Google 2007 Annual Report Download - page 103

Google Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
At December 31, 2006 and December 31, 2007 there were 20,410,337 and 14,553,423 shares of common stock
reserved for future issuance.
Stock Plans
We maintain the 1998 Stock Plan, the 2000 Stock Plan, the 2003 Stock Plan, the 2003 Stock Plan (No. 2), the 2003
Stock Plan (No. 3), the 2004 Stock Plan and plans assumed through acquisitions, all of which are collectively referred to as
the “Stock Plans.” Under our Stock Plans, incentive and nonqualified stock options or rights to purchase common stock
may be granted to eligible participants. Options are generally granted for a term of 10 years. Options granted under the
Stock Plans generally vest 25% after the first year of service and ratably each month over the remaining 36 month period
contingent upon employment with us on the date of vest. Options granted under Stock Plans other than the 2004 Stock
Plan may be exercised prior to vesting.
Under the stock plans, we have also issued RSUs and restricted shares. An RSU award is an agreement to issue shares
of our stock at the time of vest. RSUs issued to new employees vest over four years with a yearly cliff contingent upon
employment with us on the dates of vest. These RSUs vest from zero to 37.5 percent of the grant amount at the end of
each of the four years from date of hire based on the employee’s performance. RSUs under the Founders’ Award programs
are issued to individuals on teams that have made extraordinary contributions to Google. These awards vest quarterly over
four years contingent upon employment with us on the dates of vest.
We estimated the fair value of each option award on the date of grant using the BSM option pricing model. Our
assumptions about stock-price volatility have been based exclusively on the implied volatilities of publicly traded options
to buy our stock with contractual terms closest to the expected life of options granted to our employees applying the
guidance provided by Staff Accounting Bulletin No. 107, Share-Based Payment. Through the third quarter of 2007, our
assumptions about the expected term have been based on that of companies that have option vesting and contractual
terms, expected stock volatility and employee demographics and physical locations that are similar to ours because we had
limited relevant historical information to support the expected sale and exercise behavior of our employees who had been
granted options recently. Commencing in the fourth quarter of 2007, we began to estimate the expected term based upon
the historical behavior of our employees. The risk-free interest rate for periods within the contractual life of the award is
based on the U.S. Treasury yield curve in effect at the time of grant.
The fair value of share-based payment awards was estimated using the BSM option pricing model with following
assumptions and weighted average fair values:
Year Ended December 31,
2005 2006 2007
Risk-free interest rate ........................................................ 3.86% 4.70% 4.37%
Expected volatility ........................................................... 36% 34% 34%
Expected life (in years) ....................................................... 3.1 3.6 5.1
Dividend yield .............................................................. — — —
Weighted-average estimated fair value of options granted during the year .............. $78.58 $158.59 $213.56
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