Stock-Based Award Plans

3 Months Ended

Mar. 30, 2012

Stock-Based Award Plans [Abstract]

Stock-Based Award Plans

7. Stock-Based Award Plans

Stock-Based Award Plans - Successor

Subsequent to the Merger, Conexant Holdings adopted the 2011 Incentive Compensation Plan (“the Plan”). Stock options issued under the Plan were deemed appropriate replacements for the RSUs that were outstanding at the time of the Merger and held by employees who were employed by the Successor at the time the Plan was issued. Stock option expense recorded upon grant of options under the Plan was immaterial.

Conexant Holdings maintains the Plan, under which it has reserved 25.0 million shares for issuance. Awards issued to employees of Conexant under the Plan are settled in shares of Class A Common Stock of Conexant Holdings (the “Class A Common Stock”). All awards granted since the inception of the Plan are service-based awards. Since Conexant’s employees are the beneficiaries of the stock options granted under the Plan, expense for the stock options is recorded in the financial statements of Conexant. As of March 30, 2012, approximately 12.3 million shares of the Class A Common Stock are available for grant under the Plan.

The following weighted average assumptions were used in the estimated grant date fair value calculations for stock options:

Fair market value of stock	$	0.01
Expected volatility		47	%
Risk-free rate		2	%
Expected life (years)		6.5

Stock options are granted with exercise prices of not less than the fair value at the date of grant, generally vest over five years and expire ten years after the grant date. The fair market value of the Class A Common Stock was determined based on the current-value method. Expected volatility is based on historical volatility of a group of public companies considered to be peers of the Company. The risk free interest rates are based on the U.S. Treasury bill yield curve in effect at the time of grant for periods corresponding with the expected life of the stock option. The expected life represents the weighted average period of time that options granted are expected to be outstanding, calculated using the simplified method as prescribed by the SEC.

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

	Successor
	Shares			Weighted Average Exercise Price
Outstanding, September 30, 2011		12,803		$	3.21
Granted		—			—
Exercised		—			—
Forfeited		(71	)		3.21
Outstanding, March 30, 2012		12,732			3.21
Shares vested and expected to vest, March 30, 2012		11,468			3.21
Exercisable, March 30, 2012		—		$	—

Expense recorded for stock options issued under the Plan in the Successor fiscal quarter and six fiscal months ended March 30, 2012 was less than $1,000. At March 30, 2012, the total unrecognized fair value compensation cost related to non-vested stock options was less than $5,000 which is expected to be recognized over a remaining period of approximately 4.5 years. The weighted average remaining contractual term of the options outstanding is approximately 9.50 years.

Stock-Based Award Plans - Predecessor

All of the Predecessor’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 common stock that were outstanding and unexercised immediately prior to the closing of the Merger 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 closing of the Merger, 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 other remaining RSUs were cancelled.

The following Predecessor disclosures regarding stock-based awards are for the fiscal quarter and six fiscal months ended April 1, 2011.

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 its 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.

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

	Predecessor
	Shares			Weighted Average Exercise Price
Outstanding, October 1, 2010		2,296		$	21.45
Granted		—			—
Exercised		(1	)		0.70
Forfeited		(703	)		21.86
Outstanding, April 1, 2011		1,592			21.27
Shares vested and expected to vest, April 1, 2011		1,591			21.28
Exercisable, April 1, 2011		1,560		$	21.59

During the Predecessor fiscal quarter and six fiscal months ended April 1, 2011 the Company recognized stock-based compensation expense for stock options of $43,000 and $98,000, respectively, in its consolidated statements of operations.

Effective at the Merger date, all of the stock options were cancelled. Holders of stock options with an exercise price less than the Gold Merger Consideration, either vested or unvested, were paid the excess of the Gold Merger Consideration over the exercise price in cash. Holders of 11,400 vested stock options were paid approximately $15,000 in cash, which was included in the Merger consideration. Holders of 13,000 unvested stock options were paid approximately $15,000 in cash, 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
	Shares			Weighted Average Exercise Price
Outstanding, October 1, 2010		4,773		$	2.69
Granted		230			1.68
Vested		(1,337	)		2.81
Forfeited		(63	)		2.12
Outstanding, April 1, 2011		3,603		$	2.59

During the Predecessor fiscal quarter and six fiscal months ended April 1, 2011, the Company recognized stock-based compensation expense of $1.7 million and $3.6 million, respectively, related to RSU awards. The total fair value of RSU awards vested in the Predecessor fiscal quarter ended April 1, 2011 was $0.4 million.

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 Predecessor fiscal quarter and six fiscal months ended April 1, 2011, the Company recognized stock-based compensation expense for the ESPP of $9,000 and $33,000, respectively, in its consolidated statements of operations.