Stockholders' Equity and Stock-based Compensation

Stock Option Plans

The Company has adopted stock option plans for eligible employees, directors and consultants, which provide for the granting of options to purchase shares of common stock. The options under these plans generally vest in equal annual installments over a four-year period and have a term of ten years. These options are typically granted with an exercise price per share equal to or greater than the current market price and, upon exercise, are issued from the Company’s unissued common shares. In August 2006, the Compensation Committee (“Committee”) of the Board of Directors (“Board”) of the Company approved fixed pre-established quarterly grant dates for all future grants of options.

At-The-Market Equity Offering Program

On December 22, 2016 the Company announced that it had filed a prospectus supplement under which it may sell up to $20.0 million of its common stock through an "at-the-market" equity offering program (the "ATM Program"). The Company intended to use the net proceeds from sales under the ATM Program for general corporate purposes. The timing of any sales depended on a variety of factors to be determined by the Company. Effective May 2, 2017, the Company terminated and canceled the ATM Program. No shares were sold pursuant to the ATM Program and the Company has no further obligations thereunder.

Stock Repurchase Program

On November 4, 2015, the Company’s board of directors approved a stock repurchase program authorizing a Company stock repurchase, from time to time from November 10, 2015 through November 10, 2017, up to $25 million in shares of the Company’s outstanding common stock. The stock repurchase program was implemented through open market repurchases or privately negotiated transactions, at management’s discretion. The actual timing, number and value of shares repurchased under the program was determined by management at its discretion and depended on a number of factors including the market price of the shares of our common stock and general market and economic conditions, applicable legal requirements and compliance with the terms of the Company’s outstanding indebtedness. The repurchase program did not obligate the Company to acquire any particular amount of common stock and could be modified or suspended at any time and could be terminated prior to completion. As of December 31, 2016, the Company was authorized to repurchase up to $25 million through November 10, 2017 and had repurchased $3 million or 451,792 shares of its common stock under the repurchase program at an average price per share of $6.41. The program expired November 10, 2017.

Transactions under the stock option plans are summarized as follows:



	Option Price per Share	Outstanding		Vested		Available for Grant
January 1, 2015	$37.05-245.85	599,069		358,390		183,468
Granted	34.20	53,328		—		(53,328	)
Vested	—	—		79,779		—
Cancelled/forfeited	37.05-231.45	(91,600	)	(53,864	)	12,358
Restricted stock granted out of option plans	—	—		—		(45,652	)
Restricted stock forfeited or cancelled for employee minimum income taxes and returned to the plans	—	—		—		157
December 31, 2015	34.20-245.85	560,797		384,305		97,003
Increase in shares authorized	—	—		—		1,150,940
Granted	3.10	415,000		—		(415,000	)
Vested	—	—		67,480		—
Cancelled/forfeited	3.10-245.85	(128,162	)	(103,432	)	18,895
Restricted stock granted out of option plans	—	—		—		(259,300	)
Restricted stock forfeited or cancelled for employee minimum income taxes and returned to the plans	—	—		—		7,182
December 31, 2016	3.10-245.85	847,635		348,353		599,720
Granted	13.15	156,000		—		(156,000	)
Vested	—	—		149,537		—
Exercised	3.10	(15,000	)	(15,000	)	—
Cancelled/forfeited	3.10-245.85	(98,294	)	(47,612	)	82,118
Restricted stock granted out of option plans	—	—		—		(59,500	)
Restricted stock forfeited or cancelled for employee minimum income taxes and returned to the plans	—	—		—		22,065
December 31, 2017	$3.10-$245.85	890,341		435,278		488,403

Stock options outstanding at December 31, 2017 are summarized as follows:



Option Price per Share	Outstanding	Weighted Average Exercise Price of Outstanding Options		Weighted Average Remaining Contract Life	Vested	Weighted Average Exercise Price of Vested Options
$3.10 - $57.90	641,030	$	15.17	7.1 years	202,312	$	29.89
$61.05 - $71.85	76,963	$	62.14	5.8 years	60,618	$	62.43
$81.60 - $99.60	115,742	$	88.79	4.4 years	115,742	$	88.79
$106.05 - $245.85	56,606	$	131.16	2.7 years	56,606	$	131.16
Totals	890,341	$	36.17	6.4 years	435,278	$	63.25

