Stockholders’ Equity

Common Stock and Preferred Stock

The Company has authorized the issuance of two classes of stock designated as “common stock” and “preferred stock,” each having a par value of $0.00001 per share. The Company is authorized to issue 200 million shares of common stock and 25 million shares of preferred stock.

Stock Repurchase

In February 2016, the Company announced that Axon's Board of Directors authorized a stock repurchase program to acquire up to $50.0 million of the Company’s outstanding common stock subject to stock market conditions and corporate considerations. During the year ended December 31, 2016, the Company purchased, under a Rule 10b5-1 plan, approximately 1.8 million common shares for a total cost of approximately $33.7 million, or a weighted average cost of $18.90 per share. As of December 31, 2017 and 2016, $16.3 million remained available under the plan for future purchases. During 2016, the Company suspended its 10b-5 plan, and any future purchases would be discretionary.

Stock-based Compensation Plans

The Company has historically utilized stock-based compensation, consisting of RSUs and stock options, for key employees and non-employee directors as a means of attracting and retaining quality personnel. Service-based grants generally have a vesting period of 3 to 5 years and a contractual maturity of ten years. Performance-based grants generally have vesting periods ranging from 1 to 5 years and a contractual maturity of ten years.

On February 26, 2016, the Company’s Board of Directors approved the 2016 Stock Incentive Plan (the “2016 Plan"), which was subsequently approved by stockholders at the Annual Meeting of Stockholders on May 26, 2016. Under the 2016 Plan, the Company reserved for future grants: (i) 2.0 million shares of common stock, plus (ii) the number of shares of common stock that were authorized but unissued under the Company’s 2013 Stock Incentive Plan (the “2013 Plan”) as of the effective date of the 2016 Plan, and (iii) the number of shares of stock that have been granted under the 2013 Plan or the 2009 Stock Incentive Plan that either terminate, expire or lapse for any reason after the effective date of the 2016 Plan. As of December 31, 2017, approximately 0.8 million shares remain available for future grants. Shares issued upon exercise of stock awards from these plans have historically been issued from the Company’s authorized unissued shares.

Performance-based stock awards

The Company has issued performance-based stock options and performance-based RSUs, the vesting of which is generally contingent upon the achievement of certain performance criteria related to the operating performance of the Company, as well as successful and timely development and market acceptance of future product introductions. In addition, certain of the performance RSUs have additional service requirements subsequent to the achievement of the performance criteria. Compensation expense is recognized over the implicit service period (the longer of the period the performance condition is expected to be achieved or the required service period) based on management’s estimate of the probability of the performance criteria being satisfied, adjusted at each balance sheet date.

Restricted Stock Units

The following table summarizes RSU activity for the years ended December 31 (number of units and aggregate intrinsic value in thousands):



	2017					2016				2015
	Number of Units			Weighted Average Grant-Date Fair Value		Number of Units		Weighted Average Grant-Date Fair Value		Number of Units		Weighted Average Grant-Date Fair Value
Units outstanding, beginning of year	1,330			$	20.40	1,139		$	19.30	1,226		$	13.23
Granted	1,731			24.59		718		19.75		516		26.18
Released	(519		)	18.85		(414	)	15.91		(488	)	11.82
Forfeited	(194		)	24.61		(113	)	21.65		(115	)	16.72
Units outstanding, end of year	2,348			23.47		1,330		20.40		1,139		19.30
Aggregate intrinsic value at year end	$	62,222

Aggregate intrinsic value represents the Company’s closing stock price on the last trading day of the period, which was $26.50 per share at December 29, 2017, multiplied by the number of RSUs. The fair value as of the respective vesting dates of RSUs that vested during the year ended December 31, 2017 was $14.5 million. Certain RSUs that vested in 2017 were net-share settled, such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. Total shares withheld during 2017 were 0.1 million and had a value of approximately $3.5 million on their respective vesting dates as determined by the Company’s closing stock price. Payments for the employees’ tax obligations are reflected as a financing activity within the statement of cash flows. These net-share settlements had the effect of share repurchases by the Company as they reduced the amount of shares that would have otherwise been issued as a result of the vesting.

