14. EQUITY COMPENSATION PLAN

General

On December 6, 2012, our stockholders approved the adoption of a restatement of the WMS Industries Inc. Incentive Plan (2012 Restatement) (the “2012 Plan”) increasing the number of shares available for grant under the 2012 Plan by 5.7 million shares. The Plan permits us to grant stock options to purchase shares of our common stock, restricted stock, restricted stock units and other stock awards. The Compensation Committee of our Board of Directors (“Compensation Committee”) determines, or at times recommends to the Board of Directors, which of the eligible employees, non-employee directors, consultants and advisors should receive equity awards; the terms, including any vesting periods or performance requirements of the awards; and the size of the awards. The non-employee members of our Board of Directors determine any award made to non-employee directors.

The purpose of the Plan is to encourage our employees, non-employee directors, consultants and advisors to acquire an ownership interest in our common stock and to enable these individuals to realize benefits from an increase in the value of our common stock. We believe that this benefit provides these individuals with greater incentive to work to improve our business and encourages their continued provision of services to us and, generally, promotes our interests and those of our stockholders.

We issue new shares and shares from treasury for shares delivered under the Plan. The parameters of our share repurchase activity are not established solely with reference to the dilutive impact of shares issued under the Plan.

A maximum of 22.3 million shares were authorized for awards under our plans.


Other Information
Shares available for future issuance		5.0 million
Unrecognized cost for outstanding awards	$	18.1 million
Weighted average future recognition period		2.5 years

As of June 30, 2013, there was $8.8 million of total stock option compensation expense related to non-vested stock options not yet recognized, which is expected to be recognized over a weighted average period of 2.2 years, and $9.3 million of total restricted stock award, restricted stock units and equity-based performance unit compensation expense related to non-vested awards not yet recognized, which is expected to be recognized over a weighted average period of 2.7 years.

A summary of information with respect to share-based compensation expense included in our Consolidated Statements of Income are as follows:


	Year ended June 30,
	2013			2012			2011
Selling and administrative	$	10.9		$	10.1		$	12.1
Research and development		4.9			5.4			6.4
Cost of product sales		0.1			0.3			0.2

Share-based compensation expense included in pre-tax income		15.9			15.8			18.7
Income tax benefit related to share-based compensation		(6.0	)		(6.0	)		(7.1	)

Share-based compensation expense included in net income	$	9.9		$	9.8		$	11.6

Diluted earnings per share impact of share-based compensation expense	$	0.18		$	0.18		$	0.20

Stock Options

Pursuant to the Plan, for stock options, the exercise price per share with respect to each option is determined by the Compensation Committee and is not less than the fair market value of our common stock on the date on which the stock option is granted. The Plan has a term of 10 years, unless terminated earlier, and stock options granted under the Plan prior to December 2006 have exercise terms up to 10 years, whereas stock options granted under the Plan beginning in December 2006 have exercise terms up to 7 years. Vesting generally occurs equally over one to four years on the grant-date anniversary. Compensation expense is recognized using the accelerated method under Topic 718 over the requisite service period for each separately vesting portion of the award. On occasion, we may issue stock options that immediately vest, in which case compensation expense equal to the total fair value of the stock option grant is immediately recognized. At the effective time of the Merger, all stock options outstanding will immediately vest. For stock options granted in fiscal 2013, the range in fair value was from $6.73 – $10.71 per share based on the Black-Scholes calculation using the following range of assumptions depending on the characteristics of the stock option grant: risk-free interest rates between 0.5% – 0.7%; expected life between 3.7 – 4.0 years; expected volatility of 0.55; and 0.0% dividend yield. Stock option activity was as follows for fiscal 2013:


	Number of Stock Options			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value(1)
Stock options outstanding at June 30, 2012		5.5		$	27.44
Granted		1.0			17.10
Exercised		(0.2	)		17.76
Expired or Cancelled		(0.1	)		32.98
Forfeited		(0.2	)		26.80

Stock options outstanding at June 30, 2013		6.0		$	26.00		3.92	$	21.7

Stock options exercisable at June 30, 2013		3.6		$	28.54		2.83	$	8.1

(1)	Intrinsic value is defined as the amount by which the fair value of the underlying stock exceeds the exercise price of a stock option.

Other information pertaining to stock options was as follows:


	Year ended June 30,
	2013		2012		2011
Weighted average grant-date fair value per share of stock options granted	$	7.06	$	8.48	$	15.25
Total grant-date fair value of stock options vested		11.5		10.2		8.8
Total intrinsic value of stock options exercised		1.5		0.6		12.7

For fiscal 2013, 2012 and 2011, cash received from the exercise of stock options and shares purchased under our employee stock purchase plan was $5.8 million, $3.4 million and $14.4 million, respectively, and the income tax benefit realized from exercise of stock options was $1.8 million, $0.2 million and $10.1 million, respectively.

In fiscal 2005, our Board of Directors approved a Director Emeritus Program for directors who reach age 75 or have served on the Board of Directors for at least 20 years. The Director Emeritus Program is being phased in to maintain continuity and avoid losing the benefit of valuable experience. For fiscal 2013, 37,500 fully vested five—year stock options were issued to each of the two directors upon their retirement from the Board, or 75,000 stock options in the aggregate. No directors retired in fiscal 2012. For fiscal 2011, 37,500 fully vested five—year stock options were issued to one director upon his retirement from the Board.

