Share-Based Compensation

We have historically maintained a stock option plan for key employees, directors and consultants (“the 1992 Plan”). The 1992 Plan provided for 14.9 million shares to be issued under the plan in the form of stock options. Under the terms of the 1992 Plan, the exercise price of shares granted may not be less than 85% of the fair market value at the date of the grant. Options granted to directors prior to May 25, 2004 vest one year from the date of grant and are exercisable for nine years thereafter. Options granted to directors on or after May 25, 2004 vest one-third each year, commencing one year after the date of grant. All other options granted vest at a rate of 20% per year, commencing one year after date of grant, and are exercisable during years 2-10.

On May 22, 2007, our stockholders adopted a Long-Term Incentive Plan (“LTIP”) which provides an additional 3.3 million shares that can be granted in the form of stock options, stock appreciation rights, restricted stock awards, performance units and performance awards. Since inception of the LTIP, non-qualified stock options and restricted stock awards have been granted with the same vesting schedule as the previous plan. Under the LTIP, the exercise price of shares granted may not be less than 100% of the fair market value at the date of the grant.

The compensation cost related to unvested stock options not yet recognized as of September 30, 2015 is $1.4 million and is expected to be recognized over a weighted-average period of 1.9 years.

The following weighted average assumptions were used to determine the fair value of the stock options granted on the original grant date for expense recognition purposes for options granted during the nine months ended September 30, 2015 and 2014 using a Black Scholes Model:



	Nine months ended
	September 30, 2015			September 30, 2014
Director and Officers:
Expected dividend rate	$	0.18		N/A
Expected volatility	44.14		%	N/A
Risk-free interest rate	1.97		%	N/A
Expected life (in years)	8			N/A

Employees:
Expected dividend rate	$	0.18		$	0.25
Expected volatility	44.13		%	45.56		%
Risk-free interest rate	2.05		%	2.40		%
Expected life (in years)	8			8

The expected term of the options is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date. Volatility is based on historical volatility of our stock over time periods equal to the expected life at grant date.

The following is a summary of stock options vested and exercisable as of September 30, 2015:



Range of Exercise Prices	Number of Shares	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Intrinsic Value (in thousands)
$4.31-$7.18	261,442	4.11	$	5.93	$	3,516
$7.44-$8.17	17,550	5.84	7.72		205
$8.65-$23.57	176,895	6.71	9.04		1,830
Total	455,887	5.18	$	7.20	$	5,551

The following is a summary of stock options vested and exercisable as of September 30, 2014:



Range of Exercise Prices	Number of Shares	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Intrinsic Value (in thousands)
$3.21-$6.89	459,684	3.48	$	5.10	$	5,492
$7.13-$8.17	82,450	6.81	7.26		804
$8.65-$21.14	192,627	6.36	8.76		1,590
Total	734,761	4.61	$	6.30	$	7,886

A summary of option activity under the plans is as follows:



Options	Shares		Weighted Average Exercise Price
Outstanding at December 31, 2014	1,235,150		$	8.16
Granted	62,605		22.93
Exercised	(411,905	)	6.41
Forfeited or Expired	(28,705	)	13.63
Outstanding at September 30, 2015	857,145		$	9.89
Exercisable at September 30, 2015	455,887		$	7.20

The total intrinsic value of options exercised during the nine months ended September 30, 2015 and 2014 was $7.0 million and $1.8 million, respectively. The cash received from options exercised during the nine months ended September 30, 2015 and 2014 was $2.6 million and $0.9 million, respectively. The impact of these cash receipts is included in financing activities in the accompanying Consolidated Statements of Cash Flows.

Since 2007, as part of the LTIP, the Compensation Committee of the Board of Directors has authorized and issued restricted stock awards to directors and key employees. Restricted stock awards granted to directors vest one-third each year. All other restricted stock awards vest at a rate of 20% per year. The fair value of restricted stock awards is based on the fair market value of AAON, Inc. common stock on the respective grant dates, reduced for the present value of dividends.

These awards are recorded at their fair value on the date of grant and compensation cost is recorded using straight-line vesting over the service period. At September 30, 2015, unrecognized compensation cost related to unvested restricted stock awards was approximately $5.1 million, which is expected to be recognized over a weighted average period of 2.1 years.

A summary of the unvested restricted stock awards is as follows:




Restricted stock	Shares		Weighted Average Grant Date Fair Value
Unvested at December 31, 2014	414,846		$	16.76
Granted	127,038		22.18
Vested	(84,563	)	14.68
Forfeited	(22,614	)	18.48
Unvested at September 30, 2015	434,707		$	18.66

A summary of share-based compensation is as follows:



	Three months ended				Nine months ended
	September 30, 2015		September 30, 2014		September 30, 2015		September 30, 2014
Grant date fair value of awards during the period:	(in thousands)
Options	$	—	$	119	$	657	$	307
Restricted stock	262		343		2,818		3,378
Total	$	262	$	462	$	3,475	$	3,685



Share-based compensation expense:
Options	$	203	$	181	$	601	$	701
Restricted stock	592		413		1,475		877
Total	$	795	$	594	$	2,076	$	1,578



Income tax benefit related to share-based compensation:
Options	$	(123	)	$	188	$	2,113	$	672
Restricted stock	(112		)	40		104		236
Total	$	(235	)	$	228	$	2,217	$	908