Stock-Based Compensation

Long-Term Incentive Plan

The Company’s Long-Term Incentive Plan (“LTIP”) is administered by the Compensation Committee and permits the grant of stock-based awards to key employees in the form of nonqualified stock options (Non-Qualified Stock Option Plan) and non-vested shares (Performance Accelerated Restricted Stock Plan (“PARS”) and, with its 2015 Amendment, both Time-Based and Performance-Based Restricted Stock Units. The existing stock options and restricted share awards of LIN and Legacy Media General were converted to equivalent instruments redeemable in the Company’s Class A Common Stock as of the effective dates of the respective mergers.

At December 31, 2015, approximately 5 million shares remained available for grants of PARS, Restricted Stock Units, stock options, Deferred Stock and other Stock-Based Awards under the LTIP. During 2015 the only awards issued by the Company were Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units.

Time-Based Restricted Stock Units (Time-Based RSUs)

During the year ended December 31, 2015, the Board of Directors of the Company approved the grant of Time-Based RSUs to certain executives under the LTIP. The Time-Based RSUs vest over a three-year period with 25% vesting on February 26, 2016 and 2017, while the remaining 50% vest on February 26, 2018. The Company valued the Time-Based RSUs as of the grant date of April 23, 2015 using the closing share price of $16.88 on that date. The following is a summary of Time-Based RSUs:



			Weighted- Average
(In thousands, except per share amounts)	Shares		Fair Value
Nonvested balance - 1/1/2015	—
Granted	303		$	16.88
Forfeited	(2	)	$	16.88
Nonvested balance - 12/31/2015	301		$	16.88

As of December 31, 2015 there was $4.1 million of total unrecognized compensation cost related to Time-Based RSUs, which is expected to be recognized over a weighted-average period of approximately 1.4 years. The Company recognized approximately $1.1 million of expense related to Time-Based RSUs during the year ended December 31, 2015.

Performance-Based Restricted Stock Units (Performance-Based RSUs)

During the year ended December 31, 2015, the Board of Directors of the Company approved the grant of Performance-Based RSUs to certain executives under the LTIP. The vesting of the Performance-Based RSUs is contingent on the continued service of the grantee and the achievement of specific performance metrics designated by the Board of Directors of the Company. The Performance-Based RSUs become eligible to vest in three tranches. The first tranche, consisting of 25% of the total grant, became eligible to vest on December 31, 2015. Another 25% are eligible to vest on December 31, 2016, with the remaining 50% becoming eligible to vest on December 31, 2017. The Company valued the Performance-Based RSUs as of the grant date of April 23, 2015 using the closing share price of $16.88 on that date. The following is a summary of Performance-Based RSUs:



			Weighted- Average
(In thousands, except per share amounts)	Shares		Fair Value
Nonvested balance - 1/1/2015	—
Granted	679		$	16.88
Forfeited	(7	)	$	16.88
Nonvested balance - 12/31/2015	672		$	16.88

As of December 31, 2015 there was $8.5 million of total unrecognized compensation cost related to Performance-Based RSUs, which is expected to be recognized over a weighted-average period of approximately 1.7 years. The Company recognized approximately $1.2 million of expense related to Performance-Based RSUs during the year ended December 31, 2015. Additionally, approximately 93 thousand shares are expected to forfeit in 2016 because the applicable target was not achieved in 2015.

Stock Options

The outstanding stock options were assumed as part of the LIN and Legacy Media General Merger transactions discussed in Note 2. Grant prices of stock options are equal to the fair market value of the underlying stock on the date of grant as adjusted by merger documents. Legacy Media General options are exercisable during the continued employment of the optionee but not for a period greater than ten years and not for a period greater than one year after termination of employment; they generally become exercisable at the rate of one-third each year from the date of grant. For awards granted in 2006 and thereafter, the optionee must be 63 years of age, with ten years of service, and must be an employee on December 31 of the year of grant in order to be eligible to exercise an award upon retirement. LIN options are exercisable during the continued employment of the optionee but not for a period greater than ten years and they generally become exercisable over a three or four-year period from the date of grant.

