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, 2015.

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 which would have terminated on January 31, 2015. On May 31, 2014, this program was amended to increase the authorized repurchase amount to $40.0 million and extend the termination date to April 30, 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. 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. Pursuant to the share repurchase program, we executed a Rule 10b5-1 plan in June 2014 to repurchase shares. During fiscal 2015, we used $5.5 million of cash in connection with the repurchase of 591,520 shares of our common stock (an average price of $9.31 per share). As of January 31, 2015, $34.5 million remained available to repurchase under the existing share repurchase authorization.

Stock Option Plans

2011 Compensation and Incentive Plan.

In July 2011, our stockholders approved the adoption of our 2011 Compensation and Incentive Plan (the “2011 Plan”). Under the 2011 Plan, as amended in July 2013, the number of authorized shares of common stock is equal to 5,300,000 shares plus the number of shares that would have become available for issuance under our prior Amended and Restated 2005 Equity Compensation and Incentive Plan following the adoption of the 2011 Plan due to the expiration, termination, surrender or forfeiture of an award under the prior plan. The 2011 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, RSUs, deferred stock units (“DSUs”) and other equity based non-stock option awards as determined by the plan administrator, to officers, employees, consultants, and directors of the Company.

Effective February 1, 2014, SeaChange gave its non-employee members of the Board of Directors the option to receive DSUs in lieu of RSUs beginning with the annual grant for fiscal 2015. These DSUs shall fully vest one year from the grant date. The number of units subject to the DSUs is determined as of the first day of the applicable fiscal year and the shares underlying the DSUs are not vested and issued until the earlier of the director ceasing to be a member of the Board of Directors (provided such time is subsequent to the first day of the succeeding fiscal year) or immediately prior to a change in control.

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, 2015, there were 2,484,004 shares available for future grant under the 2011 Plan.

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, DSUs 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. Option awards granted under the 2011 Plan generally vest over a period of three years and expire ten years from the date of the grant.

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, RSUs and DSUs 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, RSU and DSU 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 and DSUs are amortized on a straight-line basis.

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

 

		For the Fiscal Years Ended January 31,
		2015				2014				2013
		(Amounts in thousands)
Stock-based compensation expense by type of award:
Stock options		$	1,036			$	453			$	3,586
Restricted stock units			1,607				1,907				2,218
Deferred stock units			500				—				—
Performance-based restricted stock units			77				599				125
Total stock-based compensation		$	3,220			$	2,959			$	5,929

 

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, 2015 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,
		2015		2014		2013
Expected term (in years)		6.5		5-7		3-7
Expected volatility (range)		46%		44-46%		49-52%
Weighted average volatility		46%		45%		52%
Risk-free interest rate		1.7%		0.7-0.9%		0.7-1.2%
Weighted average interest rate		1.7%		0.8%		1.2%
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.

We appointed a new CEO on October 20, 2014, at which time he was granted 500,000 stock options to purchase the Company’s common stock. These stock options have an exercise price equal to our closing stock price on October 20, 2014, and will vest in approximately equal increments based upon the closing price of our common stock, but in no case earlier than six months from the date of grant. We recorded the fair value of these stock options using the Monte Carlo simulation model, since the stock option vesting is variable depending on the closing price of our traded common stock. Key input assumptions used to estimate the fair value of the Market Condition Options include exercise price, volatility, risk-free rate, the required rate of return on equity, annual turnover rate and the expected term to exercise. These assumptions are included in the table above for fiscal 2015. No other options were granted during this fiscal year. The model simulated the daily trading price of the Market Condition Options’ expected term to determine if the vesting conditions would be triggered during the term. As a result, the fair value of these stock options was estimated at $1.7 million. We have incurred stock compensation expense of $0.3 million for the period from the date of grant to and including January 31, 2015.

 

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

 

		For the Fiscal Years Ended January 31,
		2015								2014								2013
		Shares				Weighted average exercise price				Shares				Weighted average exercise price				Shares				Weighted average exercise price
Outstanding at beginning of period			1,502,176			$	9.77				1,917,448			$	10.35				2,125,371			$	11.83
Granted			500,000			$	7.23				12,500			$	10.10				892,500			$	8.21
Exercised			—			$	—				(118,528	)		$	9.10				(304,550	)		$	7.19
Forfeited/expired/cancelled			(375,755	)		$	15.06				(309,244	)		$	13.78				(795,873	)		$	13.11
Outstanding at end of period			1,626,421			$	7.77				1,502,176			$	9.77				1,917,448			$	10.35
Options exercisable at end of period			1,108,115			$	8.02				1,440,521			$	9.90				937,444			$	12.78
Weighted average remaining contractual term (in years)							4.72								3.93								1.86

The weighted-average fair valuation at grant date of stock options granted during the years ended January 31, 2015, 2014 and 2013, was $3.39, $1.53, and $3.78, respectively. As of January 31, 2015, the unrecognized stock-based compensation related to the unvested stock options was approximately $1.4 million, 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 1.6 years.

Intrinsic value is defined as the difference between the market price on the date of exercise and the grant date price. The aggregate intrinsic value for options outstanding was $0.1 million, $4.5 million and $1.4 million as of January 31, 2015, 2014 and 2013, respectively. The aggregate intrinsic value of vested shares and share options expected to vest as of January 31, 2015, 2014 and 2013 was $0.1 million, $4.4 million and $1.3 million, respectively. There were no stock options exercised in fiscal 2015. The total intrinsic value of options exercised during the years ended January 31, 2014 and 2013 was $0.3 million and $0.5 million, respectively.

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

The following table summarizes information about employee and director stock options outstanding and exercisable as of January 31, 2015:

 

		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				3.96			$	6.74				207,781			$	6.74
$7.00 to $7.48			501,000				6.10			$	7.23				1,000			$	7.00
$7.49 to $7.49			1,000				0.35			$	7.49				1,000			$	7.49
$7.72 to $7.72			4,500				0.44			$	7.72				4,500			$	7.72
$8.15 to $8.15			5,000				4.42			$	8.15				3,334			$	8.15
$8.22 to $8.22			875,000				4.24			$	8.22				875,000			$	8.22
$11.56 to $11.56			2,000				0.19			$	11.56				2,000			$	11.56
$12.95 to $12.95			2,000				0.17			$	12.95				2,000			$	12.95
$13.66 to $13.66			6,500				0.09			$	13.66				6,500			$	13.66
$16.56 to $16.56			5,000				0.01			$	16.56				5,000			$	16.56
			1,626,421				4.72			$	7.77				1,108,115			$	8.02

 

Restricted Stock Units and Deferred Stock Units

Pursuant to the 2011 Plan, we may grant RSUs and DSUs 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. DSUs generally vest on the first anniversary of the grant. Stock-based compensation expense associated with the RSUs and DSUs 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 and DSU activity:

 

		For the Fiscal Years Ended January 31,
		2015								2014								2013
		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			446,468			$	9.81				552,980			$	10.51				721,365			$	10.46
Awarded			314,057			$	8.60				146,411			$	11.15				375,317			$	8.62
Vested			(287,485	)		$	9.83				(205,928	)		$	12.61				(348,346	)		$	8.73
Forfeited/expired/cancelled			(37,734	)		$	10.01				(46,995	)		$	9.93				(195,356	)		$	9.87
Nonvested at end of period			435,306			$	8.91				446,468			$	9.81				552,980			$	10.51

As of January 31, 2015, the unrecognized stock-based compensation related to the unvested RSUs and DSUs was $2.2 million. This cost will be recognized over an estimated weighted average amortization period of 2.3 years.