Annual report pursuant to Section 13 and 15(d)

Note 11 - Share-based Compensation

v3.19.1
Note 11 - Share-based Compensation
12 Months Ended
Dec. 31, 2018
Notes to Financial Statements  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
1
1
.
Share-based Compensation
 
All stock option awards are amortized based on their graded vesting over the requisite service period of the awards. Compensation costs are recognized over the requisite service period using the accelerated method and included in selling expenses and general and administrative expenses, based upon the department to which the associated employee or non-employee resides.
 
Stock Incentive Plan
 
The Company has various stock option and stock-based incentive plans and agreements whereby stock options, restricted stock awards (“RSUs”), and stock appreciation rights (“SARs”) were made available to certain employees, directors and others approved by the Company’s Board of Directors (the “Board) or Compensation Committee. Stock options are granted at, or above, fair market value and generally expire in
five
to
ten
years from the grant date. RSUs are granted at the fair market value on the date of grant and generally become exercisable over a period of up to
four
years. In
2018,
new RSUs were granted that become exercisable over a period of
three
years based on market conditions. SARs are granted at the fair market value on the date of grant and generally become exercisable over a period of up to
1
year. Awards typically vest and are issued only if the participants remain employed by the Company through the vesting date. Stock options, RSUs and SARs are issued from shares under
one
of the Company’s plans described below. Grants
may
be made in the form of stock options, restricted stock units or unrestricted common stock.
 
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, 2018,
the Plan is
no
longer in effect as all the stock options that were previously granted and remained outstanding were issued in the
fourth
quarter of
2018.
 
On
April 23, 2014,
the Company’s Board adopted the
2014
Amended and Restated Stock Incentive Plan (the
“2014
Plan”). The
2014
Plan was approved by the Company’s shareholders at the
2014
Annual Meeting and became effective as of the date it was adopted by the Board of Directors. The
2014
Plan replaced our
2007
Stock Incentive Plan (the “Plan”) and provided 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
July 19, 2018,
the Company’s stockholders approved the reservation of an additional
1.0
million shares to be issued under the Plan. As of
December 31, 2018,
a total of less than
0.1
million common shares remained available for future grant under the
2014
Plan.
 
The Company granted stock options under the
2014
Plan during the years ended
December 31, 2018
and
2017,
respectively.
 
Shares Forgone to Satisfy Minimum Statutory Withholdings
 
During the years ended
December 31, 2018
and
2017,
shares of common stock were issued to employees and directors as their restricted stock awards vested or stock options were exercised. Under the terms of the Company’s stock plans, at the election of each employee, the Company can authorize a net settlement of distributable shares to employees after satisfaction of an individual employees' tax withholding obligations. For the years ended
December 31, 2018
and
2017,
respectively, the Company received less than
0.1
million shares from employees for tax withholding obligations.
 
Stock Appreciation Rights (“SARs”)
 
As of
December 31, 2018,
approximately
0.2
million SARs were vested and outstanding and could be settled in cash or units of the Company’s common stock as follows:
 
(
1
)
0.1
million SARs vested and became exercisable during the period beginning on
December 31, 2018,
and ending on
March 31, 2019,
if the shares have a closing public market price on the New York Stock Exchange of
$3.00
or more for any period of
ten
(
10
) consecutive trading days during the period beginning on
January 1, 2018,
and ending on
December 31, 2018;
and
 
(
2
)
0.1
million SARs vested and became exercisable during the period beginning on
December 31, 2018,
and ending on
March 31, 2019,
if the Compensation Committee certifies that the Company achieved
ninety
percent (
90%
) or more of target on both elements of the Company’s corporate objectives under the
2018
Employee Incentive Compensation Plan.
 
As of
December 31, 2018,
$0.3
million of expense was recorded for outstanding SARs.
 
