8. 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, 2019, the remaining aggregate number of shares of the Company’s common stock authorized for future issuance under the Plan was 2,108,868. At June 30, 2019, there were 4,749,068 shares of the Company’s common stock that remain outstanding or nonvested under the Plan and 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.

Stock Options

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.

Stock option activity including stand‑alone agreements during the years ended June 30, 2019, 2018 and 2017 was as follows:


				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
	Shares	Price		Life (Years)	Value
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
Granted	—		—
Exercised	(150,290)		20.16
Forfeited or canceled	(13,000)		29.82
Outstanding, June 30, 2019	1,036,017	$	19.82	2.64	$	11,312,871
Exercisable, June 30, 2019	1,019,822	$	19.92	2.62	$	11,054,860

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, 2019. 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, 2019, 2018 and 2017 was $1.2 million, $0.0 million, and $1.3 million, respectively.

As of June 30, 2019, there was $0.1 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 0.2 years. During the years ended June 30, 2019, 2018 and 2017, the Company recognized $0.6 million, $1.2 million and $2.0 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, 2019, 2018 and 2017 was as follows:


		Weighted
		Average
		Grant-Date
	Shares	Fair Value
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
Granted	828,833		18.44
Vested	(947,703)		14.72
Canceled	(235,485)		17.40
Nonvested, June 30, 2019	1,322,552	$	17.08

Performance Based Restricted Stock Awards (included above)

During the year ended June 30, 2019, 37,378 new performance based restricted stock awards were granted and 271,455 remain nonvested at June 30, 2019. During the year ended June 30, 2019, 312,383 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.

During fiscal year 2018, the Company granted performance based restricted stock awards which were subject to the achievement of a target free cash flow metric in fiscal year 2018 and 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. On August 1, 2018, the free cash flow metric was certified by the Compensation Committee of the Board of Directors as Outperform and the total shareholder return metric was certified as below Threshold resulting in the performance based restricted stock awards granted at 100% of target, or 46,845 shares earned by Company executives.

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, 2019, 18,400 of these equity incentive market based restricted stock awards vested. As of June 30, 2019, 6,800 equity incentive market based restricted stock awards remain nonvested.

Service Based Restricted Stock Awards (included above)

During the year ended June 30, 2019, 791,455 new service based restricted stock awards were granted and 1,044,297 remain nonvested at June 30, 2019. During the year ended June 30, 2019, 616,920 service based restricted stock awards vested.

Summary of All Restricted Stock Awards

As of June 30, 2019, there was $14.4 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 1.5 years. The fair value of restricted stock awards granted for the years ended June 30, 2019 and 2018 was $15.3 million and $20.2 million, respectively. The total fair value of shares vested for the years ended June 30, 2019 and 2018 was $20.6 million and $22.1 million, respectively. During the years ended June 30, 2019, 2018 and 2017, the Company recognized $12.3 million, $15.7 million and $16.8 million, respectively, of stock-based compensation expense related to restricted stock awards.

Performance Share Units (“PSU”)

Certain PSUs vest upon achievement of performance criteria associated with a Board-approved Long Term Incentive Plan (“LTIP”) and continuation of employee service over a defined period. The level of performance will determine the number of PSUs earned as measured against threshold, target and outperform 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 is 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.

Fiscal Year 2016 LTIP

During fiscal year 2016, the Company granted PSUs under a LTIP that was driven by an academic measure and a lifetime value measure. Thirty percent of the earned award (“Tranche #1”) vested quarterly beginning November 15, 2017 and seventy percent of the earned award (“Tranche #2”) vested on August 15, 2018, in both cases dependent upon continuing service by the grantee as an employee of the Company.

