Classmates.com 2006 Annual Report Download - page 95

options exercised during the years ended December 31, 2006, 2005 and 2004 was $17.3 million, $20.9 million and $20.5 million, respectively.
Cash received from the exercise of stock options was $9.5 million, $5.9 million and $6.0 million, respectively, for the years ended December 31,
2006, 2005 and 2004. The tax benefits realized from stock options exercised in the years ended December 31, 2006, 2005 and 2004 were
approximately $3.9 million, $6.8 million and $7.7 million, respectively.
Modifications
Acceleration of Stock Options— In December 2005, the Company’s Compensation Committee of the Board of Directors approved the
acceleration of vesting of all options to purchase the Company’s common stock with exercise prices in excess of $16.00. These options were
granted to executive officers and other employees of the Company under the Company’s 2001 Stock Incentive Plan and 2001 Supplemental
Stock Incentive Plan. Options to purchase 1.3 million shares of the Company’s common stock were subject to this acceleration and such options
had exercise prices ranging from $16.01 to $64.17, and had a weighted- average exercise price of $18.47.
The acceleration of vesting of these out-of-the-money options was undertaken primarily to eliminate any future compensation expense the
Company would otherwise recognize in its income statement with respect to these options with the implementation of SFAS No. 123R effective
January 1, 2006. The Company estimated this compensation expense, before tax, would have totaled approximately $3.8 million over the course
of the original vesting periods. Ninety-five percent of the options would have vested within approximately 1.5 years from the effective date of
the acceleration with the remaining 5% vesting within approximately 2.5 years from the date of acceleration. The Company also believed that
because the options to be accelerated had exercise prices in excess of the then current market value of the Company’
s common stock, the options
had limited economic value and were not fully achieving their original objective of incentive compensation and employee retention.
Tender Offer— In
March 2006, the Company offered eligible employees of the Company the opportunity to exchange any outstanding stock
options granted to them which had an exercise price per share of the Company’s common stock at or above $16.00 (the “Eligible Options”) in
return for RSUs. The exchange offer expired in April 2006, and approximately 1.8 million shares of common stock underlying Eligible Options
were exchanged for RSUs covering approximately 0.4 million shares of common stock in exchange for the cancellation of the Eligible Options.
The exchange was offered to 315 eligible employees and was accounted for as a modification under SFAS No. 123R in the June 2006 quarter.
The number of RSUs that were issued in exchange for each tendered Eligible Option was based on the per share exercise price of that option and
was, in all events, less than the number of shares subject to the tendered option. Eligible Options with exercise prices between $16.00 and $20.00
were exchanged based on a ratio of one RSU for four Eligible Options. Eligible Options with exercise prices greater than $20.00 were exchanged
based on a ratio of one RSU for five Eligible Options. Total expense associated with the exchange, prior to the consideration of expected
forfeitures, was approximately $0.8 million.
Restricted Stock and Restricted Stock Units
In January 2004, the Company granted 575,000 restricted shares of common stock with a weighted-average grant date fair value of $19.91.
In January 2005, 100,000 of these shares were cancelled. At December 31, 2006, 475,000 restricted shares of common stock were outstanding.
The shares vest entirely at the end of a four-year vesting period in January 2008.
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