The outstanding LIN stock options converted to options of the Company were valued using a Black-Scholes valuation method as of December 18, 2014. The volatility factor in all periods was estimated based on the Company’s historical volatility over the contractual term of the options. The Company also used historical data to derive the option’s expected life. The risk-free interest rate was based on the U.S. Treasury yield curve on December 18, 2014. The dividend yield was predicated on the average expected dividend payment over the expected life of the option and the stock price on December 18, 2014. The portion of these awards not earned prior to the LIN Merger are being amortized over the remaining service period. The key assumptions used to value stock options granted by LIN in 2013, 2012 and 2011 (which were not fully vested as of the date of the merger) and the resulting fair values are summarized below:



	2013		2012		2011
Risk-free interest rate	2.12	%	2.12	%	1.85% - 2.01%
Dividend yield	0.00	%	0.00	%	0.00	%
Volatility factor	77.83	%	77.83	%	77.83	%
Expected approximate life (years)	8		8		6 to 7
Exercise price	$8.07 - $8.70		$2.89 - $4.49		$2.44 - $4.01
LIN Merger date fair value	$14.70 - $14.91		$15.69 - $16.17		$15.40 - $16.22

The outstanding stock options of Legacy Media General converted into options of the Company as of November 12, 2013 were valued using a Black-Scholes valuation method. The volatility factor in all periods was estimated based on the Company’s historical volatility over the contractual term of the options. The Company also used historical data to derive the option’s expected life. The risk-free interest rate was based on the U.S. Treasury yield curve on November 12, 2013. The dividend yield was predicated on the average expected dividend payment over the expected life of the option and the stock price on November 12, 2013. The portion of these awards that were not earned prior the Legacy Media General Merger transaction are being amortized over the remaining service period. The key assumptions used to value stock options granted by Legacy Media General in 2013 and 2012 and the resulting merger date fair values are summarized below:



	2013			2012
Risk-free interest rate	1.82		%	1.82		%
Dividend yield	0.00		%	0.00		%
Volatility factor	79.05		%	86.31		%
Expected life (years)	6.2			6.2
Exercise price	4.26			4.98
Young Merger date fair value	$	12.90		$	12.96

The following is a summary of option activity for the year ended December 31, 2015:



			Weighted- Average Exercise		Weighted-Average Remaining Contractual	Aggregate Intrinsic
(In thousands, except per share amounts)	Shares		Price		Term (in years)*	Value
Outstanding -1/1/2015	2,282		$	10.45
Exercised	(597	)	4.84
Forfeited or expired	(318	)	28.43
Outstanding - 12/31/2015	1,367		$	5.85	5.6	$	14,075
Outstanding - 12/31/2015 less estimated forfeitures	1,367		$	5.85	5.6	$	14,075
Exercisable - 12/31/2015	1,298		$	5.84	5.5	$	13,380

The total intrinsic value of options exercised during 2015 and 2014 was $6.5 million and 1.4 million, respectively; cash received from these options exercised was $2.9 million and $0.6 million, respectively.

In 2015, the Company recognized non-cash compensation expense of approximately $2.2 million ($1.4 million after-tax) related to stock options. As of December 31, 2015 there was $38 thousand of total unrecognized compensation cost related to stock options expected to be recognized over a weighted-average period of less than 6 months.

In 2014, the Company recognized non-cash compensation expense of approximately $2.5 million ($1.6 million after-tax) related to stock options. As of December 31, 2014 there was $2.7 million of total unrecognized compensation cost related to stock options expected to be recognized over a weighted-average period of approximately 1 year.

