STOCK-BASED COMPENSATION

We allocated the stock-based compensation expense for our equity incentive plans and our 2000 Employee Stock Purchase Plan (ESPP) as follows (in thousands):



	Year Ended December 31,
	2018		2017		2016
Research and development	$	13,115	$	7,569	$	9,366
Selling, general and administrative	27,511		16,369		13,546
Total stock-based compensation	$	40,626	$	23,938	$	22,912

We have several equity incentive plans under which we granted stock options and RSUs to employees and directors. At December 31, 2018, 14,693,867 shares were available for grant under our equity incentive plans. The Board of Directors or a designated Committee of the Board is responsible for administration of our equity incentive plans and determines the term, exercise price and vesting terms of each grant. Stock options have a four-year vesting term, an exercise price equal to the fair market value on the date of grant, and a seven year life from the date of grant. Stock options issued prior to May 2011 have a ten year life from the date of grant. RSUs granted to our employees generally vest annually over a four year term.

We have adopted a Change in Control and Severance Benefit Plan for executives and certain non-executives. Eligible Change in Control and Severance Benefit Plan participants include employees with the title of vice president and above. If a participant’s employment is terminated without cause during a period commencing one month before and ending thirteen months following a change in control, as defined in the plan document, then the Change in Control and Severance Benefit Plan participant is entitled to have the vesting of all its outstanding stock options accelerated with the exercise period being extended to no more than one year.

We have an ESPP that allows for qualified employees (as defined in the ESPP) to purchase shares of our common stock at a price equal to the lower of 85% of the closing price at the beginning of the offering period or 85% of the closing price at the end of each six month purchase period. Compensation expense related to our ESPP was $2.2 million, $1.6 million, and $1.0 million for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, we had 4,722,008 shares available for issuance under our ESPP. Pursuant to the ESPP, we issued 330,492 shares, 434,523 shares, and 559,936 shares of common stock at an average price per share of $15.74, $11.20 and $3.91 during the years ended December 31, 2018, 2017 and 2016, respectively. Cash received from purchases under the ESPP in the years ended December 31, 2018, 2017 and 2016 was $5.2 million, $4.9 million and $2.2 million, respectively.

We used a Monte Carlo simulation pricing model to value stock options that include market vesting conditions and a Black-Scholes Merton option pricing model to value other stock options and ESPP purchases. The weighted average grant-date fair value per share of stock options and ESPP purchases was as follows:



	Year Ended December 31,
	2018		2017		2016
Stock options	$	9.07	$	11.42	$	4.77
ESPP	$	6.40	$	6.00	$	2.17

The grant-date fair value of stock option grants and ESPP purchases was estimated using the following assumptions:



	Year Ended December 31,
	2018		2017		2016
Stock options:
Risk-free interest rate	2.81	%	1.98	%	1.15	%
Dividend yield	—	%	—	%	—	%
Volatility	55	%	59	%	76	%
Expected life	4.4 years		4.5 years		4.4 years
ESPP:
Risk-free interest rate	1.93	%	1.09	%	0.55	%
Dividend yield	—	%	—	%	—	%
Volatility	53	%	58	%	65	%
Expected life	6 months		6 months		6 months

We considered our implied volatility and our historical volatility in developing our estimates of expected volatility. The assumptions for the expected life of stock options were based on historical exercise patterns and post-vesting termination behavior. The risk-free interest rate is based on U.S. Treasury rates with the same or similar term as the underlying award. Our dividend rate is based on historical experience and our investors’ current expectations.

The fair value of RSUs was based on the closing price of the underlying common stock on the date of grant.

