Stock and Stock Options

Preferred Stock Purchase Rights

On June 8, 2000, the Company’s Board of Directors declared a dividend distribution of one preferred stock purchase right (a “Right”) for each share of the Company’s common stock outstanding on July 6, 2000 and each share of common stock issued thereafter. Each Right entitles the registered shareholders to purchase from the Company one one-thousandth of a share of preferred stock at an exercise price of $65, subject to adjustment. The Rights are not currently exercisable but would become exercisable if certain events occurred relating to a person or group acquiring or attempting to acquire 20 percent or more of the Company’s outstanding shares of common stock. The Rights Agreement expires 30 days after the Company’s 2021 Annual Meeting unless continuation of the Rights Agreement is approved by the stockholders of the Company at the 2021 Annual Meeting.

Stock Compensation Plans

The Company has an Employee Stock and Incentive Plan (the “Employee Plan”), as amended and restated, under which an aggregate of 6,942,340 shares of common stock have been authorized for issuance. The Employee Plan provides for the granting of incentive awards to directors, executive management, key employees and outside consultants of the Company in a variety of forms of equity-based incentive compensation, such as the award of an option, stock appreciation right, restricted stock award, restricted stock unit, deferred stock unit, among other stock-based awards. The Company has historically issued service-based restricted stock and unit awards, performance-based and market-based stock and unit awards (collectively “Restricted Shares”) and stock options. The Company uses newly issued shares of common stock to satisfy awards under the Plan.

The Company issues Restricted Shares to the Company’s executives and senior management, pursuant to which such employees are eligible to receive future grants of shares of the Company’s stock subject to various vesting and/or performance criteria. The weighted average fair value per share of Restricted Shares granted during the years ended December 31, 2019 and 2018 was $3.13 and $8.53, respectively. The total fair value of Restricted Shares vested under the Employee Plans was $1.3 million and $2.0 million during the years ended December 31, 2019 and 2018, respectively.

The underlying stock certificates for the Restricted Shares that vested December 31, 2019 are expected to be issued during the quarter ending March 31, 2020. The underlying stock certificates for the Restricted Shares that vested December 31, 2018 were issued during the quarter ended June 30, 2019.

Total stock-based compensation expense was $3.0 million and $4.0 million for the years ended December 31, 2019 and 2018, respectively, and was included as a component of selling, general and administrative expenses in the consolidated statements of operations. As of December 31, 2019, there is $1.7 million of total unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Plan, which is expected to be recognized over a remaining weighted average period of approximately 2.6 years. This expected cost does not include the impact of any future stock-based compensation awards.

As of December 31, 2019, there were 639,685 shares available for future grants under the Plan. Each stock option or stock appreciation right award granted reduces the total shares available for grant by one share, while each award granted other than in the form of a stock option or stock appreciation right reduces the shares available for grant by 1.22 shares.

Stock Options

The rights to purchase shares under employee stock option agreements issued under the Plan typically vest over a three year period, one-twelfth each quarter. Stock options must be exercised within 10 years from the date of grant. Stock options are generally issued such that the exercise price is equal to the market value of the Company’s common stock at the date of grant.

The following tables summarize stock option activity under the Plans:



	Shares		Price Per Share	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in millions)
Outstanding, December 31, 2018	1,264,394		$1.46 - $14.66	$	7.41
Granted	323,500		$3.31 - $6.26	$	4.84
Exercised	(9,500	)	$1.46	$	1.46
Canceled	(199,844	)	$1.46 - $14.66	$	8.77
Outstanding, December 31, 2019	1,378,550		$2.39 - $14.66	$	6.65
Exercisable, December 31, 2019	907,667		$2.39 - $14.66	$	7.21	4.4	$	—
Exercisable and expected to vest, December 31, 2019	1,314,500		$2.39 - $14.66	$	6.69	5.9	$	—

The weighted average fair value per share of options granted during the years ended December 31, 2019 and 2018 was $1.33 and $2.96, respectively. The total intrinsic value of options exercised under the Stock Option Plans was $0.03 million and $0.3 million during the years ended December 31, 2019 and 2018, 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 grants of options under the Plans:



	Year Ended December 31,
	2019	2018
Expected dividend yield	—	—
Expected stock price volatility	40% - 43%	40% - 45%
Risk-free interest rate	1.6% - 2.6%	2.6% - 3.1%
Expected life of options (years)	6	6

The Black-Scholes option valuation model requires the input of highly subjective assumptions, including the expected life of the stock-based award and stock-price volatility. The assumptions listed above represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if other assumptions had been used, the Company’s recorded stock-based compensation expense could have been different. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If the Company’s actual forfeiture rate is materially different from its estimate, the share-based compensation expense could be materially different. The Company calculates the expected stock price volatility using the Company’s historical stock price during the expected term immediately preceding a stock option grant date. The Company has not paid dividends in the past and does not anticipate paying dividends in the future. The Company uses the risk-free interest rates of United States Treasury securities for a comparable term as the expected life of a stock option. The expected life of options has been computed using the simplified method, which the Company uses as it does not believe it has established a consistent exercise pattern to accurately estimate the expected term of stock options.

