PFSWEB, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
The following table summarizes stock option activity under the Non-plan Options:
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Weighted |
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Average |
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Weighted |
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Remaining |
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Aggregate |
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Average |
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Contractual |
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Intrinsic |
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Exercise |
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Life (in |
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Value (in |
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Shares |
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Price Per Share |
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Price |
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years) |
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millions) |
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Outstanding, December 31, 2009 |
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91,022 |
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$ |
4.28 |
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$ |
4.28 |
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Granted |
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— |
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$ |
— |
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$ |
— |
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Exercised |
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— |
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$ |
— |
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$ |
— |
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Canceled |
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(2,303 |
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$ |
4.28 |
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$ |
4.28 |
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Outstanding, December 31, 2010 |
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88,719 |
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$ |
4.28 |
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$ |
4.28 |
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0.9 |
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$ |
— |
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Exercisable, December 31, 2010 |
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88,719 |
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$ |
4.28 |
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$ |
4.28 |
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0.9 |
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$ |
— |
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Fair Value
The fair value of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions used for grants of options under the Stock
Option Plans:
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Year Ended |
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Year Ended |
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December 31, 2010 |
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December 31, 2009 |
Expected dividend yield |
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— |
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— |
Expected stock price volatility |
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82% - 84% |
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77% - 82% |
Weighted average stock price volatility |
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83% |
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81% |
Risk-free interest rate |
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1.7% - 2.9% |
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2.0% - 3.2% |
Expected life of options (years) |
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6 |
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6 |
The Black-Scholes option valuation model requires the input of highly subjective assumptions,
including the expected life of the stock-based award and stock-price volatility. The assumptions
listed above represent management’s best estimates, but these estimates involve inherent
uncertainties and the application of management judgment. As a result, if other assumptions had
been used, the Company’s recorded and pro forma stock-based compensation expense could have been
different. In addition, the Company is required to estimate the expected forfeiture rate and only
recognize expense for those shares expected to vest. If the Company’s actual forfeiture rate is
materially different from its estimate, the share-based compensation expense could be materially
different. The expected life of options has been computed using the simplified method.
6. Master Distributor Agreements
Supplies Distributors, PFSweb and IPS have entered into master distributor agreements under
which Supplies Distributors acts as a master distributor of various products, primarily IPS
product, and PFSweb provides transaction management and fulfillment services to Supplies
Distributors. The master distributor agreements are subject to periodic renewals, the next of which
is in December 2011. Under the master distributor agreements, IPS sells product to Supplies
Distributors and reimburses Supplies Distributors for certain freight costs, direct costs incurred
in passing on any price decreases offered by IPS to Supplies Distributors or its customers to cover
price protection and certain special bids, the cost of products provided to replace defective
product returned by customers and other certain expenses as defined. Supplies Distributors can
return to IPS product rendered obsolete by IPS engineering changes after customer demand ends. IPS
determines when a product is obsolete. IPS and Supplies Distributors also have agreements under
which IPS reimburses or collects from Supplies Distributors amounts calculated in certain inventory
cost adjustments.
Supplies Distributors passes through to customers marketing programs specified by IPS and
administers, along with a party performing product demand generation for the IPS products, such
programs according to IPS guidelines.
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