Stock Options and Stock-based Employee Compensation | 12 Months Ended |
Dec. 31, 2013 |
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | ' |
Stock Options and Stock-based Employee Compensation | ' |
3. Stock Options and Stock-based Employee Compensation |
Below is a summary of common stock options outstanding at December 31, 2013: |
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| | Authorized | | | Options | | | Options | | | Available | | | | | |
Shares | Outstanding | Vested | for | | | | |
| | | Grant | | | | |
Employee and Director Stock Option Plans: | | | | | | | | | | | | | | | | | | | | |
1995 Long-term Incentive Plan | | | 1,825,000 | | | | 680,000 | | | | 680,000 | | | | — | | | | | |
1999 Director’s Stock Option Plan | | | 975,000 | | | | 83,292 | | | | 83,292 | | | | — | | | | | |
2001 Stock Option Plan | | | 2,525,000 | | | | 515,796 | | | | 515,796 | | | | — | | | | | |
2001 Employee Stock Option Plan | | | 300,000 | | | | 77,931 | | | | 77,931 | | | | — | | | | | |
2003 New Employee Stock Option Plan | | | 500,000 | | | | 16,400 | | | | 14,399 | | | | — | | | | | |
2004 Stock Option Plan | | | 5,000,000 | | | | 3,254,404 | | | | 2,937,718 | | | | — | | | | | |
2004 Director’s Stock Option Plan | | | 300,000 | | | | 160,000 | | | | 160,000 | | | | — | | | | | |
2006 Director’s Stock Option Plan | | | 1,100,000 | | | | 586,676 | | | | 586,676 | | | | — | | | | | |
2012 Incentive Plan | | | 2,700,000 | | | | 723,875 | | | | 202,686 | | | | 523,160 | | | | | |
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Total employee and director stock option plans | | | 15,225,000 | | | | 6,098,374 | | | | 5,258,498 | | | | 523,160 | | | | | |
Executive Stock Option Agreements: | | | | | | | | | | | | | | | | | | | | |
Richard D. Spurr, Chairman, President and CEO | | | 650,000 | | | | 650,000 | | | | 650,000 | | | | — | | | | | |
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Total | | | 15,875,000 | | | | 6,748,374 | | | | 5,908,498 | | | | 523,160 | | | | | |
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Under all of our stock option plans, new shares are issued when options are exercised. |
Employee and Director Stock Option Plans |
We have non-qualified stock options outstanding to employees and directors under various stock option plans. The plans require the exercise price of options granted under these plans to equal or exceed the fair market value of the Company’s common stock on the date of grant. The options, subject to termination of employment, generally expire ten years from the date of grant. Historically, our employee options typically vested pro-rata and quarterly over three years. Option grants to employees, officers and directors frequently contain accelerated vesting provisions upon the occurrence of a change of control, as defined in the applicable option agreements. |
Under the terms of the 2012 Incentive Plan adopted by the Company’s Board of Directors on April 13, 2012 (the “2012 Plan”), 2,700,000 shares are available for issuance, plus a number of additional shares (not to exceed 1,327,000) underlying options outstanding under certain of the Company’s prior equity plans that thereafter terminate or expire unexercised, or are cancelled, forfeited, or lapse for any reason. Awards issued under the 2012 Plan typically vest pro-rata and quarterly over four years. |
Executive Stock Option Agreements: |
Richard D. Spurr — In January 2004, Mr. Richard D. Spurr was appointed president and chief operating officer of the Company. Mr. Spurr received non-shareholder approved options to acquire 650,000 shares of ZixCorp common stock at an exercise price of $10.80 per share. At December 31, 2013, all 650,000 options were vested and outstanding. These options expired unexercised in February 2014. Mr. Spurr was appointed Chief Executive Officer in March 2005, and Chairman of the Board in February 2006. |
Other Stock Option Agreements: |
From time to time we may grant stock options to consultants, contractors and other third parties for services provided to the Company. These options are expensed based on their fair values as calculated by using the Black-Scholes Option Pricing Model (“BSOPM”). At December 31, 2013, options outstanding to non-employees were 55,000, which were granted from our stock option plans. |
Accounting Treatment |
We use the straight-line amortization method for recognizing stock option compensation costs. Our share-based awards include stock options, restricted stock and restricted stock units (“RSU’s”). |
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For the twelve months ended December 31, 2013, 2012, and 2011, respectively, the total stock-based compensation expense resulting from stock options, restricted stock, and RSU’s was recorded to the following line items of our consolidated statement of income: |
