NOTE 15—OPTIONS AND WARRANTS

The Board initially adopted the Opexa Therapeutics, Inc. 2010 Stock Incentive Plan on September 2, 2010 for the granting of equity incentive awards to employees, directors and consultants of Opexa, and the Plan was initially approved by the Company’s shareholders on October 19, 2010. On September 25, 2013, the Board approved the Amended and Restated 2010 Stock Incentive Plan (“the 2010 Plan”), and the Company’s shareholders approved the amended 2010 Plan on November 8, 2013, in order to (i) increase the number of shares of common stock reserved for issuance by 3,000,000 shares and (ii) reset the number of stock-based awards issuable to a participant in any calendar year to align with the increase in the shares reserved. The 2010 Plan is the successor to and continuation of Opexa’s June 2004 Compensatory Stock Option Plan (the “2004 Plan”). The 2004 Plan reserved a maximum of 575,000 shares of common stock for issuance pursuant to incentive stock options and nonqualified stock options granted to employees, directors and consultants. Awards were made as either incentive stock options or nonqualified stock options, with the Board having discretion to determine the number, term, exercise price and vesting of grants made under the 2004 Plan. All outstanding equity awards granted under the 2004 Plan continue to be subject to the terms and conditions as set forth in the agreements evidencing such stock awards and the terms of the 2004 Plan, but no additional awards will be granted under the 2004 Plan subsequent to approval of the 2010 Plan. The 2010 Plan reserves a maximum of 3,625,000 shares of common stock for issuance plus the number of shares subject to stock options outstanding under the 2004 Plan that are forfeited or terminate prior to exercise and would otherwise be returned to the share reserves under the 2004 Plan and any reserved shares not issued or subject to outstanding grants, up to a maximum of 513,220 shares. The 2010 Plan provides for the grant of incentive stock options or nonqualified stock options, as well as restricted stock, stock appreciation rights, restricted stock units and performance awards that may be settled in cash, stock or other property. The Board of Directors or Compensation Committee, as applicable, administers the 2010 Plan and has discretion to determine the recipients, the number and types of stock awards to be granted and the terms and conditions of the stock awards, including the period of their exercisability and vesting. Subject to a limitation on repricing without shareholder approval, the Board or Compensation Committee, as applicable, may also determine the exercise price of options granted under the 2010 Plan.

Employee Options:

During 2012, options to purchase an aggregate of 107,832 shares were granted to employees, at exercise prices ranging from $1.80 to $3.80. These options have terms of ten years and have a vesting schedule of three years. Fair value of $381,020 was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for these options include (1) discount rate range of 1.40% and 1.98%, (2) expected term of 5.25 to 7 years, (3) expected volatility range of 180% and 183% and (4) zero expected dividends.

During 2012, options to purchase an aggregate of 254,756 shares were granted to senior management, based on the achievement of future performance-based, strategic milestone objectives, at an exercise price of $3.80. These options have terms of ten years and have vesting schedules of three years commencing after the two specific milestone objectives have been individually met. Fair value of $964,715 was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for these options include (1) discount rate of 1.98%, (2) expected term of ten years, (3) expected volatility of 183% and (4) zero expected dividends. As of December 31, 2012, one of the two specific milestone objectives had been individually met and an aggregate of 82,009 shares granted to senior management commenced vesting during 2012.

During 2012, options to purchase 4,678 shares were forfeited and cancelled.

Opexa recorded $549,150 stock-based compensation expense to management and employees during 2012, which included the related expense for the options that are expected to vest based on achievement of their related performance conditions. Unamortized stock compensation expense as of December 31, 2012 amounted to $1,142,135.

During 2013, options to purchase an aggregate of 338,500 shares were granted to employees, at exercise prices ranging from $1.45 to $2.34. These options have terms of ten years and have a vesting schedule of three years. Fair value of $659,601 was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for these options include (1) discount rate range of 1.73% and 2.78%, (2) expected term of 5.25 to 6 years, (3) expected volatility range of 191.83% and 203.69% and (4) zero expected dividends.

During 2013, options to purchase 78,171 shares were forfeited and cancelled.

