Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

v3.8.0.1
Stock-Based Compensation
6 Months Ended
Sep. 30, 2017
Stock-Based Compensation  
Stock-Based Compensation

8.  Stock-Based Compensation

The following table summarizes, by statement of operations line item, stock-based compensation expense for the Company’s three and six months ended September 30, 2017 and 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2017

    

2016

    

2017

    

2016

 

Cost of goods sold

 

$

18

    

$

14

 

$

38

    

$

29

 

Research and development

 

 

 5

 

 

13

 

 

12

 

 

16

 

Selling, general and administrative

 

 

130

 

 

214

 

 

257

 

 

434

 

Stock-based compensation expense

 

$

153

 

$

241

 

$

307

 

$

479

 

 

Stock Plans

 

2000 Equity Incentive Plan and 2017 Equity Incentive Plan

 

In June 2000, the Company adopted the 2000 Equity Incentive Plan (the “2000 Plan”). The 2000 Plan provides for a total maximum aggregate number of shares which may be issued of 1,849,000 shares. In June 2017, the Company adopted the Capstone Turbine Corporation 2017 Equity Incentive Plan (the “2017 Plan”) which was approved by the stockholders at the Company’s 2017 annual meeting of stockholders on August 31, 2017. The 2017 Plan provides for awards of up to 3,000,000 shares of common stock. The 2017 Plan is administered by the Compensation Committee designated by the Board of Directors (the “Compensation Committee”). The Compensation Committee’s authority includes determining the number of incentive awards and vesting provisions.

 

Stock Options

 

The Company issued stock options under the 2000 Plan and issues stock options under the 2017 Plan to employees, non-employee directors and consultants that vest and become exercisable over a four-year period and expire 10 years after the grant date. The Company uses a Black-Scholes valuation model to estimate the fair value of the options at the grant date, and compensation cost is recorded on a straight-line basis over the vesting period. During the year ended March 31, 2017, the Company established an accounting policy election to assume zero forfeiture for stock options and account for forfeitures when they occur. All options are subject to the following vesting provisions: one-fourth vest one year after the issuance date and 1/48th vest on the first day of each full month thereafter, so that all options will be vested on the first day of the 48th month after the grant date. Information relating to stock options for the Company’s six months ended September 30, 2017 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Weighted-

 

Remaining

 

Aggregate

 

 

 

 

 

Average

 

Contractual

 

Intrinsic

 

 

 

Shares

 

Exercise Price

 

Term

 

Value

 

 

 

 

 

 

 

 

(in years)

 

 

 

 

Options outstanding at March 31, 2017

    

314,537

    

$

15.48

    

 

    

 

 

 

Granted

 

 —

 

$

 —

 

 

 

 

 

 

Exercised

 

 —

 

$

 —

 

 

 

 

 

 

Forfeited, cancelled or expired

 

(4,000)

 

$

24.25

 

 

 

 

 

 

Options outstanding at September 30, 2017

 

310,537

 

$

15.37

 

4.9

 

 

 —

 

Options fully vested at September 30, 2017 and those expected to vest beyond September 30, 2017

 

310,537

 

$

15.37

 

4.9

 

 

 —

 

Options exercisable at September 30, 2017

 

245,693

 

$

18.98

 

3.9

 

 

 —

 

 

Black-Scholes Model Valuation Assumptions

 

There were no stock options granted during either the three or six months ended September 30, 2017. The Company calculated the estimated fair value of each stock option granted during the three and six months ended September 30, 2016 on the date of grant using the Black-Scholes option-pricing model and the following weighted-average assumptions:

 

 

 

 

 

 

 

 

Three and Six Months Ended

 

 

September 30, 2016

Risk-free interest rates

 

 

1.3

%  

Expected lives (in years)

 

 

5.7

 

Dividend yield

 

 

 —

%  

Expected volatility

 

 

133.9

%  

Weighted average grant date fair value of options granted during the period

 

$

1.52

 

 

The Company’s computation of expected volatility for the three and six months ended September 30, 2016 was based on historical volatility. The expected life, or term, of options granted is derived from historical exercise behavior and represents the period of time that stock option awards are expected to be outstanding. Management has selected a risk-free rate based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the options’ expected term.  The Company recorded expense of approximately $8,000 and $3,000 associated with its stock options during the three months ended September 30, 2017 and 2016, respectively. The Company recorded expense of approximately $17,000 and $3,000 associated with its stock options during the six months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, there was approximately $0.1 million of total compensation cost related to unvested stock option awards that is expected to be recognized as expense over a weighted average period of 2.9 years.

