Memorex 2009 Annual Report Download - page 79

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The 2005 Incentive Plan was approved and adopted by our shareholders on May 4, 2005, and became effective
immediately. The 2005 Incentive Plan permits the granting of incentive and non-qualified stock options, stock appreciation
rights, restricted stock, restricted stock units, dividend equivalents, performance awards and other stock and stock-based
awards. The total number of shares of common stock that could have been issued or awarded under the 2005 Incentive
Plan was not to exceed 2.5 million, of which the maximum number of shares that could have been awarded pursuant to
grants of restricted stock, restricted stock units and stock awards was 1.5 million. The outstanding options are non-qualified
and normally have a term of ten years. For employees, the options generally become exercisable 25 percent per year
beginning on the first anniversary of the grant date. For directors, the options generally became exercisable in full on the
first anniversary of the grant date. Exercise prices for stock options are equal to the fair market value of our common
stock on the date of grant. As a result of the approval and adoption of the 2008 Incentive Plan in May 2008, no further
shares are available for grant under the 2005 Incentive Plan.
The 2008 Incentive Plan was approved and adopted by our shareholders on May 7, 2008 and became effective
immediately. The 2008 Incentive Plan permits grants of stock options, stock appreciation rights, restricted stock, restricted
stock units, dividend equivalents, performance awards, stock awards and other stock-based awards (collectively, Awards).
The Company’s Board of Directors and Compensation Committee have the authority to determine the type of Awards as
well as the amount, terms and conditions of each Award under the 2008 Incentive Plan, subject to the limitations and
other provisions of the 2008 Incentive Plan. The total number of shares of common stock that may be issued or granted
under the 2008 Incentive Plan may not exceed 4.0 million, of which the maximum number of shares that may be provided
pursuant to grants of Awards other than options and stock appreciation rights is 2.0 million. The number of shares
available for Awards, as well as the terms of outstanding Awards, are subject to adjustments as provided in the 2008
Incentive Plan for stock splits, stock dividends, recapitalization and other similar events. The outstanding options are non-
qualified and normally have a term of ten years. For employees, the options generally become exercisable and restricted
stock vests 25 percent per year beginning on the first anniversary of the grant date. For directors, the options generally
become exercisable and restricted stock vests in full on the first anniversary of the grant date. Exercise prices for stock
options are equal to the fair market value of our common stock on the date of grant. Awards may be granted under the
2008 Incentive Plan until May 6, 2018 or until all shares available for Awards under the 2008 Incentive Plan have been
purchased or acquired; provided, however, that incentive stock options may not be granted after March 11, 2018. As of
December 31, 2009, there were 2,330,386 shares available for grant under our 2008 Incentive Plan.
Stock Options
The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model.
The assumptions used in the valuation model are supported primarily by historical indicators and current market conditions.
Volatility was calculated using the historical weekly close rate for a period of time equal to the expected term. The risk-free
rate of return was determined by using the U.S. Treasury yield curve in effect at the time of grant. The expected term was
calculated on an aggregated basis and estimated based on an analysis of options already exercised and any foreseeable
trends or changes in recipients’ behavior. In determining the expected term, we considered the vesting period of the
awards, the contractual term of the awards, historical average holding periods, stock price history, impacts from recent
restructuring initiatives and the relative weight for each of these factors. The dividend yield was based on the latest
dividend payments made on or announced by the date of the grant.
The following table summarizes our weighted average assumptions used in the valuation of options for the years
ended December 31, 2009, 2008 and 2007:
2009 2008 2007
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41% 31% 29%
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.13% 3.04% 4.60%
Expected life (months) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 61 63
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0% 2.6% 1.7%
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)