Stockholders’ Equity

Stock Plans

In May 2009, the Company’s stockholders approved the amendment and restatement of the Company’s 2002 Stock Incentive Plan (the “Amended 2002 Plan”). The Company’s 2002 Stock Incentive Plan was amended to (i) increase the number of shares available for issuance under the Amended 2002 Plan by 1.3 million shares, (ii) revise the list of performance criteria that may be used by the compensation committee for purposes of granting awards under the Amended 2002 Plan that are intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code, as amended, and (iii) eliminate the automatic option grant program for non-employee directors, the director fee stock issuance program and the director fee option grant program, which programs have been superseded by the Company’s amended and restated Director Compensation Policy. Additionally, in May 2012, the Company’s stockholders approved an amendment and restatement of the Company’s 2002 Stock Incentive Plan to increase the number of shares available for issuance by 1.8 million shares. As of December 31, 2013, there were 1.5 million shares available for future option grants or direct issuance under the Amended 2002 Plan.

The Company grants options and awards to employees, non-employee consultants, and non-employee directors. Only new shares of common stock are issued upon the exercise of stock options. Non-employee directors are accounted for as employees. Options and restricted stock granted to certain directors vest in equal monthly installments over one year from the date of grant. Options granted to employees vest 1/8 on the six month anniversary of the date of grant, and 1/48 each month thereafter for forty-two months. All option awards generally expire ten years from the date of grant.

Following is a summary of the Company’s stock option plan activity and related information:



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years	Aggregate Intrinsic Value (In thousands)
Balance at December 31, 2010	641,261		$	21.36	7.00	$	9
Granted	636,580		9.98
Exercised	(6,072	)	9.51
Forfeited	(50,782	)	11.95
Cancelled	(74,941	)	34.55
Balance at December 31, 2011	1,146,046		14.61		7.96	1,489
Granted	714,345		14.72
Exercised	(86,588	)	11.31
Forfeited	(118,026	)	11.39
Cancelled	(29,171	)	24.16
Balance at December 31, 2012	1,626,606		14.90		7.83	11,358
Granted	439,929		23.61
Exercised	(217,069	)	14.60
Forfeited	(73,978	)	16.72
Cancelled	(28,779	)	29.87
Balance at December 31, 2013	1,746,709		16.79		7.57	62,705
Exercisable at December 31, 2013	977,351		15.69		6.87	36,232
Options vested and expected to vest as of December 31, 2013	1,746,709		$	16.79	7.57	$	62,705

The weighted-average grant-date fair value of all stock options granted during 2013, 2012 and 2011 was $14.28, $9.13 and $6.32 per share, respectively. The total intrinsic value of all options exercised during 2013, 2012 and 2011 was approximately $5.9 million, $0.5 million and $10,000, respectively. As of December 31, 2013, there was $7.1 million of total unrecognized compensation cost related to nonvested stock options. That cost is expected to be recognized over a weighted average period of 2.3 years.

Cash received from options exercised, net of fees paid in 2013, 2012 and 2011 was $3.0 million, $1.0 million and $58,000, respectively. There is no current tax benefit related to options exercised because of Net Operating Losses ("NOLs") for which a full valuation allowance has been established.

Following is a further breakdown of the options outstanding as of December 31, 2013:



Range of exercise prices	Options outstanding	Weighted average remaining life in years	Weighted average exercise price		Options exercisable	Weighted average exercise price
$6.82 – $ 10.05	459,732	6.97	$	9.94	350,804	$	9.92
10.12 – 13.53	113,684	7.90	11.39		106,070	11.34
14.47 – 14.47	489,633	8.11	14.47		204,019	14.47
16.14 – 21.00	199,248	5.21	18.14		184,301	18.11
21.92 – 87.96	484,412	8.50	26.35		132,157	33.00
6.82 – 87.96	1,746,709	7.57	$	16.79	977,351	$	15.69

Restricted Stock Activity

The following is a summary of the Company’s restricted stock activity and related information:



	Shares		Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2010	62,146		$	13.60
Granted	119,826		10.07
Vested	(59,936	)	12.47
Forfeited	(6,530	)	11.71
Nonvested at December 31, 2011	115,506		10.63
Granted	109,261		13.76
Vested	(72,194	)	11.47
Forfeited	(11,012	)	11.84
Nonvested at December 31, 2012	141,561		12.52
Granted	84,547		27.71
Vested	(85,681	)	14.59
Forfeited	(25,041	)	13.38
Nonvested at December 31, 2013	115,386		$	21.93

Restricted stock awards generally vest over three years. As of December 31, 2013, unrecognized compensation cost related to non-vested stock awards amounted to $1.3 million. That cost is expected to be recognized over a weighted average period of 1.1 years.

