NOTE 14. EMPLOYEE AND CONSULTANT EQUITY-BASED COMPENSATION

The Company has three stock option equity-based compensation plans, which are discussed below:

Non-Qualified Stock Option Plan

The Non-Qualified Stock Option Plan (the “Non-Qualified Plan”) was a stockholder-approved plan that provided for stock option grants to independent contractors, technical advisors and directors of the Company. The exercise price of each option, which has a maximum 10 year life, was established by the Company's Compensation Committee on the date of grant.

As of December 31, 2016, there were 273,900 options exercised under the Non-Qualified Plan and 6,100 that remain outstanding. The Non-Qualified Plan has been replaced by the 2012 Omnibus Equity Incentive Plan, so no further options are available for grant.

2004 Omnibus Stock Option Plan

In December 2004, the Company’s stockholders approved the Omnibus Stock Option Plan and reserved 500,000 shares of its authorized but unissued Common Stock for stock options to be granted to employees, independent contractors, technical advisors and directors of the Company. The authorized shares in this plan were increased by 5,000,000 shares to an aggregate amount of 5,500,000 upon stockholder approval during the fiscal year ended July 31, 2012.

As of December 31, 2016, there were 428,907 options exercised under the 2004 Omnibus Stock Option Plan and 3,511,093 that remain outstanding. The 2004 Omnibus Stock Option Plan has been replaced by the 2012 Omnibus Equity Incentive Plan, so no further options are available for grant.

2012 Omnibus Equity Incentive Plan

In December 2012, the Company’s stockholders approved the Company’s 2012 Omnibus Equity Incentive Plan to replace all prior plans ("Prior Plans"). The Prior Plans remain in effect until all awards granted under those plans have been exercised, forfeited, canceled, expired or otherwise terminated.

In connection with the approval of such plan, all stock options, totaling 1,677,500 formerly available for new awards under the Prior Plans were transferred to the 2012 Omnibus Equity Incentive Plan.

At the Company’s 2014 Annual Meeting of Stockholders held in May 2014, stockholders approved an amendment to the Company’s 2012 Omnibus Equity Incentive Plan increasing the number of stock options of Common Stock reserved and available for grant by 4,000,000 to 5,677,500 shares.

Stock options granted under this plan typically vest either (i) one year after grant date, (ii) monthly over a one year period, (iii) annually over a five year period, or (iv) 40% two years after grant date and the remaining 60% monthly over the next three years. The maximum term is ten years.

As of December 31, 2016, there were 200,557 options exercised under the 2012 Omnibus Equity Incentive Plan and 3,380,181 that remain outstanding, leaving 2,096,762 available for grant.

In December 2015, the Board of Directors voted to restrict new grants under the 2012 Omnibus Equity Incentive Plan to 200,000 shares until such time as the Company’s total available shares are increased. The Company's total available shares were increased in March 2016 terminating the restriction of new grants.

Combined Stock Option Plans

The following table summarizes option activity under all plans during the years ending December 31, 2016, and December 31, 2015 and shows the exercisable shares as of December 31, 2016:



Stock Option Activity
	Number of Shares		Weighted Average Exercise Price per Share
Options Outstanding January 1, 2015	5,628,726		$	5.20
Granted	717,833		20.59
Forfeited	(54,505	)	11.71
Exercised	(124,884	)	6.44
Expired	—		—
Options Outstanding December 31, 2015	6,167,170		6.91
Granted	1,024,050		14.05
Forfeited	(147,663	)	18.43
Exercised	(158,743	)	7.47
Expired	(27,690	)	4.87
Options Outstanding December 31, 2016	6,857,124		7.72
Exercisable December 31, 2016	4,566,005		4.94

The cash received from the exercise of options during the year ending December 31, 2016, was $1.2 million and the tax benefit realized was $0 for the same period. Upon exercise, shares are issued from shares authorized and held in reserve. The intrinsic value of options exercised was $2.2 million, $2.0 million and $3.8 million for the years ending December 31, 2016, 2015 and 2014, respectively.

The total fair value of shares vesting during the period was $6.6 million, $7.3 million, and $3.8 million for the years ending December 31, 2016, 2015 and 2014, respectively.

