10. Share-Based Payments

Stock Option Plans

The Company has adopted the Supernus Pharmaceuticals, Inc. 2012 Equity Incentive Plan (the 2012 Plan), which is stockholder approved, and provides for the grant of stock options and certain other awards, including stock appreciation rights (SAR), restricted and unrestricted stock, stock units, performance awards, cash awards and other awards that are convertible into or otherwise based on the Company's common stock, to the Company's key employees, directors, consultants and advisors. The 2012 Plan is administered by the Company's Board of Directors and the Company's Compensation Committee and provides for the issuance of up to 8,000,000 shares of the Company's Common Stock. Option awards are granted with an exercise price equal to the estimated fair value of the Company's Common Stock at the grant date. Option awards granted to employees, consultants and advisors generally vest in four annual installments, starting on the first anniversary of the date of the grant and have ten-year contractual terms. Option awards granted to the directors generally vest over a one year term and have ten-year contractual terms.

Share-based compensation recognized related to the grant of employee and non-employee stock options, SAR, Employee Stock Purchase Plan (ESPP) awards and non-vested stock was as follows, in thousands of dollars:

	Year Ended December 31,
	2017		2016		2015
Research and development	$	1,387	$	1,107	$	874
Selling, general and administrative		7,046		4,819		3,216

Total	$	8,433	$	5,926	$	4,090

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model and the assumptions in the following table:

	Year Ended December 31,
	2017	2016	2015
Fair value of common stock	$25.30 - $41.00	$12.98 - $22.80	$9.13 - $21.21
Expected volatility	53.61% - 60.6%	60.9% - 64.5%	60.9% - 64.6%
Dividend yield	0%	0%	0%
Expected term	6.25 years	6.25 years	6.25 years
Risk-free interest rate	1.90% - 2.18%	1.14% - 2.15%	1.54% - 1.74%
Expected forfeiture rate	0%	5%	5%

Fair Value of Common Stock—The fair value of the Common Stock underlying the option grants was determined based on observable market prices of the Company's Common Stock.

Expected Volatility—Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company has identified several public entities of similar size, complexity, and stage of development. Accordingly, historical volatility has been calculated using the volatility of these companies, as well as taking into consideration the Company's actual volatility since our IPO. As our historical experience is not sufficient to calculate volatility for our option grants, the Company will continue to use the guideline peer group volatility information until the historical volatility of its own Common Stock is sufficient on its own to measure expected volatility for future option grants.

Dividend Yield—The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.

Expected Term—This is the period of time that the options granted are expected to remain unexercised. Options granted have a maximum term of ten years. The Company determines the average expected life of stock options according to the "simplified method" as described in Staff Accounting Bulletin 110, which is the mid-point between the vesting date and the end of the contractual term. Over time, management will track estimates of the expected life of the option term so that estimates will approximate actual experience for similar options.

Risk-Free Interest Rate—This is the U.S. Treasury note rate during the week each option grant was issued during the year, with a term that most closely resembles the expected term of the option.

Expected Forfeiture Rate—Prior to 2017, the forfeiture rate was the estimated percentage of options granted that are anticipated to be forfeited or canceled on an annual basis before becoming fully vested. Under ASU 2016-09, adopted January 1, 2017, the forfeiture rate is zero. The Company accounts for forfeitures as they occur.

The following table summarizes stock option and SAR activity:

	Number of Options			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)
Outstanding, December 31, 2015		2,699,007		$	8.94		7.92
Granted		1,058,850		$	13.32
Exercised		(85,694	)	$	6.51
Forfeited		(28,075	)	$	12.23

Outstanding, December 31, 2016		3,644,088		$	10.25		7.59
Granted		1,130,155		$	26.57
Exercised		(407,477	)	$	9.31
Forfeited		(86,096	)	$	17.24

Outstanding, December 31, 2017		4,280,670		$	14.50		7.37


As of December 31, 2017:
Vested and expected to vest		4,280,670		$	14.50		7.37
Exercisable		1,952,769		$	9.35		6.16

As of December 31, the aggregate intrinsic value of options outstanding is $108.5 million, $54.7 million, and $12.6 million for 2017, 2016, and 2015, respectively. As of December 31, the aggregate intrinsic value of options vested and expected to vest is $108.5 million, $54.0 million, and $12.4 million, for 2017, 2016, and 2015, respectively. As of December 31, the aggregate intrinsic value of options which are exercisable is $59.6 million, $25.0 million, and $5.0 million, for 2017, 2016, and 2015, respectively.

The weighted-average, grant-date, fair value of options which were granted for the years ended December 31, 2017, 2016 and 2015 was $14.35, $7.66 and $6.05 per share, respectively.

The total fair value of the underlying Common Stock related to shares that vested during the years ended December 31, 2017, 2016 and 2015 was approximately $5.4 million, $3.9 million and $2.6 million, respectively.

The total intrinsic value of options exercised amounted to approximately $12.8 million, $1.1 million and $1.6 million, respectively, during the years ended December 31, 2017, 2016 and 2015.

As of December 31, 2017 and 2016, the total unrecognized compensation expense was approximately $17.6 million and $9.8 million, respectively, which the Company expects to recognize over a weighted-average period of 2.8 and 2.7 years, respectively.