NOTE 10. STOCKHOLDERS’ EQUITY

(a) Stock Purchase Rights

All shares of the Company’s common stock, if issued prior to the termination by the Company of its rights agreement, dated as of December 4, 2006, include stock purchase rights. The rights are exercisable only if a person or group acquires twenty percent or more of the Company’s common stock or announces a tender or exchange offer which would result in ownership of twenty percent or more of the Company’s common stock. Following the acquisition of twenty percent or more of the Company’s common stock, the holders of the rights, other than the acquiring person or group, may purchase Medivation common stock at half of its fair market value. In the event of a merger or other acquisition of the Company, the holders of the rights, other than the acquiring person or group, may purchase shares of the acquiring entity at half of their fair market value. The rights were not exercisable at December 31, 2014.

(b) Medivation Equity Incentive Plan

The Medivation Equity Incentive Plan, which is stockholder-approved, provides for the issuance of options and other stock-based awards, including restricted stock units, performance share awards and stock appreciation rights, to employees, directors and consultants. The vesting of all outstanding awards under the Medivation Equity Incentive Plan will accelerate, and all such awards will become immediately exercisable, upon a “change of control” of Medivation, as defined in the Medivation Equity Incentive Plan. At December 31, 2014, there were 21,150,000 shares of common stock authorized for issuance under the Medivation Equity Incentive Plan, of which approximately 2.7 million shares of common stock were available for issuance.

Stock Options

The terms of stock options granted under the Medivation Equity Incentive Plan cannot exceed ten years. Stock options generally have an exercise price equal to the fair market value of the Company’s common stock on the grant date, and generally vest over a period of four years except for annual stock option grants to non-employee directors, which vest over a period of one year.

The following table summarizes stock option activity for the year ended December 31, 2014:


	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value⁽¹⁾
Outstanding at December 31, 2013		6,614,534		$	22.12
Granted		957,131		$	78.57
Exercised		(2,015,934	)	$	14.43
Forfeited/expired		(487,774	)	$	46.13

Outstanding at December 31, 2014		5,067,957		$	33.52		6.27	$	335.3

Vested and exercisable at December 31, 2014		3,423,815		$	19.70		5.16	$	273.6

(1)

The aggregate intrinsic value is calculated as the pre-tax difference between the weighted-average exercise price of the underlying awards and the closing price per share of $99.61 of the Company’s common stock on December 31, 2014. The calculation excludes any awards with an exercise price higher than the closing price of the Company’s common stock on December 31, 2014. The amounts are presented in millions.

Additional information regarding stock options is set forth below (in thousands, except per share data):


	Years Ended December 31,
	2014		2013		2012
Intrinsic value of options exercised	$	145,842	$	35,155	$	116,867
Grant-date fair value of options vested	$	38,147	$	22,278	$	10,795
Weighted-average grant-date fair value per share of options granted	$	43.35	$	30.39	$	26.01

Restricted Stock Units

A restricted stock unit is an agreement to issue shares of the Company’s common stock at the time of vesting. Restricted stock units generally vest in three equal installments on approximately the first, second and third anniversaries of the grant date, except for annual restricted stock unit grants to non-employee directors, which vest on approximately the first anniversary of the grant date.

The following table summarizes restricted stock unit activity for the year ended December 31, 2014:


	Number of Shares			Weighted- Average Grant-Date Fair Value
Unvested at December 31, 2013		311,347		$	52.57
Granted		399,102		$	83.55
Vested		(134,865	)	$	51.85
Forfeited		(92,004	)	$	63.95

Unvested at December 31, 2014		483,580		$	76.20

The total fair value of restricted stock units that vested during the years ended December 31, 2014, 2013, and 2012 was $7.0 million, $11.8 million, and $6.2 million, respectively.

Performance Share Awards

The Company granted performance share awards in 2011 to certain employees pursuant to the terms of the Medivation Equity Incentive Plan. During the year ended December 31, 2012, the compensation committee of the Company’s Board (“Compensation Committee”) certified the actual achievement of performance objectives related to certain performance share awards. As a result, during the year ended December 31, 2012, recipients earned a total of 83,332 shares of common stock that had a fair market value of $4.7 million. In December 2012, the Compensation Committee cancelled all remaining performance share awards covering an aggregate of 41,668 shares of common stock. There were no performance share awards outstanding under the Medivation Equity Incentive Plan at either December 31, 2014 or 2013.

