9. Equity Incentive Plan

On December 15, 2016 (the “Effective Date”), the Company’s stockholders approved the 2016 Incentive Award Plan (the “Plan”). The Plan is designed to attract, retain and motivate employees who make important contributions to the Company by providing such individuals with equity ownership opportunities. Awards granted under the Plan may include stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards. Under the Plan, the following types of shares go back into the pool of shares available for issuance:

unissued shares related to forfeited or cancelled restricted stock and stock options from Plan awards and Prior Plan awards (that were outstanding as of the Effective Date), and;

shares tendered to satisfy the tax withholding obligation related to the vesting of restricted stock (but not stock options).

Unlike the Company’s 2007 Equity Incentive Award Plan (the “Prior Plan”), the Plan has no evergreen provision to increase the shares available for issuance; any new shares would require stockholder approval. The Prior Plan was set to expire in October 2017; however, with the approval of the Plan, the Company will no longer award equity from the Prior Plan. At June 30, 2018, the remaining aggregate number of shares of the Company’s common stock authorized for future issuance under the Plan was 4,299,767. At June 30, 2018, there were 3,585,193 shares of the Company’s common stock that remain outstanding or nonvested under the Plan and Prior Plan.

Each stock option is exercisable pursuant to the vesting schedule set forth in the stock option agreement granting such stock option, generally over four years. No stock option shall be exercisable after the expiration of its option term. The Company has granted stock options under the Prior Plan and the Company has also granted stock options to executive officers under stand-alone agreements outside the Prior Plan.

Compensation expense for all equity-based compensation awards is based on the grant-date fair value estimated in accordance with the provisions of ASC 718. The Company recognizes these compensation costs on a straight-line basis over the requisite service period, which is generally the vesting period of the award.

The Company uses the Black-Scholes option pricing model to calculate the fair value of stock options. The use of option valuation models requires the input by management of highly subjective assumptions, including the expected stock price volatility, the expected life of the option term and forfeiture rate. These assumptions are utilized by the Company in determining the estimated fair value of stock options.

The fair value of the Company’s service and performance based stock options was estimated as of the date of grant using the Black-Scholes option pricing model with the following assumptions:


	Year Ended June 30,
	2016
Dividend yield	0.00%
Expected volatility	54.5%
Risk-free interest rate	1.00%
Expected life of the option term (in years)	5.11
Forfeiture rate	12%

There were no grants of stock options during the years ended June 30, 2018 and 2017. The fair value of the options granted during the year ended June 30, 2016 was $3.2 million. This amount will be expensed over the required service period.

Dividend yield—The Company has never declared or paid dividends on its common stock and has no plans to do so in the foreseeable future.

Expected volatility—Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period.

Risk‑free interest rate—The assumed risk free rate used is a zero coupon U.S. Treasury security with a maturity that approximates the expected term of the option.

Expected life of the option term—The period of time that the options granted are expected to remain unexercised. Options granted during the year have a maximum term of eight years. The Company estimates the expected life of the option term based on an average life between the dates that options become fully vested and the maximum life of options granted.

Forfeiture rate — The estimated percentage of options granted that is expected to be forfeited or canceled before becoming fully vested. The Company uses a forfeiture rate based on historical forfeitures of different classification levels of employees in the Company.

Stock option activity including stand‑alone agreements during the years ended June 30, 2018, 2017 and 2016 was as follows:


				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
	Shares	Price		Life (Years)	Value
Outstanding, June 30, 2015	2,914,593	$	20.33
Granted	243,112		13.43
Exercised	(1,000)		13.66
Forfeited or canceled	(806,530)		18.55
Outstanding, June 30, 2016	2,350,175	$	20.20
Granted	—		—
Exercised	(425,180)		16.35
Forfeited or canceled	(568,467)		23.12
Outstanding, June 30, 2017	1,356,528	$	20.19
Granted	—		—
Exercised	(14,600)		13.45
Forfeited or canceled	(142,621)		22.71
Outstanding, June 30, 2018	1,199,307	$	19.97	3.55	$	788,277
Stock options exercisable at June 30, 2018	1,091,801	$	20.52	3.41	$	549,397

The aggregate intrinsic value in the table above represents the total pre‑tax intrinsic value (the difference between the Company’s closing stock price on the last day of the year and the exercise price, multiplied by the number of in‑the‑money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2018. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s stock. The total intrinsic value of options exercised for the years ended June 30, 2018, 2017 and 2016 was $0.0 million, $1.3 million, and $0.0 million, respectively.

