5. Stock-Based Compensation

2014 Plan

Civitas maintains a 2014 Omnibus Incentive Plan (“2014 Plan”). As of June 30, 2017, the 2014 Plan authorized the issuance of up to 6,663,240 shares of common stock as stock-based awards, including incentive stock options (“ISOs”), non-qualified stock options (“NSOs”), restricted stock units (“RSUs”) and performance based restricted stock units ("PRSUs").

Stock Options

Stock option activity for the nine months ended June 30, 2017 is presented below:



(in thousands, except share and per share amounts)	Number of Shares	Weighted- Average Exercise Price per Share		Weighted- Average Remaining Life (Years)	Aggregate Intrinsic Value
Outstanding at September 30, 2016	709,832	$	19.42
Granted	314,757	16.87
Exercised	35,196	17.00
Forfeited	72,400	19.19
Expired	2,864	25.41
Outstanding at June 30, 2017	914,129	$	18.64	8.1	$	408
Exercisable at June 30, 2017	352,597	$	18.49	7.0	$	154
Vested or expected to vest as of June 30, 2017	887,482	$	18.64	8.0	$	395

The Company utilizes the Black-Scholes valuation model for estimating the fair value of stock options. Options granted under the 2014 Plan during the nine months ended June 30, 2017 were valued using the following assumptions:



	2017
Risk-free interest rate	1.83% - 2.08%
Expected term	6 years
Expected volatility	36.16% - 36.21%
Expected dividend yield	—	%

The Company recognizes the fair value of the stock option awards as stock-based compensation expense over the requisite service period of the individual grantee, which equals the vesting period.

Restricted Stock Unit Awards (RSUs)

Restricted stock unit activity for the nine months ended June 30, 2017 is presented below:



	Number of Restricted Stock Units	Weighted Average Grant-Date Fair Value
Non-vested units at September 30, 2016	442,528	$	21.24
Granted	530,660	17.73
Forfeited	70,205	19.26
Vested	119,823	22.46
Non-vested units at June 30, 2017	783,160	$	18.85

The fair value of each restricted stock unit was determined based on the Company's closing stock price on the date of grant. The Company recognizes the fair value of the RSUs as stock-based compensation expense over the requisite service period of the individual grantee, which equals the vesting period.

Performance Based Restricted Stock Units (PRSUs)

During the nine months ended June 30, 2017, the Company awarded 45,624 PRSUs under the 2014 Plan. The number of PRSUs earned is determined based on the Company's attainment of predefined performance targets set by the Compensation Committee. The number of PRSUs earned will be determined based on the Company's actual performance against established performance targets during the three year performance period (the “Performance Condition”). The number of PRSUs earned based on the Performance Condition may range from 0% to 200% of the initial award. All of the PRSUs will be settled in shares of the Company’s common stock, which will be issued following the end of the three-year performance period, subject to the actual achievement of the predefined performance targets. The per share fair value of the PRSUs was determined based on the Company's closing stock price on the date of grant. To calculate compensation expense, the Company forecasts the likelihood of achieving the predefined performance targets and calculates the number of PRSUs expected to be earned.

A summary of PRSU activity for the nine months ended June 30, 2017 is as follows:



	Number of Performance Based Restricted Stock Units	Weighted Average Grant-Date Fair Value
Non-vested units at September 30, 2016	42,467	$	19.84
Granted	45,624	19.85
Forfeited	3,586	19.84
Vested	—	—
Non-vested units at June 30, 2017	84,505	$	19.84

The Company recorded stock-based compensation expense for stock options, RSUs and PRSUs under the 2014 Plan of $2.2 million and $6.6 million during the three and nine months ended June 30, 2017, respectively, and $1.8 million and $4.7 million during the three and nine months ended June 30, 2016, respectively. Stock-based compensation expense is included in general and administrative expense in the consolidated statements of operations.

Unit Plan

Prior to October 1, 2015, NMH Investment maintained the Amended and Restated 2006 Unit Plan (the “Unit Plan”). Under the Unit Plan, NMH Investment issued units of limited liability company interests pursuant to such plan, consisting of Class B Common Units, Class C Common Units, Class D Common Units, Class E Common Units, Class F Common Units, Class G Common Units and Class H Common Units. These units derived their value from the value of the Company.

On October 1, 2015, in connection with a secondary offering, NMH Investment distributed all of the 25,250,000 shares of our common stock it held to its existing members in accordance with their respective membership interests and pursuant to the terms of the NMH Investment's Limited Liability Company Agreement and the management

unitholders agreements (the “Distribution”). The Distribution triggered the vesting condition for the Class H Common Units and the acceleration of unvested Class F Common Units. As a result, the Company recorded compensation expense of $10.5 million related to these awards during the quarter ended December 31, 2015. This expense is not deductible for tax purposes. The expense is included in general and administrative expense in the consolidated statements of operations. As a result of the Distribution, the Unit Plan has concluded and there will be no future issuances under this plan.