Stock Appreciation Rights

Stock appreciation rights give the holder the right, upon exercise, to receive the difference between the market price per share of the Company’s common stock at the time of exercise and the exercise price of the stock appreciation right. The exercise price of the stock appreciation right is equal to the market price of the Company’s common stock at the date of the grant.

The following table summarizes stock appreciation rights activity for the year ended December 31, 2014:


	Number of Rights			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value⁽¹⁾
Outstanding at December 31, 2013		806,116		$	23.98
Granted		—			—
Exercised		(97,994	)	$	23.50
Forfeited		(19,894	)	$	23.82

Outstanding at December 31, 2014		688,228		$	24.05		6.96	$	52.0

Vested and exercisable at December 31, 2014		501,740		$	24.07		6.96	$	37.9

(1)

Additional information regarding stock appreciation rights is set forth below (in thousands, except per share data):


	Years Ended December 31,
	2014		2013		2012
Intrinsic value of stock appreciation rights exercised	$	7,024	$	1,090	$	—
Fair value of stock appreciation rights vested (based on remeasurement-date fair value)	$	6,834	$	9,955	$	4,307
Weighted-average grant-date fair value per share of stock appreciation rights granted	$	—	$	—	$	14.33
Weighted-average remeasurement-date fair value per share of stock appreciation rights	$	—	$	—	$	32.94

No stock appreciation rights were granted during the years ended December 31, 2014 and 2013.

(c) Medivation Employee Stock Purchase Plan

The Medivation, Inc. 2013 Employee Stock Purchase Plan, or ESPP, which is stockholder approved, permits eligible employees to purchase shares of the Company’s common stock through payroll deductions at the lower of 85% of the fair market value of the common stock at the beginning or end of a purchase period. Eligible employee purchases are limited on an annual basis to $25,000 in accordance with Section 423 of the Internal Revenue Code. As of December 31, 2014, a total of 3,000,000 shares of the Company’s common stock were authorized for issuance under the ESPP, approximately 34,696 shares are reserved for issuance under the current purchase period, and 90,067 shares have been issued. At December 31, 2014, total employee withholdings for ESPP shares of $1.5 million were recorded in “accounts payable, accrued expenses and other current liabilities” on the consolidated balance sheet.

(d) Stock-Based Compensation

The Company estimates the fair value of stock options, stock appreciation rights, and ESPP shares using the Black-Scholes valuation model. The Company estimates expected volatility based on the historical price volatility of its common stock and implied volatility of its common stock inherent in the market price of publicly traded options in its common stock. The Company estimates the expected term of stock options and stock appreciation rights based on actual exercise experience and an assumption that unexercised options will remain outstanding for a period equal to the midpoint between the date the option vests in full and the contractual option termination date. The Company estimates the expected term of ESPP shares based on the duration of the applicable purchase period. The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected term of the awards at the time of grant. The Company uses a dividend yield of zero as it has no history or expectation of paying cash dividends on its common stock.

The Black-Scholes assumptions used to estimate the fair value of stock options and stock appreciation rights to employees and directors were as follows:


	Years Ended December 31,
	2014			2013			2012
Expected volatility		60-65	%		64-75	%		66-73	%
Expected term (in years)		5.0-5.5			5.2-5.5			5.3-5.5
Risk-free interest rate		1.56-1.79	%		0.73-1.64	%		0.68-1.01	%
Expected dividend yield		—			—			—

No significant stock options or stock appreciation rights were granted to consultants during the periods presented above.

The Black-Scholes assumptions used to estimate the fair value of shares issued under the ESPP on the commencement date of the offering period were as follows:


	Years Ended December 31,
	2014			2013
Expected volatility		43-53	%		45	%
Expected term (in years)		0.5			0.5
Risk-free interest rate		0.04-0.06	%		0.04	%
Expected dividend yield		—			—

No ESPP offerings commenced during the year ended December 31, 2012.

Stock-based compensation expense was as follows:


	Years Ended December 31,
	2014		2013		2012
Stock-based compensation expense recognized as:
R&D expenses	$	17,913	$	16,503	$	11,998
SG&A expenses		27,221		20,575		11,680

Total	$	45,134	$	37,078	$	23,678

Unrecognized stock-based compensation expense totaled $77.8 million at December 31, 2014, and is expected to be recognized over a weighted-average period of 2.34 years.

(e) Warrants

At December 31, 2014, an aggregate of 20,000 warrants to purchase shares of Medivation common stock at an exercise price of $6.93 per share were outstanding. These outstanding warrants expire in 2017. During the year ended December 31, 2013, an aggregate of 25,808 warrants to purchase shares of Medivation common stock at an exercise price of $0.78 per share were exercised.