Share-based Compensation

12 Months Ended

Dec. 31, 2012

Share-based Compensation [Abstract]

Share-based Compensation

19. SHARE-BASED COMPENSATION

Share options

On January 25, 2006, the Company adopted the 2006 Employee Share Option Plan (the "2006 Plan") for the granting of share options to employees and nonemployees to reward them for services to the Company and to provide incentives for future service. The share options expire ten years from the date of grant.

On April 1, 2011, the Company adopted the 2011 Employee Share Option Plan (the "2011 Plan") for the granting of share options to employees and nonemployees to reward them for services to the Company and to provide incentives for future service. The share options expire ten years from the date of grant.

Option to employees and directors

On January 1, 2010 and July 1, 2010, the Company granted 110,000 and 939,000 share options to employees at an exercise price of $2.2 and $2.8 per share, respectively.

On January 1, 2011, February 14, 2011, March 3, 2011, July 1, 2011 and October 1, 2011, the Company granted 3,726,200, 700,000, 684,500, 2,689,200 and 375,000 share options to employees at an exercise price of $5.2, $5.2, $6.0, $12.94 and $10.89 per share, respectively.

On July 1, 2011, the Company granted 40,000 share options to two directors at an exercise price of $9.67 per share.

On January 20, 2012, February 10, 2012, April 15, 2012, July 15, 2012 and October 15, 2012, the Company granted 1,834,500, 935,000, 171,500, 417,500 and 761,500 share options to employees at an exercise price of $10.67, $11.35, $14.52, $10.95 and $14.67 per share, respectively.

Option to nonemployees

On July 1, 2010, the Company granted 4,100,000 share options to nonemployees for consulting and investment advisory services of four years at an exercise price of $2.8 per share.

On January 1 and March 3, 2011, the Company granted 60,000 and 20,000 share options to nonemployees for consulting and investment advisory services of three or four years at an exercise price of $5.2 and $6.0 per share, respectively.

On March 1, 2012, July 15, 2012, July 15, 2012 and October 15, 2012, the Company granted 33,000, 10,000, 40,000 and 10,000 share options to nonemployees for consulting and investment advisory services of four years at an exercise price of $14.09, $10.95, $10.67 and $14.67 per share, respectively.

Option exercise

The option shall be exercisable by giving notice in writing to the Company stating that the option is exercised and the number of shares in respect of which it is exercised. Any such notice must be accompanied by a remittance for the full amount of the exercise price for the shares in respect of which the notice is given.

Vesting of options

The option will vest when the service conditions are met. In addition, according with the 2006 Plan, one of the exit events, described in "Termination of Option" below, shall happen.

In accordance with the vesting schedules set out in the 2006 Plan, 1/4 of the options granted will be vested on each anniversary from the date of grant subject to the occurrence of one of the exit events. Under the 2011 Plan, the Plan administrator (compensation committee) has the authority to determine the schedule for vesting.

Termination of option

Both under the 2006 and the 2011 Plan, the option may not be exercised until vested. Once vested, the option may be exercised in whole or any part, at any time. However, an option will be forfeited, if the grantee ceases to be an employee.

Furthermore, in accordance with the 2006 Plan, an option will be forfeited, if the grantee ceases to be an employee prior to an exit, then (i) the portion of the option which has been otherwise vested and not exercised, and (ii) the portion of the options which has not been vested, will automatically lapse and expire.

Exit means (i) a listing, (ii) a sale of all or substantially all of the issued share capital of the Company, (iii) a sale by the Company of all or substantially all of its assets, (iv) the passing of an effective resolution or the making of an order of a competent court for the winding up of the Company.

Based on the terms above, the options will not actually vest until one of the exit events happens and the service conditions are met.

The fair value of the options granted is estimated on the date of grant using the Black-Scholes or Binomial-Model option-pricing model with the following assumptions used.

	Year ended December 31,
	2011		2012
Risk-free interest rate		2.74% - 3.88%		2.83% - 3.35%
Expected life (years)		5.40 - 6.35		6.35
Volatility		43.10% - 57.70%		46.98% - 74%
Dividend yield		-		-
Fair value of underlying ordinary shares
at the grant date		5.01 - 14.09		11.17 - 14.73
Fair value of the share options at the grant date		2.64 - 8.15		5.50 - 8.31

(1) Volatility

The volatility of the underlying ordinary shares during the life of the options was estimated based on the historical share price volatility of comparable companies over a period comparable to the expected term of the options.

(2) Risk-free interest rate

Risk-free interest rate was estimated based on the yield to maturity of China international government bonds with a maturity period close to the expected term of the options.

(3) Expected term

For the options granted to employees, as the Group did not have sufficient historical share option exercise experience, it estimated the expected term average based on a consideration of factors including contractual term and vesting period.

(4) Dividend yield

The dividend yield was estimated by the Group based on its expected dividend policy over the expected term of the options.

