Rosetta Stone 2011 Annual Report Download - page 110

Table of Contents
ROSETTA STONE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. STOCK-BASED COMPENSATION (Continued)
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.
Long Term Incentive Program—On January 4, 2011, the Company's Board of Directors approved the Rosetta Stone Inc. Long Term Incentive Program
("LTIP"), a long-term incentive plan for certain of the Company's executives. The LTIP was administered under the Rosetta Stone Inc. 2009 Omnibus
Incentive Plan (the "Plan"), and the 1,000,000 shares allocated to the LTIP were taken from the shares reserved under the Plan. The purpose of the LTIP was
to: advance the best interests of the Company; motivate senior management to achieve key financial and strategic business objectives of the Company; offer
eligible executives a competitive total compensation package; reward executives in the success of the Company; provide ownership in the Company; and
retain key talent. Executives designated by the Board of Directors were eligible to receive a minimum number of shares of restricted common stock for each
milestone level of total market capitalization achieved, as specified in individual award agreements. The shares received would be restricted in that after
issuance of the shares; they would be subject to vesting over a two year period. For each milestone level of market capitalization reached above the base
market capitalization as of October 1, 2010, the compensation committee of the Board of Directors would allocate the pre-defined share incentive pool for that
milestone reached amongst the participating executives with the minimum number of shares specified in individual award agreements. Although minimum
participation percentages were communicated to certain plan participants, all share grants under the LTIP were contingent upon achievement of the market
capitalization thresholds.
In accordance with the agreements communicated to the executives after the approval of the plan by the Board of Directors, the LTIP participants were
granted minimum participation percentages of each tranche of shares issued at each milestone level reached. Throughout the year ended December 31, 2011,
the target market capitalization required to trigger the first issuance of shares was below the minimum threshold, and no shares were issued. The minimum
participation percentages given to plan participants were considered grants in accordance with the provisions of ASC 718. The grant date fair value of the
minimum awards was $6.1 million which was derived using a Monte Carlo valuation model. This value would have been amortized as stock-based
compensation expense over the derived service period of 5 years.
On November 30, 2011, as a result of the substantial reduction in incentive and retentive value of the plan, the board of directors cancelled the LTIP. As
a result of the cancellation, the company recognized $4.9 million in stock-based compensation expense equal to the total unamortized value of the awards.
There were no grants of shares issued from the LTIP to any executive prior to its cancellation.
Stock-based compensation expense related to the LTIP was $6.0 million for the year ended December 31, 2011. As of December 31, 2011, there was no
unrecognized stock-based compensation expense related to awards under the LTIP.
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