10.	Stockholders’ Equity

Common Stock

On September 30, 2013, the Company closed its IPO whereby the Company sold 6,772,221 shares of common stock (inclusive of 883,333 shares of common stock sold by the Company pursuant to the full exercise of an overallotment option granted to the underwriters in connection with the offering) at a price of $18.00 per share, for net proceeds of $110,381,000. The shares began trading on the Nasdaq Global Select Market on September 25, 2013. Upon the closing of the IPO, all outstanding shares of convertible preferred stock converted into 17,128,024 shares of common stock.

On April 7, 2015, the Company closed a strategic collaboration with Roche. The transaction included (1) a primary investment by Roche of $250,000,000 in cash to purchase 5,000,000 newly issued shares of the Company’s common stock at a purchase price of $50.00 per share and (2) a tender offer in which Roche acquired 15,604,288 outstanding shares of the Company’s common stock at a price of $50.00 per share.

Common stockholders are entitled to one vote per share. Holders of common stock are entitled to receive dividends, when and if declared by the Board. The voting, dividend, and liquidation rights of the holders of the common stock are subject to, and qualified by, the rights of the holders of the preferred stock, of which no shares were outstanding at December 31, 2016.

The Company has reserved for future issuance the following number of shares of common stock:

	December 31,
	2016		2015
Unvested restricted stock		1,297,054		969,758
Common stock options outstanding		1,267,329		1,684,783
Shares available for issuance under the 2013 Stock Plan		2,398,031		1,694,077
Shares available for issuance under the 2013 Employee Stock Purchase Plan		788,503		788,503
		5,750,917		5,137,121

In November 2009, the Company issued 2,125,000 shares of common stock to the founders of the Company for consideration equal to the par value per share, the then estimated fair value of the common stock. The founders entered into restricted stock agreements whereby the shares of common stock issued were subject to vesting and became fully vested in November 2013. An additional 112,500 shares of common stock subject to repurchase were issued to employees and consultants at fair value during the year ended December 31, 2010. Shares subject to repurchase by the Company were recorded as a liability at their original purchase price. Shares subject to repurchase that were issued to non-employees were revalued at each vesting date and at the end of the reporting period, with changes in fair value recorded as stock-based compensation expense on a straight-line basis. As the Company’s right to repurchase the shares lapses, the liability is reclassified to additional paid-in capital. There was no restricted stock activity outside of the 2010 Stock Plan and the 2013 Stock Plan (each, as more fully described under the section below entitled 2010 and 2013 Stock Incentive Plans) during each of the years ended December 31, 2016 and 2015.

There was no stock-based compensation expense outside of the 2010 Stock Plan or the 2013 Stock Plan for the years ended December 31, 2016, 2015 and 2014. The total fair value of the restricted stock issued outside of the 2010 Stock Plan and the 2013 Stock Plan that vested during the years ended December 31, 2016, 2015 and 2014 was $0, $0 and $78,000, respectively.

2010 and 2013 Stock Incentive Plans

In 2010, the Company adopted the Foundation Medicine, Inc. 2010 Stock Incentive Plan (the “2010 Stock Plan”) under which it granted restricted stock, incentive stock options (“ISOs”) and non-statutory stock options to eligible employees, officers, directors and consultants to purchase up to 1,162,500 shares of common stock. In the year ended December 31, 2013, the Company amended the 2010 Stock Plan to increase the number of shares of common stock available for issuance to 4,232,500.

In 2013, in conjunction with its IPO, the Company adopted the Foundation Medicine, Inc. 2013 Stock Option and Incentive Plan (the “2013 Stock Plan”) under which it may grant restricted and unrestricted stock, restricted stock units, ISOs, non-statutory stock options, stock appreciation rights, cash-based awards, performance share awards and dividend equivalent rights to eligible employees, officers, directors and consultants to purchase up to 1,355,171 shares of common stock. In connection with the establishment of the 2013 Stock Plan, the Company terminated the 2010 Stock Plan and the 512,568 shares which remained available for grant under the 2010 Stock Plan were included in the number of shares authorized under the 2013 Stock Plan. Shares forfeited or repurchased from the 2010 Stock Plan are returned to the 2013 Stock Plan for future issuance. On January 1, 2016 and 2015, the number of shares reserved and available for issuance under the 2013 Stock Plan increased by 1,380,949 and 1,134,996 shares of common stock, respectively, pursuant to a provision in the 2013 Stock Plan that provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2014, by 4% of the number of shares of common stock issued and outstanding on the immediately preceding December 31 or such lesser number as determined by the compensation committee of the Board.

The terms of stock award agreements, including vesting requirements, are determined by the Board, or permissible designee thereof, subject to the provisions of the 2010 Stock Plan and the 2013 Stock Plan. Options granted by the Company typically vest over a four-year period. The options are exercisable from the date of grant for a period of 10 years. The exercise price for stock options granted is equal to the closing price of the Company’s common stock on the applicable date of grant.

