Quantum Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

STOCK INCENTIVE PLANS AND SHARE-BASED COMPENSATION

STOCK INCENTIVE PLANS AND SHARE-BASED COMPENSATION

12 Months Ended

Mar. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK INCENTIVE PLANS AND SHARE-BASED COMPENSATION

Description of Stock Incentive Plans

2012 Long-Term Incentive Plan

We have a stockholder approved 2012 Long-Term Incentive Plan (the “Plan”) which had 39.3 million shares authorized at March 31, 2016. There were 21.9 million shares available for grant and 15.2 million stock options and restricted shares that were outstanding under the Plan as of March 31, 2016, which expire at various times through April 2018.

Stock options under the Plan are granted at prices determined by the Board of Directors, but at not less than the fair market value. The majority of restricted stock units granted to employees vest over three to four years. Stock option and restricted stock grants to nonemployee directors typically vest over one year. Both stock options and restricted stock units granted under the Plan are subject to forfeiture if employment terminates.

Other Stock Incentive Plans

In addition to the Plan, we have other stock incentive plans which are inactive for future share grant purposes, including plans assumed in acquisitions, under which stock options, stock appreciation rights, stock purchase rights, restricted stock awards and long-term performance awards to employees, consultants, officers and affiliates were authorized (“Other Plans”).

Stock options granted and assumed under the Other Plans generally vest over one to four years and expire seven to ten years after the grant date, and restricted stock granted under the Other Plans generally vests over one to four years. The Other Plans have been terminated, and outstanding stock options and restricted stock units granted and assumed remain outstanding and continue to be governed by the terms and conditions of the respective Other Plan. Stock options and restricted stock granted under the Other Plans are subject to forfeiture if employment terminates. Stock options under the Other Plans were granted at prices determined by the Board of Directors, but at not less than the fair market value, and stock options assumed were governed by the respective acquisition agreement. Stock options under the Other Plans expire at various times through June 2021.

Stock Purchase Plan

We have an employee stock purchase plan (the “Purchase Plan”) that allows for the purchase of stock at a 15% discount to fair market value at the date of grant or the exercise date, whichever value is less. The Purchase Plan is qualified under Section 423 of the Internal Revenue Code. The maximum number of shares that may be issued under the Purchase Plan is 64.3 million shares. As of March 31, 2016, 62.0 million shares had been issued. Under the Purchase Plan, rights to purchase shares are granted during the second and fourth quarter of each fiscal year. The Purchase Plan allows a maximum amount of 2.0 million shares to be purchased in any six month offering period. Employees purchased 3.3 million shares, 2.8 million shares and 3.2 million shares of common stock under the Purchase Plan in fiscal 2016, 2015 and 2014, respectively. The weighted-average price of stock purchased under the Purchase Plan was $0.67, $1.04 and $1.07 in fiscal 2016, 2015 and 2014, respectively. There were 2.3 million shares available for issuance as of March 31, 2016.

Determining Fair Value

We use the Black-Scholes stock option valuation model for estimating fair value of stock options granted under our plans and rights to acquire stock granted under our Purchase Plan. We amortize the fair value of stock options on a ratable basis over the requisite service periods, which are generally the vesting periods. The expected life of awards granted represents the period of time that they are expected to be outstanding. We determine the expected life based on historical experience with similar awards, giving consideration to the contractual terms, exercise patterns and post-vesting forfeitures. We estimate volatility based on the historical volatility of our common stock over the most recent period corresponding with the estimated expected life of the award. We base the risk-free interest rate used in the Black-Scholes stock option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent term equal to the expected life of the award. We have not paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We use historical data to estimate forfeitures and record share-based compensation for those awards that are expected to vest. We adjust share-based compensation for actual forfeitures.

We granted 0.8 million RSUs with market conditions (“market RSUs”) in fiscal 2014 and estimated the fair value of these market RSUs using a Monte Carlo simulation model. The number of market RSUs is dependent on Quantum’s common stock achieving certain 60-day average stock price targets as of specified dates, which vest immediately to two years after the specified dates. The Monte Carlo model requires the input of assumptions including expected volatility, risk-free interest rate and expected term in order to simulate a large number of possible outcomes to provide an estimated fair value of the market RSUs. We used an expected volatility of 66%, a risk free interest rate of 0.5% and expected terms of ten months, 22 months and 34 months that mirrors the various vesting dates of the awards. The estimated grant date fair value of the market RSUs was $0.7 million which is being recognized over the respective vesting periods of the awards.

