Sohu.com Inc. Shareholders' Equity | 9 Months Ended |
Sep. 30, 2013 |
Sohu.com Inc. Shareholders' Equity [Abstract] | ' |
Sohu.com Inc. Shareholders' Equity | ' |
10. Sohu.com Inc. Shareholders’ Equity |
Takeover Defense |
Sohu intends to adopt appropriate defensive measures in the future on a case by case basis as and to the extent that Sohu’s Board of Directors determines that such measures are necessary or advisable to protect Sohu stockholder value in the face of any coercive takeover threats or to prevent an acquirer from gaining control of Sohu without offering fair and adequate price and terms. |
Treasury Stock |
Treasury stock consists of shares repurchased by Sohu that are no longer outstanding and are held by Sohu. Treasury stock is accounted for under the cost method. |
On July 27, 2013, Changyou’s Board of Directors authorized a share repurchase program of up to $100 million of the outstanding ADSs of Changyou over a two-year period from July 27, 2013 to July 26, 2015. As of September 30, 2013, Changyou had repurchased 305,800 of its ADSs, representing 611,600 ordinary shares under the share repurchase program at an aggregate cost of approximately $9.1 million. |
Stock Incentive Plan |
Sohu, Changyou, Sogou, Sohu Video and 7Road all have incentive plans for the granting of share-based awards, including common stock /ordinary shares, share options, restricted shares and restricted share units, to their directors, executive officers, and employees. |
1) Sohu.com Inc. Share-based Awards |
Sohu’s 2000 Stock Incentive Plan |
Sohu’s 2000 Stock Incentive Plan (the “Sohu 2000 Stock Incentive Plan”) provided for the issuance of up to 9,500,000 shares of common stock, including those issued pursuant to the exercise of share options and upon vesting and settlement of restricted share units. Most of these awards vest over a period of four years. The maximum term of any issued stock right under the Sohu 2000 Stock Incentive Plan is ten years from the grant date. The Sohu 2000 Stock Incentive Plan expired on January 24, 2010. As of the expiration date, 9,128,724 shares of common stock had been issued or were subject to issuance upon the vesting and exercise of share options or the vesting and settlement of restricted share units granted under the plan. A new plan (the “Sohu 2010 Stock Incentive Plan”) was adopted on July 2, 2010. |
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For the three and nine months ended September 30, 2013, total share-based compensation expense recognized for awards under the Sohu 2000 Stock Incentive Plan was $0.5 million and $1.7 million, respectively. For the three and nine months ended September 30, 2012, total share-based compensation expense recognized for awards under the Sohu 2000 Stock Incentive Plan was $1.2 million and $3.9 million, respectively. |
i) Summary of share option activity |
A summary of share option activity under the Sohu 2000 Stock Incentive Plan as of and for the nine months ended September 30, 2013 is presented below: |
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| | | | | | | | | | | | | | | | |
| | | | | | | | Weighted | | | | |
| | Number | | | Weighted | | | Average | | | Aggregate | |
| | Of | | | Average | | | Remaining | | | Intrinsic | |
| | Shares | | | Exercise | | | Contractual | | | Value (1) | |
Options | | (in thousands) | | | Price | | | Life (Years) | | | (in thousands) | |
Outstanding at January 1, 2013 | | | 242 | | | $ | 19.36 | | | | 1.91 | | | $ | 6,781 | |
Exercised | | | (63 | ) | | | 15.06 | | | | | | | | | |
Forfeited or expired | | | (1 | ) | | | 9.07 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at September 30, 2013 | | | 178 | | | | 20.91 | | | | 1.43 | | | | 10,336 | |
| | | | | | | | | | | | | | | | |
Vested at September 30, 2013 | | | 178 | | | | 20.91 | | | | 1.43 | | | | 10,336 | |
| | | | | | | | | | | | | | | | |
Exercisable at September 30, 2013 | | | 178 | | | | 20.91 | | | | 1.43 | | | | 10,336 | |
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Note (1): | The aggregate intrinsic value in the preceding table represents the difference between Sohu’s closing stock price of $78.83 on September 30, 2013 and the exercise price of share options. The total intrinsic value of share options exercised for the nine months ended September 30, 2013 was $2.3 million. | | | | | | | | | | | | | | | |
No options have been granted under Sohu’s 2000 Stock Incentive Plan since 2006. For the three and nine months ended September 30, 2013 and 2012, no compensation expense was recognized for share options because the requisite service periods for share options had ended by the end of 2009. |
