Note 12. Stock-based Compensation

As of December 31, 2019, the only equity compensation plans from which the Company may currently issue new awards are the Company’s 2013 Stock Incentive Plan (as amended to date, the “2013 Plan”) and 2017 Employee Stock Purchase Plan (the “2017 ESPP”), each as more fully described below.

Equity Incentive Plans

2013 Stock Incentive Plan

The Company's board of directors adopted the 2013 Plan, which was approved by the Company’s stockholders effective July 26, 2013. Amendments to the 2013 Plan were approved by the Company’s stockholders in June 2014, June 2015, June 2017 and June 2019. The 2013 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 2013 Plan allows for the issuance of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, other stock-based awards and performance awards. The total number of shares of common stock authorized for issuance under the 2013 Plan is 5,653,057 shares of the Company’s common stock, plus such additional number of shares of common stock (up to 868,372 shares) as is equal to the number of shares of common stock subject to awards granted under the Company’s 2005 Stock Incentive Plan or 2008 Stock Incentive Plan (the “2008 Plan”), to the extent such awards expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right.

As of December 31, 2019, options to purchase a total of 3,459,693 shares of common stock and 193,625 restricted stock units were outstanding and up to 2,301,240 shares of common stock remained available for grant under the 2013 Plan. The Company has not made any awards pursuant to other equity incentive plans, including the 2008 Plan, since the Company’s stockholders approved the 2013 Plan. As of December 31, 2019, options to purchase a total of 366,974 shares of common stock were outstanding under the 2008 Plan.

In addition, as of December 31, 2019, non-statutory stock options to purchase an aggregate of 393,750 shares of common stock were outstanding that were issued outside of the 2013 Plan to certain employees in 2017, 2015 and 2014 pursuant to the Nasdaq inducement grant exception as a material component of new hires’ employment compensation.

Employee Stock Purchase Plans

1995 Employee Stock Purchase Plan

The Company’s 1995 Employee Stock Purchase Plan (the “1995 ESPP”), as amended, provided for the issuance of up to 62,500 shares of common stock to participating employees of the Company or its subsidiaries. The 1995 ESPP was terminated effective August 31, 2017 as a result of the adoption by the Company’s board of directors and approval of shareholders of the 2017 Employee Stock Purchase Plan (the “2017 ESPP”), as described below.

2017 Employee Stock Purchase Plan

The Company’s board of directors adopted the 2017 ESPP which was approved by the Company’s stockholders and became effective June 7, 2017. An amendment to the 2017 ESPP was approved by the Company’s stockholders in June 2019. The 2017 ESPP is intended to qualify as an "employee stock purchase plan" as defined in Section 423 of the Internal Revenue Code, and is intended to encourage our employees to become stockholders of ours, to stimulate increased interest in our affairs and success, to afford employees the opportunity to share in our earnings and growth and to promote systematic savings by them. The total number of shares of common stock authorized for issuance under the 2017 ESPP is 412,500 shares of common stock, subject to adjustment as described in the 2017 ESPP. Participation is limited to employees that would not own 5% or more of the total combined voting power or value of the stock of the Company after the grant. As of December 31, 2019, 321,341 shares remained available for issuance under the 2017 ESPP.

Note 12. Stock-based Compensation (Continued)

Stock Purchase Plan Administration

The 1995 ESPP provided for and 2017 ESPP provides for offerings to employees to purchase common stock with offerings beginning on dates determined by the compensation committee of the board of directors or on the first business day thereafter. Each offering begins a “plan period” during which payroll deductions are to be made and held for the purchase of common stock at the end of the plan period. The compensation committee may, at its discretion, choose a plan period of 12 months or less for subsequent offerings and/or choose a different commencement date for offerings. During each plan period participating employees may elect to have a portion of their compensation, ranging from 1% to 10% of compensation as defined by the plan, withheld and used for the purchase of common stock at the end of each plan period. The purchase price is equal to 85% of the lower of the fair market value of a share of common stock on the first trading date of each plan period or the fair market value of a share of common stock on the last trading day of the plan period, and is limited by participant to $25,000 in fair value of common stock per year as well as other quarterly plan limitations as defined by each plan.

