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"). In addition, during 2013 the Company granted deferred cash units to certain employees. As of December 31, 2013, a total of 11,375,000 shares of common stock were reserved for issuance under the 2004 Plan and 2009 Plan, of which 1,431,172 shares of common stock were available for future awards. The Company has granted stock options, restricted stock awards, deferred stock units and deferred cash units that vest periodically over a fixed term, usually four years, which awards do not contain any performance conditions. The Company has also granted deferred stock units that contain a service condition and, in some cases, a performance condition that provides 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 three to four years from the grant date. Share-based awards also generally provide for accelerated vesting if there is a termination of service following the occurrence of a change in control (as defined in the 2004 Plan and the 2009 Plan). 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 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.

Under the terms of the Merger Agreement with AT&T, each outstanding stock option, share of restricted stock and stock unit granted under the Company's stock plans (including performance stock units, deferred stock units and deferred cash units but excluding any cash awards with a value that is not determined based on the price of Leap common stock), whether vested or unvested, will be cancelled on the effective date of the Merger and will entitle each holder to receive certain Merger consideration. For more information, see Note 2. "Proposed Merger."

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 during the years ended December 31, 2013 and 2012 was $5.05 and $4.95 per share, respectively, which was estimated using the following weighted-average assumptions:



	As of December 31,
	2013		2012
Expected volatility	74	%	71	%
Expected term (in years)	5.75		5.75
Risk-free interest rate	1.20	%	0.90	%
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. The Company calculates expected volatility through an analysis of its historical trading 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, 2013 and 2012 is as follows (in thousands, except per share data):



	Number of Shares		Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value
Options outstanding at December 31, 2011	3,146		$	25.93	6.89	$	1,012
Options exercisable at December 31, 2011	1,466		$	34.71	4.79	$	—
Options granted	1,453		$	8.22
Options forfeited	(1,234	)	36.59
Options exercised	—		—
Options outstanding at December 31, 2012	3,365		$	14.38	6.82	$	433
Options exercisable at December 31, 2012	1,222		$	23.30	4.23	$	—
Options granted	226		$	8.06
Options forfeited	(677	)	15.49
Options exercised	(828	)	8.99
Options outstanding at December 31, 2013	2,086		$	15.47	5.93	$	11,786
Options exercisable at December 31, 2013	852		$	25.31	3.10	$	—

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, 2013, total unrecognized compensation cost related to unvested stock options was $6.2 million, which is expected to be recognized over a weighted-average period of 2.28 years.

Upon option exercise, the Company issues new shares of common stock. Cash received from stock option exercises was $4.6 million and zero during the years ended December 31, 2013 and 2012, respectively. 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 12.

On October 11, 2012, the Company entered into option surrender agreements ("Surrender Agreements") with certain of its executive officers, each of whom held options to purchase shares of Leap common stock with exercise prices greater than $50 per share previously granted to them pursuant to the 2004 Plan, but who were ineligible to participate in the stock option exchange program offered by the Company during the third quarter of 2011. Pursuant to the Surrender Agreements, the executive officers surrendered to the Company, for no consideration, options to purchase an aggregate of 415,000 shares of Leap common stock, with exercise prices per share ranging between $51.50 and $79.00. Such surrendered shares are available for future grant or sale under the 2004 Plan.

Restricted Stock

Under guidance for share-based compensation, the fair value of the Company's restricted stock awards is based on the grant date fair value of the Company's common stock. During 2013 and 2012, all restricted stock awards were granted with no purchase price. The weighted-average grant date fair value of the restricted stock awards was $6.24 and $7.48 per share during the years ended December 31, 2013 and 2012, respectively.

A summary of the Company's restricted stock award activity as of and for the years ended December 31, 2013 and 2012 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, 2011	1,965		$	20.68
Shares issued	955		$	7.48
Shares forfeited	(608	)	$	17.13
Shares vested	(499	)	$	29.44
Restricted stock awards outstanding at December 31, 2012	1,813		$	12.68
Shares issued	1,142		$	6.24
Shares forfeited	(212	)	$	10.35
Shares vested	(731	)	$	17.16
Restricted stock awards outstanding at December 31, 2013	2,012		$	7.52

The following table summarizes information about restricted stock awards that vested during the years ended December 31, 2013, 2012, and 2011 (in thousands):



	Year Ended December 31,
	2013		2012		2011
Fair value on vesting date of vested restricted stock awards	$	10,381	$	3,888	$	5,864

At December 31, 2013, total unrecognized compensation cost related to unvested restricted stock awards was $9.5 million, which is expected to be recognized over a weighted-average period of 2.56 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. The Company issued 635,000 and 404,250 deferred stock units at a weighted-average grant date fair value of $6.18 and $9.24 per share during the years ended December 31, 2013 and 2012, respectively. These deferred stock units contain performance conditions, which provide for the possible issuance of underlying shares if the Company achieves specified performance targets. Upon approval by the Company’s stockholders of a change in control of the Company, however, the number of shares to be issued are fixed at a target amount of units. The approval of the Merger Agreement with AT&T by the Company’s stockholders on October 30, 2013 satisfied this condition. In addition, during 2013, the Company granted certain deferred stock units which the Company has the option, but not the obligation, to settle in cash. As the Company has no historical practice of settling deferred stock units for cash, these awards have been are accounted for consistent with other deferred stock units.

At December 31, 2013, total unrecognized compensation cost related to deferred stock units was $8.2 million, which is expected to be recognized over a weighted-average period of 1.80 years.

Deferred Cash Units

During 2013, the Company granted 755,636 deferred cash units to certain employees at a weighted-average grant date fair value of $6.10 per share. The deferred cash units will vest and be paid out in cash over four years, contingent on continued employment with the Company. The amount payable per unit awarded is equal to the price per share of the Company's common stock at settlement of the award, and as such, the Company measures the value of the award each reporting period based on the current stock price. The effects of changes in the stock price during the service period are recognized as compensation cost over the service period. During 2013, the Company recognized $2.0 million in compensation expense related to the awards.

Unrecognized compensation expense related to deferred cash units based on the stock price at December 31, 2013 totaled $10.6 million. This expense is expected to be recognized over a weighted-average period of 3.37 years.

Employee Stock Purchase Plan

The Company's Amended and Restated Employee Stock Purchase Plan (the "ESPP") 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 ESPP, subject to certain limitations. As of December 31, 2013, a total of 1,200,000 shares of common stock were reserved for issuance under the ESPP, and a total of 219,664 shares remained available for issuance under the ESPP. The most recent offering period under the ESPP was from July 1, 2013 through December 31, 2013. As required pursuant to the terms of the Merger Agreement with AT&T, the Company suspended participation in the ESPP, effective January 1, 2014, and the ESPP will be terminated in connection with the closing of the Merger.

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, 2013, 2012, and 2011 was allocated in the consolidated statements of comprehensive income as follows (in thousands, except per share data):



	Year Ended December 31,
	2013		2012		2011
Cost of service	$	724	$	254	$	1,734
Selling and marketing expense	830		22		1,985
General and administrative expense	13,884		7,846		11,609
Share-based compensation expense	$	15,438	$	8,122	$	15,328
Share-based compensation expense per share:
Basic	$	0.20	$	0.11	$	0.20
Diluted	$	0.20	$	0.11	$	0.20