STOCK-BASED COMPENSATION PLANS | 3 Months Ended |
Mar. 28, 2014 |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ' |
STOCK-BASED COMPENSATION PLANS | ' |
STOCK-BASED COMPENSATION PLANS |
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Stock Incentive Plans |
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The Company's 2007 Stock Incentive Plan, as amended, (the "2007 Plan"), provides for the award of options to purchase the Company's common stock ("stock options"), stock appreciation rights ("SARs"), restricted common stock ("restricted stock"), performance-based awards, restricted stock units ("RSUs") and other stock-based awards to employees, officers, directors (including those directors who are not employees or officers of the Company), consultants and advisors of the Company and its subsidiaries. |
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The Company's 2008 Stock Incentive Plan provides for the award of stock options, SARs, restricted stock, performance-based awards and RSUs to former employees of Network Equipment Technologies, Inc. ("NET") who subsequently became employees of Sonus and Sonus employees hired subsequent to the August 24, 2012, the date the Company acquired NET. |
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In connection with the acquisition of PT, the Company assumed PT's 2012 Amended Performance Technologies, Incorporated Omnibus Incentive Plan (the "PT 2012 Plan"), which provides for the award of stock options, SARs, restricted stock, performance-based awards and restricted stock units. The Company also assumed all of the outstanding options to purchase common stock under the Performance Technologies, Incorporated 2003 Omnibus Incentive Plan (the "PT 2003 Plan") and the Performance Technologies, Incorporated 2001 Stock Option Plan (the "PT 2001 Plan"); however, no future equity awards may be granted under either the PT 2003 Plan or the PT 2001 Plan. |
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The options to purchase PT common stock under the PT 2012 Plan, the PT 2003 Plan and the PT 2001 Plan were converted into options to purchase Sonus common stock (the "converted awards"), and the shares of PT common stock available for future grant under the PT 2012 Plan were converted into shares of Sonus common stock available for future grant, using a conversion factor of 1.23, which was calculated based on the acquisition consideration of $3.75 per share of PT's common stock divided by the average of the closing price of Sonus' common stock for the ten consecutive days ending with the third trading day that preceded the closing date. This conversion factor was also used to convert the exercise prices of PT stock options to Sonus stock option exercise prices. The converted awards will vest under the same schedules as the respective PT stock options. |
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The fair values of the PT stock options assumed were estimated using a Black-Scholes option pricing model. The Company recorded $1.7 million as additional purchase consideration for the fair value of the assumed equity awards. The fair value of the assumed awards attributable to future stock-based compensation expense totaled $0.9 million, which is being recorded over a weighted average period of approximately one year. |
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Executive and Board of Directors Equity Arrangements |
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On January 2, 2014, Raymond P. Dolan, the Company's President and Chief Executive Officer ("Mr. Dolan") elected to accept shares of restricted stock in lieu of base salary for the period from January 1, 2014 through December 31, 2014. Accordingly, the Company granted Mr. Dolan 243,507 shares of restricted stock (the "2014 Dolan Salary Shares") on January 2, 2014. The number of shares granted was calculated by dividing an amount equal to 1.5 times Mr. Dolan's base salary for the period from January 1, 2014 through December 31, 2014 by $3.08, the closing price of the Company's common stock on the date of grant. The 2014 Dolan Salary Shares will vest on December 31, 2014. If Mr. Dolan's employment is terminated by Mr. Dolan with Good Reason (as defined in his employment agreement, as amended) or his employment is terminated by the Company without Cause (as defined in his employment agreement, as amended) before December 31, 2014, a pro rata portion of the 2014 Dolan Salary Shares will vest on the date of such termination. If Mr. Dolan terminates his employment without Good Reason or his employment is terminated by the Company for Cause before December 31, 2014, he will forfeit the 2014 Dolan Salary Shares. The Company is recording stock-based compensation expense related to the 2014 Dolan Salary Shares ratably for the period of January 1, 2014 through December 31, 2014. The 2014 Dolan Salary Shares are included in the amount reported as "Granted" in the restricted stock grant table below. |
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On January 22, 2014, 21 executives of the Company, including Mr. Dolan, were given the choice to receive all or half of their fiscal year 2014 bonuses (the "2014 Bonus"), if any are earned, in the form of shares of the Company's common stock (the "2014 Bonus Shares"). Each executive could also elect not to participate in this program and to earn his or her 2014 Bonus, if any, in the form of cash. The amount of the 2014 Bonus, if any, for each executive shall be determined by the Compensation Committee of the Board of Directors of the Company (the "Compensation Committee"). The number of shares of the Company's common stock that will be granted to those executives who elected to receive their 2014 Bonus entirely in the form of shares of common stock will be calculated by dividing an amount equal to 1.5 times each executive's 2014 Bonus earned by $3.08, the closing price of the Company's common stock on January 2, 2014. The number of shares of the Company's