10. Share-Based Awards

2015 Share Option Plan

The Rocket Ltd 2015 Share Option Plan provides for the Company to grant incentive stock options or nonqualified stock options for the purchase of common shares to employees, members of the board of directors and consultants. The 2015 Share Option Plan is administered by an administrative committee appointed by the board of directors or, in the absence of such appointment, the entire board of directors. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, or their committee if so delegated, except that the exercise price per share of share options may not be less than 100% of the fair market value of the share of common shares on the date of grant (or 110% of the fair market value in the case of an employee who owns shares representing more than 10% of the voting power of all classes of shares for the Company) and the term of share options may not be greater than ten years (or five years in the case of an employee who owns shares representing more than 10% of the voting power of all classes of shares for the Company). The Company generally grants share-based awards with service conditions only (“service-based” awards).

As required by the 2015 Share Option Plan, the exercise price for share options granted was not to be less than the fair value of common shares as determined by the Company as of the date of grant. The Company valued its common shares by taking into consideration its most recently available valuation of common shares performed by management and the board of directors as well as additional factors which may have changed since the date of the most recent contemporaneous valuation through the date of grant.

The total number of shares that may be issued under the 2015 Share Option Plan was 9,904,050 shares; however, the 2,944,702 shares that remained available under the 2015 Share Option Plan were added to the share reserve of the 2014 Plan in connection with the Reverse Merger.

By virtue of the terms of the Merger Agreement, each stock option outstanding under the Rocket Ltd 2015 Share Option Plan immediately prior to the consummation of the Reverse Merger was automatically converted into a stock option exercisable for a number of shares of the Company’s common stock calculated based on the exchange ratio and the exercise price per share of such outstanding stock option.

Pursuant to the Merger Agreement, the Company sponsors Inotek’s equity compensation plans: the Amended and Restated 2014 Stock Option and Incentive Plan (the “2014 Plan”), the 2004 Stock Option and Incentive Plan (the “2004 Plan”), and the 2014 Employee Stock Purchase Plan (“ESPP”) and assumed all stock options and restricted stock units (“RSUs”) outstanding under each of the plans immediately prior to the effective time of the Reverse Merger.

Amended and Restated 2014 Stock Option and Incentive Plan

In August 2014, Inotek’s board of directors adopted the 2014 Plan for the issuance of incentive and non-qualified stock options, restricted stock, and other equity awards, all for common stock, as determined by the board of directors, to employees, officers, directors, consultants, and advisors of Inotek and its subsidiaries. Pursuant to the provisions of the 2014 Plan and approval by the board of directors, on January 1, 2018 an additional 272,227 shares were added to the 2014 Plan representing 4% of total common shares issued and outstanding at December 31, 2017. The 2014 Plan expires in August 2024.

2004 Stock Option and Incentive Plan

In July 2004, Inotek’s board of directors adopted the 2004 Plan for the issuance of incentive stock options, restricted stock, and other equity awards, all for common stock, as determined by the board of directors to employees, officers, directors, consultants, and advisors of Inotek and its subsidiaries. Only stock options were granted under the 2004 Plan. The 2004 Plan expired in February 2014 but remains effective for all outstanding options. All of the stock options granted under the 2004 Plan were fully vested at the time of the Reverse Merger.

Vesting of all unvested Inotek option awards issued and outstanding was accelerated at the effective time of the Reverse Merger, and all such option awards issued and outstanding at the time of the Reverse Merger, aggregating to 523,520, remained issued and outstanding. For accounting purposes, since the acceleration of vesting was negotiated in contemplation of the Reverse Merger, the remaining unrecognized compensation expense associated with the original grant date fair value of the options of $2,997 was recognized in the Company’s consolidated statement of operations for the three months ended March 31, 2018. In addition, the exercise period for all Inotek options outstanding at the effective time of the Reverse Merger was extended beyond the respective periods provided in the original awards. The Company recorded $462 in connection with the extension of the exercise periods in the consolidated statement of operations for the three months ended March 31, 2018 equal to the difference in the fair value of the options immediately prior to and immediately following the modification of the exercise period.

