Note 10. Stock-Based Compensation

The Company’s Board of Directors adopted the 2015 Equity Incentive Plan (the “Equity Plan”), which is administered by the Compensation Committee of the Board of Directors. Awards issuable under the Equity Plan include incentive stock options, “non-qualified” stock options, stock appreciation rights, performance units and performance shares, restricted shares, and restricted stock units.

In connection with the Spin-Off, the Company issued 538,819 restricted shares and 70,889 performance-based restricted stock units to employees of Windstream in accordance with the terms of the Employee Matters Agreement between the Company and Windstream. Under the Employee Matters Agreement, which governs the compensation and employee benefit obligations of CS&L and Windstream with respect to the current and former employees of each company, employees of Windstream who held equity awards as of the date of the Spin-Off were entitled to receive equity awards of CS&L in the same proportion as if the equity awards had been common shares on the date of the Spin-Off. The CS&L awards issued have the same form and vesting requirements as the underlying Windstream awards. For the purposes of vesting in the CS&L awards, continued service with Windstream is deemed to be continued service with CS&L. We do not recognize any compensation expense in our Consolidated Statement of Income related to these awards, as none of the employees granted awards provide service to CS&L. At December 31, 2016, 161,588 restricted shares and 16,033 performance-based restricted stock units issued to Windstream employees remained outstanding.

Certain employees of CS&L have retained their unvested Windstream awards that were held prior to the Spin-Off. Unrecognized compensation expense related to these awards was $5,100 at December 31, 2016, and will be amortized to compensation expense in our Consolidated Statement of Income on a straight-line basis over the vesting period. For the year ended December 31, 2016 and for the period from April 24, 2015 to December 31, 2015, we recognized $63,000 and $197,000, respectively, of compensation expense related to these awards, which is recorded in general and administrative expense on our Consolidated Statement of Income.

Restricted Awards

During the year ended December 31, 2016, the Company granted 308,146 shares of restricted stock to employees, which had a fair value of $6.3 million as of the date of grant. We calculate the grant date fair value of non-vested shares of restricted stock awards using the closing sale prices on the trading day on the grant date. The restricted stock awards are amortized on a straight-line basis to expense over the vesting period, which is generally three years. As of December 31, 2016, there were 5,110,563 shares available for future issuance under the Equity Plan. The following table sets forth the number of unvested restricted stock awards and the weighted-average fair value of these awards at the date of grant:


	Restricted Awards			Weighted Average Fair Value at Grant Date		Aggregate Intrinsic Value⁽¹⁾($000s)
Unvested balance December 31, 2015		241,140		$	25.82
Granted		308,146		$	20.56
Forfeited		(12,419	)	$	21.42
Vested		(42,976	)	$	26.34
Unvested balance, December 31, 2016		493,891		$	22.60	$	12,550

⁽¹⁾

The aggregate intrinsic value is calculated as the market value of our common stock as of December 30, 2016. The market value as of December 30, 2016 was $25.41 per share, which was the closing price of our common stock reported for transactions effected on the NASDAQ Global Select Market on December 30, 2016, the final trading day of 2016.

The total fair value of shares vesting during the ended December 31, 2016 was $1.1 million.

As of December 31, 2016, total unrecognized compensation expense on restricted awards was approximately $7.1 million, and the expense is expected to be recognized over a weighted average vesting period of 1.8 years.

Performance Awards

The Company grants long-term incentives to members of management in the form of performance-based restricted stock units (“PSUs”) under the Equity Plan. The number of PSUs earned is based on the Company’s achievement of specified performance goals, over a specified performance period, and may range from 0% to 150% of the target shares. The PSUs have a service condition that will expire at the end of the three-year performance period provided that the holder continues to be employed by the Company at the end of the performance period. Holders of PSUs are entitled to dividend equivalents, which will be accrued quarterly and paid in cash upon the vesting of a PSU. Dividend equivalents are forfeited to the extent that the underlying PSU is forfeited.

On February 29, 2016, we issued 101,660 PSUs equal to 100% of the target amount, with an aggregate value of $2.1 million on the grant date. The PSUs, in addition to a service condition, are subject to the Company’s performance versus the total return of the MSCI US REIT Index and a triple-net lease peer group, as defined by the Compensation Committee. Upon evaluating the results of the market conditions, the final number of shares is determined and such shares vest based on satisfaction of the service condition. The PSUs are amortized on a straight-line basis over the vesting period. During the year ended December 31, 2016, no PSUs were forfeited due to termination of service. The following table sets forth the number of unvested PSUs and the weighted-average fair value of these awards at the date of grant:

	Performance Awards		Weighted Average Fair Value at Grant Date		Aggregate Intrinsic Value⁽¹⁾($000s)
Unvested balance December 31, 2015		60,970	$	21.82
Granted		101,660	$	20.71
Forfeited		—	$	—
Vested		—	$	—
Unvested balance, December 31, 2016		162,630	$	21.13	$	4,132

⁽¹⁾

As of December 31, 2016, total unrecognized compensation expense related to PSUs was approximately $2.1 million, and the weighted-average vesting period was 1.8 years. The fair value of each PSU award is estimated at the date of grant using a Monte Carlo simulation. The simulation requires assumptions for expected volatility, risk-free return, and dividend yield. Our assumptions include a 0% dividend yield, which is the mathematical equivalent to reinvesting the dividends over the three-year performance period as is consistent with the terms of the PSUs. The following table summarizes the assumptions used to value the PSUs granted during the year ended December 31, 2016 and for the period from April 24, 2015 to December 31, 2015:

	Year Ended December 31, 2016			Period from April 24 - December 31, 2015
Expected term (years)		3.0			2.9
Expected volatility		48.8	%		26.6	%
Expected annual dividend		0.0	%		0.0	%
Risk free rate		0.9	%		0.9	%

For the year ended December 31, 2016 and for the period from April 24, 2015 to December 31, 2015, we recognized $4.8 million and $1.9 million, respectively, of compensation expense related to restricted stock awards and performance-based awards, which is recorded in general and administrative expense on our Consolidated Statement of Income.