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 (“2007 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 remained outstanding as of December 31, 2016. The 2007 LTIP expired on April 11, 2017 and no equity awards were granted under the 2007 LTIP following its expiration. There were 11,500,000 common shares reserved for issuance under the 2007 LTIP. The Compensation Committee of the Board of Directors (the “Committee”) is responsible for the administration of the 2007 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 2017, 2016 and 2015 and restricted stock grants in 2017 and 2015. 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

We granted 530,000 and 850,000 restricted shares in 2017 and 2015, respectively under the 2007 LTIP. There were no grants of restricted stock during 2016. These restricted stock grants were valued at the market price on the date of grant.

During 2017, 480,000 performance based restricted shares were granted. Vesting is conditioned upon achievement of certain performance measures which were originally estimated to be approximately seventeen months following the grant date and may also vest based on a market performance measure. Evaluation of the expected vesting period is reviewed quarterly. During 2017, 50,000 restricted shares were granted in consideration for consulting services.

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.


	2017		2016		2015
Restricted Shares Granted		530,000		-		850,000
Average Market Value Per Share on Grant Date	$	5.72	$	-	$	8.23
Expense related to All Restricted Shares	$	3,316,093	$	4,361,760	$	3,694,496
Unearned Stock Based Compensation for All Restricted Stock Awards Attributable to Future Periods.	$	1,266,666

Stock Option Grants

Our standard stock option agreement under the 2007 LTIP 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 2007 LTIP 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 2017, 2016 and 2015, we received cash proceeds of $123,603, $80,161 and $2,780,188 respectively, in exchange for shares issued upon the exercise of options during the year. No income tax benefits were recognized during 2017, 2016 and 2015 related to stock option activity as we have 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 $1,209,000, $20,000 and ($943,000) were created in 2017, 2016, and 2015. The cumulative excess tax benefit at December 31, 2017 is $3.0 million, which when realized, will be credited directly to shareholders' equity.

A summary of the status of the 2007 LTIP and the Old Plan is as follows:


		WEIGHTED
		AVERAGE	AGGREGATE
		EXERCISE	INTRINSIC
	SHARES	PRICE	VALUE
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
Granted	15,000	6.09
Exercised	(433,500)	6.45	$	109,847
Forfeited	(367,000)	7.85
Outstanding at December 31, 2017	6,906,001	7.92	$	976,335


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		389,500	1.0-5.5 yrs.	$	3.31		389,500	$	3.31
$5.86 to $7.13		1,922,500	.4-8.7 yrs.	$	6.43		1,887,500	$	6.43
$8.23 to 11.49		4,594,001	1.8-7.8 yrs.	$	8.93		4,056,168	$	9.02
Total		6,906,001	5.1 yrs.	$	7.92		6,333,168	$	7.90
Intrinsic Value	$	976,335				$	976,335


		WEIGHTED
		AVERAGE
	NUMBER OF	FAIR MARKET
	UNVESTED	VALUE AT
	OPTIONS	GRANT DATE
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
Granted	15,000	$	3.70
Forfeited	(367,000)
Vested	(777,333)
As of December 31, 2017	572,833

We value stock options awarded using the Black‑Scholes method. Assumptions used in the stock option valuations were:


	2017	2016	2015
Volatility of share price	66%	64 - 65 %	58 - 61 %
Risk free interest rate	2.00%	1.3-1.6 %	1.5 - 1.7 %
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, 2017, 2016 and 2015, we recognized compensation expense of $3,858,503 $5,984,524, and $5,193,481 respectively related to options granted to employees under the 2007 LTIP with a corresponding credit to common stock. At December 31, 2017, the amount of unrecorded stock-based compensation expense for stock options attributable to future periods was approximately $1,944,342 which is expected to be amortized to expense over the remaining vesting periods of the options of 8 to 25 months.