American Home Shield 2015 Annual Report Download - page 102

Table of Contents
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continued employment. The Company’s Compensation Committee may accelerate the vesting of an option at any time. In addition,
vesting of options will be accelerated if the Company experiences a change in control (as defined in the Omnibus Incentive Plan and
the MSIP) unless options with substantially equivalent terms and economic value are substituted for existing options in place of
accelerated vesting. Vesting of options granted under the Omnibus Incentive Plan and the MSIP will also be accelerated in the event
of an employee’s death or disability (as defined in the Omnibus Incentive Plan and the MSIP). Upon termination for cause (as defined
in the Omnibus Incentive Plan and the MSIP), all options held by an employee are immediately cancelled. Following a termination
without cause, vested options will generally remain exercisable through the earlier of the expiration of their term or three months
following termination of employment (one year in the case of death, disability or retirement at normal retirement age). Unless sooner
terminated by the Company’s board of directors, the Omnibus Incentive Plan will remain in effect until June 26, 2024.
In 2015, 2014 and 2013, the Company completed various equity offerings to certain of the Company’s executives, officers
and employees pursuant to the MSIP and Omnibus Incentive Plan. The shares sold and options granted in connection with these equity
offerings are subject to and governed by the terms of the MSIP and Omnibus Incentive Plan. In connection with these offerings, the
Company sold a total of 245,996 and 574,379 shares of common stock in 2014 and 2013, respectively, at a weighted-average purchase
price of $12.00 per share in 2014 and $11.68 per share in 2013. No shares of common stock were sold in 2015. In addition, the
Company granted the Company’s executives, officers and employees options to purchase 411,506; 1,222,831; and 2,113,076 shares of
the Company’s common stock in 2015, 2014 and 2013, respectively, at a weighted-average exercise price of $32.70 per share for
options issued in 2015, $12.91 per share for options issued in 2014 and $11.61 per share for options issued in 2013. These options are
subject to and governed by the terms of the MSIP and Omnibus Incentive Plan. The per share purchase price and exercise price was
based on the determination by the Company’s Compensation Committee of the fair market value of the Company’s common stock as
of the purchase/grant dates.
All options granted to date generally will vest in four equal annual installments, subject to an employee’s continued
employment. The four-year vesting period is the requisite service period over which compensation cost will be recognized on a
straight-line basis for all grants. All options issued are accounted for as equity-classified awards.
The value of each option award was estimated on the grant date using the Black-Scholes option valuation model that
incorporates the assumptions noted in the following table. For options granted in 2015, the expected volatility was based on historical
and implied volatilities of the Company’s publicly traded stock. For options granted in 2014 and 2013, the expected volatilities were
based on the historical and implied volatilities of the publicly traded stock of a group of companies comparable to the Company. The
expected life represents the period of time that options granted are expected to be outstanding and was calculated using the simplified
method as outlined by the SEC in Staff Accounting Bulletins No. 107 and 110 as the Company does not have sufficient historical
exercise to provide a reasonable basis upon which to estimate expected life due to the limited period of time the Company’s equity
shares have been publicly traded. The risk-free interest rates were based on the U.S. Treasury securities with terms similar to the
expected lives of the options as of the grant dates.
Year Ended December 31,
Assumption 2015 2014 2013
Expected volatility 34.1 %49.6 %49.2% - 49.6%
Expected dividend yield 0.0 % 0.0 % 0.0 %
Expected life (in years) 6.3 6.3 6.3
Risk-free interest rate 1.50% - 1.83% 1.86 % 1.69% - 2.02%
The weighted-average grant-date fair value of the options granted during 2015, 2014 and 2013 was $11.91, $6.18 and $5.75
per option, respectively. During the year ended December 31, 2015, the Company applied a forfeiture assumption of 20.37 percent per
annum in the recognition of the expense related to these options, with the exception of the options held by the Company’s CEO for
which the Company has applied a forfeiture rate of zero. The total intrinsic value of stock options exercised during the years ended
December 31, 2015, 2014 and 2013, was $25 million, $10 million and less than $1 million, respectively. The total fair value of stock
options vested during the years ended December 31, 2015, 2014 and 2013, was $5 million, $4 million and $3 million, respectively.
100 2015 Annual Report