MVSN » Topics » NOTE 2 - EQUITY-BASED COMPENSATION

These excerpts taken from the MVSN 10-K filed Feb 29, 2008.

Equity-Based
Compensation

In 2007, stock options and restricted stock were granted to the Named Executives to aid in their long-term retention and
to align their interests with those of our stockholders. Historically, the compensation committee has emphasized equity-based compensation in the form of stock option grants. However, as a result of Financial Accounting Standard No. 123R
(“FAS 123(R)”) and our adoption of a policy limiting the aggregate number of shares granted under our 2000 Equity Incentive Plan in order to help reduce dilution to our stockholders, the compensation committee decided to alter its
equity-compensation practices by awarding a mix of stock options and restricted stock. The compensation committee determined that this mix would be less dilutive to our current stockholders than its traditional option award practices and would
reduce the amount of compensation expense that would be recognized in our statements of income, which in turn would result in higher reported net income.

 


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The equity-based compensation awarded to the Named Executives are set by the compensation committee based
on the practices of the Compensation Peer Group, published survey data and the recommendation of the chief executive officer. In addition, the compensation committee also considered the executive’s replacement value, individual performance and
achievements.

During 2007, the Named Executives received option grants under the 2000 Equity Incentive Plan at exercise prices equal to
the fair market value of our common stock on the grant dates. These options vest over a three-year period after grant, subject to the Named Executive’s continued employment with the Company. All options granted to the Named Executives in 2007
under the 2000 Equity Incentive Plan expire five years from the grant date, unless the participant’s employment with the Company terminates before the end of such five-year period. Our Named Executives also received restricted stock grants in
2007, which vest over a four-year period after the grant date subject to the Named Executive’s continued employment with the Company.

Equity-Based Compensation

Effective January 1, 2006, the Company adopted the provisions of, and accounts for equity-based compensation in accordance with, Statement of Financial Accounting Standards No. 123—revised 2004 (“SFAS 123(R)”), “Share-Based Payment” which replaced Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees.” In accordance with SFAS 123(R), equity-based compensation cost is measured at the grant date based on the fair value of the award. The Company elected the modified-prospective method. Under this transition method, equity-based compensation includes the amortized value of vesting equity-based payments granted prior to January 1, 2006 based on the grant date fair value as determined under SFAS 123 and those granted subsequently in accordance with SFAS 123(R). Results for prior periods have not been restated.

These excerpts taken from the MVSN 10-K filed Feb 26, 2008.

Equity-Based
Compensation

In 2007, stock options and restricted stock were granted to the Named Executives to aid in their long-term retention and
to align their interests with those of our stockholders. Historically, the compensation committee has emphasized equity-based compensation in the form of stock option grants. However, as a result of Financial Accounting Standard No. 123R
(“FAS 123(R)”) and our adoption of a policy limiting the aggregate number of shares granted under our 2000 Equity Incentive Plan in order to help reduce dilution to our stockholders, the compensation committee decided to alter its
equity-compensation practices by awarding a mix of stock options and restricted stock. The compensation committee determined that this mix would be less dilutive to our current stockholders than its traditional option award practices and would
reduce the amount of compensation expense that would be recognized in our statements of income, which in turn would result in higher reported net income.

 


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Table of Contents


The equity-based compensation awarded to the Named Executives are set by the compensation committee based
on the practices of the Compensation Peer Group, published survey data and the recommendation of the chief executive officer. In addition, the compensation committee also considered the executive’s replacement value, individual performance and
achievements.

During 2007, the Named Executives received option grants under the 2000 Equity Incentive Plan at exercise prices equal to
the fair market value of our common stock on the grant dates. These options vest over a three-year period after grant, subject to the Named Executive’s continued employment with the Company. All options granted to the Named Executives in 2007
under the 2000 Equity Incentive Plan expire five years from the grant date, unless the participant’s employment with the Company terminates before the end of such five-year period. Our Named Executives also received restricted stock grants in
2007, which vest over a four-year period after the grant date subject to the Named Executive’s continued employment with the Company.

