SHARE-BASED COMPENSATION

During the three months ended June 30, 2014, the Company granted stock awards to eligible participants under the LTIP. The stock awards include options to purchase the Company’s Class B Shares and restricted stock for the Company’s Class B Shares. The Class B Shares issued to Management Holders are subject to the Securityholders Agreement and include Repurchase Rights that enable the Company to repurchase outstanding Class B Shares held by Management Holders without transferring any appreciation to the Management Holder upon certain terminations of the Management Holder’s employment prior to a Qualified Public Offering (see Note 11). Consequently, the vesting provisions for the options to purchase Class B Shares (as described below) and restricted stock for Class B Shares (as described below) are considered non-substantive for accounting purposes. As a result, these options and restricted stock contain a performance condition, which is not considered to be probable as of June 30, 2014; therefore, no share-based compensation expense was recognized in the three months ended June 30, 2014 and none will be recognized for these stock awards until the performance condition is considered probable.

The terms of the options granted in the second quarter of 2014 are further described below:

Stock Options

On April 28, 2014, the Company granted fully vested stock options to purchase 30,000 Class B Shares of with an exercise price of $10 per share. The options expire on the second anniversary of the grant date.

On April 28, 2014, the Company granted stock options to purchase 225,000 Class B Shares of with an exercise price of $10 per share. These stock options were designated as Tranche A options, Tranche B options, and Tranche C options, collectively “the Options”. The Options expire on the tenth anniversary of the grant date.

The 75,000 Tranche A options granted become exercisable in five equal installments on each of the first five anniversaries of the grant date, or immediately upon a change in control, subject to the optionee’s continued employment with the Company through these dates.

The 75,000 Tranche B options granted become exercisable upon the optionee’s continued employment with the Company or its subsidiaries through the first date that the Investor (as defined in the LTIP) achieves an internal rate of return (“Investor IRR”), as defined in the LTIP, equal to or in excess of 20%, subject to a minimum cash-on-cash return of 2.5 times the Investor investment (the “Tranche B Targets”) on or after the date of such an event. In the event of a change in control upon which the Tranche B Targets are achieved, all outstanding unvested Tranche B options will immediately vest.

The 75,000 Tranche C options granted become exercisable upon the optionee’s continued employment with the Company or its subsidiaries through the first date that the Investor achieves an Investor IRR equal to or in excess of 25%, subject to a minimum cash-on-cash return of 3.0 times the Investor investment (the “Tranche C Targets”) on or after the date of such an event. In the event of a change in control upon which the Tranche C Targets are achieved, all outstanding unvested Tranche C options will immediately vest.

The Company calculated the grant date fair value of the fully vested stock options and the Tranche A options using the Black Scholes model, and the Tranche B and Tranche C options using a lattice-based option valuation model. The assumptions used in these calculations are noted in the following table. Expected volatilities are based on implied volatilities from comparable companies. The expected time to liquidity is based on management’s estimate. The risk-free rate is based on the U.S. Treasury yield curve for a term equivalent to the estimated time to liquidity. The expected dividend yield is 0% for all stock awards. The grant date fair value, and related assumptions, of Options granted during the three months ended June 30, 2014, was as follows:



Tranche	Outstanding	Fair Value (Per Share)		Total Fair Value		Assumptions
Fully vested options	30,000	$	4.07	$	122,021
Risk free interest rate						0.4	%
Expected term						2 years
Expected volatility						75.0	%

Tranche A Options	75,000	$	6.53	$	489,888
Risk free interest rate						2.2	%
Expected term						6.5 years
Expected volatility						70.0	%

Tranche B Options	75,000	$	5.18	$	388,514
Risk free interest rate						1.5	%
Time to liquidity event						4.5 years
Expected volatility						75.0	%
Forward expected volatility rate						55.0	%
Forward risk free interest rate						3.6	%

Tranche C Options	75,000	$	4.79	$	359,476
Risk free interest rate						1.5	%
Time to liquidity event						4.5 years
Expected volatility						75.0	%
Forward expected volatility rate						55.0	%
Forward risk free interest rate						3.6	%

Total	255,000			$	1,359,899

No Options were cancelled or forfeited during the three and six months ended June 30, 2014.

Restricted Stock

On April 28, 2014, the Company issued 50,000 restricted Class B Shares that vest in five equal installments on each of the first five anniversaries of the grant date. The fair value of the the restricted stock granted on April 28, 2014, was $10 per share of restricted stock.

No restricted stock was cancelled or forfeited during the three and six months ended June 30, 2014.