Stockholders' Equity

Holders of common stock are entitled to one vote for each share on all matters voted upon by the stockholders, including the election of directors and do not have cumulative voting rights. Subject to the rights of holders of any then outstanding shares of preferred stock, common stockholders are entitled to receive ratably any dividends that may be declared by the Board of Directors out of funds legally available for that purpose. Holders of common stock are entitled to share ratably in net assets upon any dissolution or liquidation after payment of provision for all liabilities and any preferential liquidation rights of our preferred stock then outstanding. Common stock shares are not subject to any redemption provisions and are not convertible into any other shares of capital stock. The rights, preferences and privileges of holders of common stock are subject to those of the holders of any shares of preferred stock that may be issued in the future.

The Board of Directors may authorize the issuance of one or more classes or series of preferred stock without stockholder approval and may establish the voting powers, designations, preferences and rights and restrictions of such shares. No preferred shares have been issued.

Treasury and Forfeited Shares

The Company accounts for the repurchase of treasury shares under the cost method. When shares are repurchased, cash is paid and the treasury stock account is debited for the price paid. Under the cost method, retirement of treasury stock would result in a debit to the common stock account for the original par value, a debit to additional paid-in capital for the excess between the par value and the original sales price, a debit to retained earnings for any excess amounts paid above the original sales price and a credit to the treasury stock account for the price paid.

Forfeited shares are generally the result of an employee’s separation from the Company. Forfeitures of our service-, performance- and market-based share awards are discussed below. Such stock is held briefly as treasury stock and canceled during the year. At December 31, 2017 and 2016, there was no treasury stock held by the Company.

Upon the vesting of unvested common stock (or restricted stock) the Company may allow employees to withhold shares, based on the employee’s election, in order to satisfy any tax withholdings required by law. The shares held by the Company are considered constructively received and are retired shortly after withholding. The Company then remits the withholding taxes required by the taxing agencies. During 2017 and 2016, there were 65,952 and 18,229 shares withheld for tax purposes and retired.

Stock-based Compensation and Grants

The Company has a stock-based incentive plan, 2001 Stock Incentive Plan, that is administered by the Compensation Committee of the Board of Directors (the “Stock Plan”). The Stock Plan is in effect until May 2021 as a result of a May 2012 amendment to extend its term for an additional ten years. The Stock Plan provides for the issuance of stock awards for up to 1,900,000 shares of the Company’s common stock. The Compensation Committee may reward employees and non-employees with various types of awards including but not limited to warrants, stock options, common stock, and unvested common stock (or restricted stock) vesting on service, performance or market criteria.

At December 31, 2017, there were 400,289 shares of common stock available under the Stock Plan. All shares under the plan are available for issuance pursuant to future stock-based compensation awards.

Common Stock Awards

The following table summarizes the Company’s service-based share compensation awards:



	Number of Shares		Weighted Average Fair Value Per Share
Nonvested at December 31, 2014	149,471		$	11.65
Granted	978,526		4.53
Vested	(166,622	)	8.56
Forfeited	(47,552	)	6.91
Nonvested at December 31, 2015	913,823		4.83
Granted	79,240		4.36
Vested	(351,855	)	4.46
Forfeited	—		—
Nonvested at December 31, 2016	641,208		4.97
Granted	217,341		10.69
Vested	(612,463	)	5.09
Forfeited	(5,357	)	6.27
Nonvested at December 31, 2017	240,729		9.82

In 2017, 2016 and 2015, certain key employees were granted an aggregate total of 180,542, 20,000 and 917,851 shares of unvested common stock, respectively, with a weighted average fair value per share of $10.92, $4.78 and $4.55 per share, respectively, expected to be recognized ratably over a two- to four-year restriction period. The Stock Plan provides for grants of restricted stock and other stock-based awards. Pursuant to non-employee director compensation arrangements, non-employee directors of the Company were awarded unvested stock with one-year vesting as follows:



	Years Ended December 31,
	2017		2016		2015
Shares awarded to each non-employee director	5,257		11,848		12,135
Total shares awarded	36,799		59,240		60,675
Average grant-date market price per share	$	9.60	$	4.22	$	4.12
Total compensation cost attributable to shares awarded	$	353,000	$	250,000	$	250,000
Compensation cost recognized related to current and prior year awards	$	283,307	$	249,995	$	266,667

On January 1, 2015, the Company implemented a long- and short-term incentive program for certain employees. The short-term incentive plan is paid in cash if certain short-term achievements are met and the long-term incentive plan is paid with the Company’s stock if certain long-term achievements are met. The stock-based awards are awarded based in two parts; 50% is based on completing a service period of three years and 50% is based on the level of achievement of the Company’s total shareholder return (“TSR”) compared to the TSR of a designated peer group over a three-year period or a market based stock award. The service based awards are recorded as usual; however, the market-based awards of 86,483 shares were valued using a Monte Carlo simulation and their expense was included in the $1.2 million of total unvested and market-based awards discussed below. During the year ended December 31, 2017, 47,947 shares were vested, including 15,982 additional shares for achieved performance and none of these shares were forfeited. During the year ended December 31, 2016, 29,781 of these shares were accelerated and amortization expense was adjusted. During the year ended December 31, 2015, 24,738 of these shares were forfeited and amortization expense was adjusted.

At December 31, 2017, total unrecognized compensation cost related to unvested common stock was $1.6 million. This cost is expected to be recognized over a weighted average period of 3.4 years. Compensation expense for service-based and performance-based grants was $2.8 million, $1.8 million and $1.2 million for 2017, 2016 and 2015, respectively.

Stock Offerings

On April 3, 2017, in connection with the Tealstone Acquisition, the Company issued 1,882,058 shares of the Company’s stock as consideration paid to the sellers. The value of the shares issued was $17.1 million based on the average fair value of the shares on the date of acquisition.

On May 9, 2016, the Company completed an underwritten public offering of 5,175,000 shares of the Company’s common stock, which included the full exercise of the sole underwriter’s over-allotment option, at a price to the public of $4.00 per share ($3.77 per share net of underwriting discounts). The net proceeds from the offering of $19.1 million, after deducting underwriting discounts and other offering expenses, were used for working capital, repayment of our indebtedness under the revolving loan portion of our Equipment-based Facility and for general corporate purposes.

Warrants

On April 3, 2017, the Company issued warrants (the “Warrants”) to the lenders under the Oaktree Facility (the “Holders”) pursuant to which such holders have the right to purchase, for a period of five years from the date of issuance, up to an aggregate of 1,000,000 shares of the Company’s common stock (the “Warrant Shares”) at an initial exercise price of $10.25 per share, subject to adjustment for stock splits, combinations and similar recapitalization events and weighted-average anti-dilution upon the issuance by the Company of shares of common stock or rights, options or convertible securities exercisable for common stock in the future at a price below the exercise price of the Warrants.

The Company valued these Warrants using the Black-Scholes model, which is a type 3 fair value measurement. The key assumptions used in the Black-Scholes Model with respect to these valuations are summarized in the following table:



	At April 3, 2017
Current stock price	$	8.88
Exercise option price	$	10.25
Expected term of warrants (in years)	5
Expected volatility rate	48.29		%
Risk-free rate	1.88		%
Expected dividend yield	—		%

Based on these inputs, the total fair value of the warrants was $3.5 million, which was recorded as a Loan discount and netted against our new Loan and included in “additional paid in capital” on our balance sheet.