Service-Based Restricted Stock and Unit Awards

The Company’s service-based restricted stock and unit awards are valued at the quoted market price of the Company’s common stock as of the date of grant and vest over a range of two to four years. Shares that do not vest on a scheduled vesting date due to a failure to satisfy vesting or performance criteria are forfeited and do not vest in future periods.

The following table summarizes the service-based restricted stock and unit award activity for the year ended December 31, 2019:



	Shares		Weighted Average Grant Date Fair Value per Share
Unvested restricted stock at December 31, 2018	130,284		$	8.13
Granted	143,719		$	3.98
Vested	(126,786	)	$	6.43
Canceled	(18,075	)	$	7.87
Unvested restricted stock at December 31, 2019	129,142		$	5.22

Performance-Based Restricted Stock and Unit Awards

Pursuant to the Employee Plan, the Company grants restricted stock and unit awards that vest upon reaching certain performance targets and individual performance goals, which historically have been based on the Company’s financial performance, Company operating income and other financial metrics for the current and/or future years. Such awards generally are subject to annual vesting from three to four years based upon continued employment and the achievement of the defined performance criteria. If the target set forth in the award agreement is not met, none of the related shares will vest and any compensation expense previously recognized will be reversed. The actual number of shares that will ultimately vest is dependent upon achieving the performance condition or other conditions set forth in the award agreement. The Company recognizes stock-based compensation expense related to performance awards based upon our determination of the likelihood of achieving the performance target or targets at each reporting date, net of estimated forfeitures.

The following table summarizes the performance-based restricted stock and unit award activity for the year ended December 31, 2019:



	Shares		Weighted Average Grant Date Fair Value per Share
Unvested restricted stock at December 31, 2018	53,835		$	8.28
Granted	169,781		$	2.41
Vested	(135,803	)	$	3.50
Canceled	(73,482	)	$	3.39
Unvested restricted stock at December 31, 2019	14,331		$	8.95

Market-Based Restricted Stock and Unit Awards

Pursuant to the Employee Plan, the Company grants restricted stock and unit awards that vest upon the achievement of certain defined total stockholder return targets using the companies in the Russell Micro Cap Index as a comparative group for current and/or future years. Such awards generally are subject to annual vesting from three to four years based upon continued employment and the achievement of the defined performance criteria. The actual number of shares that will ultimately vest is dependent upon achieving the performance condition or other conditions set forth in the award agreement. Shares that do not vest on a scheduled vesting date due to a failure to satisfy vesting criteria are forfeited and do not vest in future periods. The Company reverses previously recognized compensation cost for market-based restricted stock unit awards only if the requisite service is not rendered.

The following table summarized the market-based restricted stock and unit award activity for the year ended December 31, 2019:



	Shares		Weighted Average Grant Date Fair Value per Share
Unvested restricted stock at December 31, 2018	272,208		$	6.16
Granted	—		$	—
Vested	—		$	—
Canceled	(195,121	)	$	5.99
Unvested restricted stock at December 31, 2019	77,087		$	6.59

The fair value of each market-based restricted stock and unit award grant is estimated on the date of grant using a Monte-Carlo simulation with the following assumptions used for grants under the Plans:



	Year Ended December 31,
	2018
Expected dividend yield	—
Expected stock price volatility	41.6%
Risk-free interest rate	2.4%
Expected term (years)	3
Weighted average grant date fair value	$8.85

There were no market-based grants under the Plans in 2019.

Stock Units

Each non-employee Director of the Company’s Board of Directors (the “Board”) receives a quarterly retainer (the “Retainer”), payable on or about the first day of each quarter, through the issuance of an equity-based award (an “Award”) under the Employee Plan in the form of a Deferred Stock Unit (a “DSU”). During 2019, the Retainer was $30,000 and during 2018, the Retainer was $25,000 for the first quarterly payment and $30,000 for each subsequent quarterly payment. The number of DSUs is determined by dividing the Retainer by the immediately preceding closing price of the Common Stock on the grant date. Each DSU represents the right to receive an equal number of shares of Common Stock upon the retirement, resignation or termination of service from the Board.

The following table summarizes the DSU activity for the year ended December 31, 2019:



	Shares	Weighted Average Grant Date Fair Value per Share
Unvested deferred stock at December 31, 2018	251,996	$	9.33
Granted	199,993	$	3.75
Vested	—	$	—
Unvested deferred stock at December 31, 2019	451,989	$	6.86