Stock-based Compensation | 14. Stock-based Compensation Effective December 2008, the Company established the 2008 – 2009 Non-Qualified Stock Option Plan (the “2008 – 2009 Plan”) under which 20,000 stock options remain outstanding at December 31, 2016. The stock-based awards were issued with a price not less than $15.00 per share or 100% of the fair value of a share of common stock on the date of grant. After July 2015, no further awards were granted under the 2008 – 2009 Plan. Such outstanding awards will continue to be governed by their existing terms under the 2008 – 2009 Plan. Effective July 2015, the Company’s stockholders approved the 2015 Equity Incentive Plan (the “2015 Plan”), which permits the issuance of up to 2,000,000 shares reserved for the grant of stock options, stock appreciation rights, restricted stock units and other stock-based awards for employees, directors or consultants of the Company. The Board of Directors approved an additional 1,000,000 shares of common stock for issuance under the 2015 Plan. The stock-based awards are generally issued with a price equal to no less than fair value at the date of grant. Options granted under the 2015 Plan generally vest immediately, or ratably over a two- to 36-month period coinciding with their respective service periods; however, participants may exercise their options prior to vesting as provided by the 2015 Plan. Unvested shares issued for option exercised early may be subject to a repurchase by the Company if the participant terminates at the original exercise price. Options under the 2015 Plan generally have a contractual term of five or ten years. Certain stock option awards provide for accelerated vesting upon a change in control or an initial public offering. As of December 31, 2016, the Company had 1,419,480 shares of common stock available for issuance under the 2015 Plan. The Company measures the fair value of stock options with service-based and performance-based vesting criteria to employees, directors and consultants on the date of grant using the Black-Scholes option pricing model. The fair value of equity instruments issued to non-employees is re-measured as the award vests. The Black-Scholes valuation model requires the Company to make certain estimates and assumptions, including assumptions related to the expected price volatility of the Company’s stock, the period under which the options with be outstanding, the rate of return on risk-free investments, and the expected dividend yield for the Company’s stock. During 2016, the Company issued a total of 126,373 shares of common stock, valued at $383, for services performed. The weighted-average assumptions used in the Black-Scholes option-pricing model used to calculate the fair value of options granted during the year ended December 31, 2015, were as follows: Employee Non-Employee Expected volatility 66.4 % 76.6 % Expected dividend yield — — Expected term (in years) 4.0 5.0 Risk-free interest rate 1.3 % 1.7 % The weighted-average assumptions used in the Black-Scholes option-pricing model used to calculate the fair value of options granted during the year ended December 31, 2016, were as follows: Employee Non-Employee Expected volatility 82.1 % N/A Expected dividend yield — N/A Expected term (in years) 3.25 N/A Risk-free interest rate 1.83 % N/A Due to the Company’s limited operating history and lack of company-specific historical or implied volatility, the expected volatility assumption was determined based on historical volatilities from traded options of biotech companies of comparable in size and stability, whose share prices are publicly available. The expected term of options granted to employees is calculated based on the mid-point between the vesting date and the end of the contractual term according to the simplified method as described in SEC Staff Accounting Bulletin 110 because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term due to the limited period of time its awards have been outstanding. For non-employee options, the expected term of options granted is the contractual term of the options. The risk-free rate by reference to the implied yields of U.S. Treasury securities with a remaining term equal to the expected term assumed at the time of grant. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has not paid and does not intend to pay dividends. The table summarizes the stock option activity, for both plans, for the periods indicated as follows: Number of Weighted Weighted Aggregate Outstanding at December 31, 2014 255,509 $ 2.35 3.9 $ 3,230 Granted 2,477,255 $ 0.50 7.1 Exercised 384,206 $ 0.05 Forfeited 210,876 $ 0.50 Expired 13,348 $ 15.00 Outstanding at December 31, 2015 2,124,334 $ 0.50 6.4 $ 4,249 Granted 200,000 $ 7.98 5.0 $ 34 Exercised 621,602 $ 0.73 Forfeited 210,849 $ 0.50 Expired 14,583 $ 15.00 Outstanding at December 31, 2016 1,477,300 1.61 5.8 $ 9,662 Exercisable at December 31, 2016 999,310 $ 1.00 5.6 $ 7,145 (1) The aggregate intrinsic value on the table was calculated based on the difference between the estimated fair value of the Company’s stock and the exercise price of the underlying option. The estimated stock values used in the calculation was $8.15 and $2.50 per share for each of the years ended December 31, 2016 and 2015 respectively. The weighted average grant-date fair value of options granted to employees for the year ended December 31, 2016 was $7.98 per share. The stock-based compensation expense was recorded as follows: Year Ended December 31, 2016 2015 Research and development $ 403 $ 4,931 General and administrative 2,966 6,331 Total stock-based compensation expense $ 3,369 $ 11,262 The allocation between research and development and general and administrative expense was based on the department and services performed by the employee or non-employee. Included in the table above, the Company recorded