Share-based Compensation | 9 Months Ended |
Sep. 30, 2014 |
Share-based Compensation | ' |
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(11) Share-based Compensation |
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In September 2013, the Board of Directors approved the Company’s 2013 Stock Incentive Plan (the “2013 Plan”), under which the Company’s employees, officers, directors, and other eligible participants may be awarded various types of share-based compensation and authorized 600,000 shares of the Company’s class A common stock for issuance under the 2013 Plan. In April 2014, the Company’s stockholders approved the 2013 Plan at the Company’s annual meeting. |
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In April 2014, following the Company’s annual meeting, the Board of Directors authorized, subject to stockholder approval, an amendment to the 2013 Plan to increase the total number of shares of the Company’s class A common stock authorized for issuance under the 2013 Plan from 600,000 to 1,500,000 shares (“Amendment No. 1”). Also in April 2014, the Compensation Committee of the Board of Directors (the “Compensation Committee”) authorized, subject to stockholder approval, an additional amendment to the 2013 Plan to provide for automatic annual stock option grants to each of the Company’s non-employee directors with respect to 5,000 shares of the Company’s class A common stock, beginning in 2015 (“Amendment No. 2”). The Company considers stockholder approval of both amendments to the 2013 Plan to be perfunctory since the Company’s Chairman and Chief Executive Officer holds a majority of the total voting power of all the Company’s outstanding voting stock. |
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In April and May 2014, the Compensation Committee approved, in each case subject to stockholder approval of Amendment No. 1, the grant of stock options to purchase an aggregate of 660,000 shares of class A common stock to certain Company executives and directors pursuant to the 2013 Plan. These awards, and any additional awards granted prior to stockholder approval of Amendment No. 1, will be terminated or forfeited if stockholder approval is not obtained within 12 months of the date of grant of the awards, and no award may be exercised or settled prior to such stockholder approval. However, the Company expects to obtain stockholder approval of both amendments to the 2013 Plan at the Company’s annual meeting of stockholders in 2015. In the event stockholder approval for Amendment No. 1 is not obtained within 12 months of the grant date of any option awards, the cumulative share-based compensation expense associated with those stock option awards would be reversed. As of September 30, 2014, there were options to purchase 1,260,000 shares of class A common stock outstanding under the 2013 Plan (including the options to purchase 660,000 shares of class A common stock that are subject to stockholder approval of Amendment No. 1) and 240,000 remaining shares of class A common stock authorized for issuance under the 2013 Plan, subject to stockholder approval of Amendment No. 1. |
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Shares issued under the 2013 Plan may consist in whole or in part of authorized but unissued shares or treasury shares. Stock options that are granted under the 2013 Plan must have an exercise price equal to at least the fair market value of the Company’s class A common stock on the date of grant, become exercisable as established by the Board of Directors or the Compensation Committee, and expire no later than ten years following the date of grant. The Company recognizes share-based compensation expense associated with such stock option awards on a straight-line basis over the award’s requisite service period (generally, the vesting period). The stock option awards granted to date vest in equal annual installments over an approximately four-year vesting period (unless accelerated upon a change in control event (as defined in the stock option agreement for the applicable award) or otherwise in accordance with provisions of the 2013 Plan or applicable option agreement). |
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Share-based compensation expense is based on the fair value of the stock option awards on the date of grant, as estimated using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of certain management assumptions, including the expected term, expected stock price volatility, risk-free interest rate, and expected dividend yield. The Company estimates the term over which optionholders are expected to hold their stock options by using the simplified method for “plain-vanilla” stock option awards because the Company’s stock option exercise history does not provide a reasonable basis to compute the expected term for stock options granted under the 2013 Plan. The Company relies exclusively on its historical stock price volatility to estimate the expected stock price volatility over the expected term because the Company believes future volatility is unlikely to differ from the past. In estimating the expected stock price volatility, the Company uses a simple average calculation method. The risk-free interest rate is based on U.S. Treasury securities with terms that approximate the expected term of the stock options. The expected dividend yield is based on the Company’s past cash dividend history and anticipated future cash dividend payments. The expected dividend yield is zero, as the Company has not previously declared cash dividends and does not currently intend to declare cash dividends in the foreseeable future. These assumptions are based on management’s best judgment, and changes to these assumptions could materially affect the fair value estimates and amount of share-based compensation expense recognized. |
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The following table summarizes the Company’s stock option activity (in thousands, except per share data and years) for the three months ended September 30, 2014: |
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| | Stock Options Outstanding | |
| | Shares | | | Weighted Average | | | Aggregate | | | Weighted Average | |
Exercise Price | Intrinsic | Remaining Contractual |
Per Share | Value | Term (Years) |
Balance as of July 1, 2014 | | | 1,260 | | | $ | 107.54 | | | | | | | | | |
Granted | | | 0 | | | | 0 | | | | | | | | | |
Exercised | | | 0 | | | | 0 | | | | | | | | | |
Forfeited/Expired | | | 0 | | | | 0 | | | | | | | | | |
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Balance as of September 30, 2014 | | | 1,260 | | | $ | 107.54 | | | | | | | | | |
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Exercisable as of September 30, 2014 | | | 150 | | | $ | 92.84 | | | $ | 5,700 | | | | 8.9 | |
Expected to vest as of September 30, 2014 | | | 1,110 | | | $ | 109.53 | | | $ | 23,660 | | | | 9.3 | |
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Total | | | 1,260 | | | $ | 107.54 | | | $ | 29,360 | | | | 9.3 | |
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An aggregate of 150,000 stock options with an aggregate fair value of $6.3 million vested during the three months ended September 30, 2014. The Company expects all unvested options at September 30, 2014 to fully vest in future years in accordance with their vesting schedules and therefore share-based compensation expense has not been adjusted for any expected forfeitures. |
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For the three and nine months ended September 30, 2014, the Company recognized approximately $3.9 million and $8.6 million, respectively, in share-based compensation expense from stock options granted under the 2013 Plan. For the three and nine months ended September 30, 2013, the Company recognized approximately $0.4 million and $0.4 million, respectively, in share-based compensation expense from stock options granted under the 2013 Plan. As of September 30, 2014, there was approximately $50.2 million of total unrecognized share-based compensation expense related to unvested stock options. The Company expects to recognize this remaining share-based compensation expense over a weighted average vesting period of approximately 3.3 years. |
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During the three and nine months ended September 30, 2014, no windfall tax benefits were realized from the exercise of stock options. During the three and nine months ended September 30, 2013, the Company was able to recognize and utilize net operating loss carryforwards arising directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting that was generated primarily in prior years under previous stock incentive plans that are now expired. Accordingly, stockholders’ equity increased by $23.6 million during the nine months ended September 30, 2013. |
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MicroStrategy’s former subsidiary, Angel.com, previously maintained a stock incentive plan under which certain employees, officers, and directors of MicroStrategy and Angel.com were granted options to purchase shares of the class A common stock of Angel.com, subject to the satisfaction of both performance and continued service conditions. Share-based compensation expense would have been recognized over the requisite service period of the award based on the probability of the satisfaction of the performance condition, reduced by the number of awards that were not expected to vest due to the failure to satisfy the continued service condition. In connection with the sale of Angel.com in the first quarter of 2013, the Angel.com stock incentive plan was terminated and all outstanding options thereunder were terminated in exchange for cash payments totaling $8.0 million. Prior to their termination, no share-based compensation expense was recognized for these awards for the three and nine months ended September 30, 2013 because the performance condition had not been satisfied. |