NOTE 10. STOCK PLANS

2014 Stock Incentive Plan

In 2014, the Company’s Board of Directors and stockholders approved and adopted the 2014 Stock Option/Stock Issuance Plan (the “2014 Plan”), which was amended in March 2015, October 2016 and April 2017. Under the 2014 Plan, incentive stock options, non-qualified stock options, restricted stock and restricted stock units may be granted to eligible employees, directors and consultants. The Company’s Board of Directors has resolved not to make any further awards under the 2014 Plan following the completion of the Company’s IPO. The 2014 Plan will continue to govern all outstanding awards granted thereunder.

2017 Stock Incentive Plan

In April 2017, the Company’s Board of Directors and stockholders approved and adopted the 2017 Stock Incentive Plan (the “2017 Plan”), which became effective on May 11, 2017. Under the 2017 Plan, incentive stock options, non-qualified stock options, stock appreciation rights, stock awards and restricted stock units may be granted to employees, non-employee directors, consultants and advisors. Awards granted under the 2017 Plan may be subject to time-based and/or performance-based vesting conditions.  The Company had initially reserved 2,000,000 shares of its common stock for issuance under the 2017 Plan. The share reserve increases automatically on the first trading day of January each calendar year by an amount equal to 3% of the total number of shares of common stock outstanding on the last trading day in December of the immediately preceding calendar year, up to an annual maximum of 750,000 shares. As of December 31, 2019, an aggregate of 754,111 shares of common stock were available for future grant under the 2017 Plan.

2018 Performance-Based Stock Incentive Plan

In June 2018, the Company’s stockholders approved the Company’s 2018 Performance-Based Stock Incentive Plan (the “2018 Plan”), and approved grants under the 2018 Plan of nonstatutory stock options, having performance-based vesting conditions tied to the future achievement of stock price targets by the Company (each, a “Performance Option”), to the Company’s Chief Executive Officer for 1,809,900 shares (the “CEO Award”) and to the Company’s President for 1,357,425 shares (the “President Award”). In May 2018, the CEO Award and the President Award had been approved by a special committee of the Board of Directors of the Company (the “Special Committee”), and the 2018 Plan had been approved by the Company’s Board of Directors, subject to stockholder approval.

The 2018 Plan allows the Company to grant Performance Options to its executive officers and other employees as an incentive for them to remain in service with the Company and to further align their interests with the interests of the Company’s stockholders. A total of 4,200,000 shares of the Company’s common stock have been authorized for issuance under the 2018 Plan.

As of December 31, 2019, 183 shares of common stock were available for future grant under the 2018 Plan.

Terms of Awards Under Stock Plans

The 2014 Plan, 2017 Plan and 2018 Plan are collectively referred to herein as the “Stock Plans.” The Stock Plans are administered by the compensation committee of the Board of Directors, which determines the recipients and the terms of the awards granted (with the exception of the CEO Award and President Award, which were approved by the Special Committee). All stock options granted under the Stock Plans have exercise prices equal to or greater than the fair market value of the Company’s common stock on the grant date, and expire ten years after the grant date, subject to earlier expiration in the event of termination of the optionee’s continuous service with the Company as further described in each Stock Plan. The vesting of all awards granted under the Stock Plans is generally subject to the awardee’s continuous service with the Company, with certain exceptions, as further described in each Stock Plan.

The Company has granted to employees, non-employee directors and consultants awards of stock options, restricted stock and restricted stock units that are subject to time-based vesting conditions.  The time-based stock options that have been granted to employees and consultants generally vest over a period of four years (with the exception of certain stock options granted to the Company’s Chief Executive Officer and President in 2017, which vest over a period of three years, and certain other limited exceptions). Restricted stock units that have been awarded to employees generally vest over periods of one to two years.  The restricted stock units awarded to members of the Company’s Board of Directors under the automatic grant program provisions of the 2017 Plan generally vest over a period of one year.

The Company has also granted Performance Options under the 2018 Plan and the 2017 Plan.  All such Performance Options will become exercisable in three equal tranches based on the achievement of specific market price targets for the Company’s common stock. For each tranche to become exercisable, the closing price per share of the Company’s common stock must meet or exceed the applicable stock price target for a period of 30 consecutive trading days.

Stock-based Compensation

The Company recognizes stock-based compensation expense for awards granted under the Stock Plans ratably over the requisite service period.  For awards subject to time-based vesting conditions, the service period is generally the vesting period. For Performance Options, a derived service period is estimated for each tranche under the Monte Carlo simulation model. The Company also recognizes stock-based compensation expense related to the Company’s ESPP ratably over each purchase interval.

