MNKD 2017 Annual Report

In March 2004, the Company’s board of directors approved the Employee Stock Purchase Plan (“ESPP”), which became effective upon the closing of the Company’s initial public offering. Initially, the aggregate number of shares that could be sold under the ESPP was 400,000 shares of common stock. On January 1 of each year, for a period of ten years beginning January 1, 2005, the share reserve automatically increased by the lesser of: 140,000 shares, 1% of the total number of shares of common stock outstanding on that date, or an amount as may be determined by the board of directors. However, under no event can the annual increase cause the total number of shares reserved under the ESPP to exceed 10% of the total number of shares of capital stock outstanding on December 31 of the prior year. As of December 31, 2017, 246,205 shares were available for issuance under the ESPP. For the years ended December 31, 2017, 2016 and 2015, the Company sold 199,578, 104,758 and 64,245 shares, respectively, of its common stock to employees participating in the ESPP. The ESPP purchase of 136,660 shares for the year ended December 31, 2017 was initiated prior to year-end but did not settle until January 3, 2018. As a result, the shares sold are reflected in the ESPP share reserves but are excluded from common stock outstanding as of December 31, 2017. The Company’s board of directors determines eligibility, vesting schedules and criteria and exercise prices for stock awards granted under the 2013 Plan. Options and restricted stock unit awards under the 2013 Plan expire not more than ten years from the date of the grant and are exercisable upon vesting. Stock options that vest over time generally vest over four years. Current time-based vesting stock option grants vest and become exercisable at the rate of 25% after one year and ratably on a monthly basis over a period of 36 months thereafter. Restricted stock units with time-based vesting generally vest at a rate of 25% per year over four years with consideration satisfied by service to the Company. The Company also issues stock awards with performance conditions. Share-based payment transactions are recognized as compensation cost based on the fair value of the instrument on the date of grant. The Company accounts for non-employee stock-based compensation expense based on the estimated fair value of the options, which is determined using the Black-Scholes option valuation model and amortizes such expense on a straight-line basis over the service period for time-based awards and over the expected dates of achievement for performance-based awards. These awards are subject to re-measurement until service is complete. As of December 31, 2017, there were options to purchase 23,047 shares of common stock outstanding to consultants. During the years ended December 31, 2017, 2016 and 2015, the Company recorded stock-based compensation expense of $4.8 million, $5.1 million and $8.7 million, respectively. Total stock-based compensation expense recognized in the accompanying consolidated statements of operations is as follows (in thousands): Year Ended December 31, 2017 2016 2015 Employee-related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,847 $5,135 $8,407 Consultant-related . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 318 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,847 $5,135 $8,725 Total stock-based compensation expense recognized in the accompanying consolidated statements of operations is included in the following categories (in thousands): Year Ended December 31, 2017 2016 2015 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 460 $ 695 $ — Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,010 1,309 3,029 Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . 3,377 3,131 5,696 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,847 $5,135 $8,725 112