(7) STOCK OPTIONS, WARRANTS, AND RESTRICTED STOCK

Equity Incentive Award Plans

In 2007, the Company’s board of directors adopted and in 2008 the Company’s shareholders approved the ZAGG Incorporated 2007 Stock Incentive Plan (the “2007 Plan”). The 2007 Plan was amended to increase the number of shares issuable under the 2007 Plan to 10,000. As of December 31, 2014, there were 6,164 shares available for grant under the 2007 Plan. However, uponadoption of the 2013 Plan in January 2013 (see below), the Company ceased to grant awards pursuant to the 2007 Plan. All subsequent awards were and all future awards will be granted under the 2013 Plan. All awards that are outstanding under the 2007 Plan will continue to vest, be exercisable, and expire according to their respective terms.

On January 15, 2013, the Company’s Board of Directors adopted and in June 2013, the Company’s shareholders approved the ZAGG Inc 2013 Equity Incentive Award Plan (the “2013 Plan”), a new equity incentive plan intended to replace the 2007 Plan. The 2013 Plan is an “omnibus plan” under which stock options, stock appreciation rights, performance share awards, restricted stock, and restricted stock units can be awarded.  The 2013 Plan’s initial share reservation is 5,000 shares. The term of the plan is for 10 years from the date of its adoption. As of December 31, 2014, there were approximately 4,091 shares available for grant under the 2013 Plan.

Common Stock Options

Option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant; those option awards generally vest based on three years of continuous service and have five-year contractual terms.

The fair value of stock options has historically been estimated as of the grant date using the Black-Scholes option pricing model, though no stock options were granted during 2014, 2013, or 2012.

The following table summarizes the stock option activity for the Company’s stock incentive plans for the year ended December 31, 2014:

The weighted-average grant-date fair value of options granted during the years ended December 31, 2014, 2013, and 2012 was $0 as no shares were granted. The total intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012, was $417, $540, and $3,555, respectively.

As of December 31, 2014, there was $0 of total unrecognized compensation cost related to nonvested stock options granted under the stock incentive plans. The total grant date fair value of shares vested during the years ended December 31, 2014, 2013 and 2012, was $154, $593, and $1,060, respectively.

The Company recorded share-based compensation expense only for those options that are expected to vest. The estimated fair value of the stock options is recognized on a straight-line basis over the requisite service period of the award, which is generally the vesting term of the award. During the years ended December 31, 2014, 2013 and 2012, the Company recorded equity-based compensation expense of $28, $280 and $1,008, respectively, which is included as a component of selling, general and administrative expense. The net tax benefit recognized on equity-based compensation expense for the year ended December 31, 2014, 2013 and 2012 was $73, $88, and $181, respectively. The tax benefit realized from stock options exercised for the year ended December 31, 2014, 2013 and 2012 was $73, $88, and $599, respectively.

During the third quarter of 2012, the Company incurred an incremental charge of $154 that was the direct result of the Separation and Release of Claims Agreement (“Separation Agreement”) between the Company and Robert G. Pedersen II, the Company’s former chief executive officer. Under the terms of the Separation Agreement, Mr. Pedersen’s 32 unvested stock options continued to vest under the original terms of the option grant. However, because future services to be performed by Mr. Pedersen were not considered substantive under US GAAP, the options were re-measured and the expense associated with these options was accelerated. In addition, the Company incurred a $910 charge during the third quarter of 2012 related to consulting fees due to Mr. Pedersen under the Separation Agreement, which were payable in monthly installments over the one-year term of the Separation Agreement.

Warrants

During the years ended December 31, 2014, 2013, and 2012, the Company issued warrants to purchase common shares for investor relations consulting services of 0, 0, and 50, respectively. The 2014, 2013, and 2012 warrants are exercisable at $0, $0 and $9.02, respectively. The warrants expire five years from the grant date and were fully vested on the date of grant. The grants were independently valued using the Black-Scholes option pricing model with separate assumptions for each tranche based on the fair value of the Company’s common stock on each vesting date, expected term equal to the remaining contractual term on each vesting date, expected volatility weighted between the Company’s historical volatility and the average historical volatility of similar entities with publicly traded shares over the expected term for each vesting date, and risk-free rate for the expected term based on the U.S. Treasury yield curve in effect with a period that approximates the remaining contractual term for each vesting date. For the year ended December 31, 2014, 2013, and 2012, the Company recorded expense of $0, $0, and $311, respectively, for these warrants.

