21. Share-Based Compensation

Effective July 13, 2011, SunCoke Energy’s Board of Directors approved the SunCoke Energy, Inc. Long-Term Performance Enhancement Plan (“SunCoke LTPEP”). The SunCoke LTPEP provides for the grant of equity-based awards including stock options and share units, or restricted stock, to the Company’s directors, officers, and other employees, advisors, and consultants who are selected by the plan committee for participation in the SunCoke LTPEP. The plan authorizes the issuance of (i) 1,600,000 shares of SunCoke Energy common stock issuable upon the adjustment of Sunoco equity awards in connection with the Distribution and (ii) up to 6,000,000 shares of SunCoke Energy common stock pursuant to new awards under the SunCoke LTPEP.

The Company measures the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award. The total cost is reduced for estimated forfeitures over the awards’ vesting period and the cost is recognized over the requisite service period. The estimated forfeiture rate is analyzed on an annual basis. The estimated forfeiture rate may be revised in subsequent periods if the actual forfeiture rate differs significantly. Compensation expense is recorded ratably over the service period.

Stock Options

During the years ended December 31, 2015, 2014 and 2013, the Company granted stock options to certain employees to acquire 593,976, 407,075 and 446,948 shares of common stock, respectively. The stock options have a ten-year term and an exercise price, which was equal to the average of the high and low prices of SunCoke Energy common stock on the dates of grant. The weighted average exercise price was $16.33 per share, $22.30 per share and $16.55 per share in 2015, 2014 and 2013, respectively. The stock options become exercisable in three equal annual installments beginning one year from the date of grant (in each case subject to continued employment through the applicable vesting date). All awards vest immediately upon a change in control as defined by the SunCoke LTPEP.

The Company calculates the value of each employee stock option, estimated on the date of grant, using the Black-Scholes option pricing model. The weighted-average fair value of employee stock options granted during the years ended December 31, 2015, 2014 and 2013 was $4.87, $7.86 and $6.00, respectively, using the following weighted-average assumptions:



	Years Ended December 31,
	2015		2014		2013
Risk free interest rate	1.66	%	1.57	%	0.93	%
Expected term	5 years		5 years		5 years
Volatility	36	%	38	%	44	%
Dividend yield	1.64	%	—	%	—	%

Beginning in 2014, we based our expected volatility on our historical volatility over our entire available trading history. Prior to 2014, the Company used the average implied volatility of the Dow Jones U.S. Steel index coupled with the implied volatility of the S&P 600. Since the Company does not have a direct peer group and only had a limited trading history, it believes this approach provided a reasonable implied volatility.

The risk-free interest rate assumption is based on the U.S. Treasury yield curve at the date of grant for periods which approximate the expected life of the option. The dividend yield assumption is based on the Company’s future expectation of dividend payouts at the time of grant. The 2014 and 2013 grants were made prior to the Board of Directors declaration of the Company's first dividend payment in the fourth quarter of 2014. The expected life of employee options represents the average contractual term adjusted by the average vesting period of each option tranche. In calculating the fair value of options, the Company estimated a 15 percent and 3 percent forfeiture rate for options excluding those issued to certain executive employees, which were estimated at a zero percent forfeiture rate in 2015 and 2014, respectively. The Company estimated a 3 percent forfeiture rate in calculating fair value in 2013.

The following table summarizes information with respect to common stock option awards outstanding as of December 31, 2015 and stock option activity during the fiscal year then ended:



	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (millions)
Outstanding at December 31, 2014	2,403,850		$	17.34	7.3	$	5.9
Granted	593,976		$	16.33
Exercised	(27,021	)	$	16.32
Forfeited	(268,200	)	$	18.92
Outstanding at December 31, 2015	2,702,605		$	17.07	6.8	$	—
Exercisable at December 31, 2015	2,032,116		$	16.70	6.3	$	—
Expected to vest at December 31, 2015	651,416		$	18.20	8.5	$	—

Intrinsic value for stock options is defined as the difference between the current market value of our common stock and the exercise price of the stock options. Total intrinsic value of stock options exercised during 2015, 2014 and 2013 was $0.1 million, $0.9 million and $0.1 million, respectively.

The Company recognized $2.5 million, $1.6 million net of tax, $4.7 million, $3.0 million net of tax, and $4.6 million, $2.9 million net of tax, in compensation expense during the years ended December 31, 2015, 2014 and 2013, respectively, related to the above stock options. As of December 31, 2015, there was $2.3 million of total unrecognized compensation cost related to nonvested stock options. This compensation cost is expected to be recognized over the next 1.4 years.