 

Restricted Stock Units and Performance Restricted Stock Units

 

The Company issued restricted stock units under the 2000 Plan and issues restricted stock units under the 2017 Plan to employees, non-employee directors and consultants. The restricted stock units are valued based on the closing price of the Company’s common stock on the date of issuance, and compensation cost is recorded on a straight-line basis over the vesting period. During the fiscal year ended March 31, 2017, the Company established an accounting policy election to assume zero forfeiture for restricted stock units and account for forfeitures when they occur. The restricted stock units vest in equal installments over a period of four years. For restricted stock units with four year vesting, one-fourth vest annually beginning one year after the issuance date. The restricted stock units issued to non-employee directors vest one year after the issuance date. The following table outlines the restricted stock unit and performance restricted stock unit (“PRSU”) activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

Average Grant

 

 

 

 

 

Date Fair

 

Restricted Stock and Performance Restricted Stock Units

 

Shares

 

Value

 

Nonvested restricted stock units outstanding at March 31, 2017

    

316,709

    

$

2.85

 

Granted

 

474,848

 

 

0.64

 

Vested and issued

 

(212,924)

 

 

2.76

 

Forfeited

 

(9,513)

 

 

2.49

 

Nonvested restricted stock units outstanding at September 30, 2017

 

569,120

 

 

1.05

 

Restricted stock units expected to vest beyond September 30, 2017

 

569,097

 

$

1.05

 

 

The following table provides additional information on restricted stock units for the three and six months ended September 30, 2017 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2017

    

2016

    

2017

    

2016

 

Restricted stock compensation expense (in thousands)

 

$

144

    

$

188

 

$

287

    

$

375

 

Aggregate fair value of restricted stock units vested and issued (in thousands)

 

$

130

 

$

85

 

$

137

 

$

107

 

Weighted average grant date fair value of restricted stock units granted during the period

 

$

0.62

 

$

1.71

 

$

0.67

 

$

1.71

 

 

As of September 30, 2017, there was approximately $0.5 million of total compensation cost related to unvested restricted stock units that is expected to be recognized as expense over a weighted average period of 1.2 years.

 

Restricted Stock Awards

The Company issued restricted stock awards under the 2000 Plan and issues restricted stock awards under the 2017 Plan to employees and non-employee directors. During the three and six months ended September 30, 2017 and 2016 the Company granted stock awards to non-employee directors who elected to take payment of all or any part of the directors’ fees in stock in lieu of cash. The following table outlines the restricted stock award activity for the three and six months ended September 30, 2017 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2017

    

2016

    

2017

    

2016

 

Restricted stock awards compensation expense (in thousands)

 

$

 1

 

$

50

 

$

 3

    

$

101

 

Restricted stock awards granted

 

 

1,953

 

 

29,910

 

 

3,969

 

 

62,111

 

Weighted average grant date fair value of restricted stock awards granted during the period

 

$

0.64

 

$

1.69

 

$

0.63

 

$

1.63

 

 

For each term of the Board of Directors (beginning on the date of an annual meeting of stockholders and ending on the date immediately preceding the next annual meeting of stockholders), a non-employee director may elect to receive a stock award in lieu of all or any portion of their annual retainer or committee fee cash payment. The shares of stock were valued based on the closing price of the Company’s common stock on the date of grant.

Employee Stock Purchase Plan

In June 2000, the Company adopted the Employee Stock Purchase Plan (the “ESPP”). The ESPP provides for the granting of rights to purchase common stock to regular full and part-time employees or officers of the Company and its subsidiaries. In June 2017, the Board of Directors unanimously approved an amendment and restatement to the ESPP which was approved by the stockholders at the Company’s annual meeting of stockholders on August 31, 2017. Prior to the current amendment, 70,000 shares of the Company’s common stock had been reserved for issuance. As amended, the ESPP will continue by its terms and will increase the number of shares of the Company’s common stock available by 500,000 shares which will reserve for issuance a total of 570,000 shares of common stock. Under the ESPP, shares of the Company’s common stock will be issued upon exercise of the purchase rights. The ESPP will continue by its terms through June 30, 2020, unless terminated sooner.

Grants outside of 2000 Plan and 2017 Plan

As of September 30, 2017, the Company had outstanding 88,930 non-qualified common stock options and 11,115 restricted stock units issued outside of the 2017 Plan. The Company granted these stock options and restricted stock units during the three months ended September 30, 2016 as inducement grants to the new Vice President, Manufacturing of the Company, with exercise prices or values, as applicable, based on the fair market value of the Company’s common stock on the grant date.

Although the options and restricted stock units were not granted under the 2000 Plan and 2017 Plan, they are governed by terms and conditions identical to those under the 2000 Plan and 2017 Plan. All options are subject to the following vesting provisions: one-fourth vest one year after the issuance date and 1/48th vest on the first day of each full month thereafter, so that all options will be vested on the first day of the 48th month after the grant date. All outstanding options have a contractual term of ten years. The restricted stock units vest in equal installments over a period of four years.

Stockholder Rights Plan

On May 6, 2016, the Company entered into Amendment No. 5 (the “Amendment”) to the Rights Agreement, dated as of July 7, 2005, as amended by Amendment No. 1, dated as of July 3, 2008, Amendment No. 2, dated as of June 9, 2011, Amendment No. 3, dated as of July 1, 2014 and Amendment No. 4, dated as of August 5, 2014, (the “Original Rights Agreement”) between the Company and Computershare Inc. 

