Document:

12.31.2014 Exhibit 10.23 BonusPlan

Exhibit 10.23
The 2014 Rosetta Stone Executive Bonus Plan 

I.  Plan Goals

The purpose of the 2014 Rosetta Stone Executive Bonus Plan (the “Plan”) is to motivate senior management to achieve key financial and strategic business objectives of Rosetta Stone Inc. and its subsidiaries (“Rosetta Stone” or the “Company”).

II. Plan Participants, Administration and Effective Date

The following executives (each, an "Executive" and collectively, the "Executives”) are eligible to participate in the Plan: Chief Executive Officer (“CEO”); Chief Financial Officer (“CFO”); Chief Information Officer (“CIO”); Chief Product Officer (“CPO”); Chief Legal Officer and Secretary; Senior Vice President, Human Resources; Senior Vice President, Consumer; President, Global Enterprise & Education and other executives as approved by the Compensation Committee of the Board of Directors (the “Compensation Committee”).

An Executive is eligible to participate in the Plan only if all of the following criteria are met:
		
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	Designated as eligible to participate by the Compensation Committee;

		
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	Hired, rehired or moved into an eligible position on or before November 1st of the plan year, and

		
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	Renders overall satisfactory work performance. 

The Compensation Committee is responsible for overseeing the administration of the Plan, including establishing performance targets and determining whether a bonus will be paid pursuant to the Plan.  The Compensation Committee may, at its sole discretion, and without prior notice, modify, change, alter or terminate the Plan or determine whether or not a bonus will be paid.  No bonus payment will be made unless the Compensation Committee determines: (a) that all material terms of the Plan have been satisfied; and (b) that payment to the participant in the stated amount is appropriate under the Plan. 
In the event of a claim or dispute brought forth by a participant, the decision of the Compensation Committee as to the facts in the case and the meaning and intent of any provision of the Plan, or its application, shall be final, binding and conclusive.

The Plan is subject to the Rosetta Stone Clawback Policy in effect as of January 1, 2014.
  
The Plan shall be effective from January 1st, 2014 to December 31st, 2014 (the “Bonus Period”). 

III. Components of the Plan and Individual Bonus Targets
Individual bonus targets for participants will be a percentage of a participant’s eligible base salary in effect as of the last day of the Bonus Period.  Eligible base salary is defined as base salary before both deductions for taxes or employee benefits and deferrals of compensation pursuant to any Rosetta Stone sponsored benefit plans.  Bonus targets are as specified by the Compensation Committee, however, individual payouts may be greater than or less than the bonus target based on actual achievements against Plan objectives and targets.
As a participant in the Plan, each Executive will be eligible for a bonus award based on the attainment of key financial targets and strategic business objectives.

All objectives under both the Non Line of Business and Line of Business Plans are mutually exclusive and structured such that executives may be paid a portion of their annual incentives for achievement relative to one or more objectives, even if threshold performance is not attained for another objective.

Umbrella Goal

There is an Umbrella Goal for the 2014 Executive Bonus Plan, in order to protect the company’s tax deductibility in compliance with Section 162(m) of the Internal Revenue Code for Section 16 officers only. The Umbrella Goal is not a trigger to fund the bonus plan.

		
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	The Umbrella Goal = 2014 revenue of at least $270M

Executive Bonus Structure - Non Line of Business Executives
		
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	70% - Corporate Financial Bonus

		
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	30% - Corporate Non-Financial Strategic Goals Bonus

Seventy Percent (70%) of a non-line of business executive’s bonus award will be based upon the achievement of the financial targets as outlined in the Plan (the “Financial Goals Bonus”). Thirty Percent (30%) of a non-line of business executive’s bonus award will be based upon the execution and results of corporate strategic non-financial business objectives (the “Corporate Strategic Goals Bonus”). These combined factors will determine the total target potential bonus award on an individual basis.  The bonus award for a non line of business executive cannot exceed 150% of the employee’s bonus target.

