Stock-based Compensation

Holdings awards stock-based compensation in the form of stock options and restricted stock awards under its equity incentive plans. On June 2, 2016, Holdings adopted the Select Medical Holdings Corporation 2016 Equity Incentive Plan (the “Plan”) and its existing plans were frozen. The total capacity for restricted stock and stock option awards under the Plan is 7,529,200 awards, as adjusted for forfeited restricted stock and stock options awards through December 31, 2017. As of December 31, 2017, Holdings has capacity to issue 4,505,801 restricted stock and stock option awards under the Plan. Holdings’ equity plan allows for authorized but previously unissued shares or shares previously issued and outstanding and reacquired by Holdings to satisfy these awards.

On November 8, 2005, the board of directors of Holdings adopted a director equity incentive plan (“Director Plan”) and on August 12, 2009, the board of directors and stockholders of Holdings approved an amendment and restatement of the Director Plan. This amendment authorized Holdings to issue under the Director Plan options to purchase up to 75,000 shares of its common stock and restricted stock awards covering up to 150,000 shares of its common stock. On June 2, 2016, upon the adoption of the Select Medical Holdings Corporation 2016 Equity Incentive Plan, the Director Plan was frozen.

The Company measures the compensation costs of stock-based compensation arrangements based on the grant-date fair value and recognizes the costs over the period during which employees are required to provide services. The Company values restricted stock awards by using the closing market price of its stock on the date of grant. The Company values stock options using the Black-Scholes option-pricing model. There were no options granted during the year ended December 31, 2017.

Transactions related to restricted stock awards are as follows:



	Shares		Weighted Average Grant Date Fair Value
	(share amounts in thousands)
Unvested balance, January 1, 2017	4,201		$	12.86
Granted	1,598		15.84
Vested	(1,304	)	13.09
Forfeited	(27	)	14.44
Unvested balance, December 31, 2017	4,468		$	13.85

The weighted average grant date fair value of restricted stock awards granted for the years ended December 31, 2015, 2016, and 2017 was $13.94, $11.57, and $15.84, respectively. The total weighted average grant date fair value of restricted stock awards vested for the years ended December 31, 2015, 2016, and 2017 was $9.0 million, $8.4 million, and $17.1 million, respectively.

As of December 31, 2017, there were 291,775 stock options outstanding and exercisable. The outstanding and exercisable shares have a weighted average exercise price of $9.26 and a weighted average remaining contractual life of 1.8 years. As of December 31, 2016, there were 529,720 stock options outstanding and exercisable which had a weighted average exercise price of $9.09.

During the year ended December 31, 2017, 226,845 options were exercised, which had a weighted average exercise price of $8.89, and 11,100 options were canceled, which had a weighted average exercise price of $8.51. The total intrinsic value of options exercised for the years ended December 31, 2015, 2016, and 2017 was $1.0 million, $0.8 million, and $1.6 million, respectively. The aggregate intrinsic value of options outstanding and options exercisable at December 31, 2017 was $2.4 million.

Stock compensation expense recognized by the Company was as follows:



	For the Year Ended December 31,
	2015		2016		2017
	(in thousands)
Stock compensation expense:
Included in general and administrative	$	11,633	$	14,607	$	15,706
Included in cost of services	3,046		2,806		3,578
Total	$	14,679	$	17,413	$	19,284

Stock compensation expense based on current stock-based awards for each of the next five years is estimated to be as follows:



	2018		2019		2020		2021		2022
	(in thousands)
Stock compensation expense	$	17,547	$	11,946	$	6,315	$	1,472	$	6