Note 13. Stock-Based Compensation

Employee Stock Plans

Employee Stock Purchase Plan

The Company maintains an Employee Stock Purchase Plan (the “Purchase Plan”), which is intended to qualify as an employee stock purchase plan within the meaning of Section 423(b) of the Internal Revenue Code. Under the Purchase Plan, the Company’s Board of Directors may authorize participation by eligible employees, including officers, in periodic offerings. Under the Purchase Plan eligible employee participants may purchase ordinary shares at a discount of 15% through payroll deductions. The Purchase Plan consists of a fixed offering period of 12 months with two purchase periods within each offering period. The Purchase Plan is authorized to issue an aggregate of 1,320,500 shares. At December 31, 2014, the Company had 387,349 shares available for future issuance.

2008 Equity Incentive Plan

The Company also maintains an equity compensation plan to provide long-term incentives for employees, contractors, and members of its Board of Directors. The Company currently grants equity awards from one plan, the 2008 Equity Incentive Plan (the “2008 Plan”). The 2008 Plan allows for the issuance of non-statutory and incentive stock options, restricted stock, restricted stock units, stock appreciation rights, other stock-related awards, and performance awards which may be settled in cash, stock, or other property. On June 6, 2012 and June 12, 2013, the stockholders approved amendments to the 2008 Plan (collectively the “Amended 2008 Plan”) such that the Amended 2008 Plan has reserved for issuance an amount not to exceed 19,540,940 shares. Awards under the Amended 2008 Plan generally have a maximum term of 10 years from the date of the award. The Amended 2008 Plan generally requires options to be granted at 100% of the fair market value of the Company’s common stock subject to the option on the date of grant and will generally vest over four years. Performance-based stock or cash awards granted under the Amended 2008 Plan are limited to either 500,000 shares of common stock or $1.0 million per recipient per calendar year. The attainment of any performance-based awards granted shall be conclusively determined by a committee designated by the Company’s Board of Directors. At December 31, 2014, no performance-based stock options were outstanding.

1996 Equity Incentive Plan, 1998 Non-Officer Stock Option Plan, and 1999 Equity Incentive Plan

The Company continues to have equity awards outstanding under its previous stock plans: 1998 Non-Officer Stock Option Plan and 1999 Equity Incentive Plan (collectively, the “Prior Plans”) and 1996 Equity Incentive Plan (the “1996 Plan”). Equity awards issued under the Prior Plans and the 1996 Plan continues to adhere to the terms of those respective stock plans and no further options may be granted under those previous plans. However, at June 2, 2008, any shares that remained available for future grants under the Prior Plans became available for issuance under the 2008 Plan.

At December 31, 2014, the Company had an aggregate of approximately 17.1 million shares of its common stock subject to outstanding options or remaining available for future issuance under the Amended 2008 Plan, the Prior Plans and the 1996 Plan, of which approximately 11.3 million shares were subject to outstanding options, and approximately 5.8 million shares were available for future issuance under the Amended 2008 Plan. The Company’s policy is to issue new shares of common stock upon the exercise of options.

Activity under the Company’s equity incentive plans related to stock options is set forth below (in thousands except weighted average exercise price):


	Number of Options Outstanding			Weighted Average Exercise Price per Share
Balances at December 31, 2013		10,405		$	3.46
Granted		2,783			5.90
Forfeited		(233	)		4.31
Expired		(114	)		8.64
Exercised		(1,518	)		2.44

Balances at December 31, 2014		11,323			4.13

Information regarding the Company’s stock options outstanding, stock options vested and expected to vest, and stock options exercisable at December 31, 2014, was as follows (in thousands except weighted average exercise price and contractual term):


	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Balances at December 31, 2014
Stock options outstanding		11,323	$	4.13		6.8	$	25,517
Stock options vested and expected to vest		10,920	$	4.08		6.7	$	25,174
Stock options exercisable		7,006	$	3.70		5.7	$	19,324

The aggregate intrinsic value in the table above is calculated as the difference between the exercise price of the stock option and the Company’s closing stock price on the last trading day of each respective fiscal period.

