NOTE L — EQUITY-BASED COMPENSATION

We have various equity incentive compensation plans which provide for the granting of restricted common stock, options for the purchase of our common stock, and other performance-based, equity-based compensation awards to our executive officers, key employees, nonexecutive officers, consultants, and directors. Incentive stock options are exercisable for periods of up to ten years. Compensation cost for all share-based payments is based on the grant date fair value and is recognized in earnings over the requisite service period. Total equity-based compensation expense, net of taxes, for the three years ended December 31, 2013, 2012, and 2011 was $4.4 million, $6.1 million, and $4.1 million, respectively.

The Black-Scholes option-pricing model is used to estimate option fair values. This option-pricing model requires a number of assumptions, of which the most significant are: expected stock price volatility, the expected pre-vesting forfeiture rate, and the expected option term (the amount of time from the grant date until the options are exercised or expire). Expected volatility was calculated based upon actual historical stock price movements over the most recent periods ending December 31, 2013, equal to the expected option term. Expected pre-vesting forfeitures were estimated based on actual historical pre-vesting forfeitures over the most recent periods ending December 31, 2013, for the expected option term.

The TETRA Technologies, Inc. 1990 Stock Option Plan (the 1990 Plan) was initially adopted in 1985 and subsequently amended to change the name, the number, and the type of options that could be granted, as well as the time period for granting stock options. As of December 31, 2004, no further options may be granted under the 1990 Plan. We granted performance stock options under the 1990 Plan to certain executive officers. These granted options have an exercise price per share of not less than the market value at the date of issuance and are fully vested and exercisable.

During 1996, we adopted the 1996 Stock Option Plan for Nonexecutive Employees and Consultants (the Nonqualified Plan) to enable us to award nonqualified stock options to nonexecutive employees and consultants who are key to our performance. As of May 2, 2006, no further options may be granted under the Nonqualified Plan.

In May 2006, our stockholders approved the adoption of the TETRA Technologies, Inc. 2006 Equity Incentive Compensation Plan. Pursuant to the TETRA Technologies, Inc. 2006 Equity Incentive Compensation Plan, we were authorized to grant up to 1,300,000 shares in the form of stock options (including incentive stock options and nonqualified stock options); restricted stock; bonus stock; stock appreciation rights; and performance awards to employees, consultants, and non-employee directors. As a result of the May 2006 adoption and approval of the TETRA Technologies, Inc. 2006 Equity Incentive Compensation Plan, no further awards may be granted under our other previously existing plans. As of May 4, 2008, no further awards may be granted under the TETRA Technologies, Inc. 2006 Equity Incentive Compensation Plan.

In May 2007, our stockholders approved the adoption of the TETRA Technologies, Inc. 2007 Equity Incentive Compensation Plan. In May 2008, our stockholders approved the adoption of the TETRA Technologies, Inc. Amended and Restated 2007 Equity Incentive Compensation Plan, which among other changes, resulted in an increase in the maximum number of shares authorized for issuance. In May 2010, our stockholders approved further amendments to the TETRA Technologies, Inc. Amended and Restated 2007 Equity Incentive Compensation Plan (renamed as the 2007 Long Term Incentive Compensation Plan) which, among other changes, resulted in an additional increase in the maximum number of shares authorized for issuance. Pursuant to the 2007 Long Term Incentive Compensation Plan, we are authorized to grant up to 5,590,000 shares in the form of stock options (including incentive stock options and nonqualified stock options); restricted stock; bonus stock; stock appreciation rights; and performance awards to employees, consultants, and non-employee directors.

In May 2011, our stockholders approved the adoption of the TETRA Technologies, Inc. 2011 Long Term Incentive Compensation Plan. Pursuant to this plan, we were authorized to grant up to 2,200,000 shares in the form of stock options, restricted stock, bonus stock, stock appreciation rights, and performance awards to employees, consultants, and non-employee directors. On May 3, 2013, shareholders approved the TETRA Technologies, Inc. 2011 Long Term Incentive Compensation Plan which, among other things, increased the number of authorized shares to 5,600,000.

In June 2011, the Compressco Partners, L.P. 2011 Long Term Incentive Plan (Compressco Partners Long Term Incentive Plan) was adopted by the board of directors of Compressco Partners’ general partner. The plan is intended to promote Compressco Partners’ interests by providing to employees, consultants, and directors of its general partner incentive compensation based on common units, to encourage superior performance. The Compressco Partners Long Term Incentive Plan provides for grants of restricted units, phantom units, unit awards and other unit-based awards up to a plan maximum of 1,537,122 common units. The plan is also intended to attract and retain the services of individuals who are essential for the growth and profitability of Compressco Partners and its affiliates.

