Stock Incentive Plans

The Company has provided certain key employees equity awards in the form of Stock Options, Performance Based Units (“PBUs”) and Restricted Share Units (“RSUs”) under the GCP 2016 Stock Incentive Plan, which was adopted at Separation. Certain employees and members of the Board of Directors are eligible to receive stock-based benefits, including stock, stock options, RSUs, and PBUs.

Total cash and non-cash stock-based compensation cost included in the Consolidated Statements of Operations is $1.2 million for the three months ended March 31, 2016 and $0.8 million for the three months ended March 31, 2015. Stock-based compensation expense prior to the Separation was allocated to GCP based on the portion of Grace’s equity compensation programs in which GCP employees participated.

In accordance with the Employee Matters Agreement, in connection with the Separation, previously outstanding stock-based compensation awards granted under Grace’s equity compensation programs prior to the Separation and held by certain executives and employees of GCP and Grace were adjusted to reflect the impact of the Separation on these awards. To preserve the aggregate intrinsic value of Grace awards held prior to the Separation, as measured immediately before and immediately after the Separation, each holder of Grace stock-based compensation awards generally received an adjusted award consisting of either (i) both a stock-based compensation award denominated in Grace equity as it existed subsequent to the Separation and a stock-based compensation award denominated in GCP equity or (ii) solely a stock-based compensation award denominated in the equity of the company at which the person was employed following the Separation. In the Separation, the determination as to which type of adjustment applied to a holder’s previously outstanding Grace award was based upon the type of stock-based compensation award that was to be adjusted and the date on which the award was originally granted under the Grace equity compensation programs prior to the Separation. Adjusted awards consisting of stock-based compensation awards denominated in GCP equity are considered issued under the GCP 2016 Stock Incentive Plan. These adjusted awards generally will be subject to the same vesting conditions and other terms that applied to the original Grace award to which these adjusted awards relate, before the Separation.

Under the Employee Matters Agreement, the Company is obligated to settle all of the stock-based compensation awards denominated in GCP equity, regardless of whether the holders are GCP employees or Grace employees. Likewise, Grace is obligated to settle all of the stock-based compensation awards denominated in Grace shares, regardless of whether the holders are GCP employees or Grace employees. As a result, GCP has recorded a liability for cash-settled awards held by Grace employees. The adjustment of the original Grace awards that resulted in the issuance of GCP stock-based compensation awards resulted in an immaterial charge in the first quarter of 2016.

In accordance with certain provisions of the GCP 2016 Stock Incentive Plan, the Company repurchases shares issued to certain holders of GCP awards in order to fulfill statutory tax withholding requirements for the employee. In the quarter ended March 31, 2016, the Company repurchased approximately 84,000 shares under these provisions. These purchases were reflected as treasury stock purchased under 2016 Stock Incentive Plan in the Consolidated Statement of (Deficit) Equity.

As of March 31, 2016, 1,734,650 shares of common stock are available for issuance under the GCP 2016 Stock Incentive Plan.

Stock Options

Stock options are non-qualified and are set at exercise prices not less than 100% of the market value on the date of grant (market value is the average of the high price and low price from that trading day). GCP stock option awards provided prior to Separation have a contractual term of 5 years from the date of grant. Stock option awards that relate to Grace stock options originally granted post-Separation have a contractual term of 7 years from the original date of grant. Generally, stock options vest in substantially equal amounts each year over three years from the date of grant.

GCP values stock options using the Black-Scholes option pricing model, which was developed for use in estimating the fair value of traded options. The risk-free rate is based on the U.S. Treasury yield curve published as of the grant date, with maturities approximating the expected term of the options. The expected term of the options is estimated using the simplified method as allowed by ASC 718-20, whereby the average between the vesting period and contractual term is used. The expected volatility was estimated using the volatility of an industry peer group.

