This excerpt taken from the XIDE DEF 14A filed Jul 16, 2007.
The Committee views the granting of stock options as an integral element of any equity-based award. Under the Companys 2004 Plan, options vest over a three-year period and must be exercised within ten years of the grant date. An options value increases or decreases in connection with the fluctuations in price of the Companys common stock. Consequently, the Committee views such awards as aligning executives interests with long-term shareholder return.
The number of options granted is based, in part, on the theoretical value of the options. The Committee uses the Black-Scholes Valuation Model (BSVM), a common form of fair value model. The BSVM is a complex calculation designed to provide the theoretical value of an option at the date of grant. The BSVM calculates a probability distribution of future stock prices at a future exercise date by using an expected return equal to the risk-free rate of return. The return varies with the volatility of the security calculated as of the date of grant. Probability-weighted future payouts are then discounted back to present day dollars based on a risk-free rate of return. The parameters used in valuations include:
Volatility: The tendency of the underlying options market price to fluctuate either up or down.
Grant Price: Market value of stock price on day stock option was granted.
The Committee does not set the exercise price of stock options as of the date the award is granted. Rather, as a result of the Companys obligation to comply with the terms of its Warrant Agreement, dated May 5, 2004, the Committee determined that the award of options for the first 3,125,000 shares under the 2004 Plan must be issued with an exercise price based on the ten-day trailing average closing price of the Companys common stock prior to the date of grant. The actual exercise price for options can therefore be greater than, equal to or less than the stock price on the date of grant. For each of the Companys October 13, 2004 and November 29, 2005 grants, the exercise price was greater than the closing price of the Companys stock on the date of grant. The exercise price for options granted on September 21, 2006 and March 22, 2007 was lower than the closing price on the grant date.
This excerpt taken from the XIDE DEF 14A filed Jul 27, 2006.
Pursuant to the 2004 Plan, 603,038 options (net of forfeitures) were granted to executive officers in fiscal 2006, representing 68.2% of all options awarded. The options have a three-year vesting period, with one-third of the options vesting on November 29, 2006, one-third vesting on November 29, 2007 and the remaining one-third vesting on November 29, 2008. The option awards are valued using the Black-Scholes model based on outside consultant review and determination of peer companies and their volatility rates and the exercise price was set at the 10-day trailing average closing price of common stock immediately prior to the grant date.