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| | Year Ended December 31, | | | | | | | | | |
(In thousands) | | 2013 | | | 2012 | | | 2011 | | | | | | | | | |
Cost of revenues | | $ | 172 | | | $ | 136 | | | $ | 71 | | | | | | | | | |
Research and development expenses | | | 212 | | | | 142 | | | | 68 | | | | | | | | | |
Selling, general and administrative expenses | | | 1,327 | | | | 888 | | | | 430 | | | | | | | | | |
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Stock-based compensation expense | | $ | 1,711 | | | $ | 1,166 | | | $ | 569 | | | | | | | | | |
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As of December 31, 2013, there was $3.2 million of total unrecognized stock-based compensation related to non-vested share-based compensation awards granted under the stock option plans. This cost is expected to be recognized over a weighted average period of 1.6 years. |
We used the BSOPM to determine the fair value of option grants made during 2013, 2012, and 2011. On January 1, 2006, we elected to use the “simplified” method to calculate the estimated life of options granted to employees. The use of the “simplified” method has been extended until such time when we have sufficient information to make more refined estimates on the estimated life of our options. The expected stock price volatility was calculated by averaging the historical volatility of the Company’s common stock over a term equal to the expected life of the options. |
The following weighted average assumptions were applied in determining the fair value of options granted during the respective periods: |
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| | Year Ended December 31, | | | | | | | | | |
| | 2013 | | | 2012 | | | 2011 | | | | | | | | | |
Risk-free interest rate | | | 1.05 | % | | | 0.92 | % | | | 1.81 | % | | | | | | | | |
Expected option life (years) | | | 5.8 | | | | 6 | | | | 5.8 | | | | | | | | | |
Expected stock price volatility | | | 69 | % | | | 74 | % | | | 75 | % | | | | | | | | |
Expected dividend yield | | | — | | | | — | | | | — | | | | | | | | | |
Fair value of options granted | | $ | 1.99 | | | $ | 1.72 | | | $ | 2.48 | | | | | | | | | |
The assumptions used in the BSOPM valuation are critical as a change in any given factor could have a material impact on the financial results of the Company. The weighted average grant-date fair value of awards of restricted stock and RSU’s is based on quoted market price of the Company’s common stock on the date of grant. |
Stock Option Activity |
There were 839,263 stock options exercised for the twelve months ended December 31, 2013. As a result of these stock option exercises, there was $427 thousand in excess tax benefits recorded in 2013. For the comparative period in 2012, there were 174,968 stock option exercises. A deferred tax asset totaling $321 thousand and $306 thousand resulting from stock-based compensation expenses was recorded for the twelve months ended December 31, 2013 and 2012, respectively. |
The following is a summary of all stock option transactions for the three years ended December 31, 2013: |
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| | Shares | | | Weighted | | | Weighted | | | | | | | | | |
Average | Average | | | | | | | | |
Exercise | Remaining | | | | | | | | |
Price | Contractual | | | | | | | | |
| Term (Yrs) | | | | | | | | |
Outstanding at January 1, 2011 | | | 7,646,892 | | | $ | 4.42 | | | | | | | | | | | | | |
Granted at market price | | | 536,500 | | | $ | 3.83 | | | | | | | | | | | | | |
Cancelled or expired | | | (310,006 | ) | | $ | 6.41 | | | | | | | | | | | | | |
Exercised | | | (725,936 | ) | | $ | 2.46 | | | | | | | | | | | | | |
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Outstanding at December 31, 2011 | | | 7,147,450 | | | $ | 4.48 | | | | | | | | | | | | | |
Granted at market price | | | 1,099,000 | | | $ | 2.69 | | | | | | | | | | | | | |
Cancelled or expired | | | (386,706 | ) | | $ | 4.69 | | | | | | | | | | | | | |
Exercised | | | (174,968 | ) | | $ | 1.76 | | | | | | | | | | | | | |
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Outstanding at December 31, 2012 | | | 7,684,776 | | | $ | 4.28 | | | | | | | | | | | | | |
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Granted at market price | | | 150,000 | | | $ | 3.27 | | | | | | | | | | | | | |
Cancelled or expired | | | (247,139 | ) | | $ | 5.15 | | | | | | | | | | | | | |
Exercised | | | (839,263 | ) | | $ | 2.03 | | | | | | | | | | | | | |
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Outstanding at December 31, 2013 | | | 6,748,374 | | | $ | 4.5 | | | | 3.67 | | | | | | | | | |
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Options exercisable at December 31, 2013 | | | 5,908,498 | | | $ | 4.73 | | | | 3.1 | | | | | | | | | |
