MoneyGram 2005 Annual Report Download - page 91

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 15. Stock-Based Compensation
As of the Distribution Date, each Viad option that immediately prior to the Distribution Date was outstanding and not exercised was adjusted to consist of two
options: (1) an option to purchase shares of Viad common stock and (2) an option to purchase shares of MoneyGram common stock. The exercise price of the
Viad stock option was adjusted by multiplying the exercise price of the old stock option by a fraction, the numerator of which was the closing price of a share
of Viad common stock on the first trading day after the Distribution Date (divided by four to reflect the post-spin Viad reverse stock split) and the
denominator of which was that price plus the closing price for a share of MoneyGram common stock on the first trading day after the Distribution Date. The
exercise price of each MoneyGram stock option equals the exercise price of each old stock option times a fraction, the numerator of which is the closing price
of a share of MoneyGram common stock on the first trading day after the Distribution Date and the denominator of which is that price plus the closing price
of a share of Viad common stock on the first trading day after the Distribution Date (divided by four to reflect the post-spin Viad reverse stock split). These
MoneyGram options are considered to have been issued under the MoneyGram 2004 Omnibus Incentive Plan. MoneyGram will take all tax deductions
relating to the exercise of stock options and the vesting of restricted stock held by employees and former employees of MoneyGram, and Viad will take the
deductions arising from options and restricted stock held by its employees and former employees.
On May 10, 2005, the Company's stockholders approved the 2005 Omnibus Incentive Plan, which authorizes the issuance of awards up to 7,500,000 shares of
common stock. Effective upon the approval of the 2005 Omnibus Incentive Plan, no new awards may be granted under the 2004 Omnibus Incentive Plan. The
2005 Omnibus Incentive Plan provides for the following types of awards to officers, directors and certain key employees: (a) incentive and nonqualified stock
options; (b) stock appreciation rights; (c) restricted stock and restricted stock units; (d) dividend equivalents; (e) performance based awards; and (f) stock and
other stock-based awards. Shares covered by forfeited and cancelled awards become available for new grants, as well as shares that are withheld for full or
partial payment to the Company of the exercise price of awards. Shares that are withheld as satisfaction of tax obligations relating to an award, as well as
previously issued shares used for payment of the exercise price or satisfaction of tax obligations relating to an award, become available for new grants through
May 10, 2015. The Company plans to satisfy stock option exercises and vesting of awards through the issuance of treasury stock and shares held in the Trust
(see Note 14). As of December 31, 2005, the Company has remaining authorization to issue awards of up to 7,443,500 shares of common stock.
Option awards are granted with an exercise price equal to the market price of the Company's common stock on the date of grant. Stock options granted in
2005 become exercisable in a three-year period in an equal number of shares each year and have a term of ten years. Stock options granted in 2004 become
exercisable in a five-year period in an equal number of shares each year and have a term of seven years. Stock options granted in 2003 become exercisable in
a three-year period in an equal number of shares each year and have a term of ten years. Stock options granted in calendar years 2002 and prior became
exercisable in a two-year period in an equal number of shares each year and have a term of ten years. All outstanding stock options contain certain forfeiture
and non-compete provisions.
For purposes of determining the fair value of stock option awards, the Company uses the Black-Scholes single option pricing model and the assumptions set
forth in the following table. Expected volatility is based on the historical volatility of the price of the Company's common stock since the spin-off on June 30,
2004. The Company uses historical information to estimate the expected term and forfeiture rates of options. The expected term represents the period of time
that options are expected to be outstanding, while the forfeiture rate represents the number of options that will be forfeited by grantees due primarily to
termination of employment. In addition, the Company considers any expectations regarding future activity which could impact the expected term and
forfeiture rate. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve
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