STOCKHOLDERS' EQUITY AND SHARE-BASED COMPENSATION EXPENSE

Convertible Preferred Stock

The Company's Board of Directors has authorized 5.0 million shares of convertible preferred stock, $0.01 par value. At December 31, 2015 and 2014, there were no such shares issued or outstanding.

At the Market Offering

On November 18, 2014, we entered into a sales agreement with Cantor Fitzgerald to offer shares of our common stock, $0.01 par value per share, from time to time through Cantor Fitzgerald, as the Company’s sales agent for the offer and sale of the shares. The Company was able to offer and sell shares for an aggregate offering price of up to $50.0 million. The Company paid a commission equal to 3% of the gross proceeds from the sale of shares of its common stock under the sales agreement. The Company intended to use the net proceeds from this offering for general corporate purposes, including capital expenditures, debt repayments and working capital. The Company also had the option to use a portion of the net proceeds from this offering to acquire or invest in complementary businesses, technologies, product candidates or other intellectual property, although there are no present commitments or agreements to do so. The Company was not obligated to make any sales of shares of common stock under the sales agreement and are prohibited from doing so pursuant to the terms of the Merger Agreement. In 2015, the Company sold a total of 3.8 million shares of common stock at an average price of $12.05 through its "at-the-market" offering, for total net proceeds of $44.7 million.

Share-based Compensation Plans

The Company has a share-based compensation program that provides the Board of Directors broad discretion in creating equity incentives for employees, officers, directors and consultants. This program includes incentive and non-qualified stock options and restricted stock, granted under various stock plans. Stock options are issued at a price of at least 100% of the fair value of the Company's common stock on the date of grant (110% in certain circumstances), as determined by the Board of Directors. Options generally expire 7 to 10 years from the grant date and may be granted with different vesting terms from time to time as determined by the Board of Directors, usually over a period of four years on each anniversary of the grant date. In general, restricted stock vest on an annual basis over a period of three to four years on each anniversary of the grant date, are subject to the employees' continued employment and are paid upon vesting in shares of the Company's common stock on a one-for-one basis. As of December 31, 2015, the Company had approximately 5.2 million shares of common stock reserved for future issuance under its share-based compensation plans. A more detailed description of the Company's current share-based compensation plans follows below:

In 1998, the Board of Directors adopted the Affymetrix 1998 Stock Incentive Plan (the "1998 Stock Plan") under which nonqualified stock options and restricted stock may be granted to employees and outside consultants, except that members of the Board of Directors and individuals who are considered officers of the Company under the rules of the National Association of Securities Dealers shall not be eligible. Options granted under the 1998 Stock Plan expire no later than ten years from the date of grant. A total of 3.6 million shares of common stock are authorized for issuance under the 1998 Stock Plan.

In 2000, the Board of Directors adopted the Amended and Restated 2000 Equity Incentive Plan (the "2000 Stock Plan"), which was amended and restated in 2001, under which restricted stock, stock options, and stock appreciation rights may be granted to employees, outside directors and consultants. In the second quarter of 2010, 4.5 million shares of common stock were added under the 2000 Stock Plan bringing the total shares of common stock authorized for issuance under the 2000 Stock Plan to 16.2 million.

In June 2012, the Board of Directors adopted the 2012 Inducement Plan (the "2012 Inducement Plan"), under which restricted stock, stock options, and stock appreciation rights may be granted to employees. A total of 2.0 million shares of common stock are authorized for issuance under the 2012 Inducement Plan.

The following table sets forth the share-based compensation expense included in the accompanying Consolidated Statements of Operations (in thousands):



	Year Ended December 31,
	2015		2014		2013
Costs of product sales	$	2,620	$	2,500	$	1,002
Research and development	1,951		2,266		1,331
Selling, general and administrative	10,414		7,645		5,394
Total share-based compensation expense	$	14,985	$	12,411	$	7,727

As of December 31, 2015, $18.4 million of total unrecognized share-based compensation expense related to non-vested awards is expected to be recognized over the respective vesting terms of each award through 2018. The weighted‑average term of the unrecognized share-based compensation expense are 2.1 years for stock options and 2.2 years for restricted stock.

