Stock Based Compensation | Note 17—Stock Based Compensation The Company recognized compensation expense related to awards under its stock based compensation plans as follows: For the Three Months Ended For the Nine Months Ended March 31, March 31, 2016 2015 2016 2015 Performance Based Units $ — $ — $ $ — 2014 Equity Incentive Plan — Payroll taxes relating to stock based compensation — — — — 2015 Incentive Award Plan — — Other Total $ $ $ $ Performance Based Units In connection with Carlyle’s acquisition of Chesapeake (refer to the Company’s Registration Statement filed on Form S-1), certain members of Chesapeake’s management were allowed to co-invest with Carlyle in an entity controlled by Carlyle that holds an investment in the Company. At the time of the grant, those members of management that invested alongside Carlyle received a specified number of common shares, which were subject to a performance-based ratchet (the “Ratchet”). Pursuant to the Ratchet, members of management’s ownership percentage could increase based on Chesapeake completing an “Exit” that resulted in a specified return on invested capital (“MOIC”) and internal rate of return (“IRR”) for certain investors. An Exit is defined as the completion of a liquidating event, which includes the completion of an initial public offering (“IPO”). Since a liquidity event, including an IPO, is generally not probable until it occurs, no compensation cost had been recognized in the financial statements through the initial public offering date. On October 27, 2015, the Company completed its IPO (see Note 1) and accordingly the performance-based units vested and the Company recognized stock based compensation expense of approximately $9,460 during the nine months ended March 31, 2016. The expense at the time of the IPO was calculated using the IPO stock price of $13 per share on a per share equivalent basis of Carlyle shares, less a lack of marketability discount rate due to the shares not being freely tradeable by the members of management. 2014 Equity Incentive Plan (Mustang Investment Holdings L.P.) The 2014 Equity Incentive Plan (the “2014 Plan”) provides for profits interests and restricted capital interests in Mustang Investment Holdings L.P. (“Holdings”) to be granted to directors, officers and employees of the Company. During the three and nine months ended March 31, 2016 and 2015, Holdings did not issue any time-vesting profits interests or performance-vesting profits interests. Time-vesting profits interests vested twenty percent per year on each of the first five anniversaries of August 15, 2013, as per the applicable award agreement. All performance-vesting profits interests would vest based on Holdings’ principal investors obtaining various thresholds of an internal rate of return as defined in the 2014 Plan, which represents a performance condition. Since the profits interests issued under the 2014 Plan are for interests in Holdings, which is outside of the consolidated group, the value of the profits interests was marked to market at each of the Company’s reporting periods. On October 27, 2015, the Company completed its IPO and in connection with the IPO the performance-vesting units vested and the Company accelerated the vesting of the time-vesting profits interest. The Company recognized compensation expense related to awards under the 2014 Plan as follows: For the Three Months Ended For the Nine Months Ended March 31, March 31, 2016 2015 2016 2015 Time vesting profit interests $ — $ Time vesting restricted capital interests — Performance-vesting profit interests — — — Total $ — $ $ $ 2014 Plan—Profits Interests Valuation As an input to the Black-Scholes model, and for valuation of the profits interest and restricted capital interest awards, the Company estimated the fair value of Holdings’ equity quarterly. The Company relied on the results of a discounted cash flow analysis but also considered other widely recognized valuation models. The discounted cash flow analysis is dependent on a number of significant management assumptions regarding the expected future financial results of the Company and Holdings, as well as upon estimates of an appropriate cost of capital. A sensitivity analysis was performed in order to establish a narrow range of estimated fair values for the equity of Holdings. The market approach consists of identifying a set of guideline public companies. Multiples of historical and projected earnings before interest, taxes, depreciation and amortization (“EBITDA”) determined based on the guideline companies are applied to Holdings’ EBITDA in order to establish a range of estimated fair value for the equity of Holdings. After considering all of these estimates of fair value, the Company then determines a single estimated fair value of the equity to be used in accounting for equity-based compensation. The Company calculated the estimated fair value of each award as of the reporting date for each grant prior to the IPO using the Black–Scholes option valuation model. There was no active market for Holdings’ equity. Therefore, as a substitute for Holdings’ volatility, the Company elected to use the historical