Share-Based Awards

Employee Stock Option and Incentive Plans

In September 1998, the Company’s shareholders approved a stock option plan (the “1998 Plan”) under which 8,000,000 shares of common stock were reserved for the issuance of options. The 1998 Plan provides that employees and directors of the Company may, at the discretion of the Board of Directors or a duly designated compensation committee, be granted options to purchase shares of common stock. The exercise price of each option granted was determined based on the date of grant, and options under the 1998 Plan expire no later than 10 years from the date of grant. Options granted pursuant to the 1998 Plan became exercisable in accordance with the terms of the agreements pursuant to which they were granted. Upon change of control of the Company, as such term is defined in the 1998 Plan, each outstanding option may be subject to accelerated vesting at the discretion of the Board of Directors if no provision is made for the continuance of the 1998 Plan and the assumption of the options outstanding under the 1998 Plan, or certain other circumstances. The 1998 Plan was terminated on December 31, 2007. As of June 30, 2014, there were 20,000 outstanding options related to the 1998 Plan.

In October 2005, the Company’s shareholders approved a stock option and incentive plan (the “2005 Plan”) under which 4,800,000 shares of common stock were reserved for the issuance of awards, including incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, performance shares, performance units (including performance options) and other share-based awards. The 2005 Plan provides that employees and directors of the Company may, at the discretion of the Board of Directors or a duly designated compensation committee, be granted certain share-based awards. In the case of option awards granted under the 2005 Plan, the exercise price of each option is determined based on the date of grant and expire no later than 10 years from the date of grant. Awards granted pursuant to the 2005 Plan are subject to the vesting schedule or performance metrics set forth in the agreements pursuant to which they are granted. Upon a change of control of the Company, as such term is defined in the 2005 Plan, awards under the 2005 Plan will fully vest under certain circumstances. The 2005 Plan expires on May 25, 2015, unless terminated earlier by the Board of Directors. As of June 30, 2014, there were 1,759,551 outstanding options, 53,293 outstanding shares of restricted stock, restricted stock units and performance based restricted stock, and 2,222,739 shares available for future grant under the 2005 Plan.

A summary of stock option transactions during the three months ended June 30, 2014 follows:



	Number of Shares		Weighted- Average Exercise Price per Share		Weighted- Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in thousands)
Outstanding, April 1, 2014	1,370,101		$	27.85	5.8
Granted	439,650		15.99		7.9
Exercised	—		—		0	$	—
Forfeited/Canceled	(30,200	)	26.24		6.3
Outstanding, June 30, 2014	1,779,551		$	24.94	6.1	$	26
Vested and expected to vest, June 30, 2014	1,678,763		$	25.12	6.1	$	24
Exercisable, June 30, 2014	571,981		$	30.90	4.7	$	—

The Company utilizes the Black-Scholes valuation model for estimating the fair value of share-based compensation with the following assumptions:



	Three Months Ended June 30, 2014	Three Months Ended June 30, 2013
Expected life	4.8 years	4.9 years
Expected volatility	36.6%	43.7%
Expected dividends	4.3%	3.9%
Risk-free rate	1.7%	1.0%

The weighted-average grant date fair value of stock options granted during the three months ended June 30, 2014 and 2013 was $3.50 and $4.87 per share, respectively.

The Company issues new shares to satisfy option exercises. Based on historical experience of option cancellations, the Company has estimated an annualized forfeiture rate of 8.4% and 8.1% for employee options for the three months ended June 30, 2014 and 2013, respectively, and 0.0% for director options for the three months ended June 30, 2014 and 2013. Forfeiture rates are adjusted over the requisite service period when actual forfeitures differ, or are expected to differ, from the estimate.

During the three months ended June 30, 2014, a total of 439,650 options to purchase shares of common stock were granted under the 2005 Plan at an exercise price equal to the market price of the Company’s common stock on the date of grant. A summary of stock options granted under the 2005 Plan during fiscal years 2015 and 2014 is as follows:



Option Grant Date	Number of Shares	Exercise Price		Vesting Terms (1)	Expires
June 3, 2014	439,650	$	15.99	Five years	June 3, 2022
Fiscal year 2015 option grants	439,650

August 15, 2013	85,000	$	20.85	Five years	August 15, 2021
July 30, 2013	28,000	$	22.59	Five years	July 30, 2021
May 29, 2013	356,000	$	17.95	Five years	May 29, 2021
Fiscal year 2014 option grants	469,000

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(1) Options vest in equal annual installments on each grant anniversary date commencing one year following the date of grant.