Restricted Stock Units

During the years ended December 31, 2015, 2014 and 2013, the Company issued a total of 297,514, 236,844 and 293,918 restricted stock units (“RSU”) to certain employees for shares of the Company’s common stock. The weighted average grant date fair value was $14.51, $22.06 and $16.58, in 2015, 2014 and 2013, respectively. The RSUs vest in three annual installments beginning one year from the date of grant. All awards vest immediately upon a change in control as defined by the SunCoke LTPEP. In calculating the fair value of the RSU, the Company estimated an 18 percent and 3 percent forfeiture rate excluding those issued to certain executive employees, which were estimated at a zero percent forfeiture rate in 2015 and 2014, respectively. The Company estimated a 3 percent forfeiture rate in calculating fair value in 2013.

The following table summarizes information with respect to RSUs outstanding as of December 31, 2015 and RSU activity during the fiscal year then ended:



	Number of RSUs		Weighted Average Grant- Date Fair Value
Nonvested at December 31, 2014	479,673		$	18.77
Granted	297,514		$	14.51
Vested	(248,255	)	$	18.00
Forfeited	(44,808	)	$	19.43
Nonvested at December 31, 2015	484,124		$	16.48

Total fair value of RSUs vested was $4.6 million, $2.9 million and $1.3 million during 2015, 2014 and 2013, respectively.

The Company recognized $4.2 million, $2.7 million net of tax, $3.9 million, $2.5 million net of tax, and $2.5 million, $1.6 million net of tax, in compensation expense during the years ended December 31, 2015, 2014 and 2013, respectively, related to the above RSUs. As of December 31, 2015, there was $4.0 million of total unrecognized compensation cost related to nonvested RSUs. This compensation cost is expected to be recognized over the next 1.7 years.

Performance Share Units

The Company issued 134,271, 84,734 and 96,073 performance share units ("PSU") for shares of the Company's common stock during the years ended December 31, 2015, 2014 and 2013, respectively, that are expensed over a service period through December 31, 2017, 2016 and 2015, respectively, and vest in the subsequent quarter upon final payout approval. All awards vest immediately upon a change in control and a qualifying termination of employment as defined by the SunCoke LTPEP. The weighted average fair value of the PSUs granted during the years ended December 31, 2015, 2014 and 2013 was $17.58, $26.09 and $19.56 respectively, and is based on the closing price of our common stock on the date of grant as well as a Monte Carlo simulation for the portion of the award subject to market conditions. The Company estimated a zero percent forfeiture rate for these awards.

The number of PSUs ultimately awarded will be adjusted based upon the following metrics: (1) 50 percent of the award will be determined by the Company's three year total shareholder return ("TSR") as compared to the TSR of the companies making up the S&P 600; and (2) 50 percent of the award will be determined by the Company's three year average pre-tax return on capital for the Company's coke and coal logistics businesses for the 2015 and 2014 grants and coke business only for the 2013 grants. Each portion of the award may be adjusted between zero and 200 percent of the original units granted.

The following table summarizes information with respect to unearned PSUs outstanding as of December 31, 2015 and PSU activity during the fiscal year then ended:



	Number of PSUs		Weighted Average Grant- Date Fair Value
Nonvested at December 31, 2014	161,438		$	22.63
Granted	134,271		$	17.58
Vested	—		$	—
Forfeited	(41,057	)	$	18.71
Nonvested at December 31, 2015	254,652		$	20.14

The Company recognized $0.5 million, $0.3 million net of tax, $1.2 million, $0.7 million net of tax, and $0.5 million, $0.3 million net of tax, during the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, there was $1.3 million of total unrecognized compensation cost related to these nonvested PSUs. This compensation cost is expected to be recognized over the next 1.7 years.

Modifications

In connection with the distribution, certain Sunoco common stock awards and stock options that were held by Sunoco employees, Sunoco directors and SunCoke Energy employees were modified and an anti-dilutive provision was added. In general, all Sunoco stock options held by Sunoco employees and Sunoco directors were converted into both Sunoco and SunCoke Energy stock options. Sunoco stock options held by SunCoke Energy employees were converted to SunCoke Energy stock options. All SunCoke Energy common stock issued as a result of option exercises or the vesting of common stock awards will be issued under the SunCoke LTPEP.

At the distribution date, 1,219,842 SunCoke Energy stock options were issued in connection with the conversion of the outstanding Sunoco stock options to Sunoco employees and directors, of which 68,069 were outstanding at December 31, 2015. The converted stock options for Sunoco employees and directors are fully vested and exercisable and any expense associated with the modification of these stock options was recognized by Sunoco.

At the Distribution Date, 295,854 SunCoke Energy stock options were issued in connection with the conversion of the outstanding Sunoco stock options for SunCoke Energy employees, all of which are fully vested with 282,277 outstanding and exercisable as of December 31, 2015. These awards were fully expensed prior to 2014 and compensation expense during the year ended December 31, 2013 was not material.