STOCK-BASED COMPENSATION

Stock Options, Restricted Stock, Restricted Stock Units, Stock and Performance Awards

In 2003 the Company’s Board of Directors and shareholders approved the 2003 Plan. The 2003 Plan, as amended, provided that a maximum of 3,481,569 shares of Class A common stock in the aggregate could be issued pursuant to options or restricted stock grants. The persons eligible to receive awards under the 2003 Plan included employees, directors, contractors or advisors of the Company.

Effective January 1, 2012, the Board of Directors adopted the 2012 Incentive Plan. The 2012 Incentive Plan was also approved by the Company’s shareholders at its Annual Meeting of Shareholders on June 7, 2012. The 2012 Incentive Plan provides for a maximum of 4,000,000 shares of common stock in the aggregate that may be issued by the Company pursuant to grants of stock options, restricted stock, stock appreciation rights, restricted stock units or other performance awards. The persons eligible to receive awards under the 2012 Incentive Plan include employees, directors, contractors or advisors of the Company. The primary purpose of the 2012 Incentive Plan is to attract and retain key employees, key contractors and outside directors and advisors of the Company. With the adoption of the 2012 Incentive Plan, the Company does not plan to make any future awards under the 2003 Plan, but the 2003 Plan will remain in place until all awards outstanding under that plan have been settled.

The 2003 Plan and the 2012 Incentive Plan are administered by the independent members of the Board of Directors, which determines the number of options or restricted shares to be granted, the effective dates, the terms of the grants and the vesting periods. The Company typically uses newly issued shares of common stock to satisfy option exercises or restricted share grants. All stock-based compensation awards granted during 2013 and 2012 were granted under the 2012 Incentive Plan and are equity-based awards for which the fair value is fixed at the grant date, while all stock-based compensation awards granted prior to January 1, 2012 were granted under the 2003 Plan and are liability-based awards for which the fair value is remeasured at every reporting period.

Stock Options

Historically, stock option awards have been granted to purchase the Company’s common stock at an exercise price equal to the fair market value on the date of grant, a typical vesting period of three or four years and a typical maximum term of five or ten years.

Effective upon filing its initial Registration Statement with the SEC in August 2011, the Company adopted the fair value method and used an estimated fair value of $12.00 per share to measure and recognize the liability associated with its outstanding stock options. The Company recorded $1.1 million in additional general and administrative expenses during 2011 due to this change in the valuation method from the intrinsic value method to the fair value method.

The Company granted no stock option awards during the year ended December 31, 2011. The fair value of stock option awards outstanding under the 2003 Plan was estimated using the following weighted average assumptions at December 31, 2013, 2012 and 2011.



	2013	2012	2011
Stock option pricing model	Black Scholes Merton	Black Scholes Merton	Black Scholes Merton
Expected option life	2.44 years	0.89 years	1.04 years
Risk-free interest rate	0.69%	0.25%	0.37%
Volatility	51.51%	54.28%	61.41%
Dividend yield	—%	—%	—%
Estimated forfeiture rate	0.79%	0.70%	1.04%

The weighted average grant date fair value for stock option awards outstanding under the 2012 Incentive Plan was estimated using the following weighted average assumptions during the years ended December 31, 2013 and 2012.



	2013	2012
Stock option pricing model	Black Scholes Merton	Black Scholes Merton
Expected option life	4.0 years	4.4 years
Risk-free interest rate	0.69%	0.71%
Volatility	58.65%	71.16%
Dividend yield	—%	—%
Estimated forfeiture rate	6.37%	5.46%
Weighted average fair value of stock option awards granted during the year	$3.91	$5.95

The Company estimated the future volatility of its common stock using the historical value of its peer group for a period of time commensurate with the expected term of the stock option due to the lack of historical trading data available for its common stock. The expected term was estimated using the simplified method outlined in Staff Accounting Bulletin Topic 14. The risk free interest rate is the rate for constant yield U.S. Treasury securities with a term to maturity that is consistent with the expected term of the award.

Summarized information about stock options outstanding at December 31, 2013 under the Company’s 2003 Plan and the 2012 Incentive Plan is as follows (in thousands, except price data).



