10.

Stock-Based Compensation Plan

The Plan - In 2007, the Company adopted the First Amended 2007 Stock Incentive Plan, as amended (the “Plan”). The Plan provides for the grant of Incentive Stock Options, Nonqualified Stock Options, Restricted Stock Awards, Restricted Stock Unit Awards, Performance Awards and other stock-based awards, or any combination of the foregoing to the Company’s key employees, non-employee directors and consultants. As of December 31, 2016 the total number of shares reserved and available for grant and issuance pursuant to this Plan is 7,067,419 shares, subject to the automatic annual share increase as defined in the Plan. Under the Plan, the exercise price is determined by the Board of Directors or the compensation committee of the Board of Directors, and for options intended to qualify as qualified incentive stock options, may not be less than the fair market value as determined by the closing stock price at the date of the grant. Each option and award shall vest and expire as determined by the Board of Directors or the compensation committee. Options expire no later than ten years from the date of grant. All grants provide for accelerated vesting if there is a change of control, as defined in the Plan.

Stock option awards granted for the year 2016 were estimated to have a weighted average fair value per share of $2.09. Stock option awards granted for the years 2015 and 2014 were estimated to have weighted average fair values per share of $1.33 and $2.51, respectively. The fair value calculation is based on stock options granted during a period using the Black-Scholes option-pricing model on the date of grant. In addition, for all stock options granted, exercise price was determined based on the fair market value as determined by the closing stock price at the date of the grant. For stock options granted during 2016, 2015 and 2014 the following weighted average assumptions were used in determining fair value:

	2016		2015		2014
Risk-free interest rate		1.37%		1.65%		2.12%
Expected volatility		109%		138%		174%
Expected term in years		6.1		6.1		6.7
Dividend yield		-%		-%		-%

The Company determines the expected term of its stock option awards using the simplified method based on the weighted average of the length of the vesting period and the term of the exercise period. Expected volatility is determined by the volatility of the Company’s historical stock price over the expected term of the grant. The risk-free interest rate for the expected term of each option granted is based on the U.S. Treasury yield curve in effect at the time of grant.

Option activity under the Plan for the year ended December 31, 2016, was as follows (in thousands, except as noted):

					Weighted
			Weighted-		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Options		Price		Term		Value
			(per share)		(in years)
Year Ended December 31, 2016
Outstanding at December 31, 2015		5,752	$	1.05		5.3	$	1,972
Granted		1,315		2.54		9.3
Exercised		-		-
Forfeited/expired		-		-
Outstanding at December 31, 2016		7,067	$	1.33		5.2	$	2,241
Vested and expected to vest December 31, 2016		6,728	$	1.27		5.0	$	2,239
Exercisable at December 31, 2016		5,442	$	1.01		4.1	$	2,236

The aggregate intrinsic value represents the total pretax intrinsic value (the difference between the Company’s closing stock price on December 31, 2016 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2016. This amount changes based on the fair market value of the Company’s stock.

Option activity under the Plan for the year ended December 31, 2015, was as follows (in thousands, except as noted):

					Weighted
			Weighted-		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Options		Price		Term		Value
			(per share)		(in years)
Year Ended December 31, 2015
Outstanding at December 31, 2014		5,428	$	1.03		6.0	$	8,829
Granted		349		1.46		9.3
Exercised		-		-
Forfeited/expired		(25)		2.71
Outstanding at December 31, 2015		5,752	$	1.05		5.3	$	1,972
Vested and expected to vest December 31, 2015		5,666	$	1.04		5.2	$	1,972
Exercisable at December 31, 2015		5,079	$	1.00		4.9	$	1,839

The aggregate intrinsic value represents the total pretax intrinsic value (the difference between the Company’s closing stock price on December 31, 2015 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2015. This amount changes based on the fair market value of the Company’s stock.

Option activity under the Plan for the year ended December 31, 2014, was as follows (in thousands, except as noted):

					Weighted
			Weighted-		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Options		Price		Term		Value
			(per share)		(in years)
Year Ended December 31, 2014
Outstanding at December 31, 2013		6,032	$	0.90		6.8	$	18,672
Granted		325		2.57		9.4
Exercised		(525)		0.83
Forfeited/expired		(404)		0.68
Outstanding at December 31, 2014		5,428	$	1.03		6.0	$	8,829
Vested and expected to vest December 31, 2014		5,428	$	1.03		6.0	$	8,829
Exercisable at December 31, 2014		4,735	$	0.99		5.6	$	7,931

The aggregate intrinsic value represents the total pretax intrinsic value (the difference between the Company’s closing stock price on December 31, 2014 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2014. This amount changes based on the fair market value of the Company’s stock. The aggregate pretax intrinsic value of exercises in 2014 totaled $0.9 million.

Stock-Based Compensation Expense - Total stock-based compensation expense for the year ended 2016 was $0.8 million which consisted of research and development expense of $0.4 million and general and administrative expense of $0.4 million. As of December 31, 2016, future stock-based compensation expense for all outstanding unvested options was $2.0 million, which is expected to be recognized over a weighted-average vesting period of 2.9 years. Total stock-based compensation expense for the year ended 2015 was $0.4 million which consisted of research and development expense of $0.1 million and general and administrative expense of $0.2 million. Total stock-based compensation expense for the year ended 2014 was $0.4 million which consisted of research and development expense of $0.1 million and general and administrative expense of $0.3 million.