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Note 11 - Common Stock and Stock-based Compensation Plans

9 Months Ended

Sep. 30, 2021

Share-based Payment Arrangement [Text Block]

NOTE 11: COMMON STOCK AND STOCK-BASED COMPENSATION PLANS

The Company grants a mix of stock options and restricted stock units (“RSUs”) to employees and non‑employee directors of the Company and its subsidiaries under the Company’s equity plans and provides the right to purchase common stock pursuant to the Company’s 2002 employee stock purchase plan to employees of the Company and its subsidiaries. In addition, prior to 2016, the Company granted stock appreciation rights (“SARs”) capped with a ceiling to employees of the Company and its subsidiaries.

Each SAR unit confers upon the holder the right to stock appreciation over a preset price of the Company’s common stock during a specified period of time. When the unit is exercised, the appreciation amount is paid through the issuance of shares of the Company’s common stock. The ceiling limits the maximum income for each SAR unit to 400% of fair market value on the grant date. SARs are considered equity instruments as they are net share settled awards capped with a ceiling. The options and SARs granted under the Company’s stock incentive plans have been granted at the fair market value of the Company’s common stock on the grant date. Options and SARs granted to employees under stock incentive plans vest at a rate of 25% of the shares underlying the option after one year and the remaining shares vest in equal portions over the following 36 months, such that all shares are vested after four years. Options granted to non‑employee directors vest 25% of the shares underlying the option on each anniversary of the option grant.

A summary of the Company’s stock option and SAR activities and related information for the nine months ended September 30, 2021, are as follows:

	Number of options and SAR units (1)			Weighted average exercise price		Weighted average remaining contractual term		Aggregate intrinsic value
Outstanding as of December 31, 2020		289,069		$	22.42		3.6	$	6,673
Granted		—			—
Exercised		(158,069	)		24.47
Forfeited or expired		—			—
Outstanding as of September 30, 2021 (2)		131,000		$	19.94		2.8	$	2,978
Exercisable as of September 30, 2021 (3)		131,000		$	19.94		2.8	$	2,978

(1)

The SAR units are convertible for a maximum number of shares of the Company’s common stock equal to 75% of the SAR units subject to the grant.

(2)

Due to the ceiling imposed on the SAR grants, the outstanding amount equals a maximum of 128,000 shares of the Company’s common stock issuable upon exercise.

(3)

Due to the ceiling imposed on the SAR grants, the exercisable amount equals a maximum of 128,000 shares of the Company’s common stock issuable upon exercise.

As of September 30, 2021, there were no unrecognized compensation expenses related to unvested stock options and SARs.

An RSU award is an agreement to issue shares of the Company’s common stock at the time the award or a portion thereof vests. RSUs granted to employees generally vest in three equal annual installments starting on the first anniversary of the grant date. Until the end of 2017, RSUs granted to non-employee directors would generally vest in full on the first anniversary of the grant date. Starting in 2018, RSUs granted to non-employee directors would generally vest in two equal annual installments starting on the first anniversary of the grant date.

On February 15, 2021, Bruce A. Mann resigned from the Board of Directors (the “Board”) of the Company, effective immediately. In connection with his retirement, the Board determined to accelerate in full the vesting of Mr. Mann’s 5,902 unvested RSUs.

On February 16, 2021, the Board unanimously approved the appointment of Jaclyn “Jackie” Liu as an independent member of the Board with the appointment effective as of February 16, 2021. In accordance with the Company’s non-employee director compensation policy, Ms. Liu received an annual director grant of 1,784 RSUs with fair value of $124,670 under the Company’s Amended and Restated 2011 Stock Incentive Plan (the “2011 Plan”). The RSUs vest over a two-year period with the first 50% vesting after the first anniversary of the grant date and the remainder vesting on the second anniversary of the grant date.

On February 18, 2021, the Committee granted 5,962, 4,024, 3,577 and 3,577 time-based RSUs to each of the Company’s CEO, Executive Vice President, Worldwide Sales, Chief Financial Officer and Chief Operating Officer, respectively, pursuant to the 2011 Plan. The RSU grants vest 33.4% on February 18, 2022, 33.3% on February 18, 2023 and 33.3% on February 18, 2024.

