COMPENSATION ARRANGEMENTS

Groupon, Inc. Stock Plans

In January 2008, the Company adopted the ThePoint.com 2008 Stock Option Plan, as amended (the "2008 Plan"), under which options for up to 64,618,500 shares of common stock were authorized to be issued to employees, consultants and directors of ThePoint.com, which is now the Company. In April 2010, the Company established the Groupon, Inc. 2010 Stock Plan, as amended in April 2011 (the "2010 Plan"), under which options and restricted stock units ("RSUs") for up to 20,000,000 shares of common stock were authorized for future issuance to employees, consultants and directors of the Company. In August 2011, the Company established the Groupon, Inc. 2011 Stock Plan (the "2011 Plan"), under which options, RSUs and performance stock units for up to 50,000,000 shares of common stock were authorized for future issuance to employees, consultants and directors of the Company.

The Groupon, Inc. Stock Plans (the "Plans") are administered by the Compensation Committee of the Board, which determines the number of awards to be issued, the corresponding vesting schedule and the exercise price for options. As of December 31, 2014, 44,043,631 shares were available for future issuance under the Plans. Prior to January 2008, the Company issued stock options and RSUs that are governed by employment agreements, some of which are still outstanding.

The Company recognized stock-based compensation expense of $122.0 million, $121.5 million and $104.1 million for the years ended December 31, 2014, 2013 and 2012, respectively, related to stock awards issued under the Plans, acquisition-related awards and subsidiary awards. The Company also capitalized $11.2 million, $9.1 million and $9.7 million of stock-based compensation for the years ended December 31, 2014, 2013 and 2012, respectively, in connection with internally-developed software.

As of December 31, 2014, a total of $221.7 million of unrecognized compensation costs related to unvested stock awards and unvested acquisition-related awards are expected to be recognized over a remaining weighted-average period of 1.30 years.

Employee Stock Purchase Plan

The Company is authorized to grant up to 10,000,000 shares of common stock under its employee stock purchase plan ("ESPP"). For the years ended December 31, 2014 and 2013, 857,171 and 774,288 shares of common stock were issued under the ESPP, respectively. No shares of common stock were issued under the ESPP for the year ended December 31, 2012.

Stock Options

The exercise price of stock options granted is equal to the fair value of the underlying stock on the date of grant. The contractual term for stock options expires ten years from the grant date. Stock options generally vest over a three or four-year period, with 25% of the awards vesting after one year and the remainder of the awards vesting on a monthly or quarterly basis thereafter. The fair value of stock options on the date of grant is amortized on a straight-line basis over the requisite service period.

The table below summarizes the stock option activity for the year ended December 31, 2014:



	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands) ⁽¹⁾
Outstanding at December 31, 2013	3,355,054		$	1.11	6.04	$	35,742
Exercised	(1,029,471	)	$	1.09
Forfeited	(62,589	)	$	2.41
Outstanding at December 31, 2014	2,262,994		$	1.09	5.03	$	16,226

Exercisable at December 31, 2014	2,262,994		$	1.09	5.03	$	16,226

(1)

The aggregate intrinsic value of options outstanding and exercisable represents the total pretax intrinsic value (the difference between the fair value of the Company's stock on the last day of each period and the exercise price, multiplied by the number of options where the fair value exceeds the exercise price) that would have been received by the option holders had all option holders exercised their options as of December 31, 2014 and 2013, respectively.

The fair value of stock options granted was estimated on the date of grant using the Black-Scholes-Merton option-pricing model. Expected volatility was based on historical volatilities for publicly-traded options of comparable companies over the estimated expected life of the stock options. The expected term represents the period of time the stock options are expected to be outstanding and was based on the "simplified method." The Company used the "simplified method" due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options. The risk-free interest rate was based on yields on U.S. Treasury STRIPS with a maturity similar to the estimated expected life of the stock options.

The Company did not grant any stock options during the years ended December 31, 2014, 2013 and 2012. The total intrinsic value of options that were exercised during the years ended December 31, 2014, 2013 and 2012 was $6.5 million, $30.0 million and $75.2 million, respectively.

Restricted Stock Units

The restricted stock units granted under the Plans generally vest over a four-year period, with 25% of the awards vesting after one year and the remaining awards vesting on a monthly or quarterly basis thereafter. Restricted stock units are generally amortized on a straight-line basis over the requisite service period, except for restricted stock units with performance conditions, which are amortized using the accelerated method.

