MoneyGram 2010 Annual Report Download - page 129

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Pursuant to the terms of options granted in 2009 and 2010, 50 percent of the options awarded become exercisable through the passage of
time (the "Time-based Tranche") and 50 percent of the options awarded become exercisable upon the achievement of certain conditions
(the "Performance-based Tranche"). The Time-based Tranche generally becomes exercisable over a five-year period in either (a) an equal
number of shares each year or (b) for some issuances in 2009, a tranched vesting schedule whereby 15 percent of the Time-based Tranche
vests immediately and then at rates of 10 to 20 percent each year. The Performance-based Tranche becomes exercisable upon the
achievement within five years of grant of the earlier of (a) a pre-defined common stock price for any period of 20 consecutive trading
days, (b) a change in control of the Company resulting in a pre-defined per share consideration or (c) in the event the Company's common
stock does not trade on a United States exchange or trading market, a public offering resulting in the Company's common stock meeting
pre-defined equity values. All options granted in 2009 and 2010 have a term of 10 years.
For purposes of determining the fair value of stock option awards, the Company uses the Black-Scholes single option pricing model for
the Time-based Tranches and a combination of Monte-Carlo simulation and the Black-Scholes single option pricing model for the
Performance-based Tranches. 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 used the simplified method to estimate the expected term of the award and historical
information to estimate the forfeiture rate. As the pattern of changes in the value of the Company's common stock since late 2007 is
substantially different from historical patterns, the nature of options granted since 2008 is substantially different from historical grants
and there have been minimal stock option exercises since 2007, the Company is unable to make a more refined estimate than the use of
the simplified method. The expected term represents the period of time that options are expected to be outstanding and the forfeiture rate
represents the number of unvested options that will be forfeited by grantees due 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 the
Black-Scholes model is based on the United States Treasury yield curve in effect at the time of grant for periods within the expected term
of the option, while the risk-free rate for the Monte-Carlo simulation is based on the five-year United States Treasury yield in effect at the
time of grant. Compensation cost, net of expected forfeitures, is recognized using a straight-line method over the vesting or service
period. The following table provides weighted-average grant-date fair value and assumptions utilized to estimate the grant-date fair value
of the options granted during the years ended December 31:
2010 2009
Expected dividend yield 0.0% 0.0%
Expected volatility 72.9%-74.8% 72.8%-76.9%
Risk-free interest rate 1.8%-3.3% 2.3%-3.2%
Expected life 5.3-6.5 years 5.3-6.5 years
Weighted-average grant-date fair value per option $2.05 $1.49
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