American Home Shield 2011 Annual Report Download - page 112

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 18. Stock-Based Compensation (Continued)
all options held by an employee are immediately cancelled. Following a termination without cause, vested options will generally remain exercisable through
the earliest of the expiration of their term or three months following termination of employment (one year in the case of death, disability or retirement at
normal retirement age). Unless sooner terminated by the board of directors of Holdings, the MSIP will remain in effect until November 20, 2017.
In 2011, 2010 and 2009, Holdings completed various equity offerings to certain executives, officers and employees of ServiceMaster pursuant to the
MSIP. The shares sold and options granted in connection with these equity offerings are subject to and governed by the terms of the MSIP. In connection with
these offerings, Holdings sold a total of 495,538, 97,200 and 234,500 shares of common stock in 2011, 2010 and 2009, respectively, at a purchase price of
$11.00 per share in 2011 and $10.00 per share in 2010 and 2009, respectively. In addition, Holdings granted ServiceMaster's executives, officers and
employees options to purchase 2,280,391, 284,400 and 906,000 shares of Holdings common stock in 2011, 2010 and 2009, respectively, at an exercise price
of $11.00 per share for options issued in 2011 and $10.00 per share for options issued in 2010 and 2009, respectively. These options are subject to and
governed by the terms of the MSIP. The 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, except for 86,364 options granted to our CEO in 2011 ("Superperformance 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 Superperformance Options granted in 2011 will vest immediately in the event that the stock price of
Holdings reaches a targeted level. All options issued are 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 2011, 2010 and 2009, the expected volatilities were based on the historical and implied volatilities of the
publicly traded stock of a group of companies comparable to ServiceMaster. The expected life represents the period of time that options granted are expected
to be outstanding and 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,
Assumption 2011 2010 2009
Expected volatility 31.0% - 50.3% 31.7% - 34.3% 38.5% - 46.9%
Expected dividend yield 0.0% 0.0% 0.0%
Expected life (in years) 6.3 6.3 6.3
Risk-free interest rate 1.07% - 2.65% 1.77% - 2.63% 2.56% - 2.92%
The weighted-average grant-date fair value of the options granted during 2011, 2010 and 2009 was $4.31, $3.65 and $4.36 per option, respectively. The
Company has applied a forfeiture assumption of 8.50 percent per annum in the recognition of the expense related to these options, with the exception of the
options held by the Company's CEO for which the Company has applied a forfeiture rate of zero.
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