NOTE 8. STOCKHOLDERS’ EQUITY

Equity Offering

During the three-month period ended March 31, 2016, we issued 3.1 million shares of our common stock at an average price of $8.80 per share through our “at-the-market” offering, resulting in net proceeds of $26.5 million.

During the three-month period ended March 31, 2017 we did not issue any shares pursuant to our “at-the-market” offering program; however, in February 2017, we filed an additional prospectus supplement pursuant to which we may offer and sell, from time to time, additional shares of our common stock having an aggregate offering price of up to $60.0 million.

We pay a commission equal to 3% of the gross proceeds from the sale of shares of our common stock under the sales agreement. We are not obligated to sell shares of our common stock under the sales agreement.

Subject to certain exceptions set forth in our existing Facility Agreement, holders of our Notes may elect to receive 25% of the net proceeds from financing activities that include an equity component as prepayment of the Notes to be applied first, to accrued and unpaid interest and second, to principal. However, in April 2017 holders representing a majority of the aggregate principal amount of the outstanding Notes waived such right in connection with the issuance and sale of shares of common stock under our current “at-the-market” offering.

Warrants

In connection with the execution of the Facility Agreement, we issued immediately exercisable warrants to purchase 5.5 million shares of common stock at an exercise price per share initially equal to $2.63, all of which were outstanding at December 31, 2015. The number of shares of common stock into which the warrants are exercisable and the exercise price will be adjusted to reflect any stock splits, payment of stock dividends, recapitalizations, reclassifications or other similar adjustments in the number of outstanding shares of common stock. The exercise price may also be adjusted to reflect certain dividends or other distributions, including distributions of stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or similar transaction.

During the three-month periods ended March 31, 2016, warrants to purchase 3,818,000 shares of common stock were net exercised, resulting in the issuance of approximately 3.0 million shares with all warrants being fully net exercised by December 31, 2016. As of March 31, 2017, no warrants remained outstanding.

Equity Plans

As of March 31, 2017, we had three active equity compensation plans: the 2010 Equity Incentive Plan, the 2010 Outside Director Equity Incentive Plan, and the 2010 Employee Stock Purchase Plan (“ESPP”).

The following table summarizes stock option activity for all our stock option plans for the three-month period ended March 31, 2017 (in thousands, except per share amounts):



		Stock Options Outstanding
					Weighted
	Shares available	Number			average
	for grant	of shares	Exercise price		exercise price
Balances, December 31, 2016	6,835	22,501	$	1.16 – 16.00	$	6.30
Additional shares reserved	4,634
Options granted	(4,708)	4,708		4.78 – 5.27		5.26
Options exercised	—	(114)		1.16 – 4.55		2.70
Options canceled	439	(439)		1.16 – 11.64		7.34
Balances, March 31, 2017	7,200	26,656	$	1.16 – 16.00	$	6.11

Shares issued under our ESPP totaled 750,005 and 668,566 shares during the three-month periods ended March 31, 2017 and 2016, respectively. As of March 31, 2017, 1,841,595 shares of our common stock remain available for issuance under our ESPP.

Stock-Based Compensation

Total stock-based compensation expense consists of the following (in thousands):



	Three-Month Periods Ended March 31,
	2017		2016
Cost of revenue	$	523	$	499
Research and development		2,030		1,910
Sales, general and administrative		2,431		2,172
Total stock-based compensation expense	$	4,984	$	4,581

We estimated the fair value of employee stock options on the grant date using the Black-Scholes option pricing model. The estimated fair value of employee stock options is amortized on a straight-line basis over the requisite service period of the awards. The fair value of employee stock options was estimated using the following weighted average assumptions:



	Three-Month Periods Ended March 31,
Stock Option	2017	2016
Expected term in years	6.1	6.1
Expected volatility	70%	70%
Risk-free interest rate	2.1%	1.5%
Dividend yield	—	—

We estimate the value of employee stock purchase rights on the grant date using the Black-Scholes option pricing model. The fair value of shares to be purchased under our ESPP was estimated using the following assumptions:



	Three-Month Periods Ended March 31,
ESPP	2017	2016
Expected term in years	0.5-2.0	0.5-2.0
Expected volatility	70%	70%
Risk-free interest rate	0.8%-1.3%	0.5%-0.9%
Dividend yield	—	—