Stock Options

The fair value of options was estimated at the respective dates of grant using the BSM option pricing model with the following weighted‑average assumptions:



	Year Ended December 31,
	2015		2014		2013
Risk free interest rate	1.4	%	1.6	%	1.0	%
Expected dividend yield	—	%	—	%	—	%
Expected volatility	58	%	72	%	68	%
Expected option term (in years)	4.6		4.6		4.6

The risk free interest rate for periods within the contractual life of the Company's stock options is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term is derived from an analysis of the Company's historical exercise trends over ten years. The expected volatility for the years ended December 31, 2015, 2014 and 2013 is based on a blend of historical and market‑based implied volatility. Using the assumptions above, the weighted‑average grant date fair value of options granted during the years ended December 31, 2015, 2014 and 2013 was $5.31, $4.59 and $2.42 per option, respectively.

Activity under the Company's stock plans for the year ended December 31, 2015 is as follows (in thousands, except per share amounts):



	Shares		Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Terms	Aggregate Intrinsic Value
					(in years)	(in thousands)
Outstanding at December 31, 2014	4,195		$	6.23
Grants	504		11.00
Exercises	(1,138	)	7.24
Forfeitures or expirations	(156	)	9.36
Outstanding at December 31, 2015	3,405		$	6.46	3.61	$	13,662

Exercisable at December 31, 2015	2,091		$	5.65	2.58	$	9,995

Vested and expected to vest at December 31, 2015	3,178		$	6.31	3.47	$	13,184

The following table summarizes information concerning currently outstanding and exercisable options at December 31, 2015:



Range of Exercise Prices				Options Outstanding				Options Exercisable
					Weighted-Average	Weighted-Average			Weighted-Average
					Remaining	Exercise Price			Exercise Price
Lower		Upper		Number	Contractual Life	Per Share		Number	Per Share
				(in thousands)	(in years)			(in thousands)
$	2.93	$	3.91	904	3.53	$	3.72	574	$	3.68
$	4.16	$	5.07	709	2.43	$	4.45	642	$	4.46
$	5.21	$	7.55	857	3.37	$	6.48	573	$	6.22
$	7.62	$	11.88	834	4.83	$	9.62	266	$	8.27
$	12.24	$	36.16	101	4.44	$	18.56	36	$	29.96
Total				3,405	3.61	$	6.46	2,091	$	5.65

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., the difference between the Company's closing stock price on the last trading day of its fourth quarter of 2015 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2015. The aggregate intrinsic value changes based on the fair market value of the Company's common stock. For the years ended December 31, 2015, 2014 and 2013, total intrinsic value of options exercised was $5.1 million, $2.8 million and $0.8 million, respectively.

Reserved Shares

At December 31, 2015, the Company has shares reserved for future issuance as follows (in thousands):



Options outstanding	3,405
Options available for future grants	5,189
Convertible notes	17,857
Total at December 31, 2015	26,451

Restricted Stock

The following tables summarize the Company's restricted stock activity for the year ended December 31, 2015 (in thousands, except per share amounts):



	Number of Shares		Weighted-Average Grant Date Fair Value per Share
Restricted stock units
Outstanding at December 31, 2014	2,395		$	6.30
Granted	1,396		10.04
Vested	(1,000	)	6.03
Forfeited	(265	)	7.39
Outstanding at December 31, 2015	2,526		$	8.36

For the years ended December 31, 2015 and 2014, total fair value of restricted stock vested was $6.0 million and $5.9 million, respectively.

Performance-Based Restricted Stock

The Company's share-based awards program includes performance-based restricted stock awards that reference performance criteria.

2011 CEO grants In 2011, the Compensation Committee of the Company's Board of Directors approved a grant of performance-based restricted stock units ("PRSUs") under the Plan to the Company's Chief Executive Officer ("CEO") that is earned annually in four equal tranches based on his performance in the applicable fiscal year (the "Performance Period"). The PRSUs entitle the CEO to receive a certain number of shares of the Company's common stock based on the Company's satisfaction of certain financial and strategic performance goals as set and approved by the Board of Directors annually during the first quarter of the Company's fiscal year. Based on the achievement of the performance conditions during each Performance Period, the final settlement of the PRSU award will vest twelve months following the end of each Performance Period. The PRSU award will be forfeited if the performance goals are not met or if the executive officer is no longer employed at the vest date.

