Yahoo 2009 Annual Report Download - page 106

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Yahoo! Inc.
Notes to Consolidated Financial Statements—(Continued)
awards recorded in cash flows from operating activities with an equivalent reduction to the amount of excess tax
benefits recorded in cash flows from financing activities. This reclassification had no impact on overall cash
flows. The amounts that impacted income tax expense and earnings in equity interests also increased diluted
earnings per share by $0.01 for the year ended December 31, 2007. The Company believes that the
aforementioned amounts are not material to reported amounts for 2007, 2006, or earlier years and therefore the
Company has corrected them in the 2007 consolidated financial statements.
CEO Inducement Option and Make-up Equity. On January 30, 2009, Carol Bartz, the Company’s CEO, was
granted a stock option covering 5.0 million shares of the Company’s common stock, with a per share exercise
price of $11.73 (the closing price of the common stock on the grant date) and a maximum term of seven years
(“Inducement Option”). Vesting of the Inducement Option is dependent on whether the average closing price for
the Company’s common stock for twenty consecutive trading days prior to January 1, 2013 (or the price
immediately preceding a change in control of the Company if it occurs pursuant to an agreement signed before
that date) exceeds certain levels that range from 150 percent to 300 percent ($17.60 to $35.19) of Yahoo!’s
closing stock price on the date of grant of the Inducement Option. As of December 31, 2009, no portion of the
award has vested. Any shares acquired by Ms. Bartz upon exercise of the Inducement Option must be held until
January 1, 2013, except in the event of her death or a change in control. The Company determined the grant-date
fair value of the Inducement Option to be $27 million and the weighted average derived requisite service period
of the award to be 1.2 years. The grant-date fair value of the Inducement Option will be expensed over the
weighted average derived requisite service period.
In addition, to compensate Ms. Bartz for the forfeiture of the value of equity grants and post-employment
medical coverage from her previous employer, the Company granted Ms. Bartz an award comprised of $2.5
million in cash and restricted stock with a grant-date fair value of $7.5 million, which vested in four equal
quarterly installments in 2009 (the “Make-Up Grant”). The Make-Up Grant is subject to certain clawback
provisions in the event of a termination of Ms. Bartz’s employment by the Company for cause or by Ms. Bartz
without good reason (as those terms are defined in her employment agreement) during the term of the
employment agreement. The value of the Make-Up Grant was expensed ratably through 2009.
Performance-Based Executive Incentive Restricted Stock Units. In February 2009, the Compensation Committee
approved long-term performance-based incentive equity awards to Ms. Bartz and other senior officers, including
two types of restricted stock units that vest based on the Company’s achievement of certain performance goals.
The first type of restricted stock unit generally will vest on the third anniversary of the grant date based on the
Company’s attainment of certain annual operating cash flow targets as well as the executive’s continued
employment through that vesting date. The second type of restricted stock unit generally will vest following the
third anniversary of the grant date based on the Company’s attainment of certain levels of total stockholder return
relative to the returns for the NASDAQ 100 Index companies as well as the executive’s continued employment
through that vesting date. For both types of restricted stock units, the number of shares which ultimately vest will
range from 0 percent to 200 percent of the target amount stated in each executive’s award agreement based on the
performance of the Company relative to the applicable performance target. The amount of stock-based
compensation recorded for the first type of restricted stock unit will vary depending on the Company’s
attainment of the operating cash flow target and the completion of the service period. The amount of stock-based
compensation recorded for the second type of restricted stock unit will vary depending only on the completion of
the service period. The aggregate fair value of these two types of restricted stock units on the date of grant of $3
million and $13 million, respectively, will be recognized over the three-year service periods.
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