SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

Common Stock

At December 31, 2015, we had 25.4 million shares authorized and issued, and 19.0 million shares of common stock outstanding. At December 31, 2014, we had 25.4 million shares authorized and issued, and 20.3 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 the Acquired RentRange and Investability Businesses 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. 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. The restrictions related to the common stock issued in connections with the CastleLine acquisition were removed on January 20, 2016. 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, key employees and to employees of our affiliates. As of December 31, 2015, 1.6 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.

Share Repurchase Plan

On May 20, 2015, 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 3.0 million shares of our common stock, based on a limit of 15% 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 2.1 million shares of common stock at an average price of $27.60 per share during the year ended December 31, 2015, 2.5 million shares 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, 2015, approximately 1.4 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, 2015, approximately $360 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 and officers. We recorded share-based compensation expense of $4.8 million, $2.2 million and $2.4 million for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, estimated unrecognized compensation costs related to share-based awards amounted to $11.4 million, which we expect to recognize over a weighted average remaining requisite service period of approximately 2.65 years.

Stock Options

Stock option grants are composed primarily of a combination of service-based and market-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 1.2 million service-based awards were outstanding at December 31, 2015.

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. The vesting schedule for substantially all market-based awards is 25% upon achievement of the criteria and thereafter the remaining 75% in three equal 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 continue in accordance with the provisions of the award agreement. A total of 2.0 million market-based awards were outstanding at December 31, 2015.

The Company granted 0.9 million stock options (at a weighted average exercise price of $24.21 per share), 0.1 million stock options (at a weighted average exercise price $84.61 per share) and less than 0.1 million stock options (at a weighted average exercise price of $104.84 per share) during the years ended December 31, 2015, 2014 and 2013, respectively.

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

2015

2014

2013

Black-Scholes

Binomial

Black-Scholes

Binomial

Black-Scholes

Binomial

Risk-free interest rate (%)

1.50 – 1.91

0.02 – 2.34

1.80 – 1.91

0.01 – 2.49

1.02 – 1.81

0.01 – 2.71

Expected stock price volatility (%)

55.06 – 59.73

37.57 – 45.15

38.38 – 45.15

36.35 – 36.76

36.40 – 36.80

Expected dividend yield

—

Expected option life (in years)

6.00 – 6.25

4.08 – 4.92

6.25

4.36 – 5.83

6.25

4.20 – 6.50

Fair value

$10.01 – $17.66

$9.91 – $18.05

$15.54 – $41.79

$12.66 – $33.62

$31.33 – $49.14

$16.12 – $41.72

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 vested during the years ended December 31:



(in thousands, except per share amounts)	2015		2014		2013

Weighted average grant date fair value of stock options granted per share	$	13.20	$	26.92	$	32.59
Intrinsic value of stock options exercised	1,998		10,250		40,761
Grant date fair value of stock options that vested during the period	1,616		2,641		3,156

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, 2014	2,601,892		$	21.21	4.44	$	47,805
Granted	853,510		24.21
Exercised	(130,682	)	10.64
Forfeited	(161,595	)	66.72

Outstanding at December 31, 2015	3,163,125		20.13		4.94	35,842

Exercisable at December 31, 2015	2,214,051		14.43		3.12	32,395

The following table summarizes information about stock options outstanding and exercisable at December 31, 2015:



	Options outstanding				Options exercisable
Exercise price range	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^(a)	1,575,003	2.54	$	9.14	1,575,003	2.54	$	9.14
$10.01 — $20.00^(a)	427,781	8.44	18.23		64,729	3.66	15.08
$20.01 — $30.00^(a)	881,711	6.73	25.68		470,311	4.32	23.21
$30.01 — $40.00^(a)	63,880	7.02	32.26		39,880	5.43	33.05
$40.01 — $50.00^(a)	5,000	8.94	49.06		313	8.94	49.06
$60.01 — $70.00^(a)	71,000	6.19	60.73		46,469	6.19	60.74
$70.01 — $80.00^(a)	25,000	8.87	72.78		1,563	8.87	72.78
$80.01 — $90.00^(a)	40,000	8.04	85.63		9,063	7.37	84.35
$90.01 — $100.00^(a)	71,875	8.33	94.31		6,251	8.01	94.26
$100.01 — $110.00^(a)	1,875	8.37	105.11		469	8.37	105.11

	3,163,125				2,214,051

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

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		25,875
Over $190.00	22,500		30,000

Total	47,500		55,875

Weighted average share price	$	92.29	$	77.03

Other Share-Based Awards

The Company’s other share-based and similar types of awards are composed of restricted shares and Equity Appreciation Rights (“EARs”).

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 0.3 million restricted shares (at a weighted average price of $19.25 per share) during the year ended December 31, 2015. A total of 0.3 million restricted shares were outstanding at December 31, 2015.

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



	Number of restricted shares

Outstanding at December 31, 2014	26,224
Granted	251,938
Issued	(2,836	)
Forfeited	(3,000	)

Outstanding at December 31, 2015	272,326

EARs provide participating employees of certain divisions of the Company with the potential to receive a percentage of the increase in the value of the applicable division during the term of the EARs. The Company has established EAR plans for three divisions: Consumer Analytics, Document Solutions and Marketplace Solutions. These EAR plans allow for the issuance of EARs representing up to 15% of each of these divisions. The EARs consist of service-based awards and performance-based awards. Service-based EARs generally vest in equal installments on the first, second, third and fourth anniversaries of the grant date. Performance-based EARs generally begin to vest on the date certain performance criteria are achieved by the applicable division of the Company.

The participating employee will have the opportunity at certain times specified in the award agreement to exercise EARs that have vested and in exchange will receive share equivalency units, the number of which will be based on the increase in value of the division and the amount of EARs awarded to the participating employee. After a holding period of six months and one day, the Company, the applicable division or an affiliate of the Company may redeem the share equivalency units for a payment equal to the then fair market value of the share equivalency units. At the Company’s option, the share equivalency units may be redeemed for cash, shares of Altisource’s common stock under its shareholder approved equity incentive plan, a subordinated note payable or, under certain circumstances where the division has been converted into a company form, shares of that company. Upon the occurrence of certain corporate transactions, including the sale of the division, a qualified initial public offering of the equity of the division or a spin-off of the division, the Company will have the right to repurchase and cancel any outstanding share equivalency units or shares of the division that have been issued in payment of redeemed share equivalency units, and the applicable plan administrator will have the discretion to adjust the terms of the applicable division EAR plan and any outstanding EARs.

The Company granted EARs with a total grant date fair value of $1.1 million during the year ended December 31, 2015 related to the Company’s Consumer Analytics, Document Solutions and Marketplace Solutions divisions. Generally, 25% of these EARs are service-based and 75% of these EARs are performance-based.

The following table summarizes the activity related to our EARs (expressed as a percentage of each of the divisions):



	Consumer Analytics		Document Solutions		Marketplace Solutions

Outstanding at December 31, 2014	—		—		—
Granted	5.6	%	5.8	%	5.3	%
Forfeited	—		(0.2	)	—

Outstanding at December 31, 2015	5.6	%	5.6	%	5.3	%

The Company intends to issue additional EARs to employees.

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