In 2013, the Company recognized non-cash compensation expense of approximately $450 thousand ($290 thousand after-tax) related to stock options. As of December 31, 2013 there was $2.4 million of total unrecognized compensation cost related to stock options expected to be recognized over a weighted-average period of approximately 1.7 years.

Restricted Stock

The outstanding Restricted Stock of the Company during 2015 was assumed as part of the LIN Merger transaction discussed in Note 2. The Company valued outstanding restricted stock as of December 18, 2014, using the closing price of Media General’s common stock on December 18, 2014, of $17.64. The portion of these awards that were not earned prior to the LIN Merger transaction are being amortized over the remaining service period. As of December 31, 2015, there was $3.2 million of total unrecognized compensation cost related to restricted stock. That cost is expected to be recognized over a weighted-average period of approximately 1 year. The Company recognized approximately $8.4 million and $0.8 million of expense related to restricted stock in the years ended December 31, 2015 and 2014, respectively. The table below provides a summary of restricted stock activity during the year ended December 31, 2015:



			Weighted- Average
(In thousands, except per share amounts)	Shares		Fair Value
Nonvested balance - 1/1/2015	791		$	17.64
Restrictions released	(463	)	$	17.64
Forfeited	(41	)	$	17.64
Nonvested balance - 12/31/2015	287		$	17.64

Performance Accelerated Restricted Stock (PARS)

The outstanding PARS of the Company during 2015 was assumed as part of the Legacy Media General Merger transaction discussed in Note 2. Certain executives of Legacy Media General were eligible for PARS, which vest over a ten-year period. If pre-determined earnings targets are achieved (as defined in the plan), vesting may accelerate to either a three, five or seven year period. The recipient of PARS must remain employed by the Company during the vesting period. However, in the event of death, disability or retirement after age 63, a pro-rata portion of the recipient’s PARS becomes vested. All restrictions on PARS granted prior to 2005 have been released. The following is a summary of PARS activity for the year ended December 31, 2015:



			Weighted- Average
(In thousands, except per share amounts)	Shares		Fair Value
Nonvested balance - 1/1/2015	54		$	15.06
Restrictions released	(4	)	$	15.06
Forfeited	—		$	15.06
Nonvested balance - 12/31/2015	50		$	15.06

The Company valued outstanding PARS as of November 12, 2013, using the closing price on November 11, 2013, of $15.06. The portion of these awards that were not earned prior to the Legacy Media General Merger transaction are being amortized over the remaining service period. The vesting of awards to certain participants whose jobs were eliminated as part of the merger was accelerated and restrictions were released on those shares. As of December 31, 2015, there was $0.4 million of total unrecognized compensation cost related to PARS; that cost is expected to be recognized over a weighted-average period of approximately 5.5 years. The Company recognized approximately $72 thousand and $2.1 million of expense related to PARS in the years ended December 31, 2015 and 2014, respectively.

Executive Retention Deferred Stock Units

In June of 2013, Legacy Media General entered into employment agreements with certain executive officers of Legacy Media General and Young. Each agreement became effective upon the closing of the transaction with Young. The employment agreements entitled certain of the officers to a grant of deferred stock units, the number of which was determined by dividing the officer’s base salary by the closing per share price ($9.76) on the date of the public announcement of the transaction, June 6, 2013. One half of such units vested on each of the first and second anniversary of the closing date of the merger with Young. Officers must have been employed through each applicable vesting date in order to receive a cash payment in settlement of the deferred stock units. The Company recorded expense of $1.2 million and $1.9 million ($0.8 million and $1.2 million after-tax) during the years ended December 31, 2015 and December 31, 2014, respectively, which reflected the number of deferred stock units earned following the merger.

