Equity Instruments and Share-Based Compensation

Capital Shares

We have 500,000 shares of authorized ordinary shares with a nominal value of $0.01 per ordinary share. As of December 31, 2019, we had 42,927 and 37,520 ordinary shares issued and outstanding, respectively. The Board of Directors is authorized to issue preferred shares in series, and with respect to each series, to fix its designation, relative rights (including voting, dividend, conversion, sinking fund, and redemption rights), preferences (including dividends and liquidation) and limitations. We have 50,000 shares of authorized preferred shares, $0.01 nominal value, none of which is currently issued and outstanding.

Share Repurchases

In March 2017, the Board of Directors approved an authorization to repurchase up to $25,000 of Avadel ordinary shares represented by ADSs. Under this authorization, which has an indefinite duration, share repurchases may be made in the open market, in block transactions on or off the exchange, in privately negotiated transactions, or through other means as determined by the Board of Directors and in accordance with the regulations of the Securities and Exchange Commission. The timing and amount of repurchases, if any, will depend on a variety of factors, including the price of our shares, cash resources, alternative investment opportunities, corporate and regulatory requirements and market conditions. This share repurchase program may be modified, suspended or discontinued at any time without prior notice. We may also from time to time establish a trading plan under Rule 10b5-1 of the Securities and Exchange Act of 1934 to facilitate purchases of our shares under this program. Additionally, on February 12, 2018, the Board of Directors approved an authorization to repurchase up to $18,000 of Avadel ordinary shares represented by American Depository Shares in connection with our Convertible Notes Offering completed on February 16, 2018. See Note 11: Long-Term Debt. In March 2018, the Board of Directors approved an authorization to repurchase up to $7,000 of Avadel ordinary shares represented by American Depository Shares, bring the total authorization to $50,000. There were no share repurchases during the year ended December 31, 2019. As of December 31, 2019, the Company had repurchased 5,407 ordinary shares for $49,998.

Share-Based Compensation

Compensation expense included in the Company’s consolidated statements of (loss) income for all share-based compensation arrangements was as follows for the periods ended December 31, 2019, 2018 and 2017, respectively:



Share-based Compensation Expense:	2019			2018		2017

Research and development	$	429		$	880	$	672
Selling, general and administrative	2,154			6,972		7,400
Restructuring costs	(2,064		)	—		—
Total share-based compensation expense	$	519		$	7,852	$	8,072

As of December 31, 2019, the Company expects $2,695 of unrecognized expense related to granted, but non-vested share-based compensation arrangements to be incurred in future periods. This expense is expected to be recognized over a weighted average period of 2.4 years.

The excess tax benefit related to share-based compensation recorded by the Company was not material for the years ended December 31, 2019, 2018 and 2017.

Upon exercise of stock options or warrants, or upon the issuance of restricted share awards, the Company issues new shares.

At December 31, 2019, there were 565,716 shares authorized for stock option grants, warrant grants and restricted share award grants in subsequent periods.

Determining the Fair Value of Stock Options

The Company measures the total fair value of stock options on the grant date using the Black-Scholes option-pricing model and recognizes each grant’s fair value as compensation expense over the period that the option vests. Options are granted to employees of the Company and become exercisable ratably over four years following the grant date and expire ten years after the grant date. Prior to 2017, warrants were typically issued to the Company’s Board of Directors as compensation for services rendered and generally become exercisable within one year following the grant date, and expire four years after the grant date. Beginning in 2017, the Company issues stock options to our Board of Directors as compensation for services rendered and generally become exercisable within one year following the grant date, and expire four years after the grant date.

The weighted-average assumptions under the Black-Scholes option-pricing model for stock option grants as of December 31, 2019, 2018 and 2017, are as follows:



Stock Option Assumptions:	2019		2018		2017

Stock option grants:
Expected term (years)	6.25		6.25		6.25
Expected volatility	56.48	%	56.59	%	58.82	%
Risk-free interest rate	2.52	%	2.68	%	2.20	%
Expected dividend yield	—		—		—

Expected term: The expected term of the options represents the period of time between the grant date and the time the options are either exercised or forfeited, including an estimate of future forfeitures for outstanding options. Given the limited historical data and the grant of stock options to a limited population, the simplified method has been used to calculate the expected life.

Expected volatility: The expected volatility is calculated based on an average of the historical volatility of the Company’s stock price for a period approximating the expected term.

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 and a maturity that approximates the expected term.

