PRSS 2017 Annual Report

62 Restricted stock unit activity We may grant restricted stock units, or RSUs, to our employees, consultants or outside directors under the provisions of the 2012 Stock Plan. The cost of RSUs is determined using the fair value of our common stock on the date of grant. RSUs typically vest 25% one year after the RSUs' vesting commencement date, and the remainder ratably on a quarterly basis over the following three years. Compensation cost is amortized on a straight-line basis over the requisite service period. Restricted stock award and restricted stock unit activity is summarized as follows (unit numbers in thousands): Number of units outstanding Weighted average grant date fair value per unit Awarded and unvested at December 31, 2016 440 $ 3.69 Granted 702 3.00 Vested (302) 3.42 Forfeited and canceled (100) 3.13 Awarded and unvested at December 31, 2017 740 $ 3.22 Included in the restricted stock units granted as of December 31, 2017 are 184,026 performance-based restricted stock units ("PSUs") that have both three-year service criteria and vesting contingent on financial performance measures at the end of a three- year performance period ended December 31, 2019. The performance criteria for these awards consist of the following financial measures during the performance period: (i) cumulative Adjusted EBITDA and (ii) cumulative free cash flow, which we define as cash flows from operations minus capital expenditures. Compensation cost associated with these PSUs will be recognized based on whether satisfaction of the performance criteria is probable. The total compensation cost we recognize under these awards will be based upon the results of the financial measures. As of December 31, 2017, we have estimated that it is not probable that the performance criteria will be met and, accordingly, no stock compensation expense for the PSU has been recorded. At December 31, 2017, we had $0.6 million of unrecognized compensation expense related to the PSUs. Stock-based compensation expense The fair value of the option awards was calculated using the Black-Scholes option valuation model with the following assumptions: Year Ended December 31, 2017 2016 Expected term (in years) 4.4 6.0 Risk-free interest rate 1.91% 1.40% Expected volatility 54% 57% Expected dividend rate 0% 0% The expected term of all options granted now gives consideration to historical exercises, assumed forfeitures when they occur and the options' contractual terms. The risk-free rate is based on the rates in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to each grant’s expected life. The expected volatility is based on our historical stock price. A dividend yield of zero is applied since we have not historically paid dividends and has no intention to pay dividends in the near future. The weighted-average fair value of options granted was $1.30 and $1.86 for the years ended December 31, 2017 and 2016, respectively. Employee stock-based compensation expense recorded is calculated and recorded based on awards ultimately expected to vest and as described in Note 1 - Basis of Presentation and Summary of Significant Accounting Policies, we adopted ASU 2016-09 and will recognize forfeitures when they occur.