9. Stock-Based Compensation

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).

The 2014 Plan allows for the granting of stock options, stock appreciation rights, or SARs, restricted stock, unrestricted stock, RSUs, 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 1,131,937 shares of our common stock may be delivered in satisfaction of incentive stock options awarded under the 2014 Plan.

The ESPP authorizes the initial issuance of up to a total of 262,500 shares of the Company’s common stock to participating employees. The first offering period under the ESPP opened on January 2, 2015.

Any options or awards outstanding under the 2008 Plan at the time of adoption of the 2014 Plan remain outstanding and effective. As of June 30, 2015, the total number of common shares that may be issued under all equity award plans is 3,617,179 and 1,641,559 shares remain available for future grants.

In August 2014, the Company entered into both a separation agreement with an employee and a consulting agreement for continued services to the Company upon the separation date of December 31, 2014. As a result of the change in employment status to a consultant effective January 1, 2015, the Company recorded approximately $300,000 of stock compensation expense during the first six months of 2015.

During the first six months of 2015, the Company granted 599,750 stock options to employees, 35,000 stock options to directors and 27,875 RSUs to employees.

Stock Options

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.

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 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, 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.

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 $24,000 of stock-based compensation expense related to the RSUs during the second quarter of 2015 and approximately $32,000 of stock-based compensation during the first six months of 2015.

Compensation Expense Summary

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


	Three months ended				Six months ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
	(in thousands)				(in thousands)
Research and development	$	397	$	961	$	962	$	1,906
General and administrative		698		483		1,261		1,983
Total	$	1,095	$	1,444	$	2,223	$	3,889

Compensation expense by type of award:


	Three months ended				Six months ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
	(in thousands)				(in thousands)
Stock options	$	908	$	491	$	1,607	$	776
Restricted stock		142		953		542		3,113
Restricted stock units		24		—		32		—
Employee stock purchase plan		21		—		42		—
Total	$	1,095	$	1,444	$	2,223	$	3,889

Included in the compensation expense for the six months ended June 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.