(6) Stock-Based Compensation

 

On January 3, 2013, an additional 1,001,197 shares of common stock became available under the Company’s 2010 Omnibus Incentive Compensation Plan (the 2010 Plan), pursuant to its “evergreen provision”. On April 24, 2013, the 2010 Plan was amended to, among other things, increase the number of shares available under the Plan by 1,200,000, bringing the total shares authorized for issuance under the 2010 Plan to 5,176,582. Awards under the 2010 Plan are made by the compensation committee of the Company’s board of directors and may be made to eligible employees, directors, consultants and advisors to the Company in the form of restricted stock, stock options, stock appreciation rights, stock units, performance units and other stock-based awards. As of September 30, 2013, there were 1,398,886 incentive and non-qualified stock options, 2,089,493 restricted stock units, and 132,598 restricted stock awards outstanding under the 2010 Plan. As of September 30, 2013, there were 1,312,425 shares of common stock available for future grants under the 2010 Plan.

 

(a)        Stock Option Exchange

 

In January 2013, the Company completed an exchange of certain previously issued stock options for shares of restricted stock and restricted stock units (the Exchange). In the Exchange, certain employees of the Company exchanged two eligible stock options for one share of restricted stock (RSA) or one restricted stock unit (RSU). The Exchange was completed in accordance with, and as permitted by, the terms of the 2010 Plan. In connection with the Exchange, options to purchase 1,236,837 shares were cancelled and 618,415 shares of restricted stock and restricted stock units were issued.

 

RSAs and RSUs issued in the Exchange will vest 50% on January 7, 2014, with the remaining shares vesting in four equal quarterly installments thereafter. RSAs and RSUs issued in the Exchange are subject to forfeiture if the employee’s service to the Company terminates before those shares vest, except as otherwise provided in written employment agreement entered into between the employee and the Company which, in certain cases, may provide for continued or accelerated vesting of equity securities, including RSAs or RSUs, in the event the employee is terminated without cause or the employee resigns for good reason (as such terms are defined in the applicable employment agreement). Shares of Company common stock will be issued with respect to vested RSUs on the earliest of: (i) March 31 of the calendar year immediately following the year in which the RSU vests; (ii) a change of control of the Company; or (iii) the employee’s separation from service from the Company.

 

The exchange-date fair value of the options that were canceled in the Exchange was $2,727 and the fair value of the RSUs and RSAs that were issued in the Exchange was $2,103.  For this purpose, fair value of the options was determined using the Black-Scholes option pricing model. Expense of $2,396 relating to the options canceled in the Exchange and RSUs/RSAs that were issued in the Exchange is being recognized through January 2015.

 

(b)        Stock Options

 

The following is a summary of all stock option activity for the nine months ended September 30, 2013:

 

		Number of Shares		Weighted Average Exercise Price			Weighted Average Remaining Contractual Term in Years		Aggregate Intrinsic Value
Outstanding at January 1, 2013		2,788,599		$	3.58
Granted		224,328		2.87
Exercised		(337,642	)	1.87
Cancelled/forfeited		(1,276,399	)	4.17
Outstanding at September 30, 2013		1,398,886		3.34			6.80		$	355
Vested and expected to vest at September 30, 2013		1,398,886		3.34			6.80		$	355
Exercisable at September 30, 2013		1,177,936		$	3.35		6.66		$	355

 

The aggregate intrinsic values presented above represent the total amount by which the value of the shares of common stock subject to such options exceeds the exercise price of such options, based on the Company’s closing stock price of $2.41 as reported on the NASDAQ Global Market on September 30, 2013.

 

Stock-based compensation expense related to stock options for the nine months ended September 30, 2013 and 2012 was $319 and $1,456, respectively. As of September 30, 2013, there was $408 of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted average period of 2.0 years.

 

Under the terms of the 2010 Plan, some option exercises were net-settled with shares surrendered in exchange for the option exercise price. For the nine months ended September 30, 2013 the Company received $24 as cash proceeds for option exercises that were not net-settled.

 

Management calculates the fair value of stock options based upon the Black Scholes option pricing model. The following table summarizes the weighted average fair value and assumptions used in determining the fair value of stock options issued during the nine months ended September 30, 2013.

 

Weighted average fair value of stock options granted		$	2.08
Assumptions Used for 2013 grants:
Risk-free interest rate		1.32		%
Expected life in years		5.6
Expected volatility		90.5		%
Dividend yield		0		%

 

The Company determined the options’ life based on the use of the simplified method and, as of 2013, uses a basket of comparable public companies, as well as its own historical volatility, as a basis for the expected volatility assumption. Prior to 2013, the Company used a basket of comparable public companies, which did not include its own volatility, as a basis for the expected volatility assumption. The risk free interest rate is based on the yield of an applicable term Treasury instrument, and the dividend yield is 0% based on the Company’s historical common stock information.

 

(c)        Stock Awards

 

The following is a summary of RSA and RSU activity for the nine months ended September 30, 2013:

 

		Total Number of Shares		Number of RSA Shares		Weighted Average Grant Date Fair Value of RSA			Number of RSU Shares		Weighted Average Grant Date Fair Value of RSU
Nonvested shares at December 31, 2012		466,660		—		$	—		466,660		$	3.38
Granted		1,722,320		144,098		3.40			1,578,222		3.39
Vested		(335,736	)	—		—			(335,736	)	3.39
Forfeited		(83,554	)	(11,500	)	3.40			(72,054	)	3.40
Nonvested shares at September 30, 2013		1,769,690		132,598		$	3.40		1,637,092		$	3.39

 

Stock-based compensation expense related to RSAs and RSUs for the nine months ended September 30, 2013 and 2012 was $2,420 and $19, respectively. As of September 30, 2013, there is $4,970 of unrecognized compensation expense related to unvested RSAs and RSUs, which is expected to be recognized over a weighted average period of 2.2 years.