NOTE 12.  STOCK-BASED COMPENSATION PLAN

 

Under the Company’s 2005 Stock Incentive Plan (the “2005 Plan”), the Company’s Board of Directors (the “Board of Directors”) has flexibility to determine the type and amount of awards to be granted to eligible participants, who must be employees, directors, officers or consultants of the Company or its subsidiaries.  The 2005 Plan allows for grants of incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation rights, and restricted units.  The aggregate number of shares of common stock that may be granted through awards under the 2005 Plan to any employee in any calendar year may not exceed 500 shares.  The 2005 Plan will continue in effect until June 2015 unless terminated sooner.

 

During the nine months ended September 30, 2014, the Company issued 501 stock options under the 2005 Plan to employees of the Company.  Of the 501 options issued, 30 will vest in four equal consecutive quarterly tranches from the date of grant.  300 will vest in four equal consecutive annual tranches starting December 31, 2015.  The remaining 171 options will vest in three installments as follows: 68 shall vest on December 31, 2016, and the remaining shares shall vest equally on December 31, 2017 and December 31, 2018.

 

For computing the fair value of the stock-based awards, the fair value of each option grant has been estimated as of the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 

 

 

 

 

Using these assumptions, the fair value of all stock options granted during the nine months ended September 30, 2014 was $2,610, which will be recognized over the vesting period of the options.

 

On August 11, 2014, the Company issued and granted to an employee a restricted stock award of 300 restricted shares under the 2005 Plan, of which (i) 50 restricted shares vested and become nonforteitable on August 25, 2014; (ii) 205 restricted shares will vest and become nonforteitable as follows: (A) 45 restricted shares will vest if, on or before June 30, 2017, the Fair Market Value (as defined in the Plan) of the Company’s common stock shall have equaled or exceeded $15.00 per share for five consecutive trading days; (B) 80 restricted shares will vest if, on or before December 31, 2019, the Fair Market Value of the Company’s common stock shall have equaled or exceeded $20.00 per share for five consecutive trading days; (C) 80 restricted shares will vest if, on or before December 31, 2019, the Fair Market Value of the Company’s common stock shall have equaled or exceeded $22.00 per share for five consecutive trading days; and (iii)  15 restricted shares will vest and become nonforfeitable on each of December 31, 2015, December 31, 2016 and December 31, 2017.  All vested restricted shares will be subject to a lock-up provision restricting sales, dispositions, pledges and transfers of such shares through December 31, 2016.  For computing the fair value of the 205 restricted shares with a market condition, the fair value of each restricted stock award grant has been estimated as of the date of grant using the Monte-Carlo pricing model with the assumptions below.  The restricted stock awards of 95 that vest over time were valued at $7.74 per share, which includes a discount for the lock-up provision.

 

 

Market Condition Restricted Shares Granted on August 11, 2014

 

 

 

Using these assumptions, the fair value of the market condition restricted stock awards granted on August 11, 2014 was approximately $923, which will be amortized over the expected life of the awards.

 

The total non-cash stock compensation expense related to restricted stock, stock options and stock awards recorded by the Company for the three months ended September 30, 2014 and 2013 was $850 and $1,719, respectively, and for the nine months ended September 30, 2014 and 2013 was $1,387 and $2,361, respectively.  The fair value of unvested restricted stock awards is determined based on the market price of our shares of common stock on the grant date or using the Monte-Carlo pricing model.  As of September 30, 2014, there were 1,282 unvested stock options and unrecognized compensation cost of $3,756 related to unvested stock options, as well as 560 unvested restricted stock awards and unrecognized compensation cost of $1,265  related to unvested restricted stock awards.