13. Stock-Based Compensation

The Clean Diesel Technologies, Inc. Stock Incentive Plan (formerly known as the Clean Diesel Technologies, Inc. 1994 Incentive Plan), as amended (the "Plan"), provides for the awarding of incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, performance awards, bonuses or other forms of share-based awards, or combinations of these to the Company's directors, officers, employees, consultants and advisors (except consultants or advisors in capital-raising transactions) as determined by the board of directors. At the Company's Annual Meeting of Shareholders held on May 23, 2012, the Company's shareholders approved certain amendments to the Plan, the most significant of which changed the Plan name, removed the evergreen provision and established a maximum number of 1.4 million shares to be reserved for issuance under the Plan, disallowed the repricing of outstanding stock options without shareholder approval, removed the ability to issue cash bonus awards under the Plan and modified the change in control provisions within the Plan. As of December 31, 2015, there were 203,202 shares available for future grants under the Plan.

Total stock-based compensation expense was $0.8 million and $0.6 million for the years ended December 31, 2015 and 2014, respectively.

Stock Options

Stock option activity is summarized as follows:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (thousands)
Outstanding at December 31, 2014		447,923		$	8.74
Granted		974,424		$	1.84
Cancelled		(137,483	)	$	3.77

Outstanding at December 31, 2015		1,284,864		$	4.00		7.7	$	—


Exercisable at December 31, 2015		456,776		$	8.05		4.1	$	—

The aggregate intrinsic value represents the difference between the exercise price and the Company's closing stock price on the last trading day of the year.

Stock options granted under the Plan typically expire ten years from the date of grant and are issued at a price equal to the fair market value of the underlying stock on the date of grant. The Company's board of directors may establish such vesting and other conditions with respect to options as it deems appropriate.

The Company estimates the fair value of stock options using a Black-Scholes option-pricing model. The Company did not grant any stock options during the year ended December 31, 2014, and the weighted-average assumptions and grant date fair value for the year ended December 31, 2015 were as follows:

Expected volatility		126.0	%
Risk-free interest rate		1.7	%
Dividend yield		—
Expected life in years		5.4
Weighted average grant date fair value	$	1.52

The expected term of the options has historically been based upon the historical term until exercise or expiration of all granted options. Due to the significant change in the Company following the Merger and significant change in the terms of the options granted, CDTI's pre-Merger historical exercise data was not considered to provide a reasonable basis for estimating the expected term for current option grants. As such, the expected term of stock options granted in 2015 was determined using the "simplified method" as allowed under ASC 718-10-S99, "Compensation—Stock Compensation: Overall: SEC Materials." The "simplified method" calculates the expected term as the average of the vesting term and original contractual term of the options. The expected volatility is based on the volatility of the Company over the corresponding expected term of the option. The risk-free interest rate is the constant maturity rate published by the U.S. Federal Reserve Board that corresponds to the expected term of the option. The dividend yield is assumed as 0% because the Company has not paid dividends and does not expect to pay dividends in the future.

Compensation costs for stock options that vest over time are recognized over the vesting period on a straight-line basis. As of December 31, 2015, the Company had $1.1 million of unrecognized compensation cost related to stock option grants that remained to be recognized over vesting periods. These costs are expected to be recognized over a weighted average period of 1.6 years.

Restricted Stock Units

RSU activity is as follows:

	Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2014		352,766		$	2.35
Granted		122,120		$	1.87
Vested		(262,689	)	$	2.34
Forfeited		(12,555	)	$	4.18

Nonvested units at December 31, 2015		199,642		$	2.87

As of December 31, 2015, the Company had approximately $0.3 million of unrecognized compensation expense related to RSUs, which will be recognized over a weighted average estimated remaining life of 1.0 years.