Yahoo 2010 Annual Report Download - page 96

exercised in current and prior periods. The Company has accumulated excess tax deductions relating to stock
options exercised prior to January 1, 2006 available to reduce income taxes otherwise payable. To the extent such
deductions reduce income taxes payable in the current year, they are reported as financing activities in the
consolidated statements of cash flows.
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 20 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, 2010, 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 was 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.
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 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 financial
performance targets as well as the executive’s continued employment through that vesting date. The annual
financial performance targets are established at the beginning of each fiscal year and, accordingly, the tranche of
the award subject to each annual target is treated as a separate annual grant for accounting purposes. The fair
value of each of the 2009 tranche and the 2010 tranche of the February 2009 annual financial performance
restricted stock unit grant was $3 million. Based on the Company’s relative attainment of the 2009 performance
target, 75 percent of the target amount of the 2009 tranche shares will vest, provided each executive remains
employed through the third anniversary of the grant date. For accounting purposes, the 2009 and 2010 tranches
are being recognized as stock-based compensation expense over a three- and two-year service period,
respectively. 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. The fair value of these restricted stock units is $13 million and is being recognized as stock-based
compensation expense over a three-year service period.
Separately in February 2010, the Compensation Committee approved additional 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. 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
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