Restricted Stock

The 2010 Stock Plan and the 2013 Stock Plan allow for granting of restricted stock awards. For restricted stock awards granted to employees, the intrinsic value on the date of grant is recognized as stock-based compensation expense ratably over the period in which the restrictions lapse. For restricted stock awards granted to non-employees the intrinsic value is remeasured at each vesting date and at the end of the reporting period. The following table shows a roll forward of restricted stock activity pursuant to the 2010 Stock Plan and the 2013 Stock Plan:

	Number of Shares
Unvested at December 31, 2015⁽¹⁾		959,864
Granted		997,956
Vested		(589,409	)
Cancelled		(71,357	)
Unvested at December 31, 2016		1,297,054

⁽¹⁾

Excludes 9,894 shares of unvested restricted stock remaining from the early exercise of stock options.

Total stock-based compensation expense recognized for restricted stock awards was $16,072,000, $5,615,000, and $740,000 for the years ended December 31, 2016, 2015, and 2014, respectively. The total grant date fair value of the restricted stock awards that vested during the years ended December 31, 2016, 2015, and 2014 approximated the stock-based compensation expense recorded during the respective periods.

Stock Options

A summary of stock option activity under the 2010 Stock Plan and the 2013 Stock Plan is as follows (in thousands, except share and per share amounts):

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (In Years)		Aggregate Intrinsic Value⁽²⁾
Outstanding as of December 31, 2015		1,684,783		$	17.31		7.7	$	13,965
Granted		31,216			19.37
Exercised		(167,853	)		3.88
Cancelled		(280,817	)		30.50
Outstanding as of December 31, 2016		1,267,329		$	16.22		6.6	$	8,355
Exercisable as of December 31, 2016		955,971		$	13.88		6.4	$	7,500
Vested and expected to vest at December 31, 2016⁽¹⁾		1,243,380		$	16.02		6.6	$	8,330

⁽¹⁾	This represents the number of vested options plus the number of unvested options expected to vest at the respective dates, based on unvested options adjusted for estimated forfeitures.

⁽²⁾	The aggregate intrinsic value was calculated based on the positive difference between the estimated fair value of the Company’s common stock on December 31, 2016, or the date of exercise, as appropriate, and the exercise price of the underlying options.

The weighted-average fair value of options granted for the years ended December 31, 2016, 2015, and 2014 was $11.00, $26.67, and $15.88, respectively. The Company recorded total stock-based compensation expense for stock options granted to employees, directors and non-employees from the 2010 Stock Plan and the 2013 Stock Plan of $3,452,000, $5,561,000, and $5,249,000 during the years ended December 31, 2016, 2015, and 2014, respectively. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2016, 2015, and 2014 was $2,758,000, $42,325,000, and $4,799,000, respectively. As of December 31, 2016, unrecognized compensation cost of $27,867,000 related to non-vested employee stock-based compensation arrangements is expected to be recognized over a weighted-average period of 1.9 years.

The Company recorded stock-based compensation expense in the consolidated statements of operations and comprehensive loss as follows (in thousands):

	Year Ended December 31,
	2016		2015		2014
Cost of revenue	$	1,880	$	980	$	466
Selling and marketing		3,944		3,474		1,130
General and administrative		9,289		4,272		2,635
Research and development		4,411		2,450		1,758
Total	$	19,524	$	11,176	$	5,989

The weighted-average assumptions used to estimate the fair value of stock options using the Black-Scholes option pricing model were as follows:

	Year Ended December 31,
	2016			2015			2014
Expected volatility		59.2	%		63.1	%		64.2	%
Risk-free interest rate		1.90	%		1.52	%		1.99	%
Expected option term (in years)		6.25			6.25			6.25
Expected dividend yield		0.0	%		0.0	%		0.0	%

2013 Employee Stock Purchase Plan

In September 2013, the Company adopted the Foundation Medicine, Inc. Employee Stock Purchase Plan (the “2013 Employee Stock Purchase Plan”), under which the Company is authorized to issue and sell shares of its common stock to participating employees. A total of 788,503 shares of common stock are available for issuance under the 2013 Employee Stock Purchase Plan.

All employees who have been employed by the Company or its designated subsidiaries for at least six weeks and whose customary employment is for more than 20 hours a week are eligible to participate in the 2013 Employee Stock Purchase Plan. Any employee who owns, or would own upon such purchase under the 2013 Employee Stock Purchase Plan, 5% or more of the voting power or value of the Company’s stock is not eligible to purchase shares under the 2013 Employee Stock Purchase Plan.

The Company may make one or more offerings to its employees to purchase stock under the 2013 Employee Stock Purchase Plan. The period of any offering shall not shall exceed six months in duration or overlap with another offering period. Each employee who is a participant in the 2013 Employee Stock Purchase Plan may purchase shares by authorizing payroll deductions of up to 10% of his or her eligible compensation during any offering. Unless the participating employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to purchase common stock on the last business day of the offering period at a price equal to 85% of the fair market value of the common stock on the first business day or the last business day of the offering period, whichever is lower. During any offering period, an employee may not acquire shares constituting 5% or more of the voting power of the Company’s stock, or such other maximum number established by the Company. During any calendar year, an employee may not purchase more than $25,000 worth of common stock, valued at the start of the offering period. An employee’s participation under the 2013 Employee Stock Purchase Plan terminates upon voluntary withdrawal or upon termination of employment. Accumulated payroll deductions at the time the employee’s participation ends shall be refunded to the employee.

Although authorized, the 2013 Employee Stock Purchase Plan has not been implemented by the Company. As of December 31, 2016, no employees were participating in, and no shares have been purchased under, the 2013 Employee Stock Purchase Plan.