Opexa recorded $766,875 stock-based compensation expense to management and employees during 2013, which included the related expense for the options that are expected to vest based on achievement of their related performance conditions. Unamortized stock compensation expense as of December 31, 2013 amounted to $894,821.

Non-Employee Options:

During 2012, an option to purchase an aggregate of 18,750 shares was granted to Opexa’s non-employee Acting Chief Financial Officer at an exercise price of $2.04 in connection with his appointment. This option has a term of ten years, with one-third of the shares vesting immediately, one-third of the shares vesting on December 31, 2012 and the remaining one-third of the shares vesting at the earlier of June 30, 2013 or the appointment of a permanent chief financial officer. Fair value of $37,096 was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for this option include (1) discount rate of 1.80%, (2) expected term of 5.25 years, (3) expected volatility of 185% and (4) zero expected dividends.

During 2012, options to purchase an aggregate of 30,600 shares were granted to directors for service on Opexa’s Board at an exercise price of $3.76. Options to purchase an aggregate of 10,000 shares have terms of 10 years, with 50% of the shares vesting immediately and 50% vesting one year from the date of grant. Options to purchase the remaining 20,600 shares will expire on the earlier of 10 years or a change in control of the Company, with 50% of the shares vesting immediately and 50% vesting on December 31, 2012. Fair value of $111,428 was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for these options include (1) discount rate of 2.03%, (2) expected term of 5.25 years, (3) expected volatility of 186% and (4) zero expected dividends.

During 2012, options to purchase 25,563 shares were forfeited and cancelled.

Opexa recorded $141,576 of stock-based compensation expense to consultants and directors during 2012. Unamortized stock compensation expense as of December 31, 2012 amounted to $14,770.

During 2013, options to purchase an aggregate of 88,572 shares were granted to directors for service on Opexa’s Board at an exercise price of $1.75. Options to purchase an aggregate of 20,000 shares have terms of 10 years, with 50% of the shares vesting immediately and 50% vesting one year from the date of grant. Options to purchase the remaining 68,572 shares will expire on the earlier of 10 years or a change in control of the Company, with 50% of the shares vesting immediately and 50% vesting on December 31, 2013. Fair value of $151,867 was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for these options include (1) discount rate of 1.73%, (2) expected term of 5.25 years, (3) expected volatility of 201.21% and (4) zero expected dividends.

During 2013, options to purchase 11,072 shares were forfeited and cancelled.

Opexa recorded $143,212 of stock-based compensation expense to consultants and directors during 2013. Unamortized stock compensation expense as of December 31, 2013 amounted to $4,190.

Broker and Investor Warrants:

During 2012, warrants to purchase 464,584 shares were forfeited.

In connection with Opexa’s July 25, 2012 private offering of the July 2012 Notes (see Note 9), Opexa issued warrants to the holders of the July 2012 Notes to purchase an aggregate of 1,436,121 shares of common stock at a current adjusted exercise price of $2.56 per share, subject to certain limitations and adjustments. These warrants have a term of five years and are initially exercisable on January 25, 2013.

During 2013, warrants to purchase 1,482,892 shares were forfeited.

In connection with Opexa’s January 23, 2013 private offering of the January 2013 Notes (see Note 9), Opexa issued warrants to the holders of the January 2013 Notes to purchase an aggregate of 243,750 shares of common stock at an exercise price of $1.24 per share, subject to certain limitations and adjustments. These warrants have a term of five years and were immediately exercisable. The estimated relative fair value of the investor warrants was $195,969 and was calculated using the Black-Scholes valuation model. The following assumptions were used: (1) no expected dividends, (2) risk free interest rate of 0.76%, (3) expected volatility of 191% and (4) expected life of five years. Opexa can redeem the warrants at $0.01 per share if the Company’s common stock closes at or above $10.00 per share for 20 consecutive trading days.

