Clearwire 2007 Annual Report Download - page 98

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milestones are met. The Company records common stock and warrants payable to recognize the timing difference
when consideration has been received by the Company, but it has not yet issued securities to the counterparty.
13. Share-Based Payments
On January 19, 2007, Clearwire’s Board of Directors adopted the 2007 Stock Compensation Plan (the “2007
Plan”), which authorizes the Company to grant incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock, restricted stock units, and other stock awards to its employees, directors
and consultants. The 2007 Plan was adopted by the Company’s stockholders on February 16, 2007. There are
15,000,000 shares of Class A common stock authorized under the 2007 Plan. Options granted under the 2007 Plan
generally vest ratably over four years and expire no later than ten years after the date of grant. Shares to be awarded
under the 2007 Plan will be made available at the discretion of the Compensation Committee of the Board of
Directors from authorized but unissued shares, authorized and issued shares reacquired and held as treasury shares,
or a combination thereof. At December 31, 2007 there were 8,558,574 shares available for grant under the 2007
Stock Option Plan.
Prior to the 2007 Plan, the Company had the following share-based arrangements: The Clearwire Corporation
2003 Stock Option Plan (the “2003 Stock Option Plan”) and The Clearwire Corporation Stock Appreciation Rights
Plan (the “SAR Plan”). No additional stock options will be granted under the Company’s 2003 Stock Option Plan.
The Company applies SFAS 123(R) to new awards and to awards modified, repurchased, or cancelled after
January 1, 2006. Share-based compensation expense is based on the estimated grant-date fair value and is
recognized net of a forfeiture rate on those shares expected to vest over a graded vesting schedule on a straight-line
basis over the requisite service period for each separately vesting portion of the award as if the award was, in-
substance, multiple awards.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing
model using the assumptions disclosed for the years ended December 31, 2007, 2006 and 2005. The volatility used
to calculate the fair value of non-employee stock option grants for 2007, 2006 and 2005 and employee stock option
grants for 2007 and 2006 is based on both average historical volatility from common shares of a group of the
Company’s peers and the Company’s own historical volatility. There is a 0% expected dividend yield as there are no
plans to pay future dividends. The expected life of options granted is based on the simplified calculation of expected
life, described in the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107, or SAB No. 107,
Share-Based Payment, due to lack of option exercise history. The risk-free interest rate is based on the zero-coupon
U.S Treasury bond, with a term equal to the expected life of the options.
Compensation cost recognized for these plans for the year ended December 31, 2007, 2006 and 2005 is
presented as follows (in thousands):
2007 2006 2005
Year Ended December 31,
Cost of service ........................................ $ 138 $ 819 $ 204
Selling, general and administrative .......................... 42,633 13,427 2,338
Total .............................................. $42,771 $14,246 $2,542
Stock Options
Prior to January 1, 2006, the Company accounted for share-based compensation under the recognition and
measurement provisions of APB 25. Stock options granted at prices below fair market value at the date of grant were
considered compensatory, and compensation expense has been deferred and is being recognized over the option
vesting period using the graded vesting method. Compensation expense is based on the excess of the fair market
value of the underlying common stock at the date of grant over the exercise price of the option.
90
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)