Enom 2010 Annual Report Download - page 131

Table of Contents
Demand Media, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(In thousands, except per share amounts)
13. Share-based Compensation Plans and Awards (Continued)
term for its options, as allowed by Staff Accounting Bulletin SEC Topic 14, Share-Based Payments. Expected volatility is based on historical volatility of
peer companies in the Company's industry that have similar vesting and contractual terms. The risk free interest rate is based on the implied yield currently
available on U.S. Treasury issues with terms approximately equal to the expected life of the option. The Company currently has no history or expectation of
paying cash dividends on its common stock.
The expected term for performance-based and non-employee awards is based on the period of time for which each award is expected to be outstanding,
which is typically the remaining contractual term.
Award Activity
Stock Options
Stock option activity for the year ended December 31, 2010 is as follows:
Number of
options
outstanding
Weighted
average
exercise
price
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
(In thousands, except share and per share data)
Outstanding at December 31, 2009 11,771 $ 4.88 8.34 $ 30,197
Options granted 8,805 19.92
Options exercised (647) 2.43
Options forfeited or cancelled (864) 5.69
Outstanding at December 31, 2010 19,065 $ 11.88 8.34 $ 131,569
Exercisable at December 31, 2010 5,365 $ 4.78 7.15 $ 60,184
Vested and expected to vest at December 31, 2010 17,775 $ 11.65 8.32 $ 124,928
The pre-tax aggregate intrinsic value of outstanding and exercisable stock options is based on the difference between the estimated fair value of the
Company's common stock at December 31, 2009 and 2010 and their exercise prices, respectively for all awards where the fair value of the Company's
common stock exceeds the exercise price.
The Company has granted certain executive-level employees 1,625 performance and market-based stock options to purchase shares of common stock
with a weighted average exercise price of $2.42 per share. These performance and market-based stock option awards vest upon a change in control event or
following an initial public offering ("IPO") (as defined), subject to meeting certain minimum stock price thresholds. If these vesting events do not occur
within six years from the grant date, no vesting will occur. Because neither a change-in-control event nor an IPO event are deemed probable for accounting
purposes until the event occurs, no compensation expense has been recorded for these performance and market-based stock option awards. The grant-date fair
value of such awards was determined using a binomial lattice model. In February 2010, the Company modified the terms of these awards to reduce the stock
price upon which the awards would vest following an IPO, among other
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