Annual report pursuant to Section 13 and 15(d)

Stock Plans

Stock Plans

12 Months Ended

Dec. 31, 2014

12. Stock Plans

On February 11, 2014, our Board adopted the 2014 Incentive Plan, or the 2014 Plan, pursuant to which 2,500,000 shares of our common stock were authorized for issuance to employees, directors, officers, consultants and advisors. On December 31, 2014, restricted stock awards and options to purchase 683,500 shares of our common stock were outstanding under the 2014 Plan.

In July 2002, we adopted the 2002 Stock Incentive Plan (“2002 Plan”). The 2002 Plan assumed the options which remained available for grant under our option plans previously approved by stockholders. Under the 2002 Plan and predecessor plans, a total of 7.4 million shares of our common stock were authorized for issuance to employees, officers, directors, consultants, and advisers. In August 2005, we adopted an amendment to the 2002 Stock Incentive Plan (“2002 Plan”) to (i) permit the issuance of shares of restricted stock and stock appreciation rights to participants under the 2002 Plan, and (ii) increase the number of shares issuable pursuant to grants under the 2002 Plan from 2,000,000 to 3,000,000. Options granted under the 2002 Plan and predecessor plans may either be incentive stock options within the meaning of Section 422 of the Internal Revenue Code and/or options that do not qualify as incentive stock options; however, only employees are eligible to receive incentive stock options. Options granted under the option plans generally expire no later than ten years from the date of grant. Option vesting schedule and exercise price are determined at time of grant by the board of directors or compensation committee. Historically, the exercise prices of options granted under the 2002 Plan were 100% of the fair market value of our common stock on the date of grant. The 2002 Plan expired by its terms in July 2012. On December 31, 2014, options to purchase an aggregate of 3,808,553 shares of our common stock were outstanding under the 2002 Plan.

In August 2001, we adopted the 2001 Employee Non-Qualified Stock Option Plan (“2001 NQ Plan”) pursuant to which 1,750,000 shares of common stock were authorized for issuance for option grants to employees and consultants who are not officers or directors of Titan. Options granted under the option plans generally expire no later than ten years from the date of grant. Option vesting schedule and exercise price were determined at time of grant by the board of directors or compensation committee. Historically, the exercise prices of options granted under the 2001 NQ Plan were 100% of the fair market value of our common stock on the date of grant. The 2001 Stock Option Plan expired by its terms in August 2011. On December 31, 2014, options to purchase an aggregate of 1,124,000 shares of our common stock were outstanding under the 2001 NQ Plan.

Activity under our stock plans, as well as non-plan activity, is summarized below (shares in thousands):

			Number of
	Shares or		Options and
	Awards Available		Awards		Weighted Average
	For Grant		Outstanding		Exercise Price
Balance at December 31, 2011		2,578		5,595	$	1.56
Options granted		(1,718)		1,718	$	1.14
Options cancelled and expired		290		(290)	$	5.54
Awards issued		—		(181)	$	—
Expiration of option plan		(1,150)		—	$	—
Balance at December 31, 2012		—		6,842	$	1.33
Options exercised		—		(75)	$	1.50
Options cancelled and expired		—		(35)	$	3.29
Balance at December 31, 2013		—		6,732	$	1.31
Increase in shares reserved		2,500		—		—
Options granted		(325)		325	$	0.63
Options cancelled and forfeited		—		(27)	$	1.66
Options expired		—		(410)	$	2.12
Awards granted		(617)		617	$	—
Awards issued		—		(258)	$	—
Balance at December 31, 2014		1,558		6,979	$	1.16

The 2002 Plan and the 2001 NQ Plan allow for stock options issued as the result of a merger or consolidation of another entity, including the acquisition of the minority interest of our former subsidiaries, to be added to the maximum number of shares provided for in the plan (“Substitute Options”). Consequently, Substitute Options are not returned to the shares reserved under the plan when cancelled. During 2014, 2013 and 2012, the number of Substitute Options cancelled was immaterial.

