Prior to the IPO, the Company granted options to purchase shares of the Company’s common stock and restricted stock units in respect of shares of the Company’s common stock to employees, directors and consultants under the Company’s 2011 Equity Incentive Plan. In July 2021, Duolingo adopted the 2021 Incentive Award Plan (2021 Plan) and the 2021 Employee Stock Purchase Plan (“ESPP”), each of which became effective on July 26, 2021 in connection with the IPO. An aggregate of 7,946 shares and 1,119 shares of Class A common stock were made available for future issuance under the 2021 Plan and ESPP, respectively. The 2021 Plan permits the granting of incentive stock options and nonqualified stock options. The Company’s stock options vest based on terms in the stock option agreements and generally vest over four years and have a term of ten years subject to the continuous service to the Company by the optionee. Incentive stock options may be granted at an exercise price of not less than 100% of the estimated fair value of the underlying Class A common stock at the date of the grant.


	Number of options	Weighted- average exercise price		Weighted- average remaining contractual life (years)	Aggregate intrinsic value





Options outstanding at January 1, 2021	8,365	$	10.68	7.47	$	230,596
Granted	72	52.80
Exercised	(1,882)	6.63
Repurchased	(220)	4.81
Forfeited and expired	(80)	14.75
Options outstanding at December 31, 2021	6,255	$	12.53	6.92	$	585,339
Options exercisable at December 31, 2021	4,420	$	10.61	6.41	$	422,076

The total intrinsic value of options exercised was approximately $194,513 and $6,058 for the years ended December 31, 2021 and 2020, respectively. The total weighted-average grant date fair value of options granted was $24.61 and $9.77 and for the years ended December 31, 2021 and 2020, respectively.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:


	2021	2020
Risk-free interest rate	1.04 – 1.14%	0.32 – 0.68%
Expected life	5.90 years	6.01 years
Expected volatility	48.90 – 49.12%	45.50 – 49.38%
Dividend yield	—%	—%
Fair value of common stock	$38.08 – $52.80	$14.42 – $38.08

The risk-free interest rate is based on the US treasury yield curve in effect as of the grant date. When establishing the expected life assumptions, the Company annually reviews historical employee exercise behavior of option grants and other economic data impacting the period the stock options are expected to remain outstanding. Expected volatility is determined using a benchmark index of similar public companies. The Company based the assumed dividend yield on its expectation of not paying dividends in the foreseeable future. Because the Company’s common stock was not yet publicly traded at the time the options were granted, the Company estimated the fair value of common stock. The Board estimated the fair value of the common stock at the time awards were granted based on factors such as valuations of comparable companies, the status of the Company’s development and sales efforts, revenue growth, and additional objective and subjective factors relating to the Company’s business.

As of December 31, 2021, there was approximately $13,428 of unrecognized compensation cost related to stock options granted under the plan with a weighted-average period of approximately two years. The amount of unrecognized compensation expense for RSUs as of December 31, 2021 was $52,478 with a weighted average remaining contractual life of three years, for a total unrecognized compensation expense of $65,906.

In June 2021, the Company granted an aggregate of 1,800 performance-based RSUs (the “Founder Awards”) to the Company’s founders. The Founder Awards vest upon the satisfaction of both a service-based condition and a performance-based condition and generally are settled 1 year after vesting. The service-based condition is satisfied as to 25% of the Founder Awards on each anniversary of the completion of the IPO, subject to the continuous service of the founders through the applicable date. The performance-based condition will be satisfied with respect to each of 10 equal tranches only if the trailing 60-calendar day volume-weighted average closing trading price of the Company’s Class A common stock reaches certain stock-price hurdles for each such tranche, as set forth below, over a period of 10 years from the date of grant.

If stock-price hurdles fail to be reached prior to the tenth anniversary of the date of grant, no portion of the Founder Awards will vest. Further, any RSUs associated with stock-prices hurdle not achieved by the tenth anniversary of the date of grant will terminate and be cancelled for no additional consideration to the founders. The stock-price hurdles and number of RSUs eligible to vest will be adjusted to reflect any stock splits, stock dividends, combinations, reorganizations, reclassifications, or similar events under the 2021 Plan. The Founder Awards will be settled in shares of the Company’s Class B common stock.

The Company estimated the grant date fair value of the Founder Awards using a model based on multiple stock-price paths developed through the use of a Monte Carlo simulation that incorporates into the valuation the possibility that the stock-price hurdles may not be satisfied. The weighted-average grant date fair value of the Founder Awards was estimated to be $61.56 per share using the below inputs.

The Company estimates that it will recognize total stock-based compensation expense of approximately $110,817 over the derived service period of each of the ten separate tranches which is between 3.58 – 5.92 years. If the stock-price hurdles are met sooner than the requisite service period, the stock-based compensation expense will be adjusted to prospectively recognize the remaining expense over the remaining derived service period. Provided that the founders continue to provide services to the Company, stock-based compensation expense is recognized over the derived service period, regardless of whether the stock-price hurdles are achieved. The first and second tranches were met during the year ended December 31, 2021. The Company recognized $16,463 of stock-based compensation expense related to these awards, which is included within General and administrative in the Consolidated Statement of Operations and Comprehensive Loss.

In February 2021, the Company initiated a tender offer which allowed employees to sell up to 10% of their vested options or shares back to the Company at selling price of $59.77, which was above fair market value of $38.08. The Company paid $13,479 and incurred $5,275 of additional compensation expense related to this tender representing the difference between the aggregate selling price and fair market value of the options and shares sold, and a $7,335 decrease to Additional paid-in capital. As a result of this tender, 220 options were put back into the option pool and 23 shares were retired with an $868 decrease to Additional paid-in capital.

Upon the IPO, vesting of stock option grants to certain executive officers were accelerated, which resulted in an additional $5,574 of compensation expense during the year ended December 31, 2021. This is included within General and administrative in the Consolidated Statement of Operations and Comprehensive Loss.