11. EQUITY-BASED COMPENSATION

In accordance with ASC 718, Compensation-Stock Compensation, the Company measures the cost of employee services rendered in exchange for share-based compensation based upon the grant date fair market value. The cost is recognized over the requisite service period, which is generally the vesting period unless service or performance conditions require otherwise. The Company recognizes the impact of forfeitures as they occur. The Company has granted stock options, time-vesting restricted shares, time-vesting restricted stock units, time-vesting deferred stock units, performance-vesting restricted shares and performance-vesting restricted stock units.

Total equity compensation expense was $5.2 million and $18.6 million for the three and nine months ended September 30, 2018, respectively, and $3.2 million and $19.3 million for the three and nine months ended September 30, 2017, respectively. Equity compensation expense is included in selling, general and administrative expenses and in operating expenses in the accompanying unaudited condensed consolidated statements of comprehensive income (loss). Equity compensation expense for the nine months ended September 30, 2018, includes approximately $5.5 million related to certain equity awards which were accelerated to vest in connection with the departure of certain executives as required by their respective employment agreements (see Note 13–Restructuring Programs and Other Separation Costs for further details). Equity compensation expense for the nine months ended September 30, 2017, includes approximately $8.4 million related to certain of the Company’s performance-vesting restricted shares which vested in the second quarter of 2017 (see the 2.75x Performance Restricted shares section which follows for further details). Total unrecognized equity compensation expense for all equity compensation awards probable of vesting as of September 30, 2018 was approximately $25.5 million, which is expected to be recognized over the respective service periods.

The activity related to the Company’s time-vesting and performance-vesting awards during the nine months ended September 30, 2018 is as follows:

						Performance-Vesting Restricted Awards
	Time-Vesting Restricted Awards					Bonus Performance Restricted Awards					Long-Term Incentive Performance Restricted Awards					2.75x Performance Restricted shares
	Shares/Units			Weighted Average Grant Date Fair Value per Award		Shares/Units			Weighted Average Grant Date Fair Value per Award		Shares/Units			Weighted Average Grant Date Fair Value per Award		Shares			Weighted Average Grant Date Fair Value per Share
Outstanding at December 31, 2017		1,852,512		$	17.09		805,245		$	18.09		864,572		$	18.50		616,793		$	3.56
Granted		345,310		$	17.35		726,501		$	14.85		1,171,733		$	15.04		—			—
Vested		(503,043	)	$	17.15		(69,221	)	$	18.07		(9,010	)	$	18.79		—			—
Forfeited		(554,956	)	$	17.74		(815,330	)	$	17.75		(733,763	)	$	17.74		(616,793	)	$	3.56
Outstanding at September 30, 2018		1,139,823		$	16.83		647,195		$	14.87		1,293,532		$	15.79		—			—

The activity related to the Company’s stock option awards during the nine months ended September 30, 2018 is as follows:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2017		2,923,448		$	18.78
Forfeited		(368,373	)	$	18.01
Expired		(1,493,902	)	$	19.46
Exercised		(176,122	)	$	18.12
Outstanding at September 30, 2018		885,051		$	18.08		7.07	$	11,815
Exercisable at September 30, 2018		493,318		$	18.22		6.96	$	6,518

Omnibus Incentive Plan

The Company has reserved 15,000,000 shares of common stock for issuance under the Omnibus Incentive Plan (the “Omnibus Incentive Plan”), of which approximately 9,360,000 shares are available for future issuance as of September 30, 2018.

Bonus Performance Restricted Awards

The annual bonus plan for 2018 (the “2018 Bonus Plan”) provides for bonus awards payable 50% in cash and 50% in performance-vesting restricted units (the “Bonus Performance Restricted Units”) and is based upon the Company’s achievement of specified performance goals with respect to Fiscal 2018, as defined by the 2018 Bonus Plan. The total number of shares eligible to vest is based on the level of achievement of the targets for Fiscal 2018 which ranges from 0% (if below threshold performance) and up to 150% (at or above maximum performance). Bonus Performance Restricted Units representing the total units that could be earned under the maximum performance level of achievement were granted during the nine months ended September 30, 2018.

The Company also had an annual bonus plan for the fiscal year ended December 31, 2017 (“Fiscal 2017”), under which certain employees were eligible to vest in performance-vesting restricted shares (the “Bonus Performance Restricted Shares”) based upon the Company’s achievement of certain performance goals with respect to Fiscal 2017. Based on the Company’s actual Fiscal 2017 results, approximately 69,000 of these Bonus Performance Restricted Shares vested in the nine months ended September 30, 2018 and the remainder forfeited in accordance with their terms.

Long-Term Incentive Awards

The long-term incentive plan grants for 2018 (the “2018 Long-Term Incentive Grant”) were comprised of 1/3 time-vesting restricted units (the “Long-Term Incentive Time Restricted Units”) and 2/3 performance-vesting restricted units (the “Long-Term Incentive Performance Restricted Units”) (collectively, the “Long-Term Incentive Awards”).

