Stock-Based Compensation Plans

During 2014, stockholders of the Company approved the 2014 Stock and Incentive Plan (the “2014 Plan”), under which the Company is authorized to grant options, restricted stock, restricted stock units, performance based restricted stock units, and other incentive compensation in an aggregate amount of up to 6 million shares of Company common stock to employees, officers, directors, consultants and advisors of the Company. Beginning May 22, 2014, new grants of stock-based incentive awards are made only from the 2014 Plan.

As of December 31, 2014, the Company also had outstanding options and stock awards under the 2004 Stock and Incentive Plan, which no longer permits new grants.

Under the Company’s stock-based compensation plans, stock options generally vest and become exercisable at varying points in time, ranging up to four years following the grant date, and generally have terms of ten years from the grant date. Stock option awards are granted with an exercise price that is no less than the fair market value of Company stock on the grant date. Omnicare’s normal practice is to issue new shares upon stock option exercise. Certain outstanding stock option and stock awards provide for accelerated vesting upon a change in control, as defined in the applicable plans.

Employee Stock Purchase Plan

In November 1999, the Company’s Board of Directors adopted the Omnicare StockPlus Program, a non-compensatory employee stock purchase plan (the “ESPP”), under which employees and non-employee directors of the Company may contribute up to 6% of eligible compensation (or an amount not to exceed $20,000 for non-employee directors) to purchase shares of the Company’s common stock. For each share of stock purchased, the participant also receives two options to purchase a share of the Company’s common stock. The stock options are subject to a four-year vesting period and are generally subject to forfeiture in the event the related shares purchased are not held by the participant for a minimum of two years. The stock options have a ten-year term from the date of issuance. Amounts contributed to the ESPP are used by the plan administrator to purchase the Company’s stock on the open market or for shares issued by Omnicare.

Restricted Stock and Restricted Stock Units

Stock awards are granted at the discretion of the Compensation Committee of the Company’s Board of Directors. These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods, typically three to ten-year periods. As part of their compensation, members of the Board of Directors can elect to receive either a restricted stock award or a restricted stock unit, the latter of which is deferred until their separation from the Board. Vesting of these awards/units mirrors their term of service (currently one year). The fair value of a stock award is equal to the fair market value of an equivalent number of shares of Company common stock on the grant date.

Performance Based Restricted Stock Units

Performance-based restricted stock units awards are granted at the discretion of the Compensation Committee of the Board of Directors. These awards are restricted as to the transfer of ownership and vest based on the Company’s achievement of certain performance targets.

Stock-Based Compensation

To determine the fair value of stock options on the grant date, the Company uses a Black-Scholes pricing model that incorporates the trading price of Omnicare’s common stock as well as assumptions regarding several complex and subjective variables, including the expected volatility of the trading price of Omnicare’s common stock over the expected term of the option, actual and projected stock option exercise behavior, the risk-free interest rate and the stock’s dividend yield on Omnicare’s common stock.

The expected term of stock options granted represents the period of time that the stock options are expected to be outstanding and is estimated based primarily on historical stock option exercise experience. The expected volatility is based primarily on the historical volatility of the Company’s common stock over a period generally commensurate with the expected term of the stock options. The risk-free interest rate is based on United States Treasury Strip issues with remaining terms similar to the expected term of the stock options. The expected dividend yield is based on the current Omnicare stock dividend yield. The Company is required to estimate forfeitures at the time of the grant and revise those estimates in subsequent periods as necessary to reflect any changes in actual forfeiture experience. Omnicare uses historical data to estimate pre-vesting stock option forfeitures and records stock-based compensation expense only for those awards that are expected to vest. All stock option awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting period.

The table below represents the assumptions used to value stock options granted during the years ended December 31,:



	2014			2013			2012
Expected volatility	22.3		%	27.1		%	33.6		%
Risk-free interest rate	1.8		%	1.4		%	0.7		%
Expected dividend yield	1.3		%	1.2		%	1.7		%
Expected term of options (in years)	4.58			4.80			5.00
Weighted average fair value per option	$	12.47		$	12.03		$	9.72

Total pretax stock-based compensation expense recognized in the Consolidated Statements of Comprehensive Income (Loss) as part of operating expense is approximately $1 million for stock options and $19 million for stock awards for the year ended December 31, 2014, approximately $1 million for stock options and $18 million for stock awards for the year ended December 31, 2013 and approximately $1 million for stock options and $15 million for stock awards for the year ended December 31, 2012.

As of December 31, 2014, the Company had approximately $27 million of unrecognized compensation cost related to nonvested stock awards and stock options granted to Omnicare employees, which is expected to be recognized over a remaining weighted-average period of approximately 2.52 years. The total grant date fair value of stock options vested during the years ended December 31, 2014, 2013, and 2012 was approximately $1 million, $1 million and $2 million, respectively. The total grant date fair value of stock awards vested during the years ended December 31, 2014, 2013, and 2012 was $19 million, $12 million and $18 million, respectively.

Stock Option Activity

A summary of stock option activity under the Company’s stock-based compensation plans, including the ESPP, for the year ended December 31, 2014, is presented below (in thousands, except exercise price data):



	2014
	Shares		Weighted Average Exercise Price
Options outstanding, beginning of year	766		$	36.43
Options granted	70		62.49
Options exercised	(337	)	38.27
Options forfeited	(38	)	39.15
Options outstanding, end of year	461		38.78
Options exercisable, end of year	213		$	33.84

The aggregate intrinsic value of options exercised, as of respective exercise dates, during the years ended December 31, 2014, 2013 and 2012 was approximately $8 million, $8 million and $12 million, respectively.

The following table summarizes information about stock options outstanding and exercisable (in thousands, except exercise price and remaining life data):



OPTIONS OUTSTANDING					OPTIONS EXERCISABLE
Range of Exercise Prices	Number Outstanding at December 31, 2014	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Number Exercisable at December 31, 2014	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price
$20.87 - 32.71	187	5.23	$	26.96	115	4.27	$	25.24
32.72 - 44.56	146	5.59	36.92		56	2.84	36.59
44.57 - 56.41	64	4.15	54.00		38	0.91	53.33
56.42 - 68.23	64	8.94	62.42		4	1.18	57.98
$20.87 - 68.23	461	5.71	$	38.78	213	3.24	$	33.84

Restricted Stock Award Activity

A summary of nonvested restricted stock and restricted stock unit award activity and performance-based restricted stock unit activity for the year ended December 31, 2014, is presented below (in thousands, except fair value data):



	2014
	Shares/units		Weighted Average Grant Date Fair Value
Nonvested shares/units, beginning of year	1,423		$	33.33
Shares/units awarded	350		59.34
Shares/units vested	(586	)	31.81
Shares/units forfeited	(233	)	36.35
Nonvested shares/units, end of year	954		$	43.07