The majority of the Company’s stock‑based compensation arrangements consist of options having a ten-year term and either vest over a three or five year vesting schedule (service‑based), on the occurrence of an event (market-based) or upon the achievement of certain performance conditions (performance‑based).

The Company’s stock‑based compensation awards are measured at their estimated grant‑date fair value. For the performance or service‑based stock awards, compensation expense is recognized on the straight‑line method over their requisite service periods, and is adjusted each period for actual forfeitures. For market and performance based awards, the Company defers all stock‑based compensation until it is probable that the event, as defined, will occur.

The Company grants options that allow for the settlement of vested stock options on a net share basis (“net settled stock options”), under certain circumstances, instead of settlement with a cash payment. With net settled stock options, the employee does not surrender any cash or shares upon exercise. Rather, the Company withholds the number of shares to cover the option exercise price and the minimum statutory tax withholding obligations from the shares that would otherwise be issued upon exercise. The settlement of vested stock options on a net share basis results in fewer shares issued by the Company.

In December 2005, the Company established the American Renal Holdings Inc. 2005 Equity Incentive Plan (the “2005 Plan”), under which common stock was reserved for issuance to employees, directors and consultants. Options granted under the 2005 Plan may be incentive stock options or nonstatutory stock options. In response to the May 2010 acquisition of the Company by certain affiliates of Centerbridge Capital Partners, L.P. and certain members of management, options granted under the 2005 Plan became exercisable for common stock of American Renal Associates Holdings, Inc. As of December 31, 2019, there were no options to purchase shares of common stock outstanding under the 2005 Plan.

In May 2010, the Company adopted the American Renal Associates Holdings, Inc. 2010 Stock Incentive Plan (the “2010 Plan”) under which 3,606,251 shares of the Company’s common stock were reserved for issuance to the Company’s employees, directors and consultants. In March 2014, the Company’s Board of Directors approved authorizing the issuance of an additional 1,627,258 shares under the plan. Options granted under the 2010 Plan must be nonstatutory stock options. Stock appreciation rights may also be granted under the 2010 Plan. As of December 31, 2019, options to purchase an aggregate of 3,519,887 shares of common stock were outstanding under the 2010 Plan.

In January 2011, the Company adopted the American Renal Associates Holdings, Inc. 2011 Stock Option Plan for Nonemployee Directors (the “2011 Director’s Plan”) under which 100,000 shares of the Company’s common stock were reserved for issuance to the Company’s directors and consultants. Options granted under the 2011 Director’s Plan must be nonstatutory stock options. Stock appreciation rights may also be granted under the 2011 Director’s Plan. As of December 31, 2019, options to purchase an aggregate of 34,350 shares of common stock were outstanding under the 2011 Director’s Plan.

On April 7, 2016, the Company approved the 2016 Omnibus Incentive Plan (the “2016 Plan”). The 2016 Plan authorized the Company to issue options and other awards to directors, officers, employees, consultants and advisors to purchase up to a total of 4,000,000 shares of common stock. As of December 31, 2019, options to purchase an aggregate of 1,248,909 shares of common stock, and 579,283 unvested restricted stock awards, were outstanding under the 2016 Plan.

As of December 31, 2019, there were 1,437,563 shares remaining for issuance for future equity grants under the Company’s 2016 Plan. There were no shares available for future equity grants under the 2005 Plan, 2010 Plan and 2011 Director’s Plan.

The Company estimates the grant-date fair value of stock options by using a Monte Carlo simulation‑based approach for the portion of the option that contains both a market and performance condition and the Black‑Scholes valuation model for the portion of the option that contains a performance or service‑based condition. Key inputs used to estimate the fair value of stock options include the exercise price of the award, the expected term of the option, the expected volatility of the Company’s common stock over the option’s expected terms, the risk‑free interest rate over the option’s expected term and the Company’s expected annual dividend yield.



	2019			2018			2017
Expected volatility(1)	50		%	30 - 35%			30 - 35%
Expected term in years(2)	6.0			6.0			6.0
Risk-free interest rate(3)	1.71		%	2.74 - 2.99%			1.92 - 2.26%
Expected annual dividend yield(4)	—		%	—		%	—		%
Weighted-average grant-date fair value	$	4.97		$	7.14		$	5.52

stock of comparable publicly traded entities over a period equal to the expected term of the stock option grants. For each of the comparable publicly traded entities, the historical equity volatility and the capital structure of the entity were used to calculate the implied stock volatility. The average implied stock volatility of the comparable publicly traded entities was then used to calculate a relevered equity volatility for the Company based on the Company’s own capital structure. In the first quarter of 2018, the Company utilized the relevered equity volatility based on the comparable publicly traded entities for the Company, and beginning in the second quarter of 2018, the Company began weighting in its own historical equity volatility to arrive at the concluded weighted-average equity volatility for the option valuation model. The comparable entities from the healthcare sector were chosen based on area of specialty. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of the Company’s own stock price becomes available.