	Number of options		Weighted average exercise price
Options outstanding at December 31, 2012	1,067		$	10.19
Options granted	874		8.78
Options exercised	(5	)	7.77
Options forfeited	(59	)	9.86
Options expired	(449	)	10.30
Options outstanding at December 31, 2013	1,428		$	9.32



	Options outstanding at December 31, 2013				Options exercisable at December 31, 2013
Range of exercise prices	Shares outstanding	Weighted average remaining contractual life	Weighted average exercise price		Shares exercisable	Weighted average exercise price
$7.50 - $10.00	938	4.30 years	$	8.33	79	$	8.90
$10.39 - $13.03	451	3.50 years	$	10.56	15	$	11.00
$17.80 - $19.05	39	4.89 years	$	18.73	—	$	—

At December 31, 2013, the aggregate intrinsic value was $13.3 million for outstanding options and $0.9 million for exercisable options, based on the Company’s quoted closing market price of $18.64 per share on that date. The remaining weighted average contractual term of exercisable options at December 31, 2013 was 5.97 years.

The total intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was $36,000, $0.9 million and $0.2 million, respectively. The tax related benefit realized from the exercise of stock options totaled zero, zero and zero for the years ended December 31, 2013, 2012 and 2011, respectively.

During the years ended December 31, 2013, 2012 and 2011, the Company recognized $2.2 million, $(0.7) million and $2.1 million, respectively, in stock-based compensation expense attributable to stock options. At December 31, 2013, 2012 and 2011, the Company had recorded $1.2 million, $0.3 million and $0.3 million of long-term liabilities and $0.1 million, $0.1 million and $2.9 million of current liabilities, respectively, related to its outstanding liability-based stock options. The Company paid zero, zero and $0.1 million in settlement of liability-based awards for the years ended December 31, 2013, 2012 and 2011, respectively.

At December 31, 2013, the total remaining unrecognized compensation expense related to unvested stock options was approximately $4.1 million and the weighted average remaining requisite service period (vesting period) of all unvested stock options was 1.90 years.

The fair value of options vested during 2013, 2012 and 2011 was $0.3 million, $0.3 million and $1.0 million, respectively.

Restricted Stock, Restricted Stock Units and Common Stock

The Company has granted stock, restricted stock and restricted stock unit awards to employees, outside directors and advisors of the Company under the 2003 Plan and the 2012 Incentive Plan. The stock and restricted stock are issued upon grant, with the restrictions being removed upon vesting. The restricted stock units are issued upon vesting, unless the recipient makes an election to defer issuance for a term no longer than two years after vesting. No such elections were made with respect to the 2012 restricted stock unit awards; two directors elected to defer the issuance of their awards in 2013. All awards granted in 2013 were service based awards and vest over the service period which is one to four years. All restricted stock and restricted stock unit awards outstanding at December 31, 2013 were granted under the 2012 Incentive Plan.

The 2012 restricted stock awards included 116,841 shares of performance based restricted stock and 116,841 performance based restricted stock units with a combined weighted average fair value of $13.24 per combined share and unit. These awards vest based on the outcome of the Company’s total shareholder return over a three-year period beginning March 19, 2012 and ending April 15, 2015 as compared to a designated peer group. These awards may result in the vesting of an aggregate of up to 116,841 restricted stock units in addition to the 116,841 shares of restricted stock. If the performance conditions are not met, however, these awards may result in no performance based restricted stock vesting and no restricted stock units vesting. The fair value of these awards was estimated based on the most likely outcome of the award as determined by the Monte Carlo method. A total of 206,842 service based restricted stock awards were granted during the year ended December 31, 2012, with a weighted average fair value of $9.66 per share. Of these awards, 13,833 shares of restricted stock vested immediately upon grant, and the remaining restricted stock vests over the service period, which ranges from one year to a maximum of four years. A total of 54,166 service based restricted stock unit awards were granted during the year ended December 31, 2012, with a weighted average fair value of $10.04 per unit. No restricted stock awards or restricted stock unit awards were granted during the year ended December 31, 2011.