Equity-Based Compensation

Effective January 1, 2006, the Company adopted the provisions of, and accounts for equity-based compensation in accordance with, Statement of Financial Accounting Standards No. 123—revised 2004 (“SFAS 123(R)”), “Share-Based Payment” which replaced Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees.” In accordance with SFAS 123(R), equity-based compensation cost is measured at the grant date based on the fair value of the award. The Company elected the modified-prospective method. Under this transition method, equity-based compensation includes the amortized value of vesting equity-based payments granted prior to January 1, 2006 based on the grant date fair value as determined under SFAS 123 and those granted subsequently in accordance with SFAS 123(R). Results for prior periods have not been restated.

This excerpt taken from the MVSN 10-Q filed Aug 8, 2007.

NOTE 2 – EQUITY-BASED COMPENSATION

Stock Options

Currently, the Company grants options from the 2000 Equity Incentive Plan ("2000 Plan") and the 1996 Directors Stock Option Plan (the “Directors Plan”). The 2000 Equity Incentive Plan succeeded the 1996 Equity Incentive Plan (“1996 Plan”) in August 2000.

Restricted Stock

Restricted stock awards are issued from the 2000 Plan and vest annually over four years. Restricted stock awards are considered outstanding at the time of the grant, as the stockholders are entitled to dividends and voting rights. As of June 30, 2007, the number of shares awarded but unvested was 775,266.

As of June 30, 2007, the Company had 18.6 million shares reserved and 4.8 million shares remained available for issuance under the 2000 Plan. The 2000 Plan provides for the grant of stock options, stock appreciation rights, and restricted stock awards by the Company to employees, officers, directors, consultants, independent contractors, and advisers of the Company. The 2000 Plan permits the grant of either incentive or nonqualified stock options at the then current market price. Option vesting periods are generally three years under the 2000 Plan where one-sixth vests in the first year, one-third vests in the second year and one-half vests in the third year. Option grants have contractual terms ranging from five to ten years.

As of June 30, 2007, the Company had 1.0 million shares reserved under the Directors Plan and 0.2 million shares remained available for issuance. The Directors Plan provides for the grant of stock options to non-employee directors of the Company. The Directors Plan permits the grant of nonqualified stock options at the then current market price. Option vesting periods are generally one year under the Directors Plan. Option grants have terms ranging from five to ten years.

Employee Stock Purchase Plan

The Company’s 1996 Employee Stock Purchase Plan (the “ESPP”) allows eligible employee participants to purchase shares of the Company’s common stock at a discount through payroll deductions. The ESPP consists of twenty-four-month offering periods with four six-month purchase periods in each offering period. Employees purchase shares in each purchase period at 85% of the market value of the Company’s common stock at either the beginning of the offering period or the end of the purchase period, whichever price is lower.

As of June 30, 2007, the Company had reserved 4.3 million shares of common stock for issuance under the ESPP and 2.4 million shares remained available for future issuance.

Valuation and Assumptions

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan shares. The fair value of equity-based payment awards on the date of grant is determined by an option-pricing model using a number of complex and subjective variables. These variables include 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.

Estimated volatility of the Company’s common stock for new grants is determined by using a combination of historical volatility and implied volatility in market traded options. The expected term of options granted is determined by calculating the average term from historical stock option exercise experience. The risk-free interest rate used in the option valuation model is from U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options. The Company does not

 

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anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. In accordance with SFAS 123(R), the Company estimates forfeitures at the time of grant and revises 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 equity-based compensation expense only for those awards that are expected to vest. The assumptions used to value equity-based payments are as follows:

 

     Three months ended
June 30,
  Six Months ended
June 30,
     2007   2006   2007   2006

Option Plans:

        

Dividends

   None   None   None   None

Expected term

   3.1 years   3.5 years   3.2 years   3.3 years

Risk free interest rate

   4.7%   5.0%   4.7%   4.7%

Volatility rate

   36%   40%   36%   41%

ESPP Plan:

        

Dividends

   N/A   N/A   None   None

Expected term

   N/A   N/A   1.3 years   1.3 years

Risk free interest rate

   N/A   N/A   5.1%   4.6%

Volatility rate

   N/A   N/A   33%   41%

As of June 30, 2007, there was $25.0 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested equity-based payments granted to employees. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures and is expected to be recognized over a weighted average period of 1.9 years.