Grants of Restricted Common Stock

During each of the three years ended December 31, 2013, we granted to certain officers, directors and employees restricted shares, which generally vest over a three to five year period. During 2013, we granted a total of 490,684 restricted shares, having an average market value (equal to the closing price of the common stock on the dates of grant) of $10.37 per share, or an aggregate market value of $5.1 million. During 2012, we granted a total of 523,096 restricted shares, having an average market value (equal to the closing price of the common stock on the dates of grant) of $6.83 per share, or an aggregate market value of $3.6 million. During 2011, we granted a total of 397,907 restricted shares, having an average market value (equal to the quoted closing price of the common stock on the dates of grant) of $12.43 per share, or an aggregate market value of $4.9 million, at the date of grant. The fair value of awards vesting during 2013, 2012, and 2011, was approximately $3.6 million, $4.8 million, and $5.2 million, respectively.

The following is a summary of restricted stock activity for the year ended December 31, 2013:



	Shares		Weighted Average Grant Date Fair Value Per Share
	(In Thousands)
Nonvested restricted shares outstanding at December 31, 2012	621		$	8.49
Shares granted	490		10.37
Shares cancelled	(76	)	9.10
Shares vested	(391	)	9.11
Nonvested restricted shares outstanding at December 31, 2013	644		$	9.47

Grants of Equity Awards by Compressco Partners

During 2012, Compressco Partners granted restricted unit, phantom unit and performance phantom unit awards to certain employees, officers, and directors of its general partner. Awards of restricted units and phantom units generally vest over a three year period. Awards of performance phantom units cliff vest at the end of a performance period and are settled based on achievement of related performance measures over the performance period. Each of the phantom unit and performance phantom unit awards includes distribution equivalent rights that enable the recipient to receive additional units equal in value to the accumulated cash distributions made on the units subject to the award from the date of grant. Accumulated distributions associated with each underlying unit are payable upon settlement of the related phantom unit award (and are forfeited if the related award is forfeited). Restricted units are common units subject to time-based vesting restrictions. Phantom units are notional units that entitle the grantee to receive a common unit upon the vesting of the award.

The following is a summary of Compressco Partners’ equity award activity for the year ended December 31, 2013:



	Units		Weighted Average Grant Date Fair Value Per Unit
	(In Thousands)
Nonvested units outstanding at December 31, 2012	153		$	16.07
Units granted	74		20.28
Units cancelled	(18	)	15.65
Units vested	(76	)	16.43
Nonvested units outstanding at December 31, 2013	133		$	18.25

Grants of Options to Purchase Common Stock

The following is a summary of stock option activity for the year ended December 31, 2013:



	Shares Under Option		Weighted Average Option Price Per Share
	(In Thousands)
Outstanding at December 31, 2012	4,333		$	11.85
Options granted	695		10.38
Options cancelled	(339	)	14.00
Options exercised	(397	)	5.48
Outstanding at December 31, 2013	4,292		$	12.03

Expected to vest	1,000		$	9.47
Exercisable, end of year	3,293		$	12.81
Available for grant, end of year	4,289

The total intrinsic value, or the difference between the exercise price and the market price on the date of exercise, of all options exercised during the three years ended December 31, 2013, 2012, and 2011, was approximately $0.7 million, $0.6 million, and $2.5 million, respectively. The intrinsic value of options outstanding as of December 31, 2013, was $13.7 million, the intrinsic value of options expected to vest as of December 31, 2013 was $2.9 million, and the intrinsic value of options exercisable as of December 31, 2013, was $10.8 million. Cash received from stock options exercised during the three years ended December 31, 2013, 2012, and 2011, was $2.3 million, $0.9 million, and $3.4 million, respectively. Recognized excess tax benefits (adjustments) related to the exercise of stock options during the three years ended December 31, 2013, 2012, and 2011, were $(0.1) million, $(1.7) million, and $1.3 million, respectively.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for each of the three years ended December 31, 2013:



	Year Ended December 31,
	2013	2012	2011
Expected stock price volatility	54% to 74%	74% to 75%	72% to 75%
Expected life of options	4.9 years	4.8 years	4.7 years
Risk free interest rate	0.76% to 1.48%	0.62% to 1.03%	0.87% to 2.24%
Expected dividend yield	—	—	—

The weighted average fair value of options granted during the years ended December 31, 2013, 2012, and 2011 using the Black-Scholes model was $6.00, $4.06, and $7.55 per share, respectively. Total estimated unrecognized compensation cost from unvested stock options and restricted stock as of December 31, 2013, was approximately $8.4 million, which is expected to be recognized over a weighted average period of approximately 1.5 years.

During 2013, 2012, and 2011, we received 40,163, 24,121 and 52,065 shares, respectively, of our common stock related to the vesting of certain employee restricted stock. Such surrendered shares received by us are included in treasury stock. At December 31, 2013, net of options previously exercised pursuant to our various equity compensation plans, we have a maximum of 6,178,178 shares of common stock issuable pursuant to awards previously granted and outstanding and awards authorized to be granted in the future.