Rosetta Stone 2015 Annual Report Download - page 90

Table of Contents
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equity awards. The grant date fair value is based on the market price of the Company's common stock at the date of grant. The Company did not grant any
restricted stock units prior to April 2009.
Long Term Incentive Program
On February 21, 2013, the Company’s Board of Directors approved the 2013 Rosetta Stone Inc. Long Term Incentive Program (“2013 LTIP”). The 2013
LTIP was administered under the Rosetta Stone Inc. 2009 Omnibus Incentive Plan (the “2009 Plan”) and the shares awarded under the 2013 LTIP will be
taken from the shares reserved under the 2009 Plan. The purpose of the 2013 LTIP was to: motivate senior management and other executives to achieve key
financial and strategic business objectives of the Company; offer eligible executives of the Company a competitive total compensation package; reward
executives in the success of the Company; provide ownership in the Company; and retain key talent. The 2013 LTIP was effective from January 1, 2013 until
December 31, 2014.
Certain executives were designated for eligibility by the Board of Directors 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 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 were 100% vested as of the date of grant with no subsequent holding period requirement. 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 issued 160,860 performance share awards related to the
conclusion of the 2013 LTIP.
Stock-Based Compensation Expense
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
$ 57
$ 95
$ 109
Cost of subscription and service revenue
44
13
66
Total included in cost of revenue
101
108
175
Included in operating expenses:
Sales and marketing
1,327
1,975
1,840
Research & development
841
958
1,460
General and administrative
4,926
3,721
5,766
Total included in operating expenses
7,094
6,654
9,066
Total
$ 7,195
$ 6,762
$ 9,241
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At December 31, 2015, 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, 2015 and 2014, the Company had shares of Common Stock issued of 23,149,634 and 22,935,620, respectively, and shares of Common Stock
outstanding of 22,149,634 and 21,935,620, respectively.
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