6. Stockholders' Equity and Stock-Based Compensation

Preferred Stock

Our Board of Directors has the authority to issue preferred stock in one or more series and to fix the rights, preferences, privileges, restrictions and the number of shares constituting any series or the designation of the series.

2008 Equity Incentive Plan

Under our 2008 Equity Incentive Plan, or 2008 Equity Plan, our employees, directors and consultants may receive share-based awards, including grants of stock options and Performance Awards. Our Board of Directors or a designated Committee of the Board is responsible for administration of the 2008 Equity Plan and determines the terms and conditions of each option granted, consistent with the terms of the plan. The 2008 Equity Plan terminates in December 2017.

Share-based awards generally expire ten years from the date of grant. Cancelled stock options become available for reissuance. As of December 31, 2016, we have 3.4 million shares reserved and available to be issued under the 2008 Equity Incentive Plan.

The 2008 Equity Plan provides for the automatic grant of options to purchase shares of common stock to outside directors. On the date of each annual stockholders’ meeting, each outside director is automatically granted an option to purchase 50,000 shares of common stock. These options have a ten-year life, have an exercise price of 100% of the fair market value of the stock on the date of grant, and become exercisable as to 25% of the shares on the anniversary of its date of grant provided the optionee continues to serve as a director on such dates.

When stock options or Performance Awards are exercised net of the exercise price and taxes, the number of shares of stock issued is reduced by the number of shares equal to the amount of taxes owed by the award recipient and that number of shares are cancelled. We then use our cash to pay tax authorities the amount of statutory taxes owed by and on behalf of the award recipient.

Stock Options

The following summarizes information about stock option activity during 2016:


	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
				In years	In millions
Outstanding as of December 31, 2015	18,515,254	$	3.75	5.1	$	—
Granted	355,000	$	2.36
Exercised	—	$	—
Canceled	(1,825,767)	$	4.87
Outstanding as of December 31, 2016	17,044,487	$	3.60	4.8	$	—
Vested and expected to vest at December 31, 2016	17,044,487	$	3.60	4.8	$	—
Exercisable at December 31, 2016	13,430,734	$	3.89	3.8	$	—

The following summarizes information about stock options at December 31, 2016 by a range of exercise prices:


				Options outstanding				Options exercisable
					Weighted
					average	Weighted			Weighted
				Number of	remaining	average		Number of	average
Range of exercise prices				outstanding	contractual	exercise		vested	exercise
From		To		options	life (in years)	price		options	price
$	1.72	$	1.87	3,580,000	8.4	$	1.81	1,384,165	$	1.79
$	2.03	$	2.58	3,454,819	5.1	$	2.45	2,767,527	$	2.48
$	2.69	$	4.39	4,791,636	3.2	$	3.69	4,717,469	$	3.70
$	4.59	$	5.00	3,735,079	3.5	$	4.87	3,111,329	$	4.86
$	5.20	$	7.65	1,482,953	3.5	$	7.12	1,450,244	$	7.16
				17,044,487	4.8	$	3.60	13,430,734	$	3.89

We use Black-Scholes to estimate the fair value of options granted. Black-Scholes considers a number of factors, including the market price of our common stock. For options granted to employees and directors, we used certain factors to value each stock option granted, which resulted in a weighted average fair value of options granted during 2016, 2015 and 2014, as follows:


	2016	2015	2014
Volatility	72%	74% to 76%	68% to 74%
Risk-free interest rates	1% to 2%	1% to 2%	1% to 2%
Expected life of option	7 years	7 years	7 years
Dividend yield	zero	zero	zero
Forfeiture rate	zero	zero	zero
Weighted average fair value of stock options granted	$1.60	$1.29	$2.32

Volatility is based on reviews of the historical volatility of our common stock. Risk-free interest rates are based on yields of U.S. treasury notes in effect at the date of grant. Expected life of option is based on actual historical option exercises. Dividend yield is zero because we do not anticipate paying cash dividends in the foreseeable future. We estimate forfeitures and adjust this estimate periodically based in part on the extent to which actual forfeitures differ from our estimates.

For options granted to non-employees, we estimate the fair value of stock options granted using factors similar to those used for stock options granted to employees and directors and appropriate for the terms underlying the stock options granted to non-employees. We re-measure the compensation expense for options granted to non-employees each reporting period.

As of December 31, 2016, we expect to recognize compensation expense of $5.9 million related to non-vested options held by employees and directors over the weighted average remaining recognition period of 2.2 years.

Performance Awards

The following summarizes information about Performance Award activity during 2016:


		Number of Performance Awards
Outstanding as of December 31, 2015		1,889,465
Granted		150,000
Vested Performance Awards		(485,000)
Canceled		—
Outstanding as of December 31, 2016		1,554,465

Vested Performance Awards resulted from the resubmission of the NDA for REMOXY. No outstanding Performance Awards are vested. If and when outstanding Performance Awards vest, we would recognize $4.7 million in non-cash stock-based compensation expense. These Performance Awards expire between 2022 and 2026.

Stock-Based Compensation Expense

The following summarizes information about non-cash stock-based compensation expense, in thousands:



	Years ended December 31,
	2016		2015		2014

Research and development
Vesting of stock options	$	1,313	$	1,198	$	1,624
Vesting of Performance Awards		438		—		—
		1,751		1,198		1,624
General and administrative
Vesting of stock options		2,179		2,259		2,137
Vesting of Performance Awards		404		—		—
		2,583		2,259		2,137
Total non-cash stock-based compensation expenses
Vesting of stock options		3,492		3,457		3,761
Vesting of Performance Awards		842		—		—
	$	4,334	$	3,457	$	3,761

Non-cash stock-related compensation expense related to vesting of Performance Awards was associated with the resubmission of the NDA for REMOXY.

Capital on Demand Sales Agreement

In December 2015, we entered into an Capital on Demand™ Sales Agreement with JonesTrading Institutional Services, or the ATM Agreement, relating to the offering of up to 10.0 million shares of our Common Stock in “at the market” offerings. We did not issue any shares under the ATM Agreement in 2016 or 2015. We deferred financing costs of $0.1 million at December 31, 2016 and 2015 paid in connection with entering into the ATM Agreement.