As of June 30, 2018, there was $0.6 million of total unrecognized compensation expense related to nonvested stock options granted. The cost is expected to be recognized over a weighted average period of 1.0 years. During the years ended June 30, 2018, 2017 and 2016, the Company recognized $1.2 million, $2.0 million and $3.7 million, respectively, of stock-based compensation expense related to stock options.

Restricted Stock Awards

The Company has approved grants of restricted stock awards (“RSA”) pursuant to the Plan and Prior Plan. Under the Plan and Prior Plan, employees, outside directors and independent contractors are able to participate in the Company’s future performance through the awards of restricted stock. Each RSA vests pursuant to the vesting schedule set forth in the restricted stock agreement granting such RSAs, generally over three years. Under the Plan and Prior Plan, there have been no awards of restricted stock to independent contractors.

Restricted stock award activity during the years ended June 30, 2018, 2017 and 2016 was as follows:


		Weighted-
		Average
		Grant-Date
	Shares	Fair Value
Nonvested, June 30, 2015	1,245,504	$	22.30
Granted	1,704,843		10.13
Vested	(722,577)		22.24
Canceled	(95,980)		20.25
Nonvested, June 30, 2016	2,131,790	$	12.46
Granted	1,268,311		12.70
Vested	(1,084,046)		12.94
Canceled	(175,008)		12.69
Nonvested, June 30, 2017	2,141,047	$	12.34
Granted	1,210,502		16.68
Vested	(1,339,492)		12.29
Canceled	(335,150)		14.31
Nonvested, June 30, 2018	1,676,907	$	15.12

Performance Based Restricted Stock Awards (included above)

During the year ended June 30, 2018, 557,189 new performance based restricted stock awards were granted and 632,888 remain nonvested at June 30, 2018. During the year ended June 30, 2018, 275,135 performance based restricted stock awards vested. Vesting of the performance based restricted stock awards is contingent on the achievement of certain financial performance goals and service vesting conditions.

Included above are 46,845 performance based restricted stock awards that were granted to Company executives with a weighted average grant date fair value of $17.40 per share. These awards were granted pursuant to the Plan and are subject to the achievement of a target free cash flow metric in fiscal year 2018 and will be adjusted upwards or downwards based on the Company’s relative total shareholder return for fiscal year 2018 ranked against other companies in the Russell 2000 Index. If the performance goals are achieved, 20% of the shares granted vest immediately, and the remaining 80% vest ratably in semi-annual intervals until the three year anniversary from grant date.

Equity Incentive Market Based Restricted Stock Awards (included above)

During fiscal year 2017, the Company granted equity incentive market based restricted stock awards which were subject to the attainment of an average stock price of $14.35 for 30 consecutive days after the date of the Company’s earnings release for the fourth quarter and fiscal year ended June 30, 2017. During the year ended June 30, 2018, 18,400 of these equity incentive market based restricted stock awards vested. Additionally, during fiscal year 2017, the Company granted equity incentive market based restricted stock awards to its Executive Chairman and Chief Executive Officer which were subject to the attainment of average prices of $13, $16 and $19 per share. These targets were achieved during fiscal year 2017. During the year ended June 30, 2018, 257,075 of these equity incentive market based restricted stock awards vested. As of June 30, 2018, 25,200 equity incentive market based restricted stock awards remain nonvested.

Service Based Restricted Stock Awards (included above)

During the year ended June 30, 2018, 653,313 new service based restricted stock awards were granted and 1,018,819 remain nonvested at June 30, 2018. During the year ended June 30, 2018, 788,882 service based restricted stock awards vested.