(5) Exercise price

Before closing of IPO, the exercise price of the options was determined by the Company's Chief Executive Officer. After closing of IPO, the exercise price shall be determined by the Compensation Committee which may be a fixed or variable price related to the closing sales price of the shares as quoted on the principal exchange or system.

(6) Fair value of underlying ordinary shares

Before closing of IPO, the estimated fair value of the ordinary shares underlying the options as of the respective grant dates was determined based on a retrospective valuation. When estimating the fair value of the ordinary shares on the grant dates, management has considered a number of factors, including the result of a third-party appraisal and equity transactions of the Group, while taking into account the standard valuation methods and the achievement of certain events. The determination of fair value of the ordinary shares was also with the assistance of an independent valuation firm. After closing of IPO, the fair value of the ordinary shares is determined as the closing sales price of the shares as quoted on the principal exchange or system.

The following table summarizes information regarding the share options granted:

			Fair value per				Intrinsic value
			ordinary share		Exercise price		per option
Grant date	Options granted		at the grant date		per option		at the grant date
January 1, 2010		110,000	$	1.80	$	2.20	-
July 1, 2010		5,039,000	$	2.58	$	2.80		-
January 1, 2011		3,786,200	$	5.01	$	5.20		-
February 14, 2011		700,000	$	6.60	$	5.20	$	981
March 3, 2011		704,500	$	7.21	$	6.00	$	849
July 1, 2011		2,689,200	$	14.09	$	12.94	$	3,102
July 1, 2011		40,000	$	14.09	$	9.67	$	177
October 1, 2011		375,000	$	10.89	$	10.89		-
January 20, 2012		1,834,500	$	11.67	$	10.67	$	1,835
February 10, 2012		935,000	$	11.17	$	11.35		-
March 1, 2012		33,000	$	14.00	$	14.09		-
April 15, 2012		171,500	$	14.52	$	14.52		-
July 15, 2012		427,500	$	10.95	$	10.95		-
July 15, 2012		40,000	$	10.95	$	10.67		11
October 15,2012		771,500	$	14.73	$	14.67		51
Total		17,656,900

				Weighted average
				exercise price
	Number of options			per option
Outstanding at January 1, 2010		896,050		$	15
Granted		5,149,000			2.8
Exercised		-
Forfeited		(131,100	)
Outstanding at December 31, 2010		5,913,950			2.6
Granted		8,294,900			8.1
Exercised		(31,172	)
Expired		(3,499	)
Forfeited		(487,600	)
Outstanding at December 31, 2011		13,686,579			5.8
Granted		4,213,000			11.8
Exercised		(1,615,452	)
Expired		-
Forfeited		(1,136,113	)
Outstanding at December 31, 2012		15,148,014			7.2
Vested and exercisable at December 31, 2012		4,808,547		$	4.3
Vested and expect to vest at December 31, 2012		16,798,137		$	6.9

The following table summarizes information with respect to share options outstanding as of December 31, 2012:

	Options outstanding							Options exercisable
			Weighted			Aggregate						Aggregate
			average			intrinsic						intrinsic
			remaining	Exercise		value as of				Exercise		value as of
	Number		contractual	price		December 31,		Number		price per		December 31,
	outstanding		term	per option		2012		exercisable		option		2012
June 30, 2009		552,206	6.5 years	$	1.50	$	10,102		371,195	$	1.50	$	6,790
January 1, 2010		53,353	7.0 years	$	2.20		939		40,853	$	2.20		719
July 1, 2010		4,215,907	7.5 years	$	2.80		71,642		2,411,407	$	2.80		40,978
January 1, 2011		3,171,603	8.0 years	$	5.20		46,284		1,439,784	$	5.20		21,011
February 14, 2011		628,000	8.1 years	$	5.20		9,165		103,000	$	5.20		1,503
March 3, 2011		456,460	8.2 years	$	6.00		6,296		60,835	$	6.00		839
July 1, 2011		2,103,578	8.5 years	$	12.94		14,417		338,566	$	12.94		2,320
July 1, 2011		40,000	8.5 years	$	9.67		405		8,000	$	9.67		81
October 1, 2011		242,907	8.7 years	$	10.89		2,162		34,907	$	10.89		311
January 20,2012		1,407,500	9.0 years	$	10.67		12,846		-	$	10.67		-
February 10, 2012		910,000	9.1 years	$	11.35		7,686		-	$	11.35		-
March 1, 2012		33,000	9.2 years	$	14.09		188		-	$	14.09		-
April 15, 2012		148,000	9.3 years	$	14.52		780		-	$	14.52		-
July 15, 2012		389,000	9.5 years	$	10.95		3,439		-	$	10.95		-
July 15, 2012		40,000	9.5 years	$	10.67		365		-	$	10.67		-
October 15, 2012		756,500	9.8 years	$	14.67		3,878		-	$	14.67		-
Total		15,148,014				$	190,594		4,808,547			$	74,552

Under the 2006 Plan, the options would not vest until both the service and performance condition, i.e., one of the exit events happens. Therefore, the Group did not record any compensation expenses in the consolidated statements of operation for share options granted to employees prior to the completion of IPO which is one of the exit events. Upon the completion of IPO in 2011, there were 229,988 share options became vested in accordance with the vesting term under 2006 Plan, and accordingly, $21,229 share based compensation expense were recorded in connection with the vesting of such share options and the remeasurement of share options granted to the nonemployees that the measurement date is not fixed. The Group recognized nil, $34,504 and $26,997 share-based compensation expense for the years ended December 31, 2010, 2011 and 2012, respectively.