For the three and nine months ended September 30, 2013, total cash received from the exercise of share options amounted to $0.1 million and $1.0 million, respectively. For the three and nine months ended September 30, 2012, total cash received from the exercise of share options amounted to $101,000 and $240,000, respectively. |
ii) Summary of restricted share unit activity |
A summary of restricted share unit activity under the Sohu 2000 Stock Incentive Plan as of and for the nine months ended September 30, 2013 is presented below: |
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| | | | | | | | | | | | | | | | |
| | Number of | | | Weighted-Average | | | | | | | | | |
| | Units | | | Grant-Date | | | | | | | | | |
Restricted Share Units | | (in thousands) | | | Fair Value | | | | | | | | | |
Unvested at January 1, 2013 | | | 255 | | | $ | 61.27 | | | | | | | | | |
Granted | | | 0 | | | | | | | | | | | | | |
Vested | | | (127 | ) | | | 61.27 | | | | | | | | | |
Forfeited | | | (4 | ) | | | 61.27 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Unvested at September 30, 2013 | | | 124 | | | | 61.27 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Expected to vest thereafter | | | 93 | | | | 61.27 | | | | | | | | | |
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For the three and nine months ended September 30, 2013, total share-based compensation expense recognized for restricted share units was $0.5 million and $1.7 million, respectively. For the three and nine months ended September 30, 2012, total share-based compensation expense recognized for restricted share units was $1.2 million and $3.9 million, respectively. |
As of September 30, 2013, there was $0.6 million of unrecognized compensation expense related to unvested restricted share units. The expense is expected to be recognized over a weighted average period of 0.29 years. The total fair value on their respective vesting dates of restricted share units vested during the three and nine months ended September 30, 2013 was nil and $6.2 million, respectively. The total fair value on their respective vesting dates of restricted share units vested during the three and nine months ended September 30, 2012 was nil and $8.9 million, respectively. |
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Sohu’s 2010 Stock Incentive Plan |
On July 2, 2010, Sohu adopted the Sohu 2010 Stock Incentive Plan, which provides for the issuance of up to 1,500,000 shares of common stock, including those issued pursuant to the vesting and settlement of restricted share units and pursuant to the exercise of share options. The maximum term of any issued stock right under the Sohu 2010 Stock Incentive Plan is ten years from the grant date. The Sohu 2010 Stock Incentive Plan will expire on July 1, 2020. As of September 30, 2013, 1,455,422 shares were available for grant under the Sohu 2010 Stock Incentive Plan. |
A summary of restricted share unit activity under the Sohu 2010 Stock Incentive Plan as of and for the nine months ended September 30, 2013 is presented below: |
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| | | | | | | | | | | | | | | | |
| | Number of | | | Weighted-Average | | | | | | | | | |
| | Units | | | Grant-Date | | | | | | | | | |
Restricted Share Units | | (in thousands) | | | Fair Value | | | | | | | | | |
Unvested at January 1, 2013 | | | 5 | | | $ | 70.88 | | | | | | | | | |
Granted | | | 14 | | | | 48.75 | | | | | | | | | |
Vested | | | (7 | ) | | | 48.75 | | | | | | | | | |
Forfeited | | | (2 | ) | | | 70.88 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Unvested at September 30, 2013 | | | 10 | | | | 55.84 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Expected to vest thereafter | | | 9 | | | | 54.41 | | | | | | | | | |
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For the three and nine months ended September 30, 2013, total share-based compensation expense recognized for restricted share units was $0.2 million and $0.6 million, respectively. For the three and nine months ended September 30, 2012, total share-based compensation expense recognized for restricted share units was $0.2 million and $0.6 million, respectively. |
As of September 30, 2013, there was $0.3 million of unrecognized compensation expense related to unvested restricted share units. The expense is expected to be recognized over a weighted average period of 0.4 years. The total fair value on their respective vesting dates of restricted share units vested during both the three months and the nine months ended September 30, 2013 was $0.4 million. The total fair value on their respective vesting dates of restricted share units vested during both the three months and the nine months ended September 30, 2012 was $0.25 million. |
