9. Equity Incentive Plans

Stock Award Plans

The Company maintains a 2016 Equity Incentive Plan (the “2016 Plan”), which provides for the issuance of incentive share awards in the form of non-qualified and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and performance-based stock awards. The awards may be granted by the Company’s Board of Directors to its employees, directors and officers and to consultants, agents, advisors and independent contractors who provide services to the Company or to a subsidiary of the Company. The exercise price for stock options must not be less than the fair market value of the underlying shares on the date of grant. Stock options expire no later than ten years from the date of grant and generally vest and typically become exercisable over a four-year period following the date of grant. Under the 2016 Plan, the number of shares authorized for issuance automatically increases annually beginning January 1, 2017 and through January 1, 2026.

In connection with the Merger, the Company assumed the C3J Jian, Inc. Amended 2006 Stock Option Plan (the “Assumed 2006 Plan”) and the C3J Therapeutics, Inc. 2016 Stock Plan (the “Assumed 2016 Plan”). These plans provided for stock option and restricted stock awards (“RSAs”) to C3J employees in years prior to the merger with AmpliPhi. The number of shares subject to each outstanding stock option and RSA under those assumed plans, along with the exercise price of stock options, were equitably adjusted pursuant to the terms of the plans to reflect the impact of the Merger and the one-for-fourteen reverse stock split, in each case in a manner intended to preserved the then-current intrinsic value of the awards. No additional awards will be made under either plan. The assumed C3J stock options were substantially vested and expensed as of the merger date. Vesting of the assumed C3J RSAs is based on the occurrence of a public liquidity event, or a change in control. In the event of a public liquidity event, service or milestone based vesting schedules begins. Service periods are generally two to four years. In the event of a change in control, 100% vesting occurs upon the closing of such an event. The merger with AmpliPhi constituted a public liquidity event and triggered the start of vesting of RSAs.

Stock-based Compensation

The Company estimates the fair value of stock options with performance and service conditions using the Black-Scholes valuation model. Compensation expense related to stock options granted is measured at the grant date based on the estimated fair value of the award and is recognized on the accelerated attribution method over the requisite service period.

The assumptions used in the Black-Scholes model are presented below:


	Three months ended
	March 31, 2020	March 31, 2019
Risk-free interest rate	1.48% - 1.51%	—
Expected volatility	90.43%	—
Expected term (in years)	5.75 - 6.25	—
Expected dividend yield	0	0

The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. Expected volatility is based on the historical volatility of Armata and peer companies’ common stock. The expected term represents the period that the Company expects its stock options to be outstanding. The expected term assumption is estimated using the simplified method set forth in the SEC Staff Accounting Bulletin 110, which is the mid-point between the option vesting date and the expiration date. For stock options granted to parties other than employees or directors, the Company elects, on a grant by grant basis, to use the expected term or the contractual term of the option award. The Company has never declared or paid dividends on its common stock and has no plans to do so in the foreseeable future. Forfeitures are recognized as a reduction of stock-based compensation expense as they occur.

The tables below summarize the total stock-based compensation expense included in the Company’s consolidated statements of operations for the periods presented:


	Three Months Ended March 31,
	2020		2019

Research and development	$	337,000	$	—
General and administrative		707,000		—
Total stock-based compensation	$	1,044,000	$	—

Stock option transactions during the three months ended March 31, 2020 are presented below:


	Options Outstanding
				Weighted
				Average
		Weighted		Remaining
		Average		Contractual	Aggregate
		Exercise		Term	Intrinsic
	Shares	Price		(Years)	Value
Outstanding at December 31, 2019	1,275,380	$	7.61	8.81		—
Granted	129,766		3.85	—		—
Forfeited/Cancelled	(39,382)		8.29	—		—
Outstanding at March 31, 2020	1,365,764	$	7.08	8.48		—
Vested and expected to vest at March 31, 2020	1,365,764	$	7.08	8.48	$	—
Exercisable at March 31, 2020	169,558	$	33.83	3.27	$	—

Restricted stock award transactions under the Assumed 2016 Plan during the three months ended March 31, 2020 are presented below:


		Weighted Avg
		Grant Date
	Shares	Fair Value
Outstanding at December 31, 2019	343,493	$	21.83
Forfeited/Cancelled	(3,329)		16.14
Outstanding at March 31, 2020	340,164	$	21.91

The aggregate intrinsic value of options at March 31, 2020 is based on the Company’s closing stock price on that date of $3.10 per share. As of March 31, 2020, there was $4.8 million of total unrecognized compensation expense related to unvested stock options and RSAs, excluding unvested RSAs with performance factors deemed to be improbable for the period ending March 31, 2020, which the Company expects to recognize over the weighted average remaining period of approximately 2 years.

Shares Reserved for Future Issuance

As of March 31, 2020, the Company had reserved shares of its common stock for future issuance as follows:


		Shares Reserved
Stock options outstanding		1,365,764
Employee stock purchase plan		7,605
Available for future grants under the 2016 Plan		469,433
Warrants outstanding		10,547,363
Total shares reserved		12,390,165