3.SHARE-BASED COMPENSATION:

Share-based Compensation Plans

The Company has stock option and equity compensation plans for which a total of 30.0 million shares of the Company’s common stock have been reserved for issuance since the inception of the plans. These plans provide that the exercise prices of qualified options will be at or above the fair market value of the common stock at the time of the grant. Board policy requires that nonqualified options also be priced at or above the fair market value of the common stock at the time of grant. At December 31, 2016, there were a total of 2.6 million shares available for future grants under the plans.

Stock Option Activity

As part of the Company’s acquisition of Arbor Technologies, Inc. (“Arbor”) (see note 4), the Company issued 284,985 replacement stock options having a per share weighted-average fair value and exercise price of $25.85 and $1.27, respectively, to Arbor employees who had outstanding unvested stock options to purchase Arbor stock. The fair value of the replacement options was determined using a customized binomial lattice model with the following assumptions: dividend yield of 0.0%; risk-free interest rates from 2.24% to 2.32%, based on the rate of U.S. Treasury securities with a term equal to the remaining term of each option; remaining terms of each option from 8.6 to 9.9 years; expected volatility of 38%, based on both the historical volatility of Acxiom stock, as well as the implied volatility of traded Acxiom options; and a suboptimal exercise multiple of 1.4, based on actual historical exercise activity of Acxiom options.

The number of shares and exercise price of each replacement option were determined by converting Arbor options into equivalent Acxiom options by multiplying the number of shares subject to Arbor options by the exchange ratio of .41998 and by dividing the exercise price for each Arbor option by the exchange ratio of .41998. Once the value of each replacement option was determined, the total fair value of $7.4 million, net of any forfeitures, will be expensed by the Company over the remaining vesting period of each option.

As part of the Company’s acquisition of Circulate.com, Inc. (“Circulate”), the Company issued 73,951 replacement stock options having a per share weighted-average fair value and exercise price of $24.80 and $2.29, respectively, to Circulate employees who had outstanding unvested stock options to purchase Circulate stock. The total fair value of $1.8 million, net of any forfeitures, will be expensed by the Company over the remaining vesting period of each option.

Stock option activity for the nine-month period ended December 31, 2016 was:


				Weighted-‑average
		Weighted-average		remaining	Aggregate
	Number of	exercise price		contractual term	Intrinsic value
	shares	per share		(in years)	(in thousands)
Outstanding at March 31, 2016	3,604,102	$	14.52
Arbor and Circulate replacement stock options	358,936	$	1.48
Exercised	(566,092)	$	13.73		$	5,785
Forfeited or cancelled	(67,513)	$	13.90
Outstanding at December 31, 2016	3,329,433	$	13.26	5.3	$	45,208
Exercisable at December 31, 2016	2,369,091	$	14.15	4.4	$	30,056

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Acxiom’s closing stock price on the last trading day of the quarter and the exercise price for each in-the-money option) that would have been realized by the option holders had option holders exercised their options on December 31, 2016. This amount changes based upon changes in the fair market value of Acxiom’s common stock.

A summary of stock options outstanding and exercisable as of December 31, 2016 was:


					Options outstanding					Options exercisable
Range of						Weighted-average		Weighted-average			Weighted-average
exercise price					Options	remaining		exercise price		Options	exercise price
per share					outstanding	contractual life		per share		exercisable	per share

$	0.85	-	$	9.99	906,395	6.5	years	$	1.68	459,760	$	1.71
$	10.00	-	$	19.99	1,580,005	5.1	years	$	15.21	1,270,848	$	14.60
$	20.00	-	$	24.99	823,481	4.4	years	$	21.78	623,820	$	21.97
$	25.00	-	$	32.85	19,552	6.9	years	$	32.85	14,663	$	32.85
					3,329,433	5.3	years	$	13.26	2,369,091	$	14.15

Total expense related to stock options for the nine months ended December 31, 2016 and 2015 was approximately $5.4 million and $7.0 million, respectively. Of the fiscal 2017 expense, $2.2 million relates to the LiveRamp acquisition-related replacement options. Future expense for these options is expected to be approximately $12.6 million over the next four years.

Performance Stock Option Unit Activity

During the nine months ended December 31, 2016, the Company granted 633,604 performance-based stock option units with a value at the date of grant of $4.9 million, determined using a Monte Carlo simulation model. All of the units granted in the current period vest and become exercisable in three equal tranches, each being subject to attainment of performance criteria and a subsequent service period established by the compensation committee of the board of directors (“Comp Committee”). Each of the three tranches may vest in a number of stock options, from zero to 300% of the initial award, each having a weighted-average exercise price of $21.40, based on the attainment of certain revenue growth and operating margin targets for the years ending March 31, 2017, 2018, and 2019 respectively. Each tranche is subject to a service period following the respective performance periods, such that each tranche will cliff vest in two separate 50% increments over two years beginning with the board of directors compensation committee meeting that immediately follows the end of the respective performance period.

Performance stock option unit activity for the nine-month period ended December 31, 2016 was:


				Weighted-average
			Weighted-average	remaining		Aggregate
	Number		exercise price	contractual term		intrinsic value
	of shares		per share	(in years)		(in thousands)
Outstanding at March 31, 2016	—	$	—
Granted	633,604	$	21.40
Forfeited or cancelled	(24,677)	$	21.32
Outstanding at December 31, 2016	608,927	$	21.40	2.4	$	3,285
Exercisable at December 31, 2016	—	$	—	—	$	—

Of the performance stock option units outstanding at December 31, 2016, 203,277 will reach maturity of the relevant performance period at March 31, 2017. The units are expected to vest at an approximate 170% attainment level during the subsequent service period, resulting in issuance of approximately 345,571 stock options having a weighted average exercise price of $21.40.

