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This excerpt taken from the RDEA 10-K filed Mar 13, 2009. Share-Based
Compensation
We grant equity based awards under three stockholder-approved,
share-based compensation plans. We have granted, and may in the
future grant, options and restricted stock awards to employees,
directors, consultants and advisors under either our 2002
Non-Officer Equity Incentive Plan or our 2004 Stock Incentive
Plan. In addition, all of our employees are eligible to
participate in our 2000 Employee Stock Purchase Plan which
enables employees to purchase common stock at a discount through
payroll deductions. The benefits provided under all of these
plans are subject to the provisions of Statement of Financial
Accounting Standards, or SFAS, No. 123R, Share-Based
Payment, which we adopted effective January 1, 2006
under the modified prospective application method. The valuation
provisions of SFAS 123R apply to new awards and to awards
that are outstanding on the adoption date and are subsequently
modified or cancelled.
We estimate the fair value of stock options granted using the
Black-Scholes-Merton, or Black-Scholes, option valuation model.
This fair value is then amortized over the requisite service
periods of the awards. The Black-Scholes option valuation model
requires the input of subjective assumptions, including each
option’s expected life and price volatility of the
underlying stock. Expected volatility is based on the
weighted-average volatility of our stock, factoring in daily
share price observations and the historical price volatility of
certain peers within our industry sector. In computing expected
volatility, the length of the historical period used is equal to
the length of the expected term of the option and the share
purchase right. The expected life of employee stock options
represents the average of the contractual term of the options
and the weighted-average vesting period, as permitted under the
simplified method, under Staff Accounting Bulletin, or SAB,
No. 107, Share-Based Payments and
SAB No. 110.
As share-based compensation expense is based on awards
ultimately expected to vest, it has been reduced for estimated
forfeitures. SFAS 123R requires forfeitures to be estimated
at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates.
Forfeitures are estimated based on historical experience.
Changes in assumptions used under the Black-Scholes option
valuation model could materially affect our net loss and net
loss per share.
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