Interpace Biosciences®, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

Stock-Based Compensation

12 Months Ended

Dec. 31, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Stock-Based Compensation

The Company’s stock-incentive program is a long-term retention program that is intended to attract, retain and provide incentives for talented employees, officers and directors, and to align stockholder and employee interests. The Company considers its stock-incentive program critical to its operations and productivity. Currently, the Company is able to grant options, SARs and restricted shares from the Interpace Diagnostics Group, Inc. Amended and Restated 2004 Stock Award and Incentive Plan, or the Amended 2004 Plan, which is described below.

The Company primarily uses the Black-Scholes option pricing model to determine the fair value of stock options and SARs. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include the Company’s expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. Expected volatility is based on historical volatility. As there is no trading volume for the Company’s options, implied volatility is not representative of the Company’s current volatility so the historical volatility of the Company's common stock is determined to be more indicative of the Company’s expected future stock performance. The expected life is determined using the safe-harbor method. The Company expects to use this simplified method for valuing employee options and SARs grants until more detailed information about exercise behavior becomes available over time. The Company bases the risk-free interest rate on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options or SARs. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. The Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest. The Company recognizes compensation cost, net of estimated forfeitures, arising from the issuance of stock options and SARs on a straight-line basis over the vesting period of the grant.

The estimated compensation cost associated with the granting of restricted stock and restricted stock units is based on the fair value of the Company’s common stock on the date of grant. The Company recognizes the compensation cost, net of estimated forfeitures, arising from the issuance of restricted stock and restricted stock units on a straight-line basis over the shorter of the vesting period or the period from the grant date to the date when retirement eligibility is achieved.

In December 2015, the Company sold its Commercial Services business. This triggered a change in control clause for all outstanding equity grants within the Amended 2004 Plan. As such, all unvested restricted stock, RSUs, and performance and non-performance SARs were accelerated and the Company recorded that additional expense in the fourth quarter of 2015. The impact of the acceleration on continuing operations was approximately $2.0 million which was recorded in general and administrative expenses within the consolidated statement of comprehensive loss.

The following table provides the weighted average assumptions used in determining the fair value of the non-performance based SARs granted during the years ended December 31, 2015 and 2014.



	December 31, 2015		December 31, 2014
Risk-free interest rate	1.02	%	0.75	%
Expected life	3.5		3.5
Expected volatility	54.47	%	48.15	%

Stock Incentive Plan

In 2015, the Board and stockholders approved the Company’s Amended and Restated 2004 Stock Award and Incentive Plan, or the Amended and Restated Plan. The Amended and Restated Plan amends the Company’s pre-existing Amended and Restated 2004 Stock Award and Incentive Plan which had replace the 1998 Stock Option Plan, or the 1998 Plan, and the 2000 Omnibus Incentive Compensation Plan, or the 2000 Plan. The Amended and Restated Plan authorized an additional 2,450,000 shares for new awards and combined the remaining shares available under the original Amended and Restated Plan. Eligible participants under the Amended and Restated Plan include officers and other employees of the Company, members of the Board and outside consultants, as specified under the Amended and Restated Plan and designated by the Compensation and Management Development Committee of the Board, or the Compensation Committee. Unless earlier terminated by action of the Board, the Amended and Restated Plan will remain in effect until such time as no stock remains available for delivery under the Amended and Restated Plan and the Company has no further rights or obligations under the Amended and Restated Plan with respect to outstanding awards thereunder.

Historically, stock options were generally granted with an exercise price equal to the market value of the common stock on the date of grant, expired 10 years from the date they are granted, and generally vested over a two-year period for members of the Board of Directors and a three-year period for employees. Upon exercise, new shares are issued by the Company. The Company has not granted stock options since 2005. SARs are generally granted with a grant price equal to the market value of the common stock on the date of grant, vest one-third each year on the anniversary of the date of grant and expire five years from the date of grant. The restricted shares and restricted stock units granted to employees generally have a three year cliff vesting period and are subject to accelerated vesting and forfeiture under certain circumstances. Restricted shares and restricted stock units granted to board members generally have a three year graded vesting period and are subject to accelerated vesting and forfeiture under certain circumstances.

