EQUITY-BASED COMPENSATION

We currently maintain three equity compensation plans, namely our Fourth Amended and Restated 2007 Equity Incentive Plan, as amended (the “2007 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. During the fourth quarter of 2017, the then outstanding awards under our Amended and Restated 2000 Stock Plan (the “2000 Plan”) expired.

Our 2007 Plan was originally approved by our stockholders in November 2007, and succeeded our 2000 Plan, which has expired and 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 were included in the number of shares that were issued under the 2007 Plan. In addition, any shares subject to outstanding awards granted under the 2000 Plan that expired or terminated for any reason prior to exercise were added to the total number of shares of our stock available for issuance under the 2007 Plan. In June 2018, at our annual meeting of stockholders, our stockholders approved an amendment to our 2007 Plan to, among other things, increase the number of shares of our common stock available for issuance thereunder by 1,043,000 shares. The alloted number of shares available for issuance under the 2007 Plan was 10,537,365 as of December 31, 2018 and there were 2,548,513 shares remaining available for future issuance under the 2007 Plan. As of December 31, 2018, all outstanding options under the 2007 Plan have either a seven or 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, 2018, there were 18,242 shares remaining available for issuance under the Lumara Health 2013 Plan, which are available for grants to certain employees, officers, directors, consultants, and advisers 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 provide 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 RSU 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. In June 2018, at our annual meeting of stockholders, our stockholders approved an amendment to our 2015 ESPP to increase the maximum number of shares of our common stock that will be made available for sale thereunder by 500,000 shares. 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, 2018, 259,776 shares have been issued under our 2015 ESPP.

During 2018, we also granted equity through inducement grants outside of our equity compensation 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 2018:



	2007 Equity		2013 Lumara		Inducement
	Plan		Equity Plan		Grants		Total
Outstanding at December 31, 2017	2,590,373		125,536		815,450		3,531,359
Granted	1,047,087		35,400		102,393		1,184,880
Exercised	(150,789	)	(2,812	)	—		(153,601	)
Expired or terminated	(704,885	)	(33,674	)	(107,500	)	(846,059	)
Outstanding at December 31, 2018	2,781,786		124,450		810,343		3,716,579

Restricted Stock Units

The following table summarizes RSU activity during 2018:



	2007 Equity		2013 Lumara		Inducement
	Plan		Equity Plan		Grants		Total
Outstanding at December 31, 2017	966,623		11,611		91,541		1,069,775
Granted	766,869		1,600		48,418		816,887
Vested	(375,470	)	(10,650	)	(52,164	)	(438,284	)
Expired or terminated	(316,881	)	(460	)	(2,502	)	(319,843	)
Outstanding at December 31, 2018	1,041,141		2,101		85,293		1,128,535

In March 2018 and February 2017, we granted RSUs under our 2007 Plan to certain members of our senior management covering a maximum of 206,250 and 191,250 shares of common stock, respectively. These performance-based RSUs will vest, if at all, on March 1, 2021 and February 22, 2020, respectively, based on our total shareholder return (“TSR”) performance measured against the median TSR of a defined group of companies over a three-year period. As of December 31, 2018, the maximum shares of common stock that may be issued under these awards was 188,250 and 153,750, respectively. The maximum aggregate total fair value of these RSUs is $3.5 million and $3.1 million, respectively, which is being recognized as expense over a period of three years from the date of grant, net of any estimated and actual forfeitures.

Equity-based compensation expense

Equity-based compensation expense for 2018, 2017 and 2016 consisted of the following (in thousands):



	Years Ended December 31,
	2018		2017			2016
Cost of product sales	$	802	$	884		$	511
Research and development	2,533		3,225			3,475
Selling, general and administrative	16,614		16,187			15,590
Total equity-based compensation expense	19,949		20,296			19,576
Income tax effect	—		(6,188		)	(5,696		)
After-tax effect of equity-based compensation expense	$	19,949	$	14,108		$	13,880

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.

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,
	2018		2017		2016
		Non-Employee		Non-Employee		Non-Employee
	Employees	Directors	Employees	Directors	Employees	Directors
Risk free interest rate (%)	2.75	2.70	1.86	1.61	1.32	1.10
Expected volatility (%)	57	59	53	57	49	54
Expected option term (years)	5.0	4.0	5.0	4.0	5.0	3.0
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 2018, 2017 and 2016, 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, 2018:



	December 31, 2018
	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value ($ in thousands)
Outstanding at beginning of year	3,531,359		$	28.27	7.2	$	—
Granted	1,184,880		21.14		—	—
Exercised	(153,601	)	19.26		—	—
Expired and/or forfeited	(846,059	)	35.13		—	—
Outstanding at end of year	3,716,579		$	24.81	7.3	$	694
Outstanding at end of year - vested and unvested expected to vest	3,601,519		$	24.92	7.2	$	690
Exercisable at end of year	1,928,239		$	27.26	5.8	$	515

The weighted average grant date fair value of stock options granted during 2018, 2017 and 2016 was $10.76, $9.52 and $10.63, respectively. A total of 604,886 stock options vested during 2018. The aggregate intrinsic value of options exercised during 2018, 2017 and 2016, excluding purchases made pursuant to our 2015 ESPP, measured as of the exercise date, was approximately $0.6 million, $0.4 million and $1.5 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, 2018:



	December 31, 2018
	Restricted Stock Units		Weighted Average Grant Date Fair Value
Outstanding at beginning of year	1,069,775		$	26.07
Granted	816,887		22.32
Vested	(438,284	)	28.25
Forfeited	(319,843	)	22.86
Outstanding at end of year	1,128,535		$	23.42
Outstanding at end of year and expected to vest	1,060,647		$	23.40

The weighted average grant date fair value of RSUs granted during 2018, 2017 and 2016 was $22.32, $24.18 and $22.28, respectively. The total fair value of RSUs that vested during 2018, 2017 and 2016 was $12.4 million, $12.3 million and $9.1 million, respectively.

At December 31, 2018, the amount of unrecorded equity-based compensation expense for both option and RSU awards, attributable to future periods was approximately $32.7 million. Of this amount, $16.2 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 2.7 years, $12.6 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, and $3.9 million was associated with performance-based 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.