair value of the consideration or services received.

The Company accounts for stock options issued and vesting to non-employees in accordance with ASC Topic 505-50 “Equity -Based Payment to Non-Employees” and accordingly the value of the stock compensation to non-employees is based upon the measurement date as determined at either; a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Accordingly the fair value of these options is being “marked to market” quarterly until the measurement date is determined.

Synergy adopted the 2008 Equity Compensation Incentive Plan (the “2008 Plan”) during the quarter ended September 30, 2008. Stock options granted under the 2008 Plan typically vest after three years of continuous service from the grant date and have a contractual term of ten years. On June 8, 2015, Synergy amended its 2008 Plan and increased the number of shares of its common stock reserved for issuance under the Plan from 15,000,000 to 30,000,000.

Synergy adopted the 2017 Equity Incentive Plan (the “2017 Plan”) during the quarter ended June 30, 2017. The number of shares of its common stock reserved for issuance under the 2017 Plan is 9,000,000 and no grants have been awarded as of June 30, 2017.

In June 2017, the Company modified 2,159,500 stock options, which were previously granted as change of control options, to become immediately vested. The Company recorded a charge of $6.8 million during the three months ended June 30, 2017. There are no outstanding change of control options as of June 30, 2017.

Stock-based compensation has been recognized in operating results as follows:



	Three Months Ended June 30,			Three Months Ended June 30,		Six Months Ended June 30,		Six Months Ended June 30,
($ in thousands)	2017			2016		2017		2016
Included in research and development	$	(80	)	$	784	1,793		1,594
Included in selling, general and administrative	13,378			1,923		14,402		2,315
Total stock-based compensation expense	$	13,298		$	2,707	$	16,195	$	3,909

The unrecognized compensation cost related to non-vested stock options outstanding at June 30, 2017, net of expected forfeitures, was approximately $17.7 million to be recognized over a weighted-average remaining vesting period of approximately 1.39 years.

The estimated fair value of stock option awards was determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions during the periods indicated.



	Six Months Ended June 30, 2017	Six Months Ended June 30, 2016
Risk-free interest rate	1.85%-2.24%	1.22%-1.49%
Dividend yield	—	—
Expected volatility	66%-73%	50	%
Expected term (in years)	6 years	6 years

A summary of stock option activity and of changes in stock options outstanding under the Plan is presented below:



	Number of Options		Exercise Price Per Share	Weighted Average Exercise Price Per Share		Intrinsic Value (in thousands)		Weighted Average Remaining Contractual Term
Balance outstanding, December 31, 2016	27,867,171		$0.44-9.12	$	3.78	$	65,618	7.1 years
Granted	2,055,500		$3.63-6.77	4.98		—
Exercised ⁽¹⁾	(99,978	)	$0.50-5.34	3.47		226,757
Forfeited	(940,625	)	$2.83-7.91	4.52		—
Balance outstanding, June 30, 2017	28,882,068		$0.44-9.12	$	3.90	$	27,677	6.8 years

Exercisable, at June 30, 2017 ⁽²⁾	19,238,509		$0.44-9.12	$	3.49	$	23,650	5.7 years

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(1)	The Company received proceeds of approximately $0.3 million from the exercise of stock options during the three months ended June 30, 2017.


(2)	Includes 2,159,500 change of control stock options that were immediately vested during June 2017.