As of December 31, 2012, there was $47,378 unrecognized share-based compensation expense relating to share options. The expense is expected to be recognized over a weighted-average remaining vesting period of 2.01 years.

Nonvested shares

On January 19, 2006, the Company's shareholder, Young Vision, the Series A shareholder and certain other parties entered into the Share Incentive Agreement, pursuant to which, Young Vision allocated a total of 18,086,101 ordinary shares of the Company to an equity incentive pool designed to award employees and consultants of the Group in accordance with the Employee Share Vesting Scheme (the "2006 Share Plan"), of which 9,951,000 shares were granted before January 1, 2008. In addition, in January 2010, the Company issued 3,517,544 nonvested shares in connection with certain 2009 acquisitions.

In February 2011, Young Vision transferred 11,826,000 and 5,550,654 ordinary shares in the equity incentive pool to Sino Honor Limited and Strengthen Goal Limited, respectively.

The nonvested shares granted or vested in accordance with the 2006 Share Plan will, be held by Young Vision and all rights (including without limitation, the voting rights and the right to receive the share certificates) attached to such shares will be exercised by Young Vision at its sole and absolute discretion, except that the grantee shall have the right to all the monetary benefits deriving from the shares vested when the shares are disposed of in accordance with the 2006 Share Plan. Since the unvested nonvested shares are entitled to the same rights (including nonforfeitable dividend rights) and obligations as ordinary shares, these shares are considered participating securities.

The nonvested shares granted under the 2006 Share Plan shall vest (i) 15 per cent of the aggregate number of shares 12 months after the start of vesting period; (ii) 20 per cent of the aggregate number of shares 24 months after the start of vesting period; (iii) 30 per cent of the aggregate number of shares so granted 36 months after the start of vesting period; and (iv) 35 per cent of the aggregate number of Shares 48 months after the start of vesting period.

However, all nonvested shares to any grantee shall also be subject to the Company's rights to repurchase at an aggregate repurchase price of RMB1.00, if the grantee terminated his/her employment with the Group: (a) in all, on or before the second anniversary of the start of vesting period; (b) 50% of otherwise vested nonvested shares, after the second anniversary but before the fourth anniversary of the start of vesting period; or (c) no shares, after the fourth anniversary of the start of vesting period.

The nonvested shares granted under the 2011 Plan shall vest based on service, or any other criteria selected by the Compensation Committee. If the grantee terminated his/her service ("Termination of Service") with the Group, the Group shall have the right to repurchase the unvested nonvested shares.

Termination of Service means (i) As to a consultant, the time when she/he is terminated for any reason, (ii) As to a non-employee director, the time when non-employee director ceases to be a director for any reason, (iii) As to an employee, the time when the employee-employer relationship is terminated for any reason. However, all terminations shall exclude simultaneously commences or remains in employment or service with the Company, any subsidiaries or VIEs and VIEs' subsidiaries in others way.

The following table summarizes information regarding the nonvested shares granted:

				Weighted average
				fair value per
	Number of			nonvested share
	nonvested shares			at the grant date(i)
Outstanding at January 1, 2010		11,058,219
Granted		1,670,000		$	1.80
Vested		(1,379,985	)
Forfeited		(214,640	)
Outstanding at December 31, 2010		11,133,594
Granted		3,255,976		$	7.76
Vested		(5,824,709	)
Forfeited		(380,610	)
Outstanding at December 31, 2011		8,184,251
Granted		4,845,877		$	12.03
Vested		(3,136,471	)
Forfeited		(1,121,419	)
Outstanding at December 31, 2012		8,772,238
Vested and to be transferred to grantees at
December 31, 2012		15,378,240
Vested and expect to vest at December 31, 2012		24,150,478

(i) The fair value of the underlying ordinary shares is the same as the fair value of the nonvested shares when calculating the weighted average fair value per nonvested share at the grant date.

Before closing of IPO, the fair value of the nonvested shares was determined at the grant dates by the Group with the assistance of an independent valuation firm. After closing of IPO, the fair value of the nonvested shares was determined by the closing sales price of the shares as quoted on the principal exchange or system. The Group recognized $4,006, $13,485 and $23,608 share based compensation expense for the years ended December 31, 2010, 2011 and 2012, respectively.

Included in the total number of nonvested shares granted during the year ended December 31, 2010, 20,000 shares were granted to hire certain key technical persons.

As of December 31, 2012, total unrecognized compensation expense relating to the nonvested shares was $38,798. The expense is expected to be recognized over a weighted average period of 2.75 years using the graded vesting attribution method.