The weighted average fair value of options granted during the three and six months ended June 30, 2007 was $8.06 and $8.14, respectively. The weighted average fair value of options granted during the three and six months ended June 30, 2006 was $7.81 and $7.01, respectively. The weighted average grant date fair value of an employee purchase share right granted during the six months ended June 30, 2007 was $7.71. The weighted average grant date fair value of an employee purchase share right granted during the six months ended June 30, 2006 was $7.60.

The total intrinsic value of options exercised during the three and six months ended June 30, 2007 was $14.5 million and $19.5 million, respectively. The intrinsic value is calculated as the difference between the market value on the date of exercise and the exercise price of the shares.

This excerpt taken from the MVSN 10-Q filed May 9, 2007.

NOTE 2 – EQUITY-BASED COMPENSATION

Stock Options

Currently, the Company grants options from the 2000 Equity Incentive Plan (“2000 Plan”) and the 1996 Directors Stock Option Plan (the “Directors Plan”). The 2000 Equity Incentive Plan succeeded the 1996 Equity Incentive Plan (“1996 Plan”) in August 2000.

Restricted Stock

Restricted stock awards are issued from the 2000 Plan and vests annually over four years. Restricted stock awards are considered outstanding at the time of the grant, as the stockholders are entitled to dividends and voting rights. As of March 31, 2007, the number of shares awarded but unreleased was 858,379.

 

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As of March 31, 2007, the Company had 18.6 million shares reserved and 4.7 million shares remained available for issuance under the 2000 Plan and 1996 Plan. The 2000 Plan provides for the grant of stock options, stock appreciation rights, and restricted stock awards by the Company to employees, officers, directors, consultants, independent contractors, and advisers of the Company. The 2000 Plan permits the grant of either incentive or nonqualified stock options at the then current market price. Option vesting periods are generally three years under the 2000 Plan where one-sixth vests in the first year, one-third vests in the second year and one-half vests in the third year. Option grants have contractual terms ranging from five to ten years.

As of March 31, 2007, the Company had 1.0 million shares reserved under the Directors Plan and 0.3 million shares remained available for issuance. The Directors Plan provides for the grant of stock options to non-employee directors of the Company. The Directors Plan permits the grant of nonqualified stock options at the then current market price. Option vesting periods are generally one year under the Directors Plan. Option grants have terms ranging from five to ten years.

Employee Stock Purchase Plan

The Company’s 1996 Employee Stock Purchase Plan (the “ESPP”) allows eligible employee participants to purchase shares of the Company’s common stock at a discount through payroll deductions. The ESPP consists of twenty-four-month offering periods with four six-month purchase periods in each offering period. Employees purchase shares in each purchase period at 85% of the market value of the Company’s common stock at either the beginning of the offering period or the end of the purchase period, whichever price is lower.

As of March 31, 2007, the Company had reserved 4.3 million shares of common stock for issuance under the ESPP and 2.4 million shares remained available for future issuance.

Valuation and Assumptions

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan shares. The fair value of equity-based payment awards on the date of grant is determined by an option-pricing model using a number of complex and subjective variables. These variables include 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.

Estimated volatility of the Company’s common stock for new grants is determined by using a combination of historical volatility and implied volatility in market traded options. The expected term of options granted is determined by calculating the average term from historical stock option exercise experience. The risk-free interest rate used in the option valuation model is from 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. In accordance with SFAS 123(R), the Company estimates forfeitures at the time of grant and revises 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 equity-based compensation expense only for those awards that are expected to vest. The assumptions used to value equity-based payments are as follows:

 

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     Three months ended
March 31,
 
     2007     2006  

Option Plans:

    

Dividends

   None     None  

Expected term

   3.2 years     3.2 years  

Risk free interest rate

   4.6 %   4.6 %

Volatility rate

   36 %   41 %

ESPP Plan:

    

Dividends

   None     None  

Expected term

   1.3 years     1.3 years  

Risk free interest rate

   5.1 %   4.6 %

Volatility rate

   32 %   41.0 %

As of March 31, 2007, there was $28.2 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested equity-based payments granted to employees. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures and is expected to be recognized over a weighted average period of 2.0 years.