The Amendment accelerated the expiration of the Company’s preferred share purchase rights (the “Original Rights”) from 5:00 p.m., California time, on the 30th day after the Company’s 2017 annual meeting of stockholders to 5:00 p.m., California time, on May 6, 2016, and had the effect of terminating the Original Rights Agreement on that date. At the time of the termination of the Original Rights Agreement, all of the Original Rights distributed to holders of the Company’s common stock pursuant to the Original Rights Agreement expired.

On May 6, 2016, the Company entered into a rights agreement (the “NOL Rights Agreement”) with Computershare Inc., as rights agent. In connection with the NOL Rights Agreement, the Company’s Board of Directors authorized and declared a dividend distribution of one preferred stock purchase right (a “New Right”) for each share of the Company’s common stock authorized and outstanding. Each New Right entitles the registered holder to purchase from the Company a unit consisting of one one-thousandth of a share of Series B Junior Participating Preferred Stock, par value $0.001 per share, at a purchase price of $8.76 per unit, subject to adjustment. The description and terms of the New Rights are set forth in the NOL Rights Agreement.

The purpose of the NOL Rights Agreement is to diminish the risk that the Company’s ability to use its net operating losses and certain other tax assets (collectively, “Tax Benefits”) to reduce potential future federal income tax obligations would become subject to limitations by reason of the Company’s experiencing an “ownership change,” as defined in Section 382 of the Internal Revenue Code of 1986. A company generally experiences such an ownership change if the percentage of its stock owned by its “5-percent shareholders,” as defined in Section 382 of the Internal Revenue Code of 1986, increases by more than 50 percentage points over a rolling three-year period. The NOL Rights Agreement is designed to reduce the likelihood that the Company will experience an ownership change under Section 382 of the Internal Revenue Code of 1986 by (i) discouraging any person or group from becoming a 4.99% shareholder and (ii) discouraging any existing 4.99% shareholder from acquiring additional shares of the Company’s stock.

The New Rights will not be exercisable until the earlier to occur of (i) the close of business on the tenth business day after a public announcement or filing that a person has, or group of affiliated or associated persons or persons acting in concert have, become an “Acquiring Person,” which is defined as a person or group of affiliated or associated persons or persons acting in concert who, at any time after the date of the NOL Rights Agreement, have acquired, or obtained the right to acquire, beneficial ownership of 4.99% or more of the Company’s outstanding shares of common stock, subject to certain exceptions or (ii) the close of business on the tenth business day after the commencement of, or announcement of an intention to commence, a tender offer or exchange offer the consummation of which would result in any person becoming an Acquiring Person (the earlier of such dates being called the “Distribution Date”). Certain synthetic interests in securities created by derivative positions, whether or not such interests are considered to be ownership of the underlying common stock or are reportable for purposes of Regulation 13D of the Exchange Act, are treated as beneficial ownership of the number of shares of common stock equivalent to the economic exposure created by the derivative position, to the extent actual shares of the common stock are directly or indirectly held by counterparties to the derivatives contracts.

The New Rights, which are not exercisable until the Distribution Date, will expire prior to the earliest of (i) May 6, 2019 or such later day as may be established by the Board of Directors prior to the expiration of the New Rights, provided that the extension is submitted to the Company’s stockholders for ratification at the next annual meeting of stockholders of the Company succeeding such extension; (ii) the time at which the New Rights are redeemed pursuant to the NOL Rights Agreement; (iii) the time at which the New Rights are exchanged pursuant to the NOL Rights Agreement; (iv) the time at which the New Rights are terminated upon the occurrence of certain transactions; (v) the close of business on the first day after the Company’s 2017 annual meeting of stockholders, if approval by the stockholders of the Company of the NOL Rights Agreement has not been obtained on or prior to the close of business on the first day after the Company’s 2017 annual meeting of stockholders; (vi) the close of business on the effective date of the repeal of Section 382 of the Internal Revenue Code of 1986, if the Board of Directors determines that the NOL Rights Agreement is no longer necessary or desirable for the preservation of Tax Benefits; and (vii) the close of business on the first day of a taxable year of the Company to which the Board of Directors determines that no Tax Benefits are available to be carried forward.

Each share of Series B Junior Participating Preferred Stock will be entitled, when, as and if declared, to a preferential per share quarterly dividend payment equal to the greater of (i) $1.00 per share or (ii) an amount equal to 1,000 times the dividend declared per share of common stock. Each share of Series B Junior Participating Preferred Stock will entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Company. In the event of any merger, consolidation or other transaction in which shares of common stock are converted or exchanged, each share of Series B Junior Participating Preferred Stock will be entitled to receive 1,000 times the amount received per one share of common stock.

At the Company’s 2017 annual meeting of stockholders on August 31, 2017, the stockholders approved the NOL Rights Agreement, dated as of May 6, 2016, with Computershare Inc.