|6 Months Ended
Jun. 30, 2016
Total stock-based compensation expense related to all of our share-based payments that we recognized for the three and six months ended June 30, 2016 and 2015 were as follows (in thousands):
During the quarter ended June 30, 2016, we entered into severance agreements with certain employees. As part of the severance arrangements, we extended the date through which such former employees had the right to exercise their vested options. In addition, we also accelerated the vesting of certain unvested stock options granted to a former employee. As a result of these modifications, we recorded incremental stock-based compensation expense of $641,000 during the three and six months ended June 30, 2016. The incremental compensation expense was computed based on the fair values of the modified awards on the respective modification dates. This amount is included as part of “Research and development expense” in the accompanying Condensed Statements of Operations.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. We have segregated option awards into the following three homogenous groups for the purposes of determining fair values of options: officers and directors, all other employees, and consultants.
We determined weighted-average valuation assumptions separately for each of these groups as follows:
Pursuant to FASB ASC 718, we are required to estimate the amount of expected forfeitures when calculating compensation costs. We estimated the forfeiture rate using our historical experience with non-vested options. We adjust our stock-based compensation expense as actual forfeitures occur, review our estimated forfeiture rates each quarter and make changes to our estimate as appropriate.
The following table summarizes the weighted-average assumptions relating to options granted pursuant to our equity incentive plans, including the performance-based stock option awards which will vest upon the achievement of a corporate performance-based milestone, for the three and six months ended June 30, 2016 and 2015:
The exercise price of stock options is at the market price of our common stock on the date immediately preceding the date of grant. Options become exercisable at varying dates and generally expire 10 years from the date of grant.
We granted options to purchase 3,833,435 shares of common stock during the six months ended June 30, 2016, with a grant-date weighted-average fair value of $1.59 per share. Of the 3,833,435 common stock options granted, 1,015,000 shares were related to performance-based stock option awards. 865,000 shares of these performance-based stock option awards remained outstanding after the cancellation of the 150,000 shares granted to a former executive, effective July 1, 2016. The outstanding performance-based stock option awards options has a grant date fair value of $1.4 million and will vest upon the achievement of a corporate performance-based milestone. We did not consider the achievement of the corporate-based milestone as probable as of June 30, 2016. Accordingly, no stock-based compensation cost was recognized during the three and six months ended June 30, 2016 for these performance-based stock option awards.
We granted options to purchase 3,793,420 shares of common stock during the six months ended June 30, 2015, with a grant-date weighted-average fair value of $1.40 per share. Of the 3,793,420 common stock options granted, 1,175,000 shares were related to performance-based stock option awards which vested upon the achievement of a corporate performance-based milestone in the first quarter of 2016.
As of June 30, 2016, there was approximately $7.0 million of total unrecognized stock-based compensation cost, net of estimated forfeitures, related to all unvested options granted under our equity incentive plans. Of this amount, approximately $2.1 million of unrecognized stock compensation expense relate to the performance-based stock option awards, of which the underlying corporate performance-based milestone was not probable of achievement as of June 30, 2016.
At June 30, 2016, there were 2,108,340 shares of common stock available for future grant under our equity incentive plans and 11,977 options to purchase shares were exercised during the six months ended June 30, 2016.
Employee Stock Purchase Plan
Our Employee Stock Purchase Plan (Purchase Plan) permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. The price at which the stock is purchased is equal to the lesser of 85% of the fair market value of the common stock on the first day of the offering or 85% of the fair market value of our common stock on the purchase date. The initial offering period commenced on the effective date of our initial public offering.
The fair value of awards granted under our Purchase Plan is estimated on the date of grant using the Black-Scholes option pricing model, which uses weighted-average assumptions. Our Purchase Plan provides for a twenty-four month offering period comprised of four six-month purchase periods with a look-back option. A look-back option is a provision in our Purchase Plan under which eligible employees can purchase shares of our common stock at a price per share equal to the lesser of 85% of the fair market value on the first day of the offering period or 85% of the fair market value on the purchase date. Our Purchase Plan also includes a feature that provides for a new offering period to begin when the fair market value of our common stock on any purchase date during an offering period falls below the fair market value of our common stock on the first day of such offering period. This feature is called a “reset.” Participants are automatically enrolled in the new offering period. We had a “reset” on July 1, 2016 because the fair market value of our stock on June 30, 2016 was lower than the fair market value of our stock on January 5, 2015, the first day of the offering period. We applied modification accounting in accordance with ASC Topic No. 718, Stock Compensation, to determine the incremental fair value associated with this Purchase Plan “reset” and will recognize the related stock-based compensation expense according to FASB ASC Subtopic No. 718-50, Employee Share Purchase Plans. The total incremental fair value for this Purchase Plan “reset” was approximately $1.0 million and will be recognized from July 1, 2016 to June 30, 2018.
As of June 30, 2016, there were approximately 2,689,635 shares reserved for future issuance under the Purchase Plan. The following table summarizes the weighted-average assumptions related to our Purchase Plan for the six months ended June 30, 2016 and 2015. Expected volatilities for our Purchase Plan are based on the historical volatility of our stock. Expected term represents the weighted-average of the purchase periods within the offering period. The risk-free interest rate for periods within the expected term is based on U.S. Treasury constant maturity rates.