6. Share-Based Payments

2009 Stock Incentive Plan

The Company maintains the Eleven Biotherapeutics, Inc. 2009 Stock Incentive Plan (the “2009 Plan”), as amended and restated, for employees, directors, consultants, and advisors to the Company. Upon the closing of the Company’s IPO in February 2014, the Company ceased granting stock incentive awards under the 2009 Plan. The 2009 Plan provides for the grant of incentive and non-qualified stock options and restricted stock grants as determined by the Board of Directors. Under the 2009 Plan, stock options may not be granted at less than fair value on the date of the grant. Furthermore, the exercise price of incentive stock options granted to an employee, who, at the time of grant, is a 10% shareholder, may not be less than 110% of the fair value on the date of grant.

Terms of stock option agreements, including vesting requirements, are determined by the Board of Directors, subject to the provisions of the 2009 Plan. Options and restricted stock awards granted by the Company generally vest ratably over four years, with a one-year cliff for new employee awards, and are exercisable from the date of grant for a period of ten years. Restricted stock issuances and early exercises of stock options are subject to the Company’s right of repurchase at the original issuance price, which right lapses over the vesting period of the stock. For options and restricted stock awards granted to date, the exercise price equaled the estimated fair value of the common stock as determined by the Board of Directors on the date of grant.

2014 Stock Incentive Plan

In December 2013, the Company’s 2014 Stock Incentive Plan (the “2014 Plan”) was adopted by the Board of Directors and was approved by the Company’s stockholders in January 2014. The 2014 Plan became effective immediately prior to the closing of the Company’s IPO in February 2014. The 2014 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock units, stock appreciation rights and other stock-based awards. The number of shares of the Company’s common stock reserved for issuance under the 2014 Plan is the sum of (1) 708,661 shares, plus (2) the number of shares (up to 1,347,821 shares) equal to (x) 1,586 shares (representing the number of shares reserved for issuance under the 2009 Plan that remained available for future issuance as of the effectiveness of the 2014 Plan) and (y) the number of shares of the Company’s common stock subject to outstanding awards under the Company’s 2009 Plan that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased without having been fully exercised or resulting in any common stock being issued, plus (3) an annual increase, to be added on the first day of each fiscal year, equal to the lowest of 1,102,362 shares of the Company’s common stock, 4% of the number of shares of the Company’s common stock outstanding on the first day of the applicable fiscal year and an amount determined by the Company’s board of directors. On January 1, 2015, the Company increased the number of shares reserved for issuance under the 2014 Plan by 722,331 shares.

The Company’s employees, officers, directors, consultants and advisors are eligible to receive awards under the 2014 Plan. However, incentive stock options may only be granted to the Company’s employees.

A summary of the Company’s stock option activity and related information follows:


	Shares			Weighted-Average Exercise Price		Remaining Contractual Life (in years)
Outstanding at December 31, 2014		1,438,528		$	4.93		7.86
Granted		566,556			10.78
Exercised		(54,371	)		0.82
Cancelled or forfeited		(17,555	)		6.83

Outstanding at March 31, 2015		1,933,158		$	6.74		8.27

Exercisable at March 31, 2015		645,757		$	3.91		7.35

Vested and expected to vest at March 31, 2015(1)		1,593,293		$	7.19		8.45

(1)	Represents the number of vested options, plus the number of unvested options expected to vest.

The total intrinsic value of options vested and expected to vest as of March 31, 2015 was $4.6 million. The total intrinsic value of options exercised for the three months ended March 31, 2015 and 2014 was $584,000 and $120,000, respectively. The total fair value of employee and director options vested for the three months ended March 31, 2015 and 2014 was $215,000 and $186,000, respectively.

Restricted Stock

From time to time, upon approval by the Board of Directors, certain employees, directors and advisors have been granted restricted shares of common stock. Certain of these shares of restricted stock are subject to repurchase rights. Accordingly, the Company has recorded the proceeds from the issuance of restricted stock as a liability in the balance sheets. The restricted stock liability is reclassified into stockholders’ equity (deficit) as the restricted stock vests. A summary of the status of unvested restricted stock is presented below:


	Restricted Stock			Weighted-Average Grant Date Fair Value
Unvested at December 31, 2014		125,027		$	5.39
Granted		1,300			10.08
Vested		(27,792	)		2.37

Unvested at March 31, 2015		98,535		$	6.31

The Company issued 1,300 shares of restricted stock to non-employees during the three months ended March 31, 2015. The Company did not issue any restricted stock to non-employees during the three months ended March 31, 2014. The non-employee restricted stock is revalued as it vests. There were 1,083 shares of non-employee unvested restricted stock outstanding at March 31, 2015. There were no shares of non-employee unvested restricted stock outstanding at March 31, 2014. The expense related to the restricted stock granted to non-employees for the three months ended March 31, 2015 and 2014 was $27,000 and $48,000, respectively.

Performance-Based Stock Options

The Company has granted stock options to the founders of the Company, which contain both performance-based and service-based vesting criteria. Milestone events are specific to the Company’s corporate goals, including but not limited to certain preclinical and clinical development milestones related to the Company’s product candidates. Stock-based compensation expense associated with these performance-based stock options is recognized if the performance condition is considered probable of achievement using management’s best estimates. There was no expense recorded for milestone based vesting awards during the three months ended March 31, 2015. During the three months ended March 31, 2014, management determined that a performance-based milestone was achieved and recorded stock-based compensation expense of $17,000. The remaining milestones were not deemed to be probable of achievement as of March 31, 2015. As of March 31, 2015, unrecognized compensation expense related to performance based awards was $1.7 million.

Stock-Based Compensation Expense

The fair value of each stock option granted to employees and directors was estimated on the date of grant using the Black-Scholes option-pricing model based on the assumptions noted in the following table:


	Three Months Ended March 31,
	2015			2014
Risk-free interest rate		1.42–1.76	%		1.80-2.02	%
Expected dividend yield		—			—
Expected term (in years)		5.75-6			5.75-6
Expected volatility		73.07–74.11	%		69.37-69.58	%

The expense related to the options granted to employees and directors for the three months ended March 31, 2015 and 2014 was $554,000 and $288,000, respectively.

The Company did not grant any stock options to non-employees during the three months ended March 31, 2015 and 2014. The expense related to the options granted to non-employees for the three months ended March 31, 2015 and 2014 was $83,000 and $300,000, respectively.

During the three months ended March 31, 2015 and 2014, the Company recorded stock-based compensation expense for employee and non-employee stock options and restricted stock, which was allocated as follows in the statements of operations (in thousands):


	Three Months Ended March 31,
	2015		2014
Research and development expense	$	280	$	355
General and administrative expense		384		281

	$	664	$	636

At March 31, 2015, there was $5.9 million of total unrecognized compensation cost related to non-vested stock options and unvested restricted stock with service-based vesting provisions, which is expected to be recognized over a weighted-average period of 3.03 years.