4. STOCK-BASED COMPENSATION PLANS:

In June 1996, our Board of Directors adopted, upon approval of the shareholders by proxy, the 1996 Long-Term Incentive Plan (LTIP). The purpose of the LTIP is to reward key individuals for making major contributions to our success and the success of our subsidiaries and to attract and retain the services of qualified and capable employees. Under the LTIP, we have issued restricted stock awards (RSAs), stock grants to our non-employee directors, stock-settled appreciation rights (SARs) and stock options. A total of 14,000,000 shares of Class A Common Stock are reserved for awards under this plan. As of December 31, 2014, 8,414,109 shares (including forfeited shares) were available for future grants. Additionally, we have the following arrangements that involve stock-based compensation: employer matching contributions (the Match) for participants in our 401(k) plan, an employee stock purchase plan (ESPP), and subsidiary stock awards. Stock-based compensation expense has no effect on our consolidated cash flows. For the years ended December 31, 2014, 2013 and 2012, we recorded stock-based compensation of $14.3 million, $10.6 million and $5.9 million, respectively. Below is a summary of the key terms and methods of valuation of our stock-based compensation awards:

RSAs. RSAs issued in 2014, 2013 and 2012 have certain restrictions that lapse over two years at 50% and 50%, respectively. As the restrictions lapse, the Class A Common Stock may be freely traded on the open market. Unvested RSAs are entitled to dividends. The fair value assumes the closing value of the stock on the grant date.

The following is a summary of changes in unvested restricted stock:

	RSAs		Weighted-Average Price
Unvested shares at December 31, 2013	370,000		$	13.81
2014 Activity:
Granted	73,700		28.23
Vested	(214,000	)	13.52
Forfeited	—		—
Unvested shares at December 31, 2014	229,700		18.71

For the years ended December 31, 2014, 2013 and 2012, we recorded compensation expense of $3.2 million, $2.7 million and $1.2 million, respectively. The majority of the unrecognized compensation expense of $1.4 million as of December 31, 2014 will be recognized in 2015. During 2014, outstanding RSAs increased the weighted average shares outstanding for purposes of determining dilutive earnings per share.

Stock Grants to Non-Employee Directors. In addition to directors fees paid, on the date of each of our annual meetings of shareholders, each non-employee director receives a grant of unrestricted shares of Class A Common Stock. In 2014, 2013 and 2012, we issued 12,000 shares, 31,250 shares and 25,000 shares, respectively. We recorded expense of $0.4 million, $0.8 million and $0.2 million for each of the years ended December 31, 2014, 2013 and 2012, respectively, which was based on the closing value of the stock on the date of grant. Additionally, these shares are included in the total shares outstanding, which results in a dilutive effect on our basic and diluted earnings (loss) per share.

SARs. During the years ended December, 2014, 2013 and 2012, 200,000, 500,000 and 400,000 SARs were granted with base values per share of $27.86, $14.21 and $11.68, respectively, to our President and Chief Executive Officer. The SARs have a 10-year term and vest immediately. The base value of each SAR is equal the closing price of our Class A Common Stock on the grant date. For the years ended December 31, 2014, 2013 and 2012, we recorded compensation expense equal to the estimated fair value at the grant date, of $2.6 million, $3.2 million and $2.0 million, respectively. We valued the SARs using the Black-Scholes model and the following assumptions:

	2014		2013		2012
Risk-free interest rate	1.5	%	0.9	%	0.9	%
Expected years until exercise	5 years		5 years		5 years
Expected volatility	65	%	73	%	73	%
Annual dividend yield	2.2	%	4.3	%	5.2	%

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for U.S. Treasury zero coupon separate trading of registered interest and principal securities, commonly known as STRIPS, that approximate the expected life of the options. The expected volatility is based on our historical stock prices over a period equal to the expected life of the options. The annual dividend yield is based on the annual dividend per share divided by the share price on the grant date.