volatility of various publically traded companies in the printing industry. The expected term of profits interests granted is derived from the output of the option valuation model and represents the period of time that profits interests granted are expected to be outstanding. The risk-free rate for periods within the life of the profits interests is based on the U.S. Treasury yield curve in effect at the time of grant. During the three months ended March 31, 2015, the Company utilized 6.00 years as the expected term, 46.58% for its expected volatility, and 2.13% for the risk free rate of interest. The Company does not expect to pay any dividends and the weighted average of profits interest was $4.77 per profit interest. During the nine months ended March 31, 2015, the Company utilized 6.13 years as the expected term, 46.58% for its expected volatility, 2.13% for the risk free rate of interest, the Company does not expect to pay any dividends and the weighted average of profits interest was $4.77 per profit interest. The expense at the time of the IPO was calculated using the IPO stock price of $13 per share on a per share equivalent basis of Holdings shares less a lack of marketability discount rate due to the shares not being freely tradeable. At the time of the Company’s IPO all the profit interests in Holdings were converted on an equivalent share basis. As of March 31, 2016, there are no profit interests outstanding. As of March 31, 2016, there was no unearned compensation related to unvested profit interests. 2014 Plan—Restricted Capital Interests Valuation For Restricted Capital Interests issued under the 2014 Plan the Company calculated the estimated fair value of each award using the Black-Scholes option valuation model that uses the assumptions described below and considers a lack of marketability discount. There was no active market for Holdings’ equity. Therefore, as a substitute for Holdings’ volatility, the Company elected to use the historical volatility of various publicly traded companies in the printing industry. The Company uses historical data to estimate employee terminations within the valuation model. The expected term of restricted capital interests granted is derived from the output of the option valuation model and represents the period of time that restricted capital interests granted are expected to be outstanding. The risk-free rate for periods within the life of the restricted capital interests is based on the U.S. Treasury yield curve in effect at the time of grant. During the three months ended March 31, 2015, the Company utilized 6.00 years as the expected term, 46.58% for its expected volatility, and 2.13% for the risk free rate of interest. The Company does not expect to pay any dividends and the weighted average of restricted capital interests was $4.77 per profit interest. During the nine months ended March 31, 2015, the Company utilized 6.13 years as the expected term, 46.58% for its expected volatility, 2.13% for the risk free rate of interest, the Company does not expect to pay any dividends and the weighted average of the restricted capital interest was $4.77 per restricted capital interest. The expense at the time of the IPO was calculated using the IPO stock price of $13 per share on a per share equivalent basis of Holdings shares less a lack of marketability discount rate due to the shares not being freely tradeable. At the time of the Company’s IPO all the restricted capital interests in Holdings were converted on an equivalent share basis. As of March 31, 2016, there are no restricted capital interests outstanding. There were no restricted capital interests issued during the periods presented. There was no unearned compensation related to unvested restricted capital interests at March 31, 2016. 2015 Incentive Award Plan The Multi Packaging Solutions International Limited 2015 Incentive Award Plan (the “2015 Plan”) was adopted in October 2015 and provides for the grant of stock options, including incentive stock options and nonqualified stock options, restricted stock, dividend equivalents, restricted stock units, stock appreciation rights, and other stock or cash-based awards. All awards under the 2015 Plan are granted pursuant to award agreements, which, together with the 2015 Plan, detail the terms and conditions of the awards, including any applicable vesting, payment terms and post-termination exercise limitations. Awards may be subject to performance criteria, which are determined by the Company’s Board of Directors (or a committee thereof), and that must be achieved in order for the awards to vest and/or be settled. An aggregate of 9,000 common shares was initially made available for issuance under the 2015 Plan. The Company compensates its independent board members for their services through an annual cash payment of $75 and an annual stock grant valued at $75 , which is fully vested at the date of grant. Additional cash compensation is given for service as chair of a committee of the Board of Directors. The Company recorded expense of $225 for the nine months ended March 31, 2016 in connection with stock grants to three directors during the period. |