8. Stock-based compensation

2014 Stock Plan

Pieris granted 1,157,734 options to employees, consultants, and directors under its 2014 Employee, Director and Consultant Equity Incentive Plan, (the “2014 Plan”) during the nine months ended September 30, 2016. Pieris granted 116,027 and 663,262 options to employees, consultants, and directors under the 2014 Employee, Director and Consultant Equity Incentive Plan, (the “Plan”) during the three and nine months ended September 30, 2015, respectively.

During the three months ended September 30, 2015 the Company granted an option to purchase 500,000 shares outside of the Plan to a newly-hired executive officer that was an inducement and material to the executive officer entering into employment with the Company. The compensation expense associated with this inducement option was $32,133 and is included in research and development expense for both the three and nine months periods ended September 30, 2015.

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”). Therefore no options were granted for the three months ended September 30, 2016 under the 2014 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.

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; the total shares available under the 2016 Plan reflects the issuance of this option. The Company granted 114,378 options to employees and directors under the 2016 Plan during the three and nine months ended September 30, 2016. No options were granted under the 2016 Plan during the three and nine months ended September 30, 2015. As of September 30, 2016, there were 3,275,622 shares available for future grant under the 2016 Plan. The shares available for future grant under the 2016 Plan include 90,000 shares which were forfeited during the three months ended September 30, 2016 under the 2014 Plan. These forfeited shares were added to the 2016 Plan.

Stock-based compensation expense for the three and nine months ended September 30, 2016 was $0.4 million and $1.4 million, respectively, and was $0.3 million and $0.8 million for the three and nine months ended September 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 nine months ended September 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 nine months ended September 30, 2016 was $1.05 and $1.01, respectively. The weighted-average fair value of the options granted during the three and nine months ended September 30, 2015 was $1.95 and $1.94, 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 nine months ended September 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.