9. Stockholders’ Equity

Stock Authorization

The Board of Directors is authorized to issue from time to time up to an aggregate of 5,000,000 shares of preferred stock, in one or more series. Each such series of preferred stock shall have the number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges to be determined by the Board of Directors, including dividend rights, voting rights, redemption rights and sinking fund provisions, liquidation preferences, conversion rights and preemptive rights. No preferred stock has been issued as of January 31, 2014.

Stock Repurchase Program

On September 4, 2013, our Board of Directors authorized the repurchase of up to $25.0 million of our common stock through a share repurchase program. The repurchase program terminates January 31, 2015. Under the program, we are authorized to repurchase shares through Rule 10b5-1 plans, open market purchases, privately negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934. We executed a Rule 10b5-1 plan commencing in January 2014. This share repurchase program does not obligate us to acquire any specific number of shares and may be suspended or discontinued at any time. All repurchases are expected to be funded from our current cash and investment balances. The timing and amount of shares to be repurchased will be based on market conditions and other factors, including price, corporate and regulatory requirements, and alternative investment opportunities. Any shares repurchased by us under the share repurchase program will reduce the number of shares outstanding. We have not purchased any shares of our common stock under this program as of January 31, 2014.

Stock-based Compensation

We use the provisions of the authoritative guidance which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and RSUs based on estimated fair values. The fair value of our stock-based options and performance-based RSUs, less expected forfeitures, is amortized over the awards’ vesting period on a graded vesting basis, whereas the RSUs are amortized on a straight-line basis. We have applied the provisions of authoritative guidance allowing the use of a “simplified” method, in developing an estimate of the expected term of “plain vanilla” share options.

Stock-based compensation includes expense charges for all stock-based awards to employees and directors. Such awards include option grants and RSU awards. The estimated fair value of our stock-based options and performance-based RSUs, less expected forfeitures, is amortized over the awards’ vesting period on a graded vesting basis, whereas the RSUs are amortized on a straight-line basis.

The effect of recording stock-based compensation was as follows:

 

		For the Fiscal Years Ended January 31,
		2014				2013				2012
		(Amounts in thousands)
Stock-based compensation expense by type of award:
Stock options		$	453			$	3,586			$	120
Restricted stock units			1,907				2,218				1,265
Performance-based restricted stock units			599				125				1,603
Total stock-based compensation		$	2,959			$	5,929			$	2,988

 

Since additional option grants and RSU awards are expected to be made each year and options and awards vest over several years, the effects of applying authoritative guidance for recording stock-based compensation for the year ended January 31, 2014 are not indicative of future amounts.

Determining Fair Value

Stock Options

We record the fair value of most stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise price, the expected option term, the risk-free interest rate over the option’s expected term, the expected annual dividend yield and the expected stock price volatility. The expected option term was determined using the “simplified” method for “plain vanilla” options. The expected stock price volatility was established using a blended volatility, which is an average of the historical volatility of our common stock over a period of time equal to the expected term of the stock option, and the average volatility of our common stock over the most recent one-year and two-year periods. The risk-free interest rate is based upon the U.S. treasury bond yield at the grant date, using a remaining term equal to the expected life. The expected dividend yield is 0%, as we have not paid cash dividends on our common stock since our inception.

The fair value of stock options granted was estimated at the date of grant using the following assumptions:

 

		For the Fiscal Years Ended January 31,
		2014		2013		2012
Expected term (in years)		5-7		3-7		4-5
Expected volatility (range)		44-46%		49-52%		52%
Weighted average volatility		45%		52%		52%
Risk-free interest rate		0.7-0.9%		0.7-1.2%		0.8%
Weighted average interest rate		0.8%		1.2%		0.8%
Expected dividend yield		0%		0%		0%

Market-Based Options

When market-based vesting is used on stock options (“Market Condition Options”) we use the Monte Carlo simulation model. The model simulates daily trading prices of the Market Condition Options’ expected term to determine if vesting conditions would be triggered during that term.

Stock Option Plans

2011 Compensation and Incentive Plan.

On July 20, 2011 our stockholders approved the adoption of our 2011 Compensation and Incentive Plan (the “2011 Plan”). Under the 2011 Plan, as originally adopted, the number of authorized shares of common stock is equal to 2,800,000 shares plus the number of shares that expired, terminated, surrendered or were forfeited awards subsequent to July 20, 2011 under the Amended and Restated 2005 Equity Compensation and Incentive Plan (the “2005 Plan”). Following approval of the 2011 Plan, the 2005 Plan was terminated. The 2011 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, RSUs, and other equity based non-stock option awards (as determined by the plan administrator) to officers, employees, consultants and directors of the Company. On July 17, 2013, shareholders approved an amendment to the 2011 Plan which:

 

•

increased the number of shares authorized for issuance by 2,500,000, bringing the total amount of authorized shares to 5,300,000;

 

•

increased the maximum number of shares underlying awards issued to an individual participant that may vest in one fiscal year from 500,000 to 1,250,000 shares, subject to certain exceptions specified in the 2011 Plan;

 

•

increased the per participant award limit per fiscal year from 500,000 to 1,250,000 shares effective February 1, 2012. This was previously approved by the Board of Directors during the first quarter of fiscal 2014; and

 

•

approved the material terms of the performance graph of the 2011 Plan under which tax-deductible compensation may be paid for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), including the business criteria on which performance goals may be based.

We may satisfy awards upon the exercise of stock options or vesting of RSUs with newly issued shares or treasury shares. The Board of Directors is responsible for the administration of the 2011 Plan and determining the terms of each award, award exercise price, the number of shares for which each award is granted and the rate at which each award vests. In certain instances the Board of Directors may elect to modify the terms of an award. As of January 31, 2014, there were 3,260,327 shares available for future grant.

