Stock-Based Compensation

12 Months Ended

Jan. 31, 2013

Stock-Based Compensation [Abstract]

Stock-Based Compensation

9.    Stock-Based Compensation

Stock-Based Compensation Plans

In March 2006, the Company established the 2006 Stock Incentive Plan (the “2006 Plan”) governing, among other things, the grant of stock options, restricted stock units (“RSUs”), and other forms of share-based incentives to our employees, directors and consultants. In the quarter ended October 31, 2009, the Company completed a tender offer permitting all eligible employees and its independent directors to exchange, on a one-for-one basis, stock options granted under the 2006 Plan for new stock options granted under Serena’s Amended and Restated 2006 Stock Incentive Plan (the “Amended 2006 Plan”) having a lower exercise price and different vesting terms. In addition, as part of the Company’s Merger in March 2006, the Company assumed certain stock options that were held by management participants immediately prior to the merger.

Stock Option Activities

The stock option grants generally vest either over a three-year period (“time-based options”) or based on the achievement of certain performance targets over a three year period (“performance-based options”). As described below, the performance-based options were modified on October 10, 2012, which resulted in the extension of the vesting periods of performance-based options granted in prior years by approximately one to two years depending on the year of initial grant. All options granted have a maximum contractual life of ten years from the date of grant.

In the quarter ended October 31, 2012, the Company modified the performance target on approximately 3.0 million unvested performance options to align the performance targets with the Company’s recent financial forecasts. The original performance targets were established on the original respective grant dates and no expense had been recognized as the performance conditions were not deemed probable of achievement. The modification resulted in re-measurement of the awards with a resulting fair value of approximately $3.1 million. Assuming baseline performance conditions are met, the revised performance targets result in potential levels of achievement ranging from 50% to 150% of the base award value. Based upon current expectations of achievement, approximately $0.6 million is expected to be recognized over the vesting periods of the modified awards of approximately 2 years of which approximately $0.1 million was recognized in fiscal year 2013. In addition, the Company modified the vesting schedule of the modified performance options in the event of a change of control or the Company’s public offering. The modification was not made in contemplation of the occurrence of such an event.

The following table sets forth the summary of option activity for the fiscal years ended January 31, 2011, 2012 and 2013:

	Options Available for Grant			Number of Options Outstanding			Weighted Average Exercise Price (Per share)		Weighted Average Grant Date Fair Value (Per share)		Weighted Average Remaining Contractual Term (In years)		Aggregate Intrinsic Value (In  thousands)
Balances as of January 31, 2010		1,997,529			10,212,401		$	2.76				8.65	$	3,524
Granted		(1,680,000	)		1,680,000			3.12	$	0.64
Exercised		0			(62,337	)		1.25						114
Expired		0			—			0.00
Cancelled (1)		0			(18,770	)		1.25
Cancelled		764,642			(764,642	)		3.38
Restricted stock units granted, net of cancellations (2)		(200,000	)		—			0.00
Balances as of January 31, 2011		882,171			11,046,652			2.79				7.21	$	8,772
Granted		(827,500	)		827,500			3.56	$	0.70
Exercised		0			(3,882	)		1.25						9
Expired		0			—			0.00
Cancelled (1)		0			(77,128	)		1.25
Cancelled		3,210,631			(3,210,631	)		3.02
Restricted stock units granted, net of cancellations (2)		705,000			—			0.00
Balances as of January 31, 2012		3,970,302			8,582,511			2.79				6.96	$	8,009
Granted		(2,341,000	)		2,341,000			3.55	$	1.01
Exercised		0			(127,373	)		1.25						311
Expired		0			(155,531	)		1.25
Cancelled (1)		0			(233,742	)		1.25
Cancelled		2,607,854			(2,607,854	)		3.10
Restricted stock units granted, net of cancellations (2)		(125,000	)		—			0.00
Balances as of January 31, 2013		4,112,156			7,799,011		$	3.02				5.75	$	1,091
As of January 31, 2013:
Vested and expected to vest					7,694,053		$	3.01				5.72	$	1,091
Vested and exercisable					4,435,976		$	2.72				3.83	$	1,091

(1) Represents cancelled stock options which are not returned to the available-for-grant stock option pool.

(2) Restricted stock units are granted from the stock option pool. In fiscal 2011, a total of 300,000 units were issued net of 100,000 units that were subsequently cancelled. In fiscal 2012, a total of 45,000 units were issued net of 750,000 units that were subsequently cancelled. In fiscal 2013, a total of 310,000 units were issued net of 185,000 units that were subsequently cancelled. See “Restricted Stock Units” below for further details.

The pre-tax intrinsic value of options exercised, representing the difference between the fair value of the Company’s common stock on the date of exercise and the exercise price of each option.

