EQUITY-BASED COMPENSATION

We currently maintain four equity compensation plans, namely our Third Amended and Restated 2007 Equity Incentive Plan, as amended (the “2007 Plan”), our Amended and Restated 2000 Stock Plan (the “2000 Plan”), the Lumara Health Inc. Amended and Restated 2013 Incentive Compensation Plan (the “Lumara Health 2013 Plan”) and our 2015 Employee Stock Purchase Plan (“2015 ESPP”). All outstanding stock options granted under each of our equity compensation plans other than our 2015 ESPP (discussed below) have an exercise price equal to the closing price of a share of our common stock on the grant date.

Our 2007 Plan was originally approved by our stockholders in November 2007, and succeeded our 2000 Plan, under which no further grants may be made. Any shares that remained available for issuance under the 2000 Plan as of the date of adoption of the 2007 Plan are included in the number of shares that may be issued under the 2007 Plan. Any shares subject to outstanding awards granted under the 2000 Plan that expire or terminate for any reason prior to exercise will be added to the total number of shares of our stock available for issuance under the 2007 Plan. The total number of shares available for issuance under the 2007 Plan is 6,995,325. As of December 31, 2016, there were 1,786,672 shares remaining available for issuance under the 2007 Plan, which excludes shares subject to outstanding awards under the 2000 Plan. All outstanding options under the 2007 Plan have either a seven or ten-year term and all outstanding options under the 2000 Plan have a ten-year term.

In November 2014, we assumed the Lumara Health 2013 Plan in connection with the acquisition of Lumara Health. The total number of shares issuable pursuant to awards under this plan as of the effective date of the acquisition and after taking into account any adjustments as a result of the acquisition, was 200,000 shares. As of December 31, 2016, there were 9,710 shares remaining available for issuance under the Lumara Health 2013 Plan, which are available for grants to certain employees, officers, directors, consultants, and advisors of AMAG and our subsidiaries who are newly-hired or who previously performed services for Lumara Health. All outstanding options under the Lumara Health 2013 Plan have a ten-year term.

The 2007 Plan and the Lumara Health 2013 Plan provides for the grant of stock options, RSUs, restricted stock, stock, stock appreciation rights and other equity interests in our company. We generally issue common stock from previously authorized but unissued shares to satisfy option exercises and restricted stock awards. The terms and conditions of each award are determined by our Board of Directors (the “Board”) or the Compensation Committee of our Board. The terms and conditions of each award assumed in the acquisition of Lumara Health were previously determined by Lumara Health prior to being assumed in connection with the acquisition, subject to applicable adjustments made in connection with such acquisition.

In May 2015, our stockholders approved our 2015 ESPP, which authorizes the issuance of up to 200,000 shares of our common stock to eligible employees. The terms of the 2015 ESPP permit eligible employees to purchase shares (subject to certain plan and tax limitations) in semi-annual offerings through payroll deductions of up to an annual maximum of 10% of the employee’s “compensation” as defined in the 2015 ESPP. Shares are purchased at a price equal to 85% of the fair market value of our common stock on either the first or last business day of the offering period, whichever is lower. Plan periods consist of six-month periods typically commencing June 1 and ending November 30 and commencing December 1 and ending May 31. As of December 31, 2016, 79,324 shares have been issued under our 2015 ESPP.

During 2016, we also granted equity through inducement grants outside of these plans to certain employees to induce them to accept employment with us (collectively, “Inducement Grants”). The options were granted at an exercise price equal to the fair market value of a share of our common stock on the respective grant dates and will be exercisable in four equal annual installments beginning on the first anniversary of the respective grant dates. The RSU grants will vest in three equal annual installments beginning on the first anniversary of the respective grant dates. The foregoing grants were made pursuant to inducement grants outside of our stockholder approved equity plans as permitted under the NASDAQ Stock Market listing rules. We assessed the terms of these awards and determined there was no possibility that we would have to settle these awards in cash and therefore, equity accounting was applied.

Stock Options

The following table summarizes stock option activity during 2016:



	2007 Equity		2000 Equity		2013 Lumara		Inducement
	Plan		Plan		Equity Plan		Grants		Total
Outstanding at December 31, 2015	1,963,162		14,040		96,000		830,975		2,904,177
Granted	581,648		—		92,400		110,000		784,048
Exercised	(134,455	)	—		—		(21,250	)	(155,705	)
Expired or terminated	(251,533	)	(8,840	)	(54,219	)	(104,750	)	(419,342	)
Outstanding at December 31, 2016	2,158,822		5,200		134,181		814,975		3,113,178

Restricted Stock Units

The following table summarizes RSU activity during 2016:



	2007 Equity		2000 Equity	2013 Lumara		Inducement
	Plan		Plan	Equity Plan		Grants		Total
Outstanding at December 31, 2015	446,330		—	52,350		155,675		654,355
Granted	659,618		—	1,500		64,500		725,618
Vested	(209,599	)	—	(16,749	)	(74,219	)	(300,567	)
Expired or terminated	(122,545	)	—	(9,407	)	(10,500	)	(142,452	)
Outstanding at December 31, 2016	773,804		—	27,694		135,456		936,954

