11.	Share-based Compensation

Stock award compensation expense is recognized on a graded vesting basis over the requisite service period of the award, which is the vesting term. For stock awards which vest more quickly than a straight-line basis, additional expense is taken in the early year(s) to ensure the expense is commensurate with the vesting schedule.

2007 Stock Incentive Plan

In 2007, the Company adopted the 2007 Stock Incentive Plan (the “Plan”) providing for the issuance of a maximum of 2.0 million shares of common stock in connection with the grant of stock-based or stock-denominated awards. On May 27, 2011, the Company’s stockholders approved the reservation of an additional 3.0 million shares to be issued under the Plan.

As of December 31, 2013, 0.2 million common shares remained available for future grant under the Plan.

Restricted Shares

During the years ended December 31, 2013 and 2012, the Company granted restricted shares and stock options under the Plan.

During the years ended December 31, 2013 and 2012, the Company granted 0.2 million and 0.3 million restricted shares, of which 0.0 million and 0.1 million shares, respectively, vested immediately in each year with the remaining shares to be received at the end of a vesting period only if the participants remain employed by the Company through the vesting date and the number of shares earned will be based on the proportion of the length of service for a period of three or four years. In addition, for 2012, the Company issued 0.5 million shares to its former CEO as a condition of the Settlement Agreement under which he resigned from the Company and agreed to serve as a consultant until July 31, 2012. For additional information, see Note 3.

During the year ended December 31, 2010, the Company granted 3.4 million restricted shares. Of the total shares granted, 1.4 million entitled a holder to receive, at the end of a vesting period, a specified number of shares of the Company’s common stock. The remaining 2.0 million shares granted entitled the holder to receive common stock when the shares vest based upon certain market conditions tied to the Company’s stock price, or certain performance conditions including a change in control. In 2012, these 2.0 million shares were forfeited as a condition of the Settlement Agreement under which the Company’s former CEO resigned.

 

Restricted shares entitle the holder to receive, upon meeting certain vesting criteria, a specified number of shares of the Company’s common stock. Stock-based compensation cost of restricted shares is measured by the market value of the Company’s common stock on the date of grant. Compensation cost associated with certain restricted share grants also takes into account market conditions in its measurement. The following table summarizes restricted share activity for the years ended December 31:

 

						Weighted
		Number of				average
		shares				grant
		(In				date fair
		thousands)				value
Unvested at December 31, 2011			2,636			$	1.88
Granted			343				1.82
Vested			(169	)			1.82
Vested shares forgone to satisfy minimum statutory withholding			(70	)			1.81
Forfeitures			(2,172	)			1.40
Unvested at December 31, 2012			568			$	1.87
Granted			212				1.73
Vested			(168	)			2.00
Vested shares forgone to satisfy minimum statutory withholding			(55	)			1.82
Forfeitures			(103	)			1.65
Unvested at December 31, 2013			454			$	1.82

As of December 31, 2013 and 2012, there was $0.3 million and $0.5 million, respectively, of pre-tax total unrecognized compensation cost related to non-vested restricted shares, which will be adjusted for future forfeitures, if any. The Company expects to recognize such cost over the period ending in 2017. As of December 31, 2011, there was $6.6 million of pre-tax total unrecognized compensation cost related to non-vested restricted shares, of which approximately $6.0 million related to the former CEO’s restricted shares that were forfeited in April 2012 before the requisite service period for the awards were rendered and therefore previously recognized stock compensation expense totaling $1.3 million was reversed and recorded as a reduction of general and administrative expenses during the 2012 year. This represented a forfeiture of 2.0 million shares. For additional information, see Note 3.

Stock Options

The Company calculates the fair value of stock option awards using the Black-Scholes option pricing model, which incorporates various assumptions including volatility, expected term, risk-free interest rates and dividend yields. The expected volatility assumption is based on historical volatility of the Company’s common stock over the most recent period commensurate with the expected life of the stock option granted. The Company uses historical volatility because management believes such volatility is representative of prospective trends. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected life of the stock option awarded. Because the Company does not have an adequate history of granting options, the Company determines expected lives as the average of the vesting period and the contractual period. Dividend yields have not been a factor in determining fair value of stock options granted as the Company has never issued cash dividends and does not anticipate issuing cash dividends in the future.

