Note 9. Stock-Based Compensation Plans

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 was 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 at the date of grant. 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 under the 2013 Plan vest over either three, four or five 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.

2017 Omnibus Incentive Plan

In May 2017, the Company’s Board approved the 2017 Omnibus Incentive Plan (“2017 Plan”) under which the Company may grant stock-based compensation awards to employees, directors and advisors. The total number of shares originally available for grant under the 2017 Plan and reserved for issuance was 8.6 million shares. Any shares of common stock subject to outstanding awards granted under the Company’s 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 March 31, 2018, 7.9 million shares are available for grant under the 2017 Plan. All stock option awards were granted to employees, directors, and advisors with an exercise price equal to the fair value per share of the Company’s common stock at the date of grant. All restricted stock awards were granted to employees, directors, and advisors with a price equal to fair value per share of the Company’s common stock at the date of the grant.

Stock options and restricted stock unit awards under the 2017 Plan generally vest over either four or five years based on time.

Certain stock awards under the 2013 Plan are expected to be settled in cash (stock appreciation rights “SAR”) and are accounted for as liability awards. As of March 31, 2018, a liability of approximately $15.0 million for SARs is included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets.

Under the 2013 and 2017 Plans, the Company recognized stock-based compensation expense of approximately $3.4 million for the three months ended March 31, 2018. The $3.4 million of stock-based compensation includes expense for modifications of equity awards for certain former employees of $3.8 million and expense for equity awards granted under the 2013 Plan and 2017 Plan of $1.4 million reduced by a benefit for a reduction in the liability for SARs of $1.8 million.

The $3.8 million stock-based compensation for modifications for the three month period ended March 31, 2018 provided continued vesting through scheduled vesting dates and extended expiration dates for certain former employees. The incremental stock-based compensation was determined using the Black-Scholes option pricing model based on assumptions which included expected lives of 1.00 to 1.25 years, a risk-free interest rate of 2.03%, assumed volatility of 26.8% to 27.3% and an expected dividend rate of 0.0%. These costs are included in “Other operating expense, net” in the Condensed Consolidated Statements of Operations.

As of March 31, 2018, there was $28.1 million of total unrecognized compensation expense related to outstanding stock options and restricted stock unit awards.

Stock Option Awards

A summary of the Company’s stock option (including SARs) activity for the three month period ended March 31, 2018 is presented in the following table (underlying shares in thousands).

	Shares			Weighted-Average Exercise Price (per share)
Outstanding at December 31, 2017		12,834		$	9.54
Granted		766		$	32.06
Exercised or settled		(391	)	$	8.42
Forfeited		(85	)	$	8.43
Outstanding at March 31, 2018		13,124		$	10.89
Vested at March 31, 2018		9,068		$	9.07

The following assumptions were used to estimate the fair value of options granted (excluding previously disclosed modified awards) during the three month period ended March 31, 2018 using the Black-Scholes option-pricing model.

	Three Month Period Ended March 31, 2018
Assumptions:
Expected life of options (in years)		7.00 - 7.50
Risk-free interest rate		2.9	%
Assumed volatility		35.1 - 35.4	%
Expected dividend rate		0.0	%

Restricted Stock Unit Awards

A summary of the Company’s restricted stock unit activity for the three month period ended March 31, 2018 is presented in the following table (underlying shares in thousands).

	Shares		Weighted-Average Grant-Date Fair Value
Non-vested at December 31, 2017		-	$	-
Granted		337	$	32.06
Vested		-	$	-
Forfeited		-	$	-
Non-vested at March 31, 2018		337	$	32.06