American Home Shield 2009 Annual Report Download - page 121

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 20. Stock-Based Compensation (Continued)
and 240,700 shares of common stock in 2008 at a purchase price of $10.00 per share. Holdings also granted options to purchase 469,000 and 466,400
additional shares of common stock in 2009 and 2008, respectively, at an exercise price of $10.00 per share in connection with these equity offerings. In
addition, Holdings granted ServiceMaster's executive officers and key employees options to purchase an additional 437,000 and 427,500 shares of Holdings
common stock at an exercise price of $10.00 per share in 2009 and 2008, respectively. These options are subject to and governed by the terms of the MSIP.
The $10.00 per share purchase price and exercise price was based on the determination by the compensation committee of Holdings of the fair market value
of the common stock of Holdings as of the purchase/grant dates.
All options granted to date will vest in four equal annual installments, subject to an employee's continued employment. The four-year vesting period is
the requisite service period over which compensation cost will be recognized on a straight-line basis for all grants. The options will be accounted for as
equity-classified awards. The non-cash stock-based compensation expense associated with the MSIP is pushed down from Holdings and recorded in the
financial statements of ServiceMaster.
The value of each option award was estimated on the grant date using the Black-Scholes option valuation model that incorporates the assumptions noted
in the following table. For options granted in 2009 and 2008, the expected volatilities were based on the historical and implied volatilities of the publicly
traded stock of a group of companies comparable to ServiceMaster. For options granted in the Successor period from July 25, 2007 to December 31, 2007,
expected volatility was based on actual historical experience of the Company's publicly traded stock prior to the Merger. The expected life represents the
period of time that options granted are expected to be outstanding and, for options granted in the Successor period from July 25, 2007 to December 31, 2007,
was estimated based on actual historical experience of the predecessor Company's stock options and expected future exercise and forfeiture activity related to
the Company's stock options. Due to the passage of time since the observed stock option activity in the Predecessor periods and due to the lack of any option
exercise activity in the Successor periods, the expected life for options granted in 2009 and 2008 was calculated using the simplified method as outlined by
the SEC in Staff Accounting Bulletins No. 107 and 110. The risk-free interest rates were based on the U.S. Treasury securities with terms similar to the
expected lives of the options as of the grant dates.
Year Ended Dec. 31,
Jul. 25, 2007 to
Dec. 31, 2007
Assumption 2009 2008
Expected volatility 38.5% - 46.9% 25.1% - 46.9% 25.1%
Expected dividend yield 0.0% 0.0% 0.0%
Expected life (in years) 6.3 6.3 6.0
Risk-free interest rate 2.56% - 2.92% 2.56% - 3.56% 3.56%
The weighted-average grant-date fair value of the options granted during 2009, 2008 and during the Successor period from July 25, 2007 to
December 31, 2007 was $4.36, $4.19 and $3.27 per option, respectively. The Company has applied a forfeiture assumption of 3.79% per annum in the
recognition of the expense related to these options.
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