stock-based compensation expense of $207 and $338 for the years ended December 31, 2016 and 2015, respectively, for stock options granted to non-employees. In June 2016, the Company entered into an employment letter agreement with its chief executive officer which replaced the previous employment agreement dated October 16, 2013. At the same time, the Company entered into an employment letter agreement with its president and chief research officer that contained similar features and terms which replaced her previous employment agreement dated October 16, 2013. By entering into the employment letter agreements (the “2016 agreements”) and accepting the signing bonus, the chief executive officer and the president and chief research officer (collectively, the “executive officers”) waived all rights to receive any compensation amounts provided for in the previous employment agreements. The 2013 agreements, among other provisions, provided for a signing bonus of $1,000 on the acceptance and signing of such agreements. Upon the signing of the 2013 agreements, the Company recorded a deferred compensation obligation as an undiscounted noncurrent liability, in the amount of an aggregate $2,000 for the In June 2016, the Company reversed the deferred compensation obligation of $2,000 to additional paid in capital which is in the period the terms of 2016 agreements were accepted and replaced the previous employment agreements. As such, the executive officers, whom are also principal stockholders, have forgiven the compensation that was previously earned and due under the 2013 agreements. The 2016 agreements, among other things, provide for an annual base salary which may be adjusted periodically and, upon signing of the 2016 agreements, a signing bonus was payable within one business day after the signing the 2016 agreements. In addition, the 2016 agreements provide for an annual incentive bonus with a minimum target value equal to a certain stated percentage of annual base salary; however, any incentive bonus is determined at the discretion of the Board of Directors. The 2016 agreements also provide for the grant of the award of restricted stock units (RSU) representing the right to receive 220,000 shares of the Company’s common stock. The RSU award will vest and be settled over a three-year period, with one- third of the units vesting on the twelve-month anniversary of the date of grant, and the remaining units vesting in equal quarterly tranches over the following twenty-four months of continuous service. Upon the sale of the Company, the 2016 agreements provides for a bonus of (a) 1% of the amount of the net sales price of the Company that is $100,000 or less, plus (ii) an additional 0.5% of the amount of the net sales price of the Company that is more than $100,000, payable in cash or other proceeds payable to other stockholders in such Company. Under the terms of her agreement, the executives shall be entitled to this change of control bonus if the change of control transaction occurs within 12 months following the termination of the executive’s employment by the Company without cause (as such term is defined in the 2016 agreement excluding death or disability) or within 12 months following the executive’s resignation for good reason (as such term is defined in the 2016 agreement), provided that the executive remains in compliance with the confidentiality and other ongoing post-termination obligations under the 2016 agreement. In the event of terminated without cause or resignation for good reason (as such terms are defined in the 2016 agreements) or upon death, all base salary and benefits for a period of twelve months following the effective date of such termination will be payable. Also, any earned but unpaid annual bonus, and all outstanding equity awards will accelerate immediately upon the date of termination. In recognition of his continued support and cooperation, and to resolve a dispute regarding whether his options appropriately expired in the first quarter of 2016, in July 2016, the Company’s Board of Directors agreed to issue to its former chief executive officer 120,000 shares of the Company’s common stock. The expense of $300 associated with this full and final settlement was recorded in the year ended December 31, 2016. At December 31, 2016, the total compensation cost related to non-vested options not yet recognized was $4,503, which will be recognized over a weighted average period of four years, assuming the employees complete their service period required for vesting. Effective December 2008, the Company established the 2008-2009 Non-Qualified Stock Option Plan (the “2008 – 2009 Plan”) under which 20,000 stock options remain outstanding at September 30, 2016. The stock-based awards were issued with a price not less than $15.00 per share or 100% of the fair value of a share of common stock on the date of grant. After July 2015, no further awards were granted under the 2008 – 2009 Plan. Such outstanding awards will continue to be governed by their existing terms under the 2008 – 2009 Plan. Effective July 2015, the Company’s stockholders approved the 2015 Equity Incentive Plan (the “2015 Plan”), which permits the issuance of up to 2,000,000 shares reserved for the grant of stock options, stock appreciation rights, restricted stock units and other stock-based awards for employees, directors or consultants Restricted Stock Units The following table summarizes restricted stock unit activity for the years ended December 31, 2016 and 2015: Number of Weighted Average Outstanding as of December 31, 2014 — $ — Granted — $ — Vested — $ — Forfeited — $ — Outstanding as of December 31, 2015 — $ — Granted 474,720 (1) $ 1.57 Vested (19,290 ) $ 8.10 Forfeited — $ — Outstanding as of December 31, 2016 455,430 $ 0.76 (1) 440,000 restricted stock units were granted and issued on September 30 th |