STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2021

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

10. STOCK-BASED COMPENSATION

Employee Stock Purchase Plan

In July 2016, we commenced administration of the ANI Pharmaceuticals, Inc. 2016 Employee Stock Purchase Plan. The Board of Directors and shareholders approved a maximum of 0.2 million shares of common stock, which were reserved and made available for issuance under the ESPP. Under the ESPP, participants can purchase shares of our stock at a 15% discount. We issued 14 thousand, 13 thousand, and six thousand shares in the years ended December 31, 2021, 2020, and 2019, respectively.

The following table summarizes ESPP expense incurred under the 2016 Employee Stock Purchase Plan and included in our consolidated statements of operations:

(in thousands)	Years Ended December 31,
	2021		2020		2019
Cost of sales	$	15	$	21	$	18
Research and development		21		36		29
Selling, general, and administrative		87		123		100
	$	123	$	180	$	147

Stock Incentive Plan

Equity-based service awards are granted under the ANI Pharmaceuticals, Inc. Amended and Restated 2008 Stock Incentive Plan (the “2008 Plan”). As of December 31, 2021, 0.5 million shares of our common stock remained available for issuance under the 2008 Plan.

From time to time, we may grant stock options to employees through an inducement grant outside of our 2008 Plan to induce prospective employees to accept employment with us (the “Inducement Grants”). The options are granted at an exercise price equal to the fair market value of a share of our common stock on the respective grant date and are generally exercisable in four equal annual installments beginning on the first anniversary of the respective grant date. The grants are made pursuant to inducement grants outside of our stockholder approved equity plan as permitted under the Nasdaq Stock Market listing rules.

We measure the cost of equity-based service awards based on the grant-date fair value of the award. The cost is recognized ratably over the period during which an employee is required to provide service in exchange for the award or the requisite service period. We recognize stock-based compensation expense ratably over the vesting periods of the awards.

The following table summarizes stock-based compensation expense incurred under the 2008 Plan and Inducement Grant and included in our consolidated statements of operations:

	Years Ended December 31,
(in thousands)	2021		2020		2019
Cost of sales	$	5	$	115	$	101
Research and development		543		561		756
Selling, general, and administrative		9,818		12,080		8,213
	$	10,366	$	12,756	$	9,070

We recognized income tax benefits of $1.0 million, $1.6 million, and $1.4 million for stock-based compensation-related tax deductions in our 2021, 2020, and 2019 consolidated statements of operations, respectively.

Stock Options

Outstanding stock options granted to employees and consultants generally vest over a period of four years and have 10-year contractual terms. Outstanding stock options granted to non-employee directors generally vest over a period of one to four years and have 10-year contractual terms. Upon exercise of an option, we issue new shares of our common stock or issue shares from treasury stock.

For 2021, 2020, and 2019, the fair value of each option grant was estimated using the Black-Scholes option-pricing model, using the following assumptions:

	Years Ended December 31,
	2021	2020	2019
Expected option life (years)	5.50 - 6.25	5.50 - 6.25	5.50 - 6.25
Risk-free interest rate	0.68% - 1.39%	0.31% - 1.63%	1.91% - 2.58%
Expected stock price volatility	48.2% - 49.5%	49.2% - 51.2%	63.1% - 66.7%
Dividend yield	—	—	—

We use the simplified method to estimate the expected option life of options. The risk-free interest rate used is the yield on a U.S. Treasury note as of the grant date with a maturity equal to the estimated life of the option. We calculated an estimated volatility rate based on our historical stock price. We have not issued a cash dividend on our common shares in the past nor do we have any current plans to do so in the future; therefore, an expected dividend yield of zero was used.

A summary of stock option activity under the 2008 Plan and Inducement Grants during the years ended December 31, 2021, 2020, and 2019 is presented below:

				Weighted		Weighted
				Average		Average
		Weighted		Grant-		Remaining
(in thousands, except per share and	Option	Average		date		Term	Aggregate
remaining term data)	Shares	Exercise Price		Fair Value		(years)	Intrinsic Value
Outstanding December 31, 2018	759	$	49.74			7.6	$	2,221
Granted	160		65.97	$	40.14
Exercised	(130)		41.99					3,335
Forfeited	(31)		56.66
Expired	(1)		54.36
Outstanding December 31, 2019	757	$	54.21			7.2	$	6,761
Granted	231		30.29	$	14.39
Exercised	(8)		36.81					216
Forfeited	(44)		54.54
Expired	—		—
Outstanding at December 31, 2020	936	$	48.44			7.1	$	372
Granted	168		33.09	$	15.71
Exercised	(42)		40.25					552
Forfeited	(19)		59.84
Expired	(55)		55.59
Outstanding at December 31, 2021	988	$	45.56			6.6	$	6,786
Exercisable at December 31, 2021	613	$	51.60			5.3	$	1,994

As of December 31, 2021, there was $5.3 million of total unrecognized compensation cost related to non-vested stock options granted under the 2008 Plan and Inducement Grant. The cost is expected to be recognized over a weighted-average period of 2.6 years. During the year ended December 31, 2021, we received $1.7 million in cash from the exercise of stock options and recorded a $0.1 million tax provision related to these exercises. During the year ended December 31, 2020, we received $0.3 million in cash from the exercise of stock options and recorded a $43 thousand tax provision related to these exercises. During the year ended December 31, 2019, we received $5.5 million in cash from the exercise of stock options and recorded a $0.7 million tax benefit related to these exercises.

Restricted Stock Awards

Restricted stock awards (“RSAs”) granted to employees generally vest over a period of four years. RSAs granted to non-officer directors generally vest over a period of one year.

Shares of our common stock delivered to employees and directors will be unrestricted upon vesting. During the vesting period, the recipient of the restricted stock has full voting rights as a stockholder and would receive dividends, if declared, even though the restricted stock remains subject to transfer restrictions and will generally be forfeited upon termination of the officer prior to vesting. The fair value of each RSA is based on the market value of our stock on the date of grant.

A summary of RSA activity under the Plan during the years ended December 31, 2021, 2020, and 2019 is presented below:

		Weighted
		Average Grant		Weighted Average
(in thousands, except per share and		Date Fair		Remaining Term
remaining term data)	Shares	Value		(years)
Unvested at December 31, 2018	117	$	54.04	2.1
Granted	122		66.39
Vested	(42)		54.77
Forfeited	(5)		62.63
Unvested at December 31, 2019	192	$	61.46	2.6
Granted	305		44.42
Vested	(127)		58.88
Forfeited	(18)		51.53
Unvested at December 31, 2020	352	$	48.14	2.7
Granted	541		33.02
Vested	(125)		48.32
Forfeited	(61)		48.16
Unvested at December 31, 2021	707	$	36.52	2.8

As of December 31, 2021, there was $19.8 million of total unrecognized compensation cost related to non-vested RSAs granted under the Plan, which is expected to be recognized over a weighted-average period of 2.8 years.