Stock-Based Compensation

The Company’s certificate of incorporation provides for 105,000,000 shares of capital stock, consisting of 5,000,000 shares of Preferred Stock, par value $0.001 per share (“Preferred Stock”) and 100,000,000 shares of Common Stock, par value $0.001 per share (“Common Stock”).

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. The Company has approved an amendment to the 2006 Plan, subject to the receipt of shareholder approval at the Company's upcoming annual meeting, to increase the number of shares available for issuance thereunder from 8,500,000 to 11,500,000.

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 March 31, 2020, there were 1,850,684 shares available to be issued under the 2006 Plan.

At March 31, 2020, the Company had 10,315 stock options outstanding and 1,970,768 shares of restricted stock outstanding under the 2006 Plan.

Stock Option Awards

The Company did not grant any stock options during the three months ended March 31, 2020. There was no compensation expense related to stock options outstanding for both the three months ended March 31, 2020 and 2019.

Restricted Stock Awards

During the three months ended March 31, 2020, the Company issued 38,095 shares of restricted stock to employees under the 2006 Plan with a per unit grant-date fair value of $2.10. These shares will vest in three equal installments on each of the first three anniversaries of the date of grant.

During the three months ended March 31, 2020, the Company issued 2,209 shares of restricted stock to employees under the 2018 Management Stock Purchase Plan (as amended, the “MSPP”) with a per unit grant-date fair value of $1.05. These awards will vest on the second anniversary of the award date.

The total compensation expense, classified within Payroll and related on the condensed consolidated statements of operations, related to restricted stock was $816 for the three months ended March 31, 2020, compared to $805 for the comparable prior-year period. The Company adjusted the forfeiture estimates to reflect actual forfeitures. The forfeiture adjustment reduced stock-based compensation expense by $139 and $7 for the three months ended March 31, 2020, and 2019 respectively.

As of March 31, 2020, a total of $2,938 in unrecognized compensation expense related to restricted stock awards is expected to be recognized over a weighted-average period of 2.3 years.

Stock Grants

The Company issued 114,285 shares of common stock to members of the Company’s Board of Directors in respect of their annual retainer on February 1, 2020. The fair value of the shares issued was $2.10 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 $239 and $320 for each of the three months ended March 31, 2020 and 2019, respectively.

Management Stock Purchase Plan

The Company first adopted the MSPP in January 2018, and amended and restated it in March 2018. 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.

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 Amendment No. 1 to the MSPP, approved at a Board of Directors meeting held on May 15, 2019. Subsequently, on July 14, 2020, the Board of Directors approved Amendment No. 2 to the MSPP, pursuant to which certain definitions were amended in order to provide for accelerated matching and vesting entitlements for participants in the MSPP upon a change of control. If the participant holds the MSPP Shares for the requisite period specified in the Plan (two years from the purchase date or until a change of control) 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 March 31, 2020, there were 740,642 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 $0 and $7 for the three months ended March 31, 2020 and 2019, respectively.

The fair value of the purchase rights granted under the ESPP for the offering period beginning March 16, 2020 was $0.28 per share. It was estimated by applying the Black-Scholes option-pricing model to the purchase period in the offering period using the following assumptions:



	March 16, 2020
Grant price	$	0.74
Expected term	3 months
Expected volatility	112.98		%
Risk-free interest rate	0.24		%
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.