10. Stock-Based Compensation

On February 28, 2014, the Company’s Board of Directors adopted its 2014 Incentive Plan (2014 Plan), which was 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).

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. 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 1,980,890 shares of our common stock may be delivered in satisfaction of incentive stock options awarded under the 2014 Plan.

Any options or awards outstanding under the 2008 Plan at the time of adoption of the 2014 Plan remain outstanding and effective. As of September 30, 2014, the total number of common shares that may be issued under all equity award plans is 3,151,792 and approximately 1,555,254 shares remain available for future grants.

During the first nine months of 2014, the Company granted 398,189 stock options to employees, 77,525 stock options to a director and 56,000 shares of restricted stock to a former employee.

Stock Options

The options granted to directors and non-employees vest over periods of between 12 and 48 months. For employees with less than one year’s worth of service, options vest in installments of (i) 25% at the one year anniversary and (ii) in either 36 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 granted to other employees vest in 48 equal monthly installments 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.

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 awards of restricted stock contain 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, 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 IPO on March 25, 2014.

Compensation Expense Summary

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Research and development	$	582,900	$	24,222	$	2,489,049	$	63,684
General and administrative		651,856		306,037		2,634,515		374,368
Total	$	1,234,756	$	330,259	$	5,123,564	$	438,052

Compensation expense by type of award:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Stock options	$	554,031	$	17,542	$	1,329,715	$	38,167
Restricted stock		680,725		312,717		3,793,849		399,885
Total	$	1,234,756	$	330,259	$	5,123,564	$	438,052

Included in the compensation expense for the nine months ended September 30, 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.