The following table summarizes SARs share activity for the years ended
December 
31:
 
   
 
 
 
 
Weighted
   
 
 
 
   
 
 
 
 
average
   
 
 
 
   
 
 
 
 
grant
   
 
 
 
   
Number of
   
date fair
   
Aggregate
 
   
shares
   
value
   
fair value
 
                         
Unvested at December 31, 2016
   
-
    $
-
     
 
 
Granted
   
200,000
     
1.26
    $
60,000
 
Vested
   
-
     
-
     
 
 
Vested shares forgone to satisfy minimum statutory withholding
   
-
     
-
     
 
 
Forfeitures
   
-
     
-
     
 
 
Unvested at December 31, 2017
   
200,000
     
1.26
    $
60,000
 
Granted
   
-
     
-
     
 
 
Vested (1)
   
(200,000
)    
1.26
    $
288,000
 
Vested shares forgone to satisfy minimum statutory withholding
   
-
     
-
     
 
 
Forfeitures
   
-
     
-
     
 
 
Unvested at December 31, 2018
   
-
    $
-
    $
-
 
 
(
1
) SARs were vested on
December 31, 2018
and can be exercised during the period beginning on
December 31, 2018
and ending on
March 31, 2019
 
 
Restricted Shares
 
During the year ended
December 31, 2018,
the Company granted
0.1
million restricted shares. During the year ended
December 31, 2017,
the Company did
not
grant any restricted shares. 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, excluding the Company’s employee stock purchase plan, for the years ended
December 
31:
 
   
 
 
 
 
Weighted
   
 
 
 
   
 
 
 
 
average
   
 
 
 
   
 
 
 
 
grant
   
 
 
 
   
Number of
   
date fair
   
Aggregate
 
   
shares
   
value
   
fair value
 
                         
Unvested at December 31, 2016
   
57,333
    $
2.21
     
 
 
Granted
   
-
     
-
     
 
 
Vested
   
(15,730
)    
0.88
    $
83,003
 
Vested shares forgone to satisfy minimum statutory withholding
   
(20,811
)    
2.80
    $
51,304
 
Forfeitures
   
(8,333
)    
2.60
     
 
 
Unvested at December 31, 2017
   
12,459
     
2.61
     
 
 
Granted
   
125,000
     
1.37
     
 
 
Vested
   
(4,116
)    
2.60
    $
13,749
 
Vested shares forgone to satisfy minimum statutory withholding
   
(2,134
)    
2.60
    $
4,695
 
Forfeitures
   
(1,626
)    
2.60
     
 
 
Unvested at December 31, 2018
   
129,583
    $
1.42
     
 
 
 
As of
December 31, 2018,
there was
$0.1
million 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
2021.
 
Employee Stock Purchase Plan
 
In
May 2014,
the Company received approval from stockholders to adopt an employee stock purchase plan ("ESPP") effective
October 2014 (
collectively the “Original ESPP”). Under the Original ESPP,
200,000
shares of common stock were authorized for purchase by eligible employees at a
15%
discount through payroll deductions during the
six
-month offering periods. Shares were purchased in whole numbers and generally would be the last day of the offering period. On
September 7, 2016,
the Company received approval from shareholders for an additional
350,000
shares.
No
employee
may
purchase more than
$25,000
worth of fair market value shares in any calendar year. As allowed under the ESPP, a participant
may
elect to withdraw from the plan, effective for the purchase period in progress at the time of the election with all accumulated payroll deductions returned to the participant at the time of withdrawal. As of
December 31, 2018,
there were
251,430
shares remaining available for future issuance. The following table summarizes the activity relating to the Company’s ESPP program for the years ended
December 31:
 
   
2018
   
2017
 
Compensation expense
  $
33,874
    $
49,150
 
Shares of stock sold to employees
   
43,433
     
68,958
 
Weighted average fair value per ESPP award
  $
2.45
    $
2.21
 
 
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. 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, 2018,
the Company granted
0.8
million stock options, of which
0.2
million were issued to Board members, at exercise prices based on a preceding
five
-day average price on the date of grant with a vesting period of
12
months. During the year ended
December 31, 2017,
the Company granted
1.1
million stock options, of which
0.3
million were issued to Board members, at exercise prices based on a preceding
five
-day average price on the date of grant with a vesting period of
12
months. The following table details the various stock option and inducement stock option activity for the years ended
December 31:
 
   
 
 
 
 
 
 
 
 
Weighted-
   
 
 
 
   
 
 
 
 
 
 
 
 
Average
   
 
 
 
   
Number
   
Weighted-
   
Remaining
   
Aggregate
 
   
of Authorized
   
Average Exercise
   
Contractual
   
Intrinsic
 
2007 Plan (Options)
 
Shares
   
Price
   
Term (in Years)
   