common stock that will be granted to those executives who elected to receive one-half of their 2014 Bonus in the form of shares of common stock will be calculated by dividing an amount equal to 1.5 times one-half of each executive's 2014 Bonus earned by $3.08, with the cash portion equal 50% of their respective 2014 Bonus earned. The 2014 Bonus, if any, will be granted and/or paid on a date concurrent with the timing of the payout of bonuses under the Company-wide cash bonus program. The 2014 Bonus Shares, if any are granted, will be fully vested on the date of grant. Of the eligible executives, 17 elected to receive their entire 2014 Bonus in shares of common stock and 4 elected to receive 50% of their 2014 Bonus in shares of common stock and 50% in cash. As of March 28, 2014, the Company determined that the grant date criteria for the 2014 Bonus Shares had not been met; accordingly, the Company is marking to market the 2014 Bonus Shares expected to be earned and recording expense based on the aggregate fair value of the 2014 Bonus Shares at March 28, 2014. |
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In March 2013, 21 executives of the Company, including Mr. Dolan, elected to receive their fiscal year 2013 bonuses (the "2013 Bonus"), if any were earned, in the form of shares of the Company's common stock (the "2013 Bonus Shares"). The 2013 Bonus Shares were granted on February 18, 2014 and vested immediately. The Company granted approximately one million 2013 Bonus Shares, with the number of shares granted calculated by dividing amounts equal to 1.5 times the respective 2013 Bonus amounts earned, as determined by the Compensation Committee, by $3.30, the closing price of the Company's common stock on the date of grant. The Company recorded stock-based compensation expense for the 2013 Bonus Shares from January 1, 2013 through the grant date. These shares are reported as both "Granted" and "Vested" in the restricted stock grant table below. |
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On February 14, 2013, the Compensation Committee determined that eight executives of the Company, excluding Mr. Dolan, would receive their bonuses with respect to fiscal 2012 in the form of restricted shares of the Company's common stock equal to 100% of their respective target bonus amounts for fiscal 2012 (the "Executive Bonus Shares"). The Executive Bonus Shares vested 50% on August 15, 2013 and the remaining 50% vested on February 15, 2014, contingent upon each such executive's continued employment with the Company on the last vesting date. The Company recorded the unamortized expense related to the Executive Bonus Shares as stock-based compensation expense through February 15, 2014. These shares are reported as "Vested" in the restricted stock grant table below. |
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On August 7, 2012, Mr. Dolan elected to receive his fiscal year 2012 bonus, if earned, in the form of restricted shares of the Company's common stock (the “Dolan Bonus Shares”). The Dolan Bonus Shares vested 50% on August 15, 2013 and the remaining 50% vested on February 15, 2014. The Company recorded the unamortized stock-based compensation expense related to the Dolan Bonus Shares through February 15, 2014. |
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On February 11, 2014, the Board of Directors increased its number of members from nine to eleven and elected Matthew W. Bross and Richard J. Lynch to the Board to fill the newly created directorships. In connection with their appointments, on February 18, 2014, each new director received a grant of shares of restricted stock with a grant date fair value of $100,000, with the number of shares granted calculated by dividing $100,000 by $3.30, the closing price of the Company's stock on the date of grant, and $100,000 of options to purchase the Company's common stock, with the number of shares calculated by dividing $100,000 by the grant date fair value of an option to purchase one share of common stock as determined by using the Black-Scholes valuation model. These awards will vest on the earlier of immediately prior to the Company's 2014 Annual Meeting of Stockholders or one year from the date of grant. Each of the new directors also elected to receive their 2014 annual retainers in shares of common stock in lieu of cash. Additionally, an incumbent member of the Board was appointed Chairman of a new committee and elected to receive his incremental retainer for this chairmanship in shares of the Company's common stock. All of the retainer shares were granted on February 18, 2014, with 50% vesting immediately and the remaining 50% to vest on July 1, 2014. The Company granted options to purchase approximately 135,000 shares of common stock and 88,000 shares of restricted common stock in the three months ended March 28, 2014 in connection with these actions. These stock options and restricted stock awards are reported as "Granted" in the respective tables below. |
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Stock Options |
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The activity related to the Company's outstanding stock options during the three months ended March 28, 2014 is as follows: |
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| Number of | | Weighted | | Weighted | | Aggregate |
Shares | Average | Average | Intrinsic Value |
| Exercise Price | Remaining | (in thousands) |
| | Contractual Term | |
| | (years) | |
Outstanding at January 1, 2014 | 33,136,112 | | | $ | 3.22 | | | | | |
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Granted | 10,503,876 | | | $ | 3.61 | | | | | |
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PT outstanding options converted to Sonus options | 1,283,058 | | | $ | 1.73 | | | | | |
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Exercised | (1,353,598 | ) | | $ | 2.55 | | | | | |
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Forfeited | (486,481 | ) | | $ | 2.82 | | | | | |