Corporate Financial Goals Bonus
For all non-line of business executives, the award of the Corporate Financial Goals Bonus (70% of the total target potential bonus award) will be determined as follows.

		
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	40% Bookings(1) (millions)

		
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	Threshold: $300 = 80% Funding

		
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	Target: $333 = 100% Funding

		
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	Max Funding: $350 or more = 150% Funding

		
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	40% Adjusted EBITDA(2) (millions)

		
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	Threshold: $17 = 80% Funding

		
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	Target: $20 = 100% Funding

		
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	Max Funding: $23 or more = 150% Funding

		
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	20% Percentage Global DTC Web Sales(3) (Q4 2014 exit rate)

		
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	Threshold: 50% = 80% Funding

		
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	Target: 60% = 100% Funding

		
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	Max Funding:70% or more = 150% Funding

		
	(1)
	“Bookings” means executed sales contracts by the Company that are either recorded immediately as revenue or as deferred revenue.

		
	(2)
	“Adjusted EBITDA” is GAAP net income/(loss) plus interest income and expense, income tax benefit and expense, depreciation, amortization and stock-based compensation expense plus the change in deferred revenue less the change in deferred commissions.  In addition, Adjusted EBITDA excludes any items related to the litigation with Google Inc., restructuring costs and transaction and other costs associated with mergers and acquisitions as well as all adjustments related to recording the non-cash tax valuation allowance for deferred tax assets. 

		
	(3)
	“Percentage Global Digital Sales” means the percentage of all new unit sales of Global Consumer that are downloaded (e.g., 

TOTALe), online (e.g., OSUB, TOSUB, ReFLEX), renewals and paid Apps.

Corporate Non-Financial Strategic Goals Bonus
For all non-line of business executives, the award of the Corporate Non-Financial Strategic Goals Bonus (30% of the total target potential bonus award) will be determined as follows.

		
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	33.3% - E&E Cross Selling of approximately $28M (Non TOTALe Sales)

		
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	Advanced English

		
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	Tell Me More

		
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	Lexia

		
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	Custom Content

		
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	33.3% - Consumer Cross Selling of approximately $12M

		
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	Brain fitness (Fit Brains)

		
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	Tell Me More

		
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	Lexia

		
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	Consumer Kids

		
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	Project X

		
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	33.3% - Launch of Consumer Kids literacy product(s) with bookings of approximately $3M

Non-Line of Business Executive Bonus Targets

	
		
	Job Title
	Target Bonus 

	CEO
	110%

	CFO
	75%

	SVP, Human Resources
	50%

	CIO
	50%

	Chief Legal Officer and Secretary
	60%

	Other Executives, as approved by the Compensation Committee
	TBD by the Compensation Committee

Executive Bonus Structure - Line of Business Lead
		
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	60% - Line of Business Financial Goals Bonus

		
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	20% - Corporate Financial Goals Bonus

		
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	20% - Corporate Non-Financial Strategic Goals Bonus

Sixty Percent (60%) of a line of business executive’s bonus award will be based upon the achievement of line of business financial targets as outlined in the Plan (the “Line of Business Financial Goals Bonus”).  Twenty Percent (20%) of a line of business executive’s bonus award will be based upon the achievement of corporate financial targets as outlined in the Plan (the “Corporate Financial Goals Bonus”) and Twenty Percent (20%) of a line of business executive bonus award will be based on achievement of corporate strategic goals as outlined in the Plan (the “Corporate Strategic Goals Bonus”).  These combined factors will determine the total target potential bonus award on an individual basis.  

Line of Business Executive Bonus Targets

	
		
	Job Title
	Target Bonus 

	President, Global Enterprise & Education
	75%

	SVP, Consumer
	75%

	CPO
	60%

Line of Business Financial Goals Bonus

For the following Line of Business Executives, the Line of Business Financial Goals Bonus award (60% of the total target potential bonus award) will be determined as follows with a maximum award of 250%.

