(12) Share-based Compensation

In September 2013, the Board of Directors approved the Company’s 2013 Stock Incentive Plan (the “original 2013 Equity Plan”, and, as amended, the “2013 Equity Plan”), under which the Company’s employees, officers, directors, and other eligible participants may be awarded various types of share-based compensation, and authorized 600,000 shares of the Company’s class A common stock for issuance under the original 2013 Equity Plan. In April 2014, the Company’s stockholders approved the original 2013 Equity Plan at the Company’s annual meeting.

In April 2014, following the Company’s annual meeting, the Board of Directors authorized an amendment to the original 2013 Equity Plan to increase the total number of shares of the Company’s class A common stock authorized for issuance under the 2013 Equity Plan from 600,000 to 1,500,000 shares (“Amendment No. 1”). Also in April 2014, the Compensation Committee authorized an additional amendment to the original 2013 Equity Plan to provide for automatic annual stock option grants to each of the Company’s non-employee directors with respect to 5,000 shares of the Company’s class A common stock, per director, per year, beginning in May 2015 (“Amendment No. 2”). In April 2015, the Company’s stockholders approved Amendments No. 1 and 2 at the Company’s annual meeting. In October 2015, the Board of Directors authorized, subject to stockholder approval, a further amendment to the 2013 Equity Plan to increase the total number of shares of the Company’s class A common stock authorized for issuance under the 2013 Equity Plan from 1,500,000 shares to 1,700,000 shares (“Amendment No. 3”). The Company considers stockholder approval of Amendment No. 3 to the 2013 Equity Plan to be perfunctory since the Company’s Chairman, Chief Executive Officer & President holds a majority of the total voting power of all the Company’s outstanding voting stock.

During 2015, stock options to purchase an aggregate of 380,000 shares of class A common stock were granted to certain Company employees, officers, and directors pursuant to the 2013 Equity Plan. As of December 31, 2015, there were options to purchase 1,322,750 shares of class A common stock outstanding under the 2013 Equity Plan. As of December 31, 2015, there were 277,500 remaining shares of class A common stock authorized for future issuance under the 2013 Equity Plan, subject to stockholder approval of Amendment No. 3.

Shares issued under the 2013 Equity Plan may consist in whole or in part of authorized but unissued shares or treasury shares. No awards may be issued more than ten years after the 2013 Equity Plan’s effective date. Stock options that are granted under the 2013 Equity Plan must have an exercise price equal to at least the fair market value of the Company’s class A common stock on the date of grant, become exercisable as established by the Board of Directors or the Compensation Committee, and expire no later than ten years following the date of grant. The Company recognizes share-based compensation expense associated with such stock option awards on a straight-line basis over the award’s requisite service period (generally, the vesting period). The stock option awards granted to date vest in equal annual installments over an approximately four-year vesting period (unless accelerated upon a change in control event (as defined in the stock option agreement for the applicable award) or otherwise in accordance with provisions of the 2013 Equity Plan or applicable option agreement).

Share-based compensation expense is based on the fair value of the stock option awards on the date of grant, as estimated using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of certain management assumptions, including the expected term, expected stock price volatility, risk-free interest rate, and expected dividend yield. The Company estimates the term over which option holders are expected to hold their stock options by using the simplified method for “plain-vanilla” stock option awards because the Company’s stock option exercise history does not provide a reasonable basis to compute the expected term for stock options granted under the 2013 Equity Plan. The Company relies exclusively on its historical stock price volatility to estimate the expected stock price volatility over the expected term because the Company believes future volatility is unlikely to differ from the past. In estimating the expected stock price volatility, the Company uses a simple average calculation method. The risk-free interest rate is based on U.S. Treasury securities with terms that approximate the expected term of the stock options. The expected dividend yield is based on the Company’s past cash dividend history and anticipated future cash dividend payments. The expected dividend yield is zero, as the Company has not previously declared cash dividends and does not currently intend to declare cash dividends in the foreseeable future. These assumptions are based on management’s best judgment, and changes to these assumptions could materially affect the fair value estimates and amount of share-based compensation expense recognized.

Prior to the adoption of the 2013 Equity Plan, the Company had maintained other share-based compensation plans with respect to the Company’s class A common stock (the “Other Stock Incentive Plans”), but had not granted any share-based awards under the Other Stock Incentive Plans since the first quarter of 2004 and is no longer authorized to grant any awards under such plans. As of December 31, 2015, there were no outstanding share-based awards granted under the Other Stock Incentive Plans.

