NOTE 8. STOCKHOLDERS’ EQUITY

In August 2017, we filed a shelf registration statement on Form S-3 with the SEC pursuant to which we may, from time to time, sell up to an aggregate of $150.0 million of our common stock, preferred stock, depository shares, warrants, units or debt securities. On August 18, 2017, the registration statement was declared effective by the SEC, which allows us to access the capital markets for the three-year period following this effective date.

“At-the-Market” 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 June 30, 2016, we issued 3.4 million shares of our common stock at an average price of $9.56 per share through our “at-the-market” offering, resulting in net proceeds of $31.7 million. During the three-month period ended September 30, 2016, no shares of common stock were issued through our “at-the-market” offering. In total, for the nine-month period ended September 30, 2016, we issued 6.5 million shares of our common stock through our “at-the-market” offering, resulting in net proceeds of $58.2 million.

In February 2017, we filed a 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

In June 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 in June 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 offering expenses, were approximately $52.5 million.

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 months 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. During the three months ended June 30, 2016, warrants to purchase the remaining 1,682,000 shares of common stock were net exercised, resulting in the issuance of approximately 1.2 million shares in the first week of July 2016. The cashless net exercises of the warrants did not result in any additional funds being collected by us. As of September 30, 2016, no warrants remained outstanding.

Equity Plans

As of September 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 nine-month period ended September 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	(5,600)	5,600		3.30 – 5.37		5.05
Options exercised	—	(1,369)		1.16 – 5.27		2.55
Options canceled	1,599	(1,599)		1.16 – 16.0		7.08
Balances, September 30, 2017	7,468	25,133	$	1.16 – 16.0	$	6.18

Shares issued under our ESPP totaled 1,289,663 and 1,259,239 shares during the nine-month periods ended September 30, 2017 and 2016, respectively. As of September 30, 2017, 1,301,937 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 September 30,				Nine-Month Periods Ended September 30,
	2017		2016		2017		2016
Cost of revenue	$	608	$	549	$	1,703	$	1,610
Research and development		2,071		2,141		6,131		6,182
Sales, general and administrative		2,289		2,417		7,128		6,934
Total stock-based compensation expense	$	4,968	$	5,107	$	14,962	$	14,726

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 September 30,		Nine-Month Periods Ended September 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%	1.3%	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 September 30,		Nine-Month Periods Ended September 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	1.1%-1.4%	0.5%-0.8%	0.8%-1.4%	0.5%-0.9%
Dividend yield	—	—	—	—