Stock-Based Award Plans

9 Months Ended

Jul. 01, 2011

7. Stock-Based Award Plans

All of the Company’s stock-based award plans were cancelled at the consummation of the Merger. All stock options and RSUs outstanding at the time of the merger were cancelled. Stock options to acquire Company’s Common Stock that were outstanding and unexercised immediately prior to the Effective Time were cancelled and converted into the right to receive, with respect to each such option, an amount of cash equal to the excess, if any, of the Gold Merger Consideration over the exercise price per share under the option for each share subject to such option. Any option with an exercise price greater than or equal to the Gold Merger Consideration was cancelled without consideration. Each RSU that, as of immediately prior to the Effective Time, was outstanding and either held by a non-employee director of the Company, or held by a management-level employee of the Company at the rank of senior vice president or above was cancelled and converted into the right to receive an amount of cash equal to the Gold Merger Consideration. All remaining RSUs were cancelled with the holders of such RSUs being entitled to receive with respect to each RSU on the date that the RSU would have otherwise vested had the Effective Time not occurred an amount of cash equal to the Gold Merger Consideration (“replacement award”); provided that such payment will only be required if (a) the employee continues to be employed continuously by the surviving corporation through and including the original vesting date of such RSUs and (b) the employee has not otherwise been issued or granted any incentive compensation following the Effective Time (but prior to such original vesting date) that the surviving corporation’s board of directors has determined in good faith in its sole discretion to be an appropriate replacement for such RSUs.

Change in control payments made upon consummation of the Merger totaled $6.4 million representing 2,674,000 RSUs and options to purchase 11,400 shares. These payments are included in the Merger consideration. The Company recorded a liability for replacement awards of $1.1 million as of July 1, 2011. As of July 1, 2011, unrecognized expense related to replacement awards is approximately $0.7 million, of which $0.6 million will be recognized over the next six fiscal months.

The following predecessor disclosures regarding stock-based awards are for the period October 2, 2010 through April 19, 2011.

The Company maintained the 2010 Equity Incentive Plan, which was approved by stockholders in February 2010, and under which the Company had reserved 12.0 million shares for issuance, the 2004 New Hire Equity Incentive Plan, under which it had reserved 1.6 million shares for issuance, and the Employee Stock Purchase Plan (“ESPP”). All awards granted under these plans were service-based awards. Awards issued under the 2010 Equity Incentive Plan, the 2004 New Hire Equity Incentive Plan and the ESPP were settled in shares of common stock. As of April 19, 2011, approximately 9.9 million shares of the Company’s common stock were available for grant under the stock option and long-term incentive plans

Stock Options

Prior to the Merger, stock options were granted with exercise prices of not less than the fair market value at the grant date, generally vested over four years and expired eight or ten years after the grant date. The Company settled stock option exercises with newly issued shares of common stock. The expected stock price volatility rates were based on the historical volatility of the Company’s common stock. The risk free interest rates were based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option or award. The average expected life represented the weighted average period of time that options or awards granted were expected to be outstanding. No stock options were granted in the period from April 2, 2011 through April 19, 2011.

A summary of stock option activity is as follows (shares in thousands):


	Predecessor
				Weighted
				Average
	Shares			Exercise Price
Outstanding, October 1, 2010		2,296		$	21.45
Granted		—			—
Exercised		(1	)		0.70
Forfeited		(706	)		21.89

Outstanding, April 19, 2011		1,589			21.25

Shares vested and expected to vest, April 19, 2011		1,589			21.26

Exercisable, April 19, 2011		1,559		$	21.57

During the period from April 2, 2011 through April 19, 2011, and the period from October 2, 2010 through April 19, 2011, the Company recognized stock-based compensation expense for stock options of $4,000 and $0.1 million, respectively, in its consolidated statements of operations. During the fiscal quarter and nine fiscal months ended July 2, 2010, the Company recognized stock-based compensation expense for stock options of $0.1 million and $1.3 million, respectively, in its consolidated statements of operations.

Effective at the Merger date, all of the stock options were cancelled. Holders of stock options which had an exercise price less than the Gold Merger Consideration, either vested or unvested, were paid in cash the excess of the of the Gold Merger Consideration over the exercise price. Total cash paid was approximately $15,000 representing 11,400 vested stock options which was included in the Merger consideration, and $15,000 representing 13,000 unvested stock options, which was charged to expense.

Restricted Stock Units

The Company’s long-term incentive plans provided for the issuance of share-based RSU awards to officers and other employees and certain non-employees of the Company. These awards were subject to forfeiture if employment terminated during the prescribed vesting period (generally within one to three years of the date of award).

A summary of RSU award activity under the Company’s long-term incentive plans is as follows (shares in thousands):


	Predecessor
				Weighted
				Average Grant
				Date Fair
	Shares			Value
Outstanding, October 1, 2010		4,773		$	2.69
Granted		230			1.68
Vested		(1,337	)		2.81
Forfeited		(63	)		2.12

Outstanding, April 19, 2011		3,603		$	2.59

During the period from April 2, 2011 through April 19, 2011, and the period from October 2, 2010 through April 19, 2011, the Company recognized stock-based compensation expense of $0.3 million and $3.9 million, respectively, related to RSU awards. During the fiscal quarter and nine fiscal months ended July 2, 2010, the Company recognized stock-based compensation expense of $1.5 million and $3.6 million, respectively, related to RSU awards. The total fair value of RSU awards vested in the period from April 2, 2011 through April 19, 2011, and the period from October 2, 2010 through April 19, 2011, was zero and $2.1 million, respectively.

Effective at the Merger date, all of the RSUs were cancelled. RSUs held by either non-employee directors of the Company, or held by management-level employees of the Company at the rank of senior vice president or above were converted into the right to receive an amount of cash equal to the Gold Merger Consideration. Total cash paid was approximately $6.4 million representing 2,674,000 converted RSUs which was included in the Merger consideration.

Employee Stock Purchase Plan

The Company’s ESPP allowed eligible employees to purchase shares of the Company’s common stock at nine-month intervals during an offering period at 85% of the lower of the fair market value on the first day of the offering period or the purchase date. Under the ESPP, employees could authorize the Company to withhold up to 15% of their compensation for each pay period, up to a maximum annual amount of $25,000, to purchase shares under the plan, subject to certain limitations, and employees were limited to the purchase of 600 shares per offering period. Offering periods generally commenced on the first trading day of February and August of each year and were generally nine months in duration, but could be terminated earlier under certain circumstances. The ESPP was suspended effective January 1, 2011. The final purchase under the ESPP was for the offering period ending on January 31, 2011, under which 53,000 shares were purchased by employees. During the period from October 2, 2010 through April 19, 2011 the Company recognized stock-based compensation expense for the ESPP of $33,000 in its consolidated statements of operations.

During the fiscal quarter and nine fiscal months ended July 2, 2010, the Company recognized stock-based compensation expense for the ESPP of $0.1 million in its consolidated statements of operations.