12. Stock Compensation

ARIAD Stock Option and Stock Plans

The Company’s 2001, 2006 and 2014 stock option and stock plans (the “Plans”) provide for the awarding of nonqualified 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 three or 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 2001 and 2006 Plans have no shares remaining available for grant, although existing stock options granted under these Plans remain outstanding. As of December 31, 2014, there were 13,840,313 shares available for awards under the 2014 Plan. The Company generally issues new shares upon the exercise or vesting of stock plan awards.

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 June 2014 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. In 2014, 2013 and 2012, 250,776, 101,300 and 66,531 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 and purchases under the ESPP for the years ended December 31, as follows:


*In thousands*	2014		2013		2012
Compensation cost from:
Stock options	$	16,608	$	16,364	$	10,626
Stock and stock units		15,346		18,458		9,467
Purchases of common stock at a discount		449		599		248

	$	32,403	$	35,421	$	20,341

Compensation cost included in:
Research and development expense	$	13,856	$	15,150	$	9,846
Selling, general and administrative expense		18,547		20,271		10,495

	$	32,403	$	35,421	$	20,341

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 three or 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.

The following table summarizes information about stock options as of and for the years ended December 31 as follows:


*In thousands, except per share amounts*	2014		2013		2012
Weighted average fair value of options granted, per share	$	5.20	$	8.38	$	13.04
Total cash received from exercises of stock options		2,356		4,847		9,677
Total intrinsic value of stock options exercised		1,619		13,829		27,572

The weighted average fair value of options granted in the years ended December 31, 2014, 2013 and 2012, reflect the following weighted-average assumptions:


	2014			2013			2012
Expected life of options granted (in years)		6.8			6.9			7.1
Expected volatility		84	%		76	%		76	%
Risk-free rate		2.16	%		1.74	%		1.32	%
Expected dividends		0	%		0	%		0	%

The expected life assumption is based on an analysis of historical behavior of participants related to options awarded over time. The expected volatility assumption is based on an average of the historical volatility and the implied volatility of the Company’s common stock, derived from an analysis of historical traded and quoted options on the Company’s common stock. The risk-free rate is based on the forward U.S. Treasury yield curve. The expected dividends reflect the Company’s current and expected future policy for dividends on its common stock.

Stock option activity under the Company’s stock plans for the year ended December 31, 2014 was as follows:


	Number of Shares			Weighted Average Exercise Price Per Share
Options outstanding, January 1, 2014		10,379,668		$	10.83
Granted		1,983,420		$	6.94
Forfeited		(1,529,855	)	$	13.54
Exercised		(685,146	)	$	4.44

Options outstanding, December 31, 2014		10,148,087		$	10.09

The following table summarizes information about stock options outstanding as of December 31, 2014:


	Options Outstanding		Options Exercisable		Options Vested and Expected To Vest
Number of options		10,148,087		5,091,290		9,369,517
Weighted average exercise price per share	$	10.09	$	9.37	$	10.16
Aggregate intrinsic value (in 000’s)	$	9,717	$	5,746	$	8,853
Weighted average remaining contractual term (years)		6.97		5.27		6.82

Options expected to vest consist of options scheduled to vest in the future less expected forfeitures.

At December 31, 2014, total unrecognized compensation cost related to non-vested stock options outstanding amounted to $21.4 million. That cost is expected to be recognized over a weighted-average period of 2.2 years.

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. 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 Company’s stock plans for the year ended December 31, 2014 was as follows:


	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding, January 1, 2014		2,047,600		$	14.18
Granted / awarded		2,479,500		$	7.35
Forfeited		(321,718	)	$	9.30
Vested or restrictions lapsed		(702,229	)	$	13.28

Outstanding, December 31, 2014		3,503,153		$	9.97

The total fair value of stock and stock unit awards that vested in 2014, 2013 and 2012 was $5.2 million, $25.5 million and $27.8 million, respectively. The total unrecognized compensation expense for restricted shares or units that have been granted or are probable to be awarded was $19.3 million at December 31, 2014 and will be recognized over 1.5 years on a weighted average basis.

Included in stock and stock units outstanding in the above table are 524,800 performance share units awarded in March 2012 of which 274,400 vested upon the achievement of the performance condition, marketing authorization of Iclusig by the European Commission in July 2013, 129,200 that vested in July 2014 and 121,200 that will vest in July 2015.

Stock and stock units outstanding in the table above also include 316,000 performance share units awarded in 2013. The number of shares that may vest, if any, related to the 2013 performance share unit awards is dependent on the achievement, and timing of the achievement, of the performance criteria defined for the award. The compensation cost for such performance-based stock awards will be based on the awards that ultimately vest and the grant date fair value of those awards. The Company begins to recognize compensation expense related to performance share units when achievement of the performance condition is probable. In 2013, the Company concluded that it was probable that the performance condition related to the 2013 performance share unit awards would be met. The performance condition is based upon continued success in specific research and development initiatives.

Stock and stock units outstanding in the above table as of December 31, 2014 also include 997,000 and 47,000 performance share units awarded on January 31, 2014 and June 25, 2014, respectively. The vesting of fifty percent of the award is dependent upon the achievement of specific commercial objectives by the end of 2015 and the vesting of the remainder is dependent upon the achievement, and timing of the achievement, of specific research and development objectives. The Company has concluded that it is probable that these performance conditions will be met. The total compensation expense for the portion related to the research and development objectives may be up to 60 percent higher depending on the timing of the achievement of the specific performance objectives.