SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

Common Stock

At December 31, 2014, we had 25.4 million shares authorized and issued, and 20.3 million shares of common stock outstanding. As of December 31, 2013, the Board of Directors had the power to issue shares of authorized but unissued common stock without further shareholder action, subject to the requirements of applicable laws and stock exchanges, and we had 100.0 million shares authorized, 25.4 million shares issued and 22.6 million shares outstanding. In 2014, this authorization to the Board of Directors expired. The holders of shares of Altisource common stock are entitled to one vote for each share on all matters voted on by shareholders, and the holders of such shares will possess all voting power.

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, key employees and to employees of our affiliates. As of December 31, 2014, 2.5 million share-based awards were available for future grant under the Plan. Expired and forfeited awards are available for reissuance. Vesting and exercise of share-based awards are generally contingent on continued employment.

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 December 31, 2014, we have purchased approximately 6.2 million shares of our common stock in the open market at an average price of $79.16 per share. We purchased 2.5 million shares of common stock at an average price of $103.67 per share during the year ended December 31, 2014 and 1.2 million shares at an average price of $116.99 per share during the year ended December 31, 2013. As of December 31, 2014, approximately 1.1 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 in any year and may prevent repurchases in certain circumstances. As of December 31, 2014, approximately $225 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 $2.2 million, $2.4 million and $3.6 million for the years ended December 31, 2014, 2013 and 2012, 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 0.8 million service-based awards were outstanding at December 31, 2014.

Market-Based Options. These option grants 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. 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 December 31, 2014.

The Company granted 0.1 million stock options (at a weighted average exercise price of $84.61 per share), less than 0.1 million stock options (at a weighted average exercise price $104.84 per share) and 0.3 million stock options (at a weighted average exercise price of $69.48 per share) during the years ended December 31, 2014, 2013 and 2012, 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:



	2014		2013		2012
	Black-Scholes	Binomial	Black-Scholes	Binomial	Black-Scholes	Binomial

Risk-free interest rate (%)	1.80 – 1.91	0.01 – 2.49	1.02 – 1.81	0.01 – 2.71	0.87 – 1.17	0.08 – 2.04
Expected stock price volatility (%)	37.57 – 45.15	38.38 – 45.15	36.35 – 36.76	36.40 – 36.80	34.22 – 34.65	34.20 – 34.60
Expected dividend yield	—	—	—	—	—	—
Expected option life (in years)	6.25	—	6.25	—	6.25	—
Contractual life (in years)	—	14	—	14	—	14
Fair value	$15.54 – $41.79	$12.66 – $33.62	$31.33 – $49.14	$16.12 – $41.72	$19.25 – $29.80	$9.98 – $22.76

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



(in thousands, except per share amounts)	2014		2013		2012

Weighted average fair value at grant date per share	$	26.92	$	32.59	$	20.77
Intrinsic value of options exercised	10,250		40,761		17,598
Grant date fair value of options vested during the period	2,641		3,156		2,790

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

As of December 31, 2014, estimated unrecognized compensation costs related to share-based payments amounted to $3.4 million, which we expect to recognize over a weighted average remaining requisite service period of approximately 3.3 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	137,000		84.61
Exercised	(108,450	)	24.82
Forfeited	(16,001	)	73.14

Outstanding at December 31, 2014	2,601,892		21.21		4.44	47,805

Exercisable at December 31, 2014	2,279,555		13.82		3.91	47,430

The following table summarizes information about stock options outstanding and exercisable at December 31, 2014:



	Options outstanding				Options exercisable
Exercise price range	Number	Weighted average remaining contractual life	Weighted average exercise price		Number	Weighted average remaining contractual life	Weighted average exercise price

$0.00 — $10.00^(a)	1,647,654	3.49	$	9.14	1,647,654	3.49	$	9.14
$10.01 — $20.00^(a)	97,737	1.80	12.45		97,737	1.80	12.45
$20.01 — $30.00^(a)	477,061	5.31	23.18		443,624	5.31	23.19
$30.01 — $40.00^(a)	48,309	6.27	33.31		28,319	6.37	33.10
$40.01 — $50.00^(a)	15,000	9.94	49.06		—	—	—
$50.01 — $60.00^(a)	10,000	7.37	53.00		6,250	7.37	53.00
$60.01 — $70.00^(a)	122,250	7.19	60.68		48,001	7.19	60.70
$70.01 — $80.00^(a)	25,600	9.86	72.78		—	—	—
$80.01 — $90.00^(a)	40,000	9.04	85.63		4,688	8.12	83.86
$90.01 — $100.00^(a)	73,281	9.31	94.32		1,407	8.16	93.88
$100.01 — $110.00^(a)	15,000	9.37	105.11		—	—	—
$120.01 — $130.00^(a)	30,000	8.62	125.98		1,875	8.62	125.98

	2,601,892				2,279,555

^(a)These options contain market-based components as described above. All other options are time-based awards.

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



	Market-based options
Vesting price	Ordinary performance		Extraordinary performance

$170.01 — $180.00	12,500		—
$180.01 — $190.00	12,500		40,875
Over $190.00	37,500		37,650

Total	62,500		78,525

Weighted average share price	$	100.37	$	78.56