Employee and Executive Officer Awards

On May 28, 2014, the Board of Directors awarded options to purchase the Company’s common stock to certain high-performing employees. The options were granted on the first day of the next open trading window under the Company's Insider Trading Policy, issued pursuant to the 2005 Plan, have an exercise price equal to the closing price of the Company’s shares on the date of grant, a term of eight years and vest in five equal annual installments commencing one year following the date of grant.

On May 27, 2014, the Compensation Committee of the Board of Directors approved the Company's fiscal year 2015 Executive Compensation Program (the "Program") under which the Company's named executive officers are eligible to receive cash bonuses based on meeting certain target increases in revenue and non-GAAP financial targets, as defined in the Program (i.e. non-GAAP earnings per share and a measure of free cash flow) for fiscal year 2015. Under the Program, the named executive officers also received certain equity incentive awards issued under the 2005 Plan. These equity awards included (i) an aggregate of 105,000 options to purchase the Company's common stock, which were granted on the first day of the next open trading window under the Company's Insider Trading Policy, have an exercise price equal to the closing price of the Company's shares on the date of grant, a term of eight years and a vesting schedule of five equal annual installments commencing one year following the date of grant; and (ii) a potential award of up to an aggregate of 170,000 restricted performance shares of the Company's common stock vesting over a three year period based on the achievement of target average daily share prices for the ninety calendar day period ending May 31st of each of the subsequent three fiscal years.

Share-based compensation expense associated with the restricted performance shares under the Program is based on the grant date fair value measured at the underlying closing share price on the date of grant using a Monte Carlo-based valuation model. Share-based compensation expense associated with the options under the Company’s equity incentive programs are initially based on the number of options expected to vest after assessing the probability that the performance criteria will be met. Cumulative adjustments are recorded quarterly to reflect subsequent changes in the estimated outcome of performance-related conditions. The Company utilizes the Black-Scholes option valuation model with the assumptions in the table below to calculate the share-based compensation expense related to the options. Share-based compensation expense recorded for these performance-based awards was $104 and $92 for the three months ended June 30, 2014 and 2013, respectively.



	Three Months Ended June 30, 2014	Three Months Ended June 30, 2013
Expected life	4.8 years	4.9 years
Expected volatility	36.5%	43.5%
Expected dividends	4.3%	3.7%
Risk-free rate	1.6%	1.4%

Non-vested stock option award activity, including employee stock options and performance-based awards, during the three months ended June 30, 2014 is summarized as follows:



	Non-Vested Number of Shares		Weighted- Average Grant-Date Fair Value per Share
Outstanding, April 1, 2014	991,560		$	7.73
Granted	439,650		3.50
Vested	(193,440	)	8.50
Forfeited/Canceled	(30,200	)	7.66
Outstanding, June 30, 2014	1,207,570		$	6.07

As of June 30, 2014, $6,308 of total unrecognized compensation costs related to stock options is expected to be recognized over a weighted-average period of 3.8 years. This amount does not include the cost of new options that may be granted in future periods or any changes in the Company’s forfeiture percentage. The total fair value of options vested during the three months ended June 30, 2014 and 2013 was $1,645 and $1,057, respectively.

Director Awards

On May 28, 2014, the Board of Directors approved its 2015 Director Compensation Program, pursuant to which each non-employee director is to be granted shares of restricted stock upon election or re-election to the Board of Directors. The shares of restricted stock are awarded under the 2005 Plan. Such shares of restricted stock vest in two equal, annual installments on the first and second anniversaries of the grant date and are nontransferable for one year following vesting. The weighted-average grant date fair value for the restricted stock was estimated using the market price of the common stock on the date of grant. The fair value of the restricted stock is amortized on a straight-line basis over the vesting period.

The Company recorded compensation expense related to restricted stock of approximately $174 and $92 for the three months ended June 30, 2014 and 2013, respectively. Restricted stock activity for the three months ended June 30, 2014 is summarized as follows:



	Number of Shares		Weighted- Average Grant-Date Fair Value per Share
Outstanding, April 1, 2014	64,571		$	20.74
Granted	788		17.14
Vested	(12,066	)	21.68
Outstanding, June 30, 2014	53,293		$	21.21

As of June 30, 2014, $713 of total unrecognized compensation costs related to restricted stock is expected to be recognized over a weighted-average period of 1.1 years. This amount does not include the cost of new restricted stock that may be granted in future periods.