The table below summarizes activity regarding unvested restricted stock units under the Plans for the year ended December 31, 2014:



	Restricted Stock Units		Weighted- Average Grant Date Fair Value (per share)
Unvested at December 31, 2013	41,648,055		$	8.06
Granted	29,568,490		$	7.59
Vested	(17,323,096	)	$	8.07
Forfeited	(12,555,522	)	$	7.96
Unvested at December 31, 2014	41,337,927		$	7.78

The weighted-average grant date fair value of restricted stock units granted in 2013 and 2012 was $7.23 and $8.99, respectively. The fair value of restricted stock units that vested during each of the three years ended December 31, 2014, 2013 and 2012 was $139.8 million, $126.5 million and $50.2 million, respectively.

Performance Share Units

The Company completed its acquisition of Ticket Monster on January 2, 2014, as described in Note 3 "Business Combinations and Acquisitions of Noncontrolling Interests," and approximately 2,000,000 performance share units were granted to certain key employees of that subsidiary. The vesting of these awards into shares of the Company's Class A common stock is contingent upon the subsidiary's achievement of specified financial targets over three annual performance periods for the years ending December 31, 2014, 2015 and 2016 and is subject to continued employment at the end of each performance period. If the financial targets for a performance period are not achieved, no shares will be issued for that performance period. The grant date fair value of the performance share units was $8.07 per share. For the performance period ending December 31, 2014, 0.8 million performance share units were forfeited because the performance conditions were not met.

The table below summarizes activity regarding unvested performance share units for the year ended December 31, 2014:



	Performance Share Units		Weighted- Average Grant Date Fair Value (per share)
Unvested at December 31, 2013	—		$	—
Granted	1,983,232		$	8.07
Vested	—		$	—
Forfeited	(967,388	)	$	8.07
Unvested at December 31, 2014	1,015,844		$	8.07

Restricted Stock Awards

The Company has granted restricted stock awards in connection with business combinations. Compensation expense on these awards is recognized on a straight-line basis over the requisite service periods.

The table below summarizes activity regarding unvested restricted stock for the year ended December 31, 2014:



	Restricted Stock Awards		Weighted- Average Grant Date Fair Value (per share)
Unvested at December 31, 2013	97,677		$	14.00
Granted	—		$	—
Vested	(50,481	)	$	14.54
Forfeited	(13,129	)	$	17.07
Unvested at December 31, 2014	34,067		$	15.53

The fair value of restricted stock that vested during the years ended December 31, 2014, 2013 and 2012 was $0.7 million, $4.1 million and $10.2 million, respectively.

Subsidiary Awards

The Company made several acquisitions during the years ended December 31, 2011 and 2010 in which the selling shareholders of the acquired companies were granted RSUs and stock options in the Company's subsidiaries ("subsidiary awards"). These subsidiary awards were issued in conjunction with the acquisitions as a way to retain and motivate key employees. They generally vested on a quarterly basis for a period of three or four years, and were potentially dilutive to the Company's ownership percentage of the corresponding subsidiaries. A significant portion of the subsidiary awards were classified as liabilities on the consolidated balance sheets due to the existence of put rights that allowed the selling shareholders to put their stock back to the Company. The liabilities for the subsidiary awards were remeasured on a quarterly basis, with the offset to stock-based compensation expense within "Selling, general and administrative" on the consolidated statements of operations. The Company modified its liability-classified subsidiary awards in 2012 by paying $17.0 million in cash and issuing 660,539 shares of the Company's common stock to settle the vested portion and providing for future settlement of the unvested portion in cash or shares of the Company's common stock upon completion of the requisite service period. See Purchases of Additional Interests in Consolidated Subsidiaries in Note 3 "Business Combinations and Acquisitions of Noncontrolling Interests."

Swiss Pension Plan

The Company maintains a pension plan covering employees in Switzerland pursuant to the requirements of Swiss pension law. Contributions to the Swiss pension plan are paid by the employees and the employer. Certain features of the plan require it to be categorized as a defined benefit plan under U.S. GAAP. These features include a minimum interest guarantee on retirement savings accounts, a pre-determined factor for converting accumulated savings account balances into a pension, and death and disability benefits. The projected benefit obligation and net unfunded pension liability were $4.9 million and $2.0 million, respectively, as of December 31, 2014 and the net periodic pension cost was $0.6 million for the year then ended.