Rosetta Stone 2014 Annual Report Download - page 86

Table of Contents









Expected stock price volatility
63%-65%
64%-67%
64%-66%
Expected term of options
6 years
6 years
6 years
Expected dividend yield
—
—
—
Risk-free interest rate
1.46%-1.80%
0.75%-1.65%
0.60%-0.88%
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.
The expected term of options granted represents the period of time that they are expected to be outstanding and is derived using a combination of peer
company information and the simplified method as described in ASC 718-10-S99. Prior to the completion of the Company's initial public offering in April
2009, the stock was not publicly quoted and there was a limited history of stock option activity.
Stock Options—The following table summarizes the Company's stock option activity from January 1, 2014 to December 31, 2014:













Options Outstanding, January 1, 2014
1,927,552
$ 13.61
7.54
$ 2,829,380
Options granted
672,302
11.42
Options exercised
(115,915)
5.77
Options cancelled
(466,297)
14.02
Options Outstanding, December 31, 2014
2,017,642
13.24
7.32
760,925
Vested and expected to vest at December 31, 2014
1,890,081
13.31
7.23
752,048
Exercisable at December 31, 2014
918,285
$ 14.61
5.97
$ 597,989
During the second quarter of 2013, the Company allowed a former executive to net exercise 213,564 vested stock options with an exercise price of
$3.85. In the net exercise, the Company repurchased 123,367 shares from the former employee based on the Company's stock price on the exercise date of
$15.09 for $1.0 million.
As of December 31, 2014 and 2013, there was approximately $6.1 million and $6.8 million of unrecognized stock-based compensation expense related
to non-vested stock option awards that is expected to be recognized over a weighted average period of 2.38 and 2.53 years, respectively.
Stock options are granted at the discretion of the Board of Directors or the Compensation Committee (or its authorized member(s)) and expire 10 years
from the date of the grant. Options generally vest over a four-year period based upon required service conditions. No options have performance or market
conditions. The Company calculates the pool of additional paid-in capital associated with excess tax benefits using the "simplified method" in accordance
with ASC 718.
The weighted average remaining contractual term and the aggregate intrinsic value for options outstanding at December 31, 2014 was 7.32 years and
$0.8 million, respectively. The weighted average remaining contractual term and the aggregate intrinsic value for options exercisable at December 31, 2013
was 7.54 years and $2.8 million, respectively. As of December 31, 2014, options that were vested and exercisable totaled 918,285 shares of common stock
with a weighted average exercise price per share of $14.61.
F-29