First Data 2011 Annual Report Download - page 105

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, 2011, the balance of this liability was $0.5 million.
Stock Options
During the years ended December 31, 2011, 2010 and 2009, time-based options and performance-based options were granted
under the stock plan. The time-based options and performance-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 vest based upon the Company
achieving certain EBITDA targets. The 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 time-based options and substantially all 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. Subsequent to the modification, due
to the nature of the call rights associated with the time-based options, 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 and the total fair value of time-based options issued since the modification date will only be recognized upon the
occurrence of 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, substantially all 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 the same call rights as the time-based options described
above. Due to the call rights, the Company will only recognize expense on the performance-based options upon certain employment
termination events or the latter of September 24, 2012 or a qualified public offering. 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, 2011 there was approximately $101 million of total unrecognized compensation expense, net of estimated
forfeitures, related to non-vested stock options. Approximately $15 million will be recognized over a weighted-average period of
approximately 1.9 years while approximately $86 million will only be recognized upon a qualified public offering or certain liquidity
or employment termination events.
During 2011, 2010, and 2009, Holdings paid $2.9 million, $21.9 million, and $4.5 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, 2011, 2010 and 2009 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,
2011 2010 2009
Risk-free interest rate 2.86% 3.03% 3.21%
Dividend yield — — —
Volatility 54.65% 51.40% 53.58%
Expected term (in years) 7 7 7
Fair value of stock $ 3 $ 3 $ 3
Fair value of options $ 1.73 $ 1.66 $ 1.71
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.
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