In 2017, 2016 and 2015, the Company granted approximately 353,000, 79,000 and 49,000 performance-based RSUs, respectively (included in the table above). Certain of the performance-based RSUs outstanding as of December 31, 2017 can vest with a range of shares earned being between 0% and 200% of the targeted shares granted, depending on the final achievement of pre-determined performance criteria as of the vesting date. As of December 31, 2017, the performance criteria had been met for 36,000 of the 0.4 million performance-based RSUs outstanding. The Company recognized $2.5 million, $2.1 million and $1.5 million of compensation expense related to performance-based RSUs during the years ended December 2017, 2016 and 2015, respectively.

Stock Option Activity

The following table summarizes stock option activity for the years ended December 31 (number of options in thousands):



	2017				2016				2015
	Number of Options		Weighted Average Exercise Price		Number of Options		Weighted Average Exercise Price		Number of Options		Weighted Average Exercise Price
Options outstanding, beginning of year	1,008		$	5.40	1,103		$	5.37	1,641		$	5.26
Exercised	(198	)	6.99		(95	)	5.02		(525	)	4.95
Expired / terminated	(6	)	8.32		—		—		(13	)	7.27
Options outstanding, end of year	804		4.99		1,008		5.40		1,103		5.37
Options exercisable, end of year	775		5.00		977		5.42		1,072		5.39
Options expected to vest, end of year	25		4.75

No stock options were granted in 2017, 2016 or 2015. Total intrinsic value of options exercised was $3.2 million, $2.0 million and $13.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. The intrinsic value for options exercised was calculated as the difference between the exercise price of the underlying stock option awards and the market price of the Company’s common stock on the date of exercise.

The following table summarizes information about stock options outstanding and exercisable as of December 31, 2017 (number of options in thousands):



	Options Outstanding				Options Exercisable
Range of Exercise Price	Number of Options Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Number of Options Exercisable	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
$4.15 - $7.01	733	$	4.78	1.49	704	$	4.78	1.51
$7.13 - $7.21	71	7.14		0.41	71	7.15		0.41
$4.15 - $7.21	804	4.99		1.40	775	5.00		1.41

The aggregate intrinsic value of options outstanding and options exercisable at December 31, 2017 was $17.3 million and $16.7 million, respectively. Aggregate intrinsic value represents the difference between the exercise price of the underlying stock option awards and the closing market price of the Company’s common stock of $26.50 on December 29, 2017.

At December 31, 2017, the Company had 29,350 unvested options outstanding with a weighted average exercise price of $4.75 per share, weighted average grant-date fair value of $2.58 per share and weighted average remaining contractual life of 1.0 year. The aggregate intrinsic value of unvested options at December 31, 2017 was $0.6 million.

The Company granted approximately 1.0 million performance-based stock options (included in the table above) from 2008 through 2011. As of December 31, 2017, approximately 0.2 million performance-based stock options are outstanding, of which approximately 29,350 are unvested and 25,000 are expected to vest. The aggregate grant-date fair value of the 0.2 million performance-based stock options vested and expected to vest as of December 31, 2017 was approximately $0.5 million. The Company recognized no stock-based compensation expense related to performance-based stock options during the years ended December 31, 2017 and 2016, and $0.1 million during the year ended December 31, 2015.

Stock-based Compensation Expense

The Company accounts for stock-based compensation using the fair-value method. Reported stock-based compensation was classified as follows for the years ended December 31 (in thousands):



	2017		2016		2015
Cost of product and service sales	$	508	$	342	$	402
Sales, general and administrative expenses	9,047		5,707		4,285
Research and development expenses	6,055		3,320		2,576
Total stock-based compensation expense	$	15,610	$	9,369	$	7,263

There was no stock-based compensation expense recognized in the consolidated statements of operations for the years ended December 31, 2017 and 2016 related to incentive stock options ("ISOs"). Total stock-based compensation expense for the year ended December 31, 2015 included $0.1 million related to ISOs for which no tax benefit was recognized. The Company recorded a tax benefit in 2017, 2016, and 2015 of $0.1 million, $0.2 million, and $0.2 million, respectively, to offset taxes payable related to the non-qualified disposition of ISOs exercised and sold.

As of December 31, 2017, there was $42.8 million in unrecognized compensation costs related to RSUs under the Company's stock plans. The Company expects to recognize the cost related to the RSUs over a weighted average period of 2.80 years.