In February 2014, the Company’s chief executive officer was granted 188,165 market contingent SARs. The market contingent SARs have an exercise price of $5.10, a five year term to expiration, and a weighted-average fair value of $1.87. The fair value estimate of the market contingent SARs was calculated using a Monte Carlo Simulation model. These SARS were canceled upon the chief executive officer's resignation in December 2015.

The weighted-average fair value of non-performance based SARs granted during the year ended December 31, 2015 was estimated to be $0.53. The weighted-average fair value of non-performance based SARs granted during the year ended December 31, 2014 was estimated to be $1.56. There were no SARs exercised in 2015 or 2014. Historically, shares issued upon the exercise of options have been new shares and have not come from treasury shares.

As of December 31, 2015, there was no unamortized compensation cost.

The impact of SARs, performance shares, RSUs and restricted stock on net loss for the years ended December 31, 2015 and 2014 is as follows:



	2015		2014
SARs	$	823	$	727
Performance awards	254		98
RSUs and restricted stock	2,940		1,299
Total stock-based compensation expense	$	4,017	$	2,124

A summary of stock option and SARs activity for the year ended December 31, 2015, and changes during such year, is presented below:



	Shares		Average Grant Price	Remaining Contractual Period (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2015	1,692,921		$5.12	3.40	$	4
Granted	24,575		$1.33	2.73	$	—
Exercised	—		—
Forfeited or expired	(690,581	)	$5.65
Outstanding at December 31, 2015	1,026,915		$4.67	2.74	$	—
Vested and exercisable at December 31, 2015	1,026,915		$4.67	2.74	$	—

A summary of the status of the Company’s nonvested SARs for the year ended December 31, 2015, and changes during such year, is presented below:



	Shares		Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2015	1,255,565		$	1.72
Granted	24,575		$	0.53
Vested	(1,002,652	)	$	1.66
Forfeited	(277,488	)	$	1.84
Nonvested at December 31, 2015	—		$	—

The aggregate fair value of SARs vested during the years ended December 31, 2015 and 2014 was $1.7 million and $0.5 million, respectively. The weighted-average grant date fair value of SARs vested during the year ended December 31, 2014 was $2.27.

A summary of the Company’s nonvested shares of restricted stock and restricted stock units for the year ended December 31, 2015, and changes during such year, is presented below:



	Shares		Weighted- Average Grant Date Fair Value		Average Remaining Vesting Period (in years)	Aggregate Intrinsic Value
Nonvested at January 1, 2015	711,003		$	2.81	1.70	$	1,273
Granted	1,343,178		$	1.73	0	$	—
Vested	(1,966,930	)	$	2.73
Forfeited	(87,251	)	$	3.61
Nonvested at December 31, 2015	—		$	—	0	$	—

The aggregate fair value of restricted stock and restricted stock units vested during each of the years ended December 31, 2015 and 2014 was $5.4 million and $1.7 million, respectively. The weighted-average grant date fair value of restricted stock and restricted stock units vested during the year ended December 31, 2014 was $7.83.

Inducement Awards

In connection with the Company's hiring of its former chief financial officer, the Company awarded RSUs and SARs, with a grant date fair value of $75,000 each, on October 20, 2014, or the Start Date. The awards were made pursuant to the NASDAQ inducement grant exception as a component of employment compensation. The inducement grants were approved by the Compensation Committee on October 14, 2014 contingent on and effective as of the Start Date, and were being made as an inducement material to the chief financial officer's acceptance of employment with the Company in accordance with NASDAQ Listing Rules.

The Company issued 117,187 SARs, using the Black-Scholes option pricing model to determine the fair value on the Start Date. The SARs have a base price equal to the closing price of Interpace Diagnostics Group, Inc.'s (formerly PDI, Inc.) common stock on the Start Date and a five year term. The SARs were to vest over three years, with one-third of the SARs vesting on each of the first three anniversaries of the Start Date subject to the chief financial officers continued service with Interpace Diagnostics Group, Inc. (formerly PDI, Inc.) through the applicable vesting dates. The Company issued 41,899 RSUs (equal to $75,000 divided by the closing price of PDI’s common stock) on the Start Date. The RSUs were to vest in full on the third anniversary of the Start Date subject to the chief financial officer’s continued service with the Company through the applicable vesting date. Both the SARs and RSU grants had their vesting accelerated upon the Company's sale of its Commercial Services business unit.