SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

Common Stock

At December 31, 2016, we had 25.4 million shares authorized and issued, and 18.8 million shares of common stock outstanding. At December 31, 2015, we had 25.4 million shares authorized and issued, and 19.0 million shares of common stock outstanding. The holders of shares of Altisource common stock generally are entitled to one vote for each share on all matters voted on by shareholders, and the holders of such shares generally will possess all voting power.

On October 9, 2015, we acquired RentRange and Investability for $24.8 million, which included a cash component and the issuance of 247 thousand shares of restricted common stock of the Company with a value of $7.3 million as of the closing date. The restricted stock is subject to transfer restrictions and potential forfeiture provisions. These restrictions and forfeiture provisions will be removed over a four year period, subject to meeting certain continued employment conditions with the Company and meeting certain acquisition related escrow release conditions. During 2016, restrictions were removed on 55 thousand shares. In addition, on July 17, 2015, we acquired CastleLine for $33.4 million, which included a cash component and the issuance of 495 thousand shares of restricted common stock of the Company with a value of $14.4 million as of the closing date. During 2016, restrictions were removed on the 495 thousand shares. See Note 5 for additional information about these acquisitions.

Equity Incentive Plan

Our 2009 Equity Incentive Plan (the “Plan”) provides for various types of equity awards, including stock options, stock appreciation rights, stock purchase rights, restricted shares and other awards, or a combination of any of the above. Under the Plan, we may grant up to 6.7 million Altisource share-based awards to officers, directors, employees and to employees of our affiliates. As of December 31, 2016, 1.5 million share-based awards were available for future grant under the Plan. Expired and forfeited awards are available for reissuance.

Share Repurchase Program

On May 18, 2016, our shareholders approved a new share repurchase program which replaced the previous share repurchase program. Under the new program, we are authorized to purchase up to 4.6 million shares of our common stock, based on a limit of 25% of the outstanding shares of common stock on the date of approval 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 prior programs. Under the existing and prior programs, we purchased 1.4 million shares of common stock at an average price of $26.81 per share during the year ended December 31, 2016, 2.1 million shares at an average price of $27.60 per share during the year ended December 31, 2015 and 2.5 million shares at an average price of $103.67 per share during the year ended December 31, 2014. As of December 31, 2016, approximately 3.9 million shares of common stock remain available for repurchase under the new program. Our senior secured term loan limits the amount we can spend on share repurchases and may prevent repurchases in certain circumstances. As of December 31, 2016, approximately $395 million was available to repurchase shares of 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, officers and directors. We recorded share-based compensation expense of $6.2 million, $4.8 million and $2.2 million for the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, estimated unrecognized compensation costs related to share-based awards amounted to $6.2 million which we expect to recognize over a weighted average remaining requisite service period of approximately 2.13 years.

Stock Options

Stock option grants are composed of a combination of service-based, market-based and performance-based options.

Service-Based Options. These options generally vest over three years or four years with equal annual cliff-vesting and expire on the earlier of ten years after the date of grant or following termination of service. A total of 0.9 million service-based awards were outstanding at December 31, 2016.

Market-Based Options. These option grants generally have two components, each of which vests 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. Market-based awards vest in three or four year installments with the first installment vesting upon the achievement of the criteria and the remaining installments vesting thereafter in annual installments. Market-based options generally expire on the earlier of ten years after the date of grant or following termination of service, unless the performance criteria is met prior to termination of service or in the final three years of the option term, in which case vesting will generally continue in accordance with the provisions of the award agreement. A total of 1.0 million market-based awards were outstanding at December 31, 2016.

Performance-Based Options. These option grants begin to vest upon the achievement of certain business unit specific financial measures. Generally, 25% of the awards vest upon the achievement of the performance criteria and the remaining 75% vest thereafter in three equal annual installments. The award of performance-based options is adjusted based on the level of achievement specified in the award agreements. If the performance criteria achieved is below a certain threshold, the award is canceled. The options expire on the earlier of ten years after the date of grant or following termination of service. A total of 0.1 million performance-based awards were outstanding at December 31, 2016.

The Company granted 0.1 million stock options (at a weighted average exercise price of $29.17 per share), 0.9 million stock options (at a weighted average exercise price of $24.21 per share) and 0.1 million stock options (at a weighted average exercise price of $84.61 per share) during the years ended December 31, 2016, 2015 and 2014, respectively. Vesting of share-based awards are generally contingent on continued employment.

