6. Stock Based Compensation

The Company has three equity compensation plans: the 2013 Incentive Plan, which was approved by shareholders at the Company’s Annual Meeting of Shareholders on May 23, 2013, the Amended and Restated 2000 Stock Incentive Plan, as amended (the “2000 Stock Incentive Plan”) and the Amended and Restated 2000 Employee Stock Purchase Plan (the “Stock Purchase Plan”). Both the 2000 Stock Incentive Plan and the Stock Purchase Plan were adopted by the Company’s Board of Directors in 2000. Upon the approval of the 2013 Incentive Plan, no additional awards will be issued under the 2000 Stock Incentive Plan and the shares remaining for future grant under the 2000 Stock Incentive Plan were transferred to the 2013 Incentive Plan.

Under the terms of the 2013 Incentive Plan, the Company is authorized to grant a variety of incentive awards based on our common stock, including stock options (both incentive stock options and non-qualified stock options), performance shares and other stock awards, as well as the payment of incentive bonuses to all employees and non-employee directors. The 2013 Incentive Plan provides for a single aggregate per person annual sub-limit of 1,500,000 stock options, performance shares (including RSUs) and shares of restricted stock. The 2013 Incentive Plan provides for the issuance of a maximum of 3,053,833 shares of common stock. Shares subject to outstanding awards under the 2000 Stock Incentive Plan that are cancelled, expired, forfeited or otherwise not issued will also be added to the number of shares available under the 2013 Incentive Plan. As of September 30, 2013, 2,333,966 shares of the Company’s common stock were reserved for future grants (or issuances) of restricted stock, restricted stock units, stock options, and stock warrants under the 2013 Incentive Plan. The 2013 Incentive Plan will terminate on April 16, 2023 unless it is extended or terminated earlier pursuant to its terms.

Under the terms of the 2000 Stock Incentive Plan, the Company was authorized to grant a variety of incentive awards based on our common stock, including stock options, (both incentive stock options and non-qualified stock options), performance shares, and other stock awards to all employees and non-employee directors. On March 15, 2013, the Company’s Board of Directors amended the 2000 Stock Incentive Plan to provide for a single aggregate per person annual sub-limit for the issuance of a maximum of 1,500,000 stock options, performance shares (including RSUs) and shares of restricted stock. The 2000 Stock Incentive Plan ceased to be available for additional grants once the Company’s shareholders approved the 2013 Incentive Plan on May 23, 2013.

Under the terms of the Stock Purchase Plan, eligible employees may, from time-to-time, have the opportunity to purchase our common stock at a discount. An option gives its holder the right to purchase shares of our common stock, up to a maximum value of $25,000 per year. The Stock Purchase Plan provides for the issuance of a maximum of 150,000 shares of our common stock to participating employees. Since the Company’s merger with Transave, Inc. in 2010, the Company has not offered employees the right to purchase common stock under the Stock Purchase Plan. As of September 30, 2013, 150,000 shares of the Company’s common stock were reserved for future issuances of common stock under the Stock Purchase Plan (See Part II. Other Information, Item 5. Other Information, “Termination of a Material Definitive Agreement” for information regarding the termination of our Stock Purchase Plan on October 31, 2013).

During the first quarter of 2013, the Company completed a review of equity compensation awards granted under its 2000 Stock Incentive Plan and determined that it had inadvertently exceeded the annual per-person sub-limits involving certain awards previously made to certain of its current and past officers and directors (the “excess awards”). The aggregate amount of common stock represented by these excess awards, which consisted of RSUs and stock options, was approximately 1.4 million shares. These awards were deemed to be granted outside of the 2000 Stock Incentive Plan and as such the Company applied liability accounting to these awards. On May 23, 2013 (the date of the Company’s 2013 Annual Meeting of Stockholders), shareholders approved the grants associated with the excess awards, which as of this date, allowed the excess awards to be deemed granted under the 2000 Stock Incentive Plan. As a result, the excess awards were remeasured at fair value on May 23, 2013 and the liability was reclassified to Additional paid-in capital. The unrecognized fair value calculated for the excess awards as of May 23, 2013 will be recognized as compensation expense ratably over the remaining requisite service period for each award.

In connection with the appointment of the Company’s Chief Commercial Officer on April 1, 2013, the Company made inducement grants of stock options totaling 300,000 shares of the Company’s common stock.

Stock Options - The Company calculates the fair value of stock options granted using the Black-Scholes valuation model. The following table summarizes the grant date fair value and assumptions used in determining the fair value of stock options granted under the 2013 Incentive Plan and the 2000 Stock Incentive Plan, as well grants of inducement shares during the three and nine months ended September 30, 2013.

