Note 17—Share-Based Payments

Under its 2002 Stock Award and Incentive Plan (“the Plan”), which incorporated its Third Amended and Restated 1995 Stock Option Plan, the Company has reserved shares of its common stock for issuance upon the exercise of options granted under the Plan, as well as for the awarding of other securities. Under the Plan, employees (including officers), non-employee directors and independent consultants may be granted options to purchase shares of common stock and other securities (Note 15). The vesting of these options and other securities may vary, but typically vest on a step-up basis over a maximum period of 4 years. Restricted shares typically vest in the same manner, with the exception of certain awards vesting over one to two years. Share-based compensation expense is recognized on a straight-line basis over the requisite service period. As of December 31, 2017, 3,539,848 shares were available for future grant. Additional shares may become available to the extent that options or shares of restricted stock presently outstanding under the Plan terminate or expire.

Restricted Stock

Under the Plan, share-based compensation payments may include the issuance of shares of restricted stock. Restricted stock award grants are based upon employment contracts, which vary by individual and year, and are subject to vesting conditions. Non-employee directors each receive grants of restricted stock at a value of $100,000 annually which vest after one year – this amount is prorated if a director is appointed within the year. In addition, at the discretion of Management and approval of the Board, non-executive employees also may receive restricted stock awards, which occurs approximately once per year.

During 2015, the Company issued a total of 734,823 shares of restricted stock; of which 660,968 shares of restricted stock (with performance based vesting measures) were issued to two executive officers. Of the 660,968 shares, a total of 612,221 were subsequently forfeited based upon the Company not meeting certain financial targets for the year. A total of 73,855 shares were granted to its non-employee directors. The Company cancelled 51,633 shares of restricted stock due to various non-executive employees departing from the Company prior to shares vesting completely. Also during 2015, certain employees, including an executive officer, surrendered an aggregate of 52,024 shares of restricted stock for $0.4 million to cover income taxes due on the vesting of restricted shares. As of December 31, 2015, 411,409 shares of the restricted stock remained unvested, representing a weighted average grant date fair value of $2.7 million.

During 2016, the Company issued a total of 648,351 shares of restricted stock; of which 583,178 shares of restricted stock (with performance based vesting measures) were issued to two executive officers. Of the 583,178 shares, all were subsequently forfeited based upon the Company not meeting certain financial targets for the year. A total of 65,173 shares were granted to its non-employee directors. The Company cancelled 24,822 shares of restricted stock due to various non-executive employees departing from the Company prior to shares vesting completely. Also during 2016, certain employees, including an executive officer, surrendered an aggregate of 50,719 shares of restricted stock for $1.5 million to cover income taxes due on the vesting of restricted shares. As of December 31, 2016, 196,453 shares of the restricted stock remained unvested, representing a weighted average grant date fair value of $1.4 million.

During 2017, the Company issued a total of 981,208 shares of restricted stock. A total of 107,421 shares were granted to its non-employee directors. The Company cancelled 9,229 shares of restricted stock due to various non-executive employees departing from the Company prior to shares vesting completely. Also during 2017, certain employees, including an executive officer, surrendered an aggregate of 29,689 shares of restricted stock for $79,000 to cover income taxes due on the vesting of restricted shares. As of December 31, 2017, 981,208 shares of the restricted stock remained unvested, representing a weighted average grant date fair value of $5.1 million.

The following table summarizes the restricted stock award activity, annually, for the years ended December 31, 2015, 2016 and 2017:

	Restricted and Performance Based Stock Awards (RSA)
	Number of Shares			Weighted Average Fair Value

Outstanding, January 1, 2015		568,057		$	6.54
Awarded		734,823			6.81
Released		(227,616	)		6.60
Forfeited		(663,855	)		6.77
Outstanding, December 31, 2015		411,409			6.61
Awarded		648,351			7.00
Released		(255,307	)		6.68
Forfeited		(608,000	)		6.88
Outstanding, December 31, 2016		196,453			7.01
Awarded		981,208			5.15
Released		(187,224	)		7.05
Forfeited		(9,229	)		6.32
Outstanding, December 31, 2017		981,208			5.15

Restricted Stock Units

Under the Plan, share-based compensation payments may include the issuance of Restricted Stock Units (RSUs) to non-executive employees, which occurs approximately once per year and are subject to vesting conditions. RSUs are valued at the market price of the shares underlying the award on the date of grant. The compensation expense for RSUs is recognized ratably over the service period of the award, which is generally 4 years from the date of grant.

During 2017, the Company issued a total of 1,001,206 RSUs; of which 458,637 RSUs had performance based vesting measures. The Company cancelled 42,014 RSUs due to various non-executive employees departing from the Company prior to shares vesting completely. As of December 31, 2017, 959,192 RSUs remained unvested, representing a weighted average grant date fair value of $4.9 million.

The following table summarizes the RSU award activity, annually for the year ended December 31, 2017:

	Restricted and Performance Based Stock Units (RSUs)
	Number of Shares			Weighted Average Fair Value

Outstanding, December 31, 2016		-		$	-
Awarded		1,001,206			5.15
Released		-			-
Forfeited		(42,014	)		5.15
Outstanding, December 31, 2017		959,192			5.15

As of December 31, 2017, there was $4.3 million of total unrecognized compensation cost related to non-vested restricted stock, which is expected to be recognized over a weighted-average period of 2.55 years.

Compensation expense for performance-awards is measured based on the amount of shares ultimately expected to vest, estimated at each reporting date based on management expectations regarding the releavant performance crieria.

The following table summarizes the total share-based compensation expense and related tax benefits recognized (in thousands):

	Year Ended December 31,
	2015		2016		2017

Restricted stock compensation expense	$	1,562	$	1,621	$	3,112

Stock Options

There has been no stock option activity since December 31, 2015.

Non-Employee Stock Warrants

In 2012, the Company granted 1,500,000 stock warrants with an exercise price of $16.28 per share and a five year term to a third party as partial consideration for the exclusive right to use certain recognition technology in connection with the Company’s toy products. All warrants vested upon grant and expired unexercised on September 12, 2017.

The Company measured the fair value of the warrants granted on the measurement date. The fair value of the 2012 stock warrant was capitalized as an intangible asset and had been amortized to expense in the consolidated statements of operations as the related product net sales were recognized.