Stock-Based Compensation

2009 Equity Incentive Plan

The Company's Board of Directors (the Board) adopted the 2009 Equity Incentive Plan (as amended to date, the Plan) effective September 3, 2009. The Plan is intended to further align the interests of the Company and its stockholders with its employees, including its officers, non-employee directors, consultants and advisers by providing equity-based incentives. The Plan allows for the issuance of up to 7,600,000 shares of the Company’s common stock. In addition, as of December 31, 2016, there were 25,000 options outstanding that were issued outside the Plan to consultants in 2013.

The types of awards that may be granted under the Plan include options (both non-qualified stock options and incentive stock options), stock appreciation rights, stock awards, stock units, and other stock-based awards. The term of each award is determined by the Compensation Committee of the Board at the time each award is granted, provided that the term of the option does not exceed ten years. Vesting schedules for stock options vary, but generally vest 25% per year, over four years for employee options and on the one-year anniversary date for non-employee director options. The Plan had 3,722,705 options available for grant as of December 31, 2016.

Accounting for Stock-Based Compensation

The Company recognizes non-cash compensation expense for stock-based awards based on their grant date fair value, determined using the Black-Scholes option-pricing model. During the years ended December 31, 2016 and 2015, the weighted average fair market value of options granted was $1.22 and $3.59, respectively.

Total stock-based compensation expense recognized using the straight-line attribution method and included in operating expenses in the the Company's Consolidated Statements of Operations was approximately $1.9 million and $2.0 million for the years ended December 31, 2016 and 2015, respectively.

Assumptions Used in Determining Fair Value of Stock Options

Inherent in the Black-Scholes option-pricing model are the following assumptions:

Volatility. The Company estimates stock price volatility based on the Company’s historical stock price performance over a period of time that matches the expected term of the stock options.

Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant commensurate with the expected term assumption.

Expected term. The expected term of stock options granted is based on an estimate of when options will be exercised in the future. The Company applied the simplified method of estimating the expected term of the options, described in the SEC’s Staff Accounting Bulletins 107 and 110, as historical experience is not indicative of expected behavior in the future. The expected term, calculated under the simplified method, is applied to groups of stock options that have similar contractual terms. Using this method, the expected term is determined using the average of the vesting period and the contractual life of the stock options granted.

Dividend rate. The dividend rate is based on the historical rate, which the Company anticipates will remain at zero.

Forfeitures. The Company accounts for forfeitures when they occur. Ultimately, the actual expense recognized over the vesting period will be for only those shares that vest.

The fair market value of the stock options at the date of grant was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions for the years ended December 31:



	2016		2015
Expected life ⁽¹⁾	6 years, 2 months		6 years, 1 month
Interest rate	1.5	%	1.6	%
Dividend yield	—		—
Volatility ⁽²⁾	92.4	%	103.2	%


(1)	The Company uses the simplified method for estimating the stock option term.


(2)	For the year ended December 31, 2016, the Company estimated expected volatility based on the historical volatility of its own common stock on a stand-alone basis. For the year ended December 31, 2015, the Company estimated expected volatility based on the historical volatility of a peer group.

Stock Option Activity

The following table summarizes stock option activity for the years ended December 31, 2016 and 2015:



($ in thousands, except share and per share data)	Number of shares		Weighted- average exercise price		Weighted- average remaining contractual term (in years)	Aggregate intrinsic value
Outstanding at December 31, 2014	2,086,450		$	7.43	7 years, 2 months	$	—
Granted	1,352,114		4.48
Exercised	(56,250	)	4.53
Expired	(65,250	)	10.54
Forfeited	(182,970	)	5.91
Outstanding at December 31, 2015	3,134,094		$	6.23	8 years	$	1,630
Granted	1,585,400		1.60
Exercised	—		—
Expired	(35,482	)	7.93
Forfeited	(845,964	)	2.83
Outstanding at December 31, 2016 ⁽¹⁾	3,838,048		$	5.05	7 years, 2 months	$	—
Exercisable at December 31, 2016	2,179,198		$	7.11	5 years, 7 months	$	—


(1)	Includes both vested stock options as well as unvested stock options for which the requisite service period has not been rendered but that are expected to vest based on achievement of a service condition.

The total fair value of options vested during the years ended December 31, 2016 and 2015 was $2.4 million and $1.5 million, respectively. Additionally, as of December 31, 2016, there was approximately $2.6 million of unrecognized compensation expense related to non-vested stock options which is expected to be recognized over a weighted-average period of 2.6 years.

During the year ended December 31, 2016, there were no exercises of vested stock options. During the year ended December 31, 2015 a total of 56,250 stock options with an aggregate intrinsic value of approximately $0.04 million were exercised resulting in proceeds of approximately $0.3 million.