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Stock-based Compensation | 12 Months Ended
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Aug. 31, 2012
Stock-based Compensation |
Stock-based Compensation |
10. Stock-based Compensation As of August 31, 2010, the Company had one stock-based compensation plan (the "2005 Plan"). In November 2010, SemiLEDs' board of directors and its stockholders approved the 2010 Equity Incentive Plan (the "2010 Plan"), discussed further below, which became effective upon the completion of the initial public offering on December 8, 2010. The total stock-based compensation expense consists of stock-based compensation expense for stock options and restricted stock units granted to employees, directors, nonemployees and also includes stock options to purchase Series E shares issued, which were converted into common stock on a one-for-one basis, as part of an employment agreement related to the Company's acquisition of SBDI. A summary of the stock-based compensation expense for the years ended August 31, 2012, 2011 and 2010 are as follows (in thousands):
|  | Years Ended August 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
Stock options and stock units to employees |  | $ | 1,921 |  | $ | 862 |  | $ | 131 |
Stock units to directors |  |  | 578 |  |  | 823 |  |  | — |
Stock options to nonemployees |  |  | 6 |  |  | (27 | ) |  | 54 |
Other stock-based compensation activity |  |  | 111 |  |  | 127 |  |  | 62 |
|  | $ | 2,616 |  | $ | 1,785 |  | $ | 247 |
There was no recognized stock-based compensation tax benefit for the years ended August 31, 2012, 2011 and 2010, as the Company recorded a full valuation allowance on net deferred tax assets as of August 31, 2012 and 2011, and a full valuation allowance for the Company's U.S. operations as of August 31, 2010, to which all of the stock-based compensation expense was allocated. Equity Incentive Plans—A total of 3,849 thousand shares of common stock was reserved for issuance under the 2005 Plan and 2010 Plan. After the initial public offering, awards shall be made from the 2010 Plan. The 2010 Plan provides for awards in the form of restricted shares, stock units, stock options or stock appreciation rights to the Company's employees, officers, directors and consultants. Options outstanding under the 2005 Plan will continue to be governed by its existing terms. During fiscal 2011, SemiLEDs granted options for 453 thousand shares of SemiLEDs' common stock and 275 thousand stock units to the Company's employees. These options and stock units vest over four years at a rate of 25% on each anniversary of the vesting start date and the options have a contractual term of ten years, subject to earlier expiration in the event of the holder's termination. The exercise price of stock options and the grant-date fair value of stock units was equal to the closing price of the common stock on the grant date. In addition, on January 20, 2011, SemiLEDs granted 71 thousand restricted stock units to its directors that vest 100% on the first anniversary of the vesting start date. The grant-date fair value of the restricted stock units is $19.00 per unit. Each restricted stock unit represents the contingent right to one share of SemiLEDs' common stock. In February 2012, SemiLEDs granted 31 thousand restricted stock units to its directors that vest 100% on the earlier of the first anniversary of the vesting start date of February 6, 2012 and the date of the next annual meeting. The grant-date fair value of the restricted stock units was $3.27 per unit. SemiLEDs also granted 786 thousand restricted stock units to the Company's executives and employees. These restricted stock units vest over four years at a rate of 25% on each anniversary of the vesting start date of February 20, 2012, subject to earlier expiration in the event of the holder's termination. The grant-date fair value of the restricted stock units was $3.53 per unit. In July 2012, SemiLEDs granted 43 thousand restricted stock units to an employee. The restricted stock units vest over four years at a rate of 25% on each anniversary of the vesting start date of June 1, 2012, subject to earlier expiration in the event of the holder's termination. The grant-date fair value of the restricted stock units was $2.31 per unit. Employee Stock-based Compensation Expense—The total employee stock-based compensation expense for the years ended August 31, 2012, 2011 and 2010 was recognized in the consolidated statements of operations as follows (in thousands):
