CONTROL4 CORP - 10-K filing on 2017-02-15

Equity Compensation

12 Months Ended

Dec. 31, 2016

8. Equity Compensation

Stock Options

In 2003, the Board of Directors adopted the 2003 Equity Incentive Plan (the “2003 Plan”), which provided for the granting of nonqualified and incentive stock options, stock appreciation rights, stock awards, restricted stock units and restricted stock awards. Under the 2003 Plan, the Company was able to grant nonqualified and incentive stock options to directors, employees and non-employees providing services to the Company. On June 11, 2013, the Company’s Board of Directors adopted the 2013 Stock Option and Incentive Plan (the “2013 Plan”), which was subsequently approved by the Company’s stockholders. The 2013 Plan became effective as of the closing of the Company’s initial public offering. To the extent that any awards outstanding under the 2003 Plan are forfeited or lapse unexercised after August 1, 2013, the shares of common stock subject to such awards will become available for issuance under the 2013 Plan. The 2013 Plan provides for annual increases in the number of reserved shares of 5% of the outstanding number of shares of the Company’s Common Stock as of the preceding December 31. On January 1, 2017, the number of reserved shares was increased by 1,186,489 in accordance with the provisions of the 2013 Plan.

A summary of stock option activity for the years ended December 31, 2016, 2015 and 2014 is presented below:


						Weighted
		Weighted				Average
	Shares Subject	Average		Weighted		Remaining
	to Options	Grant Date		Average		Contractual
	Outstanding	Fair Value		Exercise Price		Life (Years)
Balance at December 31, 2013	4,905,214			$	6.31
Granted	1,592,268	$	9.99		18.00
Exercised	(1,512,514)				4.24
Expired	(136)				7.40
Forfeited	(133,611)				13.77
Balance at December 31, 2014	4,851,221				10.57
Granted	238,516		5.31		10.52
Exercised	(285,387)				4.87
Expired	(47,866)				13.92
Forfeited	(183,812)				14.76
Balance at December 31, 2015	4,572,672				10.72
Granted	50,000		4.63		8.16
Exercised	(685,798)				5.01
Expired	(76,907)				14.96
Forfeited	(83,562)				14.81
Balance at December 31, 2016	3,776,405				11.55

Exercisable options at December 31, 2015	3,185,180				8.76	5.2
Vested and expected to vest at December 31, 2015	4,466,655				10.61	6.1
Exercisable options at December 31, 2016	3,048,020				10.69	5.4
Vested and expected to vest at December 31, 2016	3,733,643				11.52	5.8

The following table summarizes information about stock options outstanding and exercisable at December 31, 2016:


				Options Outstanding				Options Exercisable
							Weighted-		Weighted-
				Weighted			Average		Average
				Average		Number of	Remaining	Number of	Remaining
				Exercise		Underlying	Contractual	Underlying	Contractual
Range of Exercise Prices				Price		Shares	Life (in years)	Shares	Life (in years)
$	2.65	-	4.78		3.47	48,270	0.7	48,270	0.7
$	4.89	-	7.49		6.04	1,292,766	4.3	1,276,908	4.3
$	8.16	-	12.93		10.36	1,133,575	6.0	898,013	5.5
$	12.98	-	19.56		15.65	654,517	7.8	360,315	7.6
$	20.91	-	22.92		21.07	647,277	7.0	464,514	6.9
						3,776,405		3,048,020

The total fair value of stock option awards vested during the year ended December 31, 2016 was $5.4 million. The following table summarizes the aggregate intrinsic‑value of options exercised, outstanding and exercisable (in thousands):


	For the Years Ended
	and as of December 31,
	2016		2015		2014
Options Exercised	$	3,312	$	1,432	$	22,668
Options Exercisable		6,089		3,496		22,718
Options Vested and Expected to Vest		6,280		3,499		27,663

The fair value of each option award is estimated on the date of grant using the Black‑Scholes option‑pricing model with the following assumptions:


	Years Ended
	December 31,
	2016			2015				2014
Expected volatility		62	%	51	-	55	%	49	-	60	%
Expected dividends		0	%	0			%	0			%
Expected terms (in years)		6.1		5.3	-	6.1		1.0	-	6.1
Risk-free rate		1.1	%	1.3	-	1.8	%	0.3	-	2.0	%

Restricted stock units

A summary of restricted stock unit activity for the year ended December 31, 2016 is presented below:


	Number of	Weighted Average
	Shares	Grant Date Fair Value
Non-vested balance at December 31, 2014	—
Awarded	433,000	$	8.18
Forfeited	(8,000)		8.18
Non-vested balance at December 31, 2015	425,000		8.18
Awarded	1,147,946		7.40
Vested	(35,340)		7.85
Forfeited	(141,219)		7.66
Non-vested balance at December 31, 2016	1,396,387		7.60

The aggregate intrinsic value of unvested restricted stock at December 31, 2016 was $14.2 million. The aggregate intrinsic value represents the total pretax intrinsic value, based on the Company’s stock price of $10.20 as of December 31, 2016, which would have been received by the restricted stock unit participants had all restricted stock units been vested as of that date.

Stock-based compensation expense

Total stock‑based compensation expense has been classified as follows in the accompanying Consolidated Statements of Operations (in thousands):


	Years Ended
	December 31,
	2016		2015		2014
Cost of revenue	$	171	$	174	$	105
Research and development		3,256		2,885		2,235
Sales and marketing		2,273		1,783		1,110
General and administrative		2,670		2,192		1,891
Total stock-based compensation expense	$	8,370	$	7,034	$	5,341

At December 31, 2016, there was $6.3 million of total unrecognized compensation cost related to non‑vested stock option awards that will be recognized over a weighted‑average period of 1.7 years. At December 31, 2016, there was $7.3 million of total unrecognized compensation cost related to non-vested restricted stock units that will be recognized over a weighted-average period of 2.2 years.