Annual report pursuant to Section 13 and 15(d)

SHARE-BASED COMPENSATION

v3.8.0.1
SHARE-BASED COMPENSATION
12 Months Ended
Dec. 31, 2017
SHARE-BASED COMPENSATION [Abstract]  
SHARE-BASED COMPENSATION
NOTE 16 - SHARE-BASED COMPENSATION

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.  An amendment extending the term of the Plan to June 1, 2018, was approved by the Company's shareholders at the 2017 Annual Meeting of Shareholders on June 15, 2017.

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.

Share-based compensation of approximately $2.7 million, $2.6 million, and $2.3 million was recognized in 2017, 2016, and 2015, respectively.

Restricted Stock and Restricted Stock Unit Awards

A summary of all 2017 issuances is as follows:

On June 16, 2017, we awarded 127,281 shares of restricted stock units to officers at a grant date price of $11.40.  One-half of the restricted stock units vest ratably over 3 years.  The other half vests at the end of the three years based upon the performance metrics of return on invested capital and earnings per share growth.  The number of shares actually granted will be adjusted based upon relative performance to our peers.  Compensation expense recognized during 2017 was approximately $282,000.

On November 17, 2017, we awarded 15,369 shares of restricted stock units to a director at a grant date price of $12.20.  The restricted stock unit award vests over 2.5 years in increments of 40%, 40%, and 20% on November 16, 2018, 2019 and 2020, respectively. Director's compensation recognized during 2017 was approximately $6,000.

A summary of the status of the Company's restricted stock units activity in 2017 is as follows:
 
   
Shares of Restricted
Stock Units
   
Weighted Average Grant Date Price per Share
 
             
Outstanding at January 1, 2017
   
350,891
   
$
11.44
 
   Granted
   
142,650
     
11.49
 
   Forfeited
   
(21,201
)
   
10.52
 
   Vested
   
(84,638
)
   
12.00
 
Outstanding at December 31, 2017
   
387,702
   
$
11.39
 
Expected to vest
   
380,992
         

As of December 31, 2017, there was approximately $3.0 million of unrecognized compensation costs related to non-vested restricted share-based compensation that is expected to be recognized over a weighted average period of 2.0 years.

A summary of all 2016 issuances is as follows:

On November 17, 2016, we awarded 25,105 shares of restricted stock units to a director at a grant date price of $11.95.  The restricted stock unit award vests over 4 years in 25% increments.  Director's compensation recognized during 2017 and 2016 was approximately $75,000 and $50,000, respectively.

On November 17, 2016, we awarded 21,967 shares of restricted stock units to a director at a grant date price of $11.95.  The restricted stock unit award vests over 3.5 years in equal increments for three years and one-half increment for the final half year.  Director's compensation recognized during 2017 and 2016 was approximately $75,000 and $12,500, respectively.

On May 17, 2016, we awarded approximately 28,090 shares of restricted stock units to a director at a grant date price of $10.68.    The restricted stock unit award vests over 4 years in 25% increments.  Director's compensation recognized during 2017 and 2016 was approximately $75,000 and $50,000, respectively.

On March 1, 2016, we awarded 134,931 shares of restricted stock units to officers at a grant date price of $9.39.  One-half of the restricted stock unit award vests ratably over 3 years.  The other half vests at the end of the three years based upon the performance metrics of return on invested capital and earnings per share growth.  The number of shares actually granted will be adjusted based upon relative performance to our peers.  Compensation expense recognized during 2017 and 2016 was approximately $422,000 and $352,000, respectively.

On January 29, 2016, we awarded 35,333 shares of restricted stock units to a director at a grant date price of $10.52.  The restricted stock unit award vests over 5 years in 20% increments with the first tranche issued on January 29, 2016.  Director's compensation recognized in 2017 and 2016 was approximately $6,000 and $142,000, respectively.  The director retired during 2017; therefore the unvested shares were forfeited.

