SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION

Stock 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 0.5 million shares of common stock at an average price of $25.17 per share during the three months ended March 31, 2016 and 0.2 million shares at an average price of $23.44 per share during the three months ended March 31, 2015. As of March 31, 2016, approximately 1.0 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 March 31, 2016, approximately $333 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 $1.9 million and $0.4 million for the three months ended March 31, 2016 and 2015, respectively. As of March 31, 2016, estimated unrecognized compensation costs related to share-based awards amounted to $10.4 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 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 March 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. 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 generally continue in accordance with the provisions of the award agreement. A total of 2.0 million market-based awards were outstanding at March 31, 2016.

The Company granted 0.1 million stock options (at a weighted average exercise price of $27.48 per share) and less than 0.1 million stock options (at a weighted average exercise price of $26.42 per share) during the three months ended March 31, 2016 and 2015, 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:



	Three months ended March 31, 2016		Three months ended March 31, 2015
	Black-Scholes	Binomial	Black-Scholes		Binomial

Risk-free interest rate (%)	1.25% - 1.89%	0.23% - 1.97%	1.67	%	0.02% - 2.01%
Expected stock price volatility (%)	59.75% - 62.14%	59.76% - 62.14%	55.06	%	55.06	%
Expected dividend yield	—	—	—		—
Expected option life (in years)	6.25	4.55 - 4.88	6.25		4.45 - 4.92
Fair value	$11.15 - $16.30	$11.06 - $15.73	$11.69		$10.68 - $11.93

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 period presented:



	Three months ended March 31,
(in thousands, except per share amounts)	2016		2015

Weighted average grant date fair value of stock options granted per share	$	15.77	$	11.56
Intrinsic value of options exercised	601		176
Grant date fair value of stock options that vested	187		264

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	66,000		27.48
Exercised	(40,000	)	9.14
Forfeited	(24,968	)	24.25

Outstanding at March 31, 2016	3,164,157		20.40		4.57	26,028

Exercisable at March 31, 2016	2,181,083		14.70		2.70	24,063

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. No restricted shares were granted during the three months ended March 31, 2016. A total of 0.3 million unvested service-based restricted shares were outstanding at March 31, 2016.

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



	Number of restricted shares

Outstanding at December 31, 2015	272,326
Issued	(5,600	)
Forfeited	(2,500	)

Outstanding at March 31, 2016	264,226

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 that are exercised. 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.

There were no EARs granted during the three months ended March 31, 2016.

The following table reflects outstanding EARs (expressed as a percentage of each of the divisions):



	Consumer Analytics		Document Solutions		Marketplace Solutions

Outstanding at December 31, 2015 and March 31, 2016	5.6	%	5.6	%	5.3	%

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