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Equity Compensation Plans
 3 Months Ended
Mar. 31, 2012
Equity Compensation Plans [Abstract]  
Equity Compensation Plans

Note 12. Equity Compensation Plans

Successor Polymer Equity Compensation Plans

2011 Scorpio Holdings Corporation Stock Incentive Plan

Effective January 25, 2011, Holdings established an Incentive Stock Plan (the “Holdings Plan”) for key employees, directors, other service providers, and independent contractors of the Company. The Holdings Plan provides for the award of any option, stock appreciation right or other stock-based award (including restricted stock award or restricted stock unit), as determined solely by the Compensation Committee of the board of directors of Holdings. The maximum number of shares of common stock that may be issued under the Holdings Plan may not exceed 20,789 plus any shares purchased for fair market value under a share purchase program. The maximum number of shares is subject to modification upon certain events set forth in the Holdings Plan, including, but not limited to: (i) equity restructurings, (ii) mergers, reorganizations and other corporate transactions, and (iii) a change in control, etc. Holdings will issue new shares of common stock to satisfy options exercised.

Under the Holdings Plan, as of March 31, 2012, employees and directors of Polymer were granted nonqualified stock options for 16,766.15 shares of Holdings common stock. These options were granted on January 28, 2011, September 22, 2011 and December 21, 2011. Under the terms of the Holdings Plan, nonqualified stock options are to carry exercise prices no less than 100% of the fair market value of Holding’s stock on the date of the grant. Since Holdings common stock is not publicly traded, the fair market value of the stock is determined by the Compensation Committee of the board of directors of Holdings in good faith giving consideration to any independent valuation analysis performed for the Company and the most recent valuation of the Company used for purposes of public reporting by Blackstone of the value of its portfolio companies. The 16,766.15 shares of stock underlying the issued options had both a grant date value and exercise value of $1,000 per share, which represented the value per share of Holdings common stock at the effective date of the Acquisition.

The 16,766.15 issued nonqualified stock options provide for time vested options (“Time Options”), performance vested options (“Performance Options”), and exit vested options (“Exit Options”). Of the 16,766.15 issued options, 5,655.40 have been designated as Time Options; 5,480.02 have been designated as Performance Options; and 5,630.73 have been designated as Exit Options. The nonqualified stock options expire on the tenth anniversary date of the grant.

 

With respect to awards to employees, the Time Options vesting is subject to the continuation of employment by the employee and 20% of the Time Options will vest with each of the first five anniversaries of the applicable vesting reference dates as determined by the Compensation Committee of the board of directors of Holdings. The Performance Options vesting is subject to the continuation of employment and 20% of the Performance Options will vest with each of the first five anniversaries of March 31, 2011, if certain annual financial performance targets are met, as defined within the stock option grants. The Exit Options vesting is subject to the continuation of employment by the employee through the applicable vesting date. The Exit Options shall vest on the date, if any, when Holdings shall have received cash proceeds in respect of its investment in the Company’s equity securities that meets a specified financial yield, as defined within the stock option grants.

With respect to the awards to directors, the awards vest over a three-year period of time beginning on the date of their participation as a director of the Company.

The Company accounts for the Holdings Plan in accordance with ASC 718. As of March 31, 2012, with respect to the 16,766.15 options to purchase common stock of Holdings under the Holdings Plan, 11,110.75 options are subject to future vesting based on the attainment of future performance or exit targets that the Company has not yet determined to be highly probable of achievement. Accordingly, pursuant to ASC 718, 5,655.40 outstanding options to purchase common stock of Holdings have been considered granted, as of March 31, 2012, under the Holdings Plan.

A summary of option activity under the Holdings Plan is presented below:

 

                 
    Number of
Shares		     Exercise
Price		  

Outstanding, as of December 31, 2011

     5,655.40     $ 1,000.00  

Granted

     —         —    

Exercised

     —         —    

Forfeited

     —         —    

Cancelled/expired

     —         —    
   

 

 

    

 

 

  

Outstanding, as of March 31, 2012

     5,655.40     $ 1,000.00  
   

 

 

    

 

 

  

The estimated fair value of the options when granted is amortized to expense over the options’ vesting or required service period. With respect to the Time Options, the Company is following a straight-line vesting method for determining the Company’s compensation costs. The fair value for these options were estimated, using a third-party valuation specialist, at the date of grant based on the expected life of the option and projected exercise experience, using a Black-Scholes option pricing model with the following assumptions:

 

                         
    January 28,
2011 Issued
Options		     September 22,
2011 Issued
Options		     December 21,
2011 Issued
Options		  

Risk-free interest rate

     1.92 %      0.79 %      0.91 % 

Dividend yield

     0.00 %      0.00 %      0.00 % 

Expected volatility factor

     49.54 %      49.71 %      50.18 % 

Expected option life in years

     5.0       4.35       4.10  

The risk free interest rate was determined based on an analysis of U.S. Treasury zero-coupon market yields as of the date of the option grant for issues having expiration lives similar to the expected option life. The expected volatility was based on an analysis of the historical volatility of Polymer’s competitors over the expected life of the Holding’s options. As insufficient data exists to determine the historical life of options issued under the Holdings Plan, the expected option life was determined based on the vesting schedule of the options and their contractual life taking into consideration the expected time in which the share price of Holding’s would exceed the exercise price of the option. The fair value of each option granted on January 28, 2011, September 22, 2011 and December 21, 2011 was $448.2213 per share, $406.3636 per share and $400.2852 per share, respectively, and was based on a Black-Scholes option pricing model.

