Stock Compensation

ARIAD Stock Option and Stock Plans

The Company’s 2001, 2006 and 2014 stock option and stock plans (the “Plans”), which have been approved by the Company's stockholders, provide for the award of non-qualified and incentive stock options, stock grants, restricted stock units, performance share units and other equity-based awards to officers, directors, employees and consultants of the Company. Stock options become exercisable as specified in the related option certificate, typically over a four-year period, and expire ten years from the date of grant. Stock grants, restricted stock units and performance share units provide the recipient with ownership of common stock subject to terms of vesting, any rights the Company may have to repurchase the shares granted or other restrictions. The 2006 Plan has no shares remaining available for grant, although existing stock options granted remain outstanding. The 2001 Plan expired in March 2016, and there are no outstanding awards. As of June 30, 2016, there were 8,497,040 shares available for awards under the 2014 Plan.

Inducement Awards

In the first quarter of 2016, the Company issued the following equity awards to senior executives of the Company outside of the Plans as inducements material to their entering into employment with the Company in accordance with NASDAQ rules (the "Inducement Awards"): (i) for the Company's new CEO, 200,000 restricted stock units and 1,500,000 stock options, which vest over 18 months and four years, respectively; and (ii) for the Company's new CFO, 550,000 stock options vesting over four years and 150,000 performance shares that will be earned based on the relative total shareholder return of the Company’s stock price compared to component companies in the NASDAQ Biotechnology Index over a 3 year period ending December 31, 2018. There were no Inducement Awards in the three and six-month periods ended June 30, 2015.

Employee Stock Purchase Plan

In 1997, the Company adopted the 1997 Employee Stock Purchase Plan (“ESPP”) and reserved 500,000 shares of common stock for issuance under this plan. The ESPP was amended in June 2008 to reserve an additional 500,000 shares of common stock for issuance and the plan was further amended in 2009 and in 2015 to reserve an additional 750,000 shares of common stock for issuance pursuant to each of those amendments. Under this plan, substantially all of the Company’s employees may, through payroll withholdings, purchase shares of the Company’s common stock at a price of 85 percent of the lesser of the fair market value at the beginning or end of each three-month withholding period. For the six-month periods ended June 30, 2016 and 2015, 174,690 and 128,151 shares of common stock were issued under the plan, respectively. Compensation cost is equal to the fair value of the discount on the date of grant and is recognized as compensation in the period of purchase.

Stock-Based Compensation

The Company’s statements of operations included total compensation cost from awards under the Plans, the Inducement Awards, and purchases under the ESPP for the three and six-month periods ended June 30, 2016 and 2015, as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
In thousands	2016		2015		2016		2015
Compensation cost from:
Stock options	$	2,072	$	4,129	$	5,354	$	8,371
Stock and stock units	487		6,395		3,758		10,461
Purchases of common stock at a discount	99		120		265		246
	$	2,658	$	10,644	$	9,377	$	19,078
Compensation cost included in:
Research and development expense	$	1,524	$	4,180	$	4,478	$	7,996
Selling, general and administrative expense	1,134		6,464		4,899		11,082
	$	2,658	$	10,644	$	9,377	$	19,078

Stock Options

Stock options are granted with an exercise price equal to the closing market price of the Company’s common stock on the date of grant. Stock options generally vest ratably over four years and have contractual terms of ten years. Stock options are valued using the Black-Scholes option valuation model and compensation cost is recognized based on such fair value over the period of vesting on a straight-line basis.

Stock option activity under the Plans and Inducement Awards for the six-month period ended June 30, 2016 was as follows:



	Number of Shares		Weighted Average Exercise Price Per Share
Options outstanding, January 1, 2016	10,232,969		$	10.00
Granted	4,490,700		$	6.30
Forfeited	(1,928,884	)	$	8.71
Exercised	(540,619	)	$	4.95
Options outstanding, June 30, 2016	12,254,166		$	9.07

Stock and Stock Unit Grants

Stock and stock unit grants carry restrictions as to resale for periods of time or vesting provisions over time as specified in the grant, typically three years. Stock and stock unit grants are valued at the closing market price of the Company’s common stock on the date of grant and compensation expense is recognized over the requisite service period, vesting period or period during which restrictions remain on the common stock or stock units granted.

Stock and stock unit activity under the Plans and Inducement Awards for the six-month period ended June 30, 2016 was as follows:



	Number of Shares		Weighted Average Grant Date Fair Value
Outstanding, January 1, 2016	4,493,054		$	8.64
Granted / awarded	3,491,512		$	6.57
Forfeited	(2,513,304	)	$	7.64
Vested or restrictions lapsed	(1,855,022	)	$	8.48
Outstanding, June 30, 2016	3,616,240		$	7.42

The total fair value of stock and stock unit awards that vested during the six-months ended June 30, 2016 and 2015 was $11.7 million and $6.8 million, respectively. The total unrecognized compensation expense for restricted shares or units that have been granted was $16.2 million at June 30, 2016 and will be recognized over 1.6 years on a weighted average basis.

The Company recognizes compensation expense for performance share units when the achievement of the performance metric is determined to be probable of occurrence. The total number of units earned, and related compensation cost, may be up to 60 percent higher depending on the level or timing of achievement of the metric as defined in the specific award agreement.