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Note 10—COMPENSATION PLANS
Cash Bonus Plan—Intrepid has cash bonus plans that allow participants to receive varying percentages of their aggregate base salary. Any awards under the cash bonus plans are based on a variety of elements related to Intrepid's performance in certain production, operational, financial, and other areas, as well as the participants' individual performance. Intrepid accrues cash bonus expense related to the current year's performance.
Equity Incentive Compensation Plan—Intrepid has issued common stock awards, awards of non-vested restricted shares of common stock, and non-qualified stock option awards under its 2008 Equity Incentive Plan (the "2008 Plan"). As of September 30, 2011, there were a total of 171,860 shares of non-vested restricted common stock outstanding and 354,339 outstanding stock options. As of September 30, 2011, there were approximately 4.1 million shares of common stock available for issuance under the 2008 Plan.
Under the 2008 Plan, the Compensation Committee of the Board of Directors approved the award of 9,616 shares of common stock during the nine months ended September 30, 2011, to the non-employee members of the Board of Directors as compensation for service for the period ending on the date of Intrepid's 2011 annual stockholders' meeting. These shares of common stock were granted without restrictions and vested immediately.
Under the 2008 Plan, grants of non-vested restricted shares of common stock have been awarded to executive officers, other key employees, and consultants. The awards contain service conditions associated with continued employment or service. There are no performance or market conditions associated with these awards. The terms of the non-vested restricted common stock awards provide voting rights and, upon vesting, the right to receive ordinary dividends otherwise payable during the vesting period to the holders of such awards. Upon vesting of the restricted shares of common stock, the restrictions on such shares of common stock lapse, the shares are no longer subject to forfeiture, all ordinary dividends otherwise payable during the vesting period are remitted to the award holder, and the shares are considered issued and outstanding.
Awards have been made from time to time to existing and newly hired employees and are approved by the Compensation Committee of the Board of Directors. Awards made in connection with the initial public offering ("IPO") and upon hiring of selected individuals have had vesting schedules that vary between a two to four-year vesting schedule. The Compensation Committee of Intrepid's Board of Directors has also approved awards of restricted common stock to Intrepid's executive management and other selected employees under an annual awards program. These awards vest one-third on each of the first three anniversary dates of the grant.
In measuring compensation expense associated with the grant of shares of non-vested restricted common stock, Intrepid uses the fair value of the award, determined as the closing stock price for Intrepid's common stock on the grant date. Compensation expense is recorded monthly over the vesting period of the award. Total compensation expense related to the awards of restricted common stock awards was $0.8 million and $0.7 million for the three months ended September 30, 2011, and 2010, respectively. For the nine months ended September 30, 2011, and 2010, total compensation expense related to the awards of restricted common stock awards was $2.7 million and $2.1 million, respectively. Such amounts were net of estimated forfeiture adjustments. As of September 30, 2011, there was $3.5 million of total remaining unrecognized compensation expense related to non-vested restricted common stock awards that will be expensed through 2014.
A summary of Intrepid's restricted common stock activity for awards that have not yet vested for the period from December 31, 2010, to September 30, 2011, is as follows:
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|
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Shares |
|
Weighted Average
Grant-Date
Fair Value |
|
|
Non-vested restricted common stock, at beginning of period |
|
|
217,794 |
|
$ |
27.96 |
|
|
Granted |
|
|
61,585 |
|
|
35.80 |
|
|
Vested |
|
|
(98,744 |
) |
|
28.11 |
|
|
Forfeited |
|
|
(8,775 |
) |
|
30.77 |
|
| |
|
|
|
|
|
|
|
Non-vested restricted common stock, at end of period |
|
|
171,860 |
|
$ |
30.53 |
|
| |
|
|
|
|
|
|
Under the 2008 Plan, the Compensation Committee of Intrepid's Board of Directors approves the award of non-qualified stock options to Intrepid's executive management and other selected employees under an annual awards program. One-third of each stock option award vests on each of the three anniversary dates of the grant. In measuring compensation expense for these grants of options, Intrepid estimated the fair value of the awards on the grant date using the Black-Scholes option valuation model. Option valuation models require the input of highly subjective assumptions, including the expected volatility of the price of the underlying stock. The following assumptions were used to compute the weighted average fair value of options granted in the periods presented:
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Nine months ended |
|
|
|
September 30, 2011 |
|
September 30, 2010 |
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|
Risk-free interest rate |
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|
2.6 |
% |
|
2.7 |
% |
|
Dividend yield |
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|
— |
|
|
— |
|
|
Estimated volatility |
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|
56.6 |
% |
|
56.7 |
% |
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Expected option life |
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|
6 years |
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|
6 years |
|
Intrepid's computation of the estimated volatility above is based on the historical volatility of its own common stock since the IPO as well as the volatility of three peer companies' common stock over the expected option life. The peer companies selected had volatility that was correlated to Intrepid's common stock from the date of the IPO to the dates of grant. These proxies were utilized because Intrepid has insufficient trading history to calculate a meaningful long-term volatility factor. The computation of expected option life was determined based on a reasonable expectation of the average life prior to exercise or expiration, considering the overall vesting period and contractual terms of the awards. The risk-free interest rates for periods that matched the option award's expected life were based on the U.S. Treasury constant maturity yield at the time of grant over the expected option life.
For the three months ended September 30, 2011, and 2010, Intrepid recognized stock based compensation related to stock options of approximately $0.4 million and $0.2 million, respectively. For the nine months ended September 30, 2011, and 2010, total compensation expense was $1.1 million and $0.7 million, respectively. As of September 30, 2011, there was $2.5 million of total remaining unrecognized compensation expense related to unvested non-qualified stock options that will be expensed through 2014. A summary of Intrepid's stock option activity for the nine months ended September 30, 2011, is as follows:
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Shares |
|
Weighted Average
Exercise Price |
|
Aggregate
Intrinsic
Value(1) |
|
Weighted Average
Remaining
Contractual Life |
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Weighted Average
Grant-Date
Fair Value |
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Outstanding non-qualified stock options, at beginning of period |
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|
273,851 |
|
$ |
22.69 |
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|
|
|
|
|
|
$ |
10.69 |
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|
Granted |
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|
102,196 |
|
|
35.69 |
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|
|
|
|
|
|
|
19.59 |
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|
Exercised |
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|
(14,739 |
) |
|
22.33 |
|
|
|
|
|
|
|
|
10.02 |
|
|
Forfeited |
|
|
(6,969 |
) |
|
30.35 |
|
|
|
|
|
|
|
|
16.29 |
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| |
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|
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|
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|
|
|
Outstanding non-qualified stock options, at end of period |
|
|
354,339 |
|
$ |
26.31 |
|
$ |
619,153 |
|
|
8.2 |
|
$ |
13.17 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest, end of period |
|
|
339,487 |
|
$ |
26.00 |
|
$ |
617,544 |
|
|
8.2 |
|
$ |
12.95 |
|
| |
|
|
|
|
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|
|
|
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|
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|
Exercisable non-qualified stock options, at end of period |
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|
131,887 |
|
$ |
22.00 |
|
$ |
401,823 |
|
|
7.7 |
|
$ |
9.85 |
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| |
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- (1)
- The intrinsic value of a stock option is the amount by which the market value exceeds the exercise price as of the end of the period presented.
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