Rosetta Stone 2010 Annual Report Download - page 101

Table of Contents
ROSETTA STONE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. STOCK-BASED COMPENSATION (Continued)
Common Stock Grant—In May 2006, the Company adopted the Rosetta Stone Inc. Liquidity Performance Award Plan. The Company amended this plan
by resolution dated December 31, 2008. This plan provides a bonus to its key employees in the event of an acquisition of the Company, an acquisition of
substantially all of the assets of the Company, a liquidation of the Company or any other transaction resulting in liquidating distributions to any holders of its
preferred stock. This plan terminates upon completion of an initial public offering. In April 2009, the Company's Board of Directors awarded 10 of the
Company's key employees a total of 591,491 shares of common stock. This grant is net of the number of shares required to be withheld to satisfy the federal,
state and local tax withholding obligations, which were paid by the Company to the respective taxing authorities in cash. Thus, the grant is referred to as a
"net issuance." The aggregate grant date fair value of the awards was $18.5 million, which was recognized as expense on the grant date, as the grants were
immediately vested.
The following table presents the stock-based compensation expense for stock options and restricted stock included in the related financial statement line
items (in thousands):
Years Ended December 31,
2010 2009 2008
Included in cost of revenue:
Cost of product revenue $ 39 $ 34 $ 2
Cost of subscription and service revenue — — —
Total included in cost of revenue 39 34 2
Included in operating expenses:
Sales and marketing 774 999 153
Research and development 1,181 5,959 482
General and administrative 2,393 15,158 953
Total included in operating expenses 4,348 22,116 1,588
Total $ 4,387 $ 22,150 $ 1,590
11. COMMON STOCK
On March 23, 2009, in connection with the Company's initial public offering of common stock, the Board of Directors approved a 1.3-to-1 split of
common stock to stockholders of record as of such date. All references to the number of common shares and per share amounts have been restated as
appropriate to reflect the effect of the split for all periods presented.
On April 15, 2009, the Company completed an initial public offering consisting of 7,187,500 shares of common stock at $18.00 per share. The total
shares sold in the offering included 4,062,500 sold by selling stockholders and 3,125,000 shares sold by the Company.
On April 21, 2009, in conjunction with the Company's qualified underwritten initial public offering of common stock, its total outstanding preferred
shares in the amount of 557,989 automatically converted at a ratio of 26:1 into 14,507,714 shares of Common Stock.
At December 31, 2009, the Company's Board of Directors had the authority to issue 200,000,000 shares of stock, of which 190,000,000 were designated
as Common Stock, with a par value of $0.00005
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