9. Stockholders’ Equity

Initial Public Offering

The Company closed its initial public offering in February 2013, selling 8,750,000 shares of common stock. The IPO price was $8.00 per share. As a result of the IPO, the Company received gross proceeds of approximately $70.0 million, which resulted in net proceeds to the Company of approximately $61.5 million, after underwriting and other expenses of approximately $8.5 million (comprised of $4.9 million in underwriting discounts and commissions and $3.6 million in other offering expenses).

Shelf Registration

In September 2013, the Company filed a shelf registration statement on Form S‑3 with the SEC. The Shelf Registration was declared effective by the SEC on September 18, 2013 and permitted the Company to sell, from time to time, up to $100.0 million of common stock, warrants/and or units in one or more offerings and in any combination.

Common Stock Offering

In October 2013, under the Shelf Registration, the Company issued and sold 8,625,000 shares of the Company’s common stock. The price to the public in this offering was $4.00 per share for gross proceeds of $34.5 million, including the exercise of the overallotment option by the underwriters, which resulted in net proceeds of approximately $32.0 million, after underwriting and other expenses of approximately $2.5 million (comprised of $2.1 million in underwriting discounts and commissions and $0.4 million in other expenses).

Preferred Stock

In February 2013, upon the closing of the IPO the Company amended and restated its certificate of incorporation to authorize zero shares of preferred stock upon the completion of its IPO.

Common Stock

In February 2013, the Company amended and restated its certificate of incorporation to increase the authorized common stock to 47,500,000 shares upon the completion of the IPO of its common stock.

The Company had reserved the following shares of common stock for issuance as of December 31, 2014:


Warrants to purchase common stock Options:		88,545
Outstanding under the 2012 Equity Incentive Plan		2,122,000
Outstanding under the 2001 Equity Incentive Plan		555,774
Available for future grants under the 2012 Equity Incentive Plan		1,218,925
Total common stock reserved for future issuance		3,985,244

2012 Equity Incentive Plan

In July 2012, the Company’s board of directors adopted the 2012 Equity Incentive Plan (2012 Plan). Under the 2012 Plan, the aggregate number of common shares issued shall not exceed the sum of (a) 1,123,131 common shares, (b) the number of common shares reserved under the 2001 Plan that were not issued or subject to outstanding awards under the 2001 Plan upon its termination, and (c) any common shares subject to outstanding options under the 2001 Plan upon its termination that subsequently expire or lapse unexercised and common shares issued pursuant to awards granted under the 2001 Plan that were outstanding upon its termination and that are subsequently forfeited to or repurchased by the Company; provided, however, that no more than 1,066,975 common shares, in the aggregate, shall be added to the 2012 Equity Incentive Plan pursuant to clauses (b) and (c). In addition, the number of shares reserved for issuance under the 2012 Equity Incentive Plan will be increased automatically on the first business day of each fiscal year of the Company, starting with fiscal year 2013 and ending in fiscal year 2022, by a number equal to the lesser of (a) 5% of the total number of common shares outstanding on December 31 of the prior year, (b) 842,348 common shares, subject to certain adjustments in accordance with the 2012 Equity Incentive Plan, or (c) a number of common shares determined by the Company’s board of directors.

Under the 2012 Plan, the Company may grant shares, stock units, stock appreciation rights, performance cash awards and/or options to employees, directors, consultants, and other service providers. For options, the per share exercise price may not be less than the fair market value of a Company common share on the date of grant. Awards generally vest over four years and expire 10 years from the date of grant. Options generally become exercisable as they vest following the date of grant.

In general, to the extent that awards under the 2012 Plan are forfeited or lapse without the issuance of shares, those shares will again become available for awards.

The Company’s board of directors has discretion to administer the 2012 Plan. The 2012 Plan provides that in the event of certain significant corporate transactions, each outstanding award will be treated in the manner described in the definitive transaction agreement. Outstanding options granted under the 2001 Plan will become fully vested unless continued or assumed by a surviving entity in a significant corporate transaction. An individual award agreement or any other written agreement between a participant and the Company may provide that an award will be subject to additional acceleration of vesting and exercisability in the event of certain change in control transactions.

The Company’s board of directors may amend or terminate the 2012 Plan at any time. If the Company’s board of directors amends the plan, it need not seek stockholder approval of the amendment unless required by applicable law, regulation or rule. The 2012 Plan will continue in effect for 10 years from its adoption date, unless the Company’s board of directors decides to terminate the plan earlier.

2001 Equity Incentive Plan

Under the Company’s 2001 Stock Plan (the 2001 Plan), the Company was able to grant shares and/or options to purchase up to 3,408,247 shares of common stock to employees, directors, consultants, and other service providers at prices not less than the fair market value at the date of grant for incentive stock options and not less than 85% of the fair market value for nonstatutory options. These options generally vest over four years, expire 10 years from the date of grant, and are generally exercisable at any time following the date of grant. Unvested options exercised are subject to the Company’s repurchase right that lapses as the options vest.

Upon the 2012 Equity Incentive Plan taking effect, the 2001 Plan was thereafter terminated in August 2012. However, the awards under the 2001 Plan outstanding as of and subsequent to the termination of the 2001 Plan will continue to be governed by their existing terms.

