NOTE 15 – COMMON SHARES AND STOCK-BASED COMPENSATION

At February 28, 2014 the Corporation has 100 shares of common stock authorized and outstanding. In conjunction with the Merger and pursuant to the Corporation’s amended and restated articles of incorporation all previously authorized Class A and Class B shares were canceled and replaced by the new class of common stock.

Stock Options

Under the Corporation’s prior stock option plans, when options to purchase common shares were granted to directors, officers or other key employees, they were granted at the then-current market price. In general, subject to continuing service, options became exercisable commencing twelve months after the date of grant in annual installments and expired over a period of not more than ten years from the date of grant. The Corporation generally issued new shares when options to purchase Class A common shares were exercised and treasury shares when options to purchase Class B common shares were exercised.

Pursuant to the Merger Agreement, all outstanding stock options held by directors and employees, excluding the Family Shareholders, were settled through cash payments totaling $7,159. Included in this amount was $3,933 for “in the money” stock options that were settled at fair value as of the Merger Date and were therefore recognized as a reduction of Capital in Excess of Par Value on the Consolidated Statement of Shareholder’s Equity. The remaining $3,226 of the total payments represented the settlement of stock options that had an exercise price in excess of fair value as of the Merger Date and has been recognized as additional compensation expense.

The outstanding stock options held by the Family Shareholder employees, which included options to purchase 24,500 Class A common shares and options to purchase 857,581 Class B common shares were canceled without a replacement award or the payment of any consideration. Because these options were fully vested, no additional compensation expense was recognized upon cancellation. See Note 2 for further information.

The following table summarizes the activity related to stock options during 2014:


	Number of Class A Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at February 28, 2013		3,235,953		$	21.23		4.3	$	3,352
Exercised		(136,192	)		12.61
Expired		(20,300	)		14.92
Forfeited		(130,115	)		23.63
Settled		(2,949,346	)		21.57

Outstanding at February 28, 2014		—


	Number of Class B Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at February 28, 2013		857,581		$	23.06		3.7	$	489
Exercised		—			—
Expired		—			—
Forfeited		(857,581	)		23.06

Outstanding at February 28, 2014		—

Performance Shares

Performance shares represented the right to receive common shares, at no cost to the employee, upon the achievement of management objectives over the performance period and the satisfaction of service-based vesting requirements. In 2013, the Corporation introduced a performance share program that was designed to reward the Corporation’s officers and certain management employees for the attainment of performance objectives over a three-year measurement period. The shares granted in 2013 were equally divided into three tranches, each containing specified performance goals consisting of unit sales and expense efficiency targets over three separate, but sequentially cumulative performance periods as follows:

•

Tranche 1 – performance period March 1, 2012 to February 28, 2013

•

Tranche 2 – performance period March 1, 2012 to February 28, 2014

•

Tranche 3 – performance period March 1, 2012 to February 28, 2015

Achievement of performance criteria may range from 0% to 200% of the initial number of shares awarded in each tranche. All shares credited to participants under this program upon the achievement of specified performance goals will, subject to service-based vesting requirements, vest on February 28, 2015. The expense recognized each period is dependent upon an estimate of the number of shares that will ultimately vest. Compensation expense associated with the performance shares is recognized on a straight line basis over the vesting period, beginning on the date the awards were made.

In connection with the Merger, all performance shares granted to employees, excluding the Family Shareholders, were converted from share-based equity awards to cash-based liability awards. Under this award modification, each outstanding performance share will be settled at $19.00 upon satisfaction of performance and vesting conditions. Further, in the third quarter of 2014, the Corporation amended the performance goals for the second and third tranches of performance shares from unit sales and expense efficiency goals to goals based on an earnings-based measurement. An expense of $1,545, representing the cumulative effect on previously recognized compensation cost attributable to the difference between the $19.00 per unit cash settlement value and the award’s grant date fair value, was recorded following the completion of the Merger.

The outstanding performance shares held by the Family Shareholders at the Merger date (consisting of 9,328 Class A shares and 354,464 Class B shares) were canceled without a replacement award or the payment of any consideration. Accordingly, the previously unrecognized compensation cost of $2,603 attributable to these awards was recognized as incremental stock-based compensation expense upon cancellation.

