Stock-Based Compensation

6 Months Ended

Jun. 30, 2014

Disclosure of Share-based Compensation Arrangements by Share-based Payment Award

Stock-Based Compensation

The Company recorded $1.8 million and $1.9 million of stock-based compensation expense for the three months ended June 30, 2014 and 2013, respectively, and $4.1 million and $4.0 million of stock-based compensation expense for the six months ended June 30, 2014 and 2013, respectively. The Company utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted, with the following weighted-average assumptions for options granted in the six months ended June 30, 2014 and 2013:



	Expected Volatility		Risk-free Interest Rate		Expected Term	Dividend Rate
June 30, 2014:
Employees	66	%	1.1	%	4	—	%
Officers and non-employee directors	80	%	2.3	%	8	—	%
June 30, 2013:
Employees	90	%	0.8	%	5	—	%
Officers and non-employee directors	81	%	1.6	%	8	—	%

The following is a summary of option activity under Lexicon’s stock-based compensation plans for the six months ended June 30, 2014:



	Options		Weighted Average Exercise Price
	(in thousands)
Outstanding at December 31, 2013	23,306		$	2.42
Granted	3,401		1.71
Exercised	(111	)	1.47
Expired	(1,867	)	4.41
Forfeited	(322	)	2.03
Outstanding at June 30, 2014	24,407		2.17
Exercisable at June 30, 2014	17,397		$	2.30

During the six months ended June 30, 2014, Lexicon also granted its employees annual restricted stock units. 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 six months ended June 30, 2014:



	Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding at December 31, 2013	4,242		$	1.93
Granted	1,604		1.72
Vested	(1,384	)	1.90
Forfeited	(985	)	1.94
Nonvested at June 30, 2014	3,477		$	1.84

During the six months ended June 30, 2014, Lexicon granted its non-employee directors 102,560 shares of restricted stock awards. The restricted stock awards had a weighted average grant date fair value of $1.56 per share and vested immediately.

- Definition

Tabular disclosure of components of a stock option or other award plan under which equity-based compensation is awarded to employees, typically comprised of the amount of unearned compensation (deferred compensation cost), compensation expense, and changes in the quantity and fair value of the shares (or other type of equity) granted, exercised, forfeited, and issued and outstanding pertaining to that plan. Disclosure may also include nature and general terms of such arrangements that existed during the period and potential effects of those arrangements on shareholders, effect of compensation cost arising from equity-based payment arrangements on the income statement, method of estimating the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period, cash flow effects resulting from equity-based payment arrangements and, for registrants that accelerate vesting of out of the money share options, reasons for the decision to accelerate.

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