(15)Stock-based Compensation

The ReShape Lifesciences Inc. Second Amended and Restated 2003 Stock Incentive Plan (the “Plan”) provides for the grant of stock options or other stock-based awards to employees, officers, non-employee directors and outside consultants of the Company. In 2018, the Company’s stockholders approved an amendment to the Plan that increased the number of shares authorized for issuance by 26 shares. The Plan amendment in 2018 also added an automatic share increase provision that provides for an annual increase on January 1 of each year beginning in 2019 such that the number of shares of common stock authorized for issuance under the Plan is equal to 15% of the total shares of common stock outstanding, on an as converted basis, as of the last day of the immediately preceding fiscal year. The increased number of shares available for issuance under the Plan is subject to adjustment in accordance with certain provisions of the Plan. As of January 1, 2020, the number of shares authorized for issuance increased from 30,200 to 2,100,443 and there were 2,100,397 shares of common stock available for issuance under the Plan.

The Plan is administered by the board of directors, which determines the types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule. Options granted under the Plan expire no later than ten years from the date of grant. The exercise price of each option may not be less than 100% of the fair market value of the common stock at the date of grant, except if an incentive stock option is granted to a Plan participant possessing more than 10% of the Company’s common stock, as defined by the Plan, the exercise price may not be less than 110% of the fair value of the common stock at the date of grant. Employee stock options generally vest over four years.

In addition to the stock options granted pursuant to the Plan, the Company from time to time grants options to individuals as an inducement to accepting positions as employees (Inducement Grants). These Inducement Grants are made at the discretion of the board of directors and are issued outside of the Plan. Each of the Inducement Grants vests over a period of up to four years from the date of the officer’s employment agreement.

Stock option activity for the Plan is as follows:


				Weighted
		Weighted		Average
		Average		Remaining
		Exercise Price		Contractual
	Shares	Per Share		Life (years)
Outstanding at December 31, 2017	12	$	6,448,015.13
Shares reserved	—		—
Options granted	16		164,566.19
Options exercised	—		—
Options cancelled	—		—
Outstanding at December 31, 2018	28		2,957,210.16
Options granted	—		—
Options exercised	—		—
Options cancelled	—		—
Outstanding at December 31, 2019	28		2,957,210.16	7.6
Exercisable at December 31, 2019	17		4,579,286.97	7.6
Vested and expected to vest at December 31, 2019	28		2,957,210.16	7.9

As of December 31, 2019, stock options under the Plan that were outstanding, exercisable and vested and expected to vest under had no intrinsic value.

Stock option activity for Inducement Grants is summarized below:


				Weighted
		Weighted		Average
		Average		Remaining
		Exercise Price		Contractual
	Shares	Per Share		Life (years)
Outstanding at December 31, 2017	8	$	651,710.83
Options granted	10		113,808.24
Options exercised	—		—
Options cancelled	—		—
Outstanding at December 31, 2018	18		352,876.06
Options granted	—		—
Options exercised	—		—
Options cancelled	—		—
Outstanding at December 31, 2019	18		352,876.06	8.1
Exercisable at December 31, 2019	18		352,876.06	8.1
Vested and expected to vest at December 31, 2019	18		352,876.06	8.1

As of December 31, 2019, Inducement Grants outstanding, exercisable and vested and expected to vest had no intrinsic value.

The weighted-average assumptions used in the Black‑Scholes option pricing model to estimate the grant date fair value of stock options granted during the year ended December 31, 2018 were as follows:


Risk-free interest rate		2.85%
Expected term (in years)		6.25
Expected dividend yield		0%
Expected volatility		121.52%

Risk-Free Interest Rate. The risk-free interest rate is estimated using the U.S. Treasury yield curve and is based on the expected term of the award.

Expected Term. The expected term of stock option awards granted is estimated based on the “simplified” method described in the SEC Staff Accounting Bulletin, Topic 14: Share-Based Payment. The Company uses historical data to estimate stock option forfeitures.

Expected Dividends. The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock.

Expected Volatility. Expected volatility is estimated based on the Company’s historical stock price volatility and expected stock price volatility over the term of the awards.

There were no stock options granted during the year ended December 31, 2019. The total estimated grant date fair value of stock options granted during the year ended December 31, 2018 was $3.5 million. Compensation cost for stock options granted to employees is based on the estimated grant-date fair value and is recognized over the vesting period of the applicable award on a straight-line basis.

Compensation expense related to stock options was recognized as follows:


	Year Ended
	December 31,
	2019		2018
Selling and marketing	$	151	$	269
General and administrative		2,115		2,655
Research and development		45		174
Total	$	2,311	$	3,098

As of December 31, 2019, there was approximately $2.0 million of total unrecognized compensation related to unvested stock option awards, which is expected to be recognized over a weighted-average period of 2.2 years.