STOCK-BASED COMPENSATION

Plan Summary

During 2018, the Company had two shareholder-approved stock-based compensation plans under which outstanding equity awards have been granted: (1) the 2008 Equity Incentive Plan (“2008 EIP”); and (2) the 2017 Equity Incentive Compensation Plan (“2017 EICP”) (collectively, the “Plans”).

2008 EIP Awards

During the first quarter of 2008, the Board of Directors of the Company adopted the 2008 EIP, which was approved by the shareholders at the annual meeting of the shareholders on May 29, 2008. The 2008 EIP authorized the grant of incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and other incentive awards. Pursuant to amendments to the 2008 EIP that were approved by the Board of Directors and the Company's shareholders, 10,600,000 shares were reserved for issuance under the 2008 EIP to award grants to key employees, directors and service providers. The options granted pursuant to the 2008 EIP generally had seven year terms and vested in equal annual increments over the vesting period, which typically was three years for employees and one year for directors. No further awards can be granted from the 2008 EIP following the approval of the 2017 EICP by shareholders on June 27, 2017.

2017 EICP Awards

In April 2017, the Board of Directors adopted the 2017 EICP, which was approved by the shareholders at the annual meeting of the shareholders on June 27, 2017. The 2017 EICP applies to awards granted on or after June 27, 2017. Under the 2017 EICP, the Company may grant incentive and non-qualified stock options, stock appreciation rights, restricted stock, deferred stock, restricted stock units, performance units, performance shares, dividend equivalents, bonus shares, and other stock-based or cash-based awards. The maximum number of shares of common stock that may be issued pursuant to the awards under the 2017 EICP is 3.4 million shares plus that number of shares of common stock subject to awards granted under the 2008 EIP that were outstanding when the 2017 EICP became effective and that subsequently terminate without deleting of the shares, whether by lapse, forfeiture, cancellation, or otherwise. The options granted to date pursuant to the 2017 EICP have a term of seven years. As of December 31, 2018 there were approximately 2.9 million shares available for future grants under the 2017 EICP.

Grants

Option Awards

The following table summarizes stock option awards granted during the years ended December 31, 2018, 2017, and 2016:



Grantee Type	Number of Options Granted	Vesting Period	Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
2018
Employee inducement ⁽¹⁾	535,000	3 years	$	8.91	$	2.89

2017
Director group	90,566	1 year or less	$	6.34	$	3.49
Director group⁽²⁾	35,000	3 years	$	6.25	$	3.50
CEO grant	500,000	4 years	$	7.35	$	2.36
Employee group	30,000	3 years	$	7.25	$	3.99
Employee inducement ⁽³⁾	335,000	3 years	$	6.19	$	3.41

2016
Director group ⁽⁴⁾	195,417	1 year or less	$	5.01	$	2.71
Director group ⁽²⁾	35,000	3 years	$	4.80	$	2.66
Employee inducement ⁽⁵⁾⁽⁶⁾	232,500	3 years	$	4.61	$	2.60


(1)	The Company granted non-qualified stock options outside its existing stock-based compensation plan in 2018 to nine employees in connection with the employees joining the Company.


(2)	The Company granted non-qualified stock options to one director in connection with the director joining the Company's board of directors.


(3)	The Company granted non-qualified stock options outside its existing stock-based compensation plans to certain employees in connection with the employees joining the Company.


(4)	Includes 20,417 non-qualified stock options granted to one director in connection with the director joining the Company's board of directors.


(5)	The Company granted non-qualified stock options outside its existing stock-based compensation plans in 2016 in connection with an employee joining the Company.


(6)	The Company granted non-qualified stock options outside its existing stock-based compensation plans in connection with the closing of the Lavante acquisition.

Nonvested Stock Awards

The following table summarizes nonvested stock awards granted during the years ended December 31, 2018, 2017 and 2016:



Grantee Type	Number of Stock Awards Granted	Vesting Period	Weighted Average Grant Date Fair Value
2018
Director group	64,545	1 year or less	$	9.45
Employee group (1)	488,685	3 years or less	$	9.56
Employee inducement (2)	160,516	3 years or less	$	8.95

2017
Director group	51,179	1 year or less	$	6.35
Employee group (3)	641,751	3 years or less	$	6.31
Employee inducement (4)	100,000	3 years or less	$	6.33

2016
Employee group (5)	1,250,750	2 years	$	4.88
Employee inducement (6)	100,000	3 years	$	4.94


(1)	The Company granted nonvested performance-based stock awards (restricted stock units), restricted stock awards, and restricted stock units in 2018 to certain key employees.


(2)	The Company granted nonvested performance-based stock awards (restricted stock units) and restricted stock awards in 2018 to six employees in connection with the employees joining the Company.


(3)	The Company granted nonvested performance-based stock awards (restricted stock units), restricted stock units and restricted stock awards in the first quarter of 2017 to twelve executive officers totaling 458,000 units. During the second quarter of 2017, the Company issued 183,751 restricted stock awards and restricted stock units to key employees.


(4)	The Company granted nonvested performance-based stock awards (restricted stock units) and restricted stock awards in 2017 to two executive officers in connection with the employees joining the Company.


(5)	The Company granted nonvested performance-based stock awards (restricted stock units) in 2016 to five executive officers and certain other key employees.


(6)	The Company granted nonvested performance-based stock awards (restricted stock units) outside its existing stock-based compensation plans in 2016 to three employees in connection with the employees joining the Company.

Nonvested stock awards, including both restricted stock and restricted stock units, generally are nontransferable until vesting and the holders are entitled to receive dividends with respect to the nonvested shares, provided the shares ultimately vest. Prior to vesting, the grantees of restricted stock are entitled to vote the shares, but the grantees of restricted stock units are not entitled to vote the shares. Generally, nonvested stock awards, excluding those whose vesting is performance-based, vest in equal annual increments over the vesting period, which typically is three years for employees and one year for directors. Performance-based stock awards vest based on the achievement of certain performance objectives.

Performance-Based Restricted Stock Units

During 2018, one executive officer and two senior leaders were granted 40,750 performance-based restricted stock units ("PBUs") outside of the existing stock-based compensation plan as an inducement for employment and one senior leader was granted 12,000 PBUs under the 2017 EICP. If vested, 100% of the vested PBUs will be paid in whole shares of common stock. 65% of the PBUs vest and become payable based on the cumulative revenue from continuing operations and 35% of the PBUs vest and become payable on the cumulative adjusted EBITDA from continuing operations that the Company achieves, in each case, for the two-year performance period ending December 31, 2018. At the threshold performance level, 35% of the PBUs will become vested and payable and at the target performance level, 100% of the PBUs will become vested and payable. If performance falls between the stated performance levels the percentage of PBUs that shall become vested and payable will be based on a straight-line interpolation between such stated performance levels (although the PBUs may not become vested and payable for more than 100% of the PBUs and no PBUs shall become vested and payable if performance does not equal or exceed the applicable threshold performance level).

During 2018, five executive officers and nine other senior leaders were granted 192,098 PBUs under the 2017 EICP and 54,180 PBUs outside of the existing stock-based compensation plan as an inducement for employment. If vested, 100% of the vested Units will be paid in whole shares of common stock. 50% of the PBUs vest and become payable based on the cumulative revenue from continuing operations,35% of the PBUs vest and become payable based on the cumulative adjusted EBITDA from continuing operations and 15% of the PBUs vest and become payable based on the cumulative adjacent services revenue that the Company achieves, in each case, for the two-year performance period ending December 31, 2019. At the threshold performance level, 35% of the PBUs will become vested and payable; at the target performance level, 100% of the PBUs will become vested and payable; and at the maximum performance level, 150% of the PBUs will become vested and payable. If performance falls between the stated performance levels the percentage of PBUs that shall become vested and payable will be based on a straight-line interpolation between such stated performance levels (although the PBUs may not become vested and payable for more than 150% of the PBUs and no PBUs shall become vested and payable if performance does not equal or exceed the applicable threshold performance level).

During 2017, certain employees of the company were granted 333,800 PBUs. If vested, 100% of the vested PBUs will be paid in whole shares of common stock. 65% of the PBUs vest and become payable based on the cumulative revenue from continuing operations and 35% of the PBUs vest and become payable on the cumulative adjusted EBITDA from continuing operations that the Company achieves, in each case, for the two-year performance period ending December 31, 2018. At the threshold performance level, 35% of the PBUs will become vested and payable and at the target performance level, 100% of the PBUs will become vested and payable. If performance falls between the stated performance levels the percentage of PBUs that shall become vested and payable will be based on a straight-line interpolation between such stated performance levels (although the PBUs may not become vested and payable for more than 100% of the PBUs and no PBUs shall become vested and payable if performance does not equal or exceed the applicable threshold performance level).

During 2016, certain employees of the Company were granted 1,350,750 PBUs. During the first quarter of 2018, the Company issued 483,623 shares of common stock and paid $5.4 million in cash as long-term incentive compensation related to the vesting of these awards.

The following table summarizes the PBUs granted during the years ended December 31, 2018, 2017 and 2016:



	Total PBUs Granted	PBUs to be Settled in Common Stock ⁽¹⁾	PBUs to be Settled in Cash⁽²⁾
2018	299,028	299,028	—
2017	333,800	333,800	—
2016	1,350,750	560,670	790,080


(1)	Represents the number of PBUs to be settled in common stock at the target performance level.


(2)	Represents the number of PBUs to be settled in cash at the target performance level.

In the fourth quarter of 2018, management determined that 80% of the PBUs with a two-year performance period ending December 31, 2018 would likely vest based on expected financial performance compared to the target financial objectives. As a result, the associated expense was adjusted down to reflect the new estimate. During 2017 and 2016, the PBUs that were granted in 2017 and 2016 were expensed at the target performance level based on management's estimates.

Stock Appreciation Rights

During 2018, certain employees were granted stock appreciation rights ("SARs") covering 350,000 shares of the Company's common stock under the 2017 EICP. The SARs will vest on March 1, 2020. Upon vesting, 25% of the SARs may be exercised on the last day of each of the first, second and third calendar quarters in 2020. Within 30 days after the SARs are exercised, the Company must settle the exercised SARs in a cash payment equal to the excess of (i) the lesser of the fair market value, as of the date on which the SARs are exercised, or $18 per share, over (ii) $9.15 per share, less any applicable tax withholding. Vested SARs not exercised during any previous quarter will remain outstanding and be automatically exercised as of December 31, 2020.

On April 27, 2016, the Company's Chief Executive Officer was granted SARs covering 200,000 shares of the Company’s common stock under the 2008 EIP. The SARs were issued with an initial value per share equal to $4.71. On June 30, 2018, the SARs vested and became payable in cash in a lump sum equal to $1.0 million (less applicable tax withholding), which represents the excess of the fair market value, as of June 30, 2018, of the shares of the Company's common stock over $4.71, the fair market value (closing price) of the Company's common stock on the date of grant, April 27, 2016.

Summary of Activity

A summary of option activity as of December 31, 2018, and changes during the year then ended is presented below:



Options	Shares		Weighted- Average Exercise Price (Per Share)		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value ($ 000’s)
Outstanding at January 1, 2018	3,399,293		$	6.54	4.05 years	$	2,367
Granted	535,000		8.91
Exercised	(676,649	)	6.54			$	1,585
Forfeited	(280,556	)	7.61
Expired	(126,271	)	6.53
Outstanding at December 31, 2018	2,850,817		$	6.84	3.74 years	$	7,384
Exercisable at December 31, 2018	1,735,149		$	6.40	2.73 years	$	5,225

The weighted-average grant date fair value of options granted was $2.89 per share in 2018, $2.91 per share in 2017 and $2.66 per share in 2016. The total intrinsic value of options exercised was $1.6 million in 2018, $0.3 million in 2017 and $0.1 million in 2016.

For time-vested option grants that resulted in compensation expense recognition, we used the following assumptions in our Black-Scholes valuation models:



	Years Ended December 31,
	2018	2017	2016
Risk-free interest rates ⁽¹⁾	2.3% - 2.99%	1.38% - 1.96%	0.58% - 1.20%
Dividend yields ⁽²⁾	—%	—%	—%
Volatility factor of expected market price ⁽³⁾	.362 - .371	.540 - .749	.391 - .779
Weighted-average expected term of options ⁽⁴⁾	4 years	2.2 - 4 years	1.3 - 4.5 years
Forfeiture rate ⁽⁵⁾	—%	—%	—%


(1)	The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for periods corresponding to the expected term of the options.


(2)	The Company has not historically declared dividends.


(3)	The expected volatility is based on the historical volatility of the Company's stock.


(4)	The expected term represents the weighted average period of time that the stock options are expected to be outstanding, giving consideration to the vesting schedules.


(5)	The Company accounts for forfeitures as they occur rather than estimating expected forfeitures.

A summary of nonvested stock awards (including restricted stock, restricted stock units and performance-based restricted stock units) activity as of December 31, 2018 and changes during the year then ended is presented below:



Nonvested Stock	Shares		Weighted Average Grant Date Fair Value (Per Share)
Nonvested at January 1, 2018	2,116,696		$	5.36
Granted	713,746		9.42
Vested	(1,523,696	)	5.02
Forfeited	(340,796	)	7.51
Nonvested at December 31, 2018	965,950		$	8.18

The weighted-average grant date fair value of nonvested stock awards (restricted stock and restricted stock units) granted was $9.42 per share in 2018, $6.32 per share in 2017 and $4.86 per share in 2016. The total vest date fair value of stock awards vested during the year was $12.7 million in 2018, $0.3 million in 2017 and $0.7 million in 2016.

Stock-based compensation expense was $5.1 million in 2018, $7.1 million in 2017, and $5.1 million in 2016. We include these charges in Selling, general and administrative expenses in the accompanying Consolidated Statements of Operations. The total income tax benefit recognized in our Consolidated Statements of Operations was $1.3 million, $2.7 million and $1.9 million in 2018, 2017 and 2016, respectively.

Total unrecognized compensation expense related to nonvested stock-based compensation as of December 31, 2018 is as follows (dollars in thousands):



	Stock				Restricted		Restricted
	Options		SARs		Stock Awards		Stock Units		Total

Unrecognized compensation expense	$	2,145	$	313	$	2,614	$	2,125	$	7,197
Weighted-average remaining recognition period (in years)	2.5		1.2		2.1		1.2		1.9