Option awards may be granted to employees at an exercise price per share of not less than 100% of the fair market value per common share on the date of the grant. RSUs and other equity-based non-stock option awards may be granted to any officer, employee, director or consultant at a purchase price per share as determined by the Board of Directors. Awards granted under the 2011 Plan generally vest over three years and expire 10 years from the date of the grant.

On May 1, 2012, we granted to the Chief Executive Officer, as part of his total compensation package, 875,000 stock options with market and service conditions, to purchase the Company’s common stock at an exercise price equal to the last reported sale price of the common stock as of the date of grant. These stock options are currently fully vested. We recorded the fair value of these stock options using the Monte Carlo simulation model, since the stock option vesting was variable depending on the closing price of our traded common stock. The model simulated the daily trading price of the market stock options’ expected term to determine if the vesting conditions would be triggered during that term. As a result, the fair value of these stock options was estimated at $3.3 million at the date of grant.

The following table summarizes the stock option activity (excluding RSUs):

 

		For the Fiscal Years Ended January 31,
		2014								2013								2012
		Shares				Weighted average exercise price				Shares				Weighted average exercise price				Shares				Weighted average exercise price
Outstanding at beginning of period			1,917,448			$	10.35				2,125,371			$	11.83				2,382,174			$	12.31
Granted			12,500			$	10.10				892,500			$	8.21				250,000			$	6.74
Exercised			(118,528	)		$	9.10				(304,550	)		$	7.19				(253,668	)		$	7.04
Forfeited/expired/cancelled			(309,244	)		$	13.78				(795,873	)		$	13.11				(253,135	)		$	16.11
Outstanding at end of period			1,502,176			$	9.77				1,917,448			$	10.35				2,125,371			$	11.83
Options exercisable at end of period			1,440,521			$	9.90				937,444			$	12.78				1,878,707			$	12.51
Weighted average remaining contractual term (in years)							3.93								1.86								2.10

The weighted-average fair valuation at grant date of stock options granted during the years ended January 31, 2014, 2013 and 2012, was $3.89, $3.78, and $2.86, respectively. As of January 31, 2014, the unrecognized stock-based compensation related to the unvested stock options was approximately $50,000, net of estimated forfeitures. Total unrecognized compensation cost will be adjusted for any future changes in estimated changes in forfeitures. This cost will be recognized over an estimated weighted average amortization period of seventeen months.

The total intrinsic value of options exercised during the years ended January 31, 2014, 2013 and 2012 was $0.3 million, $0.5 million and $0.8 million, respectively, with intrinsic value defined as the difference between the market price on the date of exercise and the grant date price.

The cash received from employees as a result of employee stock option exercises during fiscal years 2014, 2013 and 2012 was $1.1 million, $2.2 million, and $1.8 million, respectively.

The following table summarizes information about employee and director stock options outstanding and exercisable as of January 31, 2014:

 

		Options Outstanding												Options Exercisable
		Number outstanding				Weighted average remaining contractual terms (years)				Weighted average exercise price				Number exercisable				Weighted average exercise price
Range of exercise prices
$6.74 to $6.74			224,421				4.96			$	6.74				166,099			$	6.74
$7.00 to $8.15			11,500				3.16			$	7.69				8,167			$	7.69
$8.22 to $8.22			875,000				5.24			$	8.22				875,000			$	8.22
$11.56 to $14.47			193,980				0.45			$	13.29				193,980			$	13.29
$15.52 to $15.84			84,313				0.10			$	15.62				84,313			$	15.62
$16.04 to $16.04			2,500				0.66			$	16.04				2,500			$	16.04
$16.56 to $16.56			5,000				1.01			$	16.56				5,000			$	16.56
$17.26 to $17.26			5,000				0.95			$	17.26				5,000			$	17.26
$17.39 to $17.39			89,462				0.75			$	17.39				89,462			$	17.39
$19.98 to $19.98			11,000				1.64			$	19.98				11,000			$	19.98
			1,502,176				3.93			$	9.77				1,440,521			$	9.90

Restricted Stock Units

Pursuant to the 2011 Plan, we may grant RSUs that entitle the recipient to acquire shares of our common stock. Awards of RSUs generally vest in equal increments on each of the first three anniversaries of the grant of the award. Stock-based compensation expense associated with the RSUs is charged for the market value of our stock on the date of grant, assuming nominal forfeitures, and is amortized over the awards’ vesting period on a straight-line basis for awards with only a service condition and graded vesting basis for awards that include both a performance and service condition.

 

The following table summarizes the RSU activity:

 

		For the Fiscal Years Ended January 31,
		2014								2013								2012
		Shares				Weighted average grant date fair value				Shares				Weighted average grant date fair value				Shares				Weighted average grant date fair value
Nonvested at beginning of period			552,980			$	10.51				721,365			$	10.46				363,078			$	8.00
Awarded			146,411			$	11.15				375,317			$	8.62				855,143			$	10.10
Vested			(205,928	)		$	12.61				(348,346	)		$	8.73				(381,955	)		$	7.53
Forfeited/expired/cancelled			(46,995	)		$	9.93				(195,356	)		$	9.87				(114,901	)		$	9.73
Nonvested at end of period			446,468			$	9.81				552,980			$	10.51				721,365			$	10.46

As of January 31, 2014, the unrecognized stock-based compensation related to the unvested RSUs was $4.2 million. This cost will be recognized over an estimated weighted average amortization period of 1.1 years.