8.  Stock-Based Compensation

 

The following table summarizes, by statement of operations line item, stock-based compensation expense (in thousands):

 

 

Stock Plans

 

2000 Equity Incentive Plan

 

In June 2000, the Company adopted the 2000 Equity Incentive Plan (as amended, the “2000 Plan”). The 2000 Plan provides for a total maximum aggregate number of shares which may be issued of 27,980,000 shares.

 

As of December 31, 2014, the Company had outstanding 3,800,000 non-qualified common stock options issued outside of the 2000 Plan. The Company granted 250,000 of these stock options during the first quarter of Fiscal 2015, 250,000 of these stock options during the second quarter of Fiscal 2013, 250,000 of these stock options during the first quarter of Fiscal 2012 and 3,050,000 of the options prior to Fiscal 2008 as inducement grants to new officers and employees of the Company, with exercise prices equal to the fair market value of the Company’s common stock on the grant date. Included in the 3,800,000 options were 2,000,000 options granted to the Company’s President and Chief Executive Officer, 850,000 options granted to the Company’s Executive Vice President of Sales and Marketing, 250,000 options granted to the Company’s Senior Vice President of Program Management, 250,000 options granted to the Company’s Senior Vice President of Customer Service, 250,000 options granted to the Company’s Vice President of Operations and 200,000 options granted to the Company’s former Senior Vice President of Human Resources. Additionally, as of December 31, 2014, the Company had outstanding 93,750 restricted stock units issued outside of the 2000 Plan. The 93,750 units consisted of 62,500 units granted to the Company’s Vice President of Operations and 31,250 units granted to the Company’s Senior Vice President of Customer Service. These restricted stock units were issued during the first quarter of Fiscal 2015 and second quarter of Fiscal 2013 as an inducement grant to the Company’s Vice President of Operations and Senior Vice President of Customer Service, respectively. Although the options and restricted stock units were not granted under the 2000 Plan, they are governed by terms and conditions identical to those under the 2000 Plan. All options are subject to the following vesting provisions: one-fourth vest one year after the issuance date and 1/48th vest on the first day of each full month thereafter, so that all options will be vested on the first day of the 48th month after the grant date. All outstanding options have a contractual term of ten years. The restricted stock units vest in equal installments over a period of four years. Information relating to all outstanding stock options, except for rights associated with the Amended and Restated 2000 Employee Stock Purchase Plan, is as follows:

 

 

There were no stock options granted during the three months ended December 31, 2014 and 2013. The weighted average per share grant date fair value of options granted during the nine months ended December 31, 2014 and 2013 was $0.94 and $0.93, respectively. The total intrinsic value of stock option exercises during the three and nine months ended December 31, 2014, was approximately $1,000 and $0.1 million, respectively. During the three and nine months ended December 31, 2014 the amount of cash received from the exercise of stock options was approximately $6,600 and $0.3 million, respectively. The total intrinsic value of stock option exercises during each of the three and nine months ended December 31, 2013, was approximately $10,000. During each of the three and nine months ended December 31, 2013 the amount of cash received from the exercise of stock options was approximately $13,200. The Company recorded expense of approximately $0.2 million associated with its stock options during each of the three months ended December 31, 2014 and 2013, respectively. The Company recorded expense of approximately $0.8 million and $0.9 million associated with its stock options during the nine months ended December 31, 2014 and 2013, respectively. As of December 31, 2014, there was approximately $1.8 million of total compensation cost related to unvested stock option awards that is expected to be recognized as expense over a weighted average period of 2.4 years.

 

The Company calculated the estimated fair value of each stock option granted during the three and nine months ended December 31, 2014 and 2013 on the date of grant using the Black-Scholes option-pricing model and the following weighted-average assumptions:

 

 

The Company’s computation of expected volatility for the nine months ended December 31, 2014 and 2013 was based on historical volatility. The expected life, or term, of options granted is derived from historical exercise behavior and represents the period of time that stock option awards are expected to be outstanding. Management has selected a risk-free rate based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the options’ expected term. Stock-based compensation expense is based on awards that are ultimately expected to vest and accordingly, stock-based compensation expense recognized in the three and nine months ended December 31, 2014 and 2013 has been reduced by estimated forfeitures. Management’s estimate of forfeitures is based on historical forfeitures.

 

The following table outlines the restricted stock unit activity:

 

 

The restricted stock units were valued based on the closing price of the Company’s common stock on the date of issuance and compensation cost is recorded on a straight-line basis over the vesting period. The related compensation expense recognized has been reduced by estimated forfeitures. The Company’s estimate of forfeitures is based on historical forfeitures.

