9. Stock-Based Compensation

Option and Equity Plans

In January 2014, the Company’s board of directors increased the aggregate number of shares issuable under the 2012 Employee, Director and Consultant Equity Incentive Plan (the “2012 Plan”) to 3,000,000, which was approved by the shareholders in February 2014.

The total number of shares available for grant under the 2012 Plan at March 31, 2014 was 867,323.

Stock Options

A summary of the Company’s stock option activity for the three months ended March 31, 2014 was as follows:

The Company estimates the fair value of each stock option on the grant date using the Black-Scholes-Merton valuation model, which requires several estimates including an estimate of the fair value of the underlying common stock on grant date. The expected volatility was based on an average of the historical volatility of a peer group of similar companies. The expected term was calculated utilizing the simplified method. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. There were no options granted to employees during the three months ended March 31, 2013. The following weighted average assumptions were used in the calculation to estimate the fair value of options granted to employees during the three months ended March 31, 2014:

Restricted Stock Units

Restricted stock unit (“RSU”) activity for the three months ended March 31, 2014 was as follows:

The total fair value of RSUs vested during the three months ended March 31, 2014 was $216,000.

During the three months ended March 31, 2104, 1,730,714 RSUs were granted to be issued upon the effectiveness of the filing of a registration statement on Form S-8 and will vest upon the expiration of the lock-up period for the Company’s IPO, which will occur in August 2014. The Form S-8 was filed in April 2014. The estimated aggregate value to be recognized as compensation expense in 2014 for the RSUs granted during the three months ended March 31, 2014 was $10.0 million, which will be recognized from April to August 2014.

In February 2013, employees of the Company elected to exchange 93,968 stock options for an equal number of RSUs pursuant to a one-time tender offer approved by the board of directors. The RSUs vest solely upon either a change in control of the Company or upon the expiration of a lock-up period in connection with an underwritten public offering of shares of the Company’s common stock. The incremental fair value on the date of the exchange, representing the difference between the value of the original stock options and the value of the RSUs issued of approximately $758,000 is being recognized over six months from February 12, 2014 to August 12, 2014.

Stock-Based Awards Granted to Nonemployees

The Company from time to time grants options to purchase common stock or restricted stock to non-employees for services rendered. The Company estimates the fair value of the stock options using the Black-Scholes-Merton valuation model at each reporting date and records expense ratably over the vesting period of each stock option award. No options were granted to non-employees during the three months ended March 31, 2013. The Company granted 145,387 options and 50,000 restricted shares to non-employees and recorded stock-based compensation expense of $714,000 during the three months ended March 31, 2014.

The following assumptions were used in the Black-Scholes-Merton valuation model related to non-employee stock options granted during the three months ended March 31, 2014:

Summary of Stock-Based Compensation Expense

Total stock-based compensation expense included in the consolidated statements of operations and comprehensive loss was allocated as follows (in thousands):

Unrecognized stock-based compensation for stock options and RSUs at March 31, 2014 was as follows (in thousands):