Yahoo 2007 Annual Report Download - page 104

acquire Yahoo! is inadequate and that the Yahoo! Board of Directors breached fiduciary duties by favoring
Microsoft’s unsolicited proposal. The plaintiffs in the other California Lawsuits allege that the Yahoo! Board of
Directors breached fiduciary duties by, among other things, failing to negotiate a transaction with Microsoft or other
potential bidders in the past and presently. The complaints in the California Lawsuits seek declaratory and
injunctive relief, as well as an award of plaintiffs’ attorneys’ fees and costs. With respect to the derivative claims, no
relief is sought from the Company.
Since February 11, 2008, three separate shareholder lawsuits have been filed in the Court of Chancery of the State of
Delaware against Yahoo! Inc. and members of the Board of Directors by plaintiffs, The Wayne County Employees’
Retirement System, Ronald Dicke, and The Police and Fire Retirement System of the City of Detroit along with The
General Retirement System of the City of Detroit (the “Delaware Lawsuits”). The plaintiffs in the Delaware
Lawsuits purport to assert class claims on behalf of all Yahoo! stockholders, except defendants and their affiliates.
Plaintiffs in the Delaware Lawsuits generally allege that defendants breached fiduciary duties by rejecting
Microsoft’s February 1, 2008 unsolicited offer to acquire Yahoo! Inc. without fully informing themselves whether
Microsoft would offer additional consideration and that defendants are not acting in the best interests of
shareholders and are seeking to entrench themselves. One of the Delaware Lawsuits alleges that the Board of
Directors have pursued various blocking transactions, adopted an employee severance plan, and a shareholder rights
plan in violation of fiduciary duties. The complaints in the Delaware Lawsuits seek unspecified damages,
declaratory relief and injunctive relief, as well as an award of plaintiffs’ attorneys’ fees and costs.
The Company may incur substantial expenses in defending against such claims, and it is not presently possible to
accurately forecast their outcome. The Company does not believe, based on current knowledge, that any of the
foregoing legal proceedings or claims are likely to have a material adverse effect on its financial position, results of
operations or cash flows. In the event of a determination adverse to Yahoo!, its subsidiaries, directors or officers, the
Company may incur substantial monetary liability, and be required to change its business practices. Either of these
could have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Note 14 LITIGATION SETTLEMENT
In April 2002, the Company’s wholly owned subsidiary, Overture, filed a lawsuit against Google Inc. (“Google”) in
the United States District Court for the Northern District of California with respect to a patent which protected
various features and innovations relating to bid-for-performance products and Overture’s pay-for-performance
(sponsored) search technologies. In addition, the Company had a second dispute with Google concerning the shares
issuable to the Company pursuant to a warrant held by the Company to purchase Google shares that were received in
connection with a June 2000 services agreement.
In August 2004, Google issued 2.7 million shares of Class A common stock in settlement of the two disputes. The
Company agreed to dismiss the 361 patent lawsuits and granted to Google a fully-paid license to the 361 patent as
well as several related patent applications held by Overture. The Company allocated the 2.7 million shares between
the two disputes, based on the relative fair values of the two disputes, including consideration of a valuation
performed by a third-party. A portion of the shares allocated to the patent dispute has been recorded as an
adjustment to goodwill for the period that the patents were in effect prior to Overture’s acquisition by the Company.
The portion of the shares received for the settlement of the patent dispute which has been allocated to future periods
has been recorded in deferred revenue on the consolidated balance sheets and will be recognized as fees revenues
over the remaining life of the patent, approximately 12 years. The shares allocated to the warrant dispute settlement
did not have an income statement effect as the fair value of the warrant was recorded at the time the services were
performed based on the fair value of the services rendered.
During the year ended December 31, 2004, the Company disposed of approximately 4.0 million shares of Google
and realized gains of $413 million, net of selling costs, which were included in other income, net on the consolidated
statements of income. During the year ended December 31, 2005 the Company sold the remaining Google shares
and realized gains of $961 million, which were recorded in other income, net.
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Yahoo! Inc.
Notes to Consolidated Financial Statements — (Continued)