STOCK-BASED COMPENSATION

BioScrip Equity Incentive Plans

Under the Company’s Amended and Restated 2008 Equity Incentive Plan (the “2008 Plan”), the Company may issue, among other things, incentive stock options, non-qualified stock options, stock appreciation rights (“SARs”), restricted stock grants, restricted stock units, performance shares and performance units to key employees and directors. While SARs are authorized under the 2008 Plan, they may also be issued outside of the plan. The 2008 Plan is administered by the Company’s Management Development and Compensation Committee (the “Compensation Committee”), a standing committee of the Board of Directors.

On November 30, 2016, at a special meeting, the stockholders approved (i) an amendment to the Company’s Second Amended and Restated Certificate of Incorporation to increase the number of shares of Common Stock that the Company is authorized to issue from 125 million shares to 250 million shares (the “Charter Amendment”); and (ii) an amendment to the 2008 Plan to (a) increase the number of shares of Common Stock in the aggregate that may be subject to awards by 5,250,000 shares, from 9,355,000 to 14,605,000 shares and (b) increase the annual grant caps under the Company’s 2008 Plan from 500,000 Options, 500,000 Stock Appreciation Rights and 350,000 Stock Grants and Restricted Stock Units that are intended to comply with the requirements of Section 162(m) of the Code to a cap of no more than a total of 3,000,000 Options, Stock Appreciation Rights, Stock Grants and Restricted Stock Units that are intended to comply with the requirements of Section 162(m) of the Code combined.

As of December 31, 2017, there were 5,245,719 shares that remained available for grant under the 2008 Plan.

Employee Stock Purchase Plan

On May 7, 2013, the Company’s stockholders approved the BioScrip, Inc. Employee Stock Purchase Plan (the “ESPP”). The ESPP Plan is administered by the Compensation Committee. The ESPP provides all eligible employees, as defined under the ESPP, the opportunity to purchase up to a maximum number of shares of Common Stock of the Company as determined by the Compensation Committee. Participants in the ESPP may acquire the Common Stock at a cost of 85% of the lower of the fair market value on the first or last day of the quarterly offering period. The Company filed a Registration Statement on Form S-8 to register 750,000 shares of Common Stock, par value $0.0001 per share, for issuance under the ESPP.

As of December 31, 2017, there were 53,462 shares that remained available for grant under the ESPP. During the year ended December 31, 2017, the ESPP’s third-party service provider purchased 265,608 shares on the open market and delivered these shares to the Company’s employees pursuant to the ESPP, and the Company recorded $0.1 million of expense related to the ESPP.

BioScrip/CHS Equity Plan

In connection with the May 8, 2014 amendment to the 2008 Plan noted above, the Company determined to cease issuance of awards under the BioScrip/CHS 2006 Equity Incentive Plan. As of December 31, 2017, no shares remained available under the BioScrip/CHS Plan.

Stock Options

Options granted under the Equity Compensation Plans: (a) typically vest over a three-year period and, in certain instances, fully vest upon a change in control of the Company, (b) have an exercise price that may not be less than 100% of its fair market value on the date of grant and (c) are exercisable for seven to ten years after the date of grant, subject to earlier termination in certain circumstances.

Option expense is amortized on a straight-line basis over the requisite service period. The Company recognized compensation expense related to stock options of $1.0 million, $3.4 million, and $4.8 million, in the years ended December 31, 2017, 2016 and 2015, respectively.

The weighted-average, grant-date fair value of options granted during the years ending December 31, 2017, 2016 and 2015 was $1.22, $0.72, and $2.25, respectively. The fair value of stock options granted was estimated on the date of grant using a binomial model for grants issued through June 30, 2015 and a Black-Scholes option-pricing model for grants issued beginning July 1, 2015. The assumptions used to compute the fair value of options for the years ending December 31, 2017, 2016 and 2015 were:



	2017		2016		2015
Expected volatility	73.2	%	68.1	%	62.3	%
Risk-free interest rate	2.04	%	1.98	%	2.20	%
Expected life of options	5.7 years		4.8 years		8.9 years
Dividend rate	—		—		—

A summary of stock option activity for the Equity Compensation Plans through December 31, 2017 was as follows:



	Options		Weighted Average Exercise Price		Aggregate Intrinsic Value (thousands)		Weighted Average Remaining Contractual Life
Balance at December 31, 2016	5,265,370		$	5.78	$	—	4.4 years
Granted	1,618,092		$	1.93	$	1,499
Exercised	(146,667	)	$	2.37	$	36
Forfeited and expired	(2,338,595	)	$	6.77	$	325
Balance at December 31, 2017	4,398,200		$	3.98	$	2,639	5.5 years
Outstanding options less expected forfeitures at December 31, 2017	4,210,163		$	4.07	$	2,465	5.4 years
Exercisable at December 31, 2017	2,497,766		$	5.59	$	647	3.6 years

Cash received from option exercises under share-based payment arrangements was $0.4 million for the year ended December 31, 2017 and nominal for the years ended 2016 and 2015.

