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(b) <br />INTERMEDIX HOLDINGS INC. AND SUBSIDIARIES <br />Notes to Consolidated Financial Statements <br />December 31, 2010 <br />A summary of stock option activity under the Predecessor Option Plan during the Predecessor period <br />is as follows: <br />Outstanding at January 1, 2010 <br />Granted <br />Exercised <br />Cancelled or forfeited <br />Accelerated vesting and settled <br />Outstanding at August 22, 2010 <br />Number <br />of options <br />118,950 $ <br />10,500 <br />(8,500) <br />(120,950) <br />Weighted <br />average <br />exercise <br />price <br />152.02 <br />222.86 <br />185.29 <br />154.83 <br />During the Predecessor period, there were no stock option exercises or expirations and 8,500 options <br />were forfeited. <br />Predecessor MI Units <br />General Discussion <br />Predecessor MI Units were sold to certain members of the Predecessor's executive management <br />(Unit Holders) for a nominal amount of $0.002 per unit. Based on the nominal cost and other <br />compensatory features, the Predecessor MI Units were subject to the accounting requirements of <br />ASC Topic 718 which requires that entities measure compensation expense related to such awards <br />using a fair value method and recognize the costs in income on a straight -line basis over the requisite <br />service period. ASC Topic 718 requires entities to utilize "employee accounting" when recognizing <br />the compensation expense associated with an award. Since the Unit Holders were employees of the <br />Predecessor, compensation expense, if any, was therefore recognized in the Predecessor's statements <br />of operations. <br />Pursuant to terms of the Predecessor MI Unit Agreements, upon the sale of the Predecessor on <br />August 23, 2010, the Predecessor MI Units were revalued and the resulting value was recognized as <br />compensation expense of the Predecessor. Unit Holders were not entitled to receive common stock <br />of the Company, rather they were entitled to a pro rata portion of distributions based on their relative <br />Unit ownership in the Predecessor's parent. Unvested Predecessor MI Units became immediately <br />vested prior to the sale of the Predecessor. No management incentive units were issued during the <br />Predecessor period. The Predecessor recognized $14.9 million in equity -based compensation <br />expense upon the consummation of the Merger pursuant to the 19,613,221 units outstanding at such <br />time. <br />34 <br />