4. Stock-based Compensation

On April 20, 2016, the stockholders of the Company approved the ORBCOMM Inc. 2016 Long-Term Incentives Plan (the “2016 LTIP”). The 2016 LTIP replaces the Company’s 2006 Long-Term Incentive Plan (the “2006 LTIP”). The number of shares authorized for delivery under the 2016 LTIP is 6,949,400 shares, including 1,949,400 shares that remained available under the 2006 LTIP as of February 17, 2016, plus any shares previously subject to awards under the 2006 LTIP that are cancelled, forfeited or lapse unexercised since that date. As of September 30, 2016, there were 7,110,965 shares available for grant under the 2016 LTIP.

Total stock-based compensation recorded by the Company for the quarters ended September 30, 2016 and 2015 was $1,219 and $979, respectively, and for the nine months ended September 30, 2016 and 2015 was $3,824 and $3,214, respectively. Total capitalized stock-based compensation for the quarters ended September 30, 2016 and 2015 was $88 and $51, respectively, and for the nine months ended September 30, 2016 and 2015 was $219 and $129, respectively.

The following table summarizes the components of stock-based compensation expense in the condensed consolidated statements of operations for the quarters and nine months ended September 30, 2016 and 2015:

	Quarter Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Cost of services	$	116	$	57	$	449	$	256
Cost of product sales		11		11		33		35
Selling, general and administrative		1,028		852		3,062		2,733
Product development		64		59		280		190
Total	$	1,219	$	979	$	3,824	$	3,214

As of September 30, 2016, the Company had unrecognized compensation costs for stock appreciation rights (“SARs”) and restricted stock units (“RSUs”) totaling $3,123.

Time-Based Stock Appreciation Rights

A summary of the Company’s time-based SARs for the nine months ended September 30, 2016 is as follows:

						Weighted-
						Average		Aggregate
				Weighted-		Remaining		Intrinsic
	Number of			Average		Contractual		Value
	Shares			Exercise Price		Term (years)		(In thousands)
Outstanding at January 1, 2016		4,109,184		$	5.22
Granted		—			—
Exercised		(294,940	)		5.22
Forfeited or expired		—			—
Outstanding at September 30, 2016		3,814,244		$	5.24		4.76	$	21,294
Exercisable at September 30, 2016		3,670,044		$	5.22		4.55	$	20,933
Vested and expected to vest at September 30, 2016		3,814,244		$	5.24		4.76	$	21,294

For the quarters ended September 30, 2016 and 2015, the Company recorded stock-based compensation expense of $48 and $638, respectively, relating to these SARs. For the nine months ended September 30, 2016 and 2015, the Company recorded stock-based compensation expense of $213 and $1,596, respectively, relating to these SARs. As of September 30, 2016, $591 of total unrecognized compensation cost related to these SARs is expected to be recognized through August 2018.

The intrinsic value of the time-based SARs exercised during the nine months ended September 30, 2016 was $1,280.

Performance-Based Stock Appreciation Rights

A summary of the Company’s performance-based SARs for the nine months ended September 30, 2016 is as follows:

						Weighted-
						Average		Aggregate
				Weighted-		Remaining		Intrinsic
	Number of			Average		Contractual		Value
	Shares			Exercise Price		Term (years)		(In thousands)
Outstanding at January 1, 2016		778,774		$	6.33
Granted		—			—
Exercised		(12,450	)		2.91
Forfeited or expired		(1,000	)		5.65
Outstanding at September 30, 2016		765,324		$	6.36		3.61	$	3,729
Exercisable at September 30, 2016		765,324		$	6.36		3.61	$	3,729
Vested and expected to vest at September 30, 2016		765,324		$	6.36		3.61	$	3,729

For the quarters ended September 30, 2016 and 2015, the Company recorded stock-based compensation expense of $0 and $3, respectively, relating to these SARs. For the nine months ended September 30, 2016 and 2015, the Company recorded stock-based compensation of $2 and $19, respectively, relating to these SARs. As of September 30, 2016, there is no unrecognized compensation cost related to these SARs expected to be recognized.

The intrinsic value of the performance-based SARs exercised during the nine months ended September 30, 2016 was $94.

The fair value of each time-based and performance-based SAR award is estimated on the date of grant using the Black-Scholes option pricing model with the assumptions described below. For the periods indicated, the expected volatility was based on the Company’s historical volatility over the expected terms of the SAR awards. Estimated forfeitures were based on voluntary and involuntary termination behavior, as well as analysis of actual forfeitures. The risk-free interest rate was based on the U.S. Treasury yield curve at the time of the grant over the expected term of the SAR grants. The Company did not grant time-based or performance-based SARs during the nine months ended September 30, 2016.

