First Data 2007 Annual Report Download - page 209

Chase Paymentech
NOTES TO COMBINED FINANCIAL STATEMENTS – CONTINUED
For the years ended December 31, 2007 and 2006 and
the year ended December 31, 2005 (unaudited)
The Stock Option Plan allows for grants of options to purchase up to 10 million shares of Class B Common Stock of Paymentech, Inc. ($0.01 par value) (the
Shares). The options are granted with exercise prices equal to or greater than the fair market value of Paymentech, Inc.'s stock on the date of grant; have
graded vesting over a period of three years with 50% of the award vesting on the second anniversary of the date of grant, and the remaining 50% on the third
anniversary of the date of grant; and expire 10 years from the date of grant.
Upon exercise of the options for the issuance of Shares, the Shares become subject to both put and call redemption features. Holders of Shares may require the
Company to repurchase any or all of such holder's Shares during the period beginning on the 180th day following the date of issuance of such Shares and
ending at the end of the 200th day following the date of issuance of such Shares. If the holder does not elect to exercise their put right, the Company has the
right, but not the obligation, to call for purchase any or all of such holder's Shares at any time beginning on the 201st day following the date of issuance. In
either event, the purchase price for such Shares will be the fair market value of such Shares on the date of redemption. In addition to these restrictions, in the
event the shareholder does not exercise their put rights and the Company does not exercise its call rights, the shareholder is obligated to offer their Shares to
the Company for purchase upon the same terms they propose to sell such Shares to a third party. When options are exercised, the Company issues new shares.
Accelerated Vesting and Modifications
The Stock Option Plan provides that, in the event of changes in equity securities by reason of change in capitalization, such as a reclassification,
recapitalization, merger, consolidation, reorganization or other similar event, appropriate adjustments in the aggregate number of Shares subject to the Stock
Option Plan and/or the exercise price and number of Shares purchasable upon the exercise of any option previously granted will be made. Additionally, the
plan provides that upon such events, any unvested options would become fully vested.
As a result of JPMorgan Chase's merger with Bank One in July 2004, which was a change in control under the Stock Option Plan, all outstanding options
became fully vested. As a result of the October 1, 2005 integration of CMS into the Company, which had a dilutive effect for the entity which provides the
Stock Option Plan, the Company modified the exercise prices and number of outstanding options to maintain the value of the options to the option holders.
The modification affected 241 option holders. As the value of the options was the same before and after the modification, no incremental expense was
recorded in 2005 as a result of the modification.
The following schedule summarizes stock option activity for the year ended December 31, 2007 (in thousands, except per share data):
Number of
options
Weighted-
average
exercise
price
Weighted-
average
remaining
life (years)
Outstanding at December 31, 2006 360 $ 25.10
Exercised (92) $ 24.93
Forfeited or expired (9) $ 21.68
Outstanding at December 31, 2007 259 $ 25.28 3.9
Options exercisable at December 31, 2007 259 $ 25.28 3.9
The Company made no option grants and recognized no compensation cost related to options in 2007, 2006 or 2005. Tax expense related to stock option
activity was $67 thousand, and $690 thousand for the years ended December 31, 2006 and 2005 respectively. No tax expense was recognized in 2007 related
to stock option activity.
As a result of the redemption features in the Stock Option Plan, the Company expects to repurchase 61 thousand outstanding Shares in 2008.
The intrinsic value of options outstanding and exercisable as of December 31, 2007 was $5.6 million. The total intrinsic value of options exercised during the
years ended December 31, 2007, 2006, and 2005, was $1.9 million, $3.9 million, and $9.0 million, respectively.
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