STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-based Compensation

The Company can issue nonqualified and incentive stock options as well as other equity awards pursuant to its Amended and Restated 2009 Omnibus Incentive Plan, (Option Plan). Such awards pursuant to the Option Plan may be granted by the Company’s Board of Directors to certain of the Company’s employees, directors and consultants.

During the three and nine months ended September 30, 2015, the Company granted 162,250 and 2,181,100 service-based options to purchase common stock, respectively. The options were granted with exercise prices equal to the fair market value of the Company’s stock at the grant date; and other than those granted to non-employee directors, generally vest over four years, under a graded-vesting methodology, following the date of grant, and expire after ten years. The Company issues new shares upon the exercise of stock options. The weighted average grant-date fair value of service-based options granted under the Option Plan during the three months ended September 30, 2015 was $2.26. There were no service-based options granted for the three months ended September 30, 2014. The weighted average grant-date fair value of service-based options granted under the Option Plan during the nine months ended September 30, 2015 and 2014 was $2.23 and $2.85, respectively.

The net compensation expense recorded for the service-based stock options related to employees and directors was $0.6 million and $2.2 million for the three and nine months ended September 30, 2015 and $0.2 million and $0.7 million for the three and nine months ended September 30, 2014, respectively. The compensation cost includes forfeiture adjustments.

The fair value of each service-based stock option grant for the reported periods is estimated on the date of the grant using the Black-Scholes option-pricing model using the weighted average assumptions noted in the following table.



	Nine Months Ended September 30,
Service-Based Stock Options	2015		2014
Expected dividend yield	—	%	—	%
Expected stock price volatility	77.6 – 88.1%		82.4 – 88.2%
Risk-free interest rate	1.5 – 2.0%		1.7 – 2.2%
Expected life (years)	5.5 – 6.3		5.5 – 6.3

The following table summarizes the activity for service-based stock options for the indicated periods:



Service-Based Stock Options	Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2014	477,530	$	21.74	8.0	$	—
Granted	2,181,100	$	3.12
Exercised	3,566	$	3.02		$	1,343
Expired	13,217	$	40.89
Forfeited	125,326	$	3.41
Outstanding at September 30, 2015	2,516,521	$	6.44	9.0	$	240
Exercisable at September 30, 2015	537,756	$	16.72	8.0	$	—

As of September 30, 2015 there was approximately $3.2 million of total unrecognized compensation cost related to non-vested service-based stock options granted under the Option Plan. That cost is expected to be recognized over a weighted-average period of 3.2 years.

The total fair value of options vested during the nine months ended September 30, 2015 and 2014 was $1.3 million for both periods.

In addition, our board of directors and shareholders approved the Vericel Corporation Employee Stock Purchase Plan (ESPP), which we implemented effective October 1, 2015 for the first offering period. The ESPP allows for the issuance of an aggregate of 1,000,000 shares of our common stock. Participation in this plan is available to substantially all full-time employees.