Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.19.1
Stock-Based Compensation
12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
Stock-Based Compensation
The Company issues shares pursuant to the 2007 Stock Incentive Plan (the “2007 Plan”) which provides for the grant of stock incentive awards in the form of incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units and other awards in stock to certain key employees, non-employee directors and service providers. The exercise price of stock options granted under the 2007 Plan is equal to the market value on the date of grant. As of December 31, 2018, 3,230,320 shares are authorized under the 2007 Plan, of which 527,988 were available for future grant.
In addition to awards granted under the 2007 Plan, the Company granted a non-qualified option to purchase 100,000 shares of its common stock to a newly hired senior management level employee on November 26, 2012, which remained outstanding as of December 31, 2018. The option was granted outside of any shareholder-approved plan as an inducement to accept employment with the Company. The option has an exercise price equal to the closing price of the Company’s common stock as reported by the Nasdaq Stock Market on the date of grant, vests in four equal installments on each of the first four anniversaries of the date of grant and has a term of seven years. In other respects, the option was structured to mirror the terms of options granted under the 2007 Plan and is subject to a stock option agreement between the Company and the employee.
The Company recognized the following amounts related to the Company’s share-based payment arrangements (in thousands):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Stock-based compensation cost charged against loss, before income tax benefit
 
 
 
 
 
Stock options
$
326

 
$
366

 
$
554

Restricted stock and restricted stock units
566

 
765

 
867

Performance stock units
190

 
59

 

Total stock-based compensation costs
$
1,082

 
$
1,190

 
$
1,421

Stock-based compensation cost included in:
 
 
 
 
 
Cost of revenues
$
34

 
$
39

 
$
49

Operating expenses
1,048

 
1,151

 
1,372

Total stock-based compensation costs
$
1,082

 
$
1,190

 
$
1,421


As of December 31, 2018, total stock option compensation expense of $369,000 and $582,000 was not yet recognized related to non-vested option awards and related to non-vested shares and restricted share unit awards, respectively, and is expected to be recognized over a weighted average period of 3.1 years and 2.5 years, respectively.
Stock Options
The fair value of each option award is estimated at the date of grant using the Black-Scholes option pricing model. The assumptions used to determine the fair value of stock option awards granted were as follows:
 
Year Ended December 31,
 
2018
 
2017
 
2016
Expected life of options in years
4.54 - 4.75
 
4.75
 
4.75
Risk-free interest rate
2.6% - 2.9%
 
1.7% - 2.0%
 
1.1% - 1.4%
Expected volatility
69.6% - 70.5%
 
64.2% - 66.2%
 
57.4% - 63.7%
Expected dividend yield
—%
 
—%
 
—%

The Company reviews these assumptions at the time of each new option award and adjusts them as necessary to ensure proper option valuation. The expected life represents the period that the stock option awards are expected to be outstanding. Effective April 2008, the Company’s Board of Directors approved a change in the contractual term of stock options granted to employees from ten to seven years. Given the reduction in the contractual term of its employee stock option awards and a lack of exercise history or other means to reasonably estimate future exercise behavior, the Company determined it was unable to rely on its historical exercise data as a basis for estimating the expected life of stock options granted to employees subsequent to this change. As such, the Company used the “simplified” method for determining the expected life of stock options granted to employees in 2018, 2017 and 2016, which bases the expected life calculation on the average of the vesting term and the contractual term of the awards. The risk-free interest rate is based on the yield of constant maturity U.S. treasury bonds with a remaining term equal to the expected life of the awards. The Company estimated the stock price volatility using weekly price observations over the most recent historical period equal to the expected life of the awards.
A summary of share option activity is presented in the table below (in thousands, except per share data):
(In thousands, except per share data)
Shares
 
Weighted Average Exercise Price
 
Weighted
Average
Remaining
Contractual Term
(in years)
 
Aggregate
Intrinsic Value(1)
Options outstanding at December 31, 2015
1,813

 
$
10.00

 
 
 
 

