Vonage 2009 Annual Report Download - page 83

VONAGE HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
Common Stock Warrant
On April 17, 2002, Vonage’s principal stockholder and
Chairman received a warrant to purchase 514 shares of
Common Stock at an exercise price of $0.70 per share that
expires on June 20, 2012. As a result of the issuance of our
Convertible Notes, the exercise price was reduced to $0.58.
In connection with $20,000 of notes payable from our
principal stockholder and Chairman in 2003, we issued a
warrant to purchase Series A-2 preferred stock, which
automatically converted into the 2,571 of common stock
upon our IPO with an exercise price of $1.40 per share
that are included in our consolidated balance sheet under
additional paid-in capital. These warrants expired on
October 1, 2008.
Note 10. Employee Benefit
Plans
Share-Based Compensation
Our stock option program is a long-term retention
program that is intended to attract, retain and provide
incentives for talented employees, officers and directors,
and to align stockholder and employee interests. Cur-
rently, we grant options from our 2006 Incentive Plan. Our
2001 Stock Incentive Plan was terminated by our board of
directors in 2008. As such, share-based awards are no
longer granted under the 2001 Stock Incentive Plan.
Under the 2006 Incentive Plan, share-based awards can
be granted to all employees, including executive officers,
outside consultants and non-employee directors. Vesting
periods for share-based awards are generally four years
for both plans. Awards granted under each plan expire in
five or 10 years from the effective date of grant.
The fair value for these options was estimated at the date of grant using a Black-Scholes option-pricing model. The
assumptions used to value options are as follows:
2009 2008 2007
Risk-free interest rate 1.50-3.12% 1.24-3.23% 3.27-5.04%
Expected stock price volatility 87.70-109.31% 66.29-86.83% 39.4-48.61%
Dividend yield 0.00% 0.00% 0.00%
Expected life (in years) 3.75-6.25 3.75-6.25 3.76-6.9
Beginning January 1, 2006, we estimated the vola-
tility of our stock using historical volatility of comparable
public companies in accordance with guidance in FASB
ASC 718, “Compensation-Stock Compensation”. Begin-
ning in the first quarter of 2008, we used the historical
volatility of our common stock to measure expected vola-
tility for future option grants.
The risk-free interest rate assumption is based upon
observed interest rates appropriate for the term of our
employee stock options. The expected term of employee
stock options represents the weighted-average period
that the stock options are expected to remain out-
standing, which we derive based on our historical settle-
ment experience.
2001 Stock Incentive Plan
In February 2001, we adopted the 2001 Stock
Incentive Plan, which is an amendment and restatement
of the 2000 Stock Incentive Plan of MIN-X.COM, INC. The
2001 Stock Incentive Plan provides for the granting of
options or restricted stock awards to our officers, direc-
tors and employees. The objectives of the 2001 Stock
Incentive Plan include attracting and retaining personnel,
providing for additional performance incentives, and
promoting our success by providing employees the
opportunity to acquire stock. During 2005, the number of
shares authorized for issuance pursuant to options or
restricted stock awards was increased from 7,503 to
28,286. In management’s opinion, all stock options were
granted with an exercise price at or above the fair market
value of our common stock at the date of grant with the
exception of a grant in 2005 for 125 shares. Initially, we
recorded deferred compensation in 2005 related to this
option grant. On January 1, 2006, we reversed the remain-
ing deferred compensation balance in accordance with
FASB ASC 718. There weren’t any options available for
future grant under the 2001 Stock Incentive Plan since our
board of directors terminated the plan in 2008.
2006 Incentive Plan
In May 2006 we adopted the 2006 Incentive Plan.
The 2006 Incentive Plan permits the grant of stock
options, restricted stock, restricted stock units, stock
appreciation rights, performance stock, performance
units, annual awards and other awards based on, or
related to, shares of our common stock. Options awarded
under our 2006 Incentive Plan may be nonstatutory stock
options or may qualify as incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as
amended. Our 2006 Incentive Plan contains various limits
with respect to the types of awards, as follows:
>a maximum of 20,000 shares may be issued under the
plan pursuant to incentive stock options;
>a maximum of 10,000 shares may be issued pursuant to
options and stock appreciation rights granted to any
participant in a calendar year;
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