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 Incentives 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, 2017, there were 5,136,686 shares available for grant under the 2016 LTIP.

Total stock-based compensation recorded by the Company for the quarters ended September 30, 2017 and 2016 was $1,345 and $1,219, respectively, and for the nine months ended September 30, 2017 and 2016 was $4,314 and $3,824, respectively. Total capitalized stock-based compensation for the quarters ended September 30, 2017 and 2016 was $114 and $88, respectively, and for the nine months ended September 30, 2017 and 2016 was $357 and $219, 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, 2017 and 2016:

	Quarters Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Cost of services	$	130	$	116	$	403	$	449
Cost of product sales		19		11		61		33
Selling, general and administrative		1,104		1,028		3,606		3,062
Product development		92		64		244		280
Total	$	1,345	$	1,219	$	4,314	$	3,824

As of September 30, 2017, the Company had unrecognized compensation costs for stock appreciation rights (“SARs”) and restricted stock units (“RSUs”) totaling $4,041.

Time-Based Stock Appreciation Rights

A summary of the Company’s time-based SARs for the nine months ended September 30, 2017 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, 2017		3,789,394		$	5.23
Granted		90,000			8.58
Exercised		(1,214,000	)		4.91
Forfeited or expired		—			—
Outstanding at September 30, 2017		2,665,394		$	5.34		5.00	$	12,888
Exercisable at September 30, 2017		2,561,694		$	5.26		4.73	$	12,903
Vested and expected to vest at September 30, 2017		2,665,394		$	5.34		5.00	$	12,888

For the quarters ended September 30, 2017 and 2016, the Company recorded stock-based compensation expense of $133 and $48, respectively, relating to these SARs. For the nine months ended September 30, 2017 and 2016, the Company recorded stock-based compensation expense of $428 and $213, respectively, relating to these SARs. As of September 30, 2017, $466 of total unrecognized compensation cost related to these SARs is expected to be recognized through December 2019.

The intrinsic value of the time-based SARs exercised during the nine months ended September 30, 2017 was $7,515.

Performance-Based Stock Appreciation Rights

A summary of the Company’s performance-based SARs for the nine months ended September 30, 2017 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, 2017		589,424		$	6.06
Granted		—			—
Exercised		(28,640	)		3.40
Forfeited or expired		(44,611	)		11.00
Outstanding at September 30, 2017		516,173		$	5.78		3.95	$	3,588
Exercisable at September 30, 2017		516,173		$	5.78		3.95	$	3,588
Vested and expected to vest at September 30, 2017		516,173		$	5.78		3.95	$	3,588

For the nine months ended September 30, 2016, the Company recorded stock-based compensation expense of $2 relating to these SARs, respectively. As of September 30, 2017, 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, 2017 was $215.

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,
		2017
Risk-free interest rate		2.10%
Expected life (years)		6.0
Estimated volatility factor		59.85%
Expected dividends		None

Time-based Restricted Stock Units

A summary of the Company’s time-based RSUs for the nine months ended September 30, 2017 is as follows:

	Shares			Weighted- Average Grant Date Fair Value
Balance at January 1, 2017		691,952		$	8.28
Granted		184,370			10.05
Vested		(370,331	)		7.15
Forfeited or expired		(4,559	)		8.78
Balance at September 30, 2017		501,432		$	9.76

For the quarters ended September 30, 2017 and 2016, the Company recorded stock-based compensation expense of $717 and $605, respectively, related to these RSUs. For the nine months ended September 30, 2017 and 2016, the Company recorded stock-based compensation expense of $2,096 and $1,755, respectively, related to these RSUs. As of September 30, 2017, $2,897 of total unrecognized compensation cost related to these RSUs is expected to be recognized through September 2020.

Performance-based Restricted Stock Units

A summary of the Company’s performance-based RSUs for the nine months ended September 30, 2017 is as follows:

	Shares			Weighted- Average Grant Date Fair Value
Balance at January 1, 2017		473,608		$	7.80
Granted		—			—
Vested		(214,835	)		6.78
Forfeited or expired		(40,174	)		7.01
Balance at September 30, 2017		218,599		$	7.80

For the quarters ended September 30, 2017 and 2016, the Company recorded stock-based compensation expense of $274 and $301, respectively, related to these RSUs. For the nine months ended September 30, 2017 and 2016, the Company recorded stock-based compensation expense of $1,016 and $1,180, respectively, related to these RSUs. As of September 30, 2017, $678 of total unrecognized compensation cost related to these RSUs is expected to be recognized through March 2018.

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,
	2017	2016
Risk-free interest rate	1.06% to 1.51%	0.29% to 0.80%
Estimated volatility factor	23.0% to 31.0%	29.0% to 34.0%
Expected dividends	None	None

For the quarters ended September 30, 2017 and 2016, the Company recorded stock-based compensation expense of $175 and $229, respectively, relating to these MPUs. For the nine months ended September 30, 2017 and 2016, the Company recorded stock-based compensation expense of $639 and $626, respectively, relating to these MPUs.

As of September 30, 2017, the Company recorded $666 and $223 in accrued expenses and other non-current liabilities, respectively, in its condensed consolidated balance sheet. As of December 31, 2016, the Company recorded $715 and $260 in accrued expenses and other non-current liabilities, respectively, in its condensed consolidated balance sheet.

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 the Company’s common stock at a discount of up to 15% of the common stock’s fair market value, subject to certain conditions and limitations. For the quarter and nine months ended September 30, 2017, the Company recorded stock-based compensation expense of $46 and $135 relating to the ESPP. Purchases of the Company’s Common Stock under the ESPP were 75,888 shares at a price of $6.97 during the nine months ended September 30, 2017.