9.Stock-Based Compensation

In the quarter ended March 31, 2016, the compensation committee of the board of directors approved stock-based awards to executive officers, certain employees, and directors. The 2016 awards consisted of the grant of 1,237,455 stock options, and 384,572 restricted stock units.

The Company accounts for stock-based awards in accordance with ASC 718, “Compensation — Stock Compensation,” which requires that the cost resulting from all share-based payment transactions be recognized as compensation cost over the vesting period based on the fair value of the instrument on the date of grant.

Total stock-based compensation expense related to the stock option and restricted stock unit grants for the three months ended March 31, 2016 and 2015 is as follows:

	Three Months Ended March 31,
	2016		2015
Stock option compensation expense	$	1,789	$	1,950
Restricted stock unit compensation expense	1,632		1,830

Total stock-based compensation expense	$	3,421	$	3,780

Total unrecognized stock-based compensation cost related to the stock options and restricted stock units as of March 31, 2016 and December 31, 2015 is as follows:

	March 31,		December 31,
	2016		2015
Unrecognized stock option compensation expense	$	6,995	$	4,217
Unrecognized restricted stock unit compensation expense	8,130		5,094

Total unrecognized stock-based compensation expense	$	15,125	$	9,311

As of March 31, 2016, total unrecognized compensation cost related to non-vested stock options and restricted stock units is expected to be recognized over a weighted average period of 2.5 years and 2.4 years, respectively.

Stock Options

Stock option awards vest as follows: 50% after two years and the remaining 50% after three years or upon a grantee of such stock options attaining the age 65. The stock options awarded in 2016 have a contractual term of ten years and are subject to forfeiture should the recipient terminate his or her employment with the Company for certain reasons prior to vesting in his or her awards, or the occurrence of certain other events, such as termination with cause. The exercise price of these stock options is based on the average market price of our common stock on the date of grant ($12.72 for the 2016 awards described above) and compensation expense is recorded on an accelerated basis over the awards’ vesting periods.

The weighted average fair value of the stock options granted in March 2016 and 2015 was $3.79 and $10.08, respectively. The fair value was calculated using the Black-Scholes option-pricing model based on the market price at the grant date and the weighted average assumptions specific to the underlying options. The expected term used by the Company is based on the historical average life of stock option awards. The expected volatility assumption is based on the volatility of our common stock from the same time period as the expected term of the stock options. The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term similar to the expected life of the stock options. The expected dividend yield is calculated as the annual dividend per share amount divided by the average market price of the common stock on the date of the grant.

The assumptions utilized for calculating the fair value of stock options during the period are as follows:

	Three Months Ended March 31,
	2016		2015
KapStone Stock Options Black-Scholes assumptions (weighted average):
Expected volatility	43.61	%	39.08	%
Expected life (years)	5.07		4.90
Risk-free interest rate	1.35	%	1.35	%
Expected dividend yield	3.14	%	1.25	%

The following table summarizes stock options amounts and activity:

			Weighted		Weighted	Intrinsic
			Average		Average	Value
			Exercise		Remaining	(dollars in
	Options		Price		Life (Years)	thousands)
Outstanding at January 1, 2016	3,265,900		$	15.45
Granted	1,237,455		12.72
Exercised	(45,932	)	8.23
Lapsed (forfeited or cancelled)	(13,030	)	31.51

Outstanding at March 31, 2016	4,444,393		$	14.72

Exercisable at March 31, 2016	2,334,518		$	10.05	5.3	$	12,784

For the three months ended March 31, 2016 and 2015, cash proceeds from the exercise of stock options totaled $0.2 million and $0.5 million, respectively.

Restricted Stock

Restricted stock units are restricted as to transferability until they vest three years from the grant date or upon a grantee of such restricted stock units attaining the age 65. These restricted stock units are subject to forfeiture should applicable employees terminate their employment with the Company for certain reasons prior to vesting in their awards, or the occurrence of certain other events. The value of these restricted stock units is based on the closing market price of our common stock on the date of grant and compensation expense is recorded on a straight-line basis over the awards’ vesting periods.

The following table summarizes unvested restricted stock units amounts and activity:

			Weighted
			Average
			Grant
	Units		Price
Outstanding at January 1, 2016	550,009		$	24.60
Granted	384,572		12.72
Vested	(183,370	)	13.83
Forfeited	(7,743	)	30.16

Outstanding at March 31, 2016	743,468		$	21.07