6. Stockholders’ Equity

Authorized and Outstanding Capital Stock

As of December 31, 2014, the authorized capital stock of the Company included 175,000,000 shares of common stock, par value $0.00001 per share, of which 30,662,218 and 20,370,624 shares are issued and outstanding at December 31, 2015 and December 31, 2014, respectively; and 25,000,000 shares of undesignated preferred stock, par value $0.00001 per share, of which 0 shares are issued and outstanding at December 31, 2015 and December 31, 2014.

On March 6, 2014, the Company effected a 1.75-for-1 stock split of its outstanding common stock. Unless otherwise indicated, all share data and per share amounts in these financial statements have been retroactively adjusted to reflect the stock split, as well as any stock splits that occurred in periods prior to March 6, 2014.

Upon the closing of the IPO on March 25, 2014, all of the outstanding shares of the Company’s redeemable convertible preferred stock were converted into 12,115,183 shares of its common stock. As of December 31, 2014, the Company does not have any redeemable convertible preferred stock issued or outstanding.

Equity Plans

On February 28, 2014, the Company’s Board of Directors adopted its 2014 Incentive Plan (2014 Plan) and its 2014 Employee Stock Purchase Plan (ESPP), which were subsequently approved by its stockholders and became effective upon the closing of the Company’s IPO on March 25, 2014. The 2014 Plan replaces the 2008 Equity Incentive Plan (2008 Plan), however, any options or awards outstanding under the 2008 Plan at the time of adoption of the 2014 Plan remain outstanding and effective.

The 2014 Plan allows for the granting of stock options, stock appreciation rights, or SARs, restricted stock, unrestricted stock, stock units, performance awards and other awards convertible into or otherwise based on shares of our common stock. Dividend equivalents may also be provided in connection with an award under the 2014 Plan. The Company’s employees, officers, directors and consultants and advisors are eligible to receive awards under the 2014 Plan. The Company initially reserved 1,785,000 shares of its common stock for the issuance of awards under the 2014 Plan. The 2014 Plan provides that the number of shares reserved and available for issuance under the 2014 Plan will automatically increase annually on January 1^st of each calendar year, by an amount equal to three percent (3%) of the number of shares of stock outstanding on a fully diluted basis as of the close of business on the immediately preceding December 31^st(2014 Plan Evergreen Provision). The Company’s Board of Directors may act prior to January 1^st of any year to provide that there will be no automatic increase in the number of shares available for grant under the 2014 Plan for that year (or that the increase will be less than the amount that would otherwise have automatically been made). Subject to adjustment, no more than 1,131,937 shares of our common stock may be delivered in satisfaction of incentive stock options awarded under the 2014 Plan. During the year ended December 31, 2015, the Company granted 957,050 stock options to employees, 27,875 restricted stock units to employees and 35,000 stock options to directors under the 2014 Plan.

The ESPP authorizes the initial issuance of up to a total of 262,500 share of the Company’s common stock to participating employees. The maximum aggregate number of shares of common stock available for purchase pursuant to the exercise of options granted under the ESPP will be the lesser of (a) 262,500 shares, increased on each anniversary of the adoption of the ESPP by one percent (1%) of the total shares of common stock then outstanding and (b) 739,611 shares (which is equal to five percent (5%) of the total shares of common stock outstanding on the date of the adoption of the ESPP on a fully diluted, as converted basis (ESPP Evergreen Provision). Under the ESPP, each offering period is six months, at the end of which employees may purchase shares of common stock through payroll deductions made over the term of the offering. The per-share purchase price at the end of each offering period is equal to the lesser of 85% of the closing price of our common stock at the beginning or end of the offering period.

Shares Reserved for Future Issuance

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

	December 31,
	2015		2014
Unvested restricted common stock		216,716		422,145
Common stock options and RSU's outstanding		2,231,057		1,526,346
Shares available for issuance under the 2014 Plan ⁽¹⁾		1,318,732		1,549,154
Shares available for issuance under the ESPP		440,304		262,500
Total		4,206,809		3,760,145

⁽¹⁾

On January 1, 2016, the shares reserved for future grants under the 2014 Plan increased by 986,800 shares pursuant to the 2014 Plan Evergreen Provision.

⁽²⁾

On February 28, 2016, the shares reserved for future issuance under the ESPP increased by 379,430 shares pursuant to the ESPP Evergreen Provision.

Stock-Based Compensation

Stock Options

On March 6, 2015, the Company issued 479,750 stock options to employees. Options granted by the Company vest over periods of between 12 and 48 months. Options vest in installments of (i) 25% at the one year anniversary and (ii) in either 36 or 48 equal monthly or 12 equal quarterly installments beginning in the thirteenth month after the initial Vesting Commencement Date (as defined) or grant date, subject to the employee’s continuous service with the Company. Options generally expire ten years after the date of grant.

