Annual report pursuant to Section 13 and 15(d)

SHARE-BASED COMPENSATION

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SHARE-BASED COMPENSATION
12 Months Ended
Dec. 31, 2014
SHARE-BASED COMPENSATION [Abstract]  
SHARE-BASED COMPENSATION
NOTE 16 - SHARE-BASED COMPENSATION

Common Stock

In October 2014 we issued 7,000 shares of restricted common stock to the President of TC.  Compensation expense of $79,310 was recognized in connection with this issuance.

In September 2012 we issued 7,500 shares of restricted common stock to our newly appointed Executive Vice President.  Compensation expense of $72,600 was recognized in connection with this issuance.

Stock Options

On April 3, 2012, the Board of Directors of the Company adopted the Trecora Resources Stock and Incentive Plan (the “Plan”) subject to the approval of Company’s shareholders.  Shareholders approved the Plan at the 2012 Annual Meeting of Shareholders on June 6, 2012.  We filed Form S-8 to register the 1,500,000 shares allocated to the Plan on May 8, 2013.

On April 7, 2008, the Board of Directors of the Company adopted the Stock Option Plan for Key Employees, as well as, the Non-Employee Director Stock Option Plan (hereinafter collectively referred to as the “Stock Option Plans”), subject to the approval of Company’s shareholders.  Shareholders approved the Stock Option Plans at the 2008 Annual Meeting of Shareholders on July 10, 2008.  We filed Form S-8 to register the 1,000,000 shares allocated to the Stock Option Plans on October 23, 2008.

Compensation expense recognized in connection with the following issuances was approximately $2,063,000, $739,000, and $856,000 for the years ended December 31, 2014, 2013, and 2012, respectively.

A summary of all 2014 issuances is as follows:

On February 21, 2014, we awarded 10 year options to various employees for 500,000 shares.  These options have an exercise price equal to the closing price of the stock on February 21, 2014, which was $12.26 and vest in 25% increments over a 4 year period.  Compensation expense recognized during 2014 was approximately $955,000.  The fair value of the options granted was calculated using the Black-Scholes option valuation model with the following assumptions:

Expected volatility
84%
Expected dividends
None
Expected term (in years)
6.25
Risk free interest rate
1.95%

A summary of all 2013 issuances is as follows:

On May 29, 2013, we awarded 10 year options to Simon Upfill-Brown for 90,000 shares.  These options have an exercise price equal to the closing price of the stock on May 29, 2013, which was $7.71 and vest in 25% increments over a 4 year period.  Compensation expense recognized during 2014 and 2013 in connection with this award was approximately $126,000 and $84,000, respectively.  The fair value of the options granted was calculated using the Black-Scholes option valuation model with the following assumptions:

Expected volatility
85%
Expected dividends
None
Expected term (in years)
6.25
Risk free interest rate
1.33%

On February 1, 2013, we issued a warrant for the purchase of 100,000 shares of common stock to Genesis Select Corporation (“Genesis”) at a strike price of $10.00 per share.  The term of the warrant is 5 years with 50% vesting in equal increments of 1/12th each calendar month throughout the first year.  The remaining 50% was scheduled to vest in equal increments of 1/36th each calendar month over years 2 through 4 contingent upon continuous investor relations service under the consulting agreement with Genesis.  Our agreement with Genesis was terminated effective September 30, 2014; therefore, no additional amounts will vest going forward.  Investor relations expense recognized in connection with this warrant was approximately $79,000 and $180,000 in 2014 and 2013, respectively.

