8. Stock-based compensation

2014 Stock Plan

Pieris granted 88,853 and 1,157,734 options to employees, consultants, and directors under its 2014 Employee, Director and Consultant Equity Incentive Plan, (the “2014 Plan”) during the three and six months ended June 30, 2016, respectively. Pieris granted 72,235 and 25,000 options to employees, consultants, and directors under the 2014 Employee, Director and Consultant Equity Incentive Plan, (the “Plan”) during the three and six months ended June 30, 2015, respectively.

The 2014 Plan was terminated on June 28, 2016 when the Company adopted its 2016 Employee, Director and Consultant Equity Incentive Plan, (the “2016 Plan”).

2016 Stock Plan

In June 2016, the Company adopted the 2016 Plan which provides for the grant of stock options, restricted and unrestricted stock awards and other stock-based awards to employees of the Company, non-employee directors of the Company and certain other consultants performing services for the Company as designated by the Compensation Committee of the Board of Directors or the Board of Directors.

At June 30, 2016, the number of common shares reserved for issuance under the 2016 Plan was 3,750,000. The vesting periods of equity incentives issued under the 2016 Plan are determined by the Compensation Committee of the Company’s Board of Directors, with stock options generally vesting over a four-year period. In September 2015, a stock option to purchase 450,000 shares of the Company’s common stock, par value $0.001 (the “Common Stock”) was granted to a newly–hired executive officer subject to certain restrictions on exercise that required the Company’s shareholders to approve an increase in the number of shares authorized under the 2014 Plan. Upon the Company’s adoption of the 2016 Plan, this stock option was amended and issued under the 2016 Plan and the total shares available under the 2016 Plan reflect the issuance of this option. No stock options were granted under the 2016 Plan during the three and six months ended June 30, 2015. As of June 30, 2016, there were 3,305,000 shares available for future grant under the 2016 Plan.

Stock-based compensation expense for the three and six months ended June 30, 2016 was $0.6 million and $1.0 million, respectively, and was $0.3 million and $0.5 million for the three and six-months ended June 30, 2015, respectively.

Total stock-based compensation expense was recorded to operating expenses based upon the functional responsibilities of the individuals holding the respective options as follows:

There were no options exercised during the three and six months ended June 30, 2016 and 2015, respectively.

The Company uses the Black-Scholes option pricing model to determine the estimated fair value for stock-based awards. Option-pricing models require the input of various subjective assumptions, including the option’s expected life, expected dividend yield, price volatility, risk free interest rate and forfeitures of the underlying stock. Accordingly, the weighted-average fair value of the options granted during the three and six months ended June 30, 2016 was $1.09 and $1.01, respectively. The weighted-average fair value of the options granted during the three and six months ended June 30, 2015 was $1.81 and $1.82, respectively. The calculation was based on the following assumptions:

Option-pricing models require the input of various subjective assumptions, including the option´s expected life and the price volatility of the underlying stock. Pieris’ estimated expected stock price volatility is based on the average volatilities of other guideline companies in the same industry. Pieris’ expected term of options granted during the three and six months ended June 30, 2016 and 2015, respectively was derived using the SEC’s simplified method. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

The Company’s stock options have a maximum term of ten years from the date of grant. Stock options granted under the 2016 Plan may be either incentive stock options (“ISOs”), or nonqualified stock options. The exercise price of stock options granted under the 2016 Plan must be at least equal to the fair market value of the common stock on the date of grant. The Company’s general policy is to issue common shares upon the exercise of stock options.