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COMMON STOCK AND STOCK INCENTIVE PLANS | 12 Months Ended
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Dec. 31, 2011
COMMON STOCK AND STOCK INCENTIVE PLANS |
COMMON STOCK AND STOCK INCENTIVE PLANS |
NOTE 14—COMMON STOCK AND STOCK INCENTIVE PLANS Stock Incentive Plans At December 31, 2011, the Company has the stock incentive plans described below. Substantially all outstanding awards are subject to potential accelerated vesting in the event of a change in control of the Company. The Company repurchases and cancels its ordinary shares forfeited with respect to the tax liability associated with certain vesting of restricted stock and restricted stock unit grants under these plans. 2006 Equity Incentive Plan: The 2006 Equity Incentive Plan, or 2006 Plan, was implemented on July 21, 2006 after being adopted by the Board of Directors on June 6, 2006 and approved by the Company's stockholders on July 21, 2006. The 2006 Plan replaces the 1997 Plan, the 2001 Plan, and the 2003 Plan, or collectively, the Prior Plans, and no further awards will be granted pursuant to the Prior Plans. The 2006 Plan provides for the grant of the following types of incentive awards: (i) stock options, (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units, (v) performance shares and performance units, and (vi) other stock or cash awards ("Award," collectively, "Awards"). Those who are eligible for Awards under the 2006 Plan include employees, directors and consultants who provide services to the Company and its affiliates. The maximum aggregate number of shares that may be awarded and sold under the 2006 Plan is 4,500,000 shares plus (i) any shares that have been reserved but remain unissued under the Prior Plans as of July 21, 2006, and (ii) any shares subject to stock options or similar awards granted under the Prior Plans that expire or become exercisable without having been exercised in full and shares issued pursuant to awards granted under the Prior Plans that are forfeited to or repurchased by the Company. As of December 31, 2011, the number of shares transferred from the Prior Plans to the 2006 plan totaled 25,144,439. As of December 31, 2011, 5,315,678 options and restricted stock units were outstanding under the 2006 Plan. The Board of Directors or the Compensation Committee of the Board, or Compensation Committee, administers the 2006 Plan, or Administrator. Subject to the terms of the 2006 Plan, the Administrator has the sole discretion to select the employees, consultants, and directors who will receive Awards, determine the terms and conditions of Awards, and to interpret the provisions of the 2006 Plan and outstanding Awards. Options granted under the 2006 Plan generally vest and become exercisable over four years. Awards granted under the 2006 Plan are generally not transferable, and all rights with respect to an Award granted to a participant generally may be exercised during a participant's lifetime only by the participant; provided, however, that with the Administrator's approval, a participant may (i) transfer an Award to a participant's spouse or former spouse pursuant to a court-approved domestic relations order which relates to the provision of child support, alimony payments or marital property rights, or (ii) transfer an Award by gift to or for the benefit of the participant's immediate family. The exercise price of all stock options and stock appreciation rights granted under the 2006 Plan must be at least equal to 100% of the fair market value of the ordinary share on the date of grant (or at least 110% of such fair market value for an incentive stock option, or ISO, granted to a shareholder with greater than 10% voting power of the Company's stock). The maximum term of a stock option granted to any participant must not exceed seven years from the date of grant (or five years for an ISO granted to a shareholder with greater than 10% of the voting power of the ordinary share). The Administrator will determine the terms and conditions of all other Awards granted under the Plan. Prior Plans—The 1997 Stock Plan, 2001 Director Option Plan, and 2003 Non-Statutory Stock Option Plan: The 1997 Stock Plan: Prior to the implementation of the 2006 Plan on July 21, 2006, officers, employees and consultants of the Company and its affiliates were eligible to receive options to purchase ordinary shares and stock purchase rights under the 1997 Stock Plan, or 1997 Plan. The 1997 Plan was terminated in July 2006 effective upon shareholder approval of the 2006 Plan. As of December 31, 2011, there were options to purchase 295,046 ordinary shares outstanding under the 1997 Plan. Options granted under the 1997 Plan prior to July 21, 2006 were either