Note 12. Stock options, restricted stock and performance stock options

In November 2009, the Company adopted the Neos Therapeutics, Inc. 2009 Equity Plan (“2009 Plan”) that superseded the 1999 Incentive Stock Option Plan (“1999 Plan”) and reserved 688,059 shares for issuance under the 2009 Plan. Over time, the shares reserved for issuance under the 2009 Plan were increased to 1,375,037. Effective upon closing of the IPO, the board of directors determined not to grant any further awards under the 2009 Plan. The shares of common stock underlying any awards that are forfeited, canceled, reacquired by the Company prior to vesting, satisfied without the issuance of stock or otherwise terminated (other than by exercise) under the 2009 Plan will be added to the shares of common stock available under the Neos Therapeutics, Inc. 2015 Stock Option and Incentive Plan (“2015 Plan”). The board of directors adopted the 2015 Plan to be effective immediately prior to the IPO and initially reserved 767,330 shares of common stock for issuance under the 2015 Plan (See Note 17).

The 2009 Plan allowed the Company to grant options to purchase shares of the Company’s common stock. Options may be granted to officers, employees, nonemployee directors and consultants, and independent contractors of the Company. The Company also granted performance based awards to selected management. The performance options vest over a three-year period based on achieving certain operational milestones. Unexercised options expire after the earlier of 10 years or termination of employment, except in the case of any unexercised vested options, which generally expire 90 days after termination of employment. All terminated options are available for reissuance. As of June 30, 2015 and December 31, 2014, 7,717 and 277,298 shares of common stock, respectively, remain available for grant under the 2009 Plan.

The Company estimates the fair value of all stock option awards on the grant date by applying the Black-Scholes option pricing valuation model. The application of this valuation model involves assumptions that are highly subjective, judgmental and sensitive in the determination of compensation cost. Given the absence of an active market for the Company’s common stock prior to its IPO, the Company’s board of directors was required to estimate the fair value of its common stock at the time of each option grant primarily based upon valuations performed by a third party valuation firm. The weighted-average key assumptions used in determining the fair value of options granted during the periods indicated are as follows:

	Three Months			Six Months
	Ended June 30,			Ended June 30,
	2015			2015

Estimated dividend yield	0		%	0		%
Expected stock price volatility	60		%	60		%
Weighted-average risk-free interest rate	1.70		%	1.67		%
Expected life of option in years	5			5
Weighted-average option fair value at grant	$	5.568		$	5.235

Total compensation cost that has been charged to selling, general and administrative expense related to stock options was $115,000 and $189,000 for the three and six months ended June 30, 2015, respectively, and $21,000 and $32,000 for the three and six months ended June 30, 2014, respectively. At June 30, 2015, there was $1,708,000 of unrecognized compensation cost, adjusted for estimated forfeitures, related to unamortized stock options compensation which is expected to be recognized over the weighted-average remaining contractual life of options outstanding of approximately 8.8 years. For the six months ended June 30, 2015, the Company issued 4,443 shares of the Company’s common stock upon the exercise of outstanding stock options and received proceeds of $4,000 and realized no tax benefit from the exercised stock options.

A summary of outstanding and exercisable options under the 2009 Plan as of June 30, 2015 and December 31, 2014 and the activity from December 31, 2014 through June 30, 2015, is presented below:

			Weighted-
	Number of		Average		Intrinsic
	Options		Exercise Price		Value
					(in thousands)

Outstanding at December 31, 2014	511,775		$	3.684	$	2,883


Exercisable at December 31, 2014	150,109		$	1.467	$	1,179


Granted	271,661		10.096
Exercised	(4,443	)	0.877
Expired, forfeited or cancelled	(2,083	)	3.689


Outstanding at June 30, 2015	776,910		$	5.942	$	5,359


Exercisable at June 30, 2015	177,200		$	1.716	$	1,971

The weighted-average remaining contractual life of options outstanding and exercisable on December 31, 2014 was 8.7 and 7.3 years, respectively. The option exercise price for all options granted in 2014 ranged from $2.91 to $7.49 per share. The weighted-average remaining contractual life of options outstanding and exercisable on June 30, 2015 was 8.8 and 7.1 years, respectively. The option exercise price for all options granted in the six months ended June 30, 2015 ranged from $9.32 to $10.73 per share.

Restricted stock: Under the 2009 Plan, the Company granted restricted stock awards to members of its management and selected members of the board of directors. Restricted stock awards are recorded as deferred compensation and amortized into compensation expense, on a straight-line basis over a defined vesting period ranging from 1 to 48 months.

For the year ended December 31, 2013, the Company issued 149,244 shares of restricted stock at a grant date fair value of $2.55 per share. Of these shares, 7,195 vested immediately and the remaining 142,049 of these shares vest over 48 months in four equal tranches on the anniversary of the issue date. Restricted stock compensation cost of $22,000 and $45,000 for the three and six months ended June 30, 2015, respectively, and $22,000 and $45,000 for the three and six months ended June 30, 2014, respectively, has been charged to selling, general and administrative expenses. At June 30, 2015 and 2014, there was $212,000 and $301,000, respectively, of unrecognized compensation cost related to restricted stock. No vested restricted stock awards were settled during the six months ended June 30, 2015.

The Company had 106,537 shares of nonvested restricted stock with a weighted average fair value of $2.55 as of June 30, 2015 and December 31, 2014. For the six months ended June 30, 2015, there were no shares granted, vested or forfeited.