The weighted average fair value of options granted during the three months ended March 31, 2007 and 2006 was $8.22 and $6.53, respectively. The weighted average grant date fair value of an employee purchase share right granted during the three months ended March 31, 2007 and 2006 was $7.71 and $7.60, respectively.

The total intrinsic value of options exercised during the quarter ended March 31, 2007 was $5.0 million. The intrinsic value is calculated as the difference between the market value on the date of exercise and the exercise price of the shares.

This excerpt taken from the MVSN DEF 14A filed Mar 20, 2007.

Equity-Based Compensation

In 2006, stock options and restricted stock were granted to the Named Executives to aid in their long-term retention and to align their interests with those of our stockholders. Historically, the compensation committee has emphasized equity-based compensation in the form of stock option grants. However, as a result of Financial Accounting Standard No. 123R (“FAS 123(R)”) and our adoption of a policy limiting the aggregate number of shares granted under our 2000 Equity Incentive Plan in order to help reduce dilution to our stockholders, the compensation committee decided to alter its equity-compensation practices by awarding a mix of stock options and restricted stock. The compensation committee determined that this mix would be less dilutive to our current stockholders than its traditional option award practices and would reduce the amount of compensation expense that would be recognized in our statements of income, which in turn would result in higher reported net income.

The equity-based compensation awarded to the Named Executives are set by the compensation committee based on the practices of the Compensation Peer Group, published survey data and the recommendation of the chief executive officer. In addition, the compensation committee also considered the executive’s replacement value, individual performance and achievements.

During 2006, the Named Executives received option grants under the 2000 Equity Incentive Plan at exercise prices equal to the fair market value of our common stock on the grant dates. These options vest over a three-year period after grant, subject to the Named Executive’s continued employment with the Company. All options granted to the Named Executives in 2006 under the 2000 Equity Incentive Plan expire five years from the grant date, unless the participant’s employment with the Company terminates before the end of such five-year period. Our Named Executives also received restricted stock grants in 2006, which vest over a four-year period after the grant date subject to the Named Executive’s continued employment with the Company.

This excerpt taken from the MVSN 10-K filed Feb 28, 2007.

Equity-Based Compensation

Effective January 1, 2006, the Company adopted the provisions of, and accounts for equity-based compensation in accordance with, Statement of Financial Accounting Standards No. 123—revised 2004 (“SFAS

 

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123(R)”), “Share-Based Payment” which replaced Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees.” In accordance with SFAS 123(R), equity-based compensation cost is measured at the grant date based on the fair value of the award. The Company elected the modified-prospective method. Under this transition method, equity-based compensation includes the amortized value of vesting equity-based payments granted prior to January 1, 2006 based on the grant date fair value as determined under SFAS 123 and those granted subsequently in accordance with SFAS 123(R). Results for prior periods have not been restated.

This excerpt taken from the MVSN 10-Q filed Nov 8, 2006.

Equity-Based Compensation

We currently use the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan shares. The fair value of equity-based payment awards on the date of grant is determined by using an option-pricing model using a number of complex and subjective variables. These variables include our 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. We estimate the volatility of our common stock by using a combination of historical volatility and implied volatility in market traded options.

The Black-Scholes option pricing 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. Existing valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable measures of the fair values of our equity-based compensation. Consequently, there is a risk that our estimates of the fair values of our equity-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those equity-based payments in the future. Certain equity-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements.

See Note 2 for further information regarding the SFAS 123(R) disclosures.

This excerpt taken from the MVSN 10-Q filed Nov 8, 2006.

Equity-Based Compensation

We currently use the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan shares. The fair value of equity-based payment awards on the date of grant is determined by using an option-pricing model using a number of complex and subjective variables. These variables include our 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. We estimate the volatility of our common stock by using a combination of historical volatility and implied volatility in market traded options.

