First Data 2012 Annual Report Download - page 98

FIRST DATA CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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
b
ased 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-
b
ased 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, 2012 there was approximately $99 million of total unrecognized compensation expense related to non-
vested stock options. Approximately $5 million will be recognized over a period of approximately two years while approximately $94
million will only be recognized upon a qualified public offering or certain liquidity or employment termination events.
During 2012, 2011, and 2010, Holdings paid $3.1 million, $2.9 million, and $21.9 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, 2012, 2011 and 2010 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):
(a) The fair value of the stock increased from $3.00 to $3.50 effective March 31, 2012.
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.
98
Year ended December 31,
2012 2011 2010
Risk-free interest rate 1.45%2.86%3.03%
Dividend yield
—
—
—
Volatility 51.77%54.65%51.40%
Expected term (in years) 7 7 7
Fair value of stock (a) $3.00 $3.00 $3.00
Fair value of options $1.60
$1.73 $1.66