Share-Based Payments

In December 2013, the Company's 2014 Stock Incentive Plan (the "2014 Plan") was adopted by the Board and approved by the Company's stockholders in January 2014. Pursuant to the terms of the plan, the number of shares authorized for issuance automatically increases on the first day of each fiscal year. On January 1, 2016 and 2015, the number of shares reserved for issuance under the 2014 Plan increased by 786,431 and 722,331 shares, respectively. As of September 30, 2016, the total number of shares of common stock available for issuance under the 2014 Plan was 713,021.

On September 20, 2016, in connection with the Acquisition, the Company granted stock options to purchase 650,000 shares of the Company's common stock. The grants were made in the form of inducement equity awards outside the 2014 Plan in accordance with NASDAQ Listing Rule 5635(c)(4).

These stock options were granted with an effective grant date of September 20, 2016 and an exercise price of $3.37 per share (the closing price per share of the Company's common stock on September 20, 2016) as an inducement to each recipient in connection with his employment. The inducement equity awards were approved and recommended by the Company's Compensation Committee, approved by the Board and were made as an inducement material to each recipient's acceptance of employment with the Company in accordance with NASDAQ Listing Rule 5635(c)(4).

Each of the inducement grants expires on the day preceding the tenth anniversary of the grant date and vests over four years, with 25% of the original number of shares subject to the option vesting on the one year anniversary of the date of grant of the option and an additional 6.25% of the shares subject to the option vesting at the end of each successive three-month period following the one-year anniversary of the date of grant of the option, subject to the recipient's continued service with the Company through the applicable vesting dates.

The Company also maintains the Eleven Biotherapeutics, Inc. 2009 Stock Incentive Plan, as amended and restated.

Stock-Based Compensation Expense

Stock-based compensation expense by award type was as follows (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Stock options	$	1,932	$	475	$	2,825	$	1,708
Restricted stock	50		55		155		88
Restricted stock units	156		99		354		99
Employee stock purchase plan	6		—		17		—
	$	2,144	$	629	$	3,351	$	1,895

At September 30, 2016, there was $2.4 million of total unrecognized compensation expense, net of estimated forfeitures, related to non-vested stock options, unvested restricted stock, restricted stock units (each with service-based vesting provisions), and shares issued pursuant to the Company's 2014 Employee Stock Purchase Plan (the "2014 ESPP"). This unrecognized compensation expense is expected to be recognized over a weighted-average period of 2.81 years.

The Company has granted stock options to the founders and officers 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 pre-clinical 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. The Compensation Committee of the Company determined that the Company had achieved milestone events on July 9, 2016 and September 20, 2016. As of September 30, 2016, there was no unrecognized compensation expense remaining related to performance based awards.

Stock Options

A summary of the stock option activity is presented below:



	Shares		Weighted-Average Exercise Price
Outstanding at December 31, 2015	1,803,574		$	6.28
Granted	1,747,495		1.69
Exercised	(341,526	)	0.49
Cancelled or forfeited	(494,787	)	3.30
Outstanding at September 30, 2016	2,714,756		$	4.60
Exercisable at September 30, 2016	1,606,002		$	5.18
Vested and expected to vest at September 30, 2016⁽¹⁾	2,530,001		$	4.69


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

Restricted Stock

From time to time, upon approval by the Board, certain employees, directors and advisors have been granted restricted shares of common stock. A summary of the unvested restricted stock is presented below:



	Restricted Stock		Weighted-Average Grant Date Fair Value
Unvested at December 31, 2015	41,657		$	11.05
Vested	(15,077	)	10.38
Unvested at September 30, 2016	26,580		$	11.43

Restricted Stock Units

From time to time, upon approval by the Board, certain employees have been granted restricted stock units. A summary of the restricted stock units is presented below:



	Restricted Stock Units		Weighted-Average Grant Date Fair Value
Unvested at December 31, 2015	150,932		$	2.85
Vested	(131,166	)	2.83
Cancelled	(13,100	)	2.76
Unvested at September 30, 2016	6,666		$	3.43

Employee Stock Purchase Plan

On January 21, 2014, the Board adopted its 2014 ESPP, which was subsequently approved by its stockholders and became effective upon the closing of the Company’s IPO on February 6, 2014. The 2014 ESPP authorizes the initial issuance of up to a total of 157,480 shares of the Company’s common stock to participating employees. The first offering period under the 2014 ESPP opened on September 15, 2015 and closed on March 14, 2016. On March 14, 2016, the Company issued and sold 20,760 shares of its common stock pursuant to the 2014 ESPP at a purchase price of $0.31 per share. The second offering period under the 2014 ESPP opened on March 15, 2016 and closed on September 14, 2016. On September 14, 2016 the Company issued and sold 68,111 shares of its common stock pursuant to the 2014 ESPP at a purchase price of $0.42 per share. The third offering period under the 2014 ESPP opened on September 15, 2016. The Company has estimated the number of shares to be issued at the end of the third offering and recognized expense over the requisite service period.

Acceleration of Equity Awards

In connection with the closing of the Acquisition, certain officers of the Company were terminated and entered into separation agreements with the Company. Under the separation agreements, the Company accelerated in full the vesting of all of their outstanding equity awards consistent with their existing employment agreements. As a result of the acceleration, the Company recognized $1.7 million of compensation expense. In addition, the Company provided that all stock options granted to Dr. Celniker under the Company’s 2009 Plan shall continue to be exercisable based on her continued service as a non-employee member of the Board. As a result of this modification, the Company recorded $0.1 million of compensation expense.