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Expired | (323,308 | ) | | $ | 5.46 | | | | | |
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Outstanding at March 28, 2014 | 42,759,659 | | | $ | 3.28 | | | 7.4 | | $ | 16,351 | |
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Vested or expected to vest at March 28, 2014 | 40,387,215 | | | $ | 3.31 | | | 7.33 | | $ | 15,090 | |
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Exercisable at March 28, 2014 | 16,298,327 | | | $ | 3.55 | | | 4.79 | | $ | 7,859 | |
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The grant date fair values of options to purchase common stock granted in the three months ended March 28, 2014 were estimated using the Black-Scholes valuation model with the following assumptions: |
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| Three months ended | | | | | | | | | | | |
| March 28, | | | | | | | | | | | |
2014 | | | | | | | | | | | |
Risk-free interest rate | 1.53% - 2.70% | | | | | | | | | | | |
Expected dividends | — | | | | | | | | | | | |
Weighted average volatility | 61.70% | | | | | | | | | | | |
Expected life (years) | 4.5 - 6.0 | | | | | | | | | | | |
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Additional information regarding the Company's stock options for the three months ended March 28, 2014 is as follows: |
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| | March 28, | | | | | | | | |
2014 | | | | | | | | |
Weighted average grant date fair value of stock options granted | | $ | 1.66 | | | | | | | | | |
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Total intrinsic value of stock options exercised (in thousands) | | $ | 1,589 | | | | | | | | | |
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Cash received from the exercise of stock options (in thousands) | | $ | 3,444 | | | | | | | | | |
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Restricted Stock Awards |
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The activity related to the Company's unvested restricted stock awards for the three months ended March 28, 2014 is as follows: |
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| Shares | | Weighted | | | | | | |
Average | | | | | | |
Grant Date | | | | | | |
Fair Value | | | | | | |
Unvested balance at January 1, 2014 | 1,238,765 | | | $ | 2.82 | | | | | | | |
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Granted | 1,410,299 | | | $ | 3.25 | | | | | | | |
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Vested | (1,385,542 | ) | | $ | 3.16 | | | | | | | |
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Forfeited | — | | | $ | — | | | | | | | |
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Unvested balance at March 28, 2014 | 1,263,522 | | | $ | 2.92 | | | | | | | |
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The total fair value of shares of restricted stock that vested during the three months ended March 28, 2014 was $4.4 million. |
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Performance-Based Stock Awards |
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The activity related to the Company's performance-based stock awards for the three months ended March 28, 2014 is as follows: |
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| Shares | | Weighted | | | | | | |
Average | | | | | | |
Grant Date | | | | | | |
Fair Value | | | | | | |
Unvested balance at January 1, 2014 | 1,059,541 | | | $ | 2.6 | | | | | | | |
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Granted | — | | | $ | — | | | | | | | |
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Vested | (367,004 | ) | | $ | 2.6 | | | | | | | |
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Forfeited | — | | | $ | — | | | | | | | |
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Unvested balance at March 28, 2014 | 692,537 | | | $ | 2.72 | | | | | | | |
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Employee Stock Purchase Plan |
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At the February 2014 meeting of the Board of Directors, the ESPP was amended, effective March 1, 2014, to provide for six-month offering periods with the purchase price of the stock equal to 85% of the lesser of the market price on the first or last day of the offering period. The maximum number of shares of common stock an employee may purchase during each offering period is 2,500, subject to certain adjustments pursuant to the ESPP. |
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Stock-Based Compensation |
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The condensed consolidated statements of operations include stock-based compensation for the three months ended March 28, 2014 and March 29, 2013 as follows (in thousands): |
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2014 | 2013 | | | | |
Product cost of revenue | | $ | 79 | | | $ | 52 | | | | | |
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Service cost of revenue | | 279 | | | 210 | | | | | |
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Research and development | | 1,313 | | | 679 | | | | | |
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Sales and marketing | | 1,249 | | | 1,099 | | | | | |
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General and administrative | | 2,854 | | | 2,184 | | | | | |
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| | $ | 5,774 | | | $ | 4,224 | | | | | |
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There is no income tax benefit for employee stock-based compensation expense for the three months ended March 28, 2014 or March 29, 2013 due to the valuation allowance recorded. |
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At March 28, 2014, there was $42.3 million, net of expected forfeitures, of unrecognized stock-based compensation expense related to unvested stock options and restricted stock awards. This expense is expected to be recognized over a weighted average period of approximately three years. |