Expected dividend yield: We have not distributed any dividends since our inception, and has no plan to distribute dividends in the foreseeable future.

Stock Options

A summary of the combined stock option activity and other data for the Company’s stock option plans for the year ended December 31, 2019 is as follows:



Stock Option Activity and Other Data:	Number of Stock Options		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value

Stock options outstanding, January 1, 2019	4,601		$	11.39
Granted	2,631		2.24
Exercised	—		—
Forfeited	(1,333	)	7.37
Expired	(778	)	12.91
Stock options outstanding, December 31, 2019	5,121		$	7.51	7.43 years	$	12,119
Stock options exercisable, December 31, 2019	2,636		$	11.63	5.73 years	$	572

The aggregate intrinsic value of options exercisable at December 31, 2019, 2018 and 2017 was $572, $0, and $1,161, respectively.

The weighted average grant date fair value of options granted during the years ended December 31, 2019, 2018 and 2017 was $1.24, $3.60 and $5.20 per share, respectively.

Warrants

A summary of the combined warrant activity and other data for the year ended December 31, 2019 is as follows:



Warrant Activity and Other Data:	Number of Warrants		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value

Warrants outstanding, January 1, 2019	596		$	17.72
Granted	—		—
Exercised	—		—
Forfeited	—		—
Expired	(305	)	21.67
Warrants outstanding, December 31, 2019	291		$	13.59	0.61 years	$	—
Warrants exercisable, December 31, 2019	291		$	13.59	0.61 years	$	—

Each of the above warrants is convertible into one ordinary share. There was no aggregate intrinsic value of warrants exercised during the years ended December 31, 2019, 2018 and 2017.

There were no warrants granted during the years ended December 31, 2019, 2018 and 2017.

At January 1, 2018, an additional 3,300 warrants were outstanding and exercisable relative to consideration paid for the Company’s acquisition of Éclat Pharmaceuticals on March 13, 2012. These warrants are not considered share-based compensation and are therefore excluded from the above tables, and instead are addressed within Note 12: Long-Term Related Party Payable. On February 23, 2018, the related party exercised in full the warrant to purchase 2,200 ordinary shares. On March 12, 2018 the remaining warrants to purchase 1,100 ordinary shares expired.

Restricted Share Awards

Restricted share awards represent Company shares issued free of charge to employees of the Company as compensation for services rendered. The Company measures the total fair value of restricted share awards on the grant date using the Company’s stock price at the time of the grant. Restricted share awards granted during and after 2017 vest over a three-year period; two-thirds (2/3) vesting on the second anniversary of the grant date and the remaining one-third (1/3) vesting on the third anniversary of the grant date. Beginning in 2018, the Company issues restricted share awards to our Board of Directors vesting over a three-year period; one-third (1/3) vesting on each of the three anniversaries of the grant date. Compensation expense for such awards granted during and after 2017 is recognized over the applicable vesting period.

A summary of the Company’s restricted share awards as of December 31, 2019, and changes during the year then ended, is reflected in the table below.



Restricted Share Activity and Other Data:	Number of Restricted Share Awards		Weighted Average Grant Date Fair Value

Non-vested restricted share awards outstanding, January 1, 2019	491		$	7.20
Granted	251		2.47
Vested	(153	)	7.50
Forfeited	(242	)	5.65
Non-vested restricted share awards outstanding, December 31, 2019	347		$	4.73

The weighted average grant date fair value of restricted share awards granted during the years ended December 31, 2019, 2018 and 2017 was $2.47, $5.87 and $8.95, respectively.

Employee Share Purchase Plan

In 2017, the Board of Directors approved of the Avadel Pharmaceuticals plc 2017 Avadel Employee Share Purchase Plan (“ESPP”). The total number of Company ordinary shares, nominal value $0.01 per share, or ADSs representing such ordinary shares (collectively, “Shares”) which may be issued under the ESPP is 1,000. The purchase price at which a Share will be issued or sold for a given offering period will be established by the Compensation Committee of the Board (“Committee”) (and may differ among participants, as determined by the Committee in its sole discretion) but will in no event be less than 85% of the lesser of: (a) the fair market value of a Share on the offering date; or (b) the fair market value of a Share on the purchase date. During the years ended December 31, 2019 and 2018, the Company issued 54 and 25 ordinary shares to employees, respectively. Expense related to the ESPP for the years ended December 31, 2019 and 2018 was immaterial.