Case 05-9 Spend More On January 1, 2006, Spend More (the Company) issued to certain employees 1,000,000 equity-settled stock option awards. The employees will vest in differing numbers of options depending on the cumulative amount of net income the Company earns over the four fiscal years1 following the date of grant, and their continued employment with the Company. The exercise price of the awards is $31.50, which was the Companys closing share price on the NASDAQ National Market on the date of grant. The Company accounts for the stock compensation awards based on the provisions of ASC 718, Compensation Stock Compensation (FASB Statement No. 123 (revised 2004), ShareBased Payment (Statement 123(R))). The fair value of each award, which was determined based on the Black-Scholes option pricing model was $8 at the date of grant. In order to align the employees performance with the performance of the Company, the Board of Directors of the Company included the following provision in each of the awards: Subject to Section 5.2(a) of the Spend More 2006 Stock Option Plan, the employee will vest in the awards in various percentages (refer to vesting schedule below) based on the amount of cumulative net income earned by the Company in the succeeding four-year period: Performance Condition Percent Vested Greater than $15 million, up to $20 million 25% Greater than $20 million, up to $23 million 50% Greater than $23 million, up to $27 million 75% Greater than $27 million 100% Based on its most current financial forecasts, the Company believes it will earn cumulative net income greater than $20 million, but not more than $23 million in the succeeding four-year period. As a result, the Company will base its estimate of compensation cost on 50 percent of the awards vesting (assuming no forfeitures). What is net-share settlement? How does it impact the amount of compensation expense? What is a cash-settlement award?