Activity for stock options during the year ended December 31, 2018 was as follows (dollars in thousands, except per share amounts):



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Stock options outstanding at December 31, 2017	22,208,446		$	6.83
Granted	3,238,473		$	19.40
Exercised	(2,466,579	)	$	4.90
Forfeited	(288,197	)	$	15.71
Expired	(18,081	)	$	20.64
Stock options outstanding at December 31, 2018	22,674,062		$	8.71	3.7 years	$	254,201
Exercisable at December 31, 2018	16,463,202		$	5.65	3.0 years	$	229,699

During the year ended December 31, 2018, in connection with our long-term incentive compensation program, we granted 308,365 stock options to our President and Chief Executive Officer that have a market vesting condition (PSOs). In addition to the standard service conditions included in our other stock options, these PSOs may not be exercised until, at any time after the grant date, the closing market price of a share of our Common Stock is equal to or greater than 125% of the per share exercise price of the PSO over a period of at least 30 consecutive calendar days. The stock-based compensation expense for the PSO is being recognized over the service period of the award, which commenced on the date of grant.

During the year ended December 31, 2016, the Compensation Committee of the Board of Directors of Exelixis convened to determine we had met certain performance objectives for performance-based stock options granted to employees in 2013, 2014 and 2015. As a result of these determinations, 5,870,303 performance-based stock options vested during 2016 and we recognized $4.1 million in stock-based compensation for those performance-based stock option grants. We did not have any performance-based stock options outstanding during the year ended December 31, 2017 and therefore, did not record any stock-based compensation for performance-based stock options during that year.

As of December 31, 2018, there was $48.0 million of unrecognized compensation expense related to our unvested stock options, including the PSOs described above. The compensation expense for the unvested stock options will be recognized over a weighted-average period of 2.5 years.

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between our closing stock price on the last trading day of fiscal 2018 and the exercise prices, multiplied by the number of in-the-money options) that would have been received by the stock option holders had all stock option holders exercised their stock options on December 31, 2018. The total intrinsic value of stock options exercised on the dates of exercise was $39.1 million, $85.2 million and $50.0 million during the years ended December 31, 2018, 2017 and 2016, respectively. Cash received from option exercises during the years ended December 31, 2018, 2017 and 2016 was $12.1 million, $17.6 million and $25.3 million, respectively. The total estimated fair value of stock options vested and recorded as expense during the years ended December 31, 2018, 2017 and 2016 was $18.9 million, $13.1 million and $13.4 million, respectively.

Activity for RSUs during the year ended December 31, 2018 was as follows (dollars in thousands, except per share amounts):



	Shares		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
RSUs outstanding at December 31, 2017	3,762,990		$	17.76
Awarded	2,519,425		$	18.46
Vested and released	(1,081,339	)	$	16.05
Forfeited	(343,742	)	$	18.99
RSUs outstanding at December 31, 2018	4,857,334		$	18.42	2.1 years	$	94,427

During the year ended December 31, 2018, in connection with our long-term incentive compensation program, we awarded 693,131 RSUs that will vest upon the achievement of certain product revenue, late-stage clinical development and pipeline expansion performance targets (PSUs). These PSUs are included in the RSU activity table presented above. The PSUs were designed to drive the performance of our management team toward the achievement of key corporate objectives and will be forfeited if the performance targets are not met by December 31, 2021. Expense recognition for PSUs commences when the attainment of the performance goal is determined by management to be probable. During the year ended December 31, 2018, we did not recognize any compensation expense related to these PSUs. As of December 31, 2018, the total unrecognized compensation expense related to the unvested PSUs was $12.7 million. There were no performance-based RSUs issued prior to 2018.

As of December 31, 2018, there was $81.8 million of unrecognized compensation expense related to our unvested RSUs, including the PSUs described above. The compensation expense for the unvested RSUs will be recognized over a weighted-average period of 3.1 years.

401(k) Retirement Plan

We sponsor the Exelixis, Inc. 401(k) Plan (the 401(k) Plan) whereby eligible employees may elect to contribute up to the lesser of 50% of their annual compensation or the statutorily prescribed annual limit allowable under Internal Revenue Service regulations. During 2018, we made matching contributions in the form of our common stock of 100% of the first $8,500 of each participant’s contributions into the 401(k) Plan. We recorded compensation expense related to the stock match of $3.6 million, $1.7 million, and $1.1 million for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, 571,674 shares were available for issuance under the 401(k) Plan.