SVP, Consumer

		
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	30% - Bookings (millions) 

		
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	Threshold: $186 = 80% Funding

		
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	Target: $212.9 = 100% Funding

		
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	Max Funding: $532.25 or more = 250% Funding

		
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	30% - Adjusted EBITDA (millions)

		
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	Threshold: $65.84 = 80% Funding

		
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	Target: $82.3 = 100% Funding

		
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	Max Funding: $205.75 or more = 250% Funding

		
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	20% - Percentage Global DTC Web Sales (Q4 2014 Exit rate)

		
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	Threshold: 50% = 80% Funding

		
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	Target: 60% = 100% Funding

		
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	Max Funding: 70% or more = 250% Funding

		
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	20% Cross Selling (Kids, Project X, Tell Me More, FitBrains and Lexia)

		
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	Threshold: $9.6 = 80% Funding

		
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	Target: $12 = 100% Funding

		
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	Max Funding: $30 or more = 250% Funding

President, Global Enterprise & Education

		
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	40% - Bookings (millions) 

		
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	Threshold: $86 = 80% Funding

		
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	Target: $99.4 = 100% Funding

		
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	Max Funding: $248.5 or more = 250% Funding

		
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	40% - Adjusted EBITDA (millions)

		
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	Threshold: $34.96 = 80% Funding

		
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	Target: $43.7 = 100% Funding

		
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	Max Funding: $109.25 or more = 250% Funding

		
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	20% - E&E Cross Selling (Tell Me More, Lexia, etc)

		
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	Threshold: $22.4 = 80% Funding

		
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	Target: $28 = 100% Funding

		
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	Max Funding: $70 or more = 250% Funding

Line of Business Financial Goals Bonus - Product

For the following Line of Business Executives, the Line of Business Financial Goals Bonus award (60% of the total target potential bonus award) will be determined as follows with a maximum award of 150%. Discretionary funding from 0 to 150%; Based on approval by the CEO and the Compensation Committee

		
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	70% Delivery of the Product Roadmap - Key Milestones 

		
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	Tell Me More Refresh

		
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	LiveMocha

		
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	Kids by September 1st, 2014

		
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	30% Deliver Product Roadmap within Budget 

		
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	Budget = $30.8M

Line of Business Strategic Goals Bonus

For all Line of Business Executives, the award of the Corporate Strategic Goals Bonus (20% of the total target potential bonus award) will be determined as follows.

		
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	33.3% - E&E Cross Selling of approximately $28M (non-TOTALe sales)

		
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	Advanced English

		
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	Tell Me More

		
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	Lexia

		
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	Custom Content

		
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	33.3% - Consumer Cross Selling of approximately $12M

		
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	Brain fitness (Fit Brains)

		
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	Tell Me More

		
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	Lexia

		
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	Consumer Kids

		
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	Project X

		
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	33.3% - Launch of Consumer Kids literacy product(s) with bookings of approximately $3M

IV. Achievement of Plan Targets

Financial Bonus Goals Funding

If any financial metric component is below the “Threshold” level, then no funding will be achieved for that portion of the bonus. The financial metric components are mutually exclusive.  Therefore, if one financial metric is above its “Threshold” level, and the others are not, the bonus will be funded for the financial metric component that was achieved. 

Actual award funding between Threshold, Target and Maximum goals will be interpolated based on actual results as set forth in the chart below.

The maximum amount payable under the Financial Bonus for Non-Sales Executive is 150% of the overall total target potential Financial Bonus.  

The maximum amount payable under the Line of Business Financial Bonus award for Sales Executives is 250% of the overall total target potential Line of Business Financial Bonus.  The maximum amount payable under the Corporate Financial Bonus for Sales Executives is 150% of the overall total target potential Corporate Financial Bonus.