|  | Years Ended August 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
Cost of revenues |  | $ | 952 |  | $ | 523 |  | $ | 52 |
Research and development |  |  | 366 |  |  | 184 |  |  | 33 |
Selling, general and administrative |  |  | 603 |  |  | 155 |  |  | 46 |
|  | $ | 1,921 |  | $ | 862 |  | $ | 131 |
Stock-based compensation expense is recorded net of estimated forfeitures such that expense is recorded only for those stock-based awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. A forfeiture rate of zero is estimated for stock-based awards with vesting term that is less than one year from the time of grant. Determining Fair Value of Stock Options—The fair values of each grant of stock options during the years ended August 31, 2012, 2011 and 2010 were determined by the Company using the methods and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment to determine. Valuation Method—Management estimates the fair value of stock options granted using the Black-Scholes option-pricing model. Expected Term—The expected term represents the period that the stock options are expected to be outstanding. The expected term for options granted to employees of the Company is derived from historical data on employee exercises and post-vesting employment termination behavior after taking into account the contractual life of the award. The expected term for nonemployee options is equal to the contractual life of the option. Expected Volatility—The expected volatility was based on the implied stock volatilities of several of the Company's publicly-traded peers over a period equal to the expected terms of the options as SemiLEDs did not have a sufficient trading history to use the volatility of its own common stock. Fair Value of Common Stock—The fair value of the common stock underlying the stock options was based on the trading price of SemiLEDs' common stock on the date of grant. Prior to SemiLEDs' initial public offering, the fair value of common stock at the date of grant was determined by SemiLEDs' board of directors by considering a number of objective and subjective factors including independent valuation reports, valuations of comparable companies, sales of convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock, and general and industry specific economic outlook, among other factors. Risk-Free Interest Rate—The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term of the related options. Expected Dividend—The expected dividend has been zero for the Company's option grants as SemiLEDs has never paid dividends and does not expect to pay dividends for the foreseeable future. Summary of Assumptions—The fair value of each employee stock option was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions for grants of options during the years ended August 31, 2012, 2011 and 2010:
|  | Years Ended August 31, |
--- | --- | --- | ---
|  | 2012 |  | 2011 |  | 2010 |
Dividend rate |  |  | — |  |  | 0 | % |  | 0 | %
Risk-free interest rate |  |  | — |  |  | 2.2 | % |  | 2.7 | %
Expected term (in years) |  |  | — |  |  | 6.3 |  |  | 6.2 |
Expected volatility |  |  | — |  |  | 48.1 | % |  | 69.3 | %
No stock options were granted during the year ended August 31, 2012. The weighted-average grant date fair value of the Company's stock options granted during the years ended August 31, 2011 and 2010 was $6.85 and $6.86 per share, respectively. The aggregate grant date fair value of the Company's stock options granted to employees during the years ended August 31, 2011 and 2010 was $3,100 thousand and $874 thousand, respectively. A summary of the option activity and changes under the 2005 Plan and 2010 Plan for the years ended August 31, 2012, 2011 and 2010 is presented below:
|  | Number of Stock Options Outstanding |  | Weighted- Average Exercise Price |  | Weighted- Average Remaining Contractual Life (Years) |  | Aggregate Intrinsic Value |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
|  | (In thousands) |  |  |  |  |  | (In thousands) |
Outstanding—September 1, 2009 |  |  | 950 |  | $ | 0.56 |  |  | 7.6 |  | $ | 41 |
Granted |  |  | 138 |  |  | 1.68 |  |  |  |  |  |  |
Forfeited |  |  | (25 | ) |  | 0.84 |  |  |  |  |  |  |
Exercised |  |  | (556 | ) |  | 0.42 |  |  |  |  |  |  |
Outstanding—August 31, 2010 |  |  | 507 |  |  | 1.12 |  |  | 8.1 |  |  | 4,766 |
Granted |  |  | 453 |  |  | 14.31 |  |  |  |  |  |  |
Forfeited |  |  | (85 | ) |  | 6.95 |  |  |  |  |  |  |
Exercised |  |  | (100 | ) |  | 0.78 |  |  |  |  |  |  |
Outstanding—August 31, 2011 |  |  | 775 |  |  | 8.20 |  |  | 8.5 |  |  | 1,456 |