ISOs intended to qualify for favorable federal income tax treatment under the provisions of Section 422 of the Internal Revenue Code of 1986, as amended, or non-qualified stock options, or NSOs, which did not so qualify. The Compensation Committee oversaw the selection of eligible persons for option grants and determined the grant date, amounts, exercise prices, vesting periods and other relevant terms of the options, including whether the options would be ISOs or NSOs. The exercise price of ISOs granted under the 1997 Plan could not be less than 100% of the fair market value of common stock on the grant date (or at least 110% of such fair market value for an ISO granted to a shareholder with greater than 10% voting power of the Company's stock), while the exercise price of NSOs could be determined by the Compensation Committee in its discretion. Options granted under the 1997 Plan were generally not transferable during the life of the optionee. Under the 1997 Plan, options vest and become exercisable as determined by the Compensation Committee, generally over four years. Options may generally be exercised at any time after they vest and before their expiration date as determined by the Compensation Committee. However, no option may be exercised more than ten years after the grant date (or five years for ISOs granted to a shareholder with greater than 10% voting power of the Common Stock). Options will generally terminate (i) 12 months after the death or permanent disability of an optionee and (ii) three months after termination of employment for any other reason. The aggregate fair market value of the ordinary shares represented by ISOs that become exercisable in any calendar year by any one option holder may not exceed $100,000. Options in excess of this limit are treated as NSOs. Prior to the implementation of the 2006 Plan, the Company could also grant stock purchase rights to eligible participants under the 1997 Plan. Under the 1997 Plan, any shares purchased pursuant to stock purchase rights were subject to a restricted stock purchase agreement. Unless the Compensation Committee determined otherwise, this agreement granted the Company a right to repurchase the restricted stock upon the voluntary or involuntary termination of the employee for any reason, including death or disability prior to vesting. The purchase price for repurchased shares was the original price paid and could be paid by cancellation of any indebtedness owed to the Company. The Company's repurchase right lapsed at a rate determined by the Compensation Committee. 2001 Director Option Plan: Prior to the implementation of the 2006 Plan on July 21, 2006, those directors who were not employees of the Company, or Outside Directors, were eligible to receive options to purchase ordinary shares under the 2001 Director Option Plan, or 2001 Plan. The 2001 Plan was terminated in July 2006 effective upon shareholder approval of the 2006 Plan. As of December 31, 2011, there were options to purchase 20,000 ordinary shares outstanding under the 2001 Plan. The Compensation Committee was the administrator of the 2001 Plan. Under the terms of the 2001 Plan, the exercise price of each option granted equaled the market value of the common stock on the date of grant. Such options have terms of ten years, but terminate earlier if the individual ceases to serve as a director. The First Option grants vest as to 25% of shares subject to the First Option on each of the first four anniversaries of its date of grant, subject to the Outside Director continuing to serve as a director on such dates. The Subsequent Option grants vest as to 100% of the shares subject to the Subsequent Option on the first anniversary of its date of grant. The 2003 Nonstatutory Stock Option Plan: Prior to the implementation of the 2006 Plan on July 21, 2006, directors, officers, employees and consultants of the Company and its affiliates were eligible to receive options to purchase shares of the Company's common stock under the 2003 Nonstatutory Stock Option Plan, or 2003 Plan. Only nonstatutory stock options, which would not qualify for favorable federal income tax treatment under the provisions of Section 422 of the Internal Revenue Code of 1986, as amended, could be granted under the 2003 Plan. The 2003 Plan was terminated in July 2006 effective upon shareholder approval of the 2006 Plan. As of December 31, 2011, options to purchase 8,350 ordinary shares were outstanding under the 2003 Plan. The 2003 Plan has been administered by the Compensation Committee. The Compensation Committee oversaw the selection of the eligible persons to whom options would be granted and determined the number of shares subject to the option, exercise prices, vesting periods and other