Pursuant to a waiver executed by the holders of in excess of two-thirds (66-2/3%) of the principal amount of the outstanding July 2012 Notes and accepted by Opexa, the amount of the cash subject to a deposit control agreement was reduced to $500,000 during January 2013 (see Note 2). In exchange for such waiver, the Company issued warrants to the holders of the July 2012 Notes to purchase an aggregate of 187,500 shares of common stock at an exercise price of $1.21 per share, subject to certain limitations and adjustments. The warrants have a term of five years and were immediately exercisable. The estimated fair value of the warrants was $219,553 and was calculated using the Black-Scholes valuation model. The following assumptions were used: (1) no expected dividends, (2) risk free interest rate of 0.90%, (3) expected volatility of 191% and (4) expected life of five years. Opexa can redeem the warrants at $0.01 per underlying share of common stock if the common stock closes at or above $10.00 per share for 20 consecutive trading days. The fair value of the warrants was recognized as additional interest expense during the year ended December 31, 2013.

In connection with Opexa’s February 2013 registered offering (See Note 14), Opexa issued warrants to the investors to purchase an aggregate of 541,668 shares of common stock at an exercise price of $3.00 per share, subject to certain limitations and adjustments. These warrants have a term of four years and were immediately exercisable.

At December 31, 2012, the aggregate intrinsic value of the outstanding options and warrants was $13,846 and $57,891, respectively. At December 31, 2013, the aggregate intrinsic value of the outstanding options and warrants was $49,851 and $255,750, respectively.

Summary information regarding options and warrants from December 31, 2006 is as follows:


	Options			Weighted Average Exercise Price		Warrants			Weighted Average Exercise Price
Outstanding at December 31, 2006		190,426		$	45.92		917,590		$	78.04

Year ended December 31, 2007:
Granted		73,475			21.12		—			—
Forfeited and canceled		(4,336	)		30.96		—			—
Outstanding at December 31, 2007		259,565		$	39.16		917,590		$	78.04

Year ended December 31, 2008:
Granted		160,100			4.50		1,682,209			7.84
Forfeited and canceled		(31,617	)		24.41		—			—
Outstanding at December 31, 2008		388,048		$	25.88		2,599,799		$	32.60

Year ended December 31, 2009:
Granted		193,583			3.83		801,143			6.68
Exercised		(15,100	)		4.21		(179,691	)		6.64
Forfeited and canceled		(85,605	)		42.22		(52,082	)		20.00
Outstanding at December 31, 2009		480,926		$	14.80		3,169,169		$	27.72

Year ended December 31, 2010:
Granted		38,138			8.34		1,966			8.00
Exercised		(35,380	)		3.56		(17,102	)		8.40
Forfeited and canceled		(98,168	)		36.62		(289,160	)		117.60
Outstanding at December 31, 2010		385,516		$	8.60		2,864,873		$	11.00

Year ended December 31, 2011:
Granted		76,157			6.29		414,649			10.44
Exercised		—			—		—			—
Forfeited and canceled		(18,750	)		20.00		(671,972	)		23.72
Outstanding at December 31, 2011		442,923		$	7.71		2,607,550		$	6.66

Year ended December 31, 2012:
Granted		411,938			3.68		1,436,121			2.56
Exercised		—			—		—			—
Forfeited and canceled		(30,241	)		11.80		(464,584	)		6.12
Outstanding at December 31, 2012		824,620		$	5.54		3,579,087		$	5.64

Year ended December 31, 2013:
Granted		427,072			1.94		972,918			2.21
Exercised		—			—		—			—
Forfeited and canceled		(89,243	)		4.55		(1,482,892	)		6.54
Outstanding at December 31, 2013		1,162,449		$	4.30		3,069,113		$	4.12

Summary of options outstanding and exercisable as of December 31, 2013 is as follows:

Range of Exercise Prices	Weighted Average Remaining Contractual Life (years)		Number of Options Outstanding		Number of Options Exercisable

$0.88 to $4.99		6.61		960,254		467,218
5.00 to 9.99		0.86		157,325		154,304
10.00 to 39.20		0.11		44,870		44,870
$0.88 to $39.20		7.58		1,162,449		666,392

Summary of warrants outstanding and exercisable as of December 31, 2013 is as follows:

Range of Exercise Prices	Weighted Average Remaining Contractual Life (years)		Number of Warrants Outstanding		Number of Warrants Exercisable
$1.21 to $4.99		2.79		2,409,033		2,409,033
5.00 to 10.44		0.40		660,080		660,080
$1.21 to $10.44		3.19		3,069,113		3,069,113