	Three Months Ended September 30,		Nine Months Ended September 30,
	2013	2012	2013	2012

Volatility	87.7% - 90.3%	100.2% - 104.5%	87.7% - 96.0%	100.2% - 107.1%
Risk-free interest rate	1.39% - 1.65%	0.57% - 0.80%	0.65%-1.65%	0.57% - 0.99%
Dividend yield	0.0%	0.0%	0.0%	0.0%
Expected option term (in years)	6.25	6.25	6.25	6.25
Weighted-average fair value of stock options granted	$8.91	$2.89	$7.53	$2.89

For the three and nine months ended September 30, 2013, the volatility factor was based on the Company’s historical volatility since the closing of the merger with Transave on December 1, 2010. The expected option term (in years) was determined using the simplified method as described in ASC Topic 718, “Accounting for Stock Compensation”, which is the midpoint between the vesting date and the end of the contractual term. The risk-free interest rate is based on the US Treasury yield in effect at the date of grant. Forfeitures are based on actual percentage of option forfeitures since the closing of the merger on December 1, 2010, and are the basis for future forfeiture expectations.

The following table summarizes stock option activity for stock options granted under the 2013 Incentive Plan and the 2000 Stock Incentive Plan, as well as grants of inducement shares during the nine months ended September 30, 2013 as follows:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value

Options outstanding at December 31, 2012	1,817,839		$	4.10
Granted	1,983,800		9.84
Exercised	(343,918	)	4.28
Forfeited and expired	(19,100	)	10.03
Options outstanding at September 30, 2013	3,438,621		7.36		9.16	$	28,364,114
Vested and expected to vest at September 30, 2013	3,197,438		7.33		9.15	26,490,791
Exercisable at September 30, 2013	387,187		3.81		7.85	4,570,290

The following table summarizes the stock-based compensation recorded in the Consolidated Statements of Comprehensive Loss related to stock options during the three and nine months ended September 30, 2013:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013			2012
	(in millions)

Research and development expenses	$	0.3	$	0.1	$	0.7		$	0.2
General and administrative expenses	0.9		0.3		4.1			0.5

Total	$	1.2	$	0.4	$	4.8	(1)	$	0.7

(1) - Included in the $4.8 million is $2.9 million of expense that resulted from the remeasurement of certain stock options that occurred during May 2013.

As of September 30, 2013, there was $22.9 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted average period of 2.73 years. The following table summarizes by range of exercise prices the number of stock options outstanding and exercisable as of September 30, 2013:

Outstanding as of September 30, 2013								Exercisable as of September 30, 2013
Range of Exercise Prices				Number of Options	Weighted Average Remaining Contractual Term (in Years)	Weighted Average Excersise Price		Number of Options	Weighted Average Excersise Price
$	3.03	$	3.29	305,712	8.18	$	3.04	110,139	$	3.04
$	3.40	$	3.40	708,314	8.95	$	3.40	177,079	$	3.40
$	3.48	$	6.65	474,645	8.42	$	5.59	94,719	$	5.21
$	6.70	$	6.70	20,000	9.29	$	6.70	—	$	6.50
$	6.90	$	6.90	384,700	9.47	$	6.90	—	$	—
$	6.96	$	7.44	109,500	9.27	$	6.99	—	$	—
$	7.45	$	7.45	375,000	9.50	$	7.45	—	$	—
$	8.30	$	11.46	312,950	9.68	$	10.96	5,250	$	8.30
$	12.44	$	12.44	591,300	9.64	$	12.44	—	$	—
$	12.78	$	15.88	156,500	9.81	$	13.98	—	$	—

Restricted Stock and Restricted Stock Units — The Company grants Restricted Stock Units (“RSUs”) to its directors and to employees, including executives. Each RSU represents a right to receive one share of the Company’s common stock upon the completion of a specific period of continued service or achievement of a certain milestone. RSUs granted under the Company’s 2000 Stock Incentive Plan are generally valued at the market price of the Company’s common stock on the date of grant. The Company recognizes compensation expense for the fair values of these RSUs on a straight-line basis over the requisite service period of these awards, which is generally one to three years. In prior years certain RSUs were granted in excess of certain plan sub-limits. Such awards were deemed to be granted outside the 2000 Stock Incentive Plan. The Company used liability accounting and remeasured these excess awards at fair value at the end of each reporting period, and changes in fair value were included in compensation expense in the Consolidated Statements of Comprehensive Loss. As of September 30, 2013, no outstanding RSUs are deemed to be granted outside of the Company’s incentive plans.

The following table summarizes the RSU activity for awards granted under the 2000 Stock Incentive Plan during the nine months ended September 30, 2013:

			Weighted
	Number of		Average
	RSUs		Grant Price
Outstanding as of December 31, 2012	215,525		$	6.26
Granted	53,730		$	6.67
Released	(147,878	)	$	6.48
Forfeited	(15,833	)	$	5.90
Outstanding as of September 30, 2013	105,544		$	6.24
Expected to Vest as of September 30, 2013	103,845		$	6.24

The following table summarizes the stock-based compensation recorded in the Consolidated Statements of Comprehensive Loss related to RSUs during the three and nine months ended September 30, 2013:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013			2012
	(in millions)

Research and development expenses	$	0.1	$	0.1	$	0.9		$	0.3
General and administrative expenses	0.1		—		0.7			0.5

Total	$	0.2	$	0.1	$	1.6	(1)	$	0.8

(1) - Included in the $1.6 million is $1.0 million of expense that resulted from the remeasurement of certain RSUs that occurred during May 2013.

As of September 30, 2013, there was $0.3 million of unrecognized compensation expense related to unvested RSUs, which is expected to be recognized over a weighted average period of 0.3 years.