	
									
	 
	Bookings (M)
	 
	Adjusted EBITDA (M)
	 
	Percentage Global DTC Web Sales (Q4 2014 Exit Rate) (%)

	 
	Attainment Against Target
	Payout
	 
	Attainment Against Target
	Payout
	 
	Attainment Against Target
	Payout

	 
	$299.99 and below
	No Payout
	 
	$16.99 and below
	No Payout
	 
	49.99% and below
	No Payout

	Threshold
	$300
	80%
	 
	$17
	80%
	 
	50%
	80%

	Target
	$333
	100%
	 
	$20
	100%
	 
	60%
	100%

	Maximum
	$350 and above
	150%
	 
	$23 and above
	150%
	 
	70% and above
	150%

Strategic Goals Bonus Funding

Plan funding for the Strategic Goals Bonus target for Non-Line of Business Executives and the Line of Business Strategic Goals Bonus target for Executives will be based on the attainment percentage of the specified goals as outlined in Section III above.  Final achievement percentages against the strategic goals targets, overall approval of attainment of goals, and subsequent bonus payouts, will be determined by the Compensation Committee.

V.  Mid-Year Events and Proration

Prorated Bonus Awards

A bonus payout will be based on the amount of time the eligible participant is actively and continuously employed in a bonus eligible position during the Bonus Period. In some cases, bonus awards will be calculated, as detailed below. 
		
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	New Hires and Rehires - Newly hired or rehired employees will participate in the Plan on a daily prorated basis. In the case of rehires, there is no credit for prior service and the rehire date must occur on or prior to November 1st of the Bonus Period in order for the participant to be eligible under the Plan for the Bonus Period.

		
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	Leaves of Absence - Bonus awards are not prorated for approved leaves of absence. 

		
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	Promotions and Demotions - If the action results in a movement from one bonus-eligible position to another bonus-eligible position (with either a higher or lower bonus target) the bonus target as of December 31st will be the target used to determine the bonus award.  If an action results in a movement from a Non-Line of Business Executive to Line of Business Executive bonus eligibility or vice versa, a daily pro-rated bonus will be calculated.  If an Executive moves to a non-executive bonus plan, a daily pro-rated bonus award will be calculated based on tenure in the eligible position.

		
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	Termination 

		
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	If a participant voluntarily terminates prior to the date the bonus awards are actually paid, the participant will not be entitled to any bonus payment for the Bonus Period during which the termination occurs, except as otherwise provided by contractual or statutory obligation or directed by the Compensation Committee.  Bonuses are not considered earned until they are approved by the Compensation Committee and are actually paid by Rosetta Stone.  

		
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	If during the Bonus Period the Executive’s employment is terminated by the Company without Cause or by the Executive with Good Reason, then the Company shall pay to Executive, at the times specified in their contract, the pro rata portion, if any, of the Executive's Annual Bonus earned up until such Termination Date in accordance with the terms of the then-current Company bonus policy.  “Good Reason” shall mean Executive’s resignation from employment with the Company after the occurrence of any of the following events without Executive’s consent: (i) a material diminution in Executive’s Annual Base Salary, duties, authority or responsibilities from the Annual Base Salary, duties, authority or responsibilities as in effect at the commencement of the Service Term, (ii) a material breach of the Agreement by the Company, or (iii) a relocation of Executive’s primary place of employment to a geographic area more than fifty (50) miles from the Executive's then current office;  provided, that the foregoing events shall not be deemed to constitute Good Reason unless Executive has notified the Company in writing of the occurrence of such event(s) within sixty (60) days of such occurrence and the Company has failed to have cure such event(s) within thirty (30) business days of its receipt of such written notice and termination occurs within one hundred (100) days of the event.

VI. Plan Change Provision

This Plan is subject to modification or termination at any time for any reason deemed appropriate by the Compensation Committee. No modification may increase the amount of actual compensation payable upon attainment of a goal that has been established under the Plan.  However, discretion to reduce an award is permitted.  

VII. Payment

Bonuses will be paid to Executives after review and approval by the Compensation Committee, on or before March 15th of the year immediately following the end of the Bonus Period, provided the Executive is employed with the Company on the actual payment date or by contractual obligation.  The bonus will be in a single lump sum cash payment, subject to all required federal, state and local tax of withholdings.  Executives have no right to the bonus under the Plan until actual payment.

