7. Stockholders’ equity

(a) Common stock

Aquinox USA is authorized to issue 50,000,000 shares of common stock with a par value of $0.000001 per share (December 31, 2016 – 50,000,000). As of December 31, 2017, total number of shares of common stock issued and outstanding was 23,472,430 (December 31, 2016 – 23,423,150).

(b) Preferred stock

Aquinox USA is authorized to issue 5,000,000 shares of preferred stock with a par value of $0.000001 per share (December 31, 2016 – 5,000,000). As of December 31, 2017 and December 31, 2016, no shares of preferred stock were issued or outstanding.

(c) Public offerings

On September 15, 2015, the Company completed an underwritten public offering of 6,325,000 shares of its common stock at a price to the public of $15.50 per share. The aggregate net proceeds received by the Company from the offering, net of underwriting discounts and commissions and offering costs of approximately $6.2 million, were $91.8 million.

On September 23, 2016, the Company completed an underwritten public offering of 6,152,500 shares of its common stock at a price to the public of $12.25 per share. The aggregate net proceeds received by the Company from the offering, net of underwriting discounts and commissions and offering costs of approximately $4.7 million, were $70.7 million.

(d) 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”). 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.

As of December 31, 2017, the maximum number of shares of common stock that may be issued under the 2014 Plan was 2,856,403. The number of shares of common stock reserved for issuance under the 2014 Plan will increase by the number of shares subject to stock options 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. As of December 31, 2017, there were 323,310 shares subject to stock options granted under the 2006 Plan. 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 stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the board of directors.

At December 31, 2017, the number of shares available to be granted under the 2014 Plan was 1,110,546 (December 31, 2016—913,720).

Stock option transactions and the number of stock options outstanding are summarized below:


	NUMBER OF SHARES			WEIGHTED AVERAGE EXERCISE PRICE		WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (IN YEARS)	AGGREGATE INTRINSIC VALUE (IN THOUSANDS)
Outstanding at December 31, 2016		1,378,352		$	9.38	7.81	$9,829
Options granted		837,540			16.63
Options exercised		(49,280	)		9.10
Options forfeited		(97,445	)		12.29

Outstanding at December 31, 2017		2,069,167		$	12.18	7.76	$3,187

Exercisable as of December 31, 2017		912,098		$	9.52	6.35	$2,248

During the year ended December 31, 2017, the Company granted 756,540 stock options to employees and 81,000 stock options to non-employee directors. The stock options granted to employees during the year ended December 31, 2017 have exercise prices per share ranging from $10.91 to $17.35 and vest 25% one year after the beginning of the vesting period and thereafter ratably each month over the following thirty-six months. The stock options granted to non-employee directors during the year ended December 31, 2017 have an exercise price per share of $13.74 and have a vesting period of one year in equal monthly installments from the beginning of the vesting period for certain grants and a vesting period of three years in equal annual installments from the beginning of the vesting period for other grants. All stock options under the 2014 Plan are subject to a 10-year expiration period.

During the year ended December 31, 2017, 49,280 shares of common stock were issued upon exercise of options with an aggregate intrinsic value of $0.2 million.

(e) Stock-based compensation

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


	YEARS ENDED DECEMBER 31,
	2017			2016			2015
Expected volatility		84	%		82	%		97	%
Expected dividends		0	%		0	%		0	%
Expected terms (years)		6.00			6.00			6.00
Risk free rate		1.90	%		1.24	%		1.48	%
Weighted average grant-date fair value of stock options	$	11.85		$	6.11		$	8.91

Stock options are granted with exercise prices as determined by the Board of Directors at the date of grant. The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. As prior to the completion of the IPO in March 2014, the Company was a private company, the Company does not have sufficient historical experience for determining the expected term of the stock option awards granted. The Company has based its expected term for awards issued to employees on the simplified method, which represents the average period from vesting to the expiration of the stock option. In addition, the Company does not have sufficient trading history for the Company’s common stock, and therefore, the expected stock price volatility for the Company’s common stock was estimated by taking the average historical price volatility for industry peers. The Company has never declared or paid any cash dividends to common stockholders and does not presently plan to pay cash dividends in the foreseeable future. Consequently, the Company used an expected dividend yield of zero. The risk-free interest rate was based on the yields of treasury securities with maturities similar to the expected term of the options for each option group.

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 operating expenses was $3.8 million, $2.0 million and $1.5 million for the years ended December 31, 2017, 2016 and 2015, respectively. Total unrecognized compensation cost for all stock-based compensation plans was $10.1 million and $4.6 million as of December 31, 2017 and December 31, 2016, respectively, which is expected to be recognized over a weighted-average period of 2.72 years (December 31, 2016 – 2.82 years).