Value
 
Outstanding at December 31, 2016
   
488,332
    $
2.31
     
0.25
    $
118,899
 
Granted
   
-
     
-
     
 
     
 
 
Exercised
   
(25,037
)    
1.51
     
 
     
86,900
 
Exercised shares forgone to satisfy minimum statutory withholding
   
(13,245
)    
2.32
     
 
     
 
 
Cashless exercise
   
(71,718
)    
2.32
     
 
     
 
 
Forfeited
   
(245,000
)    
2.83
     
 
     
 
 
Outstanding at December 31, 2017
   
133,332
    $
1.99
     
 
    $
40,716
 
Granted
   
-
     
-
     
 
     
 
 
Exercised
   
(33,576
)    
1.96
     
 
     
162,134
 
Exercised shares forgone to satisfy minimum statutory withholding
   
(14,255
)    
1.96
     
 
     
 
 
Cashless exercise
   
(65,501
)    
1.96
     
 
     
 
 
Forfeited
   
(20,000
)    
1.93
     
 
     
 
 
Outstanding at December 31, 2018
   
-
    $
-
     
-
    $
-
 
Exercisable at December 31, 2018
   
-
    $
-
     
 
     
 
 
 
Aggregate Intrinsic Value = Excess of market value over the option exercise price of all in-the-money stock options.
 
   
 
 
 
 
 
 
 
 
Weighted-
   
 
 
 
   
 
 
 
 
 
 
 
 
Average
   
 
 
 
   
Number
   
Weighted-
   
Remaining
   
Aggregate
 
   
of Authorized
   
Average Exercise
   
Contractual
   
Intrinsic
 
2014 Plan (Options)
 
Shares
   
Price
   
Term (in Years)
   
Value
 
Outstanding at December 31, 2016
   
1,249,999
    $
2.80
     
4.26
    $
-
 
Granted
   
1,087,500
    $
2.09
     
3.13
     
 
 
Exercised
   
-
     
-
     
 
     
 
 
Exercised shares forgone to satisfy minimum statutory withholding
   
-
     
-
     
 
     
 
 
Cashless exercise
   
-
     
-
     
 
     
 
 
Forfeited
   
(374,999
)    
2.61
     
 
     
 
 
Outstanding at December 31, 2017
   
1,962,500
    $
2.44
     
3.18
    $
-
 
Exercisable at December 31, 2017
   
955,868
    $
2.69
     
 
     
 
 
Granted
   
825,000
     
3.14
     
3.64
     
 
 
Exercised
   
(10,953
)    
2.15
     
 
     
12,159
 
Exercised shares forgone to satisfy minimum statutory withholding
   
(5,134
)    
2.15
     
 
     
 
 
Cashless exercise
   
(33,079
)    
2.15
     
 
     
 
 
Forfeited
   
(514,167
)    
2.62
     
 
     
 
 
Outstanding at December 31, 2018
   
2,224,167
    $
2.67
     
3.01
    $
1,719,584
 
Exercisable at December 31, 2018
   
1,101,910
    $
2.52
     
 
     
 
 
 
   
 
 
 
 
 
 
 
 
Weighted-
   
 
 
 
   
 
 
 
 
 
 
 
 
Average
   
 
 
 
   
Number
   
Weighted-
   
Remaining
   
Aggregate
 
Inducement
 
of Authorized
   
Average Exercise
   
Contractual
   
Intrinsic
 
Options
 
Shares ( 1 )
   
Price
   
Term (in Years)
   
Value
 
Outstanding at December 31, 2016
   
800,000
    $
2.25
     
2.26
    $
240,000
 
Granted
   
-
     
-
     
-
     
-
 
Exercised
   
-
     
-
     
-
     
-
 
Forfeited
   
(800,000
)    
-
     
-
     
-
 
Outstanding at December 31, 2017
   
-
    $
-
     
-
    $
-
 
Granted
   
125,000
     
2.55
     
5.42
     
111,250
 
Exercised
   
-
     
-
     
-
     
-
 
Forfeited
   
-
     
-
     
-
     
-
 
Outstanding at December 31, 2018
   
125,000
    $
2.55
     
5.42
    $
111,250
 
Exercisable at December 31, 2018
   
-
    $
-
     
 
     
 
 
 
Aggregate Intrinsic Value = Excess of market value over the option exercise price of all in-the-money stock options.
(
1
) Represents inducement stock options to purchase shares of the Company's Common Stock to executive level managers.
 
