First Data 2010 Annual Report Download - page 107

Table of Contents
FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
stock paid to employees continuing with the Company. During the years ended December 31, 2010, 2009, and 2008, FDC recognized $3.2 million, $1.9
million and $2.4 million, respectively, of stock compensation expense (included in total stock-based compensation expense noted above) due to certain
repurchase features associated with the Holdings shares so issued. FDC subsequently purchased Holdings' interest in Money Network for an amount
equivalent to the value of the shares issued by Holdings as purchase consideration (excess of value of shares issued by Holdings over the stock compensation
expense to be recognized).
In 2008, the Board of Directors approved 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 will be
treated as if credited with a number of shares of Holdings stock determined by dividing the deferred amount by the first fair value of the stock approved
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 were recorded as a liability and are adjusted to fair value
quarterly. As of December 31 2010, the balance of this liability was $0.4 million.
Stock Options
During the years ended December 31, 2010, 2009 and 2008, time options and performance options were granted under the stock plan. The time options
and performance options have a contractual term of 10 years. Time options vest equally over a three to five year period from the date of issuance and
performance options vest based upon the Company achieving certain EBITDA targets. The options also have certain accelerated vesting provisions upon a
change in control, a qualified public offering, or certain termination events.
In May 2010, the Company modified the terms of time based options and performance based options outstanding under the stock plan. The
modifications only affected active employees as of the modification date. The exercise price on previously granted time based options was reduced from $5 to
$3. The Company is continuing to recognize expense on these options based on the original grant date fair value amortized over the remaining original vesting
schedule. Due to the nature of the call rights associated with the time based options, subsequent to the modification, which expire 180 days after certain
employment termination events or the latter of September 24, 2012 or a qualified public offering, the incremental stock option fair value from the change in
exercise price will only be recognized upon such events. Prior to the modifications, the call rights expired 180 days after certain employment termination
events or the earlier of September 24, 2012 or a change in control. In addition, outstanding performance based options were cancelled and reissued. The
reissued performance based options have an exercise price of $3 and a tiered vesting schedule that provides for vesting of 25%, 75% or 100% of the options if
the Company achieves certain EBITDA targets in any fiscal year between January 1, 2010 and December 31, 2013. The performance based options have call
rights similar to the time based options described above. Due to the call rights, the Company will only recognize expense on the performance based options
upon a qualified public offering or certain employment termination events. In conjunction with the above noted modifications, stock plan participants also
received a cash bonus payment in the second quarter of 2010 totaling $7.8 million.
As of December 31, 2010 there was approximately $110 million of total unrecognized compensation expense, net of estimated forfeitures, related to
non-vested stock options. Approximately $31 million will be recognized over a weighted-average period of approximately 2.9 years while approximately $79
million will only be recognized upon a qualified public offering or certain termination events.
During 2010, 2009, and 2008, Holdings paid $21.9 million, $4.5 million, and $3.8 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, 2010, 2009 and 2008 were estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average assumptions (excluding the effect of stock plan modifications):
Year ended December 31,
2010 2009 2008
Risk-free interest rate 3.03% 3.21% 3.39%
Dividend yield — — —
Volatility 51.40% 53.58% 55.53%
Expected term (in years) 7 7 7
Fair value of stock $ 3 $ 3 $ 5
Fair value of options $ 2 $ 2 $ 3
106