12. Stock-Based Compensation

The Company sponsors the Ruthigen, Inc. Amended and Restated 2013 Employee, Director and Consultant Equity Incentive Plan, and immediately following the Effective Time, renamed the plan the Pulmatrix, Inc. 2013 Employee, Director and Consultant Equity Incentive Plan (the “2013 Plan”). The 2013 Plan was amended and restated at the Effective Time to, among other things, (i) increase the number of shares of Company Common Stock authorized under the plan, (ii) comply with the requirements imposed by Section 162(m) of the Internal Revenue Code of 1986, as amended, and (iii) provide an increase in the number of shares of Company Common Stock available for issuance under the 2013 Plan’s “evergreen” provision. As of September 30, 2015, the 2013 Plan provides for the grant of up to 2,713,261 shares of Company Common Stock, of which 611,035 shares remained available for future grant at September 30, 2015.

At the Effective Time, the Company assumed Pulmatrix Operating’s 2013 Employee, Director and Consultant Equity Incentive Plan (the “Original 2013 Plan”) and Pulmatrix Operating’s 2003 Employee, Director, and Consultant Stock Plan (the “2003 Plan”). At the Effective Time, the Company terminated the Original 2013 Plan as to future awards. A total of 665,202 shares of Company Common Stock may be delivered under options outstanding as of September 30, 2015 under the Original 2013 Plan and the 2003 Plan, respectively, however no additional awards may be granted under the Original 2013 Plan or the 2003 Plan.

In connection with the Merger, all outstanding stock options of Pulmatrix Operating converted into stock options to purchase Company Common Stock, subject to the Exchange Ratio. The conversion of the Pulmatrix Operating stock options for stock options to purchase Company Common Stock was treated as a modification of the awards. The modification of the stock options did not result in any incremental compensation expense as the modification did not increase the fair value of the stock options.

Options

During the first nine months of 2015, the Company granted options to purchase 1,266,172 shares of Company Common Stock to employees, options to purchase 117,779 shares of Company Common Stock to directors, and options to purchase 156,437 shares of Company Common Stock to advisors. The stock options granted vest either over time (the “Time Based Options”) or based on achievement of defined milestones. Time Based Options vest over either 36 or 48 months. Subject to the grantee’s continuous service with the Company, Time Based Options vest in one of the following ways: (i) 48 equal monthly installments beginning on the monthly anniversary of the Vesting Start Date (as defined in the grant agreement), (ii) 25% on the option grant date and the remainder in 36 equal monthly installments beginning in the month after the Vesting Start Date, or (iii) 25% at the one year anniversary of the Vesting Start Date and the remainder in 36 equal monthly installments beginning in the thirteenth month after the Vesting Start Date. Stock options generally expire ten years after the date of grant.

The following table summarizes stock option activity for the nine months ended September 30, 2015:


	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding — December 31, 2014		732,823		$	2.08		6.73	$	5,508
Granted		1,540,388		$	11.51
Options assumed in Merger		24,400		$	14.07
Exercised		(71,323	)	$	2.12
Forfeited or expired		(2,018	)	$	2.12

Outstanding — September 30, 2015		2,224,270		$	8.75		8.65	$	1,875
Exercisable — September 30, 2015		813,167		$	4.61		6.95	$	1,706
Vested and expected to vest — September 30, 2015		2,094,163		$	8.66		8.60	$	1,825

The estimated fair values of employee stock options granted during the nine months ended September 30, 2015 and 2014, were determined on the date of grant using the Black-Scholes option-pricing model with the following assumptions:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015		2014
Expected option life (years)		6.22			5.96			6.22		5.96
Risk-free interest rate		1.94	%		1.78	%		1.79% -2.12%		1.54% -1.78%
Expected volatility		77.0	%		134	%		76.0% -132.0%		131% -134%
Expected dividend yield		0	%		0	%		0%		0%

As of September 30, 2015 there was $6,022 of unrecognized stock-based compensation expense related to unvested stock options granted under the Company’s stock award plans. This expense is expected to be recognized over a weighted-average period of approximately 3.3 years.

Restricted Stock Units

In connection with the Merger, the Company signed one-year employment agreements with the former CEO and CFO of Ruthigen pursuant to which the Company granted such persons 329,052 restricted stock units (the “RSUs”) of which 130,435 RSUs were immediately vested upon the date of the grant and 49,655 RSUs vested during the three months ended September 30, 2015. The shares of common stock underlying the RSUs held by the former CEO and CFO of Ruthigen are deliverable one year after the applicable vesting date of the respective RSU. In August 2015, the Company granted 10,374 RSUs to other employees that vest over a two year period. The Company recorded stock-based compensation expense of $629 and $2,384 for the RSUs vested during the three and nine months ended September 30, 2015.

The following table summarizes RSU activity for the nine months ended September 30, 2015:


	Number of Units			Weighted- Average Grant Date Fair Value		Total Grant Date Fair Value
Outstanding — December 31, 2014		—		$	—	$	—
Granted		339,426		$	12.43		4,220
Vested		(180,090	)	$	12.65		(2,278	)
Forfeited or expired		—			—		—

Outstanding — September 30, 2015		159,336		$	12.18	$	1,942

The following table presents total stock-based compensation expense for the three and nine months ended September 30, 2015:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Research and development	$	164	$	37	$	225	$	141
General and administrative		2,277		13		4,047		54

Total stock based compensation expense	$	2,441	$	50	$	4,272	$	195