Note 9. Stock-Based Compensation

2013 Stock Incentive Plan

The Company adopted the 2013 Stock Incentive Plan (“2013 Plan”) on October 14, 2013 as amended on April 27, 2015 under which the Company may grant stock-based compensation awards to employees, directors and advisors. The total number of shares available for grant under the 2013 Plan and reserved for issuance is 20.9 million shares. All stock options were granted to employees, directors, and advisors with an exercise price equal to the fair value of the Company’s per share common stock. Following the Company’s initial public offering, the Company may grant stock-based compensation awards pursuant to the 2017 Plan (defined below) and ceased granting new awards pursuant to the 2013 Plan.

Stock options awards vest over either five, four, or three years with 50% of each award vesting based on time and 50% of each award vesting based on the achievement of certain financial targets.

Prior to the Company’s initial public offering in May 2017, the Company had certain repurchase rights on stock acquired through the exercise of a stock option that created an implicit service period and created a condition in which an optionee may not receive the economic benefits of the option until the repurchase rights are eliminated. The repurchase rights creating the implicit service period are eliminated at the earlier of an initial public offering or change of control event. Before the elimination of the repurchase rights, because an initial public offering or change of control were not probable of occurring, no compensation expense was recorded for equity awards.

The Company recognized a liability for compensation expense measured at intrinsic value when it was probable that an employee would receive benefits under the terms of the plan due to termination of employment.

Under the terms of the 2013 Plan, concurrent with the initial public offering, the Company no longer retains repurchase rights on stock acquired through the exercise of a stock option and the implicit service period was eliminated on outstanding stock options. For the three and nine months ended September 30, 2017, the Company recognized stock-based compensation expense of approximately $7.8 million and $69.2 million, respectively, related to time-based and performance-based stock options included in “Other operating expense, net” in the Condensed Consolidated Statements of Operations. Certain stock awards are expected to be settled in cash (stock appreciation rights “SAR”) and are accounted for as liability awards. At September 30, 2017, a liability of approximately $13.1 million for SARs is included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets.

As of September 30, 2017 there was $12.9 million of total unrecognized compensation expense related to outstanding stock options.

A summary of the Company’s stock-based award plan activity, including stock options and SARs, for the nine month period ended September 30, 2017 is presented in the following table (underlying shares in thousands):

	Shares			Weighted-Average Exercise Price (per share)
Outstanding at December 31, 2016		13,285		$	8.85
Granted		799		$	20.00
Settled		(92	)	$	8.17
Forfeited		(938	)	$	8.21
Outstanding at September 30, 2017		13,054		$	9.52

Vested at September 30, 2017		6,676		$	8.73

The following assumptions were used to estimate the fair value of options granted during the nine month period ended September 30, 2017 using the Black-Scholes option-pricing model.

	Nine Months Ended September 30, 2017
Assumptions:
Expected life of options (in years)		5.00 - 6.25
Risk-free interest rate		1.94 - 2.12	%
Assumed volatility		41.2 - 45.8	%
Expected dividend rate		0.00	%

Concurrent with the Company’s initial public offering in May of 2017, the Company’s Board authorized the grant of 5.5 million deferred stock units (“DSU”) to all permanent employees that had not previously received stock-based awards under the 2013 Plan. The DSUs vested immediately upon grant, however contain restrictions such that the employee may not sell or otherwise realize the economic benefits of the award until certain dates through April 2019. At the date of the grant, the fair value of a DSU was determined to be $17.20 assuming a share price at the pricing date of the initial public offering of $20.00 and a discount for lack of marketability commensurate with the period of the sale restrictions. Certain DSU awards are expected to be settled in cash and carried at fair value on the balance sheet date. In the three and nine month periods ended September 30, 2017, the Company recognized expense for the DSU awards of $2.0 million and $96.8 million, respectively, included in “Other operating expense, net” in the Condensed Consolidated Statements of Operations. A liability of $5.4 million is included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets as of September 30, 2017.

The following assumptions were used to estimate the fair value of DSUs at the time of grant using the Finnerty discount for lack of marketability pricing model:

	Nine Months Ended September 30, 2017
Assumptions:
Average length of holding period restrictions (years)		1.42
Assumed volatility		5.15	%

2017 Omnibus Incentive Plan

In May 2017, the Company’s Board approved the 2017 Omnibus Incentive Plan (“2017 Plan”). Under the terms of the Plan, the Company’s Board may grant up to 8.6 million stock based and other incentive awards. Any shares of common stock subject to outstanding awards granted under our 2013 Stock Incentive Plan that, after the effective date of the 2017 Plan, expire or are otherwise forfeited or terminated in accordance with their terms are also available for grant under the 2017 Plan. As of September 30, 2017, no awards have been granted from the 2017 Plan.