Share-based Compensation

The Company allows for the grant of stock options, restricted stock awards and deferred stock units to employees, independent directors and consultants under its 2004 Stock Option, Restricted Stock and Deferred Stock Unit Plan (the “2004 Plan”) and its 2009 Employment Inducement Equity Incentive Plan (the “2009 Plan”). As of December 31, 2011, a total of 9,700,000 aggregate shares of common stock were reserved for issuance under the 2004 Plan and 2009 Plan, of which 1,872,703 shares of common stock were available for future awards. Certain of the Company's stock options and restricted stock awards include both a service condition and a market condition that relates only to the timing of vesting. These stock options and restricted stock awards generally vest in full four to five years from the grant date. These awards also provide for the possibility of annual accelerated performance-based vesting of a portion of the awards if the Company achieves specified market conditions. In addition, the Company has granted stock options and restricted stock awards that vest periodically over a fixed term, usually four years. These awards do not contain any market or performance conditions. The Company's deferred stock units contain a service and performance condition, which provide for the possibility of the issuance of underlying shares if the Company achieves specified performance targets. The shares underlying the deferred stock units generally vest in full approximately three years from the grant date. Share-based awards also generally provide for accelerated vesting if there is a change in control (as defined in the 2004 Plan and the 2009 Plan) and, in some cases, if additional conditions are met. The stock options are exercisable for up to ten years from the grant date. Compensation expense is amortized on a straight-line basis over the requisite service period for the entire award, which is generally the maximum vesting period of the award, and if necessary, is adjusted to ensure that the amount recognized is at least equal to the vested (earned) compensation. No share-based compensation expense has been capitalized as part of inventory or fixed assets.

Stock Options

The estimated fair value of the Company's stock options is determined using the Black-Scholes model. All stock options were granted with an exercise price equal to the fair value of the common stock on the grant date. The weighted-average grant date fair value of employee stock options granted (excluding options granted in connection with the stock option exchange program discussed below) during the years ended December 31, 2011, and 2010 was $6.22 and $7.14 per share, respectively, which was estimated using the following weighted-average assumptions:



	As of December 31,
	2011		2010
Expected volatility	65	%	60	%
Expected term (in years)	5.77		5.75
Risk-free interest rate	1.04	%	1.89	%
Expected dividend yield	—		—

The determination of the fair value of stock options using an option valuation model is affected by the Company's stock price, as well as assumptions regarding a number of complex and subjective variables. Through June 30, 2010, the volatility assumption was based on a combination of the historical volatility of the Company's common stock and the volatilities of similar companies over a period of time equal to the expected term of the stock options. The volatilities of similar companies were used in conjunction with the Company's historical volatility because of the lack of sufficient relevant history for the Company's common stock equal to the expected term. Commencing July 1, 2010, the Company determined it had sufficient relevant history and thus began using its historical volatility. The expected term of employee stock options represents the weighted-average period the stock options are expected to remain outstanding. The expected term assumption is estimated based primarily on the options' vesting terms and remaining contractual life and employees' expected exercise and post-vesting employment termination behavior. The risk-free interest rate assumption is based upon observed interest rates at the end of the period in which the grant occurred appropriate for the term of the employee stock options. The dividend yield assumption is based on the expectation of no future dividend payouts by the Company.

A summary of the Company's stock option award activity as of and for the years ended December 31, 2011 and 2010 is as follows (in thousands, except per share data):



	Number of Shares (1)		Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value
Options outstanding at December 31, 2009	4,936		$	42.97	7.08	$	247
Options exercisable at December 31, 2009	1,596		$	40.15	6.16	$	—
Options granted	291		$	12.88
Options forfeited	(596	)	45.72
Options exercised	—
Options outstanding at December 31, 2010	4,631		$	40.73	5.94	$	137
Options exercisable at December 31, 2010	2,308		$	38.98	5.07	$	—
Options granted	1,138		$	10.47
Options forfeited	(2,620	)	45.37
Options exercised	(2	)	14.89
Options outstanding at December 31, 2011	3,147		$	25.93	6.89	$	1,012
Options exercisable at December 31, 2011	1,466		$	34.71	4.79	$	—

(1) The stock options granted and forfeited activity for fiscal 2011 included the impact of our stock option exchange program as discussed below.

As share-based compensation expense under the authoritative guidance for share-based payments is based on awards ultimately expected to vest, it is reduced for estimated forfeitures. The guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

At December 31, 2011, total unrecognized compensation cost related to unvested stock options was $15.5 million, which is expected to be recognized over a weighted-average period of 2.7 years.

Upon option exercise, the Company issues new shares of common stock. Cash received from stock option exercises was $32,730 during the year ended December 31, 2011. No options were exercised during the year ended December 31, 2010. The Company did not recognize any income tax benefits from stock option exercises as it continues to record a valuation allowance on its deferred tax assets, as more fully described in Note 11.