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At December 31, 2013, we had 4,110,030 options outstanding and 3,270,154 options exercisable in which the exercise price was lower than the market value of the Company’s common stock. The aggregate intrinsic value of these options was $6.6 million and $5.2 million, respectively. At December 31, 2012, we had 2,267,052 options outstanding and 1,657,907 options exercisable in which the exercise price was lower than the market value of the Company’s common stock. The aggregate intrinsic value of these options was $2.0 million and $1.8 million, respectively. |
The total intrinsic value of options exercised during the years ended December 31, 2013 and 2012, was $1.9 million and $135 thousand, respectively. |
Summarized information about stock options outstanding at December 31, 2013, is as follows: |
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| | Options Outstanding | | | Options Exercisable | |
Range of | | Number | | | Weighted | | | Weighted | | | Number | | | Weighted | |
Exercise Prices | Outstanding | Average | Average | Exercisable | Average |
| | Remaining | Exercise | | Exercise |
| | Contractual Life | Price | | Price |
$1.11 - $1.99 | | | 711,697 | | | | 3.01 | | | $ | 1.52 | | | | 711,697 | | | $ | 1.52 | |
$2.00 - $3.49 | | | 1,923,433 | | | | 6.61 | | | $ | 2.72 | | | | 1,198,070 | | | $ | 2.71 | |
$3.50 - $4.99 | | | 2,578,652 | | | | 3.59 | | | $ | 4.34 | | | | 2,464,139 | | | $ | 4.36 | |
$5.00 - $5.99 | | | 286,500 | | | | 0.77 | | | $ | 5 | | | | 286,500 | | | $ | 5 | |
$6.00 - $8.99 | | | 455,300 | | | | 0.76 | | | $ | 6.45 | | | | 455,300 | | | $ | 6.45 | |
$9.00 - $11.00 | | | 792,792 | | | | 0.14 | | | $ | 10.72 | | | | 792,792 | | | $ | 10.72 | |
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| | | 6,748,374 | | | | 3.67 | | | $ | 4.5 | | | | 5,908,498 | | | $ | 4.73 | |
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There were 6,412,505 and 7,034,356 exercisable options at December 31, 2012 and 2011, respectively. |
Restricted Stock Activity |
The following is a summary of all restricted stock activity during the two years ended December 31, 2013: |
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| | Restricted | | | Weighted | | | | | | | | | | | | | |
Shares | Average | | | | | | | | | | | | |
| Fair Value | | | | | | | | | | | | |
Outstanding at January 1, 2012 | | | — | | | | — | | | | | | | | | | | | | |
Granted at market price | | | 351,000 | | | $ | 2.49 | | | | | | | | | | | | | |
Vested | | | — | | | | — | | | | | | | | | | | | | |
Cancelled | | | — | | | | — | | | | | | | | | | | | | |
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Unvested restricted stock at December 31, 2012 | | | 351,000 | | | $ | 2.49 | | | | | | | | | | | | | |
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Granted at market price | | | 385,000 | | | $ | 3.45 | | | | | | | | | | | | | |
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Vested | | | (87,750 | ) | | | 2.49 | | | | | | | | | | | | | |
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Cancelled | | | — | | | | — | | | | | | | | | | | | | |
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Unvested restricted stock at December 31, 2013 | | | 648,250 | | | $ | 3.06 | | | | | | | | | | | | | |
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Restricted Stock Unit Activity |
The following is a summary of all RSU activity during the two years ended December 31, 2013: |
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| | Restricted | | | Weighted | | | | | | | | | | | | | |
Stock Units | Average | | | | | | | | | | | | |
| Fair Value | | | | | | | | | | | | |
Non-vested at January 1, 2012 | | | — | | | | — | | | | | | | | | | | | | |
Granted at market price | | | 113,000 | | | $ | 2.49 | | | | | | | | | | | | | |
Vested | | | — | | | | — | | | | | | | | | | | | | |
Cancelled | | | — | | | | — | | | | | | | | | | | | | |
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Unvested restricted stock units at December 31, 2012 | | | 113,000 | | | $ | 2.49 | | | | | | | | | | | | | |
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Granted at market price | | | 95,000 | | | $ | 3.45 | | | | | | | | | | | | | |
Vested | | | (28,250 | ) | | | 2.49 | | | | | | | | | | | | | |
Cancelled | | | — | | | | — | | | | | | | | | | | | | |
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Unvested restricted stock units at December 31, 2013 | | | 179,750 | | | $ | 3 | | | | | | | | | | | | | |
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The weighted average grant-date fair value of awards of restricted stock and RSU’s (collectively “restricted stock”) is based on the quoted market price of the Company’s common stock on the date of grant. |
Reserved Common Stock |
At December 31, 2013, we held no shares of common stock in reserve for potential future grants in lieu of cash compensation to employees. |