Home Shopping Network 2008 Annual Report Download - page 61

HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
58
HSNi can grant restricted stock units ("RSUs"), stock options, stock appreciation rights (“SARs”) and other
stock-based awards under the Plan. Stock-based awards have a maximum term of 10 years. The exercise price of
options and SARs granted under the Plan are required to be priced at, or above, the fair market value of HSNi’s
stock on the date of grant.
Modification of Stock-Based Compensation Awards
In conjunction with the spin-off, IAC share-based awards were converted to equivalent share-based awards
(“Adjusted Awards”) as follows:
• All unexercised stock option awards granted on or prior to December 31, 2007 to purchase shares of
IAC common stock, whether vested or unvested, converted into an option to purchase shares of
common stock of each of the five public-traded companies resulting from the spin-off (the "Spincos").
• Certain unvested RSUs were accelerated immediately prior to the spin-off, with awards thereafter
settled in shares of common stock of each of the Spincos.
• Performance-based RSUs granted in 2007 were converted into non-performance based RSUs with the
same vesting schedules, with awards that will settle in shares of common stock of each of the Spincos.
• Unvested RSUs granted by IAC that provide for vesting of 100% of the award following passage of a
multi-year period (cliff vesting awards) will settle in shares of common stock of each of the Spincos.
• All other IAC RSUs held by HSNi employees that did not convert or vest as described above
converted into an RSU award of HSNi at the spin-off date.
• All equity-based awards granted after December 31, 2007 to employees of HSNi converted into
awards of common stock of HSNi.
The adjustments to the number of shares subject to each award and the stock option exercise prices were
based on the relative market capitalization of IAC and each of the Spincos following the spin-off. The conversion
was accounted for as a modification under the provisions of SFAS No. 123R and resulted in additional fair value
that was recognized immediately for fully vested awards and will be amortized over the remaining service period for
unvested awards. These modifications affected all current and former employees of HSNi, HSN and Cornerstone
who were holding vested and unvested stock-based compensation awards on August 11, 2008.
These modifications resulted in additional compensation expense of approximately $10.9 million, of which
approximately $8.3 million was recorded during the year ended December 31, 2008 related to awards that had
vested and the remainder will be recognized over the vesting period of the unvested awards.
Approximately 197,000 fully vested RSUs that were modified in connection with the spin-off were not
released until January 2009. These deferred awards were settled in cash, stock or both as determined by the
employee. HSNi follows the guidance of SFAS No. 123R and accounts for these awards as liabilities, which are
marked to market each reporting period through earnings. As of December 31, 2008, a liability equal to their
intrinsic value of approximately $1.4 million was recorded for these awards.
Restricted Stock Units
RSUs are awards in the form of phantom shares or units that are denominated in a hypothetical equivalent
number of shares of our common stock. At the time of grant, HSNi determines if the RSUs will be settled in cash,
stock or both. The value to the holder of the RSU is based upon the market value of our stock when the RSUs vest.
Compensation expense for RSUs granted under the Plan is measured at the grant date as the fair market value of
HSNi’s common stock and expensed ratably over the vesting term. Compensation expense for RSUs granted prior
to the spin-off was measured as the fair value of IAC common stock on the original grant date plus any additional