Stock-Based Compensation

Equity Compensation Plans

The 2014 Equity Compensation Plan has 4.1 million shares authorized for issuance. During 2013, the Company issued 70 thousand options outside of existing plans as inducement awards in accordance with New York Stock Exchange rules. To the extent allowable, service-based options are incentive stock options. Options granted under the plans are at prices equal to or greater than the fair market value at the date of grant. Upon exercise of stock options, the Company issues shares first from treasury stock, if available, then from authorized but unissued shares. At December 31, 2015, the Company had reserved 4.2 million shares of common stock for possible future issuance under its 2014 Equity Compensation Plan, and other previously expired equity compensation plans.

Classification of Stock-Based Compensation Expense

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



	Year Ended December 31,
	2015		2014		2013
	(In thousands)
General and administrative expense	$	1,611	$	1,935	$	1,821
	$	1,611	$	1,935	$	1,821

At December 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 upon 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 years ended December 31, 2015, 2014 and 2013, respectively, the Company issued 0 thousand, 8 thousand and 67 thousand performance-based options to employees. During the year ended December 31, 2014, 7 thousand performance-based options vested. No performance-based options vested during 2015 or 2013. During the years ended December 31, 2015, 2014 and 2013, respectively, 9 thousand, 16 thousand and 398 thousand performance-based options were canceled or forfeited. The Company recorded compensation expense related to performance-based options of $0.0 million, $0.1 million and $0.0 million for the years ended December 31, 2015, 2014 and 2013, respectively. The maximum number of unvested shares at December 31, 2015 attainable under these grants was 453 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 years ended December 31, 2015, 2014 and 2013, the Company did not issue any market-based awards to employees. During the year ended December 31, 2014, 22 thousand market-based options vested. No market-based options vested during 2015 or 2013. During the years ended December 31, 2015, 2014 and 2013, respectively, 91 thousand, 155 thousand and 554 thousand market-based options were canceled or forfeited. The Company recorded compensation expense related to market-based options of $0.0 million, $0.0 million and $0.2 million during the years ended December 31, 2015, 2014 and 2013, respectively. There is no further expense to be recognized related to market-based options. Depending on the Company’s stock performance, the maximum number of unvested shares at December 31, 2015 attainable under these grants was 136 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 years ended December 31, 2015, 2014 and 2013, respectively, the Company issued 31 thousand, 23 thousand and 52 thousand service-based options to employees. During the years ended December 31, 2015, 2014 and 2013, respectively, 8 thousand, 8 thousand and 14 thousand service-based options were canceled or forfeited. The Company recorded compensation expense related to these options of $0.3 million, $0.3 million and $0.5 million during the years ended December 31, 2015, 2014 and 2013, respectively.

The fair value of the Company’s option awards to employees was estimated at the date of grant using the Black-Scholes option-pricing model. The risk-free rate is 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. Assumptions used in the valuation of options granted in each period were as follows:



	Year Ended December 31,
	2015		2014		2013
Service-Based Options
Dividend yield	0	%	0	%	0	%
Expected volatility	26	%	32	%	52	%
Average expected option life	5 years		5 years		5 years
Risk-free interest rate	1.5	%	1.7	%	1.3	%
			Year Ended December 31,
			2014		2013
Performance-Based Options
Dividend yield			0	%	0	%
Expected volatility			32	%	46	%
Average expected option life			4.8 years		4.7 years
Risk-free interest rate			1.7	%	1.8	%

The weighted-average grant date fair value of options issued by the Company during the years ended December 31, 2015, 2014 and 2013 was $4.25, $7.02 and $6.83 per share, respectively.

Option activity of the Company is summarized below:



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
	(In thousands)				(In years)	(In thousands)
Outstanding at December 31, 2012	3,287		$	10.72
Options granted	120		15.61
Options exercised	(612	)	8.44
Options canceled/forfeited	(967	)	9.38
Outstanding at December 31, 2013	1,828		12.51
Options granted	31		19.38
Options exercised	(365	)	11.48
Options canceled/forfeited	(178	)	13.58
Outstanding at December 31, 2014	1,316		12.81
Options granted	31		17.26
Options exercised	(155	)	13.12
Options canceled/forfeited	(107	)	13.06
Outstanding at December 31, 2015	1,085		12.86		3.78	$	2,819
Options exercisable at December 31, 2015	422		12.14		2.38	1,351
Options vested and expected to vest at December 31, 2015	1,085		12.86		3.78	2,819
Shares available for future grant	2,345

The total intrinsic value of options exercised for the years ended December 31, 2015, 2014 and 2013 was $0.9 million, $2.4 million and $3.9 million, respectively.

At December 31, 2015, total unrecognized compensation cost related to non-vested service-based options was $0.3 million. That cost is expected to be recognized over a weighted-average period of 2.6 years. At December 31, 2015, total unrecognized compensation cost related to non-vested performance-based options was $0.3 million. That cost is expected to be recognized over a weighted-average period of 2.6 years but would be accelerated if stock price targets are achieved earlier than estimated.

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 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 years ended December 31, 2015, 2014 and 2013, respectively, the Company issued 153 thousand, 119 thousand and 83 thousand performance-based stock units to employees. Under the 2015 and 2014 performance-based award plans, once performance-based stock units 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 December 31, 2015, the liability associated with such potential cash payments was $0.0 million.

During the years ended December 31, 2015, 2014 and 2013, respectively, the Company issued 81 thousand, 59 thousand and 28 thousand restricted shares to employees. Restricted shares generally vest over a period of approximately four years.

During the years ended December 31, 2015, 2014, and 2013, respectively, the Company issued 44 thousand, 46 thousand and 48 thousand deferred stock units to non-employee directors for annual service grants or 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.

During the years ended December 31, 2015, 2014 and 2013, the Company granted 9 thousand, 8 thousand and 8 thousand shares, respectively, to members of its advisory boards, and recorded compensation expense of $0.1 million in each year related to these awards.

Total compensation expense for deferred stock units, performance-based stock units and restricted stock was approximately $1.3 million, $1.5 million and $1.1 million for the years ended December 31, 2015, 2014 and 2013, respectively. Unrecognized compensation expense related to deferred stock units, performance stock units and restricted stock at December 31, 2015 was $4.8 million. The total fair value of deferred stock units, performance stock units and restricted stock vested during the years ended December 31, 2015, 2014 and 2013 was $1.1 million, $1.4 million and $1.1 million, respectively.

Deferred stock unit, performance-based stock unit and restricted stock activity are summarized below:



	Shares		Weighted Average Grant Date Fair Value
	(In thousands)
Unvested at December 31, 2013	317		$	15.34
Granted	231		19.67
Vested	(78	)	17.91
Forfeited	(15	)	15.61
Unvested at December 31, 2014	455		17.09
Granted	286		15.02
Vested	(64	)	17.42
Forfeited	(7	)	18.76
Unvested at December 31, 2015	670		16.16