Supplemental 401(k) Plan

The Company has a Supplemental 401(k) Plan (the “Plan”) which allows certain employees to defer salary and obtain a Company match where federal regulations would otherwise limit those amounts. The Company is the primary beneficiary of the VIE that holds the Plan’s investments and consolidates the Plan accordingly. Participants receive cash payments upon termination of employment, and participants age 55 and above can choose from a range of investment options including the Company’s voting common stock. The Plan’s liability to participants ($0.4 million at December 31, 2015) is adjusted to its fair value each reporting period. The Plan’s investments ($0.3 million at December 31, 2015) other than its voting common stock, are considered trading securities, reported as assets, and are adjusted to fair value each reporting period. Investments in the voting common stock fund are measured at historical cost and are recorded as a reduction of voting common stock. Consequently, fluctuations in the Company’s stock price will have an impact on the Company’s net income when the liability is adjusted to fair value and the common stock remains at historical cost. There was no income or expense related to the plan during 2015. During 2014, Company recognized $0.2 million of income due to fluctuations in the Company’s stock price. Between January 1, 2014 and June 30, 2014, all eligible and participating employees received a company match of up to a maximum of 4% of their salary. Effective July 1, 2014, the Company amended the Supplemental 401(k) plan to reduce the maximum effective company matching contribution to 3% of participant compensation as defined by the plan for all Media General, LIN (effective on its acquisition date) and Young employees. Participants are permitted to contribute up to a maximum of 50% of their annual base salary in any Plan year.

Directors’ Deferred Compensation Plan

Each member of the Board of Directors who is neither an employee nor a former employee of the Company (an Outside Director) is eligible to participate in the Directors’ Deferred Compensation Plan. This plan provides that each Outside Director shall receive half of his or her annual compensation for services to the Board in the form of Deferred Stock Units (“DSU”); each Outside Director additionally may elect to receive the balance of his or her compensation in either cash, DSU or a split between cash and DSU. Other than dividend credits (if dividends are declared), deferred stock units do not entitle Outside Directors to any rights due to a holder of common stock. Prior to April 2014, DSU account balances could be settled after the Outside Director's retirement date by a cash lump-sum payment, a single distribution of common stock or annual installments of either cash or common stock over a period of up to ten years. In April 2014, the Company amended this plan and now it only allows for settlement in stock going forward. The Company records expense based on the amount of compensation paid to each Outside Director. Prior to the April amendment, the Company also recorded an adjustment for changes in fair value of DSU; after the April 2014 amendment, this fair value adjustment is no longer applicable. The Company recognized expense of $0.9 million ($0.6 million after-tax) under the plan in 2015 and income of $3.3 million ($2.1 million after-tax) in 2014. The income recognized during 2014 was due primarily to the fluctuations in the fair value of DSUs prior to the April amendment. The following is a summary of Directors Deferred Compensation activity for the year ended December 31, 2015:



			Weighted- Average
(In thousands, except per share amounts)	Shares		Fair Value
Nonvested balance - 1/1/2015	319		$	8.36
Redemptions	(140	)	$	8.63
Granted	72		$	16.08
Nonvested balance - 12/31/2015	251		$	10.42

In addition to the Directors Deferred Compensation that is disclosed above, there are 60 thousand shares that were granted to former directors that will be released in 2016 and 2017 (30 thousand shares in each year).

Employee Stock Purchase Plan

During the year ended December 31, 2015, the Board of Directors of the Company approved the creation of an Employee Stock Purchase Plan. Under the plan, each quarter eligible employees may elect a fixed percentage or dollar amount of payroll deductions to be contributed into the plan. At the end of each quarterly period, the contributions to the plan are used to purchase share of the company at the lower of:

•15% of the fair market value of the shares as of the first day of the quarterly offering period; or

•15% of the fair market value of the share as of the last day of the quarterly offering period.

Shares acquired under the plan are required to be held for at least one year before they may be sold.

During the year ended December 31, 2015, the Company recognized approximately $80 thousand of compensation expense related to the Employee Stock Purchase Plan. The Company issued approximately 16 thousand shares to participating employees under the plan in 2015, with an additional 14 thousand issued in January 2016 relating to the fourth quarter 2015 offering period.