On August 10, 2011, the Company launched a stock option exchange program pursuant to which the Company offered to exchange eligible outstanding stock options previously granted under the 2004 Plan and 2009 Plan issued to eligible Cricket employees for a lesser number of replacement options to be granted under the 2004 Plan, with an exercise price equal to the closing price of Leap common stock on the date of the replacement grant (the “Exchange Offer”). The Company completed the Exchange Offer on September 23, 2011. Options for an aggregate of approximately 1.6 million shares of Leap common stock, representing approximately 93% of the total number of eligible options, were exchanged in the Exchange Offer for replacement options for an aggregate of 256,202 shares of Leap common stock, with an exercise price of $7.09 per share, which will vest over three years. The exchange ratios used to determine how many replacement options were granted were determined on a grant-by-grant basis and were intended to result in the fair value, for accounting purposes, of the replacement options being approximately 50% of the fair value of the surrendered options using the Black-Scholes stock option pricing model. The Exchange Offer did not result in any additional share-based compensation expense. Executive officers and members of the Company's board of directors were not permitted to participate in the Exchange Offer. The impacts related to the amount of stock options granted, forfeited and outstanding and the related values are included in the table above.

Restricted Stock

Under guidance for share-based payments, the fair value of the Company's restricted stock awards is based on the grant date fair value of the Company's common stock. Prior to 2009, all restricted stock awards were granted with a purchase price of $0.0001 per share. During 2011 and 2010, all restricted stock awards were granted with no purchase price. For those restricted stock awards granted with a purchase price, the restricted stock grant agreements allow the Company to repurchase unvested shares at the option, but not the obligation, of the Company for a period of sixty days, commencing ninety days after the employee has a termination event. If the Company elects to repurchase all or any portion of the unvested shares, it may do so at the original purchase price per share. The weighted-average grant date fair value of the restricted stock awards was $11.84 and $15.27 per share during the years ended December 31, 2011 and 2010, respectively.

A summary of the Company's restricted stock award activity as of and for the years ended December 31, 2011 and 2010 is as follows (in thousands, except per share data):



	Number of Shares		Weighted-Average Grant Date Fair Value Per Share
Restricted stock awards outstanding at December 31, 2009	1,731		$	41.17
Shares issued	982		15.27
Shares forfeited	(201	)	38.90
Shares vested	(394	)	45.69
Restricted stock awards outstanding at December 31, 2010	2,118		$	28.54
Shares issued	684		11.84
Shares forfeited	(353	)	29.06
Shares vested	(484	)	36.51
Restricted stock awards outstanding at December 31, 2011	1,965		$	20.68

The following table summarizes information about restricted stock awards that vested during the years ended December 31, 2011, 2010 and 2009 (in thousands):



	Year Ended December 31,
	2011		2010		2009
Fair value on vesting date of vested restricted stock awards	$	5,864	$	4,965	$	3,912

At December 31, 2011, total unrecognized compensation cost related to unvested restricted stock awards was $21.4 million, which is expected to be recognized over a weighted-average period of 2.2 years.

Deferred Stock Units

Under guidance for share-based compensation, the fair value of the Company's deferred stock units is based on the grant date fair value of the Company's common stock. All deferred stock units were granted with no purchase price. There were no deferred stock units issued, vested or outstanding during 2010 and 2009. The Company issued 90,000 deferred stock units at a weighted-average grant date fair value of $12.39 per share during the year ended December 31, 2011. The deferred stock units contain performance conditions which will determine the number of shares that will be ultimately issued when the awards vest, which could result in the Company issuing 90,000 to 320,000 shares. The shares underlying these deferred stock units will be issued and vest upon the completion of a three year service period. The Company has estimated the total number of shares that will vest and the related share-based expense in accordance with the authoritative guidance for share-based payments with performance conditions. At December 31, 2011, total unrecognized compensation cost related to deferred stock units was $1.9 million, which is expected to be recognized over a weighted-average period of 2.0 years.

Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan (the “ESP Plan”) allows eligible employees to purchase shares of common stock during a specified offering period. The purchase price is 85% of the lower of the fair market value of such stock on the first or last day of the offering period. Employees may authorize the Company to withhold up to 15% of their compensation during any offering period for the purchase of shares under the ESP Plan, subject to certain limitations. A total of 800,000 shares of common stock were reserved for issuance under the ESP Plan, and a total of 216,254 shares remained available for issuance under the ESP Plan as of December 31, 2011. The most recent offering period under the ESP Plan was from July 1, 2011 through December 31, 2011.

Allocation of Share-based Compensation Expense

Total share-based compensation expense related to all of the Company's share-based awards for the years ended December 31, 2011, 2010 and 2009 was allocated in the consolidated statements of operations as follows (in thousands, except per share data):



	Year Ended December 31,
	2011		2010		2009

Cost of service	$	1,734	$	3,673	$	3,546
Selling and marketing expense	1,985		5,781		6,264
General and administrative expense	11,609		27,155		32,903
Share-based compensation expense	$	15,328	$	36,609	$	42,713
Share-based compensation expense per share:
Basic	$	0.20	$	0.48	$	0.59
Diluted	$	0.20	$	0.48	$	0.59