The Black-Scholes option pricing 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. Existing valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable measures of the fair values of our equity-based compensation. Consequently, there is a risk that our estimates of the fair values of our equity-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those equity-based payments in the future. Certain equity-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements.

See Note 2 for further information regarding the SFAS 123(R) disclosures.

This excerpt taken from the MVSN 10-Q filed Nov 7, 2006.

Equity-Based Compensation

We currently use the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan shares. The fair value of equity-based payment awards on the date of grant is determined by using an option-pricing model using a number of complex and subjective variables. These variables include our 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. We estimate the volatility of our common stock by using a combination of historical volatility and implied volatility in market traded options.

The Black-Scholes option pricing 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. Existing

 

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valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable measures of the fair values of our equity-based compensation. Consequently, there is a risk that our estimates of the fair values of our equity-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those equity-based payments in the future. Certain equity-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements.

See Note 3 for further information regarding the SFAS 123(R) disclosures.

This excerpt taken from the MVSN 10-Q filed Nov 7, 2006.

Equity-Based Compensation

We currently use the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan shares. The fair value of equity-based payment awards on the date of grant is determined by using an option-pricing model using a number of complex and subjective variables. These variables include our 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. We estimate the volatility of our common stock by using a combination of historical volatility and implied volatility in market traded options.

The Black-Scholes option pricing 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. Existing valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable measures of the fair values of our equity-based compensation. Consequently, there is a risk that our estimates of the fair

 

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values of our equity-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those equity-based payments in the future. Certain equity-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements.

See Note 3 for further information regarding the SFAS 123(R) disclosures.

This excerpt taken from the MVSN 10-Q filed Aug 9, 2006.

Equity-Based Compensation

We currently use the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan shares. The fair value of equity-based payment awards on the date of grant is determined by using an option-pricing model using a number of complex and subjective variables. These variables include our 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. We estimate the volatility of our common stock by using a combination of historical volatility and implied volatility in market traded options.

The Black-Scholes option pricing 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. Existing valuation

 

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Table of Contents

models, including the Black-Scholes and lattice binomial models, may not provide reliable measures of the fair values of our equity-based compensation. Consequently, there is a risk that our estimates of the fair values of our equity-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those equity-based payments in the future. Certain equity-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements.

See Note 2 for further information regarding the SFAS 123(R) disclosures.

This excerpt taken from the MVSN 10-Q filed May 8, 2006.

Equity-Based Compensation

We currently use the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan shares. The fair value of equity-based payment awards on the date of grant is determined by using an option-pricing model using a number of complex and subjective variables. These variables include our 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. We estimate the volatility of our common stock by using a combination of historical volatility and implied volatility in market traded options.

The Black-Scholes option pricing 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. Existing

 

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Table of Contents

valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable measures of the fair values of our equity-based compensation. Consequently, there is a risk that our estimates of the fair values of our equity-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those equity-based payments in the future. Certain equity-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements.

See Note 2 for further information regarding the SFAS 123(R) disclosures.

This excerpt taken from the MVSN DEF 14A filed Mar 16, 2006.

Equity-Based Compensation

In 2005, stock options were granted to executive officers to aid in their long-term retention and to align their interests with those of Macrovision’s stockholders. The compensation committee emphasizes equity-based compensation, principally in the form of stock option grants, as a cornerstone of our executive compensation program. Executive officer equity awards typically are set by the compensation committee based on the employee’s replacement value, industry surveys, each officer’s individual performance and achievements, market factors and the recommendations of executive management.

During 2005, executive officers of Macrovision received option grants under the 2000 Equity Plan at exercise prices equal to the fair market value of our common stock on the dates of grant. These options vest over a three-year period after grant, subject to the participant’s continued employment with Macrovision. All options granted to executive officers in 2005 under the 2000 Equity Plan expire five years from the date of grant, unless a shorter term is provided in the option agreement or the participant’s employment with Macrovision terminates before the end of such five-year period.

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