9. STOCK-BASED COMPENSATION

All 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, 2015, 0.5 million shares of our common stock remained available for issuance under the 2008 Plan.

We measure the cost of equity-based service awards based on the grant-date fair value of the award. The cost is recognized 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, adjusted for estimated forfeitures.

The following table summarizes stock-based compensation expense included in our consolidated statements of earnings:

(in thousands)	Years ended December 31,
	2015		2014		2013
Cost of sales	$	82	$	104	$	-
Research and development	$	109	$	69	$	-
Selling, general, and administrative	$	3,665	$	3,250	$	36

Income tax benefits relating to $2.0 million and $4.4 million of stock-based compensation tax deductions were recognized in our 2015 and 2014 consolidated statements of earnings, respectively. No income tax benefit was recognized in our 2013 consolidated statements of earnings for stock-based compensation arrangements.

Stock Options

Outstanding stock options granted to employees 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 three 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 2015, 2014, and 2013, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model, using the following weighted average assumptions:

	Years Ended December 31,
	2015		2014		2013
Expected option life (years)		5.50 - 6.25		5.39 - 6.25		6.25
Risk-free interest rate		1.31% - 1.82%		1.55% - 2.03%		1.72%
Expected stock price volatility		47.9% - 50.5%		50.6% - 55.1%		55.0%
Dividend yield		—		—		—

We use the simplified method to estimate the life of options. In 2014, 0.3 million options granted by the board of directors but requiring shareholder approval were approved at the May 22, 2014 shareholder’s meeting. As a result, the fair values of these options were calculated using the simplified method less the time between the grant date and the date of the approval, or 5.39 years. 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 the closing prices of several competitors that manufacture similar products. We have not issued a cash dividend in the past nor do we have any current plans to do so in the future; and therefore, an expected dividend yield of zero was used. Forfeitures are estimated at the time of grant and revised through a cumulative catch-up adjustment in the period of change if actual forfeitures differ from those estimates. For stock options granted during the years ended December 31, 2015, 2014, and 2013, we used an estimated forfeiture rate of zero for directors and officers and a forfeiture rate of 5.1% for non-officer employees.

On April 16, 2015, the Board of Directors approved grants of options to purchase 47 thousand shares of common stock to our officers and options to purchase 9 thousand shares of common stock to non-employee directors. On October 12, 2015, the Board of Directors approved a grant of options to purchase 3 thousand shares of common stock to our new board member.

On August 20, 2014, the Board of Directors approved a grant of options to purchase 25 thousand shares of common stock to one of our officers. On April 1, 2014, the Board of Directors approved grants of options to purchase 59 thousand shares of common stock to our officers and options to purchase 16 thousand shares of common stock to non-employee directors.

On July 12, 2013 and August 1, 2013, our Board of Directors approved grants to employees of stock options to purchase 0.3 million shares of ANI stock under the 2008 Plan, subject to shareholder approval of an increase in the total shares available for issuance under the 2008 Plan. The increase in total shares was approved by shareholders at the May 22, 2014 annual meeting, at which time we began recognizing stock-based compensation expense related to these awards.

In 2013, the Board of Directors granted options to purchase 21 thousand shares of common stock and 50 thousand shares of restricted stock to non-officer directors under the 2008 Plan.

A summary of stock option activity under the Plan during the years ended December 31, 2015, 2014, and 2013 is presented below:

							Weighted
					Weighted		Average
			Weighted		Average		Remaining
(in thousands, except per share	Option		Average		Grant-date		Term		Aggregate
and remaining term data)	Shares		Exercise Price		Fair Value		(years)		Intrinsic Value
Outstanding December 31, 2012		-	$	-				-	$	-
Net BioSante stock options assumed		99		59.59
Granted		21		6.36	$	3.40
Exercised		-		-						-
Forfeited or expired		-		-
Outstanding December 31, 2013		120	$	50.35				2.4	$	81
Granted		120		31.59	$	16.84
Options previously granted, approved by shareholders		325		6.39
Exercised		(43)		19.45						638
Forfeited		(4)		6.36
Expired		(60)		73.96
Outstanding December 31, 2014		458	$	14.44				8.7	$	19,472
Granted		138		62.07	$	30.08
Exercised		(89)		9.24						3,937
Forfeited		(33)		11.81
Expired		-		-
Outstanding December 31, 2015		474	$	29.40				8.2	$	10,136
Exercisable at December 31, 2015		101	$	17.97				7.4	$	3,069
Vested or expected to vest at December 31, 2015		464	$	29.06				8.2	$	10,046

As of December 31, 2015, there was $6.8 million of total unrecognized compensation cost related to non-vested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.4 years. During the year ended December 31, 2015, we received $0.8 million in cash from the exercise of stock options and recorded a $1.5 million tax benefit related to these exercises. During the year ended December 31, 2014, we received $0.8 million in cash from the exercise of stock options and recorded a $0.6 million tax benefit related to these exercises. During the year ended December 31, 2013, no options were exercised.

Restricted Stock Awards

On April 16, 2015, the Board of Directors approved grants of 24 thousand shares of restricted stock awards (“RSAs”) to the officers and 4 thousand to the non-officer directors. The RSAs granted to officers vest one-fourth per year, over four years on the anniversary of the grant date, provided that the officer continues to serve as an ANI employee on each of the vesting dates. The RSAs granted to non-officer directors vest over a one year period, provided that the grant recipient continues to serve as an ANI director on the vesting date. Shares of our common stock delivered to the officers 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.

On April 1, 2014, the Board of Directors approved grants of 30 thousand shares of restricted stock to our officers. The restricted stock was granted subject to shareholder approval of an increase in the total restricted stock available for grant under the 2008 Plan. The increase in total restricted stock available for grant under the 2008 Plan was approved by shareholders at the May 22, 2014 annual meeting and the restricted stock was granted as of May 22, 2014. The RSAs vest one-fourth per year, over four years on the anniversary of the grant date, provided that the officer continues to serve as an ANI employee on each of the vesting dates. Shares of our common stock delivered to the officers 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.

On November 1, 2013, Board of Directors approved grants of 50 thousand restricted stock to the non-officer directors under the 2008 Plan. The RSAs vest one-third per year, over three years on the anniversary of the grant date, provided that the director continues to serve as an ANI director on each of the vesting dates. Shares of our common stock delivered to the 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 director from the board 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, 2015, 2014, and 2013 is presented below:

			Weighted
			Average Grant		Weighted Average
(in thousands, except per share			Date Fair		Remaining Term
and remaining term data)	Shares		Value		(years)
Unvested at December 31, 2012		-	$	-
Granted		50		10.20
Vested		-		-
Forfeited		-		-
Unvested at December 31, 2013		50	$	10.20		2.8
Granted		30		29.61
Vested		(17)		10.20
Forfeited		-		-
Unvested at December 31, 2014		63	$	19.34		2.6
Granted		28		67.26
Vested		(23)		15.82
Forfeited		(5)		19.41
Unvested at December 31, 2015		63	$	42.72		2.2

As of December 31, 2015, there was $2.1 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 2.2 years.