Long-Term Incentive Time Restricted Units

Certain Long-Term Incentive Time Restricted Units granted under the 2018 Long-Term Incentive Grant vest over five years, with one-third vesting on each of the third, fourth and fifth anniversaries of the date of grant, subject to continued employment through the applicable vesting date. Equity compensation expense for these units is recognized using the straight line method with one-third recognized over the initial three year vesting period and the remaining two-thirds recognized over the remaining vesting period.

Other Long-Term Incentive Time Restricted Units granted under the 2018 Long-Term Incentive Grant vest over three years, with all of the units vesting on the third anniversary of the date of grant, subject to continued employment through the applicable vesting date. Equity compensation expense for these units is recognized using the straight line method over the three year vesting period.

Long-Term Incentive Performance Restricted Units

The Long-Term Incentive Performance Restricted Units granted under the 2018 Long-Term Incentive Grant are expected to vest following the end of the three-year performance period beginning on January 1, 2018 and ending on December 31, 2020 based upon the Company’s achievement of specified performance goals for Fiscal 2020, as defined by the 2018 Long-Term Incentive Grant. The total number of Long-Term Incentive Performance Restricted Units eligible to vest will be based on the level of achievement of the performance goals and ranges from 0% (if below threshold performance) and up to 200% (for at or above maximum performance). For actual performance between the specified threshold, target and maximum levels, the resulting vesting percentage will be adjusted on a linear basis.

The 2018 Long-Term Incentive Grant provides additional incentive for early achievement of the Adjusted EBITDA target as follows: if the Company’s Fiscal 2020 Adjusted EBITDA target is achieved in 2018, 30% of target Long-Term Incentive Performance Restricted Units will be earned and delivered in 2019; if the Company’s Fiscal 2020 Adjusted EBITDA target is achieved in 2019, 20% of target Long-Term Incentive Performance Restricted Units will be earned and delivered in 2020, in each case subject to the overall maximum award of 200% of target. Long-Term Incentive Performance Restricted Units representing the total units that could be earned under the maximum performance level of achievement were granted during the nine months ended September 30, 2018.

Other

The Company also has outstanding Long-Term Incentive Time Restricted shares, Long-Term Incentive Performance Restricted shares and Long-Term Incentive Options granted under previous long-term incentive plan grants. During the nine months ended September 30, 2018, a portion of the previously granted Long-Term Incentive Performance Restricted Shares related to completed performance periods vested, with the remainder forfeiting in accordance with their terms. The remaining outstanding Long-Term Incentive Performance Restricted Shares are eligible to vest based upon the Company’s achievement of pre-established performance goals for the respective performance period, as defined.

The Company recognizes equity compensation expense for its performance-vesting restricted awards ratably over the related performance period, if the performance condition is probable of being achieved. Based on the Company’s progress towards its respective performance goals, a portion of its performance-vesting restricted awards are considered probable of vesting as of September 30, 2018; therefore, equity compensation expense includes approximately $2.8 million and $8.0 million related to performance-vesting restricted awards in the three and nine months ended September 30, 2018, respectively. If the probability of vesting related to these awards changes in a subsequent period, all equity compensation expense related to those awards that would have been recorded over the requisite service period had the awards been considered probable at the new percentage from inception, will be recorded as a cumulative catch-up at such subsequent date. Total unrecognized equity compensation expense for all outstanding performance-vesting restricted awards not probable of vesting was approximately $10.0 million as of September 30, 2018.

Deferred Stock Units

During the nine months ended September 30, 2018, the Company granted approximately 46,000 deferred stock units (“DSUs”) to certain members of its Board of Directors (the “Board”). Each DSU represents the right to receive one share of the Company’s common stock one year after the respective director leaves the Board.

2.75x Performance Restricted Shares

The Company had awarded under its previous incentive plans certain performance-vesting restricted shares (the “2.75x Performance Restricted shares”). During the first quarter of 2017, the Company modified certain 2.75x Performance Restricted shares to vest 60% upon the closing of the ZHG Transaction on May 8, 2017 (see Note 9–Related-Party Transactions). The remaining outstanding unvested 2.75x Performance Restricted shares continued to be eligible to vest in accordance with their terms if the Seller had received additional proceeds from ZHG sufficient to satisfy a 2.75x cumulative return multiple in the twelve month period following the closing of the ZHG Transaction. The period expired on May 8, 2018; as such, these shares forfeited in the second quarter of 2018.

As the modification discussed above was based on a liquidity event, for accounting purposes, the 2.75x Performance Restricted shares were not considered probable of vesting until such time the ZHG Transaction was consummated. In accordance with the guidance in ASC 718, Compensation-Stock Compensation, as the 2.75x Performance Restricted shares were not considered probable of vesting before or after the date of modification, the Company used the respective modification date fair value to record equity compensation expense related to the modified shares when the liquidity event occurred. As a result, the Company recognized non-cash equity compensation expense related to all of the 2.75x Performance Restricted shares of approximately $8.4 million upon closing of the ZHG Transaction and paid cash accumulated dividends of approximately $1.3 million in the second quarter of 2017.