Rosetta Stone 2012 Annual Report Download - page 102
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Table of Contents
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. On May 26, 2011 the
Board of Directors authorized and the Company's shareholders' approved the allocation of an additional 1,000,000 shares of common stock to the 2009
Plan. On May 23, 2012, the Board of Directors authorized and the Company's shareholders approved the allocation of 1,122,930 additional shares of
common stock to the 2009 Plan.
Concurrent with the approval of the 2009 Plan, the 2006 Plan was terminated for purposes of future grants. At December 31, 2012 there were
1,471,063 shares available for future grant under the 2009 Plan.
In accordance with ASC topic 718, ("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:
Prior to the completion of the Company's initial public offering in April 2009, the Company's stock was not publicly quoted and the Company had
a limited history of stock option activity, so the Company reviewed a group of comparable industry-related companies to estimate its expected volatility
over the most recent period commensurate with the estimated expected term of the awards. In addition to analyzing data from the peer group, the
Company also considered the contractual option term and vesting period when determining the expected option life and forfeiture rate. Subsequent to the
initial public offering, the Company continues to review a group of comparable industry-related companies to estimate volatility, but also reviews the
volatility of its own stock since the initial public offering. The Company considers the volatility of the comparable companies to be the best estimate of
future volatility. For the risk-free interest rate, the Company uses a U.S. Treasury Bond rate consistent with the estimated expected term of the option
award.
F-25
Expected stock price volatility 64%-66% 57%-64% 58%-66%
Expected term of options 6 years 6 years 6 years
Expected dividend yield — — —
Risk-free interest rate 0.60%-0.88% 1.14%-2.59% 1.14%-2.59%