Note 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 December 31, 2016, there were 7,116,682 shares available for grant under the 2016 LTIP.

For the years ended December 31, 2016, 2015 and 2014, the Company recognized stock-based compensation expense of $5,023, $4,620, and $3,610, respectively. For the years ended December 31, 2016, 2015 and 2014, the Company capitalized stock-based compensation of $316, $195, and $307, respectively. The Company has not recognized and currently does not expect to recognize in the foreseeable future, any tax benefit related to stock-based compensation as a result of the full valuation allowance on its net deferred tax assets and its net operating loss carryforwards generated in the U.S.

The following table summarizes the components of stock-based compensation expense in the condensed consolidated statements of operations for the years ended December 31, 2016, 2015 and 2014:

	Years ended December 31,
	2016		2015		2014
Cost of services	$	559	$	525	$	203
Cost of product sales		44		45		53
Selling, general and administrative		4,082		3,655		3,135
Product development		338		395		219
Total	$	5,023	$	4,620	$	3,610

As of December 31, 2016, the Company had unrecognized compensation costs for all share-based payment arrangements totaling $5,666.

Time-Based Stock Appreciation Rights

A summary of the Company’s time-based SARs for the year ended December 31, 2016 is as follows:

	Number of Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2016		4,109,184		$	5.22
Granted		—			—
Exercised		(319,790	)		5.18
Forfeited or expired		—			—
Outstanding at December 31, 2016		3,789,394		$	5.23		4.49	$	13,798
Exercisable at December 31, 2016		3,753,027		$	5.23		4.39	$	13,992
Vested and expected to vest at December 31, 2016		3,789,394		$	5.23	$	4.49	$	13,798

For the years ended December 31, 2016, 2015 and 2014, the Company recorded stock-based compensation expense of $270, $2,194 and $1,659 relating to these SARs, respectively. As of December 31, 2016, $462 of total unrecognized compensation cost relating to the SARs is expected to be recognized through August 2018.

The weighted-average grant date fair value of the SARs granted in 2015 and 2014 was $3.40 and $3.97 and per share, respectively. There were no performance-based SARs granted during the years ended December 31, 2016.

For the year ended December 31, 2016, the intrinsic value of the SARs exercised was $1,400.

Performance-Based Stock Appreciation Rights

A summary of the Company’s performance-based SARs for the year ended December 31, 2016 is as follows:

	Number of Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2016		778,774		$	6.33
Granted		—			—
Exercised		(19,950	)		2.95
Forfeited or expired		(169,400	)		10.97
Outstanding at December 31, 2016		589,424		$	6.06		4.30	$	2,632
Exercisable at December 31, 2016		589,424		$	6.06		4.37	$	2,632
Vested and expected to vest at December 31, 2016		589,424		$	6.06		4.30	$	2,632

For the years ended December 31, 2016, 2015 and 2014, the Company recorded stock-based compensation expense of $2, $21 and $47 relating to the performance-based SARs, respectively. As of December 31, 2016, there is no unrecognized compensation cost related to these SARs is expected to be recognized.

The weighted-average grant date fair value of the performance-based SARs granted during the year ended December 31, 2015 was $3.32 per share. There were no performance-based SARs granted during the years ended December 31, 2016 and December 31, 2014.

For the year ended December 31, 2016, the intrinsic value of the performance-based SARs exercised was $124.

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 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 year ended December 31, 2016.

	Years ended December 31,
	2015		2014
Risk-free interest rate	1.35% to 1.82%		1.77% to 1.94%
Expected life (years)		6.0		6.0
Estimated volatility factor	62.7% to 64.6%		64.8% to 67.3%
Expected dividends	None		None

Time-Based Restricted Stock Units

A summary of the Company’s time-based RSUs for the year ended December 31, 2016 is as follows:

	Shares			Weighted-Average Grant Date Fair Value
Balance at January 1, 2016		366,004		$	6.63
Granted		428,658			9.25
Vested		(76,707	)		6.44
Forfeited or expired		(26,003	)		6.38
Balance at December 31, 2016		691,952		$	8.28

For the years ended December 31, 2016, 2015 and 2014, the Company recorded stock-based compensation expense of $2,495, $636 and $592 related to the RSUs, respectively. As of December 31, 2016, $3,131 of total unrecognized compensation cost related to the RSUs is expected to be recognized through December 2019.

Performance-based Restricted Stock Units

A summary of the Company’s performance-based RSUs for the year ended December 31, 2016 is as follows:

	Shares			Weighted-Average Grant Date Fair Value
Balance at January 1, 2016		499,369		$	6.66
Granted		210,425			9.13
Vested		(175,389	)		6.53
Forfeited or expired		(60,797	)		6.71
Balance at December 31, 2016		473,608		$	7.80

For the years ended December 31, 2016, 2015 and 2014, the Company recorded stock-based compensation expense of $1,387 $1,124 and $914 related to the performance-based RSUs, respectively. As of December 31, 2016, $2,073 of total unrecognized compensation cost related to these RSUs is expected to be recognized through March 2018.

The fair value 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 for each performance period. The MPUs will vest at the end of each 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’ base salaries in the year of the grant 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 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 awards fair value over a three-year period.

As of December 31, 2016, the compensation committee determined that the stock price performance targets was partially achieved for the fiscal year 2016, 2015 and 2014 performance targets.

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:

	Years Ended December 31,
	2016	2015	2014
Risk-free interest rate	0.85% to 1.47%	0.65% to 1.31%	0.25% to 1.10%
Estimated volatility factor	33.0% to 36.0%	34.0% to 38.0%	39.0% to 41.0%
Expected dividends	None	None	None

For the years ended December 31, 2016, 2015 and 2014, the Company recorded stock-based compensation of $781, $643 and $398 relating to these MPUs, respectively.

As of December 31, 2016, the Company recorded $715 and $260 in accrued expenses and other non-current liabilities, respectively, in its consolidated balance sheet. As of December 31, 2015, the Company recorded $594 and $194 in accrued expenses and other non-current liabilities, respectively, in its consolidated balance sheet.

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

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 year ended December 31, 2016, the Company recorded stock-based compensation expense of $88 relating to the ESPP. Purchases of ORBCOMM stock under the ESPP were 48,208 shares at a price of $7.15 in 2016.