VIII.      Transferability

An Executive shall not have any right to transfer, sell, alienate, assign, pledge, mortgage, hypothecate, collateralize or otherwise encumber any of the payments provided by this Plan.

IX.    No Employment Rights
This Plan is not intended to be a contract of employment.  Both the Executives and the Company have the right to end their employment or service relationship with or without cause or notice.  The payment of a bonus award shall not obligate the Company to pay any Executive any particular amount of remuneration, to continue the employment or services of the Executive after the payment, or to make further payments to the Executive at any time thereafter.
		
	I.
	Compliance with IRC Section 409A

It is the intent of the Company that any payment made under the Plan be exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), to the maximum extent permitted under Section 409A of the Code.  However, if any such amounts are considered to be “nonqualified deferred compensation” subject to Section 409A of the Code, such amounts shall be paid and provided in a manner, and at such time and form, as complies with the applicable requirements of Section 409A of the Code to avoid the unfavorable tax consequences provided therein for non-compliance.  No action will be taken to accelerate or delay the payment of any amounts in any manner which would not be in compliance with Section 409A of the Code. 
In the event an Executive qualifies as a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code at the time of the Executive’s separation from service, payments to be made in connection with such Executive’s “separation from service” (as determined for purposes of Section 409A of the Code) that constitute nonqualified deferred compensation subject to Section 409A of the Code shall not be made until the earlier of (i) the Executive’s death or (ii) six (6) months after the Executive’s separation from service to the extent required by Section 409A of the Code.  The Company shall, to the extent required, consult with the Executive in good faith regarding the implementation of the provisions of this section; provided that neither the Company nor any of its employees or representatives shall have any liability to the participant with respect to any tax consequences related to the Plan.

		
	II.
	Disclaimer

In the event of a situation not covered or clarified by the Plan guidelines, the Compensation Committee and the CEO will make the final and binding determination regarding eligibility and bonus calculations. The Compensation Committee must approve all bonus payments.  

An Executive shall not have any rights to transfer, sell, alienate, assign, pledge, mortgage, hypothecate, collateralize or otherwise encumber any of the payments provided by the Plan except as may be required by State or Federal law.

Benefits under the Plan shall be paid from the general funds of the Company, and Executives shall have no special or priority right to any assets of the Company. Nothing in the Plan shall require the Company to segregate or set aside any funds or other property for the purpose of paying any portion of an award.  No Participant, beneficiary or other person shall have any right, title or interest in any amount awarded under the Plan prior to the payment of such award to him or her.  It is not intended that a participant’s interest in the Plan will constitute a security or equity interest within the meaning of any state or federal securities laws.

The Compensation Committee determines, at its sole discretion, whether bonuses will be paid. Rosetta Stone, with the approval of the Compensation Committee, reserves the right to amend and/or terminate this or any other bonus, reward, and recognition plan at any time without notice.  This 

Plan is not a promise, guarantee, announcement, contract or agreement that a bonus will be paid, nor is it a contract of employment.12.31.14 Exhibit 10.24 LTIP

Exhibit 10.24
Rosetta Stone Inc. 2009 Omnibus Incentive Plan
2013 Rosetta Stone Inc. Long Term Incentive Program (LTIP)
Effective January 1, 2013 - Amended as of March 29, 2013

		
	I.
	LTIP Goals

The purpose of the 2013 Rosetta Stone Inc. Long Term Incentive Program (the “LTIP”) is to:
		
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	Motivate senior management to achieve key financial and strategic business objectives of Rosetta Stone Inc., and its Subsidiary Corporations (individually and/or collectively, as applicable, “Rosetta Stone” or the “Company”);

		
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	Offer eligible employees of the Company a competitive total compensation package;

		
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	Reward employees in the success of the Company; 

		
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	Provide ownership in the Company; and

		
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	Retain key talent.

Pursuant to Section 15.2 of the Rosetta Stone Inc. 2009 Omnibus Incentive Plan (the “Plan”), the Compensation Committee of the Company’s Board of Directors (“the Committee”) has adopted this LTIP to set forth the terms and conditions for Performance Stock Awards and cash payments to be granted and/or paid to eligible Employees under the Plan.  Except as provided herein, all terms and definitions of the Plan are incorporated herein by reference.

