Classmates.com 2007 Annual Report Download - page 59

for share-based payment awards granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the
provisions of SFAS No. 123R. As stock-based compensation recognized in the consolidated statements of operations for the years ended
December 31, 2007 and 2006 is based on equity awards ultimately expected to vest, it has been reduced for estimated forfeitures. For the periods
prior to 2006, we accounted for forfeitures as they occurred. Accordingly, a pre-tax cumulative effect of accounting change adjustment totaling
$1.1 million ($1.0 million, net of tax) was recorded in the March 2006 quarter to adjust for share-based payment awards granted prior to
January 1, 2006 that are not ultimately expected to vest.
Prior to the adoption of SFAS No. 123R, we recognized stock-based compensation for equity awards with graded vesting by treating each
vesting tranche as a separate award and recognizing compensation expense ratably for each tranche. For equity awards granted subsequent to the
adoption of SFAS No. 123R, we treat such awards as a single award and recognize stock-based compensation on a straight-line basis (net of
estimated forfeitures) over the employee service period.
In December 2005, our Compensation Committee of the Board of Directors approved the acceleration of vesting of all options to purchase
our common stock with exercise prices in excess of $16.00. These options were granted to executive officers and other employees. Options to
purchase 1.3 million shares of our 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 we
would otherwise recognize in our statements of operations with respect to these options with the implementation of SFAS No. 123R effective
January 1, 2006. We 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. We also believed that because the
options to be accelerated had exercise prices in excess of the then-current market value of our common stock, the options had limited economic
value and were not fully achieving their original objective of incentive compensation and employee retention.
Beginning in May 2006, we shifted from a strategy of granting a combination of stock options and restricted stock units to solely granting
restricted stock units and shares of our common stock. Additionally, in March 2006, we offered eligible employees the opportunity to exchange
any outstanding stock options granted to them, which had an exercise price per share of our common stock at or above $16.00 (the "Eligible
Options") in return for restricted stock units. The exchange offer expired in April 2006, and approximately 1.8 million shares of common stock
underlying the Eligible Options were exchanged for restricted stock units covering approximately 0.4 million shares of common stock in
exchange for the cancellation of the Eligible Options. Total expense associated with the exchange, prior to the consideration of expected
forfeitures, was approximately $0.8 million.
Term Loan
In December 2004, we borrowed $100 million through a term loan facility, or term loan, dated December 3, 2004. A small portion of the
proceeds of the term loan was used to purchase shares tendered pursuant to a tender offer of our common stock initiated by us in 2004 and to pay
related fees and expenses. The funds were available for general corporate purposes, stock repurchases and acquisitions, subject to certain
limitations.
In January 2006, we paid, in full, the outstanding balance on the term loan of $54.2 million. Effective upon payment of the outstanding
balance, the term loan terminated and was of no further force or effect. During the quarter ended March 31, 2006, we accelerated and recognized
approximately $1.5 million in deferred financing costs in connection with the early repayment of the term loan.
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