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ARRAY BIOPHARMA, INC.
Notes to the Financial Statements (Continued)
For the Fiscal Years Ended June 30, 2012, 2011 and 2010
Accounting for Stock Options
Fair Value Assumptions
The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options and
used the following assumptions to obtain the following weighted average grant date fair values:
Years Ended June 30,
2012
2011
2010
Risk-free interest rate
0.9% - 1.45%
1.9% - 2.6%
2.7% - 3.0%
Expected option term in years
6.25
6.25
6.25
Expected volatility
63.8% - 65.8%
63.3% - 64.4%
64.3% - 65.1%
Dividend yield
0.0%
0.0%
0.0%
Weighted-average grant date
fair value
$
2.04
$
1.86
$
1.59
The risk-free interest rates are determined by reference to the constant maturity Treasury rates published
by the Federal Reserve that approximate the expected option term. The Company estimates the
expected option term based upon historical exercises and post-vesting termination behavior. The
Company estimates expected volatility using daily historical trading data of the Company's common
stock, primarily because this method is recognized as a valid method used to predict future volatility and
management has not identified a more appropriate method. The Company has never paid dividends and
currently has no plans to do so, so no dividend yield is applied.
Share-based compensation expense is recognized net of estimated pre-vesting forfeitures, which results
in recognition of expense on options that are ultimately expected to vest over the expected option term.
Forfeitures are estimated at the time of grant using actual historical forfeiture experience and are revised
in subsequent periods if actual forfeitures differ from those estimates.
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ARRAY BIOPHARMA, INC.
Notes to the Financial Statements (Continued)
For the Fiscal Years Ended June 30, 2012, 2011 and 2010
Summary of Activity
A summary of option activity under the Option Plan follows:
Weighted
Average
Number of
Exercise
Shares
Price
Outstanding balance as of June 30, 2009
9,263,265
$
7.06
Grants
1,217,300
$
2.56
Exercises
(397,623)
$
0.62
Cancellations/expirations
(243,032)
$
7.71
Outstanding balance as of June 30, 2010
9,839,910
$
6.75
Grants
1,296,325
$
3.11
Exercises
(75,941)
$
3.01
Cancellations/expirations
(1,001,071)
$
5.29
Outstanding balance as of June 30, 2011
10,059,223
$
6.45
Grants
2,922,989
$
3.39
Exercises
(137,397)
$
2.56
Cancellations/expirations
(4,102,329)
$
7.81
Outstanding balance as of June 30, 2012
8,742,486
$
4.85
Vested and exercisable as of June 30, 2012
4,432,654
$
6.34
The weighted average grant date fair value per share of options outstanding was $2.04, $1.86 and $1.59
for the years ended June 30, 2012, 2011 and 2010, respectively. The total intrinsic value, or the difference
between the aggregate exercise price and the aggregate market price on the day of exercise, of options
exercised was $78 thousand, $6 thousand and $768 thousand for the years ended June 30, 2012, 2011
and 2010, respectively. The total fair value of shares vested during the years ended June 30, 2012, 2011
and 2010 was $2.2 million, $3.6 million and $5.2 million, respectively.
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