Share-Based Compensation

9 Months Ended

Sep. 30, 2011

Share-Based Compensation [Abstract]

Share-Based Compensation

9. Share-Based Compensation

     We recognize compensation expense for all share-based awards made to employees and directors based on estimated fair values on the date of grant.

     Stock Plans – Historically, we have granted stock options and restricted stock awards to employees and directors under various stock plans. We currently maintain two stock plans. Under our 1998 Stock Incentive Plan, as amended (the "1998 Stock Plan"), we granted incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, performance awards and other stock-based awards to our officers, directors, employees, consultants and advisors for shares of our common stock. Stock options granted under the 1998 Stock Plan contained exercise prices not less than the fair market value of our common stock on the date of grant, and had a term of 10 years from the date of grant. Nonqualified stock option grants to our directors under the 1998 Stock Plan generally vested over periods up to two years. Qualified stock option grants to our employees under the 1998 Stock Plan generally vested over periods up to five years. The 1998 Stock Plan expired on June 12, 2008, and no additional awards may be made under the 1998 Stock Plan, although awards granted prior to such date will remain outstanding and subject to the terms and conditions of those awards.

     In March 2008, our board of directors adopted the PowerSecure International, Inc. 2008 Stock Incentive Plan (the "2008 Stock Plan"), which was approved by our stockholders at the Annual Meeting of Stockholders held on June 9, 2008. The 2008 Stock Plan authorizes our board of directors to grant incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, performance awards and other stock-based awards to our officers, directors, employees, consultants and advisors for up to an aggregate of 600,000 shares of our common stock. Stock options granted under the 2008 Stock Plan must contain exercise prices not less than the fair market value of our common stock on the date of grant, and must contain a term not in excess of 10 years from the date of grant. The 2008 Stock Plan replaced our 1998 Stock Plan.

     Stock Options – Net income for the three months ended September 30, 2011 and 2010 includes $59 and $85, respectively, of pre-tax compensation costs related to outstanding stock options. Net income for the nine months ended September 30, 2011 and 2010 includes $205 and $292, respectively, of pre-tax compensation costs related to outstanding stock options. All of the stock option compensation expense is included in general and administrative expenses in the accompanying consolidated statements of operations.

A summary of option activity for the nine months ended September 30, 2011 is as follows:

					Weighted
					Average
				Weighted	Remaining	Aggregate
				Average	Contractual	Intrinsic
	Shares			Exercise Price	Term (years)	Value
Balance, December 31, 2010	1,247		$	5.98
Granted	20			5.45
Exercised	(291	)		1.98
Expired	(33	)		13.17
Forfeited	(31	)		6.29
Balance, September 30, 2011	912		$	6.98	5.26	n/m	(1	)
Exercisable, September 30, 2011	712		$	7.27	4.50	n/m	(1	)

(1) The exercise price of option exceeds the fair value of underlying stock.

A summary of option activity for the nine months ended September 30, 2010 is as follows:

					Weighted
					Average
				Weighted	Remaining		Aggregate
				Average	Contractual		Intrinsic
	Shares			Exercise Price	Term (years)		Value
Balance, December 31, 2009	1,627		$	5.18
Granted	71			9.64
Exercised	(434	)		3.35
Expired	(5	)		17.38
Forfeited	(13	)		9.55
Balance, September 30, 2010	1,246		$	5.97	5.14	$	3.29
Exercisable, September 30, 2010	945		$	5.87	4.15	$	3.39

     The weighted average grant date fair value of the options granted during the nine months ended September 30, 2011 and 2010 was $2.19 and $4.31, respectively. In each case, the fair value was measured using the Black-Scholes valuation model with the following assumptions:

		September 30,
		2011			2010
Expected stock price volatilility		44.8	%		49.2	%
Risk Free interest rate		1.48	%		2.02	%
Annual dividends	$	-		$	-
Expected life - employee options		5 years			5 years
Expected life - director options		n/a			n/a

     The fair value of stock option grants are amortized to expense over their respective service periods using the straight-line method and assuming a forfeiture rate of 5%. As of September 30, 2011 and December 31, 2010, there was $465 and $731, respectively, of total unrecognized compensation costs related to stock options. These costs at September 30, 2011 are expected to be recognized over a

weighted average period of approximately 1.8 years.

     During the three months ended September 30, 2011 and 2010, the total intrinsic value of stock options exercised was $0 and $2,409, respectively. Cash received, net of shares tendered, from stock option exercises for the three months ended September 30, 2011 and 2010 was $0 and $1,203, respectively. The total grant date fair value of stock options vested during the three months ended September 30, 2011 and 2010 was $62 and $52, respectively.

     During the nine months ended September 30, 2011 and 2010, the total intrinsic value of stock options exercised was $1,642 and $2,760, respectively. Cash received, net of shares tendered, from stock option exercises for the nine months ended September 30, 2011 and 2010 was $144 and $1,453, respectively. The total grant date fair value of stock options vested during the nine months ended September 30, 2011 and 2010 was $255 and $426, respectively.

     Restricted Stock Awards – Net income for the three months ended September 30, 2011 and 2010 includes $391 and $197, respectively, of pre-tax compensation costs related to outstanding restricted stock awards granted to directors, certain officers and our employees. Net income for the nine months ended September 30, 2011 and 2010 includes $1,171 and $978, respectively, of pre-tax compensation costs related to outstanding restricted stock awards granted to directors, certain officers and our employees. All of the restricted stock award compensation expense during the three and nine months ended September 30, 2011 and 2010 is included in general and administrative expenses in the accompanying consolidated statements of operations.

     A summary of restricted stock award activity for the nine months ended September 30, 2011 is as follows:

				Weighted
	Unvested			Average
	Restricted			Grant Date
	Shares			Fair Value
Balance, December 31, 2010	478		$	11.00
Granted	30			6.77
Vested	(87	)		8.02
Forfeited	-			-
Balance, September 30, 2011	421		$	11.31

     A summary of restricted stock award activity for the nine months ended September 30, 2010 is as follows:

				Weighted
	Unvested			Average
	Restricted			Grant Date
	Shares			Fair Value
Balance, December 31, 2009	561		$	10.36
Granted	21			9.56
Vested	(95	)		7.27
Forfeited	-			-
Balance, September 30, 2010	487		$	10.93

     Restricted shares are subject to forfeiture and cannot be sold or otherwise transferred until they vest. If the holder of the restricted shares leaves us before the restricted shares vest, other than due to termination by us without cause, then any unvested restricted shares will be forfeited and returned to us. The restricted shares granted to directors vest in equal amounts over a period of one or three years, depending on the nature of the grant. The restricted shares granted to employees other than officers vest in equal annual amounts over five years. A total of 322,500 unvested restricted shares issued to officers cliff vest in 2012, while the remaining 64,500 unvested performance-based restricted shares issued to officers vest in 2012, assuming certain performance conditions are achieved. All restricted and unvested shares will automatically vest upon a change in control.

     The fair value of employee and director restricted shares along with the cliff vesting restricted shares granted to officers are being amortized on a straight-line basis over the vesting period. The fair value of the performance-based restricted shares is expensed as the achievement of the performance criteria becomes probable and the related service period conditions are met. At September 30, 2011, the balance of unrecognized compensation cost related to unvested restricted shares was $1,028, which, assuming all future performance criteria will be met, we expect will be recognized over a weighted average period of approximately 0.8 years.