8. Stock Plans

The Company has granted common stock options pursuant to the 2004 and 2014 Plans (as defined below) at an exercise price that is not less than the fair market value of the Company’s stock as determined by the board of directors, with input from management. Prior to the Company’s IPO, the board of directors had determined the estimated fair value of the Company’s common stock on the date of grant based on a number of objective and subjective factors, including external market conditions, rights and preferences of securities senior to the common stock at the time of each grant, the likelihood of achieving a liquidity event such as an IPO or the sale of the Company, and third party valuations. For stock option grants prior to the IPO, the computation of expected volatility was based on the historical volatilities of peer companies. The peer companies include organizations that are in the same industry, with similar size and stage of growth. The Company estimates that the expected life of the options granted using the simplified method allowable under Staff Accounting Bulletin No. 107, Share Based Payments. The expected life is applied to the stock option grant group as a whole, as the Company does not expect substantially different exercise or post vesting termination behavior among its employee population. The interest rate for grants pursuant to the 2004 and 2014 Plans are based on the U.S. treasury bills rate for U.S. treasury bills with terms commensurate with the expected term of the option grants on the grant date of the option.

2004 Stock Option and Incentive Plan

In July 2004, the Company’s board of directors adopted the 2004 Stock Option and Incentive Plan (the “2004 Plan”) for the issuance of incentive stock options, restricted stock, and other equity awards, all for common stock, as determined by the board of directors to employees, officers, directors, consultants, and advisors of the Company and its subsidiaries. Only stock options were granted under the 2004 Plan. The 2004 Plan expired in February 2014 but remains effective for all outstanding options.

The following table summarizes the option activity for each of the years ended December 31, 2016 and 2015 under the 2004 Plan:

	Number of Shares			Weighted- Average Exercise Price Per Share		Aggregate Intrinsic Value
						(in thousands)
Outstanding as of December 31, 2014		10,958		$	40.58
Exercised		—		$	—
Expired		(41	)	$	40.58
Outstanding as of December 31, 2015		10,917		$	40.58
Exercised		—		$	—
Expired		—		$	—
Cancelled		(291	)	$	40.58
Outstanding as of December 31, 2016		10,626		$	40.58	$	—
Vested and exercisable as of December 31, 2016		10,626		$	40.58	$	—
Weighted-average years remaining on contractual life		1.25
Unrecognized compensation cost related to non-vested stock options	$	—

The Company recorded no stock compensation expense in the years ended December 31, 2016 and 2015 relating to stock options granted pursuant to the 2004 Plan. At December 31, 2016, all 2004 Plan options were fully vested and there was no unrecognized stock-based compensation expense relating to stock options granted pursuant to the 2004 Plan. Options outstanding as of December 31, 2016 had no intrinsic value, as the option price exceeded the fair value of the underlying shares.

2014 Stock Option and Incentive Plan

In August 2014, the Company’s board of directors adopted the 2014 Stock Option and Incentive Plan (the “2014 Plan”) for the issuance of incentive and non-qualified stock options, restricted stock, and other equity awards, all for common stock, as determined by the board of directors to employees, officers, directors, consultants, and advisors of the Company and its subsidiaries. Pursuant to the provisions of the 2014 Plan and approval by the board of directors, on January 1, 2017 an additional 1,079,453 shares were added to the 2014 Plan representing 4% of total common shares issued and outstanding at December 31, 2016. There were 3,034 shares available for issuance under the 2014 Plan as of December 31, 2016. The 2014 Plan expires in August 2024.

For the year ended December 31, 2016, the Company recorded aggregate stock-based compensation expense of $2,843 for stock options under the 2014 Plan: $1,521 in general and administrative expense and $1,322 in research and development expense. For the year ended December 31, 2015, the Company recorded aggregate stock-based compensation expense of $1,389 for stock options under the 2014 Plan: $795 in general and administrative expense and $594 in research and development expense.

During the year ended December 31, 2016, the board of directors granted a total of 1,156,500 ten-year term stock options to employees and directors of the Company. The fair value of each stock option granted was estimated on the grant date using a Black-Scholes stock option pricing model based on the following assumptions: an expected term of 5.31 to 6.08 years; expected stock price volatility of 76.9% to 82.4%, a risk free rate of 1.20% to 2.08%, and a dividend yield of 0%. The Company will recognize $5,950 (net of any forfeitures) of stock-based compensation expense for these stock options on a straight-line basis commencing upon the grant dates through the final vesting dates.

During 2015, the Board of Directors granted a total of 730,500 ten-year term stock options to employees and directors of the Company. The fair value of each stock option granted was estimated on the grant date using a Black-Scholes stock option pricing model based on the following assumptions: an expected term of 5.31 to 6.08 years; expected stock price volatility of 80.9% to 101.1%, a risk free rate of 1.55% to 1.85%, and a dividend yield of 0%. The Company will recognize $3,209 (net of any forfeitures) of stock-based compensation expense for these stock options on a straight-line basis commencing upon the grant dates through the final vesting dates.

