Share-Based Awards

We grant equity incentive awards to certain of our employees (including our executive officers), directors and consultants. Following the Spin-Off, all of the awards we have granted have been stock options and restricted stock units ("RSUs") relating to shares of our Series C common stock. Some of these awards contain service-based vesting conditions (typically annual vesting over four years), and some of these awards contain both service- and milestone-based vesting conditions.

We estimate the fair value of the stock options granted using the Black-Scholes pricing model. In valuing share-based awards, significant judgment is required in determining the fair value of our share price, the expected volatility of common stock, and the expected term individuals will hold their share-based awards prior to exercise. With the assistance of an independent third-party advisory firm, for awards granted during the three months ended March 31, 2016, we estimated share-price based on an internal valuation using income- and market-based approaches. In connection with the Spin-Off, the awards outstanding were modified, and their respective fair values were updated at the Spin-Off. The share-price input at the Spin-Off was based on the closing share price the first trading day following the Spin-Off.

Included in the condensed consolidated statements of comprehensive income (loss) are the following amounts of share-based compensation (amounts in thousands):



	Three Months Ended March 31,
	2017		2016
Cost of revenue	$	110	$	504
Research and development	571		1,860
Sales and marketing	135		984
General and administrative	1,544		6,689
	$	2,360	$	10,037

Prior to the Spin-Off, awards outstanding were liability-based awards as they could be settled in cash, and marked-to-market each reporting period, based on an internal valuation described above. For periods following the Spin-Off, all awards are equity-based awards as they can no longer be settled in cash, and therefore are no longer marked-to-market each reporting period. During the three months ended March 31, 2016, we recognized significantly higher share-based compensation expense associated with this mark-to-market adjustment, which is the primary driver in the decrease in share-based compensation expense from the first quarter of 2016 to the first quarter of 2017.

CommerceHub Share-Based Award Plans

In connection with the Spin-Off, all of the outstanding CTI stock appreciation rights and stock options were converted into new option awards to purchase shares of our Series C common stock, which were issued under the CommerceHub, Inc. Legacy Stock Appreciation Rights Plan and the CommerceHub, Inc. Legacy Stock Option Plan (together, the "Legacy Plans"), respectively. The Legacy Plans govern the terms and conditions of these new option awards but will not be used to make any further grants.

In connection with the Spin-Off, we also adopted the CommerceHub, Inc. 2016 Omnibus Incentive Plan (as amended, amended and restated or otherwise modified from time to time, the “Omnibus Plan”), which is the incentive plan we use for all new equity grants following the Spin-Off. On January 1, 2017, the number of shares available for issuance under the Omnibus Plan was increased by 2,146,064 shares, or 5% of the outstanding shares of our common stock on December 31, 2016, to 15,346,064 shares.

In addition, also in connection with the Spin-Off, we adopted an Employee Stock Purchase Plan (the “ESPP”), which provides employees with the opportunity to invest a portion of their annual eligible compensation to purchase shares of our Series C common stock at a purchase price equal to 85% of the lower of (a) the fair market value of our Series C common stock at the beginning of the applicable six-month offering period, and (b) the fair market value of our Series C common stock at the end of the applicable six-month offering period. The first offering period under the ESPP began on January 1, 2017. For the three months ended March 31, 2017, we recorded approximately $80 thousand of share-based compensation expense associated with the ESPP.

The fair value of ESPP shares is estimated based on the market price of our Series C common stock at the beginning of each offering period and the Black-Scholes option pricing model with the following assumptions:



Volatility	41.5	%
Term (in years)	0.5
Risk-free interest rate	0.8	%
Dividend yield	—	%

Also in connection with the Spin-Off, holders of option awards, RSUs and restricted stock awards ("RSAs") relating to Liberty's Liberty Ventures common stock received CommerceHub options, RSUs and RSAs, respectively, pursuant to the CommerceHub, Inc. Transitional Stock Adjustment Plan (the “Transitional Plan”). The Transitional Plan governs the terms and conditions of these new awards but will not be used to make any further grants.

The following table summarizes the share-based award activity of options to purchase shares of our common stock for the three months ended March 31, 2017:



	CommerceHub Employee Plans						Liberty Employee Plans
	Omnibus Plan			Legacy Plans			Transitional Plan
	Series C			Series C			Series C			Series A
Outstanding at January 1, 2017	193,998			5,580,109			1,006,043			329,188
Granted	278,629			—			—			—
Exercised	—			(55,655		)	(119,028		)	(59,532		)
Forfeited	(10,000		)	(46,494		)	(3,558		)	(1,785		)
Outstanding at March 31, 2017	462,627			5,477,960			883,457			267,871
Weighted average exercise price	$	15.61		$	13.02		$	9.41		$	7.90
Weighted average remaining contractual life (in years)	9.8			8.0			4.2			3.7
Aggregate intrinsic value (in thousands)	$	178		$	16,908		$	5,409		$	2,019
Exercisable at March 31, 2017	—			1,261,320			476,669			204,631
Weighted average exercise price	N/A			$	3.45		$	7.23		$	6.46
Weighted average remaining contractual life (in years)	N/A			4.1			3.4			3.0
Aggregate intrinsic value (in thousands)	N/A			$	15,236		$	3,956		$	1,835

The weighted average grant-date fair value of options granted during the three months ended March 31, 2017 was $7.16. As of March 31, 2017, unrecognized compensation cost related to options to purchase shares of our Series C common stock under the Omnibus Plan and Legacy Plans was approximately $16.5 million and is expected to be recognized over a weighted average remaining vesting period of approximately 3.3 years. There is no unrecognized compensation cost related to options under the Transitional Plan because they are held by employees of Liberty and any related compensation expense is incurred by Liberty.

RSU Activity Under the Omnibus Plan (Series C)

The following table summarizes the share-based award activity of RSUs relating to our Series C common stock granted under the Omnibus Plan for the three months ended March 31, 2017:



	Number of awards		Weighted average grant-date fair value
Outstanding at January 1, 2017	505,831		$	14.35
Granted	168,984		$	16.30
Vested	—		$	—
Forfeited	(6,473	)	$	14.33
Outstanding at March 31, 2017	668,342		$	14.85

As of March 31, 2017, unrecognized compensation cost related to RSUs relating to shares of our Series C common stock was approximately $7.5 million and is expected to be recognized over a weighted average remaining vesting period of approximately 3.5 years.

RSA and RSU Activity Under the Transitional Plan (Series A and Series C)

Share-based award activity for RSUs and RSAs relating to our Series A and Series C common stock issued under the Transitional Plan for the three months ended March 31, 2017 was not material. There is no unrecognized compensation cost related to these awards because they are held by employees of Liberty and any related compensation expense is incurred by Liberty.

Options and RSA Activity Under the Transitional Plan (Series B)

There has been no activity in the outstanding stock options and RSAs relating to our Series B common stock subsequent to the Spin-Off. There is no unrecognized compensation cost related to these awards because they are held by an employee of Liberty and any related compensation expense is incurred by Liberty.