The following table summarizes information about stock options outstanding at
December 31, 2018:
 
   
Options Outstanding
   
Options Exercisable
 
2014 Plan (Options):
                                       
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
 
                                         
$2.01
-
$3.00
   
1,519,167
     
2.48
    $
2.41
     
1,040,243
    $
2.48
 
$3.01
-
$4.00
   
705,000
     
3.39
    $
3.22
     
61,667
    $
3.18
 
Outstanding at December 31, 2018
   
2,224,167
     
3.01
    $
2.67
     
1,101,910
    $
2.52
 
 
The following is the average fair value per share estimated on the date of grant and the assumptions used for options granted during the years ended
December 31:
 
Stock Options:
 
2018
   
2017
 
Expected volatility
   
35%
to
49%
     
30%
to
69%
 
Risk free interest rate
   
2.43%
to
2.88%
     
0.69%
to
2.05%
 
Expected lives at date of grant (in years)
   
 
3.83
 
     
 
3.93
 
 
Weighted average fair value of options granted
   
 
$1.00
 
     
 
$2.09
 
 
 
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):
 
   
2018
   
2017
 
Restricted share expense
  $
78
    $
48
 
Stock option and SARs expense
   
879
     
634
 
Total stock-based compensation expense
  $
957
    $
682
 
 
 
Share Repurchase Program
 
On
March 12, 2018,
our Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to
one million
shares of the Company’s outstanding common stock (the “Share Repurchase Program”). Repurchases under the repurchase program will be subject to market conditions, the periodic capital needs of the Company’s operating activities, and the continued satisfaction of all covenants under the Company’s existing Credit Agreement. The repurchase program does
not
obligate the Company to repurchase shares and
may
be suspended, terminated, or modified at any time. Repurchases under the program
may
take place in the open market or in privately negotiated transactions and
may
be made under a Rule
10b5
-
1
plan.
 
During the year ended
December 31, 2018,
the Company repurchased approximately
0.5
million shares under the Share Repurchase Program in addition to the approximately
2.1
million shares repurchased under the First Stock Purchase Agreement (as defined below) and approximately
0.7
million shares repurchased under the Second Stock Purchase Agreement (as defined below). This total of approximately
3.3
million shares represents a
15%
reduction in the shares outstanding at
December 31, 2017.
During the year ended
December 31, 2017,
the Company did
not
repurchase any shares in the open market.
 
Stock Purchase and Settlement Agreement
and Stock Purchase Agreement
 
On
July 31, 2018,
the Company and an individual shareholder and his affiliates (the “Sellers”) entered into a stock purchase and settlement agreement (the “First Stock Purchase Agreement”) for the purchase by the Company of the approximately
2.2
million shares of the Company's common stock cumulatively owned by the Sellers for
$3.10
per share, equaling approximately
$6.7
million in total. The First Stock Purchase Agreement contains customary representations and warranties, an agreement by the Sellers
not
to purchase any shares of the Company's common stock for
three
years following closing, a mutual non-disparagement agreement and a mutual release of claims between the Company and the Sellers. The closing of the stock purchases under the First Stock Purchase Agreement occurred in full during the
third
quarter of
2018
with respect to approximately
2.1
million shares, and the Sellers sold approximately
36,000
of the remaining shares to
third
parties on the open market. The Company funded the purchase price for the shares with the proceeds from the Term Loan C, which is described in Note
7
in the Notes to the Consolidated Financial Statements included in this Form
10
-K.
 
On
July 31, 2018,
the Company and a shareholder entered into a stock purchase agreement (the “Second Stock Purchase Agreement”) for the purchase by the Company of approximately
0.7
million shares of the Company's common stock owned by a shareholder for
$3.10
per share, equaling approximately
$2.1
million in total. The Second Stock Purchase Agreement contains customary representations and warranties, and the closing of the stock purchases under the stock purchase agreement occurred during the
third
quarter of
2018.
The Company funded the purchase price for the shares with the proceeds from the Term Loan C, which is described in Note
7
in the Notes to the Consolidated Financial Statements included in this Form
10
-K, and cash-on-hand.