The following table summarizes the activity related to performance shares during 2014:


	Number of Class A Performance Shares			Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Unvested at February 28, 2013		611,562			2.2	$	9,907
Credited		—
Vested		—
Forfeited		(19,173	)
Modified to cash-based liability awards		(592,389	)

Unvested at February 28, 2014		—


	Number of Class B Performance Shares			Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Unvested at February 28, 2013		354,464			2.2	$	5,742
Credited		—
Vested		—
Forfeited		(354,464	)

Unvested at February 28, 2014		—

Restricted Stock Units

Prior to the Merger, the Corporation awarded restricted stock units to directors, officers and other key employees. The restricted stock units represented the right to receive Class A common shares or Class B common shares, at no cost to the holder, upon the satisfaction of a two or three-year continuous service-based vesting period. The awards have a graded-vesting feature with compensation expense being recognized over the requisite service period for each separately vesting tranche. The expense recognized each period is dependent upon an estimate of the number of stock units that will ultimately vest.

In connection with the Merger, all restricted stock units held by employees, excluding the Family Shareholders, were converted from share-based equity awards to cash-based liability awards, whereupon each restricted stock unit entitles the holder to receive $19.00 upon satisfaction of the award’s vesting conditions. Except for the cash settlement feature, the modified awards retained the same terms and conditions, including service-based vesting, of the original equity-based awards. An expense of $464 representing the cumulative effect on previously recognized compensation cost attributable to the difference between the $19.00 per unit cash settlement value and each award’s grant date fair value was recorded following the completion of the Merger.

The Merger Agreement also provided that each outstanding restricted stock unit held by members of the board of directors, other than the Family Shareholders, became fully vested and was settled for a cash payment equal to $19.00. The accelerated vesting of these awards resulted in the recognition of incremental compensation expense of $512 as of the Merger Date.

The outstanding restricted stock units held by the Family Shareholders consisting of 3,871 Class A restricted stock units and 126,804 Class B restricted stock units were canceled at the closing of the Merger without a replacement award or the payment of any consideration. Accordingly, the previously unrecognized compensation cost of $1,363 attributable to these awards was recognized as incremental stock-based compensation expense upon cancellation.

The following table summarizes the activity related to the restricted stock units during 2014:


	Number of Class A Restricted Stock Units			Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Unvested at February 28, 2013		447,698			0.6	$	7,253
Granted		277,256
Vested		(270,487	)
Forfeited		(9,715	)
Settled		(46,470	)
Modified to cash-based liability awards		(398,282	)

Unvested at February 28, 2014		—


	Number of Class B Restricted Stock Units			Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Unvested at February 28, 2013		117,601			0.9	$	1,905
Granted		62,636
Vested		(53,433	)
Forfeited		(126,804	)

Unvested at February 28, 2014		—

Total stock-based compensation expense, recognized in “Administrative and general expenses” on the Consolidated Statement of Income, was $13,812, $10,743 and $10,982 in 2014, 2013 and 2012, respectively. Stock-based compensation expense for 2014 includes the expense attribution of equity-based awards prior to the Merger of $4,125 and the incremental stock-based compensation expense, caused as a direct result of the Merger, associated with the cancellation of the outstanding performance shares and restricted stock units held by the Family Shareholders of $3,966. The combined amount of $8,091 is included as stock-based compensation on the Consolidated Statement of Cash Flows. Stock-based compensation expense for 2014 also includes incremental compensation expense of $5,721 associated with the settlement of stock options and non-executive directors’ awards as well as the cumulative effect through the Merger Date on previously recognized compensation cost attributable to the modified awards’ $19.00 per unit cash settlement value, which has been or will be settled in cash. The expense attributable to the modified cash-based liability awards for vesting service rendered in the post-merger period is included in non-stock-based compensation expense.

The table below summarizes the incremental compensation expense, caused as a direct result of the Merger, which includes both stock-based and non-stock-based compensation expense, and the adjustments to Capital in Excess of Par Value resulting from the settlement, modification and cancellation of the outstanding equity-based awards in 2014.


	Compensation Expense		Capital in Excess of Par Value
Settlement of stock options	$	3,226	$	(3,933	)
Modification and settlement of non-executive directors’ awards		512		(371	)
Net tax deficiency from settlement and cancellation of stock-based awards		—		(6,885	)
Conversion of performance share and restricted stock awards to cash-based liability awards		2,897		(6,498	)
Cancellation of the Family Shareholders’ performance share and restricted stock awards		3,966		3,966

	$	10,601	$	(13,721	)

Cash received from stock options exercised for the years ended February 28, 2014, February 28, 2013 and February 29, 2012, was $1,718, $1,259, and $13,310, respectively. The total intrinsic value from the exercise of stock-based payment awards was $6,298, $7,423 and $17,117 in 2014, 2013 and 2012, respectively. The actual tax benefit realized from the exercise of stock-based payment awards totaled $2,486, $2,929 and $6,705 for 2014, 2013, and 2012, respectively.