The LTIP will be administered by the Committee in accordance with the Plan.  The Committee shall have the power to interpret all provisions in the LTIP.  If the LTIP conflicts with any provisions of the Plan, the provisions of the Plan shall govern in all cases.  The Committee reserves the right to amend or terminate the LTIP as set forth in the Plan.

Awards granted under the LTIP are intended to qualify as “qualified performance-based compensation” as defined in Code Section 162(m) (including any amendment to Code Section 162(m)) and any Treasury Regulations or rulings issued thereunder that are requirements for qualifications. The LTIP shall be deemed amended to the extent necessary to conform to such requirements and the Committee may take such actions as it may deem necessary to ensure that such Awards will so qualify.

		
	II.
	Approval by Stockholders of the Company

Before any payment of cash or the granting of Performance Stock Awards pursuant to an Award granted under the LTIP can be made, the material terms of the Performance Goals(s) must be disclosed to, and subsequently approved by, the Company’s stockholders in accordance with Treasury Regulation Section 1.162-27(e)(4).  If the Company’s stockholders have not approved (or do not approve, if applicable) the Performance Goal(s) and the terms of this LTIP prior to the end of the 2013 fiscal year, then any Award under the LTIP shall be null and void, and any Employee who has received an Award under the LTIP shall have no rights to any payment of cash or Performance Stock Awards pursuant to such Award.
		
	III.
	LTIP Participants, Administration and Effective Date

The Employees who are currently employed in the following positions are eligible to receive Awards under this LTIP: Chief Executive Officer (“CEO”); Chief Financial Officer; Chief Information Officer; Chief Innovation Officer; Chief Product Officer; General Counsel; Senior Vice President, Human Resources; President, Global Consumer; President, Global Institutions and other executives (each, an "Executive" and collectively, the "Executives”) as approved by the Committee from time-to-time.

An Executive is eligible to participate in the LTIP only if all of the following criteria are met:

		
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	Designated as eligible to participate by the Committee;

		
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	Renders overall satisfactory work performance; and

		
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	Continued active employment with the Company through the date any Award is granted under this LTIP.

The Committee determines, at its sole discretion, whether Awards of cash and/or Performance Stock Awards will be granted.  

The LTIP shall be effective from January 1, 2013 (“Effective Date”) until December 31, 2014 (the “Program Period”).

		
	IV.
	LTIP Details

Executives designated by the Committee may receive Performance Stock Awards and cash upon the Company’s achievement of the following specified performance goals during the Program Period: (i) Bookings; (ii) Operating EBITDA; and (iii) Percentage Digital Sales (each, a “Performance Goal”).
“Bookings” means executed sales contracts by the Company that are either recorded immediately as revenue or as deferred revenue.
“Operating EBITDA” means GAAP net income or loss plus interest expense, income tax expense, depreciation, amortization, and stock-based compensation expenses, plus the change in deferred revenues.   
“Percentage Digital Sales” means the percentage of all new unit sales of Global Consumer which are downloaded (e.g., TOTALe), online (e.g., OSUB, TOSUB, ReFLEX), renewals and paid Apps.
Unless specified otherwise by the Committee in an Award Agreement at the time an Award is granted, the Committee shall appropriately adjust any evaluation of performance under a Performance Goal to exclude the items listed in Section 9.2 of the Plan.
An Executive’s individual amount of Performance Stock Awards and cash he or she may be able to receive will be provided in the Award Agreement. The Executive’s incentive target is determined as a multiple of the Executive’s base salary in effect as of December 31, 2012. The CEO’s incentive target is 3x base salary, while all other Executives are at 1x base salary.  The incentive target value in each Executive’s Award shall consist of 70% in Performance Stock Awards and 30% in cash.  Each Executive’s target Performance Stock Award is based on valuation as of January 1, 2013.  Stock valuation is based on the monthly average of the closing price of a share of Stock from December 1, 2012 to January 1, 2013.  If at any time a new Executive is added to this Plan, upon approval by the Committee, the Executive’s incentive target for his or her Award will be determined and valued upon the effective date of participation. 
In order for the granting of any Performance Stock Award or any cash payment to be made under this LTIP, the Company must meet the minimum threshold requirements for each of the three Performance Goals for the 2014 fiscal year, regardless of the 2013 fiscal year results and/or the total results for each Performance Goal for the Program Period.  In addition, each Performance Goal is mutually exclusive of the other two Performance Goals.