The following table summarizes the combined stock option activity under the Company’s stock option plans for the year ended December 31, 2019:



	Number of Shares		Weighted - average exercise price		Weighted - average remaining contractual term (in years)	Aggregate intrinsic value
Options outstanding as of January 1, 2019	5,011,191		$	12.38
Granted	329,710		10.19
Exercised	(129,917	)	2.99
Forfeited/Cancelled	(407,838	)	16.98
Options outstanding as of December 31, 2019	4,803,146		$	12.29	4.37	$	12,919
Vested and expected to vest as of December 31, 2019	4,803,146		$	12.29	4.37	$	12,919
Exercisable as of December 31, 2019	3,203,220		$	9.38	3.50	$	12,866

The aggregate intrinsic value of stock options exercised (i.e., the difference between the market price at exercise and the price paid by the employee at exercise) in 2019, 2018 and 2017 was $1,048, $4,825 and $10,974, respectively.

As of December 31, 2019, the Company had approximately $4,588 of unrecognized compensation costs related to unvested share‑based compensation arrangements of which $192 is attributable to share‑based awards with market and performance conditions and $4,397 is attributable to time‑based vesting. The compensation cost associated with unvested awards is expected to be recognized as expense over a weighted‑average period of approximately 2.9 years.

Employees and directors are eligible to receive grants of restricted stock, which entitle the holder to shares of common stock as the awards vest. The Company determines stock-based compensation expense using the fair value method. The fair value of restricted stock is equal to the closing sale price of the Company’s common stock on the date of grant.

In March 2018, the Company granted approximately 95,000 performance-based restricted stock awards to certain executives, with a weighted average grant date fair value per share of $22.33. These awards will vest at the end of the three-year service period, and the quantity of awards that vest is dependent upon the Company’s achievement of defined performance metrics. The Company has determined that certain of the performance conditions for these awards will not be achieved as a result of the Restatement and the Company’s operating performance during the applicable periods, but that the remaining performance conditions are probable of achievement as of December 31, 2019.

In December 2019, the Company granted approximately 51,500 performance-based restricted stock awards to certain executives, with a weighted average grant date fair value per share of $10.19. These awards will vest over the three-year service period, and the quantity of awards that vest is dependent upon the Company’s achievement of defined performance metrics. The Company has determined that certain of the performance conditions for these awards will not be achieved as a result of the Company’s operating performance during the applicable periods, but that the remaining performance conditions are probable of achievement as of December 31, 2019.

As of December 31, 2019, a total of 579,283 shares of restricted stock were unvested and outstanding, which results in unamortized stock-based compensation of $4,668 to be recognized as stock-based compensation expense over the remaining weighted-average vesting period of 1.0 year.



	Number of Shares		Weighted - average grant date fair value
Unvested as of January 1, 2019	441,063		$	20.68
Granted	324,801		10.19
Vested	(147,641	)	19.98
Forfeited/Cancelled	(38,940	)	20.24
Unvested as of December 31, 2019	579,283		$	15.01

On April 26, 2016, the Company declared and paid a cash dividend to its pre-IPO stockholders equal to $1.30 per share, or $28,886 in the aggregate. In connection with the dividend, all employees with outstanding options had their option exercise price reduced and in some cases were awarded a future dividend equivalent payment, which was paid on vested options and becomes due upon vesting for unvested options. Additionally, in connection with the cash dividend, through December 31, 2019 the Company has made payments equal to $1.30 per share, or $5,391 in the aggregate, to option holders, and, in the case of some performance and market options, a future payment totaling $1,247 will be due upon vesting.

In connection with the Term Loan Holdings Distribution, as described above, the Company also equitably adjusted certain outstanding stock options by reducing exercise prices and making cash dividend equivalent payments, of which $2,524 was paid to vested option holders through December 31, 2019 and an immaterial amount is payable to unvested option holders only if such unvested options become vested. Options were also equitably adjusted for the TRA, as described above. Options were adjusted by reducing exercise prices and, if necessary, increasing the number of shares subject to such stock options.