Summary of All Restricted Stock Awards

As of June 30, 2018, there was $15.8 million of total unrecognized compensation expense related to nonvested restricted stock awards. The cost is expected to be recognized over a weighted average period of 1.3 years. The fair value of restricted stock awards granted for the years ended June 30, 2018 and 2017 was $20.2 million and $16.0 million, respectively. The total fair value of shares vested for the years ended June 30, 2018 and 2017 was $22.1 million and $17.5 million, respectively. During the years ended June 30, 2018, 2017 and 2016, the Company recognized $15.7 million, $16.8 million and $14.8 million, respectively, of stock-based compensation expense related to restricted stock awards.

Performance Share Units (“PSU”)

The PSUs vest upon achievement of certain performance criteria associated with a Board-approved Long Term Incentive Plan (“LTIP”) and continuation of employee service over a two to three year period. The level of performance will determine the number of PSUs earned as measured against threshold, target and stretch achievement levels of the LTIP. Each PSU represents the right to receive one share of the Company’s common stock, or at the option of the Company, an equivalent amount of cash, and is classified as an equity award in accordance with ASC 718.

In addition to the LTIP performance conditions, there is a service vesting condition which stipulates that thirty percent of the earned award (“Tranche #1”) will vest quarterly beginning November 15, 2017 and seventy percent of the earned award (“Tranche #2”) will vest on August 15, 2018, in both cases dependent upon continuing service by the grantee as an employee of the Company, unless the grantee is eligible for earlier vesting upon a change in control and qualifying termination, as defined by the PSU agreement. For equity performance awards, including the PSUs, subject to graduated vesting schedules for which vesting is based on achievement of a performance metric in addition to grantee service, stock-based compensation expense is recognized on an accelerated basis by treating each vesting tranche as if it was a separate grant.

For the year ended June 30, 2017, the Company determined the achievement of the performance condition was probable on Tranche #1. Achievement was believed to be probable at the highest level which equals 150% of the target award. Therefore, the Company recorded $3.8 million of expense for the period of grant date (September 2015) through June 2017. On August 2, 2017, the Compensation Committee of the Company’s Board of Directors certified that as of August 1, 2017, 97% of the MPS schools were not in academic jeopardy, as determined by the independent members of the Academic Committee of the Board of Directors on that date, and that the Academic Metric for Tranche #1 of the LTIP was achieved at the Outperform level. This resulted in 446,221 PSUs (including 138,241 additional PSUs due to the Outperform level) earned by the participants, consisting of 90,000 PSUs for Mr. Davis and 70,021 PSUs for Mr. Udell.

For the year ended June 30, 2018, the Company determined the achievement of one performance condition was probable on Tranche #2. Tranche #2 is comprised of two performance measures, an academic measure (similar to Tranche #1) and a lifetime value measure. The Company believes that achievement is probable only as it relates to the academic measure and is currently expected to meet the target level. Therefore, the Company recorded $3.9 million of expense for the period of grant date (September 2015) through June 2018. For the year ended June 30, 2018, the Company determined the achievement of the performance conditions associated with the lifetime value measure of Tranche #2 was not probable and therefore no expense was recorded. If actual performance was deemed to be met at threshold for the lifetime value measure of Tranche #2 on the measurement date, then additional expense of $2.4 million of expense would be incurred in fiscal year 2019.

As of June 30, 2018, there was $0.3 million of total unrecognized compensation expense related to nonvested PSUs for Tranches #1 and #2. During the years ended June 30, 2018, 2017 and 2016, the Company recognized $5.9 million, $3.8 million and zero, respectively, of stock-based compensation expense related to PSUs.

Performance share unit activity during the years ended June 30, 2018, 2017 and 2016 was as follows:


		Weighted-
		Average
		Grant-Date
	Shares	Fair Value
Nonvested, June 30, 2015	—	$	—
Granted	1,154,602		12.92
Vested	—		—
Canceled	(65,000)		13.45
Nonvested, June 30, 2016	1,089,602	$	12.91
Granted	52,000		18.97
Vested	—		—
Canceled	(98,000)		13.45
Nonvested, June 30, 2017	1,043,602	$	13.16
Granted	138,241		12.81
Vested	(320,340)		12.62
Canceled	(152,524)		14.00
Nonvested, June 30, 2018	708,979	$	13.15