14. LONG TERM INCENTIVE PLAN & STOCK OPTIONS

Long Term Incentive Plan & Stock Options

The Board of Directors adopted the Rockwell Medical, Inc., 2007 Long Term Incentive Plan (“LTIP”) on April 11, 2007 as a replacement for the 1997 Stock Option Plan (the “Old Plan”) which was terminated as to future grants. No options were granted under the Old Plan after 2006 and no options remain outstanding as of December 31, 2016. There are 11,500,000 common shares reserved for issuance under the LTIP. The Compensation Committee of the Board of Directors (the “Committee”) is responsible for the administration of the LTIP including the grant of stock based awards and other financial incentives including performance based incentives to employees, non‑employee directors and consultants.

The Committee determines the terms and conditions of options and other equity based incentives including, but not limited to, the number of shares, the exercise price, term of option and vesting requirements. The Committee approved stock option grants during 2016, 2015 and 2014 and restricted stock grants in 2015 and 2014. The stock option awards were granted with an exercise price equal to the market price of the Company’s stock on the date of the grant. The options expire 10 years from the date of grant or upon termination of employment and generally vest in three equal annual installments beginning on the first anniversary of the date of grant.

Restricted Stock Grants

There were no grants of restricted stock during 2016. We granted 850,000 and 740,000 restricted shares in 2015 and 2014, respectively under the LTIP. These restricted stock grants were valued at the market price on the date of grant.

During 2015, restricted stock grants aggregating 850,000 common shares were granted in October 2015 with a vesting date of approximately twenty months following the grant date. Vesting is conditioned upon continued employment with the Company.

During 2014, restricted stock grants aggregating 320,000 shares were granted in January 2014 with a vesting date of approximately fourteen months after the grant date and an additional 420,000 common shares were granted in October 2014 with a vesting date of approximately seven months following the grant date with vesting conditioned upon continued employment with the Company.


	2016		2015		2014
Restricted Shares Granted		-		850,000		740,000
Average Market Value Per Share on Grant Date		-	$	8.23	$	9.42
Expense related to All Restricted Shares	$	4,361,760	$	3,694,496	$	5,497,274
Unearned Stock Based Compensation for All Restricted Stock Awards Attributable to Future Periods.	$	1,549,259

Stock Option Grants

Our standard stock option agreement under the 2007 Plan allows for the payment of the exercise price of vested stock options either through cash remittance in exchange for newly issued shares, or through non‑cash exchange of previously issued shares held by the recipient for at least six months in exchange for our newly issued shares. The 1997 Plan also allows for the retention of shares in payment of the exercise price and income tax withholding. The latter method results in no cash being received by us, but also results in a lower number of total shares being outstanding subsequently as a direct result of this exchange of shares. Shares returned to us in this manner would be retired.

In 2016, 2015 and 2014, the Company received cash proceeds of $80,161, $2,780,188 and $2,964,445 respectively, in exchange for shares issued upon the exercise of options during the year. No income tax benefits were recognized during 2016, 2015 and 2014 related to stock option activity as the Company has a full valuation allowance recorded against its deferred tax assets. However, tax benefits (expense) for the excess of the value of the shares issued over the price paid of $20,000, ($943,000) and $2,009,000 were created in 2016, 2015, and 2014. The cumulative excess tax benefit at December 31, 2016 is $5.4 million, which when realized, will be credited directly to shareholders' equity.

A summary of the status of the LTIP and the Old Plan is as follows:


		WEIGHTED
		AVERAGE	AGGREGATE
		EXERCISE	INTRINSIC
	SHARES	PRICE	VALUE
Outstanding at December 31, 2013	6,228,000	6.27	$	25,956,880
Granted	1,731,500	9.43
Exercised	(1,029,016)	2.88	$	2,964,445
Forfeited	(45,401)	6.19
Outstanding at December 31, 2014	6,885,083	7.41	$	19,730,211
Granted	1,697,500	8.30
Exercised	(794,248)	3.50	$	2,780,188
Forfeited	(29,333)	6.91
Outstanding at December 31, 2015	7,759,002	7.84	$	18,648,477
Granted	30,000	6.54
Exercised	(25,834)	4.35	$	112,280
Forfeited	(71,667)	9.33
Outstanding at December 31, 2016	7,691,501	7.83	$	1,821,384


OPTIONS OUTSTANDING						OPTIONS EXERCISABLE
								WEIGHTED
			REMAINING	WEIGHTED				AVERAGE
	NUMBER OF		CONTRACTUAL	EXERCISE		NUMBER OF		EXERCISE
RANGE OF EXERCISE PRICES	OPTIONS		LIFE	PRICE		OPTIONS		PRICE
$3.09 to $4.93		392,500	2.0-6.5 yrs.	$	3.31		392,500	$	3.31
$5.86 to $7.13		2,513,000	.9-9.7 yrs.	$	6.44		2,483,000	$	6.44
$8.23 to 11.49		4,786,001	2.8-8.8 yrs.	$	8.94		3,113,835	$	9.09
Total		7,691,501	5.7 yrs.	$	7.83		5,989,335	$	7.61
Intrinsic Value	$	1,821,384				$	1,821,134


		WEIGHTED
		AVERAGE
	NUMBER OF	FAIR MARKET
	UNVESTED	VALUE AT
	OPTIONS	GRANT DATE
As of December 31, 2013	1,714,433
Granted	1,731,500	$	5.91
Forfeited	(45,401)
Vested	(820,032)
As of December 31, 2014	2,580,500
Granted	1,697,500	$	4.56
Forfeited	(28,333)
Vested	(1,135,056)
As of December 31, 2015	3,114,611
Granted	30,000	$	3.85
Forfeited	(71,667)
Vested	(1,370,778)
As of December 31, 2016	1,702,166

The Company values stock options awarded using the Black‑Scholes method. Assumptions used in the stock option valuations were:


	2016	2015	2014
Volatility of share price	64 - 65 %	58 - 61 %	69 - 70 %
Risk free interest rate	1.3-1.6 %	1.5 - 1.7 %	1.9 - 2.0 %
Expected option life	6 yrs.	6 yrs.	6 yrs.
Dividend Yield	0.0%	0.0%	0.0%

We believe this valuation methodology is appropriate for estimating the fair value of stock options we grant to employees and directors which are subject to ASC 718‑10 requirements. We primarily base our determination of expected volatility through our assessment of the historical volatility of our common shares. We do not believe that we are able to rely on our historical stock option exercise and post‑vested termination activity to provide accurate data for estimating our expected term for use in determining the fair value of these options. Therefore, as allowed by Staff Accounting Bulletin (SAB) No. 107, Share‑Based Payment, we have opted to use the simplified method for estimating the expected option term equal to the midpoint between the vesting period and the contractual term. The contractual term of the option is 10 years from the date of grant and the vesting term of the option is three years from date of grant. Risk free interest rates utilized are based upon published U.S. Treasury yield curves at the date of the grant for the expected option term.

For the years ended December 31, 2016, 2015 and 2014, we recognized compensation expense of $5,984,524, $5,193,481 and $4,597,412 respectively related to options granted to employees under the LTIP with a corresponding credit to common stock. At December 31, 2016, the amount of unrecorded stock-based compensation expense for stock options attributable to future periods was approximately $5,834,369 which is expected to be amortized to expense over the remaining vesting periods of the options of 1 to 30 months.

As of December 31, 2016, the remaining number of common shares available for equity awards under the LTIP was 545,694.