Product-specific Q&A

1. What is included in the Forfeiture & Expected Life Tool?

2. How can I purchase the Tool?

3. How do I Install the Tool?

4. How does it compute Forfeiture and Expected Life?

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

6. How do I import the option historical data?

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

8. Can multiple people use the product concurrently?

9. Can I share your templates?

ASC 718 (formerly FAS123 & FAS123r) Q&A

10. Why do I need to compute forfeiture rates and expected life?

11. What if I am not using Black-Scholes or Lattice Models to value my Options?

Tool Requirements Q&A

12. What do I need to use the Tool?

13. What if I need additional help?

14. How do I install the Tool?

Product-specific Q&A

1. What is included in the Forfeiture & Expected Life Tool?

The Forfeiture & Expected Life Tool includes a rich Excel template with software to prevent user error and complete documentation. The Tool uses a set of formulas to compute the forfeiture rate and expected life based on input option exercise and forfeit activity over annual periods to find the aggregate forfeiture rate and expected life. The Tool also includes extensive documentation. There are two editions: the Standard Edition which allows up to 100 grants per year and the 1,000 Grant Edition which permits up to 1,000 grants per year.

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 Tool 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 computations and backup data.

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 compute Forfeiture and Expected Life?

The Forfeiture & Expected Life Tool takes up to 20 years of historical stock option data (each year allows up to 100 grants for the Standard Edition and up to 1,000 grants for the 1,000 Grant Edition) and computes the pre-vest forfeiture rate and the expected life based upon the input stock. The Tool also tallies the total number of stock options in all of the grants, the percentage of the grants that are either exercised or outstanding, and the post-vesting forfeiture rate (not required for SFAS 123r but useful to identify option behavior). The following describes how the two key outputs are produced (the other outputs follow the same computation):

Pre-Vest Forfeiture Rate

Each grant has a full vesting term as an input. The Tool provides columns to enter the exercise and forfeiture behavior for each year (supporting up to ten years contractual life). If the forfeit is recorded prior to the full vesting, the forfeit is marked as a pre-vest forfeiture.All of the pre-vest forfeitures are tallied for each grant and then divided by the total grant size to calculate the pre-vest forfeiture rate for each year. Until you have entered either an exercise or a forfeit, prior to the vesting date, the remaining outstanding are assumed to not be forfeited in this computation.

The total pre-vest forfeitures are summed for each year and then compared against the total number of options for all of the years to produce the aggregate rate. A check box is provided to remove the forfeitures and number of options from the calculation to exclude data from years that may not be suitable to compute the overall pre-vest forfeiture rate.

Expected Life

The Expected Life is computed by multiplying the year of exercise and/or forfeit by the number of options exercised and forfeited for each grant. Any remaining/outstanding options are assumed to be outstanding until the end of the contractual term for each grant. Then the number of options in each grant is used to create a weighted average of all of the grants for the year. The aggregate Expected Life is the weighted average of all of the expected life for each year. A checkbox is provided to exclude the data for specific years so that they are not included in the computations.

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

The Forfeiture & Expected Life Tool uses well-known computational methods and weighted averages to compute all of the data points. The output was tested against numerous data inputs and produced the expected numbers. The output is detailed enough to verify that the numbers are correct and the computation is valid.

6. How do I import the option historical data?

Simply enter the information in the table by following the in-cell information and the provided documentation. Each grant takes inputs including the grant name, inception date, number of options, contractual term and full vesting year. Then for each year of the contractual life, you enter the number of shares exercised or forfeited for each year to track the historical behavior for each grant. These inputs are used to compute the computed values for each grant and for the overall aggregate computations.

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

The Standard Edition is $299 and the 1,000 Grant Edition is $399. Amounts are in 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 Tool, 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.

8. Can multiple people use the product concurrently?

Yes. Any data 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).

9. Can I share your templates?

No. Our templates are proprietary. By purchasing the Tool, 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

10. Why do I need to compute forfeiture rate and expected life?

ASC 718 requires that the compensation rate be recorded net of the expected forfeitures. You need a means to support your forfeiture conclusion and using actual option forfeit and exercise behavior can be used to develop an appropriate value to meet this requirement.

The expected life is a required input for the Black-Scholes (BSM) option valuation model. Other models may use this information as well but the primary application is for the BSM model. The Binomial Lattice (BL) models output a computed expected life and this output can be compared against your actual experience to support the BL conclusions.

11. What if I am not using Black-Scholes or Lattice Models to value my Options?

The forfeiture rate is still required to produce a compensation rate net of the expected forfeitures. There may be no specific requirement for the expected life output however. We can provide Professional Services expertise to guide you in using this Tool and in gathering and supporting your conclusions. Please contact our Consulting group for information.

Tool Requirements Q&A

12. What do I need to use the Tool?

The Forfeiture & Expected Life Tool 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.

13. What if I need additional help?

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

14. How do I install the Tool?

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.