Hertz 2008 Annual Report Download - page 138

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
management and the Compensation Committee of the Board of Directors in their determination of the
value of the common stock of Hertz Holdings, an independent valuation was performed as of
immediately before and after the modification. We will recognize incremental compensation cost of
approximately $14.1 million related to the cost of modifying the exercise prices of the stock options for
the special cash dividend over the remainder of the five-year requisite vesting period that began on the
grant date.
Prior to the consummation of the initial public offering of the common stock of Hertz Holdings on
November 21, 2006, Hertz Holdings declared a special cash dividend, to be paid promptly following the
completion of the offering. In connection with the special cash dividend, Hertz Holdings’ outstanding
stock options were adjusted to preserve the intrinsic value of the options, consistent with applicable tax
law and the terms of the Stock Incentive Plan. The Board approved this modification on October 12,
2006. Beginning on that date, the cost of the modification was recognized ratably over the remainder of
the requisite service period for each grant. Because the modification was effective before the amount of
the dividend was known, the cost of the modification reflected the assumption that the dividend would
be funded by the proceeds to Hertz Holdings from the sale of the common stock after deducting
underwriting discounts and commissions and offering expenses. The assumed proceeds from the sale
of the common stock were determined by assuming an offering price equivalent to the midpoint of the
range set forth on the cover page of the initial public offering prospectus (or $17.00 per share) and
resulted in an estimated dividend of $1.83 per share. The actual dividend declared was $1.12 per share.
We will recognize incremental compensation cost of $14.2 million related to the cost of modifying the
exercise prices of the stock options for the special cash dividend paid on November 21, 2006 over the
remainder of the five-year requisite service period. This charge was based on the estimated dividend,
rather than the actual dividend paid.
In May 2007, Hertz Holdings granted options to acquire 1,029,007 shares of Hertz Holdings’ common
stock to key executives, employees and non-management directors at exercise prices ranging from
$20.55 to $21.87. In August 2007, Hertz Holdings granted options to acquire 510,000 shares of Hertz
Holdings’ common stock to certain executives, including an award to Mark P. Frissora, our Chief
Executive Officer, at exercise prices ranging from $22.61 to $23.06. In November 2007, Hertz Holdings
granted options to acquire 232,000 shares of Hertz Holdings’ common stock to certain executives at
exercise prices ranging from $17.14 to $21.22. These options are subject to and governed by the terms
of the Stock Incentive Plan, and the Director Plan. We have accounted for our employee stock-based
compensation awards in accordance with SFAS No. 123R, ‘‘Share-Based Payment.’’ The options are
being accounted for as equity-classified awards.
In February 2008, we granted options to acquire 2,481,440 shares of our common stock to key
executives and employees at exercise prices ranging from $12.74 to $12.97 under the Stock Incentive
Plan and the Director Plan. These options are subject to and governed by the terms of the Stock
Incentive Plan and the Director Plan.
On February 28, 2008, our Board of Directors adopted the Omnibus Plan, which was approved by our
stockholders at the annual meeting of stockholders held on May 15, 2008. The Omnibus Plan provides
for grants of both equity and cash awards, including non-qualified stock options, incentive stock options,
stock appreciation rights, performance awards (shares and units), restricted stock, restricted stock units
and deferred stock units to key executives, employees and non-management directors.
The Omnibus Plan provides that no further awards will be granted pursuant to the Stock Incentive Plan
and the Director Plan, or the ‘‘Prior Plans.’’ However, awards that had been previously granted pursuant
to the Prior Plans will continue to be subject to and governed by the terms of the Prior Plans. As of
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