Stock-Based Compensation

Stock Options

The 1999 Director Stock Option Plan, as amended (the “Director Plan”), provides for the grant of stock options to non-employee directors of the Company at an exercise price equal to the fair market value per share on the date of the grant. An aggregate of 1,975,000 shares have been approved and authorized for issuance pursuant to this plan. A total of 2,514,798 options have been granted to non-employee directors through March 31, 2015 and 807,782 of those have been forfeited through March 31, 2015 and returned to the option pool. The options granted under the Director Plan vest in full one year after their respective grant dates and have a maximum term of ten years.

The 1999 Stock Incentive Plan, as amended (“1999 Plan”), replaced all previously authorized employee stock option plans, and no additional options may be granted under those previous plans. Under the 1999 Plan, options or stock awards may be granted to all of the Company's employees, officers, directors, consultants and advisors to purchase a maximum of 3,200,000 shares of common stock. However, pursuant to the terms of the 1999 Plan, no awards may be granted after March 16, 2009. A total of 2,892,500 options, having a maximum term of ten years, have been granted at 100% of the fair market value of the Company's common stock at the date of grant. Options outstanding under the 1999 Plan are generally exercisable in cumulative increments over four years commencing one year from date of grant.

On June 26, 2009, the Board of Directors adopted, and the Company’s stockholders subsequently approved by partial written consent, the IGI Laboratories, Inc. 2009 Equity Incentive Plan (the “2009 Plan”). The 2009 Plan became effective on July 29, 2009. The 2009 Plan allows the Company to continue to grant options and restricted stock, as under the 1999 Plan, but also authorizes the Board of Directors to grant a broad range of other equity-based awards, including stock appreciation rights, restricted stock units and performance awards. The 2009 Plan has been created, pursuant to and consistent with the Company’s current compensation philosophy, to assist the Company in attracting, retaining and rewarding designated employees, directors, consultants and other service providers of the Company and its subsidiaries and affiliates, in a manner that will be cost efficient to the Company from both an economic and financial accounting perspective. On April 12, 2010, the Board of Directors adopted, and the Company’s stockholders subsequently approved, an amendment of the 2009 Plan to increase the number of shares of Common Stock available for grant under such plan by adding 2,000,000 shares of Common Stock. On May 29, 2014, the Board of Directors adopted and the Company’s stockholders approved a further amendment of the 2009 Plan to increase the number of shares of common stock available for grant under such plan by adding 1,000,000 shares of common stock. The 2009 Plan, as amended on May 29, 2014, authorizes up to 5,000,000 shares of the Company’s common stock for issuance pursuant to the terms of the 2009 Plan. The maximum number of shares that may be subject to awards made to any individual in any single calendar year under the 2009 Plan is 1,000,000 shares. As of March 31, 2015, options to purchase 2,434,334 shares of common stock were outstanding under the 2009 Plan. As of March 31, 2015, 112,750 restricted stock units (“RSUs”) were outstanding under the 2009 Plan. As of March 31, 2015, 1,506,248 shares of restricted stock had been granted under the 2009 Plan and 230,420 of those have been forfeited through March 31, 2015 and returned to the pool.

In summary, there are 3,009,168 options outstanding under the 1999 Plan, the Director Plan and the 2009 Plan, collectively as of March 31, 2015.

There are 1,361,070 options available for issuance under the Director Plan and the 2009 Plan collectively as of March 31, 2015.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing formula that uses assumptions noted in the following table. Expected volatilities and risk-free interest rates are based upon the expected life of the grant. The interest rates used are the U.S. Treasury yield curve in effect at the time of the grant.

	For the three months ended
	March 31, 2015

Expected volatility		52.7% - 55.2%
Expected term (in years)		3.2 -3.3 years
Risk-free rate		0.89% - 1.14%
Expected dividends		0%

A summary of option activity under the 1999 Plan, the Director Plan and the 2009 Plan as of March 31, 2015 and changes during the period are presented below:

			Weighted
	Number of		Average
	Options		Exercise Price
Outstanding as of January 1, 2015		2,436,834	$	1.79
Issued		590,500	$	10.12
Exercised		(7,666)	$	2.07
Forfeited		(10,500)	$	3.06
Expired		-		-
Outstanding as of March 31, 2015		3,009,168	$	3.42

Exercisable as of March 31, 2015		1,736,997	$	1.20

Based upon application of the Black-Scholes option-pricing formula described above, the weighted-average grant-date fair value of options granted during the three months ended March 31, 2015 was $3.84.

The following table summarizes information regarding options outstanding and exercisable at March 31, 2015:

Outstanding:
					Weighted
	Stock		Weighted		Average
	Options		Average		Remaining
Range of Exercise Prices	Outstanding		Exercise Price		Contractual Life
$0.55 - $1.00		95,000	$	0.78		2.83
$1.01 - $1.50		1,883,500	$	1.07		6.89
$1.51 - $10.67		1,030,668	$	7.96		9.23
Total		3,009,168	$	3.42		7.57

Exercisable:

	Stock		Weighted
	Options		Average
Range of Exercise Prices	Exercisable		Exercise Price

$0.55 - $1.00		95,000	$	0.78
$1.01 - $1.50		1,446,664	$	1.08
$1.51 - $10.67		195,333	$	2.33
Total		1,736,997	$	1.20

As of March 31, 2015, the intrinsic value of the options outstanding is $15.5 million and the intrinsic value of the options exercisable is $12.1 million. The intrinsic value of options exercised during the three months ended March 31, 2015 was $46,664. As of March 31, 2015, there was approximately $2.6 million of total unrecognized compensation cost that will be recognized through March 2018 related to non-vested share-based compensation arrangements granted under the Plans.

Restricted Stock and RSUs

The Company periodically grants restricted stock and RSU awards to certain officers and other employees that typically vest one to three years from their grant date. The Company recognized $99,000 and $183,300 of compensation expense during the three months ended March 31, 2015 and 2014, respectively, related to restricted stock and RSU awards. Stock compensation expense is recognized over the vesting period of the restricted stock and RSUs. At March 31, 2015, the Company had approximately $1.2 million of total unrecognized compensation cost related to non-vested restricted stock and RSUs, all of which will be recognized through February 2018.

	Number of		Weighted Average
	Restricted Stock		Exercise Price
Non-vested balance at January 1, 2015		108,334	$	2.86

Changes during the period:
Shares granted		32,500		10.67
Shares vested		(32,500)		10.67
Shares forfeited		-		-

Non-vested balance at March 31, 2015		108,334	$	2.86

	Number of		Weighted Average
	RSUs		Exercise Price
Non-vested balance at January 1, 2015		-	$	-

Changes during the period:
Shares granted		145,250		10.67
Shares vested		(32,500)		10.67
Shares forfeited		-		-

Non-vested balance at March 31, 2015		112,750	$	10.67