Vesting and payout levels upon achievement of each Performance Goal: 
		
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	Minimum = If the minimum threshold of each Performance Goal for the Program Period is achieved, then 50% of the targeted amount under the Executive’s Award for both Performance Stock Awards and cash shall vest and become payable.

		
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	Target = If the target threshold of each Performance Goal for the Program Period is achieved, then 100% of the targeted amount under the Executive’s Award for both Performance Stock Awards and cash shall vest and become payable.

		
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	Maximum = If the maximum threshold for each Performance Goal for the Program Period is achieved, then 200% of the targeted amount under the Executive’s Award for both Performance Stock Awards and cash shall vest and become payable.

Subject to the other requirements under this LTIP: (a) if only the Minimum threshold for one out of the three Performance Goals has been achieved during the Program Period, then one third (1/3) of the 50% of the targeted amount under the Executive’s Award for both Performance Stock Awards and cash shall vest and become payable; and (b) if only the Minimum threshold for two out of the three Performance Goals has been achieved during the Program Period, then two thirds (2/3) of the 50% of the targeted amount under the Executive’s Award for both Performance Stock Awards and cash shall vest and become payable.
Achievement levels in between the performance thresholds of each Performance Goal will be interpolated to determine vesting and payout amounts of Awards. The minimum vesting and payout amount of any Award can be zero. The maximum payout for any Award granted under this LTIP is 200% of target Performance Awards and target cash.
After the completion of the Program Period but prior to any payment of any Award granted under this LTIP, the Committee shall certify in writing the level of achievement, if any, of each Performance Goal. The Committee shall not increase any amount of payment, whether in cash and/or Performance Stock Awards, payable under a Award granted under this LTIP.
All determinations under this LTIP, including, without limitation, as to the achievement of any Performance Goal, the number of Performance Stock Awards to be granted, if any, and the amount of any cash to be paid, shall be determined by the Committee in its sole discretion. All decisions by the Committee shall be final and binding. 

Notwithstanding any other provisions in the LTIP to the contrary, the following provisions shall apply to all Awards granted under the LTIP.  Generally, in the event of any change in the outstanding shares of Stock (including, without limitation, the value thereof) after the Effective Date by reason of any share dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other corporate exchange, or any distribution to stockholders of shares other than regular cash dividends, or any transaction similar to the foregoing, the Committee in its sole discretion and without liability to any person shall make such substitution or adjustment, if any, as it deems to be equitable as to: (i) the number or kind of shares or other securities issued or reserved for issuance pursuant to the LTIP or pursuant to outstanding Awards; (ii) the maximum number of shares for which Awards (including limits established for Performance Stock Awards or other stock-based Awards) may be granted during a calendar year to any participant; and/or (iii) any other affected terms of such Awards; provided, such substitution or adjustment shall be in compliance with the requirements of Code Section 162(m).
Any payment of cash or granting of Performance Stock Awards under this LTIP will be distributed or granted to Executives within 45 days of the end of the Program Period, upon approval from the Committee of the Company’s achievement of the Performance Goals in accordance with the terms of this LTIP.  If Performance Stock Awards are granted, the shares of such Award will be 100% vested as of the date of grant.  

		
	V.
	Recipient Notification and LTIP Acceptance

Executives will receive notification from the Company or the Company’s designated equity broker notifying him or her of the cash award and grant of Performance Stock Awards, as well as any additional instructions to accept or take ownership of the shares of Performance Stock Awards.

