Shareholders' Equity

12 Months Ended

Sep. 30, 2012

Shareholders' Equity

Shareholders' Equity

7. Shareholders' Equity

• Equity-Based Awards

        The Rochester Medical Corporation 2001 Stock Incentive Plan authorized the issuance of up to 2,000,000 shares of common stock pursuant to grants of incentive stock options, non-qualified options or restricted stock. As of January 28, 2010, no new awards may be granted under the 2001 Stock Incentive Plan. As of September 30, 2012, there were 1,083,500 options outstanding under this plan.

        On January 28, 2010, the Company's shareholders approved the Rochester Medical Corporation 2010 Stock Incentive Plan. The 2010 Stock Incentive Plan authorizes the issuance of up to 1,000,000 shares of common stock pursuant to grants of incentive stock options, non-incentive stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, performance awards, stock awards, and other stock-based awards. Per the terms of the 2010 Stock Incentive Plan, awards may be granted with a term no longer than ten years. The vesting schedule and other terms of the awards granted under the 2010 Stock Incentive Plan will be determined by the Compensation Committee of the Board of Directors at the time of the grant. As of September 30, 2012, 346,627 shares of common stock remain available for issuance under the 2010 Stock Incentive Plan.

        The Company measures stock-based compensation cost at the grant date based on the fair value of the award and recognizes the compensation expense over the requisite service period, which is generally the vesting period.

Restricted stock

        The fair value of restricted stock awards was calculated using the Company's stock price as of the associated grant date, and the expense is accrued ratably over the vesting period of the award.

        Compensation expenses associated with restricted stock awards for years ended September 30, 2012 and 2011, totaled $237,000 and $59,000, respectively. At September 30, 2012, unamortized compensation cost of restricted stock awards totaled $629,000. The unamortized cost is expected to be recognized over a weighted-average period of 2.5 years as of September 30, 2012.

        A summary of restricted shares activity under the Plans as of September 30, 2012 and 2011, and changes during the years then ended is presented below:

Restricted Shares	Shares			Weighted Average Grant Date Fair Value
Unvested balance at September 30, 2010		40,000		$	11.77
Granted		40,000			10.99
Vested		(40,000	)		11.77
Forfeited		—			—
Unvested balance at September 30, 2011		40,000			10.99
Granted		61,883			7.86
Vested		—			—
Forfeited		(2,000	)		7.86
Unvested balance at September 30, 2012		99,883		$	9.11

Restricted stock units

        In fiscal 2012, the Company issued 135,491 restricted stock units (RSUs) to its executive management team. The fair value of the RSUs was calculated using the Company's stock price, $7.86 per unit, at the date of grant. The RSUs include a performance-based vesting trigger measured in fiscal 2013, and the Company did not recognize any compensation expense associated with the RSUs for the year ended September 30, 2012.

Stock options

        The Company accounts for stock option-based compensation by estimating the fair value of options granted using a Black-Scholes option valuation model. The Company recognizes the expense for grants of stock options on a straight-line basis in the statement of operations as operating expense based on their fair value over the requisite service period.

        The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

        The Black-Scholes option pricing model was used to estimate the fair value of stock-option awards with the following weighted-average assumptions for the year ended September 30, 2011. There were no stock option awards issued for the year ended September 30, 2012.

	2012		2011
Dividend yield		n/a		0	%
Expected volatility		n/a		47	%
Risk-free interest rate		n/a		3.42	%
Expected holding period (in years)		n/a		8.74
Weighted-average grant-date fair value		n/a	$	6.29

        The risk-free rate is based on a treasury instrument whose term is consistent with the expected life of the Company's stock options. The expected volatility, holding period, and forfeitures of options are based on historical experience. The Company has not paid, and does not anticipate, dividend payments.

        The weighted average fair value of options granted in 2011 was $6.29 per share.

        A summary of option activity under the Plans as of September 30, 2012 and 2011, and changes during the years then ended is presented below:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at September 30, 2010		1,632,700		$	8.03		—
Granted		230,000			10.72
Exercised		(273,950	)		2.36
Forfeited		—			—
Outstanding at September 30, 2011		1,588,750		$	9.39		5.8	$	1,464,000
Granted		—			—
Exercised		(69,250	)		2.60
Forfeited		(18,000	)		10.96
Outstanding at September 30, 2012		1,501,500		$	9.69		5.1	$	3,425,000
Exercisable at September 30, 2012		1,249,750		$	9.36		4.6	$	3,266,000
Exercisable at September 30, 2011		1,160,625		$	8.68		4.9	$	1,464,000

        The Company recorded compensation expense of stock options of $746,000, $1,437,000 and $1,481,000 for the years ended September 30, 2012, 2011 and 2010, respectively. As of September 30, 2012, there was $467,000 of total unrecognized compensation cost related to unvested stock option based compensation arrangements granted under the Plans. The unamortized cost is expected to be recognized over a weighted-average period of 1.4 years as of September 30, 2012.

        The Company issues new shares as settlement of options exercised. Cash received from option exercises for the years ended September 30, 2012, 2011 and 2010 was $180,000, $647,000, and $41,000, respectively. The intrinsic value of shares exercised was $273,000, $2,192,000 and $52,800, for the years ended September 30, 2012, 2011 and 2010, respectively.