Options to purchase approximately 6.6 million and 6.7 million shares were exercisable at December 31, 2014 and 2013, respectively. The options outstanding at December 31, 2014 have been segregated into four ranges for additional disclosure as follows (options in thousands):

	Options Outstanding						Options Exercisable
			Weighted
			Average		Weighted				Weighted
	Number		Remaining		Average		Number		Average
Range of Exercise Prices	Outstanding		Life (Years)		Exercise Price		Exercisable		Exercise Price
$0.45 - $0.92		2,615		4.95	$	0.77		2,490	$	0.78
$0.93 - $1.19		1,668		6.97	$	1.15		1,668	$	1.15
$1.20 - $1.46		1,194		5.03	$	1.33		1,194	$	1.33
$1.47 - $3.13		1,143		3.00	$	2.29		1,143	$	2.29
$0.45 - $3.13		6,620		5.14	$	1.23		6,495	$	1.24

We use the Black-Scholes-Merton option-pricing model with the following assumptions to estimate the stock-based compensation expense for the years ended December 31, 2014, 2013 and 2012:

	Years Ended December 31,
	2014			2013			2012
Weighted-average risk-free interest rate		2.04	%		0.92	%		0.91	%
Expected dividend payments		—			—			—
Expected holding period (years)(1)		6.46			3.9			5.1
Weighted-average volatility factor(2)		1.65			1.38			1.75
Estimated forfeiture rates for options granted		31	%		31	%		31	%

(1)

Expected holding period is based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and the expectations of future employee behavior.

(2)

Weighted average volatility is based on the historical volatility of our common stock.

(3)

Estimated forfeiture rates are based on historical data.

During the year ended December 31, 2014, 325,000 options and 617,000 awards were granted. Based upon the above methodology, the weighted-average fair value of options and awards granted during the years ended December 31, 2014 and 2012 was $0.64 and $1.09, respectively. No options or awards were granted during the year ended December 31, 2013.

The following table summarizes the stock-based compensation expense and impact on our basic and diluted loss per share for the years ended December 31, 2013, 2012 and 2011:

	Years Ended December 31,
(in thousands, except per share amounts)	2014		2013		2012
Research and development	$	245	$	378	$	1,021
General and administrative		298		300		1,560
Total stock-based compensation expenses	$	543	$	678	$	2,581
Increase in basic net income (loss) per share	$	(0.01)	$	(0.01)	$	(0.04)
Increase in diluted net income (loss) per share	$	(0.01)	$	(0.01)	$	(0.04)

No tax benefit was recognized related to stock-based compensation expense since we have incurred operating losses and we have established a full valuation allowance to offset all the potential tax benefits associated with our deferred tax assets.

During the year ended December 31, 2014, 325,000 options were granted to employees, directors and consultants. The following table summarizes option activity for the year ended December 31, 2014:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
(in thousands, except per share amounts)	Shares		Price		Term		Value
Outstanding at January 1, 2014		6,732	$	1.31
Granted		325		0.63
Cancelled and forfeited		(27)		1.66
Expired		(410)		2.12
Outstanding at December 31, 2014		6,620	$	1.23		5.14	$	1
Exercisable at December 31, 2014		6,495	$	1.24		5.05	$	—

As of December 31, 2014, there was approximately $19,000 of total unrecognized compensation expense related to non-vested stock options. This expense is expected to be recognized over a weighted-average period of 0.65 years.

During the year ended December 31, 2014, 617,000 restricted stock awards were granted to employees, directors and consultants. The following table summarizes restricted stock award activity for the year ended December 31, 2014:

					Weighted
			Weighted		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
(in thousands, except per share amounts)	Shares		Price		Term		Value
Outstanding at January 1, 2014		—	$	—
Granted		617		—
Released		(258)		—
Outstanding at December 31, 2014		359	$	—		9.12	$	166
Exercisable at December 31, 2014		—	$	—		—	$	—

Of the 258,000 released restricted stock awards during 2014, approximately 54,000 were withheld to satisfy tax withholding requirements.

As of December 31, 2014, there was approximately $26,000 of total unrecognized compensation expense related to non-vested stock options. This expense is expected to be recognized over a weighted-average period of 0.11 years.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References + Details