Shutterfly 2008 Annual Report Download - page 63

Inducement Options
During 2007, the Company offered employment inducement stock option grant awards to three executives. These inducement grants were approved by the Company’
s Board
of Directors and were not issued under a shareholder approved plan. A total of 380,000 NSOs were granted. These options have a 10 year term, and vest over a four year period from
the initial date of hire of each of the executives.
Stock Option Activity
A summary of the status of the Company’
s stock option plans at December 31, 2007 and changes during the periods then ended is presented in the table below (share numbers and
aggregate intrinsic value in thousands):
As of December 31, 2006 and 2005, there were 1,485,000 and 489,000 options vested, respectively.
During the 12 months ended December 31, 2007, the Company granted stock options to purchase an aggregate of 2,216,694 shares of common stock with a weighted average
grant-date fair value of $9.33 per share.
Options granted in 2006 are grouped as follows:
The total fair value of options that vested during the 12 months ended December 31, 2007 was $5,250,000. The total intrinsic value of options exercised during the twelve months
ended December 31, 2007, 2006, and 2005 was $18,136,000, $531,000 and $3,274,000 respectively. Net cash proceeds from the exercise of stock options were $4,975,000 for the
twelve months ended December 31, 2007. As permitted by SFAS 123R, the Company has deferred the recognition of its excess tax benefit from stock option exercises of
approximately $5.3 million until it is actually realized. During 2007, the Company recognized $27,000 of non-
qualified tax benefit in state tax jurisdictions where the Company did not
have any net operating loss carry forwards.
Early Exercise of Employee Options
Stock options granted under the 1999 Plan provides employee option holders the right to elect to exercise unvested options in exchange for restricted common stock. Unvested
shares, which amounted to 5,000, 31,000 and 138,000 at December 31, 2007, 2006 and 2005, respectively, were subject to a repurchase right held by the Company at the original
issuance price in the event the optionees’
employment is terminated either voluntarily or involuntarily. For exercises of employee options, this right lapses 25% on the first anniversary
of the vesting start date and in 36 equal monthly amounts thereafter. These repurchase terms are considered to be a forfeiture provision and do not result in variable accounting. In
accordance with EITF No. 00-23, Issues Related to the Accounting for Stock Compensation under APB No. 25,
the shares purchased by the employees pursuant to the early exercise of
stock options are not deemed to be outstanding until those shares vest. In addition, cash received from employees for exercise of unvested options is treated as a refundable deposit
shown as a liability in the Company’
s financial statements. As of December 31, 2007, 2006 and 2005, cash received for early exercise of options of $0, $9,000 and $38,000, was
included in refundable deposits, respectively. Amounts so recorded are transferred into common stock and additional paid-in capital as the shares vest.
SHUTTERFLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shares
Available
for Grant
Number of
Options
Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Contractual
Term (Years)
Aggregate
Intrinsic
Value
Balances, December 31, 2004
510
1,336
0.40
Additional authorized
2,720
—
—
Granted
(2,372
)
2,372
5.12
Exercised
—
(
315
)
0.35
Forfeited, cancelled or expired
501
(375
)
2.89
Balances, December 31, 2005
1,359
3,018
3.91
Additional authorized
2,055
—
—
Granted
(2,269
)
2,269
11.11
Exercised
—
(
52
)
1.61
Forfeited, cancelled or expired
233
(201
)
6.10
Balances, December 31, 2006
1,378
5,034
7.28
Additional authorized (inducement grants)
380
—
—
Granted
(2,217
)
2,217
22.17
Exercised
—
(
1,049
)
4.75
Forfeited, cancelled or expired
560
(560
)
9.36
Balances, December 31, 2007
101
5,642
$
13.39
8.1
$71,253
Options vested and expected to vest at December 31, 2007
5,165
$
12.92
8.0
$67,468
Options vested at December 31, 2007
1,917
$
7.05
6.9
$35,610
Options
Granted
Weighted
Average
Fair Value
Weighted
Average
Exercise Price
Options with exercise price less than reassessed market price on the grant date
255
$
4.43
$
10.00
Options with exercise price equal to reassessed market price on the grant date
2,014
$
5.06
$
11.25
Total
2,269
$
4.99
$
11.11
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