12. Stock Compensation

ARIAD Stock Option and Stock Plans

The Company’s 2001, 2006 and 2014 stock option and stock plans provide for the award 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 or option agreement, 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 September 30, 2015, there were 9,473,048 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. For the nine-month periods ended September 30, 2015 and 2014, 193,178 and 185,243 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 three-month and nine-month periods ended September 30, 2015 and 2014, as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
*In thousands*	2015		2014		2015		2014
Compensation cost from:
Stock options	$	3,348	$	3,583	$	11,718	$	12,427
Stock and stock units		6,396		3,961		16,858		11,787
Purchases of common stock at a discount		187		94		433		369

	$	9,931	$	7,638	$	29,009	$	24,583

Compensation cost included in:
Research and development expenses	$	3,633	$	3,229	$	11,629	$	10,570
Selling, general and administrative expenses		6,298		4,409		17,380		14,013

	$	9,931	$	7,638	$	29,009	$	24,583

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.

Stock option activity under the Company’s stock plans for the nine-month period ended September 30, 2015 was as follows:


	Number of shares			Weighted Average Exercise Price Per Share
Options outstanding, January 1, 2015		10,148,087		$	10.09
Granted		1,095,500		$	7.87
Forfeited		(541,138	)	$	10.27
Exercised		(638,743	)	$	5.84

Options outstanding, September 30, 2015		10,063,706		$	10.11

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 nine-month period ended September 30, 2015 was as follows:


	Number of shares			Weighted Average Grant Date Fair Value
Stock units outstanding, January 1, 2015		3,503,153		$	9.97
Granted / awarded		3,003,375		$	8.70
Forfeited		(115,112	)	$	8.17
Vested or restrictions lapsed		(1,250,520	)	$	11.87

Stock units outstanding, September 30, 2015		5,140,896		$	8.81

The total fair value of stock and stock unit awards that vested as of September 30, 2015 and 2014 was $9.2 million and $4.9 million, for the period, respectively. The total unrecognized compensation expense for restricted shares or units that have been granted and are probable to become vested was $16.8 million at September 30, 2015 and will be recognized over 1.6 years on a weighted average basis.

Included in the table above are outstanding performance share units which were awarded from 2012 to 2015 as noted below:


Years of Award	Number of Units		Description of Performance Metric
2013		158,000	Brigatinib clinical trial enrollment (100%) – achieved in 2015
2014		1,044,000	Iclusig clinical trial enrollment (50%); cumulative revenues from sales of Iclusig in 2014 and 2015 (50%)
2015		731,300	Iclusig clinical trial enrollment (315,000 units); 2015 revenues from sales of Iclusig (315,000 units); total relative return on common stock 2015-2017 (101,300 units)

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.