11.Equity Compensation Plans

 

The Company maintains two share-based incentive plans:  the Axogen 2010 Stock Incentive Plan, as amended (2010 Plan), and the Axogen 2017 Employee Stock Purchase Plan (2017 ESPP).

 

Stock Incentive Plan

 

The 2010 Plan allows for issuance of incentive stock options, non-qualified stock options, performance stock units (PSU) and restricted stock units (RSU) to employees, directors and consultants at exercise prices not less than the fair market value at the date of grant.  The Compensation Committee of the Board of Directors administers the 2010 Plan and has the authority to determine the terms of any awards, including the number of shares subject to each award, the exercisability of the awards and the type of awards.  As of December 31, 2018 , there were 7,700,000 shares of common stock authorized for issuance under the 2010 Plan and 407,368 were available for future grants.

 

The options to employees typically vest 25% one year after the grant date and 12.5% every six months thereafter for the remaining three-year period until fully vested after four years and those to directors and certain executive officers have vested 25% per quarter over one year or had no vesting period. Beginning in June 2017, options to employees typically vest 50% two years after the grant and 12.5% every six months thereafter for the remaining four-year period until fully vested after five years.  Options issued to consultants have vesting provisions based on the engagement ranging from no vesting to vesting over the service period ranging from three to ten years. Options have terms ranging from seven to ten years.

 

Activity under the 2010 Plan during 2017 and 2018 was as follows:

 

 

 

The intrinsic value of equity awards exercised during the years ended December 31, 2018, 2017 and 2016 was $34,229,  $7,783 and $1,496, respectively. As a result of the Company’s full valuation allowance on its net deferred tax assets, no tax benefit was recognized related to the exercises of stock options.  The exercise price per share of each option is equal to the fair market value of the underlying share on the date of grant.  For 2018, 2017 and 2016, $3,884,  $1,434 and $1,078, respectively, in cash proceeds were included in the Company’s Consolidated Statements of Cash Flows as a result of the exercise of stock options.  The total fair value of restricted stock vested during 2018 and 2017 was $196 and $108.  There were no restricted stock vested during 2016.  The Company issues registered shares of common stock to satisfy stock option exercises and restricted stock grants.

 

The Company recognized stock-based compensation expense of $7,606,  $3,609 and $1,390 for the years ended December 31, 2018, 2017 and 2016, respectively, which consisted of compensation expense related to employee stock options, PSUs and RSUs.  As of December 31, 2018, there was $27,948 of unrecognized compensation costs related to non-vested stock options and restricted stock awards.  This cost is expected to be recognized over a weighted-average period of 2.53 years for stock options and 3.26 years for restricted stock awards. 

 

On December 18, 2017 the Compensation Committee of the Board of Directors also approved PSU awards to certain executives related to their work on the Company’s BLA.  The PSU awards consist of a targeted total award of 200,000 shares. The number of shares are allocated to certain milestones related to the BLA submission to and approval by the FDA.  The performance measure is based upon achieving each of the specific milestones and will vest 50% upon achieving each of the milestones and 50% one year later.  The Company estimated the  fair value of the PSUs based on its closing stock price at the time of grant and its estimate of achieving such performance target and will record compensation expense as the milestones are achieved. Over the performance period, the number of shares of common stock that will ultimately vest and be issued and the related compensation expense will be adjusted based upon the Company’s estimate of achieving such performance target. The number of shares delivered to recipients and the related compensation cost recognized as an expense will be based on the actual performance metrics as set forth in the applicable PSU award agreement.   The amount actually awarded will be based upon achievement of the performance measures and can range from 0 to 200,000 shares.  The grant date fair value of the common stock on December 18, 2017 was $27.00.  The total unrecognized future compensation expense related to this PSU, assuming achievement of 100% of the target award is $5,400. Assuming the minimum of 0% and the maximum of 100% payout opportunity for the PSU, the range of total future compensation expense related to this PSU award is between $0 and $5,400 as of December 31, 2018.

 

Employee Stock Purchase Plan

 

The 2017 ESPP, which was effective as of January 1, 2018, allows for eligible employees to acquire shares of our common stock through payroll deductions at a discount from market value (currently 15%) of the lesser of the closing price of the Company’s common stock on the first day or last day of the offering period.  The offering period is currently six months, and the offering prices are subject to change.  Participants may not purchase more than $25 of the Company’s common stock in a calendar year.  As of December 31, 2018 , there were 600,000 shares of common stock authorized for issuance under the 2017 ESPP and 533,684 were available for future issuance.

 

Valuation and Expense Information Under FASB ASC 718

 

The Company estimates the fair value of each option grant using a Multiple Point Black-Scholes option-pricing model which uses a weighted average of historical volatility and peer company volatility. The Company determines the expected life giving consideration to the contractual terms, vesting schedules and post-vesting forfeitures. The Company uses the risk-free interest rate on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term approximately equal to the expected life of the award.

 

The Company used the following weighted-average assumptions for stock options granted during the year ended December 31:

 

 

The fair value of restricted stock awards is based on the market value of the Company’s common stock on the date of the awards.

 

Based on the assumptions noted above, the weighted average estimated grant date fair value per share of the stock options and restricted stock granted for the years ended December 31, 2018, 2017 and 2016, respectively, was as follows: