Note 12: Stock-Based Compensation

On March 9, 2009, Encore’s Board of Directors (the “Board”) approved an amendment and restatement of the 2005 Stock Incentive Plan (“2005 Plan”), which was originally adopted on March 30, 2005, for Board members, employees, officers, and executives of, and consultants and advisors to, the Company. The amendment and restatement of the 2005 Plan increased by 2,000,000 shares the maximum number of shares of the Company’s common stock that may be issued or be subject to awards under the plan, established a new 10-year term for the plan, and made certain other amendments. The 2005 Plan amendment was approved by the Company’s stockholders on June 9, 2009. The 2005 Plan provides for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, and performance-based awards to eligible individuals. As amended, the 2005 Plan allows the granting of an aggregate of 3,500,000 shares of the Company’s common stock for awards. In addition, shares subject to options granted under the 2005 Plan that terminate or expire without being exercised will become available for grant under the 2005 Plan. The benefit provided under the 2005 Plan is compensation subject to authoritative guidance for stock-based compensation.

In accordance with authoritative guidance for stock-based compensation, compensation expense is recognized only for those shares expected to vest, based on the Company’s historical experience and future expectations. Total compensation expense during the years ended December 31, 2013, 2012, and 2011 was $12.6 million, $8.8 million, and $7.7 million, respectively.

The Company’s stock-based compensation arrangements are described below:

Stock Options

The 2005 Plan permits the granting of stock options to certain employees and members of the board of directors of the Company. Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of issuance. They generally vest over three to five years of continuous service, and have ten-year contractual terms.

The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards. All options are amortized ratably over the requisite service periods of the awards, which are generally the vesting periods.

The fair value for options granted was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions (there were no options granted during the year ended December 31, 2013):


	Year Ended December 31,
	2012			2011
Weighted average fair value of options granted	$	11.77		$	13.26
Risk free interest rate		0.9	%		2.0	%
Dividend yield		0.0	%		0.0	%
Volatility factors of the expected market price of the Company’s common stock		63.0	%		61.0	%
Weighted-average expected life of options		5 Years			5 Years

Unrecognized compensation cost related to stock options as of December 31, 2013, was $0.7 million. The weighted-average remaining expense period, based on the unamortized value of these outstanding stock options was approximately 1.0 years.

A summary of the Company’s stock option activity as of December 31, 2013, and changes during the year then ended, is presented below:


	Number of Shares			Option Price Per Share		Weighted Average Exercise Price		Aggregate Intrinsic Value *(in thousands)*
Outstanding at December 31, 2012		1,948,259		$	2.89 –$24.65	$	15.38
Cancelled/forfeited		(61,332	)		22.17 –24.65		23.03
Exercised		(753,755	)		2.89 –24.65		15.56

Outstanding at December 31, 2013		1,133,172		$	2.89 –$24.65	$	14.84	$	40,138

Exercisable at December 31, 2013		987,843		$	2.89 –$24.65	$	13.71	$	36,103

The total intrinsic value of options exercised during the years ended December 31, 2013, 2012, and 2011 was $16.9 million, $9.1 million, and $10.5 million, respectively. As of December 31, 2013, the weighted-average remaining contractual life of options outstanding and options exercisable was 5.6 years and 5.2 years, respectively.

Non-Vested Shares

Under the Company’s 2005 Plan, employees, officers, executives and directors of, and consultants and advisors to, the Company are eligible to receive restricted stock units and restricted stock awards. In accordance with the authoritative guidance, the fair value of these non-vested shares is equal to the closing sale price of the Company’s common stock on the date of issuance. The total number of these awards expected to vest is adjusted by estimated forfeiture rates.

A summary of the status of the Company’s restricted stock units and restricted stock awards as of December 31, 2013, and changes during the year then ended, is presented below:


	Non-Vested Shares			Weighted Average Grant Date Fair Value
Non-vested at December 31, 2012		744,016		$	23.51
Awarded		645,266		$	35.03
Vested		(336,772	)	$	22.85
Cancelled/forfeited		(66,775	)	$	26.39

Non-vested at December 31, 2013		985,735		$	31.07

Unrecognized compensation cost related to non-vested shares as of December 31, 2013, was $16.2 million. The weighted-average remaining expense period, based on the unamortized value of these outstanding non-vested shares, was approximately 2.2 years. The fair value of restricted stock units and restricted stock awards vested for the years ended December 31, 2013, 2012, and 2011 was $11.5 million, $7.0 million, and $7.1 million, respectively.