As discussed in Note 2, Summary of Significant Accounting Policies, the Company accounts for all option grants using the Black-Scholes option pricing model in accordance with ASC 718 for options granted or extended. Note 2 also describes the significant assumptions utilized for estimating the various inputs required this pricing model. The table below summarizes the resulting weighted average inputs used to calculate the estimated fair value of options awarded for during the periods shown below:



Black-Scholes Assumptions for Option Granted
	12 months			12 months			12 months
	12/31/2016			12/31/2015			12/31/2014
Expected term (in years)	6.43			6.26			6.25
Volatility	86		%	91		%	96		%
Expected dividends	—			—			—
Risk free interest rates	1.6		%	1.7		%	1.9		%
Estimated forfeitures	8.5		%	5.6		%	0.4		%
Weighted average fair value	$	10.35		$	16.69		$	12.63

In general, option awards have a requisite service period and unvested options are forfeited upon employee or consultant termination. The Company estimates a forfeiture rate which is applied to outstanding options to determine options expected to be forfeited with the remaining outstanding options being those expected to vest. Further information regarding the forfeiture rate calculation is included in Note 2, Summary of Significant Accounting Policies. The following table shows summary information for outstanding options, options that are exercisable (vested) and outstanding options that are either vested or expected to vest as of December 31, 2016:



Stock Option Supplemental Information
	Options Outstanding		Options Exercisable		Options Vested and Expected to Vest
Number of options	6,857,124		4,566,005		6,711,021
Weighted average remaining contractual term (in years)	6.57		5.83		6.52
Weighted average exercise price	$	7.72	$	4.94	$	7.55
Weighted average fair value	$	5.95	$	3.72	$	5.82
Aggregate intrinsic value (in millions)	$	82.0	$	70.4	$	81.6

The aggregate intrinsic value in the table above represents the total pretax intrinsic value that would have been received by the option holders had all option holders exercised their options on that date. It is calculated as the difference between the Company’s closing stock price of $20.75 on the last trading day of 2016 and the exercise price multiplied by the number of shares for options where the exercise price is below the closing stock price. This amount changes based on the fair market value of the Company’s stock.

In December 2015, in connection with the Company's public offering, we modified the stock options of three of our executive officers to restrict the ability to exercise until such time as additional available unissued shares have been authorized. Such authorization was obtained from a majority of our shareholders as of December 31, 2015, and was filed with the State of Delaware in March 2016. There was an immaterial amount of incremental compensation associated with this modification.

The following table summarizes restricted stock unit activity during the years ending December 31, 2016, and December 31, 2015:



Restricted Stock Unit (RSU) Activity
	Number of Shares	Weighted Average Grant Date Fair Value per Share
RSU's outstanding January 1, 2015	—	—
Granted	40,250	20.91
Forfeited	—	—
Vested/released	—	—
RSU's outstanding December 31, 2015	40,250	20.91
Granted	—	—
Forfeited	—	—
Vested/released	—	—
RSU's outstanding December 31, 2016	40,250	20.91

The expense and tax benefits recognized on Company’s Statements of Operations and Comprehensive Loss related to options is summarized below (in thousands):



Equity-Based Compensation Expenses and Tax Benefit (in thousands)
	12 months		12 months		12 months
	12/31/2016		12/31/2015		12/31/2014
Research and development	$	1,585	$	2,479	$	4,334
Sales, general and administrative	7,190		5,909		5,290
Equity-based compensation expense	8,775		8,388		9,624
Recognized tax benefit	$	—	$	—	$	—

As of December 31, 2016, unrecognized equity-based compensation cost related to unvested stock options and unvested restricted stock was $10.3 million. This is expected to be recognized over the years 2017 through 2021.

Employee Stock Purchase Plan

In May 2016, the Company's stockholders approved the Company's 2016 Employee Stock Purchase Plan ("ESPP") which permits eligible employees to purchase common stock at a discount through payroll deductions.

Eligible employees include employees of the Company and subsidiaries as designated by the Compensation Committee of the Board ("Committee") who (i) are employed more than twenty hours per week and (ii) are not owners of 5% or more of the total combined voting power or value of Company stock including the ESPP stock. In addition, the Committee has the discretion to exclude highly compensated employees.

Eligible employees enroll in the ESPP and can contribute between 2% and 15% of compensation up to a maximum of $25,000 of the fair market value of shares for each calendar year. The payroll deductions are accumulated during each offering period. Generally, each offering period will be for a period of three months as determined by the Committee provided that no offering period may extend more than 27 months. On the last trading day of the offering period, the accumulated payroll deductions for each employee are used to purchase as many shares of stock as possible up to a maximum of 100,000 shares or as otherwise determined by the Committee. The price at which stock is purchased is equal to 90% of closing price for the common stock on the date of the purchase.

A total of 500,000 shares of the Company’s common stock are reserved for issuance under the ESPP. As of December 31, 2016, 11,093 shares were issued and 488,907 shares of common stock are available for issuance.

As the ESPP is not a compensatory plan as defined by the authoritative guidance for stock compensation, there is no stock-based compensation expense recorded related to the ESPP. See Note 2, Summary of Significant Accounting Policies for further information.

A summary of ESPP activity for the year ended December 31, 2016 is as follows:



Shares issued	11,093
Weighted average fair value	20.40
Employee purchases (in thousands)	226