Share-based Compensation

We may grant non-qualified stock options, incentive stock options, stock-settled stock appreciation rights, restricted shares, and restricted share units for up to 3.0 million common shares under our 2011 Stock Incentive Plan (“the 2011 Plan”). The maximum number of shares subject to stock options or SSARs that may be granted to an individual in a calendar year is 800,000 shares, and the maximum number of shares subject to restricted shares or restricted share units that may be granted to an individual in a calendar year is 400,000 shares. The maximum aggregate number of restricted shares or restricted share units that may be granted under the 2011 Plan is 1.0 million.

For stock options and SSARs, the exercise price must be set at least equal to the closing market price of our common shares on the date of grant. The maximum term of stock option and SSAR awards is seven years from the date of grant. Stock option and SSARs awards vest over a period established by the Compensation Committee of the Board of Directors. SSARs may be granted in conjunction with, or independently from, a stock option granted under the 2011 Plan. SSARs granted in connection with a stock option are exercisable only to the extent that the stock option to which it relates is exercisable and the SSARs terminate upon the termination or exercise of the related stock option.

Restricted shares and restricted share units, whether time-vested or performance-based, may be issued at no cost or at a purchase price that may be below their fair market value, but are subject to forfeiture and restrictions on their sale or other transfer. Performance-based awards may be conditioned upon the attainment of specified performance objectives and other conditions, restrictions, and contingencies. Restricted shares and restricted share units have the right to receive dividends, or dividend equivalents in the case of restricted share units, if any, subject to the same forfeiture provisions that apply to the underlying awards. Subject to certain exceptions set forth in the 2011 Plan, for awards to employees, no performance-based restricted shares or restricted share units shall be based on a restriction period of less than one year, and any time-based restricted shares or restricted share units shall have a minimum restriction period of three years.

We have a shareholder-approved 2006 Stock Incentive Plan (the “2006 Plan”), as well as, a 2000 Stock Option Plan for Outside Directors and a 2000 Stock Incentive Plan that still have vested awards outstanding. Awards are no longer being granted from these incentive plans.

We may distribute authorized but unissued shares or treasury shares to satisfy share option and appreciation right exercises or restricted share and performance share awards.

We record compensation expense related to stock options, stock-settled stock appreciation rights, restricted shares, and performance shares granted to certain employees and non-employee directors based on the fair value of the awards on the grant date. The fair value of restricted share and performance share awards is based on the closing price of our common shares on the grant date. The fair value of stock option and stock-settled appreciation right awards is estimated on the grant date using the Black-Scholes-Merton option pricing model, which includes assumptions regarding the risk-free interest rate, dividend yield, life of the award, and the volatility of our common shares.

As discussed in Note 10, Income Taxes, in fiscal 2013, 2012 and 2011, we were in a net operating loss position for U.S. federal income taxes. Therefore, we did not recognize and will not recognize an income tax benefit related to stock options or SSARs exercised until that tax benefit can be realized.

The following table summarizes the share-based compensation expense for options, SSARs, restricted and performance awards included in the Consolidated Statements of Operations for fiscal 2013, 2012 and 2011:



	Year ended March 31,
(In thousands)	2013		2012		2011
Product development	$	612	$	257	$	155
Sales and marketing	180		244		197
General and administrative	1,265		2,395		2,460
Total share-based compensation expense	$	2,057	$	2,896	$	2,812

Stock Options

The following table summarizes the activity during fiscal 2013 for stock options awarded under the 2006 Plan:



(In thousands, except share and per share data)	Number of Options		Weighted- Average Exercise Price		Remaining Contractual Term	Aggregate Intrinsic Value
			(per share)		(in years)
Outstanding at April 1, 2012	971,001		$	13.52
Granted	—		—
Exercised	(66,667	)	2.51
Cancelled/expired	(154,834	)	14.76
Outstanding and exercisable at March 31, 2013	749,500		$	14.25	3.1	$	353

The aggregate intrinsic value in the table above represents the total pre-tax difference between the $9.94 closing price of our common shares on March 28, 2013 over the exercise price of the stock option, multiplied by the number of stock options outstanding and exercisable.

The following table presents additional information related to stock option activity during the fiscal years ended March 31, 2013, 2012 and 2011:



(In thousands)	2013		2012		2011
Compensation expense	$	—	$	—	$	150
Proceeds from stock options exercised	$	67	$	210	$	—
Total intrinsic value of stock options exercised	$	382	$	2,070	$	158
Total fair value of stock options vesting	$	—	$	—	$	532

The fiscal 2011 expense included $26,000 for the accelerated vesting of stock option expense due to a change in control provision contained in the original award agreements that was triggered by MAK Capital and its affiliates reaching 20% ownership in Agilysys during the first quarter of fiscal 2011. As a result, we do not have any remaining unrecognized stock based compensation expense related to non-vested stock options.

A total of 46,519 shares, net of 11,660 shares withheld to cover the applicable exercise price of the award and 8,488 shares withheld to cover the employee's minimum applicable income taxes, were issued from treasury shares to settle stock options exercised during fiscal 2013.

Stock-Settled Stock Appreciation Rights

Stock-Settled Appreciation Rights (“SSARs”) are rights granted to an employee to receive value equal to the difference in the price of our common shares on the date of the grant and on the date of exercise. This value is settled in common shares of Agilysys.