Equity-based compensation expense

Equity-based compensation expense for 2016, 2015 and 2014 consisted of the following (in thousands):



	Years Ended December 31,
	2016			2015			2014
Cost of product sales and services	$	520		$	371		$	122
Research and development	3,476			2,992			1,596
Selling, general and administrative	18,547			13,874			6,907
Total equity-based compensation expense	$	22,543		$	17,237		$	8,625
Income tax effect	(6,232		)	(4,885		)	—
After-tax effect of equity-based compensation expense	$	16,311		$	12,352		$	8,625

We reduce the compensation expense being recognized to account for estimated forfeitures, which we estimate based primarily on historical experience, adjusted for unusual events such as corporate restructurings, which may result in higher than expected turnover and forfeitures. Under current accounting guidance, forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

As a result of our historical net losses, there was no income tax effect on our equity-based compensation expense for 2014.

We have not recognized any excess tax benefits from equity-based compensation in additional paid-in capital because the excess tax benefits have not yet reduced cash taxes paid. Accordingly, there was no impact recorded in cash flows from financing activities or cash flows from operating activities as reported in the accompanying consolidated statements of cash flows.

The following table summarizes the weighted average assumptions we utilized for purposes of valuing grants of options to our employees and non-employee directors:



	Years Ended December 31,
	2016		2015		2014
		Non-Employee		Non-Employee		Non-Employee
	Employees	Directors	Employees	Directors	Employees	Directors
Risk free interest rate (%)	1.32	1.10	1.55	1.24	1.56	1.28
Expected volatility (%)	49	54	47	46	47	46
Expected option term (years)	5.00	3.00	5.00	4.00	5.00	4.00
Dividend yield	none	none	none	none	none	none

Risk free interest rates utilized are based upon published U.S. Treasury yields at the date of the grant for the expected option term. During 2016, 2015 and 2014, we estimated our expected stock price volatility by using the historical volatility of our own common stock price over the prior period equivalent to our expected option term, in order to better reflect expected future volatility. To compute the expected option term, we analyze historical exercise experience as well as expected stock option exercise patterns.

The following table summarizes details regarding stock options granted under our equity incentive plans for the year ended December 31, 2016:



	December 31, 2016
	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value ($ in thousands)
Outstanding at beginning of year	2,904,177		$	34.97	—	$	—
Granted	784,048		24.59		—	—
Exercised	(155,705	)	17.99		—	—
Expired and/or forfeited	(419,342	)	44.10		—	—
Outstanding at end of year	3,113,178		$	31.97	7.4	$	28,113
Outstanding at end of year - vested and unvested expected to vest	2,915,930		$	31.53	7.4	$	27,038
Exercisable at end of year	1,536,405		$	27.92	6.3	$	17,928

The weighted average grant date fair value of stock options granted during 2016, 2015 and 2014 was $10.63, $23.57 and $10.63, respectively. A total of 822,775 stock options vested during 2016. The aggregate intrinsic value of options exercised during 2016, 2015 and 2014, excluding purchases made pursuant to our employee stock purchase plans, measured as of the exercise date, was approximately $1.5 million, $31.2 million and $5.9 million, respectively. The intrinsic value of a stock option is the amount by which the fair market value of the underlying stock on a specific date exceeds the exercise price of the common stock option.

The following table summarizes details regarding RSUs granted under our equity incentive plans for the year ended December 31, 2016:



	December 31, 2016
	Restricted Stock Units		Weighted Average Grant Date Fair Value
Outstanding at beginning of year	654,355		$	36.90
Granted	725,618		22.28
Vested	(300,567	)	30.38
Forfeited	(142,452	)	26.66
Outstanding at end of year	936,954		$	28.78
Outstanding at end of year and expected to vest	781,165		$	28.79

The weighted average grant date fair value of RSUs granted during 2016, 2015 and 2014 was $22.28, $52.71 and $22.88, respectively. The total fair value of RSUs that vested during 2016, 2015 and 2014 was $9.1 million, $3.5 million and $2.7 million, respectively.

At December 31, 2016, the amount of unrecorded equity-based compensation expense for both option and RSU awards, net of forfeitures, attributable to future periods was approximately $37.7 million. Of this amount, $21.1 million was associated with stock options and is expected to be amortized on a straight-line basis to expense over a weighted average period of approximately 2.5 years, and $16.6 million was associated with RSUs and is expected to be amortized on a straight-line basis to expense over a weighted average period of approximately 1.8 years. Such amounts will be amortized primarily to research and development or selling, general and administrative expense. These future estimates are subject to change based upon a variety of future events, which include, but are not limited to, changes in estimated forfeiture rates, employee turnover, and the issuance of new stock options and other equity-based awards.