The number of shares underlying the PRSUs that were granted to the CEO during 2011 totaled 240,000 of which (i) 60,000 PRSUs relating to the Performance Period ended December 31, 2011 and with a grant date fair value of $6.71 per PRSU vested at December 31, 2012; (ii) 25,000 PRSUs relating to the Performance Period ended December 31, 2012 and with a grant date fair value of $4.63 per PRSU vested at December 31, 2013; (iii) 42,000 PRSUs relating to the Performance Period ended December 31, 2013 and with a grant date fair value of $4.67 per PRSU vested at December 31, 2014; (iv) 27,000 PRSUs relating to the Performance Period ended December 31, 2014 and with a grant date fair value of $7.22 per PRSU vested at December 31, 2015.

2013 Program During the first quarter of 2013, the Compensation Committee granted certain PRSUs following the most recent restructuring referred to as the 2013 Program. The purpose of the 2013 Program was to retain key employees. The measurement period for the 2013 Program was the twelve month period ended December 31, 2013 and the awards granted under the 2013 Program were granted in the form of performance shares pursuant to the terms of our 2000 Plan. Dependent on the level of achievement of pre-determined financial performance goals, shares of stock would vest in equal installments over two or four years. The level of achievement of financial performance was assessed during the first quarter of 2014 after which the shares of stock were issued to the participants, contingent upon the recipient’s continued service to the Company.

In 2013, the Company awarded 340,000 PRSUs under the 2013 Program at a grant date fair value of $3.84 per PRSU of which (i) 104,500 PRSUs relating to the twelve month period ended December 31, 2013 vested at February 25, 2014; (ii) 75,000 PRSUs relating to the twelve months period ended December 31, 2014 vested on February 25, 2015. The Company expects 25,000 PRSUs will vest with the fair value of these PRSUs being amortized on a straight-line basis over the related service period. The total compensation cost related to 2013 Program PRSUs granted but not yet recognized was less than $0.1 million as of December 31, 2015.

2014 Program During the first quarter of 2014, the Compensation Committee granted certain PRSUs associated with performance criteria referred to as the 2014 Program. The purpose of the 2014 Program was to retain key employees. The measurement period for the 2014 Program was the twelve month period ended December 31, 2015 and the awards granted under the 2014 Program were granted in the form of performance shares pursuant to the terms of our 2000 Plan. Dependent on the level of achievement of pre-determined financial performance goals, shares of stock would vest in equal installments over two or four years. The level of achievement of 2014 financial performance was assessed during the first quarter of 2015 after which the shares of stock were issued to the participants, contingent upon the recipient’s continued service to the Company.

In 2014, the Company awarded 564,100 PRSUs under the 2014 Program at a grant date fair value of $7.71 per PRSU of which 251,800 PRSUs relating to the twelve month period ended December 31, 2014 vested at February 13, 2015. The Company expects 241,600 PRSUs will vest with the fair value of these PRSUs being amortized on a straight-line basis over the related service period. The total compensation cost related to 2014 Program PRSUs granted but not yet recognized was approximately $0.1 million as of December 31, 2015.

2015 Program During the first quarter of 2015, the Compensation Committee granted certain PRSUs associated with performance criteria referred to as the 2015 Program. The purpose of the 2015 Program is to retain key employees. The measurement period for the 2015 Program is the twelve month period ending December 31, 2015 and the awards granted under the 2015 Program were granted in the form of performance shares pursuant to the terms of our 2000 Plan. Based on the achievement of the performance conditions, shares of stock would vest in equal installments over three years. The level of achievement of 2015 financial performance will be assessed during the first quarter of 2016 after which the shares of stock will be issued to the participants, contingent upon the recipient’s continued service to the Company.

