CareDx, Inc. Stock Compensation Disclosure

14. STOCK INCENTIVE PLANS

2014 Equity Incentive Plan

The Company grants stock based awards under 2014 Equity Inceptive Plan (the “2014 Plan”) that allows for issuance of stock options, restricted stock units (“RSUs”) and other stock awards to the Company’s employees, directors, and consultants. Stock options granted under the 2014 Plan may be exercised when vested and generally expire ten years from the date of the grant or three months from the date of termination of employment. Vesting periods vary based on awards granted, however, certain stock-based awards may vest immediately or may accelerate based on performance-driven measures. Stock option awards generally vest over four years with first year annual cliff vesting. The RSUs generally vest annually over four years in equal increments. There were 287,491 shares of common stock reserved for future issuance under the 2014 Plan as of December 31, 2018.

2016 Inducement Plan

On April 21, 2016, the Company adopted the 2016 Inducement Equity Incentive Plan (the “Inducement Plan”), pursuant to which the Company may grant stock awards of up to a total of 155,500 shares of common stock to new employees of the Company. The Inducement Plan was adopted to accommodate a reserve of additional shares of common stock for issuance to new employees hired by the Company from Allenex. The terms in the Inducement Plan are substantially similar to the Company’s 2014 Plan. There were 34,687 shares of common stock reserved for future issuance under the Inducement Plan as of December 31, 2018.

The Inducement Plan allows RSUs to be granted in addition to stock options. The RSUs vest annually over four years in equal increments. The Company began granting RSUs pursuant to the Inducement Plan starting June 2016.

Stock Options and Restricted Stock Units (“RSUs”)

The following table summarizes options and RSUs activity under the Company’s 2014 Equity Incentive Plan and 2016 Inducement Plan and related information:

The total intrinsic value of options exercised was $6.8 million, $0.2 million and less than $0.1 million in the years ended December 31, 2018, 2017 and 2016, respectively.

 

The total fair value of RSUs vested during 2018 was $2.3 million. As of December 31, 2018, the total intrinsic value of outstanding RSUs was approximately $24.3 million and there were $8.5 million of unrecognized compensation costs related to RSUs, which are expected to be recognized over a weighted-average period of 3.20 years.

 

Options outstanding that have vested and are expected to vest at December 31, 2018 are as follows:

 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock at December 31, 2018 for stock options that were in-the-money.

The weighted-average grant-date fair value of options to purchase common stock granted for the years ended December 31, 2018, 2017 and 2016 using the Black-Scholes Model was $9.05, $1.60 and $2.05, respectively.

The total fair value of options that vested during 2018 was $1.2 million. As of December 31, 2018, there were approximately $8.7 million of unrecognized compensation costs related to stock options, which are expected to be recognized over a weighted-average period of 3.25 years.

2014 Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan (the “ESPP”), under which employees can purchase shares of its common stock based on a percentage of their compensation, but not greater than 15% of their earnings; provided, however, an eligible employee’s right to purchase shares of the Company’s common stock may not accrue at a rate which exceeds $25,000 of the fair market value of such shares for each calendar year in which such rights are outstanding. The ESPP has consecutive offering periods of approximately six month in length. The purchase price per share must be equal to the lower of 85% of the fair value of the common stock on the first day of the offering period or on the exercise date.

During the offering period in 2018 that ended on June 30, 2018, 42,534 shares were purchased for aggregate proceeds of $0.3 million from the issuance of shares, which occurred on July 2, 2018.  The Company issued 76,710 shares and 71,639 shares of common stock during the years ended December 31, 2018 and December 31, 2017, respectively, pursuant to the ESPP. The Company received proceeds of $0.3 million and $0.1 million from the purchases of shares during the years ended December 31, 2018 and 2017, respectively.  As of December 31, 2018, the Company had 372,568 shares available for issuance under the ESPP.

Board of Directors Stock Awards Granted for Services

For the years ended December 31, 2018, 2017 and 2016, the Company paid a portion of its directors’ compensation through the award of fully vested common shares. The stock awards are classified as equity, and compensation expense was recognized upon the issuance of the shares at the grant date price per share, which is the fair value. As of December 31, 2018, there were a total of 246,398 shares issued to the Company’s directors, for a total fair value of $1.1 million. Stock-based compensation expense associated with the awards was $0.3 million, $0.2 million and $0.3 million for the years ended December 31, 2018, 2017 and 2016, respectively, which was included in general and administrative expense in the consolidated statements of operations.    

Valuation Assumptions

The estimated fair value of employee stock options and ESPP shares was estimated using the Black-Scholes Model based on the following weighted average assumptions.

 

Risk-free Interest Rate: The Company based the risk-free interest rate over the expected term of the award based on the constant maturity rate of U.S. Treasury securities with similar maturities as of the date of grant.

Volatility: The Company used an average historical stock price volatility of its own stock and those comparable public companies that were deemed to be representative of future stock price trends.

Expected Term: The expected term represents the period for which the Company’s stock-based compensation awards are expected to be outstanding and is based on analyzing the vesting and contractual terms of the awards and the holders’ historical exercise patterns and termination behavior.

Expected Dividends: The Company has not paid and does not anticipate paying any dividends in the near future.

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense relating to employee and nonemployee stock-based awards for the years ended December 31, 2018, 2017 and 2016, included in the consolidated statements of operations as follows (in thousands):

No tax benefit was recognized related to share-based compensation expense since the Company has never reported taxable income and has established a full valuation allowance to offset all of the potential tax benefits associated with its deferred tax assets. In addition, no amounts of share-based compensation costs were capitalized for the periods presented.