 

The weighted average per share grant date fair value of restricted stock granted during the three months ended December 31, 2014 and 2013 was approximately $0.98 and $1.27, respectively. The weighted average per share grant date fair value of restricted stock granted during the nine months ended December 31, 2014 and 2013 was approximately $1.41 and $1.06, respectively. The total fair value of restricted stock units vested and issued by the Company during the three months ended December 31, 2014 and 2013 was approximately $28,200 and $33,000, respectively. The total fair value of restricted stock units vested and issued by the Company during the nine months ended December 31, 2014 and 2013 was approximately $1.2 million and $0.8 million, respectively. The Company recorded expense of approximately $0.3 million associated with its restricted stock awards and units during each of the three months ended December 31, 2014 and 2013. The Company recorded expense of approximately $0.9 million and $0.8 million associated with its restricted stock awards and units during the nine months ended December 31, 2014 and 2013. As of December 31, 2014, there was approximately $1.6 million of total compensation cost related to unvested restricted stock units that is expected to be recognized as expense over a weighted average period of 2.3 years.

 

In May 2014, the Compensation Committee of the Company’s Board of Directors approved the new Performance Restricted Stock Unit Program, which is applicable to certain senior employees. The Compensation Committee granted 200,000 performance restricted stock units (“PRSUs”) to the Chief Executive Officer under the 2000 Plan. The Chief Executive Officer is the only participant for Fiscal 2015. For the first year of the program, the PRSU grant for the Chief Executive Officer is broken out into two performance measurement periods. The first performance measurement period began on April 1, 2014 and will end on March 31, 2016; the second performance measurement period has a three-year term that began on April 1, 2014 and will end on March 31, 2017. Any earned PRSU awards will vest 50% after the end of the applicable performance measurement period and 50% one year thereafter.

 

There were no PRSUs granted during the three months ended December 31, 2014. The weighted average per share grant date fair value of PRSUs granted during the nine months ended December 31, 2014 was $1.56. The Company recorded expense of approximately $25,700 associated with its PRSUs during the three months ended December 31, 2014. The Company recorded expense of approximately $62,800 associated with its PRSUs during the nine months ended December 31, 2014. As of December 31, 2014, there was approximately $0.2 million of total compensation cost related to unvested PRSUs that is expected to be recognized as expense over a weighted average period of 2.3 years. Such compensation expense is recognized over the corresponding requisite service period and will be adjusted in subsequent reporting periods if the Company’s assessment of the probable level of achievement of the performance goals changes.

 

During the three months ended December 31, 2014 and 2013, the Company issued a total of 36,259 and 25,316 shares of stock, respectively, to non-employee directors who elected to take payment of all or any part of the directors’ fees in stock in lieu of cash. The weighted average per share grant date fair value of shares of stock issued during the three months ended December 31, 2014 and 2013 was $0.81 and $1.16, respectively. During the nine months ended December 31, 2014 and 2013, the Company issued a total of 79,080 and 73,478 shares of stock, respectively, to non-employee directors who elected to take payment of all or any part of the directors’ fees in stock in lieu of cash. The weighted average per share grant date fair value of shares of stock issued during the nine months ended December 31, 2014 and 2013 was $1.11 and $1.18, respectively.

 

Stockholder Rights Plan

 

The Company has entered into a rights agreement (as amended, the “Rights Agreement”) with Computershare Inc., successor-in-interest to Mellon Investor Services LLC, as rights agent. In connection with the Rights Agreement, the Company’s board of directors authorized and declared a dividend distribution of one preferred stock purchase right for each share of the Company’s common stock authorized and outstanding. Each right entitles the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $0.001 per share, at a purchase price of $10.00 per unit, subject to adjustment. The description and terms of the rights are set forth in the Rights Agreement. Initially, the rights are attached to all common stock certificates representing shares then outstanding and no separate rights certificates are distributed. Subject to certain exceptions specified in the Rights Agreement, the rights will separate from the common stock and will be exercisable upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of common stock, other than as a result of repurchases of stock by the Company or certain inadvertent actions by institutional or certain other stockholders, or (ii) 10 days (or such later date as the Company’s Board of Directors shall determine) following the commencement of a tender offer or exchange offer (other than certain permitted offers described in the Rights Agreement) that would result in a person or group beneficially owning 20% or more of the outstanding shares of the Company’s common stock.

 

On July 1, 2014, the Company’s Board of Directors unanimously approved a third amendment to the Rights Agreement pursuant to a “sunset provision,” which was approved by the stockholders at the 2014 annual meeting. The third amendment amends the Rights Agreement to provide that the rights will expire on the 30th day after the 2017 annual meeting of stockholders unless continuation of the Rights Agreement is approved by the stockholders at that meeting. On August 5, 2014, the Company entered into a fourth amendment to the Rights Agreement. The fourth amendment amends the Rights Agreement to clarify that the term of the Rights Agreement may not be continued or extended unless and until such amendment has received the approval of the stockholders of the Company at an annual or special meeting of the stockholders held prior to the termination of the Rights Agreement without taking into account such amendment.

 

The Rights Agreement is intended to protect the Company’s stockholders in the event of an unfair or coercive offer to acquire the Company. Management believes the Rights Agreement, however, should not affect any prospective offeror willing to make an offer at a fair price and otherwise in the best interests of the Company and its stockholders, as determined by the Board of Directors. Also, management believes the Rights Agreement should not interfere with any merger or other business combination approved by the Board of Directors.