Hypercom Corporation Annual Report - CiteSeer

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Long-term debt, which approximates its fair value, consisted of the following at December 31, 2009 and 2008 (dollars in thousands): 2009 2008 Original principal balance $ 60,000 $ 60,000 Interest conversion to debt 11,321 4,613 Repayment of debt (3,000 ) — Debt assumed on acquisitions — 185 Other 1 3 $ 68,322 $ 64,801 Discount for warrants issued to FP II, net (12,246 ) (16,032 ) Long-term debt, net of discount $ 56,076 $ 48,769 14. Stock-Based Compensation The following table summarizes stock-based compensation expense included in the consolidated statements of operations for December 31, 2009, 2008 and 2007: 2009 2008 2007 Costs of revenue $ 199 $ 119 $ 111 Research and development 52 132 (104 ) Selling, general and administrative 1,691 3,233 1,912 Total $ 1,942 $ 3,484 $ 1,919 Stock-based compensation expense included zero, $0.1 million and $0.2 million of payroll tax paid on behalf of employees that received stock awards during the years ended December 31, 2009, 2008 and 2007, respectively. As of December 31, 2009, total unrecognized compensation cost, net of forfeiture, related to stock-based options and awards was $1.8 million and the related weighted-average period over which it is expected to be recognized is approximately 1.3 years. Stock Options At December 31, 2009, the Company had three active stock-based employee compensation plans. Stock option awards granted from these plans are granted at the fair market value on the date of grant, and vest over a period determined at the time the options are granted, generally ranging from one to five years, and generally have a maximum term of ten years. For stock options with graded vesting terms, the Company recognizes compensation cost over the requisite service period on the accelerated method. A summary of stock option activity within the Company’s stock-based compensation plans and changes for the year ended December 31, 2009 is as follows: Number of Options - 71 - Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (In Thousands) Outstanding at December 31, 2009 4,564,861 $ 4.99 7.28 $ 1,361 Vested and expected to vest at December 31, 2009 4,403,898 $ 5.06 7.19 $ 1,210 Exercisable at December 31, 2009 3,245,491 $ 5.85 6.29 $ 121 The aggregate intrinsic value of options exercised during the years ended December 31, 2009, 2008 and 2007 was $0.0 million, $0.2 million and $0.3 million, respectively.
The key assumptions used in the Black-Scholes valuation model to calculate the fair value are as follows: 2009 2008 2007 Weighted average risk free interest rate 1.9 % 5.4 % 4.5 % Expected life of the options (in years) 5.25 4.75 5.41 Expected stock price volatility 72 % 49 % 56 % Expected dividend yield — — — The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The risk-free interest rate is based on the U.S. treasury security rate in effect as of the date of grant. The expected lives of options and stock price volatility are based on historical data of the Company. The weighted average fair value of options granted in the years ended December 31, 2009, 2008 and 2007 was $0.97, $1.81 and $2.91, respectively. Restricted Stock Awards The Company grants restricted stock awards to certain employees. Restricted stock awards are valued at the closing market value of the Company’s common stock on the date of grant, and the total value of the award is expensed ratably over the service period of the employees receiving the grants. Share-based compensation expense (reversal) related to all restricted stock awards outstanding in 2009, 2008, and 2007 was approximately $0.2 million, $0.4 million and ($0.5 million), respectively. As of December 31, 2009, the total amount of unrecognized compensation cost, net of forfeitures, related to nonvested restricted stock awards was approximately $1.0 million, which is expected to be recognized over a weighted-average period of one year. Compensation expense with respect to the grants could be reduced or reversed to the extent employees receiving the grants leave the Company prior to vesting in the award. A summary of nonvested restricted stock activity for the years ended December 31, 2009, 2008 and 2007 is as follows: - 72 - Nonvested Shares Outstanding Weighted Average Grant Date Fair Value per Share Balance at December 31, 2006 342,432 6.92 Shares granted in 2007 93,334 5.76 Shares vested in 2007 (60,766 ) 6.14 Shares forfeited in 2007 (300,000 ) 6.89 Balance at December 31, 2007 75,000 6.24 Shares granted in 2008 75,000 3.99 Shares vested in 2008 (100,000 ) 5.21 Balance at December 31, 2008 50,000 4.94 Shares granted in 2009 1,149,000 1.24 Shares vested in 2009 (80,000 ) 3.77 Shares forfeited in 2009 (129,000 ) 1.17 Balance at December 31, 2009 990,000 1.23 The total fair value of restricted shares vested during the years ended December 31, 2009, 2008 and 2007 was $0.3 million, $0.5 and $0.4 million, respectively. 15. Stockholders' Equity In 1997, the Company’s Board of Directors (the “Board”) adopted and the stockholders of the Company approved the Hypercom Corporation Long-Term Incentive Plan, which was amended in 2001 (the “1997 Plan”), to allocate a total of 6,000,000 shares of common stock for issuance at the Company’s discretion. The 1997 Plan authorizes issuance of “incentive stock options” (as defined by the Internal Revenue Code of 1986), non-qualified stock options, stock appreciation rights, restricted stock awards, performance share awards, dividend equivalent awards and other stock-based awards. Stock options issued under the 1997 Plan become exercisable over a period determined by the Board (generally over two to five years) and expire after a period determined by the Board (generally ten years after the date of grant). In 2000, the Board approved the Hypercom Corporation 2000 Broad-Based Stock Incentive Plan, which was amended in 2002 (the “2000 Plan”), to allocate 7,000,000 shares of common stock for issuance at the Company’s discretion. The 2000 Plan authorizes
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Hypercom Corporation Annual Report
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Page 112 and 113: NOTES HYPERCOM CORPORATION
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