Employee Stock Purchase Plan

The Company’s Employee Stock Purchase Plan, as amended and restated (the “Amended ESPP”) allows participants to purchase up to 1,250 shares of Ligand common stock during each offering period, but in no event may a participant purchase more than 1,250 shares of common stock during any calendar year. The length of each offering period is six months, and employees are eligible to participate in the first offering period beginning after their hire date.

The Amended ESPP allows employees to purchase a limited amount of common stock at the end of each six month period at a price equal to 85% of the lesser of fair market value on either the start date of the period or the last trading day of the period (the “Lookback Provision”). The 15% discount and the Lookback Provision make the Amended ESPP compensatory. There were 5,016, 10,763, and 7,611 shares of common stock issued under the Amended ESPP in 2013, 2012 and 2011, respectively, resulting in an expense of $44,517, $38,000, and $13,000, respectively. For shares purchased under the Company’s Amended ESPP, a weighted-average expected volatility of 36%, 34%, and 18% was used for 2013, 2012 and 2011, respectively. The expected term for shares issued under the ESPP is 6 months. As of December 31, 2013, 208,673 shares of common stock had been issued under the Amended ESPP to employees and 79,515 shares are available for future issuance.

Preferred Stock

The Company has authorized 5,000,000 shares of preferred stock, of which 1,600,000 are designated Series A Participating Preferred Stock (the “Preferred Stock”). The Board of Directors of Ligand has the authority to issue the Preferred Stock in one or more series and to fix the designation, powers, preferences, rights, qualifications, limitations and restrictions of the shares of each such series, including the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), liquidation preferences and the number of shares constituting any such series, without any further vote or action by the stockholders. The rights and preferences of Preferred Stock may in all respects be superior and prior to the rights of the common stock. The issuance of the Preferred Stock could decrease the amount of earnings and assets available for distribution to holders of common stock or adversely affect the rights and powers, including voting rights, of the holders of the common stock and could have the effect of delaying, deferring or preventing a change in control of Ligand. As of December 31, 2013 and 2012, there are no preferred shares issued or outstanding.

Shareholder Rights Plan

In October 2006, the Company’s Board of Directors renewed the Company’s stockholder rights plan, which was originally adopted and has been in place since September 2002, and which expired on September 13, 2006, through the adoption of a new 2006 Stockholder Rights Plan (the “2006 Rights Plan”). The 2006 Rights Plan provides for a dividend distribution of one preferred share purchase right (a “Right”) on each outstanding share of the Company’s common stock. Each Right entitles stockholders to buy 1/1000th of a share of Ligand Series A Participating Preferred Stock at an exercise price of $100. The Rights will become exercisable if a person or group announces an acquisition of 20% or more of the Company’s common stock, or announces commencement of a tender offer for 20% or more of the common stock. In that event, the Rights permit stockholders, other than the acquiring person, to purchase the Company’s common stock having a market value of twice the exercise price of the Rights, in lieu of the Preferred stock. In addition, in the event of certain business combinations, the Rights permit the purchase of the common stock of an acquiring person at a 50% discount. Rights held by the acquiring person become null and void in each case. The 2006 Rights Plan expires in 2016.

Public Offering

During the year ended December 31, 2013, the Company did not issue any common shares pursuant to its at-the-market equity issuance plan. During the year ended December 31, 2012, the Company issued 302,750 common shares at a weighted average price of $18.87 per share. Total net proceeds to the Company after underwriting discounts and expenses were approximately $5.5 million.

Corporate Share Repurchase

On May 8, 2013, the Company's Board of Directors authorized the Company to repurchase up to $5.0 million of its own stock in privately negotiated and open market transactions for a period of up to one year, subject to the Company's evaluation of market conditions, applicable legal requirements and other factors. The Company is not obligated to acquire common stock under this program and the program may be suspended at any time. Through December 31, 2013, the Company did not repurchase any common shares pursuant to the repurchase plan.