The maximum term of stock options under these plans is ten years. Options outstanding as of December 31, 2017 expire on various dates ranging from January 2018 through March 2026. The following table outlines our outstanding and exercisable stock options as of December 31, 2017:



	Options Outstanding				Options Exercisable
Range of Option Exercise Price	Outstanding Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Options Exercisable	Weighted Average Exercise Price
$0.00 - $2.06	1,253,866	$	1.42	7.3 years	257,604	$	1.29
$2.06 - $4.13	1,663,258	$	2.49	6.0 years	759,086	$	2.71
$4.13 - $6.19	210,500	$	5.02	3.8 years	210,500	$	5.02
$6.19 - $8.25	983,076	$	7.20	3.5 years	983,076	$	7.20
$10.31 - $12.38	175,000	$	11.04	2.8 years	175,000	$	11.04
$12.38 - $14.44	104,500	$	13.09	4.9 years	104,500	$	13.09
$16.50 - $18.57	8,000	$	16.63	3.6 years	8,000	$	16.63
All options	4,398,200				2,497,766

As of December 31, 2017 there was $1.6 million of unrecognized compensation expense related to unvested option grants that is expected to be recognized over a weighted-average period of 2.2 years.

As compensation expense for options granted is recorded over the requisite service period of options, future stock-based compensation expense may be greater as additional options are granted.

Restricted Stock

Under the Equity Compensation Plans, stock grants subject solely to an employee’s or director’s continued service with the Company will not become fully vested less than (a) three years from the date of grant to employees and, in certain instances, may fully vest upon a change in control of the Company, and (b) one year from the date of grant for directors. Stock grants subject to the achievement of performance conditions will not vest less than one year from the date of grant. Such performance shares may vest after one year from grant. No such time restrictions applied to stock grants made under the Company’s prior equity compensation plans.

The Company recognized compensation expense related to restricted stock awards of $1.1 million, $0.5 million, and $0.4 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Since the Company records compensation expense for restricted stock awards based on the vesting requirements, which generally includes time elapsed, market conditions and/or performance conditions, the weighted average period over which the expense is recognized varies. Also, future equity-based compensation expense may be greater if additional restricted stock awards are made.

A summary of restricted stock award activity through December 31, 2017 was as follows:



	Restricted Stock		Weighted Average Grant Date Fair Value		Weighted Average Remaining Recognition Period
Balance at December 31, 2016	547,356		$	2.43	2.2 years
Granted	1,563,922		$	1.80
Awards Vested	(145,402	)	$	3.71
Canceled	(83,513	)	$	1.83
Balance at December 31, 2017	1,882,363		$	1.82	4.0 years

As of December 31, 2017, there was $2.0 million in unrecognized compensation expense related to unvested restricted stock awards. The total grant date fair value of awards vested during the years ended December 31, 2017, 2016 and 2015 was $2.8 million, $0.9 million, and $0.2 million, respectively. The total fair value of restricted stock awards vested during the years December 31, 2017, 2016 and 2015 was $0.4 million, $0.2 million, and $0.5 million, respectively.

Performance Units

Under the 2008 Plan, the Compensation Committee may grant performance units to key employees. The Compensation Committee will establish the terms and conditions of any performance units granted, including the performance goals, the performance period and the value for each performance unit. If the performance goals are satisfied, the Company would pay the key employee an amount in cash equal to the value of each performance unit at the time of payment. In no event may a key employee receive an amount in excess of $1.0 million with respect to performance units for any given year. As of December 31, 2017, 1,563,922 performance units have been granted under the 2008 Plan.

Stock Appreciation Rights

The Company has outstanding cash-based phantom stock appreciation rights (“SARs”), which are independent of the Company's 2008 Equity Incentive Plan, with respect to 100,000 shares of the Company's common stock. The SARs vest in three equal annual installments and will fully vest in connection with a change of control (as defined in the grantee’s employment agreement). The SARs may be exercised, in whole or in part, to the extent each SAR has been vested and will receive in cash the amount by which the closing stock price on the exercise date exceeds the Grant Price, if any. Upon the exercise of any SARs, as soon as practicable under the applicable federal and state securities laws, the grantee may be required to use the net after-tax proceeds of such exercise to purchase shares of the Common Stock from the Company at the closing stock price of the Common Stock on that date and hold such shares of Common Stock for a period of not less than one year from the date of purchase, except that the grantee will not be required to purchase any shares of Common Stock if the SAR is exercised on or after a change of control of the Company. The grantee’s right to exercise the SAR will expire on the earliest of (1) the tenth anniversary of the grant date, or (2) under certain conditions as a result of termination of the grantee’s employment.

A summary of SAR activity through December 31, 2017 was as follows:



	Stock Appreciation Rights		Weighted Average Exercise Price		Weighted Average Remaining Recognition Period
Balance at December 31, 2016	300,000		$	6.48	0.0 years
Granted	—
Exercised	—
Canceled	(200,000	)	$	5.70
Balance at December 31, 2017	100,000		$	8.05	0.0 years

The SARs are recorded as a liability in other non-current liabilities in the Consolidated Balance Sheets. Compensation benefit related to the SARs for the years ended December 31, 2017, 2016 and 2015 was negligible. As of December 31, 2017 all outstanding SARs were fully vested. In addition, because they are settled with cash, the fair value of the SAR awards is revalued on a quarterly basis. During the years ended December 31, 2017, 2016 and 2015, the Company did not pay cash related to the exercise of SAR awards.