During the year ended December 31, 2013, the Company granted 0.2 million stock options, of which 0.1 million were issued to Board members, at exercise prices which were a preceding five-day average price on the date of grant. In addition, during 2013, the Company issued 0.8 million inducement stock options outside the 2007 Plan. During the year ended December 31, 2012, the Company granted 1.4 million stock options, of which 1.2 million were issued to Board members, at exercise prices which were the market price on the date of the grant. The following table details the various stock options and inducement stock options issued activity for the years ended December 31:

 

2007 Plan (Options)		Number of Authorized Shares				Weighted- Average Exercise Price				Weighted- Average Remaining Contractual Term(in Years)				Aggregate Intrinsic Value
Outstanding at December 31, 2011			—			$	—
Granted			1,375,000				2.21				3.62
Exercised			—				—
Forfeited			—				—
Outstanding at December 31, 2012			1,375,000				2.21				3.62				—	(a)
Granted			245,000				1.52				2.69
Exercised			—				—
Forfeited			(26,666	)			2.13
Outstanding at December 31, 2013			1,598,334			$	2.11				3.09				53,083
Exercisable at December 31, 2013			1,279,584			$	2.21

 

(a)	Options were not in-the-money as of December 31, 2012.

Aggregate Intrinsic Value = Excess of market value at December 31st over the option exercise price of all in-the-money stock options outstanding at December 31st.

Inducement Options		Number of Authorized Shares				Weighted- Average Exercise Price				Weighted- Average Remaining Contractual Term(in Years)				Aggregate Intrinsic Value
Outstanding at December 31, 2012			—			$	—				—			$	—
Granted			800,000				2.25				4.87
Exercised			—				—
Forfeited			—				—
Outstanding at December 31, 2013			800,000				2.25				4.87			$	156,000
Exercisable at December 31, 2013			—			$	—

 

The following table summarizes information about stock options outstanding at December 31, 2013.

 

2007 Plan (Options):		Options Outstanding												Options Exercisable
Range of Exercise Prices		Number of Shares Outstanding				Weighted- Average Remaining Contractual Life				Weighted- Average Exercise Price				Number of Shares Exercisable				Weighted- Average Exercise Price
$1.50 - $1.75			245,000				2.69			$	1.52				45,000			$	1.52
$1.76 - $2.00			110,000				4.01				1.93				33,750				1.93
$2.01 - $2.25			1,238,334				3.06				2.24				1,200,834				2.25
Outstanding at December 31, 2013			1,593,334				3.09			$	2.11				1,279,584			$	2.21
Inducement Options:		Options Outstanding												Options Exercisable
Range of Exercise Prices		Number of Shares Outstanding				Weighted- Average Remaining Contractual Life				Weighted- Average Exercise Price				Number of Shares Exercisable				Weighted- Average Exercise Price
$1.50 - $1.75			400,000				4.76			$	1.75				—			$	—
$2.26 - $2.75			400,000				5.01				2.75				—				—
Outstanding at December 31, 2013			800,000				4.87			$	2.25				—			$	—

The following is the average fair value per share estimated on the date of grant and the assumptions used for options granted during the year ended December 31:

 

Stock Options:		2013				2012
Expected volatility			29% to 57%				60%
Risk free interest rate			0.25% to 0.45%				0.25%
Expected lives at date of grant (in years)			2.89				3.42
Weighted average fair value of options granted			$1.52				$2.21

 

Inducement Stock Options:		2013
Expected volatility			56%
Risk free interest rate			0.25%
Expected lives at date of grant (in years)			5.34
Weighted average fair value of options granted		$	2.25

Stock-based compensation expense

The following table presents the total stock-based compensation expense, which is included in selling, general and administrative expenses for the years ended December 31 (in thousands):

 

		2013				2012
Restricted share expense		$	586			$	451	*
Stock option expense			534				513
Total stock-based compensation expense		$	1,120			$	964

 

*	Includes $0.4 million expense reversal for previously recognized tax gross-up liability; a change in estimate due to the $0.9 million forfeiture of 2.0 million restricted share grants; and $1.0 million of additional stock compensation expense due to the Settlement Agreement described in Note 3.

 

Common Share Repurchase Program

Stock repurchases may be made through open market transactions, negotiated purchases or otherwise, at times and in such amounts as our management deems to be appropriate. The timing and actual number of shares repurchased will depend on a variety of factors, including price, financing and regulatory requirements, as well as other market conditions. The program does not require us to repurchase any specific number of shares or to complete the program within a specific period of time.

During the years ended December 31, 2013 and 2012, the Company did not repurchase any shares in the open market.