2) Changyou.com Limited Share-based Awards |
Changyou’s 2008 Share Incentive Plan |
Changyou’s 2008 Share Incentive Plan (the “Changyou 2008 Share Incentive Plan”) originally provided for the issuance of up to 2,000,000 ordinary shares, including those issued pursuant to the exercise of share options and upon vesting and settlement of restricted share units. In March 2009, the 2,000,000 reserved ordinary shares were subject to a ten-for-one share split effected by Changyou and became 20,000,000 ordinary shares. Most of these awards vest over a period of four years. The maximum term of any issued share right under the Changyou 2008 Share Incentive Plan is ten years from the grant date. The Changyou 2008 Share Incentive Plan will expire in August 2018. |
As of September 30, 2013, Changyou had granted under the Changyou 2008 Share Incentive Plan 15,000,000 ordinary shares to Tao Wang, through Prominence Investments Ltd. (“Prominence”) and 4,781,552 restricted share units to certain of its executive officers other than Tao Wang, and to certain of its other employees. Prominence is an entity that may deemed under applicable rules of the Securities and Exchange Commission to be beneficially owned by Tao Wang. |
For the three and nine months ended September 30, 2013, total share-based compensation expense recognized for awards under the Changyou 2008 Share Incentive Plan was $0.3 million and $0.9 million, respectively. For the three and nine months ended September 30, 2012, total share-based compensation expense recognized for awards under the Changyou 2008 Share Incentive Plan was $0.8 million and $2.8 million, respectively. |
Share-based Awards granted before Changyou’s Initial Public Offering |
For Changyou restricted ordinary shares granted to Tao Wang and to its executive officers other than Tao Wang before Changyou’s IPO, there was no share-based compensation expense recognized for either the three months or the nine months ended September 30, 2013, as these awards were fully vested in 2012. For the three and nine months ended September 30, 2012, total share-based compensation expense recognized for the above restricted ordinary shares was nil and $72,000, respectively. |
For Changyou restricted share units granted to certain of its other employees before Changyou’s IPO, there was no share-based compensation expense recognized for the three months ended September 30, 2013, as these awards were fully vested in the first half of 2013. The fair value of these restricted share units as of the grant date was determined based on Changyou’s offering price for its IPO, which was $8.00 per ordinary share. |
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A summary of activity for the restricted share units as of and for the nine months ended September 30, 2013 is presented below: |
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Restricted Share Units | | Number of | | | Weighted-Average | | | | | | | | | |
Units | Grant-Date | | | | | | | | |
(in thousands) | Fair Value | | | | | | | | |
Unvested at January 1, 2013 | | | 81 | | | $ | 8 | | | | | | | | | |
Granted | | | 0 | | | | | | | | | | | | | |
Vested | | | (81 | ) | | | 8 | | | | | | | | | |
Forfeited | | | 0 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Unvested at September 30, 2013 | | | 0 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Expected to vest thereafter | | | 0 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
For the three and nine months ended September 30, 2013, total share-based compensation expense recognized for the above restricted share units was nil and negative $0.3 million, respectively. The negative $0.3 million resulted from Changyou’s true-up of the shared-based compensation expense for forfeited restricted share units in the first quarter of 2013. For the three and nine months ended September 30, 2012, total share-based compensation expense recognized for the above restricted share units was $50,000 and $0.2 million, respectively. |
As of September 30, 2013, there was no unrecognized share-based compensation expense related to the unvested restricted share units. The total fair value of restricted share units vested to Changyou’s other employees on their respective vesting dates during the three and nine months ended September 30, 2013 was nil and $1.1 million, respectively. The total fair value of restricted share units vested to Changyou’s other employees on their respective vesting dates during the three and nine months ended September 30, 2012 was nil and $1.2 million, respectively. |