A summary of all 2015 issuances is as follows:

On May 20, 2015, we awarded 30,000 shares of restricted stock units to a director at a grant date price of $12.39.  The restricted stock unit award vests over 5 years in 20% increments with the first tranche issued on May 19, 2016.  Compensation expense recognized during 2017, 2016 and 2015 was approximately $74,000, $58,000 and $43,000, respectively.

On April 14, 2015, we awarded 1,000 shares of restricted stock to two of our 30 year employees at a grant date price of $12.03.  The restricted stock award was fully vested.  Compensation expense recognized during 2015 was approximately $12,000.
 
On February 12, 2015, we awarded 18,000 shares of fully vested restricted stock to various employees at a grant date price of $14.34.  Compensation expense recognized during 2015 was approximately $258,000.

On February 10, 2015, we awarded 118,040 shares of restricted stock units to our officers at a grant date price of $14.59.  The restricted stock award vests over 4 years in 25% increments with the first tranche issued on February 9, 2016.  Compensation expense recognized during 2017, 2016 and 2015 was approximately $431,000, $431,000 and $395,000, respectively.

Stock Options and Warrant Awards

Compensation expense recognized in connection with the following issuances was approximately $1,261,000, $1,456,000, and $1,645,000 for the years ended December 31, 2017, 2016, and 2015, respectively.

There were no stock options or warrant awards issued during 2017, 2016, or 2015.

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 2017, 2016, and 2015 was approximately $1,109,000, $1,108,000 and $1,108,000, respectively.  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 2017, 2016 and 2015 in connection with this award was approximately $52,000, $126,000 and $126,000, 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%

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 2017, 2016, and 2015 in connection with this award was approximately $100,000, $120,000 and $120,000, 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 September 25, 2011, we awarded 10 year options to Director Joseph 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 2017, 2016 and 2015 was approximately $0, $27,000, and $65,000, 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 2017, 2016, and 2015 in connection with this award was approximately $0, $27,000 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 2017, 2016, and 2015 in connection with this award was approximately $0, $0 and $40,000, respectively.

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 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 2017, 2016 and 2015 in connection with this award was approximately $0, $0 and $9,000, 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 public market 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 $0, $49,000 and $97,000 was recognized during the years ended December 31, 2017, 2016, and 2015, 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, 2017, 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 January 1, 2017
   
1,348,437
   
$
7.79
             
   Granted
   
-
     
-
             
   Expired
   
-
     
-
             
   Exercised
   
(24,850
)
   
5.90
             
   Forfeited
   
-
     
-
             
Outstanding at December 31, 2017
   
1,323,587
   
$
7.82
     
4.2
   
$
7,518
 
Expected to vest
   
125,000
   
$
12.26
     
6.1
   
$
155
 
Exercisable at December 31, 2017
   
998,587
   
$
8.15
     
4.6
   
$
5,342
 

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, 2017, options and warrants to purchase approximately 1.3 million shares of common stock were in-the-money.

Since no options were granted, the weighted average grant-date fair value per share of options granted during the years 2017, 2016, and 2015 was $0.  During 2017, 2016, and 2015 the aggregate intrinsic value of options exercised was approximately $164,000, $237,000 and $2,300,000 respectively, determined as of the date of option exercise.

The Company received approximately $25,000, $11,000 and $123,000 in cash from the exercise of options during 2017, 2016 and 2015, 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, 2017
   
492,500
   
$
8.25
 
   Granted
   
-
     
-
 
   Forfeited
   
-
     
-
 
   Vested
   
(167,500
)
   
11.04
 
Non-vested at December 31, 2017
   
325,000
   
$
6.81
 

Total fair value of options that vested during 2017 was approximately $1,849,000.
 
As of December 31, 2017, there was approximately $0.4 million of unrecognized compensation costs related to non-vested share-based compensation that is expected to be recognized over a weighted average period of 0.2 years.

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