Rosetta Stone 2013 Annual Report Download - page 94

Table of Contents
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Executives designated by the board of directors will be eligible to receive performance stock awards and cash upon the Company’s achievement of
specified performance goals between January 1, 2013 and December 31, 2014. In order for the granting of any performance stock award or any cash payment
to be made under the 2013 LTIP, the Company must meet the minimum threshold requirements for a performance goal for the 2014 fiscal year in addition to
the cumulative performance goals for the two year period ended December 31, 2014. Each performance goal is mutually exclusive. Each performance goal has
a range of payout levels depending on the achievement of the goal ranging from zero to 200% of the incentive target.
The maximum number of shares to be issued as performance share awards is 512,400 and the maximum cash payout is$2.7 million, although
executives hired after the approval of the 2013 LTIP may be allowed to participate at the discretion of the board of directors, which could raise the overall share
awards and cash payouts. The minimum number of shares to be issued as performance stock awards is zero, and the minimum cash payout is zero. If
performance stock awards are granted, the shares will be 100% vested as of the date of grant. There will be no subsequent holding period requirement.
Before any granting of performance stock awards or payment of cash pursuant to an award granted under the 2013 LTIP can be made, the material
terms of the performance goals must be disclosed to, and subsequently approved by, the stockholders, in accordance with Treasury Regulation Section 1.162-
27(e)(4).
The Company’s stockholders approved the material terms of the performance goals on May 23, 2013, the grant date for the performance stock awards.
The amount of share-based compensation expense recognized related to the 2013 LTIP was $1.4 million for the year ended December 31, 2013. $0.6 million of
expense was recognized related to the cash-based portion of the 2013 LTIP for the year ended December 31, 2013.
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 five years.
On November 30, 2011, as a result of the substantial reduction in incentive and retentive value of the plan, the board of directors canceled 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 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.
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):
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