Granted |  |  | — |  |  | — |  |  |  |  |  |  |
Forfeited |  |  | (118 | ) |  | 11.64 |  |  |  |  |  |  |
Exercised |  |  | (81 | ) |  | 0.86 |  |  |  |  |  |  |
Outstanding—August 31, 2012 |  |  | 576 |  | $ | 8.54 |  |  | 7.6 |  | $ | 263 |
Vested and expected to vest—August 31, 2012 |  |  | 521 |  | $ | 8.23 |  |  | 7.5 |  | $ | 257 |
Exercisable—August 31, 2012 |  |  | 235 |  | $ | 5.74 |  |  | 6.8 |  | $ | 173 |
The aggregate intrinsic value of options exercised under the Plan was $0.3 million, $0.8 million and $3.0 million for the years ended August 31, 2012, 2011 and 2010, respectively, determined as of the date of option exercise. Additional information regarding the Company's stock options outstanding and vested as of August 31, 2012 is summarized below:
|  | Options Outstanding |  | Options Exercisable |
--- | --- | --- | --- | --- | ---
Exercise Prices |  | Number |  | Weighted- Average Remaining Contractual Term (Years) |  | Weighted- Average Exercise Price per Share |  | Number |  | Weighted- Average Exercise Price per Share |
|  | (In thousands) |  |  |  |  |  | (In thousands) |  |  |
$0.21 - $0.42 |  |  | 15 |  |  | 3.3 |  | $ | 0.30 |  |  | 15 |  | $ | 0.30 |
$0.84 - $4.89 |  |  | 264 |  |  | 6.9 |  |  | 1.74 |  |  | 141 |  |  | 1.27 |
$6.08 - $15.61 |  |  | 97 |  |  | 8.7 |  |  | 6.82 |  |  | 28 |  |  | 7.12 |
$19.00 - $19.00 |  |  | 200 |  |  | 8.3 |  |  | 19.00 |  |  | 51 |  |  | 19.00 |
$0.21 - $19.00 |  |  | 576 |  |  | 7.6 |  | $ | 8.54 |  |  | 235 |  | $ | 5.74 |
As of August 31, 2012 and 2011, unrecognized compensation cost related to unvested stock options of $1.3 million and $2.0 million, respectively, is expected to be amortized on a straight-line basis over a weighted-average remaining period of 2.3 years and 3.3 years, respectively, and will be adjusted for subsequent changes in estimated forfeitures. Determining Fair Value of Stock Units—Grant date fair value is based upon the market price of SemiLEDs' common stock on the date of the grant. This fair value is amortized to compensation expense over the vesting term. A summary of the restricted stock unit awards outstanding and changes under the 2010 Plan for the years ended August 31, 2012 and 2011 is presented below:
|  | Number of Stock Units Outstanding |  | Weighted- Average Grant Date Fair Value |
--- | --- | --- | --- | --- | ---
|  | (In thousands) |  |  |
Outstanding—September 1, 2010 |  |  | — |  | $ | — |
Granted |  |  | 346 |  |  | 17.17 |
Vested |  |  | — |  |  | — |
Forfeited |  |  | (29 | ) |  | 19.00 |
Outstanding—August 31, 2011 |  |  | 317 |  |  | 17.00 |
Granted |  |  | 860 |  |  | 3.46 |
Vested |  |  | (127 | ) |  | 18.10 |
Forfeited |  |  | (120 | ) |  | 10.67 |
Outstanding—August 31, 2012 |  |  | 930 |  | $ | 5.15 |
As of August 31, 2012 and 2011, unrecognized compensation cost related to unvested restricted stock unit awards of $3.3 million and $3.0 million, respectively, is expected to be recognized over a weighted average period of 3.0 years and 3.5 years, respectively, and will be adjusted for subsequent changes in estimated forfeitures. Common Stock Subject to Repurchase—The Company allows certain option holders to exercise prior to vesting; however, the Company maintains the right to repurchase these shares at the original exercise price paid by the option holder for these unvested but issued shares of common stock. The consideration received for an exercise of an option is considered to be a deposit of the exercise price and the related dollar amount is recorded as a liability on the consolidated balance sheets. The liability is reclassified into equity on a pro rata basis as the shares vest. As of August 31, 2012 and 2011, SemiLEDs had 1 thousand and 3 thousand outstanding shares of common stock subject to repurchase. Stock Option Activity for Nonemployees—During the year ended August 31 2010, SemiLEDs issued options, which generally vest over four years, to certain nonemployees in exchange for services. No options were issued to nonemployees during the years ended August 31, 2012 and 2011. The Company accounts for these nonemployee options based on the fair value of the awards through the vesting period. The options were valued each reporting period using the Black-Scholes option-pricing model using the remaining contractual term as the expected term.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 93-6 -Paragraph 53 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 123R -Paragraph 64, 65, A240 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 + Details
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