Stock-Based Compensation

The Company’s 2006 Stock Incentive Plan, as amended and restated in April 2015 (the “2006 Plan”), authorizes the Company to issue up to 3,500,000 shares of common stock to employees, non-employee directors and consultants pursuant to awards of stock options, stock appreciation rights, restricted stock, in payment of performance shares or other stock-based awards. The Company amended the 2006 Plan to increase the aggregate number of shares of common stock issuable under the 2006 Plan by 1,000,000 shares to a total of 4,500,000 in May 2016, by 2,000,000 shares to a total of 6,500,000 in May 2017 and by 2,000,000 shares to a total of 8,500,000 in May 2019.

Under the 2006 Plan, stock options must be granted at a price not less than the fair market value of the stock on the date the option is granted, generally are not subject to re-pricing, and will not be exercisable more than ten years after the date of grant. Options granted under the 2006 Plan generally qualify as “non-qualified stock options” under the U.S. Internal Revenue Code. The exercise price of a stock option is equal to the fair market value of the Company's Common Stock on the option grant date. As of June 30, 2019, there were 3,318,657 shares available to be issued under the 2006 Plan. At June 30, 2019, the Company had 22,439 stock options outstanding and 1,378,300 shares of restricted stock outstanding under the 2006 Plan.

Stock Option Awards

The Company did not grant any stock options during the three and six months ended June 30, 2019 and 2018. There was no compensation expense related to stock options outstanding for both the three and six months ended June 30, 2019 and 2018.

Restricted Stock Awards

On January 21, 2019, February 1, 2019, March 20, 2019 and April 2, 2019, the Company issued 672,300, 13,423, 27,987 and 10,941 shares of restricted stock, respectively to employees under the 2006 Plan. The fair value per share for the January 21, 2019, February 1, 2019, March 20, 2019 and April, 2019 restricted stock awards were $6.19, $5.96, $5.36 and $4.57 respectively, representing the closing stock price on the date of grant. These shares will vest in three equal installments on each of the first three anniversaries of the date of grant.

The total compensation expense, classified within Payroll and related on the condensed consolidated statements of operations, related to restricted stock was $814 and $1,617 for the three and six months ended June 30, 2019, compared to $556 and $1,162 for the comparable prior-year periods. The Company adjusted the forfeiture estimates to reflect actual forfeitures. The forfeiture adjustment reduced stock-based compensation expense by $25 and $34 for the three and six months ended June 30, 2019 respectively, compared to $23 and $27 for the comparable prior-year periods.

As of June 30, 2019, a total of $5,449 in unrecognized compensation expense related to restricted stock awards is expected to be recognized over a weighted-average period of 2.14 years.

Stock Grants

The Company issued 53,692 shares of common stock to members of the Company’s Board of Directors in respect of their annual retainer on February 1, 2019. The fair value of the shares issued was $5.96 per share and was expensed upon the date of grant. The total compensation expense, classified within general and administrative expenses, related to Board of Directors common stock grants was $320 for each of the six months ended June 30, 2019 and 2018.

Management Stock Purchase Plan

The Company adopted the 2018 Management Stock Purchase Plan in January 2018, and amended and restated it in March 2018 (the “MSPP”). The purpose of the MSPP is to provide eligible employees of the Company (corporate title of Director or above) an opportunity to voluntarily purchase the Company’s stock in a convenient manner. As of June 30, 2019, shares purchased under this plan did not have a material impact on the Company’s financial statements.

Upon adoption of the MSPP, eligible employees could elect to use up to 20% of their cash compensation (as defined in the MSPP), but in no event more than $200 in any calendar year, to purchase the Company’s common stock generally on a quarterly basis on the open market through a broker (such purchased shares being referred to as “MSPP Shares”). This amount was amended to $300, effective June 15, 2019 pursuant to a Board of Directors meeting held on May 15, 2019, "Amendment No.1" of the MSPP. If the participant holds the MSPP Shares for the requisite period specified in the Plan (two years from the purchase date) and remains an employee of the Company, the participant will receive an award of shares of restricted stock under the Company’s 2006 Stock Incentive Plan, as amended, in an amount equal to the number of MSPP Shares that satisfied the holding period. The award will vest on the second anniversary of the award date so long as the participant remains an employee on the vesting date. Awards granted under the Stock Incentive Plan in any calendar year as a result of participants holding the MSPP Shares for the requisite period will be the lesser of (i) 50% of the shares available for grant under the Stock Incentive Plan and (ii) the number of MSPP Shares that have satisfied the two year holding period.

Employee Stock Purchase Plan

In May 2018, the Company’s shareholders approved the Town Sports International Holdings, Inc. Employee Stock Purchase Plan (the “ESPP”), effective as of June 15, 2018. Under the ESPP, an aggregate of 800,000 shares of common stock (subject to certain adjustments to reflect changes in the Company’s capitalization) are reserved and may be purchased by eligible employees who become participants in the ESPP. The purchase price per share of the common stock is the lesser of 85% of the fair market value of a share of common stock on the offering date or 85% of the fair market value of a share of common stock on the purchase date. As of June 30, 2019, there were 771,688 shares of common stock available for issuance pursuant to the ESPP.

Total compensation expense, classified within Payroll and related on the condensed consolidated statements of operations, related to ESPP was $6 and $13 for the three and six months ended June 30, 2019. For both the three and six months ended 2018, the Company recorded stock-based compensation expense related to the ESPP of $1.

The fair value of the purchase rights granted under the ESPP for the offering period beginning June 30, 2019 was $0.69. It was estimated by applying the Black-Scholes option-pricing model to the purchase period in the offering period using the following assumptions:



	June 15, 2019
Grant price	$	2.49
Expected term	3 months
Expected volatility	62.97		%
Risk-free interest rate	2.21		%
Expected dividend yield	—		%

Grant price - Closing stock price on the first day of the offering period.

Expected Term - The expected term is based on the end date of the purchase period of each offering period, which is three months from the commencement of each new offering period.

Expected volatility - The expected volatility is based on historical volatility of the Company’s stock as well as the implied volatility from publicly traded options on the Company’s stock.

Risk-free interest rate - The risk-free interest rate is based on a U.S. Treasury rate in effect on the date of grant with a term equal to the expected term.