Share-Based Compensation

6 Months Ended

Sep. 30, 2011

Share-Based Compensation [Abstract]

Share-Based Compensation

Note 17 — Share-Based Compensation

The Company has two equity compensation plans: the Navarre Corporation 1992 Stock Option Plan and the Navarre Corporation 2004 Stock Plan (collectively, “the Plans”). The 1992 Plan expired on July 1, 2006, and no further grants are allowed under this Plan, however, there are outstanding options remaining under this Plan. The 2004 Plan provides for equity awards, including stock options, restricted stock and restricted stock units. Eligible participants under the Plans are all employees (including officers and directors), non-employee directors, consultants and independent contractors. These Plans are described in detail in the Company’s Annual Report filed on Form 10-K for the fiscal year ended March 31, 2011.

Stock Options

A summary of the Company’s stock option activity as of September 30, 2011 and changes during the six months ended September 30, 2011 are summarized as follows:

				Weighted
				average
	Number of			exercise
	options			price
Options outstanding, beginning of period:		3,789,834		$	3.24
Granted		589,500			1.78
Exercised		(232,335	)		0.69
Forfeited or expired		(1,539,001	)		4.39
Options outstanding, end of period		2,607,998		$	2.46
Options exercisable, end of period		1,155,839		$	3.19
Shares available for future grant, end of period		3,594,241

The weighted-average fair value of options granted during the six months ended September 30, 2011 was $594,000 and the total fair value of options exercisable was $2.2 million at September 30, 2011. The weighted-average remaining contractual term for options outstanding was 7.8 years and for options exercisable was 6.2 years at September 30, 2011.

The aggregate intrinsic value represents the total pretax intrinsic value, based on the Company’s closing stock price of $1.70 as of September 30, 2011, which theoretically could have been received by the option holders had all option holders exercised their options as of that date. The total intrinsic value of stock options exercised during the six months ended September 30, 2011 was $273,000. The aggregate intrinsic value for options outstanding was $240,000, and for options exercisable was $157,000 at September 30, 2011. The total number of in-the-money options exercisable as of September 30, 2011 was 256,000. There were 1.9 million in-the-money options exercisable as of September 30, 2010 when the closing stock price was $2.60.

As of September 30, 2011, total compensation cost related to non-vested stock options not yet recognized was $1.3 million, which is expected to be recognized over the next 1.6 years on a weighted-average basis.

During each of the six months ended September 30, 2011 and 2010, the Company received cash from the exercise of stock options totaling $159,000 and $20,000, respectively. There was no excess tax benefit recorded for the tax deductions related to stock options during either of the six months ended September 30, 2011 or 2010.

Restricted Stock

Restricted stock granted to employees typically has a vesting period of three years and expense is recognized on a straight-line basis over the vesting period, or when the performance criteria have been met. The value of the restricted stock is established by the market price on the date of grant or if based on performance criteria, on the date it is determined the performance criteria will be met. Restricted stock awards vesting is based on service criteria or achievement of performance targets. All restricted stock awards are settled in shares of the Company’s common stock.

A summary of the Company’s restricted stock activity as of September 30, 2011 and of changes during the six months ended September 30, 2011 is summarized as follows:

				Weighted
				average
				grant date
	Shares			fair value
Unvested, beginning of period:		584,335		$	1.96
Granted		135,000			1.78
Vested		(95,834	)		2.24
Forfeited		(225,250	)		1.68
Unvested, end of period		398,251		$	1.99

The weighted-average fair value of restricted stock awards granted during the six months ended September 30, 2011 was $240,000.

The total fair value of shares vested during the six months ended September 30, 2011 was $215,000. No shares vested during the six months ended September 30, 2010.

The weighted-average remaining vesting period for restricted stock awards outstanding at September 30, 2011 was 0.8 years.

As of September 30, 2011, total compensation cost related to non-vested restricted stock awards not yet recognized was $559,000, which amount is expected to be recognized over the next 1.1 years on a weighted-average basis. There was no excess tax benefit recorded for the tax deductions related to restricted stock during either of the six month periods ended September 30, 2011 or 2010.

Share-Based Compensation Valuation and Expense Information

The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an option award. The fair value of options granted during the three and six months ended September 30, 2011 and 2010 was calculated using the following assumptions:

	Three Months Ended						Six Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Expected life (in years)		5.0			5.0			5.0			5.0
Expected volatility		68	%		73	%		68	%		73	%
Risk-free interest rate		0.95	%		1.46	%		0.95-2.24	%		1.46-2.60	%
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%

Expected life uses historical employee exercise and option expiration data to estimate the expected life assumption for the Black-Scholes grant-date valuation. The Company believes that this historical data is currently the best estimate of the expected term of a new option. The Company uses a weighted-average expected life for all awards and has identified one employee population. Expected volatility uses the Company stock’s historical volatility for the same period of time as the expected life. The Company has no reason to believe its future volatility will differ from the past. The risk-free interest rate is based on the U.S. Treasury rate in effect at the time of the grant for the same period of time as the expected life. Expected dividend yield is zero, as the Company historically has not paid dividends. The Company used a forfeiture rate of 4.63% during the three and six months ended September 30, 2011 and 2010.

Share-based compensation expense related to employee stock options, restricted stock and restricted stock units, net of estimated forfeitures, for the three and six months ended September 30, 2011 was $361,000 and $424,000, respectively, and $242,000 and $468,000, respectively, for the three and six months ended September 30, 2010. These amounts were included in general and administrative expenses in the Consolidated Statements of Operations. No amount of share-based compensation was capitalized.