For the years ended December 31, 2019, 2018 and 2017, the Company issued 60,953, 24,824, and 21,869 shares of common stock, respectively, under the Company’s employee stock purchase plans and recognized $0.1 million, $0.1 million, and $0.2 million, respectively, in related stock-based compensation expense.

Accounting for Stock-based Compensation

The Company recognizes non-cash compensation expense for stock-based awards under the Company’s equity incentive plans over an award’s requisite service period, or vesting period, using the straight-line attribution method, based on their grant date fair value, determined using the Black-Scholes option-pricing model. The fair value of the discounted purchases made under the Company’s 2015 ESPP and 2017 ESPP is calculated using the Black-Scholes option-pricing model. The fair value of the look-back provision plus the 15% discount is recognized as compensation expense over each plan period.

Total stock-based compensation expense attributable to stock-based payments made to employees and directors and employee stock purchases included in operating expenses in the Company's statements of operations for the years ended December 31, 2019, 2018 and 2017 was as follows:


(in thousands)	2019		2018		2017
Stock-based compensation:
Research and development
Employee Stock Purchase Plans	$	36	$	71	$	96
Equity Incentive Plans (1)		1,312		1,780		6,398
	$	1,348	$	1,851	$	6,494
General and administrative
Employee Stock Purchase Plans	$	20	$	48	$	63
Equity Incentive Plans		2,477		3,751		4,163
	$	2,497	$	3,799	$	4,226
Restructuring costs
Equity Incentive Plans	$	—	$	24	$	—
	$	—	$	24	$	—
Total stock-based compensation expense	$	3,845	$	5,674	$	10,720

(1)

The 2017 charge includes approximately $4.3 million of additional stock-based compensation recognized as a result of modifications to previously issued stock option awards in connection with the resignation of an executive.

During the years ended December 31, 2019, 2018 and 2017, the weighted average fair market value of stock options granted was $1.64, $7.00, and $8.08, respectively.

Note 12. Stock-based Compensation (Continued)

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 or cancelled in the future.

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. See Note 2.

The fair value of each option award at the date of grant was estimated using the Black-Scholes option pricing model. All options granted during the three years in the period ended December 31, 2019 were granted at exercise prices equal to the fair market value of the common stock on the dates of grant.

The following weighted average assumptions apply to the options to purchase 1,279,016, 1,136,874, and 527,039 shares of common stock granted to employees and directors during the years ended December 31, 2019, 2018 and 2017, respectively:



	2019		2018		2017
Average risk-free interest rate		2.1%		2.5%		1.7%
Expected dividend yield		—		—		—
Expected lives (years)		3.7		3.7		4.0
Expected volatility		84%		74%		86%
Weighted average exercise price (per share)	$	2.75	$	12.63	$	12.96

All options granted during the year ended December 31, 2019 and 2018 were granted at exercise prices equal to the fair market value of the common stock on the dates of grant.

Stock Option Activity

The following table summarizes stock option activity for the year ended December 31, 2019.


($ in thousands, except per share data)	Stock Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2018	3,304,531	$	18.41	6.6	$
Granted	1,279,016		2.75
Exercised	—		—
Forfeited	(143,874)		12.95
Expired	(219,256)		31.29
Outstanding at December 31, 2019 (1)	4,220,417	$	13.08	6.6	$	—
Exercisable at December 31, 2019	2,292,157	$	19.20	4.7	$	—

(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.

Note 12. Stock-based Compensation (Continued)

The fair value of options that vested during the year ended December 31, 2019 was $4.7 million. As of December 31, 2019, there was $5.2 million of unrecognized compensation cost related to unvested options, which the Company expects to recognize over a weighted average period of 2.5 years.

Restricted Stock Activity

The following table summarizes restricted stock activity for the year ended December 31, 2019:


($ in thousands, except per share data)	Number of Shares	Weighted-Average Grant Date Fair Value
Nonvested shares at December 31, 2018	—	$	—
Granted	194,550		3.14
Cancelled	(925)		3.14
Vested	—		—
Nonvested shares at December 31, 2019	193,625	$	3.14

As of December 31, 2019, there was $0.5 million of unrecognized compensation cost related to the restricted stock units, which is expected to be recognized over a weighted average period of 3.0 years.