STOCK-BASED COMPENSATION PLANS

Stock and Incentive Plans

The Company has outstanding stock-based compensation awards that were granted by the Compensation and Organizational Development Committee (the “Compensation Committee”) of Holdings’ board of directors (the "Board") under the following two stock-based employee compensation plans:


•	the GNC Holdings, Inc. 2015 Stock and Incentive Plan (the "2015 Stock Plan") amended and adopted in May 2015, formerly the GNC Holdings, Inc. 2011 Stock and Incentive Plan (the “2011 Stock Plan”) adopted in March 2011; and


•	the GNC Acquisition Holdings Inc. 2007 Stock Incentive Plan adopted in March 2007 (as amended, the “2007 Stock Plan”).

Both plans have provisions allowing for the granting of stock options, restricted stock and other stock-based awards and are available to eligible employees, directors, consultants or advisers as determined by the Compensation Committee. The Company will not grant any additional awards under the 2007 Stock Plan. Up to 11.5 million shares of common stock may be issued under the 2015 Stock plan (subject to adjustment to reflect certain transactions and events specified in the 2015 Stock Plan for any award grant), of which 4.2 million shares remain available for issuance as of September 30, 2017.

Non-Plan Inducement Awards

On September 11, 2017, in connection with the appointment of the Company's new Chief Executive Officer, Kenneth A. Martindale, the Company made the following non-plan inducement awards:


•	"make-whole" restricted stock awards consisting of the following:


◦	$600,000, which are 67,000 fully vested restricted shares with transfer restrictions that lapse on the earliest to occur of a Change in Control of GNC, the third anniversary of grant or death, disability or other separation from service for any reason;


◦	$950,000, which are 106,000 unvested restricted shares scheduled to vest on December 29, 2017 subject to acceleration to cover any applicable income and payroll tax withholding resulting from the recognition of ordinary income pursuant to a Section 83(b) election (“Section 83(b) Tax Liability”); and


◦	$1,200,000, which are 134,000 unvested restricted shares scheduled to vest in three equal installments on each of the first three anniversaries of grant subject to acceleration to cover any applicable Section 83(b) Tax Liability; and


•	time-vested awards consisting of 212,000 restricted shares and 519,000 stock options in the amount of $1,900,000 each, which are scheduled to vest in three equal installments on each of the first three anniversaries of grant.

The Company recorded $1.8 million in stock-based compensation in the quarter ended September 30, 2017, primarily relating to the make-whole awards, which includes the impact of acceleration of vesting associated with the Section 83(b) election that together with executive recruitment and other expenses resulted in a $2.8 million charge in the current quarter recorded within selling, general and administrative expense on the accompanying Consolidated Statement of Income.

Stock-Based Compensation Activity

The following table sets forth a summary of all stock-based compensation awards outstanding:



	September 30, 2017	December 31, 2016
	(in thousands)
Time-based stock options	2,680	914
Time-based restricted stock awards	1,137	312
Performance-based restricted stock awards	62	101
Market-based restricted stock awards	387	166
Total	4,266	1,493

During the nine months ended September 30, 2017, the Company granted the following stock-based compensation awards:



	(in thousands)
Time-based stock options	2,298
Time-based restricted stock awards	1,295
Market-based restricted stock awards	365
Total	3,958

Time-based stock options vest 25% per year over a period of four years except for the non-plan inducement awards as explained above and the fair value was determined using the Black-Scholes model. Key assumptions used for the options granted during the current year period include a dividend of 0%, an expected term of approximately 6 years, volatility between 38.2% and 40.8%, and a risk-free rate between 1.77% and 2.10%. Time-based restricted stock awards vest one-third per year over a period of three years.

Market-based awards vest at the end of a three-year period based upon total shareholder return compared with that of a selected group of peer companies. Total shareholder return is defined as share price appreciation plus the value of dividends paid during the three-year vesting period. Fair value of these awards was determined using a Monte Carlo simulation, which requires various inputs and assumptions, including the Company's common stock price. Compensation cost for these awards is recognized regardless of whether the market condition is achieved. Vested shares may range from 0% to 200% of the original target. Key assumptions used in the Monte Carlo simulation for the awards granted during the year include average peer group volatility of 34.6% and a risk-free rate of 1.46%.

The above awards granted during the nine months ended September 30, 2017 will result in compensation expense of $19.0 million, net of expected forfeitures, over the service period from the applicable grant date through the date of vesting.

The Company recognized $3.3 million and $4.2 million of total non-cash stock-based compensation expense for the three months ended September 30, 2017 and 2016, respectively, and $6.0 million and $7.2 million for the nine months ended September 30, 2017 and 2016. At September 30, 2017, there was approximately $19.1 million of total unrecognized compensation cost related to non-vested stock-based compensation, net of expected forfeitures, for all awards previously made that are expected to be recognized over a weighted-average period of approximately 1.8 years.