Stock-Based Compensation

Stock-based compensation expense was recognized in the Consolidated Statements of Operations as follows:



	Three months ended March 31,
	2015		2014
	(Unaudited - In thousands)
General and administrative expense	$	257	$	520
	$	257	$	520

The fair value of the Company’s stock-based awards to employees was estimated at the date of grant using the Black-Scholes option-pricing model. The risk-free rate was based on the U.S. Treasury yield curve in effect at the end of the quarter in which the grant occurred. The expected term of stock options granted was estimated using the historical exercise behavior of employees. Expected volatility was based on historical volatility measured using weekly price observations of the Company’s common stock for a period equal to the stock option’s expected term.

At March 31, 2015, the Company had outstanding options that vest based on three different types of vesting schedules:



1)	performance-based;
2)	market-based; and
3)	service-based.

Performance-based awards entitle participants to vest in a number of awards determined by achievement by the Company of target capital returns based on net cash proceeds received by the Company on the sale, merger or other exit transaction of certain identified partner companies. Vesting may occur, if at all, once per year. The requisite service periods for the performance-based awards are based on the Company’s estimate of when the performance conditions will be met. Compensation expense is recognized for performance-based awards for which the performance condition is considered probable of achievement. Compensation expense is recognized over the requisite service periods using the straight-line method but is accelerated if capital return targets are achieved earlier than estimated. During the three months ended March 31, 2015 and 2014, the Company did not issue any performance-based awards to employees. During the three months ended March 31, 2015 and 2014, no performance-based awards vested. During the three months ended March 31, 2015 and 2014, no performance-based awards were canceled or forfeited. The Company recorded compensation expense related to performance-based awards of $0.0 million and $0.1 million for the three months ended March 31, 2015 and 2014, respectively. The maximum number of unvested shares at March 31, 2015 attainable under these option grants was 462 thousand shares.

Market-based awards entitle participants to vest in a number of options determined by achievement by the Company of certain target market capitalization increases (measured by reference to stock price increases on a specified number of outstanding shares) over an eight-year period. During the three months ended March 31, 2015 and 2014, no market-based awards vested. The Company recorded compensation expense related to market-based awards of $0.0 million for the three months ended March 31, 2015 and 2014. The Company recognized all remaining compensation cost related to market-based awards in 2014. Depending on the Company’s stock performance, the maximum number of unvested shares at March 31, 2015 attainable under these grants was 226 thousand shares.

All other outstanding options are service-based awards that generally vest over four years after the date of grant and expire eight years after the date of grant. Compensation expense is recognized over the requisite service period using the straight-line method. The requisite service period for service-based awards is the period over which the award vests. During the three months ended March 31, 2015 and 2014, respectively, the Company issued 13 thousand and 0 thousand service-based awards to employees. The Company recorded compensation expense related to service-based awards of $0.1 million for the three months ended March 31, 2015 and 2014.

Performance-based stock units vest based on achievement by the Company of target capital returns based on net cash proceeds received by the Company on the sale, merger or other exit transaction of certain identified partner companies, as described above related to performance-based option awards. Performance-based stock units represent the right to receive shares of the Company’s common stock, on a one-for-one basis. During the three months ended March 31, 2015 and 2014, the Company did not issue any performance-based stock units to employees. During the three months ended March 31, 2015 and 2014, no performance-based stock units vested.

Under the 2014 performance-based award plan, once performance-based awards are fully vested, participants are entitled to receive cash payments based on their initial performance grant values as target capital returns described above are exceeded. At March 31, 2015, the liability associated with such potential cash payments was $0.0 million.

During both the three months ended March 31, 2015 and 2014, the Company issued 2 thousand deferred stock units to non-employee directors for fees earned during the preceding quarter. Deferred stock units issued to directors in lieu of directors fees are 100% vested at the grant date; matching deferred stock units equal to 25% of directors’ fees deferred vest one year following the grant date or, if earlier, upon reaching age 65. Deferred stock units are payable in stock on a one-for-one basis. Payments related to the deferred stock units are generally distributable following termination of employment or service, death or permanent disability.

All other awards are restricted stock awards that generally vest over four years. During the three months ended March 31, 2015 and 2014, the Company did not issue any restricted stock awards.

Total compensation expense for deferred stock units, performance-based stock units and restricted stock was approximately $0.2 million and $0.3 million for the three months ended March 31, 2015 and 2014, respectively.