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F-27 VONAGE ANNUAL REPORT 2015
In any period under the 2014 $100,000 repurchase program,
cash used in financing activities related to common stock repurchases
may differ from the comparable change in stockholders' equity, reflecting
timing differences between the recognition of share repurchase
transactions and their settlement for cash.
Stock Option Cancellation
As part of our strategy to build shareholder value and to facilitate
our goal of reducing the number of shares of common stock outstanding,
on February 19, 2013, we entered into an agreement with our Chief
Executive Officer to cancel a total of 4,500 of his vested stock options
for $5,463. The payment reflects a discount, in favor of the Company,
from the closing price of the common stock on the New York Stock
Exchange on February 19, 2013.
Note 9. Employee Benefit Plans
Share-Based Compensation
Our stock option program is a long-term retention program
that is intended to attract, retain and provide incentives for talented
employees, officers and directors, and to align stockholder and
employee interests. Currently, we grant options from our 2006 Incentive
Plan. Our 2001 Stock Incentive Plan was terminated by our board of
directors in 2008. As such, share-based awards are no longer granted
under the 2001 Stock Incentive Plan. Under the 2006 Incentive Plan,
share-based awards can be granted to all employees, including
executive officers, outside consultants, and non-employee directors.
Vesting periods for share-based awards are generally three or four years
for both plans. Awards granted under each plan expire in five or ten
years from the effective date of grant. As of April 2010, the Company
began routinely granting awards with a ten year expiration period.
The fair value for these options was estimated at the date of grant using a Black-Scholes option-pricing model. The assumptions used
to value options are as follows:
2015 2014 2013
Risk-free interest rate 1.38-1.80% 1.78-2.19% 1.13-2.02%
Expected stock price volatility 73.55-83.14% 85.28-86.93% 86.94-90.39%
Dividend yield 0.00%0.00%0.00%
Expected life (in years) 6.25 6.25 6.25
Beginning January 1, 2006, we estimated the volatility of
our stock using historical volatility of comparable public companies in
accordance with guidance in FASB ASC 718, “Compensation-Stock
Compensation”. Beginning in the first quarter of 2008, we used the
historical volatility of our common stock to measure expected volatility
for future option grants.
The risk-free interest rate assumption is based upon
observed interest rates appropriate for the term of our employee stock
options. The expected term of employee stock options represents the
weighted-average period that the stock options are expected to remain
outstanding, which we derive based on our historical settlement
experience.
Beginning in 2014, we issued restricted performance stock
units with vesting that is contingent on both total shareholder return
("TSR") compared to members of our peer group and continued service.
For the market-based restricted performance stock units issued during the year ended December 31, 2015 and December 31, 2014, the
payouts at vesting which are linearly interpolated between the percentiles specified below are as follows:
Payout Schedule
Percentile Ranking % of Target Earned
80% 200%
50% 100%
30% 50%
< 30% —%
Notwithstanding the foregoing, if our TSR is negative for
the performance period, then the vesting percentage shall not exceed
100%. In addition, we reduce the shares available for grant to cover
the potential payout of 200%.
To value these market-based restricted performance stock
units, we used a Monte Carlo simulation model on the date of grant.
Compensation expense for restricted stock units with performance and
market conditions is recognized over the requisite service period using
the straight-line method and includes the impact of estimated forfeitures.
The assumptions used to value these market based restricted performance stock units are as follows:
2015 2014 2013
Risk-free interest rate 0.98%0.69%—%
Expected stock price volatility 40.21%48.91%—%
Dividend yield 0.00%0.00%0.00%
Expected life (in years) 2.79 2.79 0