Product-specific Q&A

1. What is included in the Black-Scholes Model?

2. How can I purchase the model?

3. How do I Install the model?

4. How does it value option grants?

5. How did you verify that your calculations are correct?

6. What is the initial cost? Are there any additional costs?

7. Can multiple people use the product concurrently?

8. Can I share your templates?

ASC 718 (Formerly FAS123 & FAS123r) Q&A

9. Who needs to comply with ASC 718/FAS123r?

10. Can I change models before expensing as required by ASC 718/FAS123r?

11. Can I change models in the future?

12. Is Black-Scholes the appropriate Model for me?

13. What if I need help finding Inputs to the Model?

14. How do I use the Model to value Warrants?

Model Requirements Q&A

15. What do I need to use the Model?

16. What if I need additional help?

17. How do I install the Model?

Product-specific Q&A

1. What is included in the Black-Scholes Model?

The Black-Scholes Model includes a rich Excel template with software to prevent user error and complete documentation. The specific model is the Black-Scholes-Merton model modified for use with company issued options and warrants (non-traded). The Model also includes extensive documentation.

2. How can I purchase the model?

The model is purchased from our website using PayPal and is available for immediate download. We're sorry but once you have downloaded the file, refunds will not be possible.

3. How do I Install the model?

We provide two installation methods: Windows Installer and Self-Extracting Zip file. If you have Windows XP or later, we recommend using the Windows Installer option (you can also install the Microsoft Installer software on Windows 2000 and NT 4.0 platforms).

The Self-Extracting Zip file is an executable that can be run on any Windows platform. You simply run the executable the same as any executable (.EXE file) from Window Explorer and the Zip file will prompt you to select a directory to install ('Extract To:'). You press the 'Start' button and files and directories are simply copied to the directory you select.

After installation on either method, a directory is created that contains the template file and documentation. Simply read the documentation PDF and you are ready to use the model.

Our model requires Microsoft® Office 2000 or later and can run on any Windows-based computer certified for use with the Office software. We recommend that you have at least 100MB of available disk space to store option grant valuations.

You may install the model on a server or multiple PC's/laptops but the model is only licensed for a single grantor (legal entity or company). Bulk licensing is available for CPA and Consulting firms. Contact sales@procognis.com for details.

4. How does it value option grants?

The BSM model is calculated using a simple and well established formula. That formula is included in the documentation. It models a single outcome (a single valuation), where a stock appreciates (according to the defined volatility, see our Volatility Tool for more information) each year for the option’s life (expected life term) and is then exercised. This produces a profit upon exercise that is then present-valued (using the risk-free rate of return) to determine the value of the option in today’s dollars.

5. How did you verify that your calculations are correct?

The Black-Scholes-Merton model (modified for company-issued options) is a well-known formula (the exact formula is detailed in the documentation provided with the product in the Appendix). Our model was tested against the example values listed in the SFAS 123r document and matched the values with same inputs. We have further tested our model using actual inputs from our customers and found the results to match expected values.

6. What is the initial cost? Are there any additional costs?

The base product is $169 (US Dollars). You purchase by online payment with PayPal.

The license is per Company or legal entity that grants stock-based contracts (option 'grantor'). CPA firms, consulting firms or other entities that have business relationships with companies that issue stock options and that wish to use our products for their customers will need to purchase a license for each grantor. Please contact our sales team for more details and pricing for license packs or bulk licenses.

There are no ongoing maintenance costs. Once you have purchased the Model, you own the license for it. Ongoing technical support services are on a per-incident basis with no support contract required.

We're sorry but returns cannot be accepted after the transaction has been completed.

7. Can multiple people use the product concurrently?

Yes. Any grants created with our software can be accessed or created by anyone with access to the software. However, the license is for one company and grantor so any use within the license is permitted.

You may install the model on a server or multiple PC's/laptops but the model is only licensed for a single legal entity or company (grantor).

8. Can I share your templates?

No. Our templates are proprietary. By purchasing the Model, you have been granted a license to use them for one company and grantor. If you have multiple subsidiaries, each must purchase a separate license.

ASC 718 (Formerly FAS123 & FAS123r) Q&A

9. Who needs to comply with ASC 718/FAS123r?

Any company that has issued stock options or warrants and that prepares GAAP financials. See the FASB site for more information. Also, please see our whitepaper on ASC 718.

10. Can I change models before expensing as required by ASC 718/FAS123r?

ASC 718 (formerly FAS123r) allows a Company to change models if the new model is anticipated to produce a more effective valuation. Changes to the model must be disclosed in the Company's financial statements and can only be applied prospectively to grants made after the new model has been adopted.

11. Can I change models in the future?

You can change models at any time for new option grants, so long as the new model is "more effective" than the previous model. See the codification for more details.

12. Is Black-Scholes the appropriate Model for me?

Companies with the following characteristics are more appropriate for Black-Scholes:

• Limited Option Activity
• A Stable Stock that Increases in a Predictable Pattern
• Stock Option Expense which is Immaterial or Insignificant
• Low Option Holder Turnover
• Little History of Early Exercises

13. What if I need help finding Inputs to the Model?

The Black-Scholes-Merton model requires inputs that characterize the behavior of the stock you are trying to model. These inputs can be produced with historical data or by other methods.

Specific inputs that have major impact on the Black-Scholes valuation include the Volatility and Expected life. We provide additional tools that can be used to help you create these inputs and provide support for your conclusions. Please click the links for more information.

Another input that impacts valuation is the Risk-free rate of return. This input can be approximated by the Federal Reserve Treasury Constant Maturities for the time period that most closely matches the expected life of the grant. For example, if the computed expected life is 6.6 years, you would use the Constant Maturity rate for a 7 year instrument. While the Constant Maturity rate is not a true Risk-free instrument, it represents a reasonable value for this input.

If you are a non-public company, you may not have historical pricing trends and stock behavior to provide reasonable and supportable data to use in the model. We can provide Professional Services expertise to guide you in gathering and supporting your conclusions. Please contact our Consulting group for information.

14. How do I use the Model to value Warrants?

Our Black-Scholes Model can be used to value warrants, provided that the warrants don’t have any unusual features that are incompatible with this model. Generally, a warrant would be issued that allows the holder to buy shares at a fixed price for a certain period. If this is the case, you would input the following information in the model:

The major difference between a warrant and an option is transferability. Generally an option holder must forfeit or exercise an option when they leave the company. This produces a lower expected life. With a warrant, they often are issued to debt holders or shareholders, are unrelated to employment and can be sold or otherwise transferred. As a result, they tend to have expected lives closer to or even the same as the contractual term.

If you have a warrant with unusual terms, we can help you as well. Please contact our Consulting group for more information.

Model Requirements Q&A

15. What do I need to use the Model?

The model is based on an Excel template using embedded code. You will need Excel 10.0 or greater (Office XP or greater). You will also need to set Medium Macro security to allow Macros to run on each workstation. Disk space required will depend on the number of grants saved on the system. Each grant will require approximately 200KB and the base installation will require about 1MB.

16. What if I need additional help?

Technical support is available via email on a per-incident basis. If encounter technical issues, simply email us at support@procognis.com. We will make every effort to resolve your technical issues.

17. How do I install the Model?

Simply run the Installer file or the Executable you downloaded following the PayPal transaction. The installation software will ask you where you would like to install the files on your hard drive or network. Both applications default to installing the software in the current directory (where you saved the installation file). After installation is complete, a shortcut will be created on your desktop that will link to the working template file.

For the Windows Installer version, should you want to delete the installation, you should use the Add/Remove programs feature in the Control Panel or simply use the Remove option when re-running the installer.