STOCK-BASED INCENTIVE COMPENSATION

Equity Incentive Plans — Under the Company’s 2018 Equity Incentive Plan (the “2018 Plan”), approved at the annual meeting by the BioScrip stockholders on May 3, 2018, the Company may issue, among other things, incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, stock grants, and performance units to key employees and directors. The 2018 plan is administered by the Company’s Compensation Committee, a standing committee of the Board of Directors. A total of 16,406,939 shares (4,101,735 equivalent shares after adjusting for the one share for four share reverse stock split) of common stock were initially authorized for issuance under the 2018 Plan.

Stock Options — Options granted under the 2018 Plan typically vest over a three-year period and, in certain instances, may fully vest upon a change in control of the Company. The options also typically have an exercise price that may not be less than 100% of its fair market value on the date of grant and are exercisable seven to ten years after the date of grant, subject to earlier termination in certain circumstances.

Compensation expense from stock options is recognized on a straight-line basis over the requisite service period. During the year ended December 31, 2019, the Company recognized compensation expense related to stock options of $0.4 million. The Company did not recognize any compensation expense related to stock options prior to the Merger.

The Company did not grant any options during the year ended December 31, 2019.

A summary of stock option activity from the Merger Date through December 31, 2019 was as follows (all amounts adjusted for the one share for four share reverse stock split):



	Options		Weighted Average Exercise Price		Aggregate Intrinsic Value (thousands)		Weighted Average Remaining Contractual Life
Balance at December 31, 2018	—		$	—	$	—
Acquired in Merger	812,565		$	13.88	$	3,935
Granted	—		$	—	$	—
Exercised	(158,270	)	$	7.64	$	995
Forfeited and expired	(9,320	)	$	17.72	$	29
Balance at December 31, 2019	644,975		$	15.36	$	2,754	2.4 years
Exercisable at December 31, 2019	597,856		$	15.76	$	2,524	1.9 years

During the year ended December 31, 2019, shares were surrendered to satisfy tax withholding obligations on the exercise of stock options with a cost basis of $0.4 million, which are all held as treasury stock as of December 31, 2019. No cash was received from stock option exercises under share-based payment arrangements for the years ended December 31, 2019, 2018 or 2017.

The maximum term of stock options under these plans is ten years. Options outstanding as of December 31, 2019 expire on various dates ranging from February 2020 through November 2028. The following table outlines the outstanding and exercisable stock options as of December 31, 2019 (all amounts adjusted for the one share for four share reverse stock split):



	Options Outstanding				Options Exercisable
Range of Option Exercise Price	Outstanding Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Options Exercisable	Weighted Average Exercise Price
$0.00 - $8.24	139,168	$	4.87	1.0 year	135,867	$	4.83
$8.24 - $16.52	295,224	$	10.33	3.7 years	251,406	$	10.34
$16.52 - $24.76	38,250	$	20.97	2.5 years	38,250	$	20.97
$24.76 - $33.00	148,333	$	28.57	0.8 years	148,333	$	28.57
$33.00 - $41.28	—	$	—	—	—	$	—
$41.28 - $49.52	18,750	$	44.16	3.2 years	18,750	$	44.16
$49.52 - $57.76	4,000	$	56.24	3.0 years	4,000	$	56.24
$57.76 - $66.00	—	$	—	—	—	$	—
$66.00 - $74.28	1,250	$	66.52	3.6 years	1,250	$	66.52
All options	644,975				597,856

As of December 31, 2019, there was $0.2 million of unrecognized compensation expense related to unvested option grants that is expected to be recognized over a weighted-average period of 1.5 years.

Restricted Stock — Restricted stock grants subject solely to an employee’s continued service with the Company generally will become fully vested within one to three years from the grant date and, in certain instances, may fully vest upon a change in control of the Company. Restricted stock grants subject solely to a Director’s continued service with the Company generally will become fully vested within one year from the date of grant.

Compensation expense from restricted stock is recognized on a straight-line basis over the requisite service period. During the year ended December 31, 2019, the Company recognized compensation expense related to restricted stock awards of $1.9 million. The Company did not recognize any compensation expense related to restricted stock awards prior to the Merger.

A summary of restricted stock award activity from the Merger Date through December 31, 2019 was as follows:



	Restricted Stock		Weighted Average Grant Date Fair Value
Balance at December 31, 2018	—		$	—
Acquired in Merger (1)	280,120		$	10.68
Granted	169,123		$	10.72
Vested and issued (1)	(214,926	)	$	10.68
Forfeited and expired (1)	(2,755	)	$	10.68
Balance at December 31, 2019	231,562		$	10.68

(1) Weighted average grant date fair value was calculated as $2.67 stock price on the August 6, 2019 Merger Date, multiplied by four to adjust for the one share for four share reverse stock split.

During the year ended December 31, 2019, shares were surrendered to satisfy tax withholding obligations on the vesting of restricted stock awards with a cost basis of $2.1 million, of which $2.0 million is held as treasury stock as of December 31, 2019.

As of December 31, 2019, there was $2.4 million in unrecognized compensation expense related to unvested restricted stock awards that is expected to be recognized over a weighted average period of 2.7 years. The total fair value of restricted stock awards vested during the years ended December 31, 2019, 2018 and 2017 was $1.9 million, $0 and $0, respectively.

HC I Incentive Units — Beginning in October 2015, HC I implemented an equity incentive plan for certain officers and employees of the Company. Incentive units are equity-based awards subject to time and performance vesting restrictions. The compensation expense related to this plan has been reflected in the Company’s financial statements.

In accordance with ASC Topic 718, Compensation-Stock Compensation, compensation expense is recognized on a straight-line basis over the vesting period of the award or the employee’s retirement eligible date, if earlier. During the years ended December 31, 2019, 2018 and 2017, the Company recognized compensation expense related to the HC I incentive units of $1.9 million, $2.1 million and $1.4 million, respectively.

The fair value of each award was determined using a Monte-Carlo simulation with the following weighted average assumptions used for the years ended December 31, 2019 and 2018:



Risk-free interest rate (1)	2.25	%
Average time to liquidity (years) (2)	2.13
Volatility (3)	47.00	%
Discount for lack of marketability (4)	30.00	%
Weighted-average grant-date fair value per share	$1.13

(1) Represents the US Treasury security rate for the expected time to liquidity event.
(2) Represents the period of time expected prior to liquidity event.
(3) Based on historical volatility of comparable public companies.
(4) Represents a discount taken to reflect the private nature of the investment.