The following is a summary of the 2014 activity:

	SARs	Weighted- Average Price
Outstanding at December 31, 2013	1,400,000	$	13.25
2014 Activity:
Granted	200,000	27.86
Exercised	—
Outstanding SARs at December 31, 2014	1,600,000	15.08

The aggregate intrinsic value of the 1,600,000 outstanding as of December 31, 2014 was $19.6 million, and the outstanding SARs have a weighted average remaining contractual life of 6.89 years as of December 31, 2014. During 2014, 2013 and 2012, outstanding SARs increased the weighted average shares outstanding for purposes of determining dilutive earnings per share.

Options. In April 2014, we entered into an employment agreement with our Chief Financial Officer, to grant annually on each December 31, an option to purchase 125,000 shares of Class A Common Stock beginning December 31, 2014 through December 31, 2021. Upon grant, the stock options are immediately exercisable. The maximum aggregate intrinsic value that can be earned under the arrangement cannot exceed $20 million. The stock options are granted with an exercise price equal to the closing price of the stock on the date of grant and have a 10 year contractual life.

Since the stock options are fully vested upon grant and requisite service must be satisfied to receive the award, we estimate the fair value of each of the options to be issued in the future and recognize the compensation expense over the period until the actual grant date. The fair value of each award is remeasured each period until the actual grant with the ultimate cumulative expense equaling the grant date fair value of the award. During the year ended December 31, 2014, we recorded $1.5 million of stock-based compensation expense related to this arrangement, based on estimated fair values of each of the options, of which $1.1 million was attributable to the option granted on December 31, 2014.

We value the stock options using the Black-Scholes pricing model. We used the following inputs to the model to value the option granted on December 31, 2014, which has an exercise price of $27.36 per share:

	2014
Risk-free interest rate	1.8	%
Expected years to exercise	5 years
Expected volatility	47.6	%
Annual dividend yield	2.3	%

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for U.S. Treasury STRIPS, that approximate the expected life of the options. The expected volatility is based on our historical stock prices over a period equal to the expected life of the options. The annual dividend yield is based on the annual dividend per share divided by the share price on the grant date.

Match. The Sinclair Broadcast Group, Inc. 401(k) Profit Sharing Plan and Trust (the 401(k) Plan) is available as a benefit for our eligible employees. Contributions made to the 401(k) Plan include an employee elected salary reduction amount, the Match and an additional discretionary amount determined each year by the Board of Directors. The Match and any additional discretionary contributions may be made using our Class A Common Stock if the Board of Directors so chooses. Typically, we make the Match using our Class A Common Stock.

The value of the Match is based on the level of elective deferrals into the 401(k) plan. The amount of shares of our Class A Common Stock used to make the Match is determined using the closing price on or about March 1st of each year for the previous calendar year’s Match. The Match is discretionary and is equal to a maximum of 50% of elective deferrals by eligible employees, capped at 4% of the employee’s total cash compensation. For the years ended December 31, 2014, 2013 and 2012, we recorded $5.2 million, $3.1 million and $1.6 million, respectively, of stock-based compensation expense related to the Match. A total of 3,000,000 shares of Class A Common Stock are reserved for matches under the plan. As of December 31, 2014, 775,696 shares were available for future grants.

ESPP. The ESPP allows eligible employees to purchase Class A Common Stock at 85% of the lesser of the fair value of the common stock as of the first day of the quarter and as of the last day of that quarter, subject to certain limits as defined in the ESPP. The stock-based compensation expense recorded related to the ESPP for the years ended December 31, 2014, 2013 and 2012 was $0.7 million, $0.3 million and $0.2 million, respectively. Less than 0.1 million shares were issued to employees during the year ended December 31, 2014. A total of 2,200,000 shares of Class A Common Stock are reserved for awards under the plan. As of December 31, 2014, 245,761 shares were available for future grants.

Subsidiary Stock Awards. From time to time, we grant subsidiary stock awards to employees. The subsidiary stock is typically in the form of a membership interest in a consolidated limited liability company, not traded on a public exchange and valued based on the estimated fair value of the subsidiary. Fair value is typically estimated using discounted cash flow models and/or appraisals. These stock awards vest immediately. For the years ended December 31, 2014, 2013 and 2012, we recorded compensation expense of $0.2 million, $0.3 million and $0.7 million, respectively, related to these awards which increase noncontrolling interest equity. These awards have no effect on the shares used in our basic and diluted earnings per share.