9. Stock-Based Compensation

Calyxt, Inc. Equity Incentive Plan and Omnibus Plan

The Company adopted the Calyxt, Inc. Equity Incentive Plan, or the Existing Plan, which allows for the grant of stock options to attract and retain highly qualified employees. In June 2017, the Company also adopted an omnibus incentive plan, or the Omnibus Plan, under which the Company granted stock options and restricted stock units to certain of our employees, nonemployees, and certain employees and nonemployees of the Parent.

The options granted under the Existing Plan and the Omnibus Plan were only exercisable upon a triggering event or initial public offering as defined by the plan. Accordingly, with the completion of the IPO on July 25, 2017, the Company recognized compensation expense of $5.6 million for stock options granted under the plans. The stock options issued under the plans had an exercise price equal to the estimated fair value of the stock at the grant date for the Omnibus Plan and the grant date for the Existing Plan.

The following table presents stock-based compensation expense for the years ended December 31, 2017, 2016 and 2015 included in the Company’s statements of operations (in thousands):


	2017		2016		2015
Stock-based compensation expense for:
Employee stock options	$	4,761	$	—	$	—
Employee restricted stock units		1,775		—		—
Nonemployee stock options		4,530		—		—
Nonemployee restricted stock units		654		—		—

	$	11,720	$	—	$	—


	2017		2016		2015
Stock-based compensation expense in operating expense:
Selling, general and administrative	$	5,988	$	—	$	—
Research and development		5,732		—		—

	$	11,720	$	—	$	—

The Company treats stock-based compensation awards granted to employees of the Parent as dividends, which are recorded quarterly. The Company recorded $3.6 million, $0 and $0, respectively, in a deemed dividend to the Parent in the year ended December 31, 2017, 2016 and 2015 for restricted stock units and stock options granted to employees of the Parent.

Equity instruments issued to non-employees include RSUs and options to purchase shares of the Company’s common stock. These RSUs and options vest over a certain period during which services are provided. The Company expenses the fair market value of the awards over the period in which the related services are received. Unvested awards are remeasured to fair value until they vest.

Stock Options

The following table summarizes stock option activity for the year ended December 31, 2017:


	Number of Shares			Weighted- Average Exercise Price Per Share		Aggregate Intrinsic Value (in thousands)		Weighted- Average Remaining Contractual Life (in years)
Outstanding at December 31, 2016		1,930,600		$	4.45				9.1
Granted		2,120,347		$	13.29
Exercised		(68,780	)	$	3.95
Cancelled		(98,735	)	$	1.23

Outstanding at December 31, 2017		3,883,432		$	9.16	$	49,965		8.8

Exercisable at December 31, 2017		1,244,968		$	5.20	$	20,949		8.1

The weighted average grant date fair value for stock options granted during the years ended December 31, 2017, 2016 and 2015 was $2.42, $5.03 and $1.02, respectively. The total fair value of stock options vested during the years ended December 31, 2017, 2016 and 2015 was $6.7 million, $0 and $0, respectively. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2017, 2016 and 2015 was $1.3 million, $0 million and $0 million, respectively. As of December 31, 2017, the total unrecognized stock-based compensation expense related to non-vested stock options is approximately $5.0 million, which is expected to be recognized over a weighted-average period of 4.2 years.

The Company had 1,159,914 stock options that vested upon the completion of the IPO. The stock-based compensation expense related to these awards was $5.6 million, which was recorded upon the completion of the IPO.

In December 2017, stock options held by an employee were modified in connection with the employee’s termination to provide for continued vesting of tranches through the end of 2018. Stock options to purchase an aggregate of 51,622 shares of common stock were modified, and the Company recognized stock-based compensation expense of $0.7 million related to this modification.

The fair value of each stock option is estimated using the Black-Scholes option pricing model at each measurement date. The fair value of stock options under the Black-Scholes model requires management to make assumptions regarding projected employee stock option exercise behaviors, risk-free interest rates, volatility of the stock price, and expected dividends. The awards currently outstanding were granted with vesting terms between two and six years. Certain awards contained a 25% acceleration vesting clause upon a triggering event or initial public offering as defined in the Existing Plan and Omnibus Plan and for 100% accelerated vesting in the event of (a) the termination of employment without cause or (b) the resignation of the employee for good reason within twelve months following a triggering event as defined in the Existing Plan and Omnibus Plan.

