Support.com 2005 Annual Report Download - page 54

SUPPORTSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
the years ended December 31, 2005 and 2004, respectively and accumulated unrealized losses on available-for-sale securities were
$117,000 and $269,000 as of December 31, 2005 and 2004.
Stock-Based Compensation
SupportSoft’s stock plans are described in Note 7. SupportSoft accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and
has adopted the disclosure only alternative of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based
Compensation” (“FAS 123”). Under APB Opinion No. 25, SupportSoft does not recognize compensation expense with respect to
such awards if the exercise price equals or exceeds the fair value of the underlying security on the date of grant and other terms are
fixed. For purposes of pro forma disclosures pursuant to FAS 123 as amended by FAS 148, the estimated fair value of options and
employee stock purchase program shares (“ESPP”) are based on the Black-Scholes valuation model and are amortized to expense
over the vesting period of the options.
On December 21, 2005, the Board of Directors approved the acceleration of approximately 3.0 million of unvested and “out-of-
the-money” outstanding stock options that had an exercise price per share equal to or greater than $5. This represented approximately
32% of our total outstanding options on December 21, 2005. The accelerated options, which are considered fully vested as of
December 21, 2005, have exercise prices ranging from $5.04 to $14.66 and a weighted average exercise price of $7.02 per share. The
options accelerated excluded options previously granted to the Board of Directors of the Company, employees who have notified the
Company or been notified of their termination, and foreign employees who opted out of the acceleration for tax reasons. For all
officers and vice presidents (non-officers), the acceleration was accompanied by restrictions imposed on any shares that may in the
future be purchased through the exercise of accelerated options. Those restrictions prevent the sale of any such shares prior to the date
such shares would have originally vested had the optionee been employed on such date (whether or not the optionee is actually an
employee at that time).
The purpose of the acceleration was to reduce compensation expense associated with options in future periods upon the adoption
of SFAS 123R, as described below. By accelerating the vesting of these options, approximately $12.0 million of future compensation
expense was avoided. These amounts are reflected in the pro forma footnote disclosure below.
In the fourth quarter of 2005, management performed a detailed review of inputs used for purposes of calculating the ESPP-
based compensation expense. As a result, management decided to adjust the input relating to employee contributions to more
accurately reflect historical and future estimates of employee contributions into the plan. As a result, the 2004 and 2003 ESPP-based
compensation expense has been revised to account for the change in these estimated contributions. In 2004 and 2003, pro-forma net
income has decreased by $776,000 and $366,000 respectively, and basic EPS and diluted EPS have decreased by $0.02 and by $0.01
in both years.
52