NOTE 8. STOCKHOLDERS’ EQUITY

“At-the-Market” Equity Offering

In February 2017, we filed an additional prospectus supplement pursuant to which we could offer and sell, from time to time, additional shares of our common stock having an aggregate offering price of up to $60.0 million.

During the six-month period ended June 30, 2017 we issued 3.2 million shares of our common stock at an average price of $3.86 per share through our “at-the-market” offering, resulting in net proceeds of $11.9 million. We terminated our current “at-the-market” offering program in June 2017.

We paid 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 Facility Agreement, holders of our Notes may elect to receive up to 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 “at-the-market” offering.

Underwritten Public Equity Offering

On June 15, 2017, we entered into an underwriting agreement, relating to the public offering of 15,419,354 shares of our common stock, $0.001 par value per share, at a price to the public of $3.10 per share. Under the terms of the Underwriting Agreement, we also granted the Underwriters a 30-day option to purchase up to an additional 2,312,903 shares of our common stock, which was subsequently exercised in full, and the offering, including the sale of shares of common stock subject to the Underwriters’ option, closed on June 20, 2017. In total, we sold 17,732,257 shares of our common stock at a price of $3.10 per share. We paid a commission equal to 4% of the gross proceeds from the sale of shares of our common stock under the underwriting agreement. The total net proceeds to us from the offering, after deducting the underwriting discount and paid offering expenses, were approximately $52.7 million, which excludes approximately $0.2 million of offering expenses that were unpaid as of June 30, 2017.

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.

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 June 30, 2017, no warrants remained outstanding.

Equity Plans

As of June 30, 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 six-month period ended June 30, 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	(5,258)	5,258		3.30 – 5.27		5.10
Options exercised	—	(1,231)		1.16 – 4.55		2.54
Options canceled	936	(936)		1.16 – 16.0		7.24
Balances, June 30, 2017	7,147	25,592	$	1.16 – 16.00	$	6.20

Shares issued under our ESPP totaled 750,005 and 668,566 shares during the six-month periods ended June 30, 2017 and 2016, respectively. As of June 30, 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 June 30,				Six-Month Periods Ended June 30,
	2017		2016		2017		2016
Cost of revenue	$	572	$	562	$	1,095	$	1,061
Research and development		2,029		2,131		4,060		4,041
Sales, general and administrative		2,408		2,345		4,839		4,517
Total stock-based compensation expense	$	5,009	$	5,038	$	9,994	$	9,619

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 June 30,		Six-Month Periods Ended June 30,
Stock Option	2017	2016	2017	2016
Expected term in years	6.1	6.1	6.1	6.1
Expected volatility	70%	70%	70%	70%
Risk-free interest rate	1.9%	1.4%	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 June 30,		Six-Month Periods Ended June 30,
ESPP	2017	2016	2017	2016
Expected term in years	0.5-2.0	0.5-2.0	0.5-2.0	0.5-2.0
Expected volatility	70%	70%	70%	70%
Risk-free interest rate	0.8%-1.3%	0.5%-0.9%	0.8%-1.3%	0.5%-0.9%
Dividend yield	—	—	—	—