Earthlink 2010 Annual Report Download - page 121

Table of Contents
EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Dividends
In 2009, the Company began declaring and paying cash dividends on its common stock. During the year ended December 31, 2009, cash
dividends declared were $0.28 per common share and total dividend payments were $30.0 million. During the year ended December 31, 2010,
cash dividends declared were $0.62 per common share and total dividend payments were $67.5 million. The Company currently intends to pay
regular quarterly dividends on its common stock. The Company also pays cash dividend amounts on each outstanding restricted stock unit to be
paid at the time the restricted stock unit vests. Cash dividend amounts are forfeited if the restricted stock units do not vest. Any decision to
declare future dividends will be made at the discretion of the Board of Directors and will depend on, among other things, the Company's results
of operations, financial condition, cash requirements, investment opportunities and other factors the Board of Directors may deem relevant.
Call Spread Transactions
In connection with the issuance of the Notes (see Note 10, "Debt"), the Company entered into separate convertible note hedge transactions
and separate warrant transactions with respect to the Company's common stock to minimize the impact of the potential dilution upon conversion
of the Notes. The Company purchased call options in private transactions to cover approximately 28.4 million shares of the Company's common
stock at a strike price of $9.12 per share, subject to adjustment in certain circumstances, for $47.2 million. The Company also sold warrants
permitting the purchasers to acquire up to approximately 28.4 million shares of the Company's common stock at an exercise price of $11.20 per
share, subject to adjustments in certain circumstances, in private transactions for total proceeds of approximately $32.1 million. In September
2008, the Company terminated its convertible note hedge and warrant agreements. The Company received an aggregate payment from the
counterparties to the agreements, which was recorded as additional paid-
in capital. Upon termination of the agreements, the Company purchased
approximately 2.5 million shares of common stock the counterparties held in hedge positions for approximately $22.7 million, based on the
closing price of the EarthLink common stock on the purchase date.
12. Stock-Based Compensation
Stock-
based compensation expense was $20.1 million, $13.2 million and $10.0 million during the years ended December 31, 2008, 2009
and 2010, respectively. The Company has classified stock-
based compensation expense within the same operating expense line item as cash
compensation paid to employees.
Stock Incentive Plans
The Company has granted options to employees and non-
employee directors to purchase the Company's common stock under various stock
incentive plans. The Company has also granted restricted stock units to employees and non-
employee directors under various stock incentive
plans. Under the plans, employees and non-employee directors are eligible to receive awards of various forms of equity-
based incentive
compensation, including stock options, restricted stock, restricted stock units, phantom share units and performance awards, among others. The
plans are administered by the Board of Directors or the Leadership and Compensation Committee of the Board of Directors, which determine the
terms of the awards granted. Stock options are generally granted with an exercise price equal to the market value of EarthLink, Inc. common
stock on the date of grant, have a term of ten years or less, and vest over terms of four years from the date of grant. Restricted stock units are
granted with various vesting terms that range from one to six years from the date of grant. The Company's various stock incentive plans provide
for the
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