First Data 2013 Annual Report Download - page 98

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The Company has a deferred compensation plan for non-employee directors that allows each of these directors to defer their annual compensation. The
plan is unfunded. For purposes of determining the investment return on the deferred compensation, each director’s account is treated as if credited with a
number of shares of Holdings stock determined by dividing the deferred compensation amount by the first Board approved fair value of the stock during the
year. The account balance will be paid in cash upon termination of Board service, certain liquidity events or other certain events at the fair value of the stock at
the time of settlement. Due to the cash settlement provisions, the account balances are recorded as a liability and are adjusted to fair value quarterly. As of
December 31, 2013, the balance of this liability was $0.7 million.
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During the years ended December 31, 2013, 2012 and 2011, time-based options were granted under the stock plan and during the year ended
December 31, 2011, performance-based options were granted under the stock plan. The time-based options have a contractual term of 10 years. Time-based
options vest equally over a three to five year period from the date of issuance and performance-based options vested based upon the Company achieving certain
EBITDA targets by 2013. The performance-based options were cancelled in December 2013. The outstanding time-based options also have certain accelerated
vesting provisions that become effective upon a change in control, a qualified public offering, or certain termination events.
In May 2010, the Company modified the terms of options outstanding under the stock plan. The Company is continuing to recognize expense on
options granted prior to the modification based on the original grant date fair value amortized over the remaining original vesting schedule. Subsequent to the
modification, stock-based compensation expense will be recognized only upon certain events as described above.
As of December 31, 2013 there was approximately $138 million of total unrecognized compensation expense related to non-vested stock options.
Approximately $2 million will be recognized over a period of approximately one year while approximately $136 million will only be recognized upon a
qualified public offering or certain liquidity or employment termination events.
During 2013, 2012, and 2011, Holdings paid $21.8 million, $3.1 million, and $2.9 million, respectively, to repurchase shares from employees that
terminated employment with the Company.
The fair value of Holdings stock options granted for the years ended December 31, 2013, 2012 and 2011 were estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average assumptions:
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Risk-free interest rate 1.40%1.45%2.86%
Dividend yield ———
Volatility 56.61%51.77%54.65%
Expected term (in years) 777
Fair value of stock (a) $3.50 $3.00 $3.00
Fair value of options $1.99 $ 1.60 $ 1.73
(a) The fair value of the stock increased from $3.00 to $3.50 effective March 31, 2012. Effective December 31, 2013, the fair value of the stock increased
from $3.50 to $4.00.
Risk-free interest rate—The risk-free rate for stock options granted during the period was determined by using a zero-coupon U.S. Treasury rate for
the periods that coincided with the expected terms listed above.
Expected dividend yield—No routine dividends are currently being paid by Holdings, or are expected to be paid in future periods.
Expected volatility—As Holdings is a non-publicly traded company, the expected volatility is based on the historical volatilities of a group of guideline
companies.
Expected term—The Company estimated the expected term by considering the historical exercise and termination behavior of employees that
participated in the Company’s previous equity plans, the vesting conditions of options granted under the stock plan, as well as the impact of limited liquidity
for common stock of a non-publicly traded company.
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