Share Option Valuation

The weighted average assumptions that the Company used in the Black-Scholes pricing model to determine the fair value of the share options granted to employees and directors were as follows:

	Three Months Ended March 31,
	2018			2017

Risk-free interest rate		2.57	%		2.03	%
Expected term (in years)		5.76			5.86
Expected volatility		88.60	%		94.30	%
Expected dividend yield		0.00	%		0.00	%
Exercise price	$	17.52		$	1.21
Fair value of common stock	$	17.52		$	1.21

The weighted average assumptions that the Company used in the Black-Scholes pricing model to determine the fair value of the share options granted to non-employees were as follows:

	Three Months Ended March 31, 2018
Risk-free interest rate		2.74	%
Expected term (in years)		10.0
Expected volatility		83.79	%
Expected dividend yield		0.00	%
Exercise price	$	18.75
Fair value of common stock	$	18.75

The Company recognizes compensation expense for only the portion of awards that are expected to vest.

A summary of activity under the Company’s equity plans is as follows:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Contractual Term (Years)		Aggregate Intrinsic Value

Outstanding as of December 31,2017 *		6,959,347		$	1.06		8.17	$	27,175
Assumed as part of merger with Inotek		523,520			2.31		7.53
Granted		1,190,378			17.53		9.95
Forfeited		(38,156	)		1.37
Outstanding as of March 31,2018 (unaudited)		8,635,089		$	3.58		8.18	$	130,982

Options vested and exercisable as of March 31, 2018 (unaudited)		6,357,746		$	1.16		7.10	$	111,852

* Effected by Exchange Ratio

Restricted Stock Units

All unvested Inotek’s RSU awards issued and outstanding were accelerated at the effective time of the Reverse Merger. For accounting purposes, since the acceleration of vesting upon change of control was included in the original terms of the award, the remaining unrecognized compensation expense associated with the original grant date fair value of the RSU awards was recognized as a pre-merger expense of Inotek.

The following table summarizes the RSU activity for the three months ended March 31, 2018 under the 2014 Stock Option and Incentive Plan:

	Number of Shares
Outstanding as of December 31, 2017		-
Assumed as part of merger with Inotek		271,719
Settled		(1,875	)
Outstanding as of March 31, 2018		269,844

As of March 31, 2018, due to lockup agreements signed in conjunction with the Reverse Merger, 269,844 RSU’s remain unsettled.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock.

The weighted average grant-date fair value per share of stock options granted during the three months ended March 31, 2018 and 2017 was $12.84 and $1.21, respectively.

The total fair value of options vested during the year ended March 31, 2018 and the three months ended March 31, 2018 and 2017 was $24,724 and $1,583, respectively.

Employee Stock Purchase Plan

In November 2014, Inotek’s board of directors adopted and the stockholders approved the ESPP. The ESPP provides that the number of shares reserved and available for issuance under the ESPP shall be cumulatively increased each January 1, beginning on January 1, 2016, by the lesser of (i) 150,000 shares of common stock or (ii) the number of shares necessary to set the number of shares of common stock under the ESPP at 1% percent of the outstanding number of shares as of January 1 of the applicable year. However, the board of directors reserves the right to determine that there will be no increase for any year or that any increase will be for a lesser number of shares. On January 1, 2018, 6,562 shares were added to the ESPP. As of March 31, 2018, there were 68,256 shares available for issuance under the ESPP. During the three months ended March 31, 2018, 0 shares of common stock were purchased pursuant to the ESPP. The Company recorded $0 of stock-based compensation expense pursuant to the ESPP during the three months ended March 31, 2018.

Share-Based Compensation

Share-based compensation expense is reflected in the consolidated statements of operations as follows:

	Three Months Ended March 31,
	2018		2017

Research and development	$	2,207	$	61
General and administrative		3,175		38
Total share based compensation expense	$	5,382	$	99

As of March 31, 2018, the Company had an aggregate of $25,836 of unrecognized share-based compensation cost, which is expected to be recognized over the weighted average period of 2.45 years.