terms applicable to each option. Options granted under the 2003 Plan generally vest and become exercisable over four years, and may be exercised at any time after they vest but before their expiration date. Options will generally terminate (i) 12 months after the death or employment termination due to disability of an option holder and (ii) three months after termination of an option holder's service for any other reason other than for disability or due to the option holder's death. No option, however, may be exercised more than ten years after the grant date. Stock Award and Stock Option Activity In past years, the Company has granted equity awards consisting primarily of stock options. During fiscal 2011, the Company granted equity awards primarily consisting of restricted stock, restricted stock units and stock options. Such awards generally vest over a period of one to four years from the date of grant. Restricted stock has the voting rights of ordinary shares and the shares underlying restricted stock are issued and outstanding. As of December 31, 2011, 2010 and 2009, the number of ordinary shares available for issuance pursuant to future grants under the 2006 plan, including remaining unissued shares under Prior Plans that have been transferred into the 2006 plan was 10,524,614, 12,679,755 and 12,201,930, respectively. The following summarizes the Company's stock options activity:
|  | Number of shares outstanding (in thousands) |  | Weighted average exercise price |
--- | --- | --- | --- | --- | ---
Options Outstanding, December 31, 2008 |  |  | 8,767 |  | $ | 9.63 |
Options Granted |  |  | 448 |  |  | 1.86 |
Options Exercised |  |  | (7 | ) |  | 0.21 |
Options Forfeited or Expired |  |  | (3,458 | ) |  | 9.73 |
Options Outstanding, December 31, 2009 |  |  | 5,750 |  |  | 8.98 |
Options Granted |  |  | 655 |  |  | 2.17 |
Options Exercised |  |  | (2 | ) |  | 2.82 |
Options Forfeited or Expired |  |  | (2,238 | ) |  | 14.35 |
Options Outstanding, December 31, 2010 |  |  | 4,165 |  |  | 5.02 |
Options Granted |  |  | 1,459 |  |  | 12.26 |
Options Exercised |  |  | (59 | ) |  | 2.09 |
Options Forfeited or Expired |  |  | (2,185 | ) |  | 5.57 |
Options Outstanding, December 31, 2011 |  |  | 3,380 |  | $ | 7.84 |
In February 2009, the Compensation Committee also granted to senior executive officers 313,293 restricted stock units with a four-year vesting period and an additional 626,586 performance-based awards, subject to the attainment of goals determined by the Compensation Committee. The Company may be subject to variable levels of expense related primarily to the varying levels of performance, as well as for fluctuations in the Company's stock price as these awards are "marked to market" periodically until the earlier of i) the date of the Compensation Committee's determination on performance or ii) the date they were deemed fully vested as a result of involuntary termination. Of the 626,586 performance-based awards granted in February 2009, 401,859 awards were deemed fully vested during fiscal 2009 as a result of involuntary terminations, prior to the annual Compensation Committee's evaluation of performance. At its meeting on February 18, 2010, the Compensation Committee evaluated the performance against established objectives of the remaining 224,727 performance-based awards and determined 148,769 restricted stock units were earned. In February 2010, the Compensation Committee decided no new stock-based awards would be granted to senior executives for the 2010 year in light of the Company's previously announced planned changes in management. In the first quarter of 2011, the Compensation Committee granted to senior executive officers 268,000 restricted stock units with a four-year vesting period and an additional 402,000 performance-based restricted stock units, subject to the attainment of goals determined by the Compensation Committee. In August 2011, the Compensation Committee granted to board members 153,415 restricted stock awards, as well as 233,415 stock options with an exercise price of $1.39 per share, the closing stock price of the Company's ordinary shares on August 31, 2011. The Compensation Committee also granted 222,000 restricted stock units and 222,000 performance-based restricted stock units to top performers at (Senior) Directors level, as well as key talent below director level, with a four-year vesting period. The performance-based restricted stock units are subject to the attainment of goals determined by the Compensation Committee. The Company recorded the relevant stock-based compensation for these grants based on the probability of meeting the performance conditions in year 2011. In addition, the Company granted 600,000 restricted stock awards and 432,500 