Stock-Based Compensation

Calpine Equity Incentive Plans

The Calpine Equity Incentive Plans provide for the issuance of equity awards to all non-union employees as well as the non-employee members of our Board of Directors. The equity awards may include incentive or non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, performance compensation awards and other share-based awards. The equity awards granted under the Calpine Equity Incentive Plans include both graded and cliff vesting awards which vest over periods between one and five years, contain contractual terms between approximately five and ten years and are subject to forfeiture provisions under certain circumstances, including termination of employment prior to vesting. At September 30, 2017, 300,000 shares and 21,865,106 shares remain available for issuance under the 2017 Director Plan and the 2017 Equity Plan, respectively. There are no shares available for issuance under the 2008 Director Plan and the 2008 Equity Plan.

Equity Classified Share-Based Awards

Stock-based compensation expense recognized for our equity classified share-based awards was $9 million and $7 million for the three months ended September 30, 2017 and 2016, respectively, and $26 million and $22 million for the nine months ended September 30, 2017 and 2016, respectively. We did not record any significant tax benefits related to stock-based compensation expense in any period as we are not benefiting from a significant portion of our deferred tax assets, including deductions related to stock-based compensation expense. In addition, we did not capitalize any stock-based compensation expense as part of the cost of an asset for the nine months ended September 30, 2017 and 2016. At September 30, 2017, there was unrecognized compensation cost of $28 million related to restricted stock, $7 million related to restricted stock units and $5 million related to options which is expected to be recognized over a weighted average period of 1.5 years for restricted stock, 1.2 years for restricted stock units and 2.1 years for options. We issue new shares from our share reserves set aside for the Calpine Equity Incentive Plans when stock options are exercised and for other share-based awards.

A summary of all of our non-qualified stock option activity for the Equity Plans for the nine months ended September 30, 2017, is as follows:



	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Term (in years)	Aggregate Intrinsic Value (in millions)
Outstanding — December 31, 2016	2,697,136	$	13.59	3.0	$	2
Granted	1,476,480	$	11.70
Exercised	4,000	$	9.49
Forfeited	15,721	$	11.69
Expired	32,100	$	17.70
Outstanding — September 30, 2017	4,121,795	$	12.89	4.8	$	10
Exercisable — September 30, 2017	2,661,036	$	13.54	2.3	$	5
Vested and expected to vest – September 30, 2017	3,949,676	$	12.94	4.6	$	9

The fair value of options granted during the nine months ended September 30, 2017, was determined on the grant date using the Black-Scholes option-pricing model. Certain assumptions were used in order to estimate fair value for options as noted in the following table:



	2017
Expected term (in years)⁽¹⁾	7.3 - 10.0
Risk-free interest rate⁽²⁾	2.25		%
Expected volatility⁽³⁾	33 - 40		%
Dividend yield⁽⁴⁾	—
Weighted average grant-date fair value (per option)	$	5.38

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(1)	Expected term calculated using historical exercise data.


(2)	Zero Coupon U.S. Treasury rate or equivalent based on expected term.


(3)	Volatility calculated using the implied volatility of our exchange traded stock options.


(4)	We have never paid cash dividends on our common stock and we do not anticipate any cash dividend payments on our common stock in the near future.

A summary of our restricted stock and restricted stock unit activity for the Calpine Equity Incentive Plans for the nine months ended September 30, 2017, is as follows:



	Number of Restricted Stock Awards		Weighted Average Grant-Date Fair Value
Nonvested — December 31, 2016	4,869,648		$	15.83
Granted	3,606,816		$	11.76
Forfeited	546,585		$	13.90
Vested	1,674,738		$	17.07
Nonvested — September 30, 2017	6,255,141	⁽¹⁾	$	13.31

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(1)	Includes 63,075 shares of restricted stock and restricted stock units outstanding under the Director Plans and 6,192,066 shares of restricted stock and restricted stock units outstanding under the Equity Plans.

The total fair value of our restricted stock and restricted stock units that vested during the nine months ended September 30, 2017 and 2016 was approximately $20 million and $16 million, respectively.

Liability Classified Share-Based Awards

During the first quarter of 2017, our Board of Directors approved the award of performance share units to certain senior management employees. These performance share units will be settled in cash with payouts based on the relative performance of Calpine’s total shareholder return over the three-year performance period of January 1, 2017 through December 31, 2019. The performance share units vest on the last day of the performance period and will be settled in cash; thus, these awards are liability classified and are measured at fair value using a Monte Carlo simulation model at each reporting date until settlement. Stock-based compensation expense recognized related to our liability classified share-based awards was $2 million and $(1) million for the three months ended September 30, 2017 and 2016, respectively, and $5 million and $1 million for the nine months ended September 30, 2017 and 2016, respectively.

A summary of our performance share unit activity for the nine months ended September 30, 2017, is as follows:



	Number of Performance Share Units	Weighted Average Grant-Date Fair Value
Nonvested — December 31, 2016	890,587	$	17.90
Granted	478,984	$	10.73
Forfeited	54,638	$	18.38
Vested⁽¹⁾	30,312	$	17.21
Nonvested — September 30, 2017	1,284,621	$	15.22

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(1)	In accordance with the applicable performance share unit agreements, performance share units granted to employees who meet the retirement eligibility requirements stipulated in the Equity Plans are fully vested upon the later of the date on which the employee becomes eligible to retire or one-year anniversary of the grant date.