On August 28, 2014, the Board of Directors granted 840,975, ten-year term, stock options to officers of the Company at an exercise price of $4.342 per share, the fair market value of the common stock as determined by the Board of Directors, on the condition that the options would be of no further force and effect if the Company did not consummate an IPO prior to the one-year anniversary of the grant date (the “IPO Condition”). The IPO Condition was met upon the Company’s February 2015 IPO. These stock options vested 25% on the one-year anniversary of the grant date and the remaining 75% will vest in equal monthly installments over the following 36 months.

The fair value of the stock options granted during 2014 was estimated on the grant date using a Black-Scholes stock option pricing model based on the following assumptions: an expected term of 5 to 6.25 years; expected stock price volatility of 83.3% to 92.5%; a risk free rate of 1.63% to 1.84%; and a dividend yield of 0%. The Company is recognizing $2,798 of stock-based compensation expense for these stock options on a straight-line basis commencing upon the grant date in August 2014 through the final vesting date in August 2018. As a result of the resolution of the IPO Condition, the year ended December 31, 2015 reflects stock compensation expense calculated from the grant date in August 2014 through December 31, 2015.

The following table summarizes the option activity for each of the years ended December 31, 2016 and 2015 under the 2014 Plan:

	Number of Shares			Weighted- Average Exercise Price Per Share		Aggregate Intrinsic Value
						(in thousands)
Outstanding as of December 31, 2014		900,117		$	4.34
Granted		730,500		$	5.69
Exercised		(9,857	)	$	4.34
Cancelled		—		$	—
Outstanding as of December 31, 2015		1,620,760		$	4.95
Granted		1,156,500		$	7.77
Exercised		(84,428	)	$	4.71
Cancelled		(28,000	)	$	6.79
Outstanding as of December 31, 2016		2,664,832		$	6.16	$	2,064
Vested and exercisable as of December 31, 2016		820,884		$	4.97	$	930
Weighted-average years remaining on contractual life		8.59
Unrecognized compensation cost related to non-vested stock options	$	7,692

The weighted-average fair value of all stock options granted for the years ending December 31, 2016 and 2015 was $5.23 and $4.39, respectively. Intrinsic value at December 31, 2016 and 2015 is based on the closing price of the Company’s common stock of $6.10 and $11.33 per share, respectively. As of December 31, 2016, all options granted are expected to vest.

In 2016, 30,118 shares of the 84,428 total options exercised were surrendered to the Company pursuant to a net exercise right.

In December 2016, the board granted to certain executive officers an aggregate of 470,000 Restricted Stock Units (“RSU’s”) pursuant to the 2014 Plan. Each restricted stock unit represents a contingent right to receive one share of Company common stock. Vesting for these RSU’s was based equally on the achievement of two performance-based conditions, subject to continued service through such achievement dates. The intrinsic fair value of these RSU’s as of the date of grant was $3,055 and no stock-based compensation expense was recorded in 2016 as the Company determined that the vesting conditions were not probable of occurring. As of December 31, 2016, there were 470,000 RSU’s outstanding and an aggregate of 3,134,832 RSU’s and stock options for shares of Company common stock pursuant to the 2014 Plan. In January 2017, these RSU’s were modified such that instead of vesting based on the achievement of certain performance-based conditions, they will vest in equal annual installments over four years from the December 2016 date of grant, subject to continued service through such dates.

In January 2017, an additional 916,000 RSU’s were granted to employees of the Company. These RSU’s will vest at various times over the four years following the date of grant.

Employee Stock Purchase Plan

In November 2014, the Company’s board of directors adopted and the stockholders approved the 2014 Employee Stock Purchase Plan (the “ESPP”). The ESPP provides that the number of shares reserved and available for issuance under the ESPP shall be cumulatively increased each January 1, beginning on January 1, 2016, by the lesser of (i) 600,000 shares of common stock or (ii) the number of shares necessary to set the number of shares of Common Stock under the Plan at 1% percent of the outstanding number of shares as of January 1 of the applicable year. However, the board of directors reserves the right to determine that there will be no increase for any year or that any increase will be for a lesser number of shares. As of January 1, 2017, 31,555 shares were added to the ESPP. As of December 31, 2016, there were 238,308 shares available for issuance under the ESPP.

All employees who are whose customary employment is for more than 20 hours a week are eligible to participate in the ESPP. Any employee who owns 5% or more of the voting power or value of the Company’s shares of common stock is not eligible to purchase shares under the ESPP. Each employee who is a participant in the ESPP may purchase shares by authorizing payroll deductions of up to 10% of his or her base compensation during an offering period. Unless the participating employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to purchase shares of common stock on the last business day of the offering period at a price equal to 85% of the fair market value of the ordinary shares on the first business day or the last business day of the offering period, whichever is lower, provided that no more than 5,000 shares of common stock may be purchased by any one employee during each offering period. Under applicable tax rules, an employee may purchase no more than $25,000 worth of stock, valued at the start of the purchase period, under the ESPP in any calendar year.

In 2015, $63 was withheld and used to purchase 13,143 shares of common stock and the Company recorded $41 of stock-based compensation expense pursuant to the ESPP. In 2016, $155 was withheld and used to purchase 25,925 shares of common stock and the Company recorded $66 of stock-based compensation expense pursuant to the ESPP.