The following summarizes the assumptions used for estimating the fair value of stock options granted during 2016:



Assumptions used to calculate expense for stock option		Three Months Ended March 31, 2016
Risk-free interest rate		1.11%
Average life of options (years)		4 - 5
Volatility		29.6 – 33.0%
Dividend yield		—
Average fair value per stock option		$4.86

The following table summarizes GCP stock option activity for the three months ended March 31, 2016:



Stock Option Activity	Number of Shares (in thousands)	Weighted-Average Exercise Price		Weighted- Average Remaining Contractual Term (years)	Aggregated Intrinsic Value (in thousands)
Outstanding, December 31, 2015	—	$	—
Converted on February 3, 2016	2,236	14.36
Options exercised	406	8.47
Options forfeited	—	—
Options granted	741	17.14
Outstanding, March 31, 2016	2,571	16.09		3.90	$	10,142
Exercisable, March 31, 2016	872	$	12.42	1.68	6,648

The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the Company's closing stock price on the last trading day of March 31, 2016 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options at quarter end. The amount changes based on the fair market value of the Company's stock. The intrinsic value of all options exercised in the first quarter of 2016 was $3.5 million.

Total unrecognized stock-based compensation expense for stock options at March 31, 2016, was $3.7 million and the weighted-average period over which this expense will be recognized is approximately 1.5 years.

Restricted Stock Units and Performance Based Units

Upon Separation, certain previously outstanding RSUs and PBUs granted under Grace's equity compensation programs prior to the Separation were adjusted, in accordance with the Employee Matters Agreement, such that holders of these certain original Grace RSUs and PBUs received RSUs denominated in GCP equity.

RSUs generally vest over a three year period, with vesting in substantially equal amounts each year over three years and some vesting 100% after the third year from the date of grant. A smaller number of RSUs were designated as sign-on awards and used for purposes of attraction and to cover outstanding awards from a prior employer and vest 100% after two years.



RSU Activity	Number Of Shares (in thousands)	Weighted Average Grant Date Fair Value
Outstanding, December 31, 2015	—	$	—
Converted on February 3, 2016	265	17.00
RSUs settled	31	16.90
RSUs granted	320	17.18
RSUs outstanding, March 31, 2016	554	$	17.11

Awards that were fully vested as of the Separation were settled in the first quarter of 2016 for 25,000 shares and $0.5 million cash. The Company expects that approximately 18% of the 80,621 RSUs vesting in 2016, 0% of the 68,052 RSUs vesting in 2017, 38% of the 161,055 RSUs vesting in 2018 and 0% of the 245,018 RSUs vesting in 2019, will be settled in cash, with the remaining percentages of these RSUs to be settled in GCP stock.

During the first quarter of 2016, the Company granted 155,501 PBUs under the GCP 2016 Stock Incentive Plan to Company employees. These awards vest on February 2019 subject to continued employment through the payment date, and have a weighted average grant date fair value of $17.04 for PBUs. The Company anticipates that 100% of the PBUs will be settled in GCP common stock, assuming full vesting.

PBUs granted in 2016 are based on a three year cumulative adjusted earnings per share measure. The number of shares ultimately provided to the employee who received such a PBU grant will be based on Company performance against this measure, and can range from 0% to 200% of the target number of shares which may be due upon a target level of achievement of this measure. The award will be paid out in 2019 once performance against the measure, which is measured over fiscal year 2016-fiscal year 2018, is certified by the Compensation Committee.

PBUs and RSUs are recorded at fair value at the date of grant. The common stock-settled portion of each such award is considered an equity award, with the stock compensation expense being determined based on the Company’s stock price on the grant date. The cash settled portion of the award is considered a liability award with liability being remeasured each reporting period based on the Company’s then current stock price. PBU stock-and cash-settled awards are remeasured each reporting period based on the expected payout of the award, which may range from 0% to 200% of the targets for such awards; therefore, these portions of the awards are subject to volatility until the payout is finally determined at the end of the performance period.

As of March 31, 2016, $10.5 million of total unrecognized compensation expense related to the RSU and PBU awards is expected to be recognized over the remaining weighted-average service period of 3.1 years.