		Nine months ended September 30,
		2015
Risk-free interest rate		1.35% and 1.82%
Expected life (years)		6.0
Estimated volatility factor		62.7% to 64.6%
Expected dividends		None

Time-based Restricted Stock Units

A summary of the Company’s time-based RSUs for the nine months ended September 30, 2016 is as follows:

	Shares			Weighted- Average Grant Date Fair Value
Balance at January 1, 2016		366,004		$	6.63
Granted		215,195			9.38
Vested		(75,970	)		6.44
Forfeited or expired		(12,534	)		6.78
Balance at September 30, 2016		492,695		$	7.86

For the quarters ended September 30, 2016 and 2015, the Company recorded stock-based compensation expense of $605 and $149, respectively, related to these RSUs. For the nine months ended September 30, 2016 and 2015, the Company recorded stock-based compensation expense of $1,755 and $420, respectively, related to these RSUs. As of September 30, 2016, $1,931 of total unrecognized compensation cost related to these RSUs is expected to be recognized through September 2019.

Performance-based Restricted Stock Units

A summary of the Company’s performance-based RSUs for the nine months ended September 30, 2016 is as follows:

	Shares			Weighted- Average Grant Date Fair Value
Balance at January 1, 2016		499,369		$	6.66
Granted		—			—
Vested		(175,389	)		6.53
Forfeited or expired		(72,792	)		6.58
Balance at September 30, 2016		251,188		$	6.66

For the quarters ended September 30, 2016 and 2015, the Company recorded stock-based compensation expense of $301 and $294, respectively, related to these RSUs. For the nine months ended September 30, 2016 and 2015, the Company recorded stock-based compensation expense of $1,180 and $1,044, respectively, related to these RSUs. As of September 30, 2016, $601 of total unrecognized compensation cost related to these RSUs is expected to be recognized through March 2017.

The fair values of the time-based and performance-based RSU awards are based upon the closing stock price of the Company’s common stock on the date of grant.

Performance Units

The Company grants market performance units (“MPUs”) to its senior executives based on stock price performance over a three-year period measured on December 31 of each year in the performance period. The MPUs will vest at the end of each year in the performance period only if the Company satisfies the stock price performance targets and continued employment by the senior executives through the dates the Compensation Committee has determined that the targets have been achieved. The value of the MPUs that will be earned each year ranges up to 15% of each of the senior executives’ annual base salaries depending on the Company’s stock price performance target for that year. The value of the MPUs can be paid in either cash or common stock or a combination of cash and stock at the Company’s option. The MPUs are classified as a liability and are revalued at the end of each reporting period based on the fair value of the awards over a three-year period.

As the MPUs contain both a performance and service condition, the MPUs have been treated as a series of three separate awards, or tranches, for purposes of recognizing stock-based compensation expense. The Company recognizes stock-based compensation expense on a tranche-by-tranche basis over the requisite service period for that specific tranche. The Company estimated the fair value of the MPUs using a Monte Carlo Simulation Model that used the following assumptions:

	Nine Months Ended September 30,
	2016	2015
Risk-free interest rate	0.29% to 0.80%	0.00% to 0.71%
Estimated volatility factor	29.0% to 34.0%	29.0% to 36.0%
Expected dividends	None	None

For the quarters ended September 30, 2016 and 2015, the Company recorded stock-based compensation expense of $229 and $(105), respectively, relating to these MPUs. For the nine months ended September 30, 2016 and 2015, the Company recorded stock-based compensation expense of $626 and $135, respectively, relating to these MPUs.

In January 2015, the Company issued 54,801 shares of its common stock as payment of MPUs in connection with achieving the fiscal year 2013 and 2014 stock performance targets.

Employee Stock Purchase Plan

The Company’s Board of Directors adopted the ORBCOMM Inc. Employee Stock Purchase Plan (“ESPP”) on February 16, 2016 and the Company’s shareholders approved the ESPP on April 20, 2016. Under the terms of the ESPP, 5,000,000 shares of the Company’s common stock are available for issuance, and eligible employees may have up to 10% of their gross pay deducted from their payroll up to a maximum of $25 per year to purchase shares of ORBCOMM common stock at a discount of up to 15% of its fair market value, subject to certain conditions and limitations. For the quarter and nine months ended September 30, 2016, the Company recorded stock-based compensation expense of $36 and $48, respectively, relating to the ESPP.