Additional information related to the Company’s stock options follows:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value (000’s)
Total outstanding at January 1, 2017	847,635		$	46.21			6.1 years	$	1,175
Options granted	156,000		$	13.15	$	8.10
Options exercised	(15,000	)	$	3.10
Options cancelled	(50,682	)	$	7.32
Options forfeited	(47,612	)	$	180.52
Total outstanding at December 31, 2017	890,341		$	36.17			6.4 years	$	6,774
Options exercisable and vested at December 31, 2017	435,278		$	63.25			5.4 years	$	1,436

The total intrinsic value of options exercised during 2017, 2016 and 2015 was less than $0.1 million, $0.1 million and $0.1 million, respectively. Cash received from option exercises under all share-based payment arrangements for 2017 was less than $0.1 million and during 2016 and 2015 there was no cash received. The weighted average grant date fair value for stock option awards granted during 2017, 2016 and 2015 was $8.10, $2.04 and $16.65 per share, respectively.

Restricted Stock and Restricted Stock Unit Plans

The Company has issued restricted stock and restricted stock units under the Company’s 2013 Long-Term Incentive Plan and other applicable plans. Restricted stock units are awards that obligate the Company to issue a specific number of shares of common stock in the future if continued service vesting requirements are met. Non-forfeitable ownership of the common stock will vest over a period as determined by the Company in its sole discretion, generally in equal annual installments over a three-year period. Shares of restricted stock awarded may not be sold, assigned, transferred, pledged or otherwise encumbered by the grantee during the vesting period.

The status of the Company’s restricted stock and restricted stock unit awards for 2017 follows:



	Number of Shares/Units
Total nonvested at January 1, 2017	285,308
Granted	59,500
Vested	(115,577	)
Forfeited	(27,529	)
Total nonvested at December 31, 2017	201,702

At December 31, 2017, the intrinsic value of restricted stock and restricted stock unit awards was approximately $4.0 million. The weighted average grant date fair value for restricted stock and restricted stock unit awards granted during 2017, 2016 and 2015 was $11.36, $3.81 and $34.20 per share, respectively. The total fair value of shares vested during 2017, 2016 and 2015 was $0.6 million, $0.2 million and $0.6 million, respectively.

Employee Stock Purchase Plan

Effective February, 2016, the Company suspended its Employee Stock Purchase Plan (“ESPP”) that had been in place since June 2010. The ESPP allowed all eligible employees to authorize payroll deductions at a rate of 1% to 10% of base compensation (or a fixed amount per pay period) for the purchase of the Company’s common stock. Each participant was limited to purchase no more than 33 shares per offering period or 66 shares annually. Additionally, no participant could purchase shares in any calendar year that exceeded $10,000 in fair market value based on the fair market value of the stock on the offering commencement date. The purchase price of the common stock was the lesser of 85% of the closing price on the first day of the applicable offering period (or most recently preceding trading day) or 85% of the closing price on the last day of the offering period (or most recently preceding trading day). Each offering period was six months and commenced on February 1 and August 1 of each year. The ESPP was considered a compensatory plan under ASC 718, and the Company recorded compensation expense of approximately $0.1 million and $0.2 million during 2016 and 2015, respectively. The expense represents the estimated fair value of the look-back purchase option. The fair value was determined using the Black-Scholes option pricing model and was recognized over the purchase period.

Stock Appreciation Rights Plan

The Company has adopted a stock appreciation rights plan which provides for the award of stock appreciation rights (“SARs”) to directors and selected key employees and consultants. The awards under this plan are subject to the terms and conditions set forth in agreements between the Company and the holders. The exercise price per SAR is not to be less than one hundred percent of the fair market value of a share of common stock on the date of grant of the SAR. The term of each SAR shall not exceed ten years from the grant date. Upon exercise of a SAR, the holder shall receive a cash payment in an amount equal to the spread specified in the SAR agreement for which the SAR is being exercised. In no event will any shares of common stock be issued, transferred or otherwise distributed under the plan.

