Rosetta Stone 2014 Annual Report Download - page 88

Table of Contents
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any performance stock award grants or any cash payments to be made under the 2013 LTIP, the Company must have met the minimum threshold
requirements for a performance goal for the 2014 fiscal year in addition to the cumulative threshold performance goals for the two year period ended
December 31, 2014. Each performance goal was mutually exclusive. Each performance goal had a range of payout levels depending on the achievement of
the goal ranging from zero to 200% of the incentive target. The performance stock awards granted 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 $1.3 million and $1.4 million for the years ended December
31, 2014 and 2013, respectively. Expense of $0.3 million and $0.6 million was recognized related to the cash-based portion of the 2013 LTIP for the years
ended December 31, 2014 and 2013, respectively. In the first quarter of 2015, the Company will issue 160,860 performance share awards related to the
conclusion of the 2013 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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Included in cost of revenue:
Cost of product revenue
$ 95
$ 109
$ 110
Cost of subscription and service revenue
13
66
178
Total included in cost of revenue
108
175
288
Included in operating expenses:
Sales and marketing
1,975
1,840
1,185
Research & development
958
1,460
1,547
General and administrative
3,721
5,766
4,989
Total included in operating expenses
6,654
9,066
7,721
Total
$ 6,762
$ 9,241
$ 8,009
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At December 31, 2014, 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 per share, and 10,000,000 were designated as Preferred Stock, with a par value of $0.001 per share. At
December 31, 2014 and 2013, the Company had shares of Common Stock issued of 22,935,620 and 22,588,484, respectively, and shares of Common Stock
outstanding of 21,935,620 and 21,588,484, respectively.
On May 8, 2013, the Company filed a universal shelf registration statement which became effective on May 30, 2013. The registration statement
permitted certain holders of the Company’s stock to offer the shares of common stock held by them. On June 11, 2013 the selling shareholders, ABS Capital
Partners IV Trust and Norwest Equity Partners VIII, LP, sold a combined total of 3,490,000 shares at an offering price of $16.00 per share. During November
and December 2013, ABS Capital Partners IV Trust sold the remainder of its common stock holdings in the Company. The shelf also provides the Company
with the flexibility to offer an amount of equity or issue debt in the amount of $150.0 million. The Company issued and sold an additional 10,000 shares at a
per share price of $16.00 in the offering.
On August 22, 2013, the Company’s Board of Directors approved a share repurchase program under which the Company is authorized to repurchase up
to $25 million of its outstanding common stock from time to time in the open market or in privately negotiated transactions depending on market conditions,
other corporate considerations, and applicable legal requirements. The Company expects to fund the repurchases through existing cash balances and cash
generated from
F-31