(16) Stock-based Compensation

In August 2014, the Board of Directors of MPG approved an equity incentive plan (the “MPG Plan”) for officers, key employees and non-employees. The MPG Plan permits the grant of equity awards to purchase up to 5.9 million shares of MPG common stock. All awards granted on or after August 4, 2014 were issued under the MPG Plan.

Restricted Shares

The Company has granted restricted stock awards and restricted stock unit awards to certain employees and nonemployee directors (collectively the “Restricted Shares”).

The following table summarizes the terms of the Restricted Shares:

Vesting Terms	Number of Shares		Grant-date Fair Value
	(In thousands)
1/3^rd per year on grant-date anniversary		433	$	15.81
1/3^rd per year on grant-date anniversary		22		15.95
1/3^rd per year on grant-date anniversary		445		15.08
1/3^rd per year on grant-date anniversary		465		20.02
1/3^rd per year on grant-date anniversary		305		18.90
1/4^th on the 1^st grant-date anniversary and 3/4^th on the 2^nd grant-date anniversary		567		15.00
1/3^rd per year on grant-date anniversary		280		15.00
		2,517

The Restricted Shares are being expensed based on their grant-date fair values on a straight-line basis over the requisite service period for the entire award. The grant-date fair values were determined using the fair value of the Company’s common stock as of the grant date.

Changes in the number of Restricted Shares outstanding for the years ended December 31, 2016 and 2015 were as follows:

	Number of Shares			Weighted Average Grant-date Fair Value		Fair Value of Shares Vested
	(In thousands)					(In millions)
Balance, December 31, 2014		847		$	15.00
Granted		770			19.58
Vested		(424	)		16.20	$	7.8
Forfeited		(28	)		16.30
Balance, December 31, 2015		1,165			17.47
Granted		900			15.45
Vested		(571	)		16.65	$	10.9
Forfeited		(24	)		16.42
Balance, December 31, 2016		1,470		$	16.56

Options

The Company has granted options to certain employees to purchase shares of its common stock with the following terms:

Vesting Terms	Number of Options		Weighted Average Exercise Price		Contractual Terms
	(In thousands)				(In years)
1/3^rd per year on grant-date anniversary		389	$	15.81		10
1/3^rd per year on grant-date anniversary		352	$	15.08		10
1/3^rd per year on grant-date anniversary		438	$	18.90		10
100% upon grant		635		20.00		10
1/3^rd per year on grant-date anniversary		560		20.00		10
1/5^th upon grant and 1/5^th on December 6^th of following 4 years		357		20.00		10
1/5^th per year on the anniversary of the original grant date		4,405		6.32		10
100% on the seventh anniversary of the original grant date		485		18.66		10
		7,621

All options are being expensed on their grant-date fair values on a straight-line basis over the requisite service period for the entire award. The grant-date fair values of the options were determined using a Black-Scholes valuation model based on the following weighted average assumptions:

	Original Grant Year
	2016			2015			2014
Grant-date fair value (per share)	$	5.59			9.03			12.66
Exercise price	$	15.46			18.90			18.66
Expected term	6 years			6 years			7 years
Risk-free rate		1.4	%		1.8	%		2.0	%
Expected volatility		47.0	%		60.0	%		65.0	%
Expected dividend yield		2.3	%		1.9	%		0.0	%

The risk-free rate was determined based on U.S. Treasury yield curves of securities matching the expected term of the awards or a blend of securities with similar terms. The expected term was determined using the simplified method as the Company did not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. Expected volatility was estimated based on historical volatility of comparable companies within our industry. The expected dividend yield was determined based on the expected annual dividend amount divided by the common stock price as of the grant date.

Options Outstanding

Changes in the number of Options outstanding for the years ended December 31, 2016 and 2015 were as follows:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
	(In thousands)					(In years)		(In millions)
Balance, December 31, 2014		6,442		$	10.54		8.5	$	49.2
Options exercisable, December 31, 2014		1,938		$	10.60		8.2	$	15.2
Granted		438			18.90
Exercised		(566	)		5.50				8.6
Forfeited		(45	)		10.12
Balance, December 31, 2015		6,269		$	11.58		7.6	$	45.5
Options exercisable, December 31, 2015		3,400		$	10.82		7.4	$	27.6
Granted		741			15.46
Exercised		(1,333	)		6.97				14.3
Forfeited		(87	)		14.58
Balance, December 31, 2016		5,590		$	13.15		6.9	$	54.8
Options exercisable, December 31, 2016		2,998		$	12.46		6.2	$	31.5

Proceeds and tax benefit realized from the exercise of stock options during the years ended December 31, 2016, 2015 and 2014 were as follows:

	2016		2015		2014
	(In millions)
Proceeds from the exercise of stock options - gross	$	9.3		3.0		—
Tax benefit		4.6		2.7		—

Stock-based Compensation Expense

	2016		2015		2014
	(In millions)
Restricted shares	$	10.2		11.9		0.3
Options		7.3		15.8		17.0
Total	$	17.5		27.7		17.3
Tax benefit	$	6.5		10.3		5.4

Compensation expense associated with the outstanding stock-based awards was recognized within selling, general and administrative expenses. Total unrecognized compensation cost related to non-vested awards as of December 31, 2016 was approximately $31.0 million, which is expected to be recognized ratably over the remaining vesting terms.

In 2015, the Company modified 297,378 restricted shares and 1,387,087 options in connection with employee separation agreements. In accordance with these agreements, all non-vested awards vested immediately at the date of separation. In addition, the terms of the options were modified from the original term to exercise of 30 days after separation to a term of three or five years based on the respective separation agreement. The modification, which affected five participants, resulted in additional compensation expense related to restricted shares and options of approximately $4.1 million and $7.6 million, respectively, for the year ended December 31, 2015.

In August 2014, in conjunction with the Combination, all outstanding stock-based compensation awards were converted (the “Conversion”) to options to acquire MPG common stock. The Conversion was accounted for as a modification resulting from an equity restructuring. The terms of the original awards were modified to eliminate and replace performance-based vesting with time-based vesting over the remaining vesting periods as set forth in the original option agreements. The modification, which affected fifty-nine option holders, resulted in no incremental compensation cost to the Company. The number of options issued upon conversion and the exercise price of those options were determined based on the relative fair values of the underlying stock of HHI, Metaldyne, or Grede to the overall fair value of MPG common stock at the time of the Combination. Prior to the Combination and Conversion, Grede had issued 970,395 equity awards in 2014, HHI and Metaldyne had issued 39,885 and 1,991,305 equity awards in 2013, respectively, and, as of the beginning of 2013, HHI had 1,888,450 equity awards issued and outstanding.