On March 1, 2016, the Company issued 1,210,000 Stock Appreciation Rights (“SARs”) awards to 15 selected key employees with an exercise price of $3.10. None of these SARs were awarded to non-employee directors. The vesting of these SARs is achieved through both a market condition and a service condition. The market condition is achieved, in part or in full, in the event that during the four-year period beginning on the date of grant the 20-day trailing volume-weighted average price of a share of common stock is (i) greater than 120% of the exercise price for the first 1/3 of the awards, (ii) greater than 125% of the exercise price for the second 1/3 of the awards and (iii) greater than 130% of the exercise price for the final 1/3 of the awards. The exercise condition restricts the ability of the holders to exercise awards until certain service milestones have been reached such that (i) no more than 1/3 of the awards may be exercised, if vested, on and after the first anniversary of the date of grant, (ii) no more than 2/3 of the awards may be exercised, if vested, on and after the second anniversary of the date of grant and (iii) all of the awards may be exercised, if vested, on and after the third anniversary of the date of grant.

On December 13, 2017, the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of the Company authorized and approved the acceleration of the vesting date to December 13, 2017 for the second tranche of the Company’s outstanding SARs, which were issued on March 1, 2016. The second tranche of the SARs awards was originally scheduled to vest on March 1, 2018. The vesting of the second tranche of the SARs awards was accelerated to facilitate the exercise by the SARs participants, if they so choose, of a larger portion of the SARs awards prior to year-end, as such an exercise would minimize the potential cash flow impact of any such exercise in the first quarter of 2018, would mitigate the ongoing mark to market accounting requirements for cash-settled SARs, and would afford the SARs participants liquidity to invest in common stock of the Company to further align their interests with those of the Company’s stockholders. Participants exercised 663,330 SARs awards at a $9.95 gain per share.

Pursuant to ASC 718, the SARs are considered liability awards and as such, these amounts are accrued in the liability section of the balance sheet. The Company calculated the fair value of each SAR award as of December 31, 2017 using a Monte Carlo simulation model. The following assumptions were used:



	December 31, 2017
Risk-free interest rates	2.36%
Expected lives (in years)	1.25
Expected dividend yield	—%
Expected volatility	77.8%

On March 1, 2015, the Company issued 207,207 SAR awards to 16 selected key employees with an exercise price of $34.20. None of these SARs were awarded to non-employee directors. The SAR awards number and exercise price have been retroactively adjusted to reflect the one-for-fifteen reverse stock split completed on February 4, 2016. The vesting of these SARs is achieved through both a market condition and a service condition. The market condition is achieved, in part or in full, in the event that during the four-year period beginning on the date of grant the 20-day trailing volume-weighted average price of a share of common stock is (i) greater than 120% of the exercise price for the first 1/3 of the awards, (ii) greater than 125% of the exercise price for the second 1/3 of the awards and (iii) greater than 130% of the exercise price for the final 1/3 of the awards. The exercise condition restricts the ability of the holders to exercise awards until certain service milestones have been reached such that (i) no more than 1/3 of the awards may be exercised, if vested, on and after the first anniversary of the date of grant, (ii) no more than 2/3 of the awards may be exercised, if vested, on and after the second anniversary of the date of grant and (iii) all of the awards may be exercised, if vested, on and after the third anniversary of the date of grant.

Pursuant to ASC 718, “Compensation – Stock Compensation,” the SARs are considered liability awards and as such, these amounts are accrued in the liability section of the balance sheet. The Company calculated the fair value of each SAR award on the date of grant using a Monte Carlo simulation model. The following assumptions were used:



	December 31, 2015
Risk-free interest rates	2.19%
Expected lives (in years)	3.3
Expected dividend yield	—%
Expected volatility	69.38%

Additionally, as of December 31, 2017, the Company had 9,333 SAR awards outstanding to one individual with an exercise price of $45.00.