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

2016

2015

2014

Black-Scholes

Binomial

Black-Scholes

Binomial

Black-Scholes

Binomial

Risk-free interest rate (%)

1.25 – 1.89

0.23 – 2.23

1.50 – 1.91

0.02 – 2.34

1.80 – 1.91

0.01 – 2.49

Expected stock price volatility (%)

59.75 – 62.14

59.76 – 62.14

55.06 – 59.73

37.57 – 45.15

38.38 – 45.15

Expected dividend yield

—

Expected option life

(in years)

6.00 – 6.25

4.06 – 4.88

6.00 – 6.25

4.08 – 4.92

6.25

4.36 – 5.83

Fair value

$11.15 – $18.60

$11.06 – $19.27

$10.01 – $17.66

$9.91 – $18.05

$15.54 – $41.79

$12.66 – $33.62

We determined the expected option life of all service-based stock option grants using the simplified method. We use the simplified method because we believe that our historical data does not provide a reasonable basis upon which to estimate expected option life.

The following table summarizes the weighted average grant date fair value of stock options granted per share, the total intrinsic value of stock options exercised and the grant date fair value of stock options that vested during the years ended December 31:



(in thousands, except per share amounts)	2016		2015		2014

Weighted average grant date fair value of stock options granted per share	$	16.82	$	13.20	$	26.92
Intrinsic value of stock options exercised	18,209		1,998		10,250
Grant date fair value of stock options that vested during the period	2,698		1,616		2,641

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, 2015	3,163,125		$	20.13	4.94	$	35,842
Granted	144,654		29.17
Exercised	(1,173,132	)	9.63
Forfeited	(138,138	)	34.13

Outstanding at December 31, 2016	1,996,509		25.98		5.32	15,942

Exercisable at December 31, 2016	1,225,924		21.00		3.45	10,825

The following table summarizes information about stock options outstanding and exercisable at December 31, 2016:



	Options outstanding				Options exercisable
Exercise price range ⁽¹⁾	Number	Weighted average remaining contractual life (in years)	Weighted average exercise price		Number	Weighted average remaining contractual life (in years)	Weighted average exercise price

Up to $10.00	480,003	1.53	$	9.14	480,003	1.53	$	9.14
$10.01 — $20.00	298,137	7.91	18.74		101,438	7.77	18.65
$20.01 — $30.00	916,491	5.93	25.74		520,159	3.88	23.79
$30.01 — $40.00	109,003	7.63	32.46		43,729	4.96	32.83
$40.01 — $50.00	5,000	7.94	49.06		625	7.94	49.06
$60.01 — $70.00	71,000	5.19	60.73		51,375	5.19	60.74
$70.01 — $80.00	25,000	7.86	72.78		3,125	7.86	72.78
$80.01 — $90.00	40,000	7.04	85.63		13,438	6.46	84.52
$90.01 — $100.00	50,000	7.18	95.40		11,094	7.12	94.30
$100.01 — $110.00	1,875	7.37	105.11		938	7.37	105.11

	1,996,509				1,225,924

______________________________________


⁽¹⁾	These options contain market-based components as described above.

The following table summarizes the market prices necessary in order for the market-based options to begin to vest:



	Market-based options
Vesting price	Ordinary performance		Extraordinary performance

$40.01 — $50.00	14,500		—
$50.01 — $60.00	47,129		16,483
$60.01 — $70.00	17,884		6,250
$70.01 — $80.00	—		1,000
$80.01 — $90.00	—		25,467
$90.01 — $100.00	2,500		8,943
$140.01 — $150.00	12,500		1,250
$170.01 — $180.00	12,500		—
$180.01 — $190.00	—		23,375
Over $190.00	22,500		23,750

Total	129,513		106,518

Weighted average share price	$	50.32	$	48.13

Other Share-Based Awards

The Company’s other share-based and similar types of awards are composed of restricted shares and, through August 29, 2016, Equity Appreciation Rights (“EAR”). Effective August 29, 2016, the EAR plans were terminated.

The restricted shares are service-based awards that vest over one to four years with either annual cliff vesting, vesting of all of the restricted shares at the end of the vesting period or vesting beginning after two years of service. The Company granted 13 thousand restricted shares (at a weighted average price of $26.66 per share) during the year ended December 31, 2016.

The following table summarizes the activity related to our restricted shares:



	Number of restricted shares

Outstanding at December 31, 2015	272,326
Granted	12,878
Issued	(38,074	)
Forfeited	(15,400	)

Outstanding at December 31, 2016	231,730

Share-based compensation expense for stock options and restricted shares is recorded net of estimated forfeiture rates ranging from 0% to 40%.