restricted stock units to its management and employees in 2011. Under the 2006 and 1997 Plans, the Company granted restricted stock awards. Restricted stock awards are unvested stock awards that may include grants of restricted stock or grants of restricted stock units. Such awards generally vest over a period of one to four years from the date of grant. Restricted stock has the voting rights of ordinary share and the shares underlying restricted stock are considered to be currently issued and outstanding. Restricted stock units do not have the voting rights of ordinary shares, and the shares underlying the restricted stock units are not considered issued and outstanding. The expense for such awards is based on the fair market value of the shares at the date of grant and is recognized on a straight-line basis over the requisite service period. The weighted average fair value of restricted stock awards granted under our equity incentive plans during the years ended December 31, 2011, 2010 and 2009 was $1.86, $2.25 and $1.35, respectively. The grant of restricted stock awards is deducted from the shares available on a one to one basis for grant under the Company's stock plan. Unvested restricted awards as of December 31, 2011 and changes during the year ended December 31, 2011 are summarized below:
Restricted stock awards activity |  | Shares (in thousands) |  | Weighted average grant date fair value |
--- | --- | --- | --- | --- | ---
Unvested at January 1, 2011 |  |  | 1,563 |  | $ | 2.35 |
Granted |  |  | 2,300 |  | $ | 1.86 |
Vested |  |  | (999 | ) | $ | 2.29 |
Forfeited |  |  | (158 | ) | $ | 2.33 |
Total unvested at December 31, 2011 |  |  | 2,706 |  | $ | 1.96 |
During the year ended December 31, 2011, $1.0 million shares of restricted stock awards vested. The total fair value of restricted stock awards vested, as measured on the date of vesting, during the year ended December 31, 2011 was $3.1 million. The Company also granted 2.3 million restricted stock awards. During the year ended December 31, 2010, $3.3 million shares of restricted stock awards vested. The total fair value of restricted stock awards vested, as measured on the date of vesting, during the year ended December 31, 2010 was $7.24 million. The Company also granted 1.5 million restricted stock awards. During the year ended December 31, 2009, $3.5 million shares of restricted stock awards vested. The total fair value of restricted stock awards vested, as measured on the date of vesting, during the year ended December 31, 2009 was $4.8 million. The Company also granted 2.0 million restricted stock awards. The following table summarizes significant ranges of outstanding and exercisable stock options as of December 31, 2011 (in thousands, except years and share prices):
|  | Stock Options Outstanding |  | Stock Options Exercisable |
--- | --- | --- | --- | --- | ---
Range of exercise price |  | Number outstanding |  | Weighted- average exercise price per share |  | Aggregate intrinsic value |  | Weighted- average remaining contractual life (in years) |  | Number Exercisable |  | Weighted- average exercise price per share |  | Aggregate intrinsic value |
$ 1.01 - $ 2.09 |  |  | 554 |  | $ | 1.65 |  |  | — |  |  | 5.02 |  |  | 273 |  | $ | 1.93 |  |  | — |
$ 2.10 - $ 2.10 |  |  | 400 |  |  | 2.10 |  |  | — |  |  | 6.08 |  |  | — |  |  | — |  |  | — |
$ 2.17 - $ 2.17 |  |  | 495 |  |  | 2.17 |  |  | — |  |  | 4.85 |  |  | 435 |  |  | 2.17 |  |  | — |
$ 2.18 - $ 3.20 |  |  | 207 |  |  | 2.76 |  |  | — |  |  | 2.03 |  |  | 205 |  |  | 2.76 |  |  | — |
$ 3.24 - $ 3.24 |  |  | 407 |  |  | 3.24 |  |  | — |  |  | 3.08 |  |  | 407 |  |  | 3.24 |  |  | — |
$ 3.25 - $ 6.25 |  |  | 537 |  |  | 4.95 |  |  | — |  |  | 3.25 |  |  | 537 |  |  | 4.95 |  |  | — |
$ 6.61 - $ 20.82 |  |  | 369 |  |  | 14.76 |  |  | — |  |  | 1.90 |  |  | 369 |  |  | 14.76 |  |  | — |
$ 21.16 - $ 31.24 |  |  | 161 |  |  | 25.60 |  |  | — |  |  | 0.44 |  |  | 161 |  |  | 25.60 |  |  | — |
$ 37.46 - $ 37.46 |  |  | 225 |  |  | 37.46 |  |  | — |  |  | 2.05 |  |  | 225 |  |  | 37.46 |  |  | — |
$ 45.21 - $ 45.21 |  |  | 25 |  |  | 45.21 |  |  | — |  |  | 1.64 |  |  | 25 |  |  | 45.21 |  |  | — |
|  |  | 3,380 |  | $ | 7.84 |  |  | — |  |  | 3.64 |  |  | 2,637 |  | $ | 9.53 |  |  | — |
Options exercisable and expected to vest at December 31, 2011 |  |  | 3,199 |  | $ | 8.18 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