Granted
374

 
2.86

 
 
 
 

Exercised

 

 
 
 
 

Canceled
(679
)
 
12.66

 
 
 
 

Options outstanding at December 31, 2016
1,508

 
7.03

 
 
 
 
Granted
165

 
2.16

 
 
 
 
Exercised

 

 
 
 
 
Canceled
(385
)
 
7.81

 
 
 
 
Options outstanding at December 31, 2017
1,288

 
6.18

 
 
 
 
Granted
758

 
2.24

 
 
 
 

Exercised

 

 
 
 
 

Canceled
(604
)
 
7.60

 
 
 
 

Options outstanding at December 31, 2018
1,442

 
3.51

 
4.9
 
$

Total vested and expected to vest as of December 31, 2018
1,442

 
3.51

 
4.9
 
$

Options exercisable as of:
 
 
 
 
 
 
 
December 31, 2016
703

 
$
10.06

 
 
 
 
December 31, 2017
838

 
7.85

 
 
 
 
December 31, 2018
572

 
5.29

 
3.0
 
$

________________________________________________________________
(1) 
Aggregate intrinsic value includes only those options with intrinsic value (options where the exercise price is below the market value).
Other information pertaining to options is as follows (in thousands, except per share data):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Fair value of options granted
$
982

 
$
193

 
$
556

Per share weighted average fair value of options granted
$
1.30

 
$
1.17

 
$
1.49

Total intrinsic value of stock options exercised
$

 
$

 
$


Restricted Stock and Restricted Stock Units
Restricted stock and restricted stock units are valued based on the market value of the Company’s shares on the date of grant, which was equal to the intrinsic value of the shares on that date. These awards vest and the restrictions lapse over varying periods from the date of grant. The Company recognizes compensation expense for the intrinsic value of the restricted awards ratably over the vesting period.
A summary of restricted stock and restricted stock units activity is presented in the table below (in thousands, except per share data):
 
Number of Shares
 
Weighted Average
Grant-Date Fair Value
Nonvested at December 31, 2015
175

 
$
12.05

Granted
120

 
4.00

Vested
(76
)
 
11.27

Canceled
(29
)
 
13.03

Nonvested at December 31, 2016
190

 
7.13

Granted
213

 
2.44

Vested
(146
)
 
5.67

Canceled
(39
)
 
5.21

Nonvested at December 31, 2017
218

 
3.87

Granted
279

 
2.17

Vested
(186
)
 
3.66

Canceled
(3
)
 
14.78

Nonvested at December 31, 2018
308

 
$
2.38


Other information pertaining to restricted stock and restricted stock units is as follows (in thousands, except per share data):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Per share weighted average grant-date fair value of restricted stock and restricted stock units granted
$
2.17

 
$
2.44

 
$
4.00

Total fair value of restricted stock and restricted stock units vested
$
377

 
$
392

 
$
294


Performance Stock Units
The Company granted performance stock units during 2018 ("2018 Performance Stock Units") and 2017 ("2017 Performance Stock Units"). In settlement of the performance stock units, the Company issues a number of shares equal to the number of performance stock units issued multiplied by the total percentage achievement of the performance goals for each award. The percentage achievement for the performance stock units may not exceed 100%.
 
Number of Units
 
2018 Performance Stock Units
 
2017 Performance Stock Units
 
Total Performance Stock Units
Nonvested at December 31, 2016

 

 

Granted

 
166

 
166

Vested

 

 

Canceled

 
(26
)
 
(26
)
Nonvested at December 31, 2017

 
140

 
140

Granted
169

 

 
169

Vested

 
(116
)
 
(116
)
Canceled
(21
)
 
(24
)
 
(45
)
Nonvested at December 31, 2018
148

 

 
148


In settlement of the 116,168 of vested 2017 Performance Stock Units, during 2018 the Company issued 25,726 shares, which is equal to the number of vested performance stock units vested multiplied by the weighted percentage achievement of the performance goals of approximately 22.1%.