Aggregated intrinsic value represents the difference between the fair value of the Company’s stock on the date of grant and the exercise price multiplied by the number of related options. To assist management in determining the estimated fair value of the Company’s common stock, the Company engages a third-party valuation specialist to perform a valuation on a semi-annual basis as of January 31 and July 31. In estimating the fair value of the Company’s common stock, the external valuation firm employs a two-step approach that first estimates the fair value of the Company as a whole, and then allocates the adjusted value of shareholders’ equity to the Company’s common stock.

Information regarding the stock options outstanding at January 31, 2013 is summarized as follows:

Exercise Price	Number Outstanding (1)		Weighted Average Remaining Contractual Life (In years)		Weighted Average Exercise Price on Options Outstanding		Number Exercisable (1)		Weighted Average Exercise Price on Options Exercisable
$1.25		872,810		1.09	$	1.25		872,810	$	1.25
$3.00		3,237,844		4.24		3.00		2,650,774		3.00
$3.08		554,999		6.27		3.08		314,926		3.08
$3.19		425,000		7.68		3.19		202,357		3.19
$3.48		1,268,500		9.17		3.48		0		3.48
$3.54		438,192		6.94		3.54		212,201		3.54
$3.58		226,666		7.66		3.58		110,690		3.58
$3.72		775,000		9.03		3.72		72,218		3.72
		7,799,011		5.75	$	3.02		4,435,976	$	2.72

(1) The table shows options without consideration of expected forfeitures.

(2) Total stock options outstanding at January 31, 2013 consist of 4,881,857 time-based options, 1,994,344 performance-based options and 922,810 time-based options granted prior to the Merger which has been assumed by the Company after the Merger.

As of January 31, 2013, a total of 15,413,815 shares of common stock were reserved for issuance upon the exercise of stock options and for the future grant of stock options or awards under the Amended 2006 Plan.

The fair value of each stock option grant under the stock option plans is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Fiscal Years Ended January 31,
	2013			2012			2011
Expected life (in years)		4.7			3.0			2.7
Risk-free interest rate		0.7	%		0.5	%		0.7	%
Volatility		32.7	%		28.0	%		30.6	%
Dividend yield		0.0	%		0.0	%		0.0	%
Weighted-average fair value per common share	$	3.60		$	3.56		$	3.14

Restricted Stock Awards

In connection with the Merger, the Company entered into a restricted stock agreement, dated as of March 2006 with Robert Pender, the Company’s former Chief Financial Officer. Pursuant to this agreement, Mr. Pender was issued 307,200 shares of the Company’s common stock. The restricted stock award vested in full on June 16, 2010 pursuant to the terms of the restricted stock agreement. Mr. Pender transferred 112,681 shares of the Company’s common stock to the Company for purposes of paying applicable income tax withholdings resulting from the vesting of the restricted stock award pursuant to the terms of the restricted stock agreement. There were no non-vested shares as of January 31, 2013.

Restricted Stock Units

The following table sets forth the summary of RSUs’ activity:

	Shares			Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (In years)		Aggregate Intrinsic Value (In thousands)
Balances as of January 31, 2010		1,820,000		$	3.00
Granted		300,000			3.10
Vested		—			0.00
Cancelled		(100,000	)		3.00
Balances as of January 31, 2011		2,020,000			3.01		1.76	$	7,232
Granted		45,000			3.54
Vested		—			0.00
Cancelled		(750,000	)		3.01
Balances as of January 31, 2012		1,315,000			3.04		0.88		4,892
Granted		310,000			3.56
Vested		(995,000	)		3.00
Cancelled		(185,000	)		3.20
Balances as of January 31, 2013		445,000		$	3.42		1.71		1,113
As of January 31, 2013:
Vested and expected-to-vest RSUs		429,978					1.69	$	1,075

In October, 2012, the Company modified the vesting schedule of approximately 0.8 million unvested RSUs in the event of a change of control or the Company’s public offering. The Company also modified the RSUs to allow for full vesting if the holder is terminated without cause or resigns for good reason within twelve months following a change of control of the Company. These modifications were not made in contemplation of the occurrence of such events.

As of January 31, 2013, total unrecognized compensation costs related to unvested stock options and RSUs were $1.9 million and $0.9 million, respectively. Costs related to unvested stock options are expected to be recognized over a period ranging from approximately 2 to 3 years. Costs related to RSUs are expected to be recognized over a period of 3 years from the grant date.

Stock-based compensation expense for the fiscal years ended January 31, 2013, 2012 and 2011 is categorized as follows (in thousands):

	Fiscal Years Ended January 31,
	2013			2012			2011
Cost of revenue—maintenance	$	57		$	63		$	94
Cost of revenue—professional services		48			66			63
Sales and marketing		286			557			541
Research and development		251			(110	)		796
General and administrative		971			819			2,091
Total stock-based compensation expense		1,613			1,395			3,585
Income tax benefit		(614	)		(541	)		(1,393	)
Total stock-based compensation expense, net of tax	$	999		$	854		$	2,192