6. Common stock

(a) Stock option plan

On January 27, 2014, the stockholders of Aquinox USA approved a 2014 Equity Incentive Plan (“2014 Plan”). The 2014 Plan became effective on the date of the prospectus for the IPO, March 6, 2014. The 2014 Plan is the successor to and continuation of the Joint Canadian Stock Option Plan (the “2006 Plan”). After the 2014 Plan became effective, no further grants will be made under the 2006 Plan. The 2014 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other forms of equity awards to employees, directors, and consultants.

The maximum number of shares of common stock that may be issued under the 2014 Plan is 1,423,416, which number includes a number of shares of common stock equal to (i) 756,279 new shares, plus (ii) the number of shares reserved for issuance under the 2006 Plan at the time the 2014 Plan becomes effective, plus (iii) any shares subject to stock options or other stock awards granted under the 2006 Plan that would have otherwise returned to the 2006 Plan, such as upon the expiration or termination of a stock award prior to vesting. Additionally, the number of shares of common stock reserved for issuance under the 2014 Plan will automatically increase on January 1 of each year for a period of up to 10 years, beginning on January 1, 2015 and ending on and including January 1, 2024, by 4% of the total number of shares of capital outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the board of directors.

(b) Stock-based compensation

On March 6, 2014, four of the non-employee directors were granted options to purchase a total of 33,332 shares of common stock; the exercise price per share for these grants was $11.00, which was the offering price of the common stock in the IPO. The options vest over three years with one-third of the options vesting on each anniversary of the vesting commencement date from 2015 to 2017. The options expire on March 5, 2024.

On May 8, 2014, the Company granted options to employees to purchase a total of 175,500 shares of common stock; the exercise price per share for these grants was $10.10, which was the closing price of the Company’s common stock on the NASDAQ Global Market on the date of the grant. The options vest over four years with one-fourth of the options vesting one year after vesting commencement date and the balance of the options vesting in a series of thirty-six successive equal monthly installments measured from the first anniversary of the vesting commencement date. The options expire on May 7, 2024.

On August 7, 2014, the Company granted options to employees to purchase a total of 9,000 shares of common stock with an exercise price of $7.50 per share, which was the closing price of the Company’s common stock on the NASDAQ Global Market on the date of the grant. The options vest over four years with one-fourth of the options vesting one year after vesting commencement date and the balance of the options vesting in a series of thirty-six successive equal monthly installments measured from the first anniversary of the vesting commencement date. The options expire on August 6, 2024.

During the three months ended September 30, 2014, 86 shares of common stock were issued upon exercise of options with an aggregate intrinsic value of $141.

On April 2, 2013 and April 8, 2013, the Company granted options to employees to purchase a total of 39,322 shares of common stock and 13,020 shares of common stock, respectively, with an exercise price of $5.76 per share. The options vest over four years with one-fourth of the options vesting one year after vesting commencement date and the balance of the options vesting in a series of thirty-six successive equal monthly installments measured from the first anniversary of the vesting commencement date. The options expire on April 1, 2023 and April 7, 2023, respectively.

On May 30, 2013 and June 25, 2013, the Company granted options to non-employee directors to purchase a total of 3,906 shares of common stock and 6,510 shares of common stock, respectively, with an exercise price of $5.76 per share. The options expire on May 29, 2023 and June 24, 2023, respectively. The options vest over two years with one-third of the options vesting immediately upon grant and the balance of the options vesting in a series of twenty-four successive equal monthly installments on the last day of each month.

The fair value of stock options granted is estimated using the Black-Scholes option pricing model with the following weighted average assumptions:


	THREE MONTHS ENDED SEPTEMBER 30,					NINE MONTHS ENDED SEPTEMBER 30,
	2014			2013		2014			2013
Expected volatility		108	%		n/a		108	%		93	%
Expected dividends		0	%		n/a		0	%		0	%
Expected terms (years)		6.00			n/a		6.00			6.25
Risk free rate		1.70	%		n/a		1.67	%		1.88	%
Weighted average grant-date fair value of stock options	$	6.16			n/a	$	8.33		$	2.92

The Company amortizes the fair value of the stock options on a straight-line basis over the applicable requisite service periods of the awards, which is generally the vesting period. Stock-based compensation expense charged to income for the plans was $232,635 and $585,111 for the three and nine months ended September 30, 2014, respectively and $127,161 and $255,318 for the three and nine months ended September 30, 2013, respectively. Total unrecognized compensation cost for all stock-based compensation plans was $2,981,589 as of September 30, 2014, which is expected to be recognized over a weighted-average period of 2.87 years.

(c) Common stock

The total number of shares of common stock Aquinox USA is authorized to issue is 50,000,000 shares with a par value of $0.000001 per share.

On June 30, 2014, the Company issued 19,762 shares of common stock to Biolipox AB as payment for achievement of a milestone upon the first submission to the FDA of an Investigational New Drug (IND) for AQX-1125. The fair value of the shares issued to Biolipox was $186,356, which was charged to research and development expense. Fair value was determined based on the closing price of the Company’s common stock on the NASDAQ Global Market on the date of the share issuance.

As of September 30, 2014, total number of shares of common stock issued and outstanding was 10,695,108.