The Company has not historically paid cash dividends to its stockholders and currently does not anticipate paying any cash dividends in the foreseeable future. As a result, the Company has assumed a dividend yield of 0%. The risk-free interest rate is based upon the rates of U.S. Treasury bills with a term that approximates the expected life of the option. The Company uses the simplified method, or the lattice method when appropriate, to reasonably estimate the expected life of its option awards. Expected volatility is based upon the volatility of comparable public companies.

The following table provides the assumptions used in the Black-Scholes model for the stock option awards for the years ended December 31, 2017, 2016 and 2015:


	2017		2016		2015
Expected dividend yield		0%		0%		0%
Risk-free interest rate		1.25% - 2.39%		0.64%		1.65%
Expected volatility		27.4% - 45.1%		30%		54.3%
Expected life (in years)		1.22 - 10.00		5.75 - 6.25		5.53

Restricted Stock Units

The following table summarizes the activity of restricted stock units for the year ended December 31, 2017:


	Number of Restricted Stock Units Outstanding			Weighted-Average Grant Date Fair Value
Unvested balance at December 31, 2016
Granted		1,452,333		$	8.00
Vested		(39,200	)
Cancelled		(39,200	)

Unvested balance at December 31, 2017		1,373,933		$	8.00

The weighted average grant date fair value for RSUs granted during the year ended December 31, 2017 was $8.00. No RSUs were granted during the years ended December 31, 2016 or 2015. The total fair value of RSUs vested during the year ended December 31, 2017 was $314 thousand. As of December 31, 2017, the Company had approximately $7.0 million of unrecognized stock-based compensation expense related to restricted stock units that is expected to be recognized over a weighted-average period of 4.9 years.

Parent Equity Incentive Plan

The weighted average grant date fair value for stock options granted during the years ended December 31, 2017, 2016 and 2015 was $17.16, $0 and $16.45, respectively. The total fair value of stock options vested during the years ended December 31, 2017, 2016 and 2015 was $401 thousand, $900 thousand and $678 thousand, respectively. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2017, 2016 and 2015 was $0 million, $0 million and $0 million, respectively.

The Company’s Parent granted stock options to employees of the Company. Compensation costs related to the grant of the Parent company awards to the Company’s employees has been recognized in the statements of operations with a corresponding credit to stockholders’ equity, representing the Parent’s capital contribution to the Company. The fair value of each stock option is estimated at the grant date using the Black-Scholes option pricing model. The fair value of stock options under the Black-Scholes model requires management to make assumptions regarding projected employee stock option exercise behaviors, risk-free interest rates, volatility of the Company’s stock price, and expected dividends.

The following table provides the range of assumptions used in the Black-Scholes model for the Parent awards for years ended December 31, 2017, 2016 and 2015:


	2017		2016		2015
Expected dividend yield		0%		0%		0%
Risk-free interest rate		0.03% - 0.94%		0.16% - 0.94%		0.16% - 0.94%
Expected volatility		59.09% - 65.64%		59.09% - 60.49%		59.09% - 60.49%
Expected life (in years)		6.00 - 6.12		6.00 - 6.11		6.00 - 6.11

In 2015 the Company’s Parent granted to certain consultants of the Company warrants to purchase Cellectis stock in exchange for services provided to the Company. The Company recorded the fair value of the warrants as a dividend paid to the Parent in exchange for the warrants issued to consultants.

The Company recognized stock-based compensation expense related to its Parent’s grants of stock options and warrants to the Company employees and consultants of $371 thousand, $948 thousand and $692 thousand for the year ended December 31, 2017, 2016 and 2015, respectively. The following table summarizes the stock-based compensation expense for Parent awards (in thousands), which was recognized in the Company’s statements of operations:


	2017		2016		2015
Stock-based compensation expense in operating expenses:
Selling, general and administrative	$	17	$	20	$	16
Research and development		354		928		676

	$371		$948		$692