7.Share-Based Compensation

During the six months ended June 30, 2018, activity under the 2007 Stock Option Plan (the “2007 Stock Option Plan”), of UHS Holdco, Inc., our parent company (“Parent”), was as follows:


						Weighted
						average
		Weighted		Aggregate		remaining
	Number of	average		intrinsic		contractual
(in thousands, except exercise price and years)	options	exercise price		value		term (years)
Outstanding at December 31, 2017	37,673	$	0.79	$	40,875	6.8
Granted	715		1.87
Exercised	(398)		0.72	$	459
Forfeited or expired	(264)		0.79
Outstanding at June 30, 2018	37,726	$	0.81	$	40,131	6.4
Exercisable at June 30, 2018	23,246	$	0.75	$	26,060	6.4
Remaining authorized options available for issue	5,317

The exercise price of the stock option award is equal to the market value of Parent’s common stock on the grant date as determined reasonably and in good faith by Parent’s Board of Directors and compensation committee and based on an analysis of a variety of factors, including peer group multiples, merger and acquisition multiples, and discounted cash flow analyses.

The intrinsic value of a stock award is the amount by which the market value of the underlying stock exceeds the exercise price of the award.

We determine the fair value of stock options using the Black-Scholes option pricing model. The estimated fair value of options, including the effect of estimated forfeitures, is recognized as an expense on a straight-line basis over the options’ expected vesting periods. The following assumptions were used in determining the fair value of stock options granted during the six months ended June 30, 2018 and 2017 under the Black-Scholes model.


	Six Months Ended
	June 30,
	2018			2017
Risk-free interest rate		1.62	%		1.62	%
Expected volatility		29.0	%		29.0	%
Dividend yield		N/A			N/A
Expected option life (years)		4.60			4.62
Black-Scholes Value of options	$	0.50		$	0.32

Expected volatility is based on an independent valuation of the stock of companies within our peer group. Given the lack of a true comparable company, the peer group consists of selected public health care companies representing our suppliers, customers and competitors within certain product lines. The risk free-interest rate is based on the U.S. Treasury yield curve in effect at the grant date based on the expected option life. The expected option life is estimated based on foreseeable trends.

At June 30, 2018, unearned non-cash share-based compensation that we expect to recognize as expense over a weighted average period of 1.6 years totals approximately $3.5 million, net of our estimated forfeiture rate of 2.0%. The expense could be accelerated upon the sale of Parent or the Company.

In April 2015, Parent granted the Company’s Chief Executive Officer 7.0 million restricted stock units which vest over four years. Total compensation expense related to this grant was $0.3 million and $0.3 million for the three months ended June 30, 2018 and 2017, respectively, and $0.6 million and $0.6 million for the six months ended June 30, 2018 and 2017, respectively.

Although Parent grants stock options and restricted stock units, the Company recognizes compensation cost, primarily included in Selling, General and Administrative expense, related to these options and units since the services are performed for its benefit.

On May 9, 2018, Parent adopted the 2018 Executive Management Stock Option Plan (the “2018 Plan”). Pursuant to the 2018 Plan, awards may be in the form of Non-Qualified Stock Options. The maximum number of shares for which options may be granted is 2,500,000 under the 2018 Plan. In the second quarter of 2018, 2,499,000 shares of common stock were issued to certain UHS executives, including Named Executive Officers other than the Chief Executive Officer pursuant to the 2018 Plan.

Options granted pursuant to the 2018 Plan have an exercise price of $0.71 per share and may only be exercised within 30 days after the signing of a binding agreement for the Company to undergo a Change in Control (as defined in the 2018 Plan) event. No expense has been recorded for this plan in 2018. Additionally, all awards of options granted pursuant to the 2018 Plan provide for a claw back of all proceeds received for such options in the event an award recipient voluntarily terminates his or her employment with the Company without Good Reason or has his or her employment terminated by the Company for Cause (as such terms are defined in the Company’s Executive Severance Pay Plan) within one year following a Change in Control of the Company.