Total expense related to performance stock option units for the nine months ended December 31, 2016 was $1.0 million. Future expense for these performance stock option units is expected to be approximately $4.7 million over the next five years.

Stock Appreciation Right (SAR) Activity

SAR activity for the nine-month period ended December 31, 2016 was:


				Weighted-average
			Weighted-average	remaining		Aggregate
	Number		exercise price	contractual term		intrinsic value
	of shares		per share	(in years)		(in thousands)
Outstanding at March 31, 2016	245,404	$	40.00
Outstanding at December 31, 2016	245,404	$	40.00	0.2	$	—
Exercisable at December 31, 2016	—	$	—	—	$	—

Total expense related to SARs for the nine months ended December 31, 2016 and 2015 was $0.1 million in both periods. Future expense for these SARs is not material.

Restricted Stock Unit Activity

During the nine months ended December 31, 2016, the Company granted time-vesting restricted stock units covering 2,107,608 shares of common stock with a value at the date of grant of $50.1 million, of which units covering 768,710 shares, with a value at grant date of $20.0 million, were granted to former Arbor and Circulate employees subsequent to the acquisitions (see note 4). Of the restricted stock units granted in the current period, 1,395,116 vest in equal annual increments over four years, 357,829 partially cliff vest at the one-year anniversary and then over equal quarterly increments during the subsequent two years, 316,481 partially cliff vest at the one-year anniversary and then over equal quarterly increments during the subsequent year, and 38,182 vest in one year. Grant date fair value of these units is equal to the quoted market price for the shares on the date of grant.

Non-vested time-vesting restricted stock unit activity for the nine-month period ended December 31, 2016 was:


		Weighted average
		fair value per		Weighted-average
	Number	share at grant		remaining contractual
	of shares	date		term (in years)
Outstanding at March 31, 2016	2,279,895	$	19.69	2.12
Granted	2,107,608	$	23.77
Vested	(890,127)	$	20.18
Forfeited or cancelled	(167,408)	$	19.94
Outstanding at December 31, 2016	3,329,968	$	22.13	2.63

During the nine months ended December 31, 2016, the Company granted performance-based restricted stock units covering 254,419 shares of common stock with a value at the date of grant of $6.3 million, determined using a Monte Carlo simulation model. All of the performance-based restricted stock units granted in the current period vest subject to attainment of performance criteria established by the Comp Committee. The units granted in the current period may vest in a number of shares from zero to 200% of the award, based on the total shareholder return of Acxiom common stock compared to total shareholder return of a group of peer companies (“TSR”) established by the Comp Committee of the board of directors for the period from April 1, 2016 to March 31, 2019.

Non-vested performance-based restricted stock unit activity for the nine-month period ended December 31, 2016 was:


		Weighted average
		fair value per		Weighted-average
	Number	share at grant		remaining contractual
	of shares	date		term (in years)
Outstanding at March 31, 2016	516,818	$	18.62	1.67
Granted	254,419	$	24.66
Forfeited or cancelled	(28,950)	$	17.53
Outstanding at December 31, 2016	742,287	$	20.73	1.38

Of the performance-based restricted stock units outstanding at December 31, 2016, 159,306 will reach maturity of the relevant performance period at March 31, 2017. The units are expected to vest at an approximate 200% attainment level, resulting in issuance of approximately 318,612 shares of common stock before consideration of the TSR multiplier.

Of the performance-based restricted stock units outstanding at December 31, 2016, 287,630 will reach maturity of the relevant performance period at March 31, 2018. The units are expected to vest at an approximate 200% attainment level, resulting in issuance of approximately 575,260 shares of common stock before consideration of the TSR multiplier.

Total expense related to all restricted stock units for the nine months ended December 31, 2016 and 2015 was approximately $24.4 million and $13.9 million, respectively. Future expense for these restricted stock units is expected to be approximately $73.0 million over the next four years.

Other Performance Unit Activity

Other performance-based unit activity for the nine-month period ended December 31, 2016 was:


		Weighted average
		fair value per		Weighted-average
	Number	share at grant		remaining contractual
	of shares	date		term (in years)
Outstanding at March 31, 2016	635,655	$	4.07	1.30
Forfeited or cancelled	(19,231)	$	2.94
Outstanding at December 31, 2016	616,424	$	4.10	0.55

Total expense related to other performance units for the nine months ended December 31, 2016 and 2015 was $0.7 million and $0.6 million, respectively. Future expense for these performance units is expected to be approximately $0.6 million over the next two years.

Consideration Holdback

As part of the Company’s acquisition of Arbor, $38.3 million of the acquisition consideration otherwise payable with respect to shares of restricted Arbor common stock held by certain key employees was subject to holdback by the Company pursuant to agreements with those employees (each, a “Holdback Agreement”). The consideration holdback will vest in 30 equal, monthly increments following the date of close, subject to the Arbor key employees continued employment through each monthly vesting date. At each vesting date, 1/30th of the $38.3 million holdback consideration will vest and be settled in shares of Company common stock. The number of shares will be based on the then current market price of the Company common stock.

Total expense related to the Holdback Agreement for the nine months ended December 31, 2016 was approximately $1.3 million.