 

The compensation cost related to the Holdings Plan was $0.1 million and $0.2 million for the three months ended March 31, 2012 and the two months ended April 2, 2011, respectively, and is included in Selling, general and administrative expenses in the Consolidated Statements of Operations. As of March 31, 2012, the unamortized compensation expense related to stock options was $1.9 million and is expected to be recognized over a period of 5 years from the date of grant.

Other Compensation Arrangement

In contemplation of the Merger, the Company’s Chief Executive Officer entered into an employment agreement in October 2010 which became effective as of the effective time of the Merger (the “January 2011 CEO Employment Agreement”) and superseded the March 2010 CEO Employment Agreement (discussed below). Accordingly, the Chief Executive Officer has no further rights under the March 2010 CEO Employment Agreement.

The January 2011 CEO Employment Agreement provides that as long as the CEO is an employee in good standing on July 23, 2013, that she would be entitled to a one-time grant of shares in Holdings having a value equal to $694,000 (the “Equity Award”). Further, the Equity Award could be granted to the CEO at an earlier date if the condition of “Involuntary Termination” has been met, as defined within the January 2011 CEO Employment Agreement. The Company has determined that the Equity Award is not a modification, pursuant to the guidance in ASC 805, of the Retirement Incentive that was set forth within the March 2010 CEO Employment Agreement (discussed below). Accordingly, the Company has concluded that the Equity Award is a new award and should be accounted for as an “Equity-Classified Award” as defined within ASC 718.

The compensation cost related to the Equity Award was $0.07 million and $0.05 million for the three months ended March 31, 2012 and the two months ended April 2, 2011, and is included in Selling, general and administrative expenses in the Consolidated Statements of Operations. As of March 31, 2012, the unamortized compensation expense related to Equity Award was $0.33 million and is expected to be recognized through April 23, 2013.

Predecessor Polymer Equity Compensation Plans

Concurrent with the Acquisition, the Company’s stock options underlying the 2003 Stock Option Plan and the restricted shares and restricted share units underlying the Restricted Stock Plans vested (if unvested) and were canceled and converted into the right to receive on January 28, 2011, (i) an amount in cash equal to the per share closing payment and (ii) on each escrow release date, an amount equal to the per share escrow payment, in each case, less any applicable withholding taxes. For the Company’s stock options, the amount in cash was adjusted by the exercise price of $6.00 per share.

As a result of the Acquisition, the Company recognized compensation cost of $12.7 million for the accelerated vesting of Predecessor Polymer Equity Compensation Plans within the one month period ended January 28, 2011.

Other Compensation Arrangement

On March 31, 2010, the Company entered into a new employment agreement with its Chief Executive Officer (the “March 2010 CEO Employment Agreement”) that provided for a one-time award of equity and cash at the expiration date of the agreement (the “Retirement Incentive”). The equity award component was dependent upon an ending stock price at the measurement date, defined in the agreement, and would have ranged between 20,000 shares and 100,000 shares. The cash award would have been equal to thirty percent of the future value of the aforementioned equity award component, but would not have been less than $250,000 or greater than $1,000,000. At the time that the Company entered into the March 2010 CEO Employment Agreement, management concluded that the stock award component would be accounted for as a “Equity-classified award” as defined within ASC 718, since the Company intended to issue PGI common shares. In addition, the Company intended for the future stock award to be issued under the 2008 LTI Stock Plan. Further, management had concluded that the cash award should be accounted for as a “Liability-classified award” as defined within ASC 718, since the Company intends to pay cash for this compensation component. The Company recognized an immaterial amount of compensation expense, less than $0.04 million in the one month period ended January 28, 2011 associated with the Retirement Incentive.

However, in contemplation of the Merger the Company’s Chief Executive Officer entered into the aforementioned January 2011 CEO Employment Agreement which became effective as of the effective time of the Merger and superseded the March 2010 CEO Employment Agreement. Accordingly, the Chief Executive Officer has no further rights under the March 2010 CEO Employment. Accordingly, the Retirement Incentive liability was assigned a zero value in the Company’s preliminary purchase accounting, since as disclosed previously the Retirement Incentive was not considered a modification, pursuant to the guidance in ASC 805.