STOCK-BASED COMPENSATION

In July 2016, we commenced administration of the ANI Pharmaceuticals, Inc. 2016 Employee Stock Purchase Plan. As of June 30, 2017, we have 0.2 million shares of common stock available under the ESPP. Under the ESPP, participants can purchase shares of our stock at a 15% discount. In the three and six months ended June 30, 2017, we recognized $2 thousand and $4 thousand of stock-based compensation expense related to the ESPP in cost of sales and $26 thousand and $39 thousand of stock-based compensation expense related to the ESPP in sales, general, and administrative expense in our accompanying unaudited interim condensed consolidated statements of earnings, respectively.

All equity-based service awards are granted under the ANI Pharmaceuticals, Inc. Fifth Amended and Restated 2008 Stock Incentive Plan (the “2008 Plan”), which was approved by shareholders at the May 17, 2017 annual meeting. The approved 2008 Plan provided for an increase of 0.8 million shares available to the plan. As of June 30, 2017, we have 0.8 million shares of common stock available under the 2008 Plan.

The following table summarizes stock-based compensation expense incurred under the 2008 Plan and included in our accompanying unaudited interim condensed consolidated statements of earnings:

(in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Cost of sales	$	26	$	24	$	49	$	14
Research and development		168		22		307		49
Selling, general, and administrative		1,585		2,171		2,794		3,259
	$	1,779	$	2,217	$	3,150	$	3,322

Separation Agreement

On April 26, 2016, we entered into a Separation Agreement and Release (the “Separation Agreement”) with our former Chief Financial Officer (the “Former Officer”), who resigned effective May 6, 2016. Under the Separation Agreement, 25,167 stock options previously granted to the Former Officer vested on May 6, 2016. In addition, 4,050 restricted stock awards and 2,000 stock options previously granted to the Former Officer vested on March 15, 2017, subject to certain conditions. These actions were accounted for as a modification of the underlying awards and the full expense for the modified awards was recorded in the three months ended June 30, 2016. In the second quarter of 2016, we recorded $0.9 million of stock-based compensation expense, net of forfeitures, in relation to the Separation Agreement. During the three months ended June 30, 2016, we recognized $0.4 million of additional expense related to the Separation Agreement and transition that was not related to stock-based compensation. All expenses related to the Separation Agreement and transition were recognized in the three months ended June 30, 2016.

A summary of stock option and restricted stock activity under the 2008 Plan during the six months ended June 30, 2017 and 2016 is presented below:

(in thousands)	Options		RSAs
Outstanding December 31, 2015		474		63
Granted		273		42
Options Exercised/RSAs Vested		(54)		(15)
Forfeited		(50)		(12)
Outstanding June 30, 2016		643		78

Outstanding December 31, 2016		578		63
Granted		185		50
Options Exercised/RSAs Vested		(2)		(27)	⁽¹⁾
Forfeited		(3)		-
Outstanding June 30, 2017		758		86

⁽¹⁾ Includes five thousand shares purchased from employees to cover employee income taxes related to income earned upon vesting of restricted stock. The shares purchased are held in treasury and the $259 thousand total purchase price for the shares is included in Treasury stock in our accompanying unaudited interim condensed consolidated balance sheets.