In 2015, the Company awarded 243,000 PRSUs under the 2015 Program at a grant date fair value of $11.88 per PRSU and expects 243,000 PRSUs will vest with the fair value of these PRSUs being amortized on a straight-line basis over the related service period. The total compensation cost related to 2015 Program PRSUs granted but not yet recognized was approximately $0.9 million as of December 31, 2015.

2015 CEO Grants During the second quarter of 2015, the Board of Directors approved a grant of PRSUs associated with performance criteria to the Company's Chief Executive Officer ("CEO") referred to as the 2015 CEO Grant. The measurement period for the 2015 CEO Grant is the twelve month period ending December 31, 2017 and the awards granted under the 2015 CEO Grant were granted in the form of performance shares pursuant to the terms of our 2000 Plan. The 2015 CEO Grant entitles the CEO to receive a certain number of shares of the Company's common stock based on the Company's satisfaction of certain financial performance goals as set and approved by the Board of Directors during the second quarter of 2015. Based on the achievement of the performance conditions during the Performance Period, the final settlement of the PRSU award will vest in February 2018. The level of achievement of 2017 financial performance will be assessed during the first quarter of 2018. The PRSU award will be forfeited if the performance goals are not met or if the CEO is no longer employed at the vest date.

The Company awarded 156,023 PRSUs under the 2015 CEO Grant at a grant date fair value of $12.37 per PRSU and expects 156,023 PRSUs will vest with the fair value of these PRSUs being amortized on a straight-line basis over the related service period. The total compensation cost related to 2015 CEO Grants PRSUs granted but not yet recognized was approximately $1.1 million as of December 31, 2015.

The following table summarizes the Company's PRSU activity for the year ended December 31, 2015 (in thousands, except per share amounts):



	Number of Shares		Weighted-Average Grant Date Fair Value per PRSU
Performance based restricted stock awards
Outstanding at December 31, 2014	723		$	6.83
Granted	399		12.07
Vested	(354	)	6.85
Forfeited	(65	)	6.38
Outstanding at December 31, 2015	703		$	9.84

For the years ended December 31, 2015 and 2014, the total fair value of PRSUs vested was $2.4 million and $1.6 million, respectively. The total compensation cost related to all PRSUs granted but not yet recognized was approximately $2.0 million as of December 31, 2015 which will be recognized over the next 4 years. Changes in the Company’s assessment of the probability of achievement of performance criteria could have a material effect on the results of operations in future periods. There were no material changes in estimate related to the probability of vesting or recognition of expense related to PRSUs during either of the periods ended December 31, 2015, 2014 or 2013.

Employee Stock Purchase Plan

In August 2011, the Company's Board of Directors adopted the 2011 Employee Stock Purchase Plan ("ESPP") that was approved by the Company's stockholders on May 11, 2012. A total of 7.0 million shares of the Company's common stock are reserved for issuance under the ESPP, which permits eligible employees to purchase common stock at a discount through payroll deductions.

The price at which stock is purchased under the ESPP is equal to 85% of the fair market value of the common stock on the first day of the offering period or the last day of the purchase period, whichever is lower. The offering periods are twelve months and include two six month purchase periods that result in a look-back for determining the purchase price of up to 12 months. Employees can invest up to 15% of their gross compensation through payroll deductions. In no event would an employee be permitted to purchase more than 750 shares of common stock during any six-month purchase period. The initial offering period commenced in November 2011. As of December 31, 2015, there were 485 participants in the ESPP and approximately 0.4 million shares were issued under the ESPP during 2015 at an average subscription date fair value of $7.24 per share. Included in total share-based compensation expense for the years ended December 31, 2015, 2014 and 2013 was $1.5 million, $1.8 million and $0.7 million, respectively, related to the ESPP.

During the years ended December 31, 2015 and 2014, the fair value of shares issued under the ESPP was estimated using the following assumptions:



	2015		2014
Risk free interest rate	0.23	%	0.07	%
Expected dividend yield	—	%	—	%
Expected volatility	58	%	72	%
Expected term (in years)	0.74		0.75