2012 Employee Stock Purchase Plan

The Employee Stock Purchase Plan, or ESPP provides eligible employees with the opportunity to acquire an ownership interest in the Company through periodic payroll deductions, based on a six-month look-back period, at a price equal to the lesser of 85% of the fair market value of the ordinary shares at either the beginning or ending of the relevant offering period. The ESPP is structured as a qualified employee stock purchase plan under Section 423 stock bonus plan under Section 401(a) of the Internal Revenue Code of 1986 and is not subject to the provisions of the Employee Retirement Income Security Act of 1974. The ESPP will terminate on January 15, 2033 unless sooner terminated. There were 168,469 shares initially authorized for issuance under the plan, and the first offering period commenced on June 1, 2014 and ended on October 31, 2014. The second offering period commenced on November 1, 2014 and will end on April 30, 2015.

Stock Option Activity

The following table summarizes stock option activity for the year ended December 31, 2014:


				Weighted-
		Weighted-		Average
		Average		Remaining
		Exercise		Contractual	Aggregate
	Number of	Price		Term	Intrinsic Value
	Shares	(Per Share)(1)		(in years)	(in thousands)(2)
Balances at December 31, 2013	1,820,784	$	4.46
Options granted	1,298,500		4.24
Options forfeited	(258,969)		5.81
Options expired	(126,123)		5.49
Options exercised(3)	(56,418)		1.17
Balances at December 31, 2014	2,677,774		4.24	5.60	$	239
As of December 31, 2014:
Options vested and expected to vest(4)	2,407,005		4.22	5.56	$	234
Exercisable	1,172,747		3.93	5.05	$	215

(1)

The weighted average price per share is determined using exercise price per share for stock options.

(2)

The aggregate intrinsic value is calculated as the difference between the exercise price of the option and the fair value of our common stock for in‑the‑money options at December 31, 2014.

(3)

The total intrinsic value of stock options exercised was $187,000, $787,000 and $607,000 for the years ended December 31, 2014, 2013 and 2012.

(4)

The stock options outstanding and exercisable by exercise price at December 31, 2014 are as follows:


	Stock Options Outstanding		Stock Options Exercisable
		Weighted-
		Average	Weighted-			Weighted-
		Remaining	Average			Average
	Number of	Contractual Life	Exercise Price		Number of	Exercise Price
Range of Exercise Prices	Shares	In Years	Per Share		Shares	Per Share
$0.50 - $1.85	537,787	4.68	$	1.29	351,235	$	1.12
$1.87 - $4.74	644,987	6.05	$	3.41	255,641	$	3.68
$5.25 - $5.41	755,000	5.30	$	5.39	177,391	$	5.38
$5.57 - $6.00	710,000	6.10	$	5.93	374,730	$	5.95
$6.42 - $6.42	30,000	8.19	$	6.42	13,750	$	6.42
	2,677,774	5.60	$	4.24	1,172,747	$	3.93

In February 2010, the Company authorized awards to executive officers for a total of 153,026 shares of common stock. Awards of 56,998 shares of common stock vested in January 2011 based on the attainment in 2010 of certain agreed‑ upon performance milestones as determined by the Board of Directors. In January 2011, the Company authorized awards to executive officers for a total of 141,795 shares of common stock. In January and July 2012, all outstanding awards of common stock vested based on the attainment in 2011 and 2012 of certain agreed‑upon performance milestones as determined by the Board of Directors. The Company recorded total stock‑based compensation expense of $401,000 for the year ended December 31, 2012 related to these stock awards.

The total fair value of options vested for the years ended December 31, 2014, 2013 and 2012 were $3.2 million, $1.6 million and $97,000, respectively.

Stock‑Based Compensation

Our stock‑based compensation expense for stock options is estimated at the grant date based on the award’s fair value as calculated by the Black‑Scholes option pricing model and is recognized as expense over the requisite service period. The Black‑Scholes option pricing model requires various highly judgmental assumptions including expected volatility and expected term. The expected volatility is based on the historical stock volatilities of several of our publicly listed peers over a period equal to the expected terms of the options as we do not have a sufficient trading history to use the volatility of our own common stock. To estimate the expected term, we have opted to use the simplified method which is the use of the midpoint of the vesting term and the contractual term. If any of the assumptions used in the Black‑Scholes option pricing model changes significantly, stock‑based compensation expense may differ materially in the future from that recorded in the current period. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience and our expectations regarding future pre‑vesting termination behavior of employees. The Company reviews its estimate of the expected forfeiture rate annually, and stock‑based compensation expense is adjusted accordingly.

The weighted‑average fair value‑based measurement of stock options granted under the Company’s stock plans in the years ended December 31, 2014, 2013, and 2012 were $2.73, $3.03 and $6.98 per share, respectively. The fair value‑ based measurement of stock options granted under the Company’s stock plans was estimated at the date of grant using the Black‑Scholes model with the following assumptions:


	Year Ended December 31,
	2014	2013	2012
Expected term	6 years	6 years	6 years
Expected volatility	68 - 76%	57 - 59%	57 - 59%
Risk-free interest rate	1.8 - 1.9%	0.9 - 2.1%	0.8 - 1.4%
Expected dividend yield	0%	0%	0%

Total stock‑based compensation expense recognized was as follows:


	Year Ended December 31,
(In thousands)	2014		2013		2012
General and administrative	$	1,026	$	731	$	423
Research and development		987		709		398
	$	2,013	$	1,440	$	821

At December 31, 2014, the Company had $3.4 million of total unrecognized compensation expense, net of estimated forfeitures, related to outstanding stock options that will be recognized over a weighted‑average period of 2.5 years.