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 of the two performance conditions were probable on Tranche #2 at Target. Tranche #2 is comprised of two performance measures, an academic measure (similar to Tranche #1) and a lifetime value measure. Therefore, the Company recorded $3.9 million of expense for the period of grant date (September 2015) through June 2018. On August 1, 2018, the Compensation Committee of the Company’s Board of Directors certified that as of August 1, 2018, the Company achieved less than 1% below Target for the academic measure. This resulted in 349,996 PSUs (including a reduction of 15,345 PSUs due to the below Target performance) earned by the participants, consisting of 76,640 PSUs for Mr. Davis and 59,626 PSUs for Mr. Udell. The Compensation Committee also certified that achievement of the performance conditions associated with the lifetime value measure of Tranche #2 were not met and therefore no expense was recorded.

Fiscal Year 2019 LTIP

During the third quarter of fiscal year 2019, the Company granted 263,936 PSUs at target under a LTIP that was driven by certain revenue targets and enrollment levels, as well as students’ academic progress. These PSUs had a grant date fair value of $7.9 million, or $30.05 per share. Forty-five percent of the earned award is based on students’ academic progress (“Tranche #1”) and twenty-five percent of the earned award is based on certain enrollment levels (“Tranche 2”), both of which will vest on October 15, 2021. The remaining thirty percent of the earned award is based on certain revenue targets (“Tranche #3”) and will vest on August 15, 2022. In all cases, vesting is dependent upon continuing service by the grantee as an employee of the Company. The Company determined the achievement of the performance conditions associated with all three tranches were not probable and therefore no expense was recorded during the year ended June 30, 2019.

Fiscal Year 2019 SPP

During fiscal year 2019, the Company adopted a new long-term shareholder performance plan (“2019 SPP”) that provides for incentive award opportunities to its key senior executives. The awards were granted in the form of PSUs and will be earned based on the Company’s market capitalization growth over a completed three-year performance period. The 2019 SPP was designed to provide the executives with a percentage of shareholder value growth. No amounts will be earned if total stock price growth over the three-year period is below 25% (7.6% annualized). An amount of 6% of total value growth will be earned based on achieving total stock price growth of 33% (10% annualized) and a maximum of 7.5% of total value growth will be earned if total stock price growth equals or exceeds 95% (25% annualized).

During the first quarter of fiscal year 2019, the Company granted 1,766,932 PSUs from the 2019 SPP with a grant date fair value of $10.5 million, or $5.97 per share, based on the highest level of performance. During the third quarter of fiscal year 2019, there was a modification of certain terms of the original grant which resulted in an increase of 23,670 shares with a fair value of $0.4 million, or $17.45 per share. Additionally, the Company granted 317,703 PSUs from the 2019 SPP with a grant date fair value of $6.3 million, or $19.76 per share, based on the highest level of performance. The final amount of PSUs will be determined (and vesting will occur) based on the 30-day average price of the Company’s stock subsequent to seven days after the release of fiscal year 2021 results. The fair value was determined using a Monte Carlo simulation model and will be amortized on a straight-line basis over the vesting period.

Summary of All Performance Share Units

As of June 30, 2019, there was $13.4 million of total unrecognized compensation expense related to nonvested PSUs. The cost is expected to be recognized over a weighted average period of 2.2 years. During the years ended June 30, 2019, 2018 and 2017, the Company recognized $3.9 million, $5.9 million and $3.8 million, respectively, of stock-based compensation expense related to PSUs.

Performance share unit activity during the years ended June 30, 2019, 2018 and 2017 was as follows:


		Weighted
		Average
		Grant-Date
	Shares	Fair Value
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
Granted	2,372,241		10.61
Vested	(427,954)		13.24
Canceled	(281,025)		13.02
Nonvested, June 30, 2019	2,372,241	$	10.61

Deferred Stock Units (“DSU”)

During fiscal year 2019, the Company granted 18,258 DSUs at a weighted average grant-date fair value of $25.41. The DSUs vest on the grant-date anniversary and are settled in the form of shares of common stock issued to the holder upon separation from the Company. The DSUs are excluded from the tables above. As of June 30, 2019, 18,258 DSUs remain nonvested.