The intrinsic value represents the total pre-tax intrinsic value and is calculated as the difference between the market value as reported by NASDAQ on December 31, 2011 of $1.38 and the exercise price of the in-the-money shares. During the years ended December 31, 2011, 2010 and 2009, the total pre-tax intrinsic value of options exercised was negligible. The weighted average remaining contractual life of options exercisable was 2.89 years, and the weighted average remaining contractual life of options expected to vest was 3.49 years as of December 31, 2011. The weighted average fair value of options granted under the stock plans during the years ended December 31, 2011, 2010, and 2009 was $0.57, $1.30, and $0.99 per share, respectively. Stock-Based Compensation Stock-based compensation expense for stock options is estimated at the grant date based on each option's fair value as calculated by the Black-Scholes model. The Black-Scholes model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option pricing models require the input of highly subjective assumptions, including the expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. The Company uses historical volatility as management believes it is more representative of future stock price trends than implied volatility due to the relatively small number of actively traded options on the Company's ordinary shares available to determine implied volatility. The Company estimates an expected term of options granted based upon the Company's historical exercise and cancellation data for vested options. In addition, separate groups of employees that have similar exercise behavior are considered separately. The expected term of employee stock purchase plan shares is the average of the remaining purchase periods under each offering period. The Company bases the risk free interest rate used in the option valuation model on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. The Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and record stock- based compensation expense only for those awards that are expected to vest. The fair values of stock-based payment awards were estimated using the Black-Scholes option pricing model with the following assumptions:
|  | Years Ended December 31, |
--- | --- | --- | ---
Stock Options: |  | 2011 |  | 2010 |  | 2009 |
Expected term in years |  |  | 2.9 |  |  | 4.0 |  |  | 3.7 |
Weighted average risk-free interest rate |  |  | 0.58 | % |  | 1.40 | % |  | 1.69 | %
Expected dividend rate |  |  | 0.0 | % |  | 0.0 | % |  | 0.0 | %
Volatility |  |  | 75 | % |  | 83 | % |  | 74 | %
At December 31, 2011, there was approximately $3.7 million of total unrecognized compensation cost, as measured, related to unvested stock options and restricted stock and restricted stock units, which is expected to be recognized over a weighted-average period of 2.98 years. At December 31, 2010, there was approximately $2.8 million of total unrecognized compensation cost, as measured, related to unvested stock options and restricted stock and restricted stock units, which is expected to be recognized over a weighted-average period of 2.25 years. Certain executives of the Company have employment contracts which provide for acceleration of all unvested equity awards in the event that the employee is terminated without cause. During 2011, there was no executive involuntarily terminated as part of the 2008 and 2009 Restructuring Plans. During 2010, eight executives were involuntarily terminated as part of the 2008 and 2009 Restructuring Plans. For the year ended December 31, 2010, approximately $2.1 million of previously unrecognized compensation costs related to the vesting acceleration was recognized within restructuring. The following table summarizes the stock-based compensation expense recognized in the Company's consolidated statement of operations:
|  | Years Ended December 31, |
--- | --- | --- | ---
|  | 2011 |  | 2010 |  | 2009 |
|  | (in thousands) |
Cost of net sales |  | $ | 99 |  | $ | 166 |  | $ | 662 |
Selling, general and administrative |  |  | 2,602 |  |  | 4,600 |  |  | 7,146 |
Research and development |  |  | 328 |  |  | 784 |  |  | 1,509 |
Restructuring |  |  | — |  |  | 2,052 |  |  | 2,777 |
Total |  | $ | 3,029 |  | $ | 7,602 |  | $ | 12,094 |
At December 31, 2011 and 2010, there was no stock-based compensation capitalized within inventory. In February 2009, the Company terminated the 2000 Employee Stock Purchase Plan, or ESPP, with an effective date of May 15, 2009. The cancellation has been accounted for as a settlement of shares for no consideration. This resulted in an immediate expense recognition of $1.2 million in the first quarter of 2009 associated with the unrecognized compensation for canceled purchase periods of the 24-month offering. The ESPP expired in March 2010.

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 93-6 -Paragraph 53 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 123R -Paragraph 64, 65, A240 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 + Details
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