The fair value of warrants has been estimated as of the vesting date using the Black-Scholes option pricing model. For the years ended December 31, 2014, 2013, and 2012 the following assumptions were used in determining the fair value:

The following table summarizes the warrant activity for the year ended December 31, 2014:

The weighted-average and grant-date or vest-date fair value of warrants granted during the years ended December 31, 2014, 2013, and 2012, was $0, $0, and $6.46, respectively. The total intrinsic value of warrants exercised during the years ended December 31, 2014, 2013 and 2012, was $18, $0, and $4,195, respectively.

As of December 31, 2014, there was $0 of total unrecognized estimated compensation cost related to nonvested warrants granted. The total fair value of warrants vested during the years ended December 31, 2014, 2013, and 2012 was $33, $0, and $311, respectively.

For warrants that are compensatory, the Company records share-based compensation expense related to warrants only for warrants that have vested. The amount of the expense recognized is based on the estimated fair value of the warrants on the vesting date. During the years ended December 31, 2014, 2013 and 2012, the Company recorded equity-based compensation expense related to warrants of $0, $0, and $311, respectively, which is included as a component of selling, general and administrative expense. The net tax benefit recognized on equity-based compensation expense related to warrants for the year ended December 31, 2014, 2013 and 2012 was $0, $0, and $119, respectively. The tax benefit realized from compensatory warrants exercised for the years ended December 31, 2014, 2013 and 2012 was $9, $0, and $114, respectively.

Restricted Stock

Restricted stock awards are granted with a fair value equal to the ending stock price on the date of grant. A summary of the status of the Company’s restricted stock as of December 31, 2014, and changes during the year ended December 31, 2014, is presented below:

As of December 31, 2014, there was $1,391 of total unrecognized compensation cost related to nonvested restricted stock awards granted under the stock incentive plans. That cost is expected to be recognized over a weighted-average period of approximately 0.9 years.

The Company recorded share-based compensation expense only for restricted stock that is expected to vest. The estimated fair value of the restricted stock awards is recognized on a straight-line basis over the requisite service period of the award, which is generally the vesting term of the award. During the years ended December 31, 2014, 2013, and 2012, the Company recorded equity-based compensation expense of $2,053, $3,846 and $4,699, respectively, which is included as a component of selling, general and administrative expense. The net tax benefit recognized on equity-based compensation expense for the years ended December 31, 2014, 2013 and 2012, was $785, $1,458 and $1,809, respectively. The tax benefit realized from vested restricted stock for the years ended December 31, 2014, 2013, and 2012, was $378, $1,042 and $1,169, respectively.

During the third quarter of 2012, the Company incurred an incremental charge of $345 that was the direct result of the Separation Agreement. In accordance with the terms of the Separation Agreement, Mr. Pedersen’s 127 then unvested stock options became fully vested on August 17, 2013. However, under US GAAP, the expense associated with these options was accelerated as it was determined that the service to be performed by Mr. Pedersen was not considered to be substantive.

During the year ended December 31, 2012, certain ZAGG employees received grants of restricted stock and elected to file an Internal Revenue Code Section 83(b) election and thereby elected to receive a net amount of shares in exchange for the Company incurring the tax liability for the grant date fair value of the award. In addition, certain ZAGG employees elected to receive a net amount of shares upon the vesting of a restricted stock grant in exchange for the Company incurring the tax liability for the fair value of the award on the vest date. This resulted in the Company recording $508 in compensation expense, with the offset being originally recorded to accrued wages and wage related expenses rather than to additional paid-in capital.

During the years ended December 31, 2014 and 2013, certain ZAGG employees elected to receive a net amount of shares upon the vesting of a restricted stock grant in exchange for the Company incurring the tax liability for the fair value of the award on the vest date. This resulted in the Company recording $75 and $257, respectively, in compensation expense, with the offset being originally recorded to accrued wages and wage related expenses rather than to additional paid-in capital.