		
	VI.
	Changes in Employment 

a. New Hires and Rehires - Executives hired or rehired after the Effective Date will be eligible for a prorated Award as determined in the sole discretion of the Committee, unless eligible for the entire period per contractual obligation and the Executive is not a “covered employee” under Code Section 162(m).  There will be no retroactive Awards of Performance Stock Awards.

b. Leaves of Absence - Awards are not prorated for approved leaves of absence.

c. Job Changes - In the event that an Executive’s job changes during the course of the Program Period, individual LTIP eligibility will be reviewed on a case-by-case basis by the Company’s CEO and the Committee. The Committee is responsible for approving eligibility in the LTIP in its sole discretion.

d. Voluntary Termination or Termination for Cause - If an Executive voluntarily terminates for any reason other than for retirement (as provided for below) or is terminated for Cause (as defined in an Executive’s employment agreement with the Company in effect as of the Effective Date or, if there is no employment agreement in effect, then as defined in Section 4.7 of the Plan), prior to the end of the Program Period, the Executive will forfeit eligibility and not be entitled to any payout under this LTIP, except as otherwise provided by contractual obligation or directed by the Committee in its sole discretion and the Executive is not a “covered employee” under Code Section 162(m).

e.  Approved Disability, Retirement, or Involuntary Termination By the Company Without Cause - If an Executive retires (where retirement is determined by the Committee in its sole discretion based on the age of the Executive and other factors the Committee deems relevant, including compliance with Code Section 162(m)), is involuntarily terminated by the Company without Cause, or has his or her employment terminated due to approved disability, cash awards and shares of Performance Stock Awards, prorated based on the number of full calendar months Executive was 

employed during the Program Period, will be distributed and granted at the same time as other payments (if any) made under this LTIP after the completion of the Performance Period, unless otherwise directed by contractual obligation and the Executive is not a “covered employee” under Code Section 162(m). 

		
	VII.
	No Employment Rights

The LTIP is not intended to be a contract of employment.  Both the Executives and the Company have the right to end their employment or service relationship with or without Cause or notice (subject to the terms of any separate written employment agreement).  The payment of an Award shall not obligate the Company to pay any Executive any particular amount of remuneration, to continue the employment or services of the Executive after the payment, or to make further payments to the Executive at any time thereafter.

VIII.    Other Provisions

		
	A.
	No Fiduciary Relationship. The Committee shall have no duty to manage or operate this LTIP in order to maximize the benefits granted to the participants, but rather shall have full discretionary power to make all management and operational decisions. This LTIP shall not be construed to create a fiduciary relationship between the Committee and the participants.

		
	B.
	General Creditor Status. The participants shall, in no event, be regarded as standing in any position, if at all, other than as a general creditor of the Company with respect to any rights derived from the existence of the LTIP and shall receive only the Company’s unfunded and unsecured promise to pay benefits under the LTIP. 

		
	C.
	Non-alienation of Benefits. No participant or his beneficiaries shall have the power or right to transfer, anticipate, or otherwise encumber the participant’s interest under the LTIP. The provisions of the LTIP shall inure to the benefit of each participant and his or her beneficiaries, heirs, executors, administrators or successors in interest. 

		
	D.
	Severability. If any provision of this LTIP is held invalid or unenforceable, the invalidity or unenforceability shall not affect the remaining parts of the LTIP, and the LTIP shall be enforced and construed as if such provision had not been included.

		
	E.
	Tax Treatment. The Company shall have the authority and the right to deduct or withhold, report or require a participant to remit to the Company, an amount sufficient to satisfy federal, state, local and foreign taxes (including any social insurance, payroll tax, or payment on account) required by law to be withheld with respect to any taxable event concerning a participant arising in connection with an Award.

		
	F. 
	Amendment. This LTIP may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Committee.

The Company has caused this LTIP to be executed by its duly authorized corporate officer effective as of January 1, 2013. 

ROSETTA STONE INC.

By:        
Name:        
Title:        
Date:

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