The following table summarizes the Company’s stock option activity (in thousands, except per share data and years) for the periods indicated:


	Stock Options Outstanding
	Shares			Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Term (Years)
Balance as of January 1, 2013		16		$	20.81
Granted		600			92.84
Exercised		(16	)		20.81	$	1,262
Forfeited/Expired		0			0

Balance as of December 31, 2013		600		$	92.84
Granted		745			125.46
Exercised		(9	)		92.84	$	653
Forfeited/Expired		(135	)		104.48

Balance as of December 31, 2014		1,201		$	111.77

Granted		380			178.93
Exercised		(91	)		105.25	$	6,367
Forfeited/Expired		(167	)		131.31

Balance as of December 31, 2015		1,323		$	129.04


Exercisable as of December 31, 2015		334		$	105.20	$	24,746		7.9
Expected to vest as of December 31, 2015		989		$	137.09		44,581		8.6

Total		1,323		$	129.04	$	69,327		8.4

Stock options outstanding as of December 31, 2015 are comprised of the following range of exercise prices per share (in thousands, except per share data and years):


	Stock Options Outstanding at December 31, 2015
Range of Exercise Prices per Share	Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (Years)
$92.84 - $120.00		432	$	94.78		7.7
$120.01 - $150.00		514	$	121.43		8.3
$150.01 - $180.00		247	$	166.91		9.1
$180.01 - $201.25		130	$	201.25		9.7

Total		1,323	$	129.04		8.4

An aggregate of 283,750 and 150,000 stock options with an aggregate fair value of $14.2 million and $6.3 million vested during the years ended December 31, 2015 and 2014, respectively. No stock options vested during the year ended December 31, 2013. As of December 31, 2015, the Company expected all unvested and outstanding options at December 31, 2015 to fully vest in future years in accordance with their vesting schedules and therefore share-based compensation expense had not been adjusted for any expected forfeitures. However, in January 2016, the Board of Directors implemented a reorganization of the Company’s executive management team. In connection with the reorganization, 200,000 of unvested stock options were forfeited upon the departure of two executives. As such, we expect to reverse approximately $1.6 million of share-based compensation expense related to these unvested stock options in the first quarter of 2016. See Note 19, Subsequent Events, for further information on the executive management reorganization.

The weighted average grant date fair value of stock option awards using the Black-Scholes option pricing model was $73.86, $55.84, and $42.03 for each share subject to a stock option granted during the years ended December 31, 2015, 2014, and 2013, respectively, based on the following assumptions:


	Years Ended December 31,
	2015			2014			2013

Expected term of options in years		6.3			6.3			6.3
Expected volatility		39.0 - 40.2	%		41.5 - 42.5	%		42.8	%
Risk-free interest rate		1.5 - 2.0	%		2.1 - 2.3	%		2.5	%
Expected dividend yield		0.0	%		0.0	%		0.0	%

The Company recognized approximately $17.3 million, $11.8 million, and $2.1 million in share-based compensation expense for the years ended December 31, 2015, 2014, and 2013, respectively, from stock options granted under the 2013 Equity Plan. The Company recognized no share-based compensation expense for the years ended December 31, 2015, 2014, and 2013 from stock options granted under the Other Stock Incentive Plans as all such options fully vested in prior years. As of December 31, 2015, there was approximately $47.8 million of total unrecognized share-based compensation expense related to unvested stock options. As of December 31, 2015, the Company expected to recognize this remaining share-based compensation expense over a weighted-average vesting period of approximately 2.7 years. Included in these amounts is approximately $6.8 million of total unrecognized share-based compensation expense related to unvested stock options subsequently forfeited in January 2016 as a result of the executive management reorganization described in Note 19, Subsequent Events. Prior to the executive management reorganization, such amount was expected to be recognized over a remaining service period of 1.6 years.

During the year ended December 31, 2015, the Company was able to recognize and utilize net operating loss carryforwards arising directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting that was generated in both the current and prior year under the 2013 Equity Plan. During the year ended December 31, 2013, the Company was able to recognize and utilize net operating loss carryforwards arising directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting that was generated primarily in prior years under the Other Stock Incentive Plans. Accordingly, stockholders’ equity increased by $1.1 million and $23.6 million during the years ended December 31, 2015 and 2013, respectively. No windfall tax benefit was realized from the exercise of stock options during the years ended December 31, 2014.

MicroStrategy’s former subsidiary, Angel.com, previously maintained a stock incentive plan under which certain employees, officers, and directors of MicroStrategy and Angel.com were granted options to purchase shares of the class A common stock of Angel.com, subject to the satisfaction of both performance and continued service conditions. Share-based compensation expense would have been recognized over the requisite service period of the award based on the probability of the satisfaction of the performance condition, reduced by the number of awards that were not expected to vest due to the failure to satisfy the continued service condition. In connection with the sale of Angel.com in the first quarter of 2013, the Angel.com stock incentive plan was terminated and all outstanding options thereunder were terminated in exchange for cash payments totaling $8.0 million. Prior to their termination, no share-based compensation expense was recognized for these awards for the year ended December 31, 2013 because the performance condition had not been satisfied.