The assumptions used in the Black-Scholes pricing model to estimate the grant date fair value of options granted to employees are as follows:

	Year ended December 31,
	2015		2014
Risk-free interest rate	1.44% - 1.95%		1.63% - 2.06%
Dividend yield		0.00%		0.00%
Volatility	62.47% - 81.25%		67.97% - 77.00%
Expected term (years)	5.51 - 6.25		6.25

The following table summarizes the Company’s stock option activity:

	Shares			Weighted-Average Exercise Price		Weighted-Average Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding, December 31, 2014		1,526,349		$	7.57			$	11,523,531
Granted		992,050		$	9.81
Exercised		(218,674	)	$	0.60			$	2,047,507
Forfeited		(93,090	)	$	12.96			$	107,384
Expired/cancelled		—
Outstanding, December 31, 2015		2,206,635		$	9.04		8.20	$	13,114,811
Options exercisable, December 31, 2015		610,696		$	6.20		6.63	$	5,620,564
Expected to vest, December 31, 2015		1,958,808		$	9.71		8.56	$	10,737,600

As of December 31, 2015, there was approximately $9.7 million of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted average period of 2.62 years.

Restricted Stock

On December 23, 2013, the Company issued 450,224 shares of restricted stock to employees and 79,067 shares of restricted stock to non-employees at a grant date fair value of $7.42 per share. The aggregate grant date fair value for the shares of restricted stock issued on December 23, 2013 totaled approximately $3.9 million. The awards of restricted stock contained a performance condition wherein vesting is contingent upon the Company’s consummation of a liquidity event, as defined, prior to the fifth anniversary of the date of grant. Certain of the awards of restricted stock have a requisite service period that was complete upon grant. The remainder of the awards of restricted stock have a requisite service period of four years whereby the award vests 25% on the one year anniversary of the Vesting Commencement Date (as defined), then ratably on the first day of each calendar quarter for 12 quarters, subject to continuous service by the individual and achievement of the performance target. Due to the nature of the performance condition, the Company had concluded that the performance condition was not probable of achievement and therefore, recognition of compensation cost had been deferred until the occurrence of a liquidity event, as defined. The liquidity event occurred upon the closing of the Company’s IPO on March 25, 2014. Accordingly, the Company recognized $0.1 million of compensation expense on March 25, 2014 related to the restricted stock awards with a requisite service period that was complete upon grant. Compensation expense related to the remainder of the restricted stock awards is being recognized over the associated requisite service period commencing on March 25, 2014. The Company recorded approximately $0.9 million of stock-based compensation expense related to restricted stock during 2015.

A summary of the Company’s restricted stock activity is as follows:

	Shares			Weighted-Average Grant Date Fair Value
Unvested balance, December 31, 2014		422,145		$	8.39
Granted		-
Vested		(169,376	)	$	8.87
Forfeited		(36,053	)	$	8.93
Outstanding, December 31, 2015		216,716		$	7.97

As of December 31, 2015, there was approximately $0.4 million of unrecognized compensation cost related to the restricted stock awards granted on December 23, 2013 with a performance condition. The recognition of the compensation cost for these awards did not begin until the closing of the IPO on March 25, 2014. The unrecognized compensation cost is expected to be recognized over a weighted average period of 1.08 years.

Common Stock Awards

In connection with the termination of a former employee in September 2013, the Company granted the former employee stock awards totaling 70,964 shares in September 2013 and 105,753 shares in December 2013 of Common Stock, at a fair value of $3.77 per share and $7.42 per share, respectively. The fair value of the awards are based on the estimated fair value of the Company’s Common Stock at the date of grant. Accordingly, compensation cost was recognized in full on the date of grant. The associated common shares immediately vested, and were not subject to any other restriction. Accordingly, the compensation cost was recognized in full on the date of grant. Total compensation cost of approximately $1.1 million was recognized during the year ended December 31, 2013 related to these awards.

Restricted Stock Units

On March 6, 2015, the Company issued 27,875 RSUs to employees. The RSUs vest 100% on the three year anniversary. Total stock-compensation expense to be recognized over the life of the RSUs is $0.3 million and will be recognized on a straight-line basis over the vesting period. The Company recorded approximately $62,000 of stock-based compensation expense related to the RSUs during 2015.

	Shares			Weighted-Average Grant Date Fair Value
Unvested balance, December 31, 2014		-		$	-
Granted		27,875		$	11.15
Vested		-		$	-
Forfeited		(3,450	)	$	11.15
Outstanding, December 31, 2015		24,425		$	11.15

As of December 31, 2015, there was approximately $0.2 million of unrecognized compensation cost related to restricted stock units, which is expected to be recognized over a weighted average period of 2.18 years.

ESPP

The first offering period under the ESPP opened on January 2, 2015. The Company issued 25,903 shares during the year ended December 31, 2015. The Company recorded approximately $83,000 of stock-based compensation expense related to ESPP during 2015.

Compensation Expense Summary

The Company has recognized the following compensation cost related to share-based awards:


	Year ended December 31,
	2015		2014
	(in thousands)
Research and development	$	2,079	$	2,766
General and administrative		2,635		3,244
Total	$	4,714	$	6,010

Compensation expense by type of award:


	Year ended December 31,
	2015		2014
	(in thousands)
Stock options	$	3,660	$	1,925
Restricted stock		909		4,085
Restricted stock units		62		—
Employee stock purchase plan		83		—
Total	$	4,714	$	6,010

Included in the compensation expense for the year ended December 31, 2014, is approximately $1.0 million related to the modification of awards in connection with an employee separation agreement in the first quarter of 2014.