Equity Incentive Awards

Equity Incentive Plans

Equity Incentive Plan: In September 1995, Lexicon adopted the 1995 Stock Option Plan, which was subsequently amended and restated in February 2000 and renamed the 2000 Equity Incentive Plan, subsequently amended and restated in April 2009 and renamed the Equity Incentive Plan (the “Equity Incentive Plan”), and subsequently amended in April 2012.

The Equity Incentive Plan provides for the grant of incentive stock options to employees and nonstatutory stock options to employees, directors and consultants of the Company. The plan also permits the grant of stock bonus awards, restricted stock awards, restricted stock unit (phantom stock) awards and stock appreciation rights. Incentive and nonstatutory stock options have an exercise price of 100% or more of the fair market value of our common stock on the date of grant. The purchase price of restricted stock awards may not be less than 85% of fair market value. However, the plan administrator may award stock bonus awards in consideration of past services or phantom stock awards without a purchase payment. Shares may be subject to a repurchase option in the discretion of the plan administrator. Most options granted under the Equity Incentive Plan become vested and exercisable over a period of four years; however some have been granted with different vesting schedules. Options granted under the Equity Incentive Plan have a term of ten years from the date of grant.

The total number of shares of common stock that may be issued pursuant to stock awards under the Equity Incentive Plan shall not exceed in the aggregate 50,000,000 shares. No more than 15,000,000 shares may be issued pursuant to awards other than stock options and stock appreciation rights. As of December 31, 2013, an aggregate of 50,000,000 shares of common stock had been reserved for issuance, options to purchase 22,342,175 shares and 4,241,869 restricted stock units were outstanding, 5,659,265 shares had been issued upon the exercise of stock options, 1,839,850 shares had been issued pursuant to restricted stock units and 740,300 shares had been issued pursuant to stock bonus awards or restricted stock awards granted under the Equity Incentive Plan.

Non-Employee Directors’ Equity Incentive Plan: In February 2000, Lexicon adopted the 2000 Non-Employee Directors’ Stock Option Plan, which was subsequently amended and restated in April 2009 and renamed the Non-Employee Directors’ Stock Option Plan, and subsequently amended in April 2012 and renamed the Non-Employee Directors’ Equity Incentive Plan (the “Directors’ Plan”). Under the Directors’ Plan, non-employee directors receive an initial option to purchase 30,000 shares of common stock. In addition, on the day following each of the Company’s annual meetings of stockholders, each non-employee director who has been a director for at least six months is automatically granted an option to purchase 20,000 shares of common stock and a restricted stock award of the number of shares of common stock having a fair market value on the date of grant of $20,000, rounded down to the nearest whole share number. Initial option grants become vested and exercisable over a period of five years and annual option grants become vested over a period of 12 months from the date of grant. Options granted under the Directors’ Plan have an exercise price equal to the fair market value of the Company’s common stock on the date of grant and a term of ten years from the date of grant.

The total number of shares of common stock that may be issued pursuant to stock awards under the Directors’ Plan shall not exceed in the aggregate 1,500,000 shares. As of December 31, 2013, an aggregate of 1,500,000 shares of common stock had been reserved for issuance, options to purchase 964,000 shares were outstanding, none had been issued upon the exercise of stock options and 174,920 shares had been issued pursuant to restricted stock awards granted under the Directors’ Plan.

Stock Option Activity: The following is a summary of option activity under Lexicon’s equity incentive plans:



	2013				2012				2011
(in thousands, except exercise price data)	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding at beginning of year	21,525		$	2.51	20,476		$	2.84	19,598		$	3.46
Granted	3,490		2.13		3,441		1.84		2,974		1.80
Exercised	(572	)	1.75		(636	)	1.66		(130	)	1.46
Expired	(950	)	3.98		(1,231	)	6.93		(1,662	)	8.50
Forfeited	(187	)	1.94		(525	)	1.78		(304	)	1.76
Outstanding at end of year	23,306		2.42		21,525		2.51		20,476		2.84
Exercisable at end of year	17,378		$	2.56	15,582		$	2.77	13,940		$	3.34

The weighted average estimated grant date fair value of options granted during the years ended December 31, 2013, 2012 and 2011 were $1.59, $1.37 and $1.36, respectively. The total intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 were $325,000, $462,000 and $63,000, respectively. The weighted average remaining contractual term of options outstanding and exercisable was 5.8 and 4.9 years, respectively, as of December 31, 2013. At December 31, 2013, the aggregate intrinsic value of the outstanding options and the exercisable options was $1.4 million and $1.4 million, respectively.

Stock Bonus and Restricted Stock Unit Activity:

During the year ended December 31, 2011, Lexicon granted its officers 200,277 shares of stock bonus awards

in lieu of cash bonus awards. The stock bonus awards had a weighted average grant date fair value of $1.81 per share and vested immediately. During the years ended December 31, 2013 and 2012, Lexicon granted its non-employee directors 80,808 and 94,112 shares, respectively, of restricted stock awards. The restricted stock awards had weighed average grant date fair values of $1.98 and $1.70 per share, respectively, and vested immediately.

During the years ended December 31, 2013, 2012 and 2011, Lexicon granted its employees restricted stock units in lieu of or in addition to annual stock option awards. These restricted stock units vest in four annual installments. The following is a summary of restricted stock units activity under Lexicon’s stock-based compensation plans for the year ended December 31, 2013:



	Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding at December 31, 2012	3,543		$	1.80
Granted	1,969		2.09
Vested	(992	)	1.80
Forfeited	(278	)	1.91
Nonvested at December 31, 2013	4,242		$	1.93

During 2010, Lexicon granted certain employees restricted stock units with a performance condition. The shares subject to the restricted stock units granted in 2010 vested upon the dosing of the first patient in a pivotal human clinical trial in any country, the results of which could be used to establish safety and efficacy of a pharmaceutical product discovered or developed by Lexicon as a basis for a New Drug Application. This performance condition occurred during the year ended December 31, 2013, and therefore all outstanding restricted stock units with this performance condition vested. Stock-based compensation expense for awards with performance conditions is recognized over the period from the date the performance condition is determined to be probable of occurring through the time the applicable condition is met. The following is a summary of performance-based restricted stock units activity under Lexicon's stock-based compensation plans for the year ended December 31, 2013:



	Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding at December 31, 2012	329		$	1.90
Vested	(329	)	1.90
Nonvested at December 31, 2013	—		$	—

Aggregate Shares Reserved for Issuance

As of December 31, 2013, an aggregate of 27,548,044 shares of common stock were reserved for issuance upon exercise of outstanding stock options and vesting of outstanding restricted stock units and 15,537,621 additional shares were available for future grants under Lexicon’s equity incentive plans. The Company has a policy of using either authorized and unissued shares or treasury shares, including shares acquired by purchase in the open market or in private transactions, to satisfy equity award exercises.