Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

v2.4.0.6
Stock-Based Compensation
9 Months Ended
Sep. 30, 2012
Stock-Based Compensation [Abstract]  
Stock-Based Compensation
13. Stock-Based Compensation

As a result of the merger between Envestnet and Tamarac (Note 3), the Company adopted the Envestnet, Inc. Management Incentive Plan for Envestnet | Tamarac Management Employees (the “2012 Plan”). The 2012 Plan provides for the grant of restricted common stock, stock options and the purchase of common stock for certain Tamarac employees. The maximum number of shares of stock which may be issued with respect to awards under the 2012 Plan shall be equal to 1,023,851 shares of stock.

The 2012 Plan provides for the grant of up to 559,551 shares of unvested common stock (“Target Revenue Incentive Awards”). The Target Revenue Incentive Awards vest based upon Tamarac meeting certain performance conditions and then a subsequent two year service condition. The Company measured the cost of these awards based on the estimated fair value of the award as of the market closing price on the day before the acquisition closed. The Company is recognizing the estimated expense on a graded-vesting method over a requisite service period of three to five years, which is the estimated vesting period. The Company has estimated expected forfeitures at the grant date and will recognize compensation expense only for those awards expected to vest. The initial forfeiture assumption will be reassessed in subsequent periods and may change based upon new facts and circumstances. Changes in the forfeiture assumptions may impact the total amount of expense ultimately recognized over the vesting period.

The Company also granted to certain Tamarac employees 232,150 stock options to acquire Envestnet common stock at an exercise price of $12.51. These stock options vest on the second anniversary of the grant date.

In addition, in accordance with the 2012 Plan, Tamarac senior management was required to apply at least 50% (up to 100%) of the aggregate proceeds of the Tamarac change of control payment totaling $2,759 to purchase registered shares of Envestnet common stock (232,150 shares) in an amount equal to 95% multiplied by the Envestnet closing market price on the day before the merger closed (Note 12). These shares cannot be sold or otherwise transferred for a period of two years following the date of merger. If a participant terminates their employment with the Company or is terminated for cause, the participant shall be required to pay the Company an amount equal to 5% multiplied by the closing market price on the day before the merger closed.

Stock Options

The Company has stock options and restricted stock outstanding under the 2004 Stock Incentive Plan (the “2004 Plan”), the 2010 Long-Term Incentive Plan (the “2010 Plan”) and the Envestnet, Inc. Management Incentive Plan for Envestnet | Tamarac Management Employees (the “2012 Plan”) as described below (collectively “the Plans”). As of September 30, 2012, the maximum number of shares available for future issuance under the Plans is 1,785,197.

Employee stock-based compensation expense was as follows:

 

                                 
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2012     2011     2012     2011  

Employee stock-based compensation expense

  $ 1,195     $ 714     $ 3,125     $ 2,359  

Tax effect on employee stock-based compensation expense

    (482     (261     (1,256     (920
   

 

 

   

 

 

   

 

 

   

 

 

 

Net effect on income

  $ 713     $ 453     $ 1,869     $ 1,439  
   

 

 

   

 

 

   

 

 

   

 

 

 

The following weighted average assumptions were used to value options granted during the periods indicated:

 

                                 
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2012     2011     2012     2011  

Grant date fair value of options

  $ —       $ —       $ 4.96     $ 5.26  

Volatility

    —         —         39.6     39.3

Risk-free interest rate

    —         —         1.2     2.5

Dividend yield

    —         —         0.0     0.0

Expected term (in years)

    —         —         6.0       6.0  

The following table summarizes option activity under the 2004 Plan, 2010 Plan and 2012 Plan:

 

                                 
    Shares     Weighted-
Average
Exercise Price
    Weighted-
Average
Remaining
Contractual Life
(Years)
    Aggregate
Intrinsic Value
 

Outstanding as of December 31, 2011

    4,863,718     $ 8.19                  

Granted

    149,652       12.45                  

Exercised

    (124,956     7.59                  

Forfeited

    (2,000     9.70                  
   

 

 

                         

Outstanding as of March 31, 2012

    4,886,414       8.34       6.7     $ 20,544  

Granted

    589,263       12.55                  

Exercised

    (99,837     6.18                  

Forfeited

    (1,800     9.00                  
   

 

 

                         

Outstanding as of June 30, 2012

    5,374,040       8.84       6.8       17,737  

Granted

    —         —                    

Exercised

    (55,208     6.56                  

Forfeited

    (8,100     9.87                  
   

 

 

                         

Outstanding as of September 30, 2012

    5,310,732       8.86       6.6       16,192  
   

 

 

                         

Options exercisable

    3,379,804       7.68       5.5       13,820  
   

 

 

                         

Exercise prices of stock options outstanding as of September 30, 2012 range from $0.11 to $13.45.

Restricted Stock

Periodically, the Company grants restricted stock awards under the 2010 Plan to employees that vest one-third on each of the first three anniversaries of the grant date. The Company also granted restricted stock awards under the 2012 Plan that vest upon Tamarac meeting certain performance conditions and then a subsequent two year service condition.

The following is a summary of the activity for unvested restricted stock awards granted under all Plans:

 

                 
    Number of
Shares
    Weighted-
Average Grant
Date Fair Value

per Share
 

Balance at December 31, 2011

    73,820     $ 12.26  

Granted

    155,383       12.44  

Vested

    (21,235     12.55  

Expired/cancelled

    (1,064     12.45  

Forfeited

    (104     12.55  
   

 

 

         

Balance at March 31, 2012

    206,800       12.36  

Granted

    559,551       12.51  

Forfeited

    (381     12.49  
   

 

 

         

Balance at June 30, 2012

    765,970       12.47  

Granted

    —         —    

Forfeited

    (1,351     12.49  
   

 

 

         

Balance at September 30, 2012

    764,619       12.47  
   

 

 

         

At September 30, 2012, there was $6,703 unrecognized compensation cost related to unvested stock options which the Company expects to recognize over a weighted-average period of 1.9 years. At September 30, 2012, there was $2,043 of unrecognized compensation cost related to unvested restricted stock which the Company expects to recognize over a weighted-average period of 3.88 years.