The Company recorded $6.6 million of share-based compensation expense during 2017, $0.5 million during 2016 and less than $0.1 million in 2015, related to employee SARs.

Additional information related to the Company's SARs follows:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value (000’s)
Total outstanding at January 1, 2015	9,333		$	45.00			2.9 years	$	—
SARs granted	207,199		$	34.20	$	9.94
Total outstanding at December 31, 2015	216,532		$	34.67
SARs granted	1,210,000		$	3.10	$	17.55
SARs cancelled	(10,399	)	$	34.20
Total outstanding at December 31, 2016	1,416,133		$	7.70
SARs exercised	(713,330	)	$	3.10
SARs cancelled	(136,939	)	$	7.70
Total outstanding at December 31, 2017	565,864		$	13.49			7.2 years	$	6,327
SARs exercisable and vested at December 31, 2017	44,332		$	11.92			7.2 years	$	583

Valuation Assumptions

The Company calculated the fair value of each stock option on the date of grant using the Black-Scholes option pricing model. The following assumptions were used for each respective period:



	Years Ended December 31,
	2017	2016	2015
Risk-free interest rates	2.14%	1.3%	1.38%
Expected lives (in years)	5.0	5.5	4.5
Expected dividend yield	—%	—%	—%
Expected volatility	74.41%	78.76%	59.32%

The computation of expected volatility during 2017, 2016 and 2015 was based on an equally weighted combination of historical volatility and market-based implied volatility. Historical volatility was calculated from historical data for a period of time approximately equal to the expected term of the option award, starting from the date of grant. Market-based implied volatility was derived from traded options on the Company’s common stock having a term of six months. The Company’s computation of expected life in 2017, 2016 and 2015 was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The risk-free interest rate assumption is based upon the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

Stock-based Compensation Expense

The following tables summarizes stock-based compensation expense for the years ended December 31, 2017, 2016 and 2015 as follows (in thousands):



	Years Ended December 31,
	2017			2016			2015
Stock-based compensation expense	$	2,552		$	3,267		$	5,486
Tax benefit related thereto	(862		)	(1,168		)	(1,826		)
Stock-based compensation expense, net of tax	$	1,690		$	2,099		$	3,660



	Years Ended December 31,
	2017			2016			2015
Stock appreciation rights expense	$	6,611		$	547		$	(54	)
Tax benefit related thereto	(2,314		)	(191		)	19
Stock appreciation rights expense, net of tax	$	4,297		$	356		$	(35	)

Equity Investment Program

To encourage the Company’s executive officers and other key employees to purchase common stock of the Company and further align their interests with those of the Company’s stockholders, the Board authorized and approved an equity investment program (the “Program”) pursuant to which certain of the executive officers and other key employees of the Company are permitted, but not obligated, to purchase unregistered shares of common stock of the Company directly from the Company at market prices. In connection with any such purchases, the Committee authorized and approved, on December 13, 2017, a grant by the Company to such purchasing executive officers and key employees of a certain number of shares of restricted stock. On December 13, 2017, the Committee also authorized and approved to grant to certain executive officers and key employees a certain number of shares of restricted stock in connection with certain purchases of shares of the Company’s common stock in the open market.

Specifically, for each five (5) shares directly purchased from the Company or in the open market during a defined period (to expire no later than December 31, 2017), the Company will issue one (1) share of restricted stock, subject to certain limitations as to the total number of restricted shares to be issued by the Company. Provided that an executive officer or key employee remains employed with the Company until March 1, 2018, the restricted stock will be granted as of March 1, 2018, will vest in full on the date that is 90 days after the grant date and will be subject to the other terms and conditions of the Company’s form of restricted stock agreement and the Company’s 2013 Long-Term Incentive Plan. The Company sold, in a private placement under Section 4(a)(2) of the Securities Act of 1933, as amended on December 14, 2017, 120,567 shares of Company common stock at $13.05 per share (the closing price of the Company’s common stock on the NYSE on such date) and executive officers and other key employees purchased 219,346 shares in the open market.