A summary of all 2012 issuances is as follows:

On November 15, 2012, we awarded 10 year options to Director Gary Adams for 100,000 shares.  These options have an exercise price equal to the closing price of the stock on November 15, 2012, which was $7.14 and vest in 20% increments over a 5 year period.  Compensation expense recognized during 2014, 2013, and 2012 in connection with this award was approximately $ 120,000, $120,000 and $15,000, respectively.  The fair value of the options granted was calculated using the Black-Scholes option valuation model with the following assumptions:

Expected volatility
87%
Expected dividends
None
Expected term (in years)
6.5
Risk free interest rate
0.92%

A summary of all 2011 issuances is as follows:

On May 20, 2011, we awarded 10 year options to Director Joseph Palm for 19,333 shares with the intent to increase the aggregate grant to 100,000 shares as they become available.  The initial grant of 19,333 options has an exercise price equal to the closing price of the stock on May 20, 2011, which was $3.90 and vest after 1 year.  Compensation expense recognized during 2014, 2013, and 2012 in connection with this award was approximately $0, $0, and $24,000, respectively.  On September 25, 2011, additional shares became available under the plan; therefore, we awarded 10 year options to Mr. Palm for 80,000 shares with an exercise price equal to the closing price of the stock on September 23, 2011, (the latest closing date available) which was $3.52.  These options vest over 4.67 years with the first 20,000 vesting on May 19, 2013, and subsequent 20,000 share lots vesting each anniversary of that date subsequent until entirely vested.  Compensation expense recognized for 2014, 2013 and 2012 was approximately $65,000, $65,000 and $38,000, respectively.

On May 2, 2011, we awarded 10 year options to Director John Townsend for 100,000 shares.  These options have an exercise price equal to the closing price of the stock on May 2, 2011, which was $4.09 and vest in 20% increments over a 5 year period.  Compensation expense recognized during 2014, 2013, and 2012 in connection with this award was approximately $80,000, $80,000, and $80,000, respectively.

On January 12, 2011, we awarded 10 year options to key employees for 391,000 shares.  These options have an exercise price equal to the closing price of the stock on January 12, 2011, which was $4.86 and vest in 25% increments over a 4 year period.  Compensation expense recognized during 2014, 2013, and 2012 in connection with this award was approximately $475,000 each year.

The fair value of the 2011 options granted was calculated using the Black-Scholes option valuation model with the following range of assumptions:

Expected volatility
96% to 413%
Expected dividends
None
Expected term (in years)
5-10
Risk free interest rate
1.26% to 3.34%

A summary of all 2010 issuances is as follows:

In January 2010 we awarded fully vested options to our non-employee directors for 32,667 shares in total for their service during 2009.  The exercise price of the options is $2.21 per share based upon the closing price on January 28, 2010.  The options have a remaining life of 5.1 years as of December 31, 2014.  In January 2010 the Company also awarded 95,000 options to officers and key employees for their service during 2009.  The exercise price of the options was also $2.21.  These options vested over a 2 year period.  Compensation expense recognized during 2014, 2013 and 2012 in connection with this award was approximately $0, $0 and $8,000, respectively.

In February 2010 we awarded 500,000 options to non-employee directors for their service during 2010 subject to attendance and service requirements.  These options vest over a 5 year period.  The exercise price of these options is $2.82 based upon the closing price on February 23, 2010.  Directors’ fee expense recognized during 2014, 2013 and 2012 in connection with this award was approximately $66,000, $113,000 and $113,000, respectively.

In June 2010 we awarded a 7 year option to purchase 10,000 shares of restricted stock to a key employee with a vesting period of 2 years.  The exercise price of the options is $2.47 per share based upon the closing price on June 22, 2010.  The options have a remaining life of 2.5 years as of December 31, 2014.  Compensation expense recognized in connection with this award during 2014, 2013 and 2012 was approximately $0, $0 and $6,000, respectively.

