Avid 2015 Annual Report Download - page 88

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modifications included (i) a conversion of vesting conditions from market and performance bases to a four year service period,
including providing credit for service already rendered prior to the modification and (ii) an acceleration clause that allows vesting of
between 50% and 100% of unvested awards if certain 2014 Adjusted EBITDA targets were achieved. In total, options to purchase
933,750 shares and 31,250 restricted stock units were modified, which resulted in incremental compensation expense of $4.3 million,
$2.3 million of which was recognized upon modification, $1.5 million of which was recognized in the quarter ended December 31,
2014 upon achieving specific 2014 Adjusted EBITDA targets and the remaining $0.5 million was recognized in 2015.
The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option grants with time-based vesting.
The Black-Scholes model relies on a number of key assumptions to calculate estimated fair value. The assumed dividend yield of zero
is based on the fact that the Company has never paid cash dividends and has no present expectation to pay cash dividends and the
Company’s current Financing Agreement precludes the Company from paying dividends. The expected volatility is now based on
actual historic stock volatility for periods equivalent to the expected term of the award. The assumed risk-free interest rate is the U.S.
Treasury security rate with a term equal to the expected life of the option. The assumed expected life is based on company-specific
historical experience considering the exercise behavior of past grants and models the pattern of aggregate exercises.
The fair value of restricted stock and restricted stock unit awards with time-based vesting is based on the intrinsic value of the awards
at the date of grant, as the awards have a purchase price of $0.01 per share.
The Company also issues stock option grants or restricted stock unit awards with vesting based on market conditions, specifically the
Company’s stock price and performance conditions, generally using adjusted EBITDA. The fair values and derived service periods for
all grants that include vesting based on market conditions are estimated using the Monte Carlo valuation method. For stock option
grants that include vesting based on performance conditions, the fair values are estimated using the Black-Scholes option pricing
model. For restricted stock unit awards that include vesting based on performance conditions, the fair values are estimated based on
the intrinsic values of the awards at the date of grant, as the awards have a purchase price of $0.01 per share.
Information with respect to options granted under all stock option plans for the year ended December 31, 2015 was as follows:
Total Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
(in thousands)
Options outstanding at January 1, 2015 5,564,111 $11.20
Granted 4,000 $9.10
Exercised (421,961) $9.55
Forfeited or canceled (800,816) $14.84
Options outstanding at December 31, 2015 4,345,334 $10.68 4.05 $—
Options vested at December 31, 2015 or expected to vest 4,289,778 $10.72 4.03 $—
Options exercisable at December 31, 2015 3,622,761 $11.28 3.82 $—
The following table sets forth the weighted-average key assumptions and fair value results for stock options granted during the years
ended December 31, 2015, 2014 and 2013:
Year Ended December 31,
2015 2014 2013
Expected dividend yield 0.00% 0.00% 0.00%
Risk-free interest rate 1.07% 1.24% 0.87%
Expected volatility 52.0% 50.3% 50.1%
Expected life (in years) 4.48 4.16 4.68
Weighted-average fair value of options granted (per share) $3.91 $3.03 $3.33
The cash received from the stock options exercised during the year ended December 31, 2015 was $5.0 million. During the years
ended December 31, 2014 and 2013, the cash received from and the aggregate intrinsic value of stock options exercised was not
significant.