Also, on February 18, 2021, the Committee granted 8,943, 2,683, 2,385 and 2,385 performance-based stock units (“PSUs”) to each of the Company’s CEO, Executive Vice President, Worldwide Sales, Chief Financial Officer and Chief Operating Officer, respectively, pursuant to 2011 Plan (collectively, the “Short-Term Executive PSUs”). The performance goals for the Short-Term Executive PSUs with specified weighting are as follows:

Weighting	Goals
50%	Vesting of the full 50% of the PSUs occurs if the Company achieves the 2021 license and related revenue target approved by the Board (the “2021 License Revenue Target”). The vesting threshold is achievement of 90% of 2021 License Revenue Target. If the Company’s actual result exceeds 90% but less than 99% of the 2021 License Revenue Target, 91% to 99% of the eligible PSUs would be subject to vesting. If the Company’s actual result exceeds 100% of the 2021 License Revenue Target, every 1% increase of the 2021 License Revenue Target, up to 110%, would result in an increase of 2% of the eligible PSUs.
50%	Vesting of the full 50% of the PSUs occurs if the Company achieves positive total shareholder return whereby the return on the Company’s stock for 2021 is greater than the S&P500 index. The vesting threshold is if the return on the Company’s stock for 2021 is at least 90% of the S&P500 index. If the return on the Company’s stock, in comparison to the S&P500, is above 90% but less than 99% of the S&P500 index, 91% to 99% of the eligible PSUs would be subject to vesting. If the return on the Company’s stock exceeds 100% of the S&P500 index, every 1% increase in comparison to the S&P500 index, up to 110%, would result in an increase of 2% of the eligible PSUs.

Additionally, PSUs representing an additional 20%, meaning an additional 1,788, 536, 477 and 477, would be eligible for vesting for each of the Company’s CEO, Executive Vice President, Worldwide Sales, Chief Financial Officer and Chief Operating Officer, respectively, if the performance goals set forth above are exceeded.

Subject to achievement of the thresholds the above performance goals for 2021, the Short-Term Executive PSUs vest 33.4% on February 18, 2022, 33.3% on February 18, 2023 and 33.3% on February 18, 2024.

A summary of the Company’s RSU and PSU activities and related information for the nine months ended September 30, 2021, are as follows:

	Number of RSUs and PSUs			Weighted Average Grant-Date Fair Value
Unvested as of December 31, 2020		842,948		$	29.30
Granted		388,447			47.26
Vested		(471,870	)		26.72
Forfeited or expired		(60,141	)		35.49
Unvested as of September 30, 2021		699,384		$	40.49

As of September 30, 2021, there was $21,542 of unrecognized compensation expense related to unvested RSUs and PSUs. This amount is expected to be recognized over a weighted-average period of 1.7 years.

The following table shows the total equity-based compensation expense included in the interim condensed consolidated statements of income (loss):

	Nine months ended September 30,				Three months ended September 30,
	2021 (unaudited)		2020 (unaudited)		2021 (unaudited)		2020 (unaudited)
Cost of revenue	$	509	$	473	$	247	$	159
Research and development, net		5,435		5,115		2,007		1,770
Sales and marketing		1,185		1,496		400		533
General and administrative		2,378		2,986		749		1,084
Total equity-based compensation expense	$	9,507	$	10,070	$	3,403	$	3,546

The fair value for rights to purchase shares of common stock under the Company’s employee stock purchase plan was estimated on the date of grant using the following assumptions:

	Nine months ended September 30						Three months ended September 30
	2021 (unaudited)			2020 (unaudited)			2021 (unaudited)			2020 (unaudited)
Expected dividend yield			0%			0%			0%			0%
Expected volatility	39%	-	60%	32%	-	60%	39%	-	60%	37%	-	60%
Risk-free interest rate	0.1%	-	1.7%	0.1%	-	1.9%	0.1%	-	1.3%	0.1%	-	1.8%
Contractual term of up to (months)			24			24			24			24