The fair values of time-based stock options granted under the Stock Plans and purchase rights under the ESPP are determined as of the grant date using the Black-Scholes-Merton option-pricing model. The assumptions used in calculating the fair values of time-based stock options granted during the years ended December 31, 2019 and 2018 are set forth in the table below:

The assumptions used in calculating the fair values of purchase rights granted under the ESPP during the years ended December 31, 2019 and 2018 are set forth in the table below:

The Company values Performance Options using a Monte Carlo simulation model. A fair value per share is determined for each of the three equal tranches of each Performance Option. The assumptions used in the Monte Carlo simulation model for computing the grant date fair values of the Performance Options granted to employees during the year ended December 31, 2019, and the Performance Options granted during the year ended December 31, 2018, which consisted entirely of the CEO Award and the President Award, are set forth in the table below:

The stock-based compensation expense by type of award and by operating expense grouping are presented below:

Stock Plan Activity

Restricted Stock Awards

The Company’s restricted stock activity for the year ended December 31, 2019 was as follows:

As of December 31, 2019, total unrecognized compensation cost related to restricted stock was $150, which is expected to be recognized over a period of 0.8 year.  There was no restricted stock granted during the years ended December 31, 2019 and 2018. The fair values of restricted stock that vested during the years ended December 31, 2019 and 2018 totaled $299 and $1,022, respectively.

Restricted Stock Units

The Company’s restricted stock units activity for the year ended December 31, 2019 was as follows:

As of December 31, 2019, total unrecognized compensation cost related to restricted stock units was $372, which is expected to be recognized over a period of 0.9 year. The weighted average grant date fair values per share of restricted stock units granted in the years ended December 31, 2019 and 2018 were $6.97 and $13.46, respectively. The fair values of restricted stock units vested during the years ended December 31, 2019 and 2018 totaled $362 and $901, respectively.

Performance Options

The activity related to Performance Options for the year ended December 31, 2019 was as follows:

The weighted average grant date fair values per share of Performance Options granted during the years ended December 31, 2019 and 2018 were $2.55 and $9.59, respectively. No performance-based stock options vested during the years ended December 31, 2019 and 2018. At December 31, 2019, total unrecognized compensation expense related to Performance Options was $21,493 and is expected to be recognized over a weighted average period of 3 years.

Stock Options

The activity related to all other stock options for the year ended December 31, 2019 was as follows:

The weighted average grant date fair values per share of stock options granted in the years ended December 31, 2019 and 2018 were $3.47 and $7.40, respectively. The aggregate intrinsic values of the options exercised during the years ended December 31, 2019 and 2018 were $189 and $1,984, respectively. The total grant date fair values of stock options vested during the years ended December 31, 2019 and 2018 were $10,226 and $8,929, respectively.

At December 31, 2019, total unrecognized compensation expense related to stock options was $8,137 and is expected to be recognized over a weighted average period of 1.9 years.

The aggregate intrinsic values in the tables above represent the difference between the fair market value of the Company’s common stock and the average option exercise price of in-the-money options multiplied by the number of such options.

Employee Stock Purchase Plan

In April 2017, the Company’s Board of Directors and stockholders approved and adopted the ESPP, which became effective on May 11, 2017. The ESPP is administered by the Compensation Committee of the Board of Directors and is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code. Under the ESPP, each offering period is generally 24 months with four, six-month purchase intervals, and new offering periods generally commence every six months, as determined by the Compensation Committee of the Board of Directors.

The purchase price for shares of the Company’s common stock under the ESPP will be established by the plan administrator prior to the start of the offering period, but will not be less than 85% of the lower of the fair market value of the Company’s common stock on (i) the first day of the offering period and (ii) the purchase date. Each purchase right granted to an employee will provide an employee with the right to purchase up to 1,000 shares of common stock on each purchase date within the offering period, subject to an aggregate limit of 200,000 shares purchased under the ESPP on each purchase date, and subject to the purchase limitations in each calendar year under Section 423 of the Internal Revenue Code.

The Company had initially reserved 1,000,000 shares of its common stock for issuance under the ESPP. The share reserve increases automatically on the first trading day of January each calendar year by an amount equal to 1% of the total number of shares of common stock outstanding on the last trading day in December of the immediately preceding calendar year, up to an annual maximum of 250,000 shares.

The ESPP contains a reset provision, which provides that, if the Company’s stock price on any purchase date under an offering period is less than the stock price on the start date of that offering period, then all employees participating in that offering period will be automatically transferred to the new offering period starting on the next business day following such purchase date, so long as the stock price on that start date is lower than the stock price on the start date of the offering period in which they are enrolled.  This reset feature was triggered under the ESPP on August 1, 2018 and on February 1, 2019. These resets constituted modifications pursuant to the guidance in ASC 718, Stock Based Compensation.  The Company engaged specialists to determine the incremental cost associated with the modification by calculating the expense related to the modified awards using the assumptions before and after the trigger dates. The modifications did not have a material effect on the Company’s stock-based compensation expense for the years ended December 31, 2019 and 2018.

Employee payroll deductions accrued under the ESPP as of December 31, 2019 and 2018 totaled $196 and $448, respectively. During the years ended December 31, 2018 and 2019 a total of 129,514 and 80,654 shares of common stock were purchased under the ESPP at a weighted average purchase price of $4.65 and $12.72, respectively.