We granted 1.5 million, 2.4 million and 0.2 million of RSUs with performance conditions (“performance RSUs”) in fiscal 2016, 2015 and 2014, respectively, and the fair values of the performance RSUs at the grant date were $2.6 million, $3.0 million and $0.2 million, respectively. Performance RSUs become eligible for vesting based on Quantum achieving certain revenue and operating income targets through the end of the fiscal year when the performance RSUs were granted. Share-based compensation expense for performance RSUs is recognized when it is probable that the performance conditions will be achieved. The revenue and operating income targets of the fiscal 2015 performance RSUs were achieved and $0.3 million and $0.4 million of share-based compensation expense were recognized during fiscal 2016 and 2015, respectively. The performance RSUs granted in fiscal 2016 and 2014 were canceled in accordance with the grant agreement as the fiscal 2016 and 2014 targets were not met; and, therefore no share-based compensation expense was recognized.

Stock Options

No stock options were granted in fiscal 2016, 2015 or 2014.

Restricted Stock

The fair value of our restricted stock is the intrinsic value as of the grant date.

Stock Purchase Plan

The weighted-average fair values and the assumptions used in calculating fair values during each fiscal period are as follows:



	For the year ended March 31,
	2016			2015			2014
Option life (in years)	0.5			0.5			0.5
Risk-free interest rate	0.26		%	0.07		%	0.07		%
Stock price volatility	77.94		%	36.58		%	43.71		%
Weighted-average grant date fair value	$	0.29		$	0.36		$	0.40

Share-Based Compensation Expense

The following tables summarize share-based compensation expense (in thousands):



	For the year ended March 31,
	2016		2015		2014
Share-based compensation expense:
Cost of revenue	$	1,241	$	1,489	$	1,963
Research and development	1,864		2,559		3,430
Sales and marketing	2,907		3,506		4,097
General and administrative	2,904		4,029		3,969
Total share-based compensation expense	$	8,916	$	11,583	$	13,459



	For the year ended March 31,
	2016		2015		2014
Share-based compensation by type of award:
Stock options	$	2	$	617	$	826
Restricted stock	8,220		10,102		11,356
Stock purchase plan	694		864		1,277
Total share-based compensation expense	$	8,916	$	11,583	$	13,459

The total share-based compensation cost capitalized as part of inventory as of March 31, 2016 and 2015 was not material. During fiscal 2016, 2015 and 2014, no tax benefit was realized for the tax deduction from stock option exercises and other awards due to tax benefit carryforwards and tax ordering requirements.

As of March 31, 2016, there was no unrecognized compensation cost related to stock options granted under our plans. Total intrinsic value of stock options exercised for the years ended March 31, 2016, 2015 and 2014 was $0.3 million, $0.4 million and $0.4 million, respectively. We settle stock option exercises by issuing additional common shares.

As of March 31, 2016, there was $10.0 million of total unrecognized compensation cost related to nonvested restricted stock. The unrecognized compensation cost for restricted stock is expected to be recognized over a weighted-average period of 1.75 years. Total fair value of awards vested during the years ended March 31, 2016, 2015 and 2014 was $9.9 million, $7.7 million and $6.2 million, respectively, based on the fair value of our common stock on the award's vest date. We issue additional common shares upon vesting of restricted stock units.

Stock Activity

Stock Options

A summary of activity relating to all of our stock option plans is as follows (stock options and intrinsic value in thousands):



	Stock Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding as of March 31, 2015	4,944		$	1.47
Exercised	(294	)	1.01
Forfeited	(323	)	1.00
Expired	(196	)	1.69
Outstanding as of March 31, 2016	4,131		$	1.52	0.84	$	1,646
Vested and expected to vest at March 31, 2016	4,131		$	1.52	0.84	$	1,646
Exercisable as of March 31, 2016	4,131		$	1.52	0.84	$	1,646

The following table summarizes information about stock options outstanding and exercisable as of March 31, 2016 (stock options in thousands):



Range of Exercise Prices			Stock Options Outstanding	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)	Stock Options Exercisable	Weighted- Average Exercise Price
$0.63	—	$0.92	40	$	0.72	3.54	40	$	0.72
$0.98	—	$1.23	2,651	0.99		0.24	2,651	0.99
$1.85	—	$2.59	1,419	2.52		1.91	1,419	2.52
$2.90	—	$2.93	21	2.91		0.94	21	2.91
			4,131				4,131

Expiration dates ranged from April 2016 to June 2021 for stock options outstanding at March 31, 2016. Prices for stock options exercised during the three-year period ended March 31, 2016, ranged from $0.11 to $1.81.

Restricted Stock

A summary of activity relating to our restricted stock follows (shares in thousands):



	Shares		Weighted-Average Grant Date Fair Value
Nonvested as March 31, 2015	13,791		$	1.34
Granted	6,854		1.61
Vested	(6,426	)	1.43
Forfeited	(3,110	)	1.54
Nonvested as March 31, 2016	11,109		$	1.39

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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