Rosetta Stone 2009 Annual Report Download - page 99

Table of Contents
ROSETTA STONE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. STOCK-BASED COMPENSATION
2006 Stock Incentive Plan
On January 4, 2006, the Company established the Rosetta Stone Inc. 2006 Stock Incentive Plan (the "2006 Plan") under which the Company's Board of
Directors, at its discretion, could grant stock options to employees and certain directors of the Company and affiliated entities. The plan initially authorized
the grant of stock options for up to 1,942,200 shares of common stock. On May 28, 2008, the Board of Directors authorized the grant of additional stock
options for up to 195,000 shares of common stock under the plan, resulting in total stock options available for grant under the 2006 Plan of 2,137,200 as of
December 31, 2008. The stock options granted under the Stock Plan generally expire at the earlier of a specified period after termination of service or the date
specified by the Board or its designated committee at the date of grant, but not more than ten years from such grant date. Stock issued as a result of exercises
of stock options will be issued from the Company's authorized available stock.
2009 Omnibus Incentive Plan
On February 27, 2009, the Company's Board of Directors approved a new Stock Incentive and Award Plan (the "2009 Plan") that provides for the ability
of the Company to grant up to 2,437,744 new stock incentive awards or options including Incentive and Nonqualified Stock Options, Stock Appreciation
Rights, Restricted Stock, Restricted Stock Units, Performance Units, Performance Shares, Performance based Restricted Stock, Share Awards, Phantom Stock
and Cash Incentive Awards. The stock incentive awards and options granted under the 2009 Plan generally expire at the earlier of a specified period after
termination of service or the date specified by the Board or its designated committee at the date of grant, but not more than ten years from such grant date.
Concurrent with the approval of the 2009 Plan, the 2006 Plan was terminated for purposes of future grants. At December 31, 2009 there were 1,960,958
shares available for future grant under the 2009 Plan.
In accordance with Accounting Standards Codification topic 718, Compensation—Stock Compensation ("ASC 718"), the fair value of stock-based
awards to employees is calculated as of the date of grant. Compensation expense is then recognized on a straight-line basis over the requisite service period of
the award. The Company uses the Black-Scholes pricing model to value its stock options, which requires the use of estimates, including future stock price
volatility, expected term and forfeitures. Stock-based compensation expense recognized is based on the estimated portion of the awards that are expected to
vest. Estimated forfeiture rates were applied in the expense calculation.The fair value of each option grant is estimated on the date of grant using the Black
Scholes option pricing model as follows:
Year Ended December 31,
2009 2008 2007
Expected stock price volatility 61% 57% - 62% 62% - 70%
Expected term of options 6 years 6 years 6 years
Expected dividend yield — — —
Risk-free interest rate 1.71% - 2.46% 2.08% - 3.36% 3.50% - 4.96%
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