Restricted Stock Award Grants

Upon the recommendation of our Compensation Committee, our Board of Directors has, on occasion, granted restricted stock, restricted stock units and performance-based restricted stock units to certain employees and non-employee directors to motivate them to devote their full energies to our success, to reward them for their services and to align their interests with the interests of our stockholders.

Under the Plan, participants may be granted restricted stock awards, representing an unfunded, unsecured right, which is nontransferable except in the event of death or disability of the participant, to receive shares of our common stock on the date specified in the participant’s award agreement. The restricted stock awards granted under this plan are subject to vesting generally from a range of two to four years on the grant-date anniversary and the performance-based restricted shares are subject to successful completion of the performance conditions. Compensation expense for restricted stock is recognized on a straight-line basis over the vesting period for the entire award. Compensation expense for the performance-based stock is recognized as a cumulative effect on current and prior periods if a change occurs in the assessment of achievement of the performance goals. At the effective time of the Merger, all restricted stock awards outstanding will immediately vest.

Restricted stock share and restricted stock unit activity was as follows for fiscal 2013:


	Restricted Stock Shares			Weighted Average Grant- Date FairValue(1)
Nonvested balance at June 30, 2012		0.1		$	22.30
Granted		0.0			0.0
Vested		0.0			27.59

Nonvested balance at June 30, 2013		0.1		$	18.49


	Restricted Stock Units (Including Performance -based Stock Units)			Weighted Average Grant-Date Fair Value(1)
Nonvested balance at June 30, 2012		0.4		$	27.36
Granted		0.3			16.47
Vested		(0.2	)		29.38

Nonvested balance at June 30, 2013		0.5		$	20.63

(1)	For restricted stock, grant-date fair value is equal to the closing market price of a share of our common stock on the grant date.

Equity-Based Performance Units

As of June 30, 2013, we had 587,272 equity-based performance units outstanding with a weighted average grant-date fair value per unit of $21.62. The equity-based performance units contain performance goals set by the Board of Directors based on certain performance criteria over the following periods: thirty-six month period ending June 30, 2013, for 100,961 units; thirty-six month period ending June 30, 2014, for 213,573 units; and thirty-six month period ending June 30, 2015, for 272,738 units. The number of shares of stock to be awarded to participants is dependent upon the achievement of the performance goals and the extent to which each goal is achieved or exceeded, requires a minimum threshold performance before any shares are issued and can result in shares issued up to 200% of the targeted number of shares under each grant. In fiscal 2013, we did not record a provision for equity-based performance units granted under our long-term incentive plan that relate to the thirty-six month periods ended June 30, 2013 and 2014, based on the current assessment of achievement of the performance goals. We did expense $1.4 million for equity-based performance units granted under our long-term incentive plan related to the thirty-six month period ended June 30, 2015, and in fiscal 2011, we recorded a provision of $0.8 million related to the equity-based performance units granted under our long-term incentive plan related to the thirty-six month period ended June 30, 2011. No provision was recorded in fiscal 2012 based on the assessment of achievement of the performance goals. Additional charges will be recorded in future periods depending on the assessment of achievement of the performance goals. At the effective time of the Merger, all equity-based performance units outstanding related to thirty-six month performance periods ended June 30, 2014 and 2015 will immediately vest. Equity-based performance unit activity was as follows for fiscal 2013:


	Equity-based Performance Units			Weighted Average Grant-Date Fair Value(1)
Nonvested balance at June 30, 2012		0.4		$	29.52
Granted		0.3			17.27
Vested		0.0			0.0
Forfeited		(0.1	)		41.55

Nonvested balance at June 30, 2013		0.6		$	21.62

(1)	For equity-based performance units, grant-date fair value is equal to the closing market price of a share of our common stock on the grant date.

Deferred Stock

In fiscal 2005, non-management members of the Board of Directors were awarded an aggregate of 39,824 units of deferred stock under the Plan, of which 9,959 units remain outstanding as of June 30, 2013, compared to 19,915 units as of June 30, 2012. The decrease in units relate to the retirement of two members from the Board of Directors in the December 2012 quarter and the resulting vesting of their deferred stock. The deferred stock units vest immediately and shares of our common stock will be issued upon each director’s departure from the Board, assuming proper notice from the Board member. Grantees are not entitled to vote their deferred stock units or to receive cash dividends, but they are entitled to receive make whole payments on any declared and paid dividends on our common stock. At the effective time of the Merger, the deferred stock outstanding will immediately vest.

Employee Stock Purchase Plan

Effective July 1, 2009, we adopted an Employee Stock Purchase Plan (“ESPP”) as defined under Section 423 of the Internal Revenue Code allowing eligible employees to elect to make contributions through payroll deductions which will be used to purchase our common stock at a purchase price equal to 85% of the fair value of a share of common stock on the date of purchase. We reserved 500,000 shares under the ESPP. For fiscal year 2013, participants purchased 90,615 shares under the plan at an average cost of $17.09, for a total of $1.5 million while in fiscal 2012 participants purchased 102,538 shares under the plan at an average cost of $17.16, for a total of $1.8 million and in fiscal 2011 participants purchased 62,807 shares under the plan at an average cost of $30.96 for a total of $1.9 million. Pursuant to the Merger Agreement, shares will no longer be purchased under the ESPP subsequent to June 30, 2013 and at the effective time of the Merger, the ESPP shares outstanding will be converted into the right to receive $26.00 per share in Merger consideration.