The total intrinsic value of options exercised for the years ended December 31, 2014, 2013 and 2012, was $3.8 million, $0.6 million and $0.3 million, respectively.

Restricted Stock Units

The Company has previously granted restricted stock units primarily to its senior management in accordance with the Amended 2008 Plan. Subject to each grantee’s continued employment, the restricted stock units generally vested in three annual installments from the date of grant and were generally issuable at the end of the three-year vesting term. The fair value of restricted stock units which vested during the years ended December 31, 2013 and 2012, were both $0.05 million. As of December 31, 2013, all previously granted restricted stock units were fully vested.

Stock-based Compensation Expense

Stock-based compensation expense recognized on the Company’s consolidated statements of operations for the years ended December 31, 2014, 2013 and 2012, was as follows (in thousands):


	Year Ended December 31,
	2014		2013		2012
Stock-based compensation expense by caption:
Research and development	$	998	$	482	$	554
Selling, general and administrative		4,155		2,786		1,987

Total stock-based compensation expense	$	5,153	$	3,268	$	2,541

Stock-based compensation expense in the above table does not reflect any income taxes as the Company has experienced a history of net losses since its inception and has a full valuation allowance on its deferred tax assets. In addition, there was neither income tax benefits realized related to stock-based compensation expense nor any stock-based compensation costs capitalized as part of an asset during the years ended December 31, 2014, 2013 and 2012. The Company has also not recorded any stock-based compensation associated with performance-based stock options during the years ended December 31, 2014, 2013 and 2012.

As of December 31, 2014, the Company expects to recognize the remaining unamortized stock-based compensation expense of $9.1 million related to non-vested stock options, net of estimated forfeitures, over an estimated remaining weighted average period of 2.4 years.

Valuation Assumptions for Stock-based Compensation

The Company currently uses the Black-Scholes option pricing model to determine the grant-date fair value of stock options and employee stock purchase plan shares. The Black-Scholes option-pricing model is affected by the Company’s stock price, as well as assumptions regarding a number of complex and subjective variables, which include the expected term of the grants, actual and projected employee stock option exercise behaviors, including forfeitures, the Company’s expected stock price volatility, the risk-free interest rate and expected dividends. The Company recognizes the grant-date fair value of the stock award as stock-based compensation expense on a straight-line basis over the requisite service period, which is the vesting period, and is adjusted for estimated forfeitures.

The expected life of the stock options is based on observed historical exercise patterns. Groups of employees having similar historical exercise behavior are considered separately for valuation purposes. The Company estimates stock option forfeitures based on historical data for employee groups. The total number of stock options expected to vest is adjusted by actual and estimated forfeitures.

The expected volatility is estimated by using historical volatility of the Company’s common stock. The risk-free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term commensurate with the expected term of the option. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero.

The weighted average assumptions used to value the Company’s stock-based awards for the years ended December 31, 2014, 2013 and 2012, was as follows:


	Year Ended December 31,
	2014			2013			2012
Stock Options:
Expected term (in years)		5.71			5.59			5.54
Estimated volatility		61	%		60	%		67	%
Risk-free interest rate		1.73	%		0.87	%		1.03	%
Expected dividend yield		0	%		0	%		0	%
Employee Stock Purchase Plan Rights:
Expected term (in years)		0.76			0.50			0.50
Estimated volatility		52	%		39	%		101	%
Risk-free interest rate		0.10	%		0.10	%		0.14	%
Expected dividend yield		0	%		0	%		0	%

The weighted average grant-date fair value of stock options granted during the years ended December 31, 2014, 2013 and 2012, was $3.28 per share, $2.03 per share and $2.13 per share, respectively. The weighted average grant-date fair value of employee stock purchase rights during the years ended December 31, 2014, 2013 and 2012, was $1.42 per share, $1.18 per share and $1.43 per share, respectively.