Stock-Based Compensation

Non Vested Share Awards

On July 15, 2013, the Company granted share awards and stock options to an executive officer of the Company outside of the 2006 Stock Plan as an inducement material to the executive’s acceptance of employment. The share awards total 3,125 authorized but previously unissued shares of the Company’s common stock with a grant date price of $7.28. The shares vest based on continued employment of the executive, and the restrictions lapse in 33.3% increments on each of the first, second and third anniversaries of issuance. There were 2,084 and 3,125 unvested awards as of June 30, 2015 and 2014, respectively. The stock options entitle the executive to purchase 3,125 authorized but previously unissued shares of the Company’s common stock at an exercise price of $8.08 per share. The stock options have a four-year term and vest in equal one-third increments on each of the first, second and third anniversaries of issuance provided that the executive is employed by the Company on each such vesting date. The stock options and share awards will become fully vested in the event of a change of control of the company or upon the executive’s death or disability.

On March 2, 2015, the Company granted a warrant to an executive officer of the Company outside of the 2006 Stock Plan as an inducement material to the executive’s acceptance of employment. The warrant entitles the executive to purchase a total of 657,894 authorized but previously unissued shares of the Company’s common stock with a grant date price at (i) $1.52 per share (the adjusted closing bid price of the common stock on NASDAQ on March 2, 2015) if at least one-third but not more than one-half of the shares are purchased on or prior to March 17, 2015, and (ii) $1.92 per share for shares purchased after. The warrant has a three-year term. The executive officer exercised the warrant in part to purchase 227,894 shares on March 11, 2015 at the price of $1.52 per share. The warrant remains exercisable for 430,000 shares at an exercise price of $1.92 per share. As of June 30, 2015, the total unrecognized compensation cost related to the warrants awarded on March 2, 2015 was $263,000, which is expected to be recognized over the next 32 months.

The Company records compensation expense for warrants based on the estimated fair value of the warrants on the date of grant using the Black-Scholes option-pricing model. The Company uses historical data among other factors to estimate the expected price volatility, the expected warrant life, the dividend rate and expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield in effect at the time of grant for the estimated life of the warrant. The following table summarizes the estimates used in the Black-Scholes option-pricing model related to the warrant grant and exercise prices of $1.52 and $1.92 grants:


	$1.52 Grant		$1.92 Grant
	March 2, 2015		March 2, 2015
Volatility	53.10	%	78.60	%
Expected dividend yield	0.00	%	0.00	%
Expected term (in days/years)	15	days	3.00	years
Risk free interest rate	0.02	%	1.06	%

On March 2, 2015, the Company granted an equity award of 5,263,152 long-term incentive plan units (“LTIP Units”) to an executive officer, representing profit interests in the Company’s operating partnership. The LTIP Units are earned on one-third increments upon the Company’s common stock achieving price per share milestones of $3.50, $4.50 and $5.50 respectively. Earned LTIP Units vest in March 2018, or earlier upon a change in control of the Company, and can be redeemed at the rate of one share of common stock for each eight earned LTIP Units for up to 657,894 of common shares.

As of June 30, 2015, the total unrecognized compensation cost related to the LTIP Units was $455,000, which is expected to be recognized over the next 32 months.

The Company records compensation expense for the LTIP based on the estimated fair value of the LTIP on the date of grant using the Monte Carlo simulation model. The Company uses historical data among other factors to estimate the expected price volatility, the expected LTIP life, volume weighted average price and expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield in effect at the time of grant for the estimated life of the LTIP. The following table summarizes the estimates used in the Monte Carlo option-pricing model related to the LTIP grant:


	Grant Date
	March 2, 2015
Volatility		75.5	%
Weighted Average Price	$	1.53
Expected term (in years)		3.0
Risk free interest rate		1.06	%

Investment Committee Share Compensation

The independent directors serving as members of the Investment Committee receive their monthly Investment Committee fees in the form of shares of the Company’s common stock issued quarterly under the 2006 Stock Plan, priced as the average of the closing price of the stock for the first 20 trading days for the calendar year. The number of shares issued to the committee members for the three months ended June 30, 2015 and 2014 were 3,950 and 2,988, respectively, and 6,938 and 3,735 shares were issued for the six months ended June 30, 2015 and 2014, respectively.

Share-Based Compensation Expense

The expense recognized in the condensed consolidated financial statements for the three months ended June 30, 2015 and 2014 for share-based compensation related to employees and directors was approximately $74,000 and $11,000, respectively. The expense recognized for the six months ended June 30, 2015 and 2014 was approximately $123,000 and $20,000, respectively.