A summary of the non-vested restricted stock and restricted stock units as of December 31, 2013 is presented below (in thousands, except fair value).



	Restricted Stock								Restricted Stock Units
	Service Based				Performance Based				Service Based				Performance Based
Non-vested restricted stock and restricted stock units	Shares		Weighted average fair value		Shares		Weighted average fair value⁽¹⁾		Shares		Weighted average fair value		Shares		Weighted average fair value⁽¹⁾
Non-vested at December 31, 2012	182		$	9.72	110		$	13.24	52		$	10.00	110		$	—
Granted	378		9.07		—		—		51		11.31		—		—
Vested	(1	)	8.43		—		—		(17	)	10.00		—		—
Forfeited	(95	)	8.57		(10	)	13.24		—		—		(10	)	—
Non-vested at December 31, 2013	464		$	9.43	100		$	13.24	86		$	10.79	100		$	—

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(1)	The fair value of these restricted stock units is reflected in the fair value of the performance based restricted stock, which was estimated based on the most likely outcome of the award as determined by the Monte Carlo method.

At December 31, 2013, the aggregate intrinsic value for the restricted stock and restricted stock units outstanding was $14.0 million as calculated based on the maximum number of shares of restricted stock, performance based restricted stock and restricted stock units vesting, using the stock price on December 31, 2013.

During the years ended December 31, 2013, 2012 and 2011, the Company recognized approximately $1.6 million, $0.7 million and $44,000, respectively, in stock-based compensation expense attributable to restricted stock and restricted stock units.

At December 31, 2013, the total remaining unrecognized compensation expense related to unvested restricted stock and restricted stock units was approximately $4.6 million and the weighted average remaining requisite service period (vesting period) of all non-vested restricted stock and restricted stock units was 1.82 years.

The fair value of restricted stock and restricted stock units vested during 2013, 2012 and 2011 was $182,000, $44,000 and $44,000, respectively.

The total tax benefit recognized for all stock-based compensation was $1.1 million, $0.3 million and $0.9 million for the years ended December 31, 2013, 2012 and 2011, respectively.

During the years ended December 31, 2013, 2012 and 2011, the Company issued shares of common stock to certain members of its Board of Directors. The Company also issued shares of common stock to certain outside advisors who do not meet the definition of employees under ASC 718. The Company used the fair value of the stock issued on the grant date to recognize the expense related to these awards. The Company recognized $0.1 million, $0.1 million and $0.2 million in stock-based compensation expense attributable to these awards for the years ended December 31, 2013, 2012 and 2011, respectively.

In October 2008, the Company’s Board of Directors approved the adoption of the Employee Option Exercise Loan Program (“Loan Program”), authorizing the Company to establish a loan program with a financial institution to assist its employees, directors and officers in the exercise of their outstanding options to purchase shares of Class A common stock, subject to certain conditions and restrictions outlined in the Loan Program. As part of the Loan Program, the Company provided the financial institution with a guaranty of repayment of the loan and made deposits of funds in certificates of deposit to secure its guaranty. Notwithstanding the guaranty, these loans were fully recourse obligations of each loan recipient, and each loan recipient agreed to indemnify and reimburse the Company in full for all liabilities incurred by the Company in the event of the recipient’s default on the loan. Each loan recipient also pledged all shares purchased from the Company with the loan proceeds to further secure his or her obligations to the Company in return for its guaranty. No director nor the Company’s Chairman and Chief Executive Officer participated in the Loan Program.

As of December 31, 2013 all of these loans had been repaid. As of December 31, 2012, the Company had secured the loans of four employees pursuant to this Loan Program in the aggregate amount of $0.2 million. The Company considered the fair value of this aggregate guaranty to be minimal and recorded no liability provision associated with this guaranty on its consolidated balance sheet in any reporting period presented. The Company’s Board of Directors terminated the Loan Program in April 2011, and the Company is no longer authorized to provide financial guaranties for additional loans. No new loans were guaranteed in 2011 prior to the termination of the Loan Program by the Board of Directors.