The fair value of the 2010 options granted was calculated using the Black-Scholes option valuation model with the following range of assumptions:

Expected volatility
338% to 467%
Expected dividends
None
Expected term (in years)
5-10
Risk free interest rate
2.37% to 3.68%

A summary of unvested 2009 issuances is as follows:

On July 2009 we awarded two stock options to Mr. Hatem El Khalidi and his wife, Ingrid El Khalidi, tied to the performance of AMAK as follows: (1) an option to purchase 200,000 shares of the Company’s common stock with an exercise price of $3.40 per share, equal to the closing sale price of such a share as reported on the Nasdaq National Market System on July 2, 2009, provided that said option may not be exercised until such time as the first shipment of ore from the Al Masane mining project is transported for commercial sale by AMAK, and further that said option shall terminate and be immediately forfeited if not exercised on or before June 30, 2012; and (2) an option to purchase 200,000 shares of the Company’s common stock with an exercise price equal to the closing sale price of such a share as reported on the Nasdaq Stock Market on July 2, 2009, provided that said option may not be exercised until such time as the Company receives its first cash dividend distribution from AMAK, and further that said option shall terminate and be immediately forfeited if not exercised on or before June 30, 2019.  Compensation expense of approximately $97,000, $97,000 and $97,000 was recognized during the years ended December 31, 2014, 2013, and 2012, respectively, related to the options awarded to Mr. El Khalidi. Approximately $413,000 was reversed during 2012 due to the performance condition associated with 200,000 shares in options not being met as required by the terms of the award by June 30, 2012.  Previously, on May 9, 2010, the Board of Directors determined that Mr. El Khalidi forfeited all options and other retirement benefits when he made various demands against the Company and other AMAK Saudi shareholders which would benefit him personally and were not in the best interests of the Company and its shareholders.  As discussed in Note 15 we are currently in litigation with Mr. El Khalidi and in connection therewith, we are currently reviewing our legal right to withdraw the options and benefits.  However, as of December 31, 2014, the options vesting upon a cash dividend distribution from AMAK continue to be shown as outstanding.

A summary of the status of the Company’s stock option and warrant awards is presented below:


   
Stock Options and Warrants
   
Weighted
Average
Exercise
Price
Per Share
   
Weighted
Average
Remaining
Contractual
Life
   
Intrinsic
Value
(in thousands)
 
Outstanding at December 31, 2013
    1,326,360     $ 4.32              
   Granted
    500,000       12.26              
   Expired
    -       -              
   Exercised
    (169,280 )     3.18              
   Forfeited
    (58,889 )     7.56              
Outstanding at December 31, 2014
    1,598,191     $ 7.16       6.8     $ 12,050  
Expected to vest
    825,250     $ 9.59       8.3     $ 4,217  
Exercisable at December 31, 2014
    572,941     $ 4.97       5.5     $ 5,575  


The aggregate intrinsic value of options was calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock.  At December 31, 2014, options and warrants to purchase approximately 1.6 million shares of common stock were in-the-money.

The weighted average grant-date fair value per share of options granted during the years 2014, 2013, and 2012 was $12.26, $7.71 and $7.14, respectively.  During 2014, 2013 and 2012 the aggregate intrinsic value of options exercised was approximately $1,600,000, $142,000 and $445,000 respectively, determined as of the date of option exercise.

The Company received approximately $91,000 and $60,000 in cash from the exercise of options during 2014 and 2013, respectively.  Some of the options were exercised via a net transaction.  The tax benefit realized from the exercise was insignificant.

A summary of the status of the Company’s non-vested options that are expected to vest is presented below:


   
Shares
   
Weighted
Average
Grant-Date
Fair Value
Per Share
 
Non-vested at January 1, 2014
    585,504     $ 5.07  
   Granted
    500,000       12.26  
   Forfeited
    (20,000 )     2.82  
   Vested
    (240,254 )     4.80  
Non-vested at December 31, 2014
    825,250     $ 9.59  


Total fair value of options that vested during 2014 was approximately $1,167,000.

As of December 31, 2014, there was approximately $4.5 million of unrecognized compensation costs related to non-vested share-based compensation that is expected to be recognized over a weighted average period of 2.9 years.

The Company expects to issue shares upon exercise of options and warrants from its authorized but unissued common stock.