We use a Black-Scholes-Merton option pricing model to estimate the fair value of SSARs. The following table summarizes the principal assumptions utilized in valuing SSARs granted in fiscal 2013, 2012 and 2011:



	2013	2012	2011
Risk-free interest rate	0.67%-0.89%	0.83%-2.09%	0.96%-1.94%
Expected life (in years)	5.0	4.5	4.5
Expected volatility	81.03%-83.77%	80.75%-82.20%	76.66%-81.92%
Weighted average grant date fair value	$4.92	$4.73	$3.94

The risk-free interest rate is based on the yield of a zero coupon U.S. Treasury bond whose maturity period approximates the expected life of the SSARs. The expected life is estimated using historical data representing the period of time the awards are expected to be outstanding. The estimated fair value of the SSARs granted, less expected forfeitures, is recognized over the vesting period of the awards utilizing the graded vesting method. Under this method, the compensation cost related to unvested amounts begins to be recognized as of the grant date.

The following table summarizes the activity during fiscal 2013 for SSARs awarded under the 2011 Plan and the 2006 Plan:



(In thousands, except share and per share data)	Number of Rights		Weighted- Average Exercise Price		Remaining Contractual Term	Aggregate Intrinsic Value
			(per right)		(in years)
Outstanding at April 1, 2012	606,834		$	6.91
Granted	326,794		7.58
Exercised	(183,948	)	6.56
Forfeited	(66,561	)	7.43
Outstanding at March 31, 2013	683,119		$	7.27	7.4	$	1,826
Exercisable at March 31, 2013	419,121		$	7.05	6.3	$	1,211

The following table presents additional information related to SSARs activity during fiscal 2013, 2012 and 2011:



(In thousands)	2013		2012		2011
Compensation expense	$	944	$	1,872	$	1,718
Total intrinsic value of SSARs exercised	$	373	$	1,871	$	189
Total fair value of SSARs vesting	$	778	$	3,197	$	1,708

The compensation expense recorded in fiscal 2012 included $1.4 million for the accelerated vesting of SSARs expense due to a change in control provision contained in the 2006 Plan that was triggered by the announcement of the sale of TSG on May 31, 2011. As of March 31, 2013, total unrecognized stock based compensation expense related to non-vested SSARs was $0.9 million, which is expected to be recognized over a weighted-average vesting period of 1.8 years.

A total of 29,134 shares, net of 13,553 shares withheld to cover the employee’s minimum applicable income taxes, were issued from treasury shares to settle SSARs exercised during the twelve months ended March 31, 2013. The shares withheld were returned to treasury shares.

Restricted Shares

We granted shares to certain of our Directors, executives and key employees under the 2011 Plan, the vesting of which is service-based. The following table summarizes the activity during the twelve months ended March 31, 2013 for restricted shares awarded under the 2011 Plan:



	Number of Shares		Weighted- Average Grant- Date Fair Value
			(per share)
Outstanding at April 1, 2012	48,558		$	7.80
Granted	198,165		7.88
Vested	(111,941	)	7.78
Forfeited	(12,743	)	7.42
Outstanding at March 31, 2013	122,039		$	7.99

The weighted-average grant date fair value of the restricted shares is determined based upon the closing price of our common shares on the grant date. During the fiscal 2013, a total of 102,987 net of 8,954 shares were withheld from the vested restricted shares to cover the employee's minimum applicable income taxes. The shares withheld were returned to treasury shares.

The following table presents additional information related to restricted stock activity during fiscal years 2013, 2012, and 2011:



(In thousands)	2013		2012		2011
Compensation expense	$	1,059	$	920	$	770
Total fair value of restricted share vesting	$	1,099	$	976	$	633

Compensation expense related to restricted share awards is recognized ratably over the restriction period based upon the closing market price of our common shares on the grant date. The fiscal 2012 compensation expense included $0.1 million for the accelerated vesting of restricted stock expense due to a change in control provision contained in the 2006 Plan that was triggered by the announcement of the sale of TSG on May 31, 2011. As of March 31, 2013, total unrecognized stock based compensation expense related to non-vested restricted stock was $0.7 million, which is expected to be recognized over a weighted-average vesting period of 1.9 years. We do not include restricted stock in the calculation of earnings per share until the shares are vested.

Performance Shares

In fiscal 2013, we granted shares to certain of our key employees under the 2011 Plan, the vesting of which is contingent upon meeting various company-wide performance goals within a two-year period.

The following table summarizes the activity during fiscal 2013 for performance shares awarded under the 2011 Plan:



	Number of Shares	Weighted- Average Grant- Date Fair Value
		(per share)
Outstanding at April 1, 2012	—	$	—
Granted	17,728	8.64
Outstanding at March 31, 2013	17,728	$	8.64

The weighted-average grant date fair value of the performance shares is determined based upon the closing price of our common shares on the grant date and assumed that performance goals would be met at target.

The following table presents additional information related to performance share activity during the fiscal 2013, 2012, and 2011:



(In thousands)	2013		2012		2011
Compensation expense	$	54	$	104	$	174
Total fair value of performance share vesting	$	—	$	337	814

Once attainment of the performance goals becomes probable, compensation expense related to performance share awards is recognized over the vesting period based upon the closing market price of our common shares on the grant date. The fiscal 2012 compensation expense included $0.2 million for the accelerated vesting of performance share expense due to a change in control provision contained in the 2006 Plan that was triggered by the announcement of the sale of TSG on May 31, 2011.

Compensation expense related to performance share awards is recognized ratably over the vesting period based upon the closing market price of our common shares on the grant date. As of March 31, 2013, total unrecognized stock based compensation expense related to non-vested performance shares was $0.1 million, which is expected to be recognized over a weighted-average vesting period of 1.1 years.