NOTE 13 — EQUITY AND SHARE-BASED COMPENSATION

Stock Repurchase Plan

On February 28, 2014, our shareholders approved a new stock repurchase program, which replaced the previous stock repurchase program. Under the new program, we are authorized to purchase up to 3.4 million shares of our common stock, based on a limit of 15% of the outstanding shares of common stock on the date of approval, in the open market, at a minimum price of $1.00 per share and a maximum price of $500.00 per share. This is in addition to amounts previously purchased under the prior programs. From authorization of the previous programs through June 30, 2014, we have purchased approximately 4.5 million shares of our common stock in the open market at an average price of $70.62 per share. We purchased 0.7 million shares of common stock at an average price of $109.00 per share during the six months ended June 30, 2014 and 0.6 million shares at an average price of $89.01 per share during the six months ended June 30, 2013 (0.4 million shares at an average price of $108.24 per share for the second quarter of 2014 and 0.3 million shares at an average price of $94.49 per share for the second quarter of 2013). As of June 30, 2014, approximately 2.9 million shares of common stock remain available for repurchase under the new program. Luxembourg law also limits share repurchases to approximately the balance of Altisource Portfolio Solutions S.A. (unconsolidated parent company) retained earnings, less the value of shares repurchased. As of June 30, 2014, approximately $16 million was available to repurchase our common stock under Luxembourg law. Our senior secured term loan also limits the amount we can spend on share repurchases in any year and may prevent repurchases in certain circumstances. As of June 30, 2014, approximately $88 million was available to repurchase our common stock under our senior secured term loan.

Share-Based Compensation

We issue share-based awards in the form of stock options and certain other equity-based awards for certain employees and officers. We recorded share-based compensation expense of $1.1 million and $1.5 million for the six months ended June 30, 2014 and 2013, respectively ($0.4 million and $0.1 million for the second quarter of 2014 and 2013, respectively).

Outstanding share-based compensation currently consists primarily of stock option grants that are a combination of service-based and market-based options.

Service-Based Options. These options are granted at fair value on the date of grant. The options generally vest over four years with equal annual cliff-vesting and expire on the earlier of 10 years after the date of grant or following termination of service. A total of 0.7 million service-based awards were outstanding at June 30, 2014.

Market-Based Options. These option grants have two components each of which vest only upon the achievement of certain criteria. The first component, which we refer to internally as “ordinary performance” grants, consists of two-thirds of the market-based grant and begins to vest if the stock price is at least double the exercise price, as long as the stock price realizes a compounded annual gain of at least 20% over the exercise price. The remaining third of the market-based options, which we refer to internally as “extraordinary performance” grants, begins to vest if the stock price is at least triple the exercise price, as long as the stock price realizes a compounded annual gain of at least 25% over the exercise price. The vesting schedule for all market-based awards is 25% upon achievement of the criteria and the remaining 75% in three equal annual installments. A total of 1.8 million market-based awards were outstanding at June 30, 2014.

The Company granted less than 0.1 million stock options in each period (at a weighted average exercise price of $105.11 and $90.75 per share) during the six months ended June 30, 2014 and 2013, respectively.

The fair value of the service-based options was determined using the Black-Scholes option pricing model, and a lattice (binomial) model was used to determine the fair value of the market-based options, using the following assumptions as of the grant date:

	Six months ended June 30, 2014	Six months ended June 30, 2013
	Black-Scholes	Black-Scholes	Binomial

Risk-free interest rate	1.80%	1.02% – 1.13%	0.01% – 2.02%
Expected stock price volatility	37.57%	36.35% – 36.76%	36.40% – 36.80%
Expected dividend yield	—	—	—
Expected option life (in years)	6.25	6.25	—
Contractual life (in years)	—	—	14
Fair value	$41.79	$31.33 – $35.77	$16.12 – $31.15

The following table summarizes the weighted average fair value of stock options granted, the total intrinsic value of stock options exercised and the fair value of stock options vested:

	Six months ended June 30,
(in thousands, except per share amounts)	2014		2013

Weighted average fair value at grant date per share	$	41.79	$	25.83
Intrinsic value of options exercised	4,124		9,625
Fair value of options vested	950		1,475

Share-based compensation expense is recorded net of estimated forfeiture rates ranging from 1% to 10%.

As of June 30, 2014, estimated unrecognized compensation costs related to share-based payments amounted to $1.7 million, which we expect to recognize over a weighted average remaining requisite service period of approximately 2.7 years.

The following table summarizes the activity related to our stock options:

	Number of options		Weighted average exercise price		Weighted average contractual term (in years)	Aggregate intrinsic value (in thousands)

Outstanding at December 31, 2013	2,589,343		$	18.33	5.20	$	363,293
Granted	15,000		105.11
Exercised	(44,565	)	14.43
Forfeited	(16,001	)	73.14

Outstanding at June 30, 2014	2,543,777		18.56		4.71	244,590

Exercisable at June 30, 2014	2,216,285		13.28		4.35	224,515