8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported):

January 9, 2012

Rosetta Stone Inc.

(Exact name of registrant as specified in its charter)

Delaware	001-34283	043837082
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification Number)

1919 North Lynn St., 7th Fl., Arlington, Virginia 22209

(Address of principal executive offices, including zip code)

800-788-0822

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 5.02.Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On January 9, 2012, the Board of Directors of Rosetta Stone Inc. (the “Company”) granted to certain executive officers and other key executives of the Company (“Executive”) a special retention cash bonus and shares of restricted common stock of the Company. The special retention cash bonus will be paid to Executives in a single payment no later than January 31, 2013, in each case contingent upon the applicable Executive remaining an employee of the Company or one of its subsidiaries until December 31, 2012, or the earlier termination of the applicable Executive’s employment by the Company or one of its subsidiaries without cause.  The special retention restricted common stock of the Company will vest 50% on January 1, 2013, and 50% on January 1, 2014.  The award of shares of restricted stock of the Company is subject to accelerated vesting upon the termination of an Executive’s employment by the Company or one of its subsidiaries without cause. The objective of the retention awards is to provide an incentive for the Executives to remain with, and provide valuable leadership and services to, the Company as well as align the interests of the recipients closely to the performance of the Company.  The executive officers of the Company who will receive the retention awards are Michael S. Fulkerson, Chief Technology Officer, Pragnesh N. Shah, President, Global Consumer, Stephen M. Swad, Chief Financial Officer, Judy K. Verses, President, Global Institutions and Michael C. Wu, General Counsel and Secretary.  The amounts of the special retention awards are set out in the table below:

Executive Officer	Special Retention Cash Bonus Amount		Number of Shares of Restricted Stock Awarded
Michael S. Fulkerson	$	150,000.00	21,246
Pragnesh N. Shah	$	25,000.00	3,541
Stephen M. Swad	$	150,000.00	63,739
Judy K. Verses	$	25,000.00	3,541
Michael C. Wu	$	100,000.00	14,164

On January 9, 2012, the Board also granted to Mr. Swad 70,822 shares of restricted common stock of the Company in recognition of Mr. Swad’s expanded operational role and overall responsibilities. The restricted common stock of the Company will vest 50% on January 1, 2013, and 50% on January 1, 2014.  The award of shares of restricted stock of the Company is subject to accelerated vesting upon the termination of Mr. Swad’s employment by the Company or one of its subsidiaries without cause.

The grants of restricted stock of the Company are made pursuant to the Rosetta Stone Inc. 2009 Omnibus Incentive Plan.

The foregoing description of the retention awards is not complete.  For more information about the grant terms, refer to the form of the attached 2012 Rosetta Stone Special Retention Award Program letter, which is attached to this Current Report on Form 8-K as Exhibit 10.1 and is incorporated by reference into this Item 5.02.

2

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

Exhibit Number	Description of Exhibit
10.1	Form of Award Letter 2012 Rosetta Stone Special Retention Award Program

3

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date:	January 11, 2012
		By:	/s/ Michael C. Wu
			Name:	Michael C. Wu
			Title:	General Counsel and Secretary

4

EXHIBIT INDEX

Exhibit Number	Description of Exhibit
10.1	Form of Award Letter 2012 Rosetta Stone Special Retention Award Program

5

EX-10.1

Exhibit 10.1

[DATE]

[NAME ADDRESS]

Re: 2012 Rosetta Stone Special Retention Award Program

Dear [NAME]:

Thank you for your hard work and dedication to Rosetta Stone, Inc. (the “Company”).  We are on a critical path to transform our business model and capture new opportunities for growth.  Our success is tied to engaging and retaining our key leaders.  Your continued contributions to the Company are vital to achieving our global corporate goals.  Accordingly, the Company and the Board of Directors would like to extend to you a special retention award, consisting of a mix of the Company’s common stock and a cash payment as provided below.

CASH-BASED AWARD AMOUNT

You will be entitled to receive a cash retention bonus (the “Cash Award”) in an amount equal to [                                        ] Dollars ($[                          ]) if you remain a fulltime employee of the Company (or an affiliate) during the Retention Period or your employment is earlier terminated by the Company (or an affiliate) without Cause.  You will not be entitled to receive the Cash Award if your employment terminates for any other reason prior to the end of the Retention Period, including, but not limited to, with Cause, your death, your Disability or your voluntary termination.  Your Cash Award (if any), less normal and customary withholdings and deductions, will be paid to you in a single payment on or before January 31, 2013.

RESTRICTED STOCK AWARD

The Company hereby grants you the eligibility to receive [                            ] shares of the Company’s restricted stock (the “Restricted Stock Award”), subject to certain restrictions and requirements as described in the attached Rosetta Stone Inc. 2009 Omnibus Incentive Plan Cover Sheet and Restricted Stock Award Agreement.  The terms of these documents and the Rosetta Stone Inc. 2009 Omnibus Incentive Plan (the “Omnibus Plan”) are fully incorporated into this letter and made an integral part hereof.

If your employment is terminated by the Company (or an affiliate) without Cause prior to the full vesting of your Restricted Stock Award, the unvested part of your Restricted Stock Award will become immediately and fully vested.  If your employment terminates for any other reason prior to the full vesting of your Restricted Stock Award, including, but not limited to, with Cause, your death, your Disability or your voluntary termination, the unvested part of your Restricted Stock Award will be

1

immediately forfeited (subject to the requirements of the Rosetta Stone Inc. Insider Trading Compliance Policy and the Omnibus Plan, as in effect from time to time).

DEFINITIONS

“Retention Period” shall mean the period beginning on January 1, 2012 and ending on December 31, 2012.

“Cause” has the meaning provided in the attached Restricted Stock Award Agreement.

“Disability” has the meaning provided in the attached Restricted Stock Award Agreement.

This letter, including the referenced documents, is the sole and entire statement of the retention program the Company is proposing and will be governed by the laws of the Commonwealth of Virginia.  No rights under this retention program, contingent or otherwise, will be transferable, assignable, or subject to any encumbrance, pledge or charge of any nature.  In addition, this retention program does not constitute an employment contract and does not alter or affect in any way the Company’s right to terminate your employment at any time with or without Cause or your right to terminate your employment with the Company in your discretion.

We are looking forward to working with you on achieving our 2012 global corporate goals and sincerely hope these terms are agreeable to you.  If so, please signify your acceptance of this retention program by signing the attached copy of this letter, including the attached documents, and returning that executed copy to Michaela Oliver on or before January 13, 2012.

ROSETTA STONE INC.

By:

Name: Tom Adams

Title: Chief Executive Officer

By:

Name: Laurence Franklin

Title: Chairman of the Board

I have read the terms of this retention program and, by signing below, hereby signify my acceptance of these terms:

EMPLOYEE

Date:

2

APPENDIX A

ROSETTA STONE INC. 2009 OMNIBUS INCENTIVE PLAN

 TERMS OF RESTRICTED STOCK AWARD AGREEMENT

3