Share-based Awards granted after Changyou’s Initial Public Offering |
As of September 30, 2013, in addition to the share-based awards granted before Changyou’s IPO, Changyou had granted an aggregate of 1,585,552 restricted share units (settleable in ordinary shares) to certain of its executive officers other than Tao Wang and to certain of its employees. These restricted share units are subject to vesting over a four-year period commencing on their grant dates. Share-based compensation expense for such restricted share units is recognized on an accelerated basis over the requisite service period. The fair value of restricted share units was determined based on the market price of Changyou’s ADSs on the grant date. |
A summary of activity for these restricted share units as of and for the nine months ended September 30, 2013 is presented below: |
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Restricted Share Units | | Number of | | | Weighted-Average | | | | | | | | | |
Units | Grant-Date | | | | | | | | |
(in thousands) | Fair Value | | | | | | | | |
Unvested at January 1, 2013 | | | 526 | | | $ | 13.3 | | | | | | | | | |
Granted | | | 36 | | | | 14.57 | | | | | | | | | |
Vested | | | (320 | ) | | | 12.7 | | | | | | | | | |
Forfeited | | | (12 | ) | | | 12.88 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Unvested at September 30, 2013 | | | 230 | | | | 14.35 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Expected to vest thereafter | | | 213 | | | | 14.38 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
For the three and nine months ended September 30, 2013, total share-based compensation expense recognized for the above restricted share units was $0.3 million and $1.2 million, respectively. For the three and nine months ended September 30, 2012, total share-based compensation expense recognized for the above restricted share units was $0.7 million and $2.5 million, respectively. |
As of September 30, 2013, there was $1.0 million of unrecognized compensation expense related to the unvested restricted share units. The expense is expected to be recognized over a weighted average period of 0.87 years. The total fair value of these restricted share units vested during the three and nine months ended September 30, 2013 was nil and $4.7 million, respectively. The total fair value of these restricted share units vested during the three and nine months ended September 30, 2012 was nil and $4.0 million, respectively. |
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3) Sogou Inc. Share-based Awards |
Sogou 2010 Share Incentive Plan |
On October 20, 2010, Sogou adopted the Sogou 2010 Share Incentive Plan (the “Sogou 2010 Share Incentive Plan”). On June 18, 2013, the Sogou 2010 Share Incentive Plan was amended to provide for the issuance of up to 36,000,000 ordinary shares of Sogou to management and key employees of Sogou and of any present or future parents or subsidiaries or variable interest entities of Sogou. The maximum term of any issued share right under the amended Sogou 2010 Share Incentive Plan is ten years from the grant date. The amended Sogou 2010 Share Incentive Plan will expire on October 19, 2020. As of September 30, 2013, Sogou had issued options for the purchase of 35,436,375 ordinary shares. |
Of the 35,436,375 issued share options, 23,206,375 share options will become vested and exercisable in four equal installments, with each installment vesting upon a service period requirement for management and key employees being met, as well as Sogou’s achievement of performance targets for the corresponding period. The performance target for each installment will be set at the beginning of each vesting period; therefore, for purposes of recognition of share-based compensation expense, each installment is considered to be granted at that date. As of September 30, 2013, performance targets had been set for 15,790,400 share options and, accordingly, those options subject to vesting upon service period requirements for management and key employees being met and Sogou’s achievement of performance targets were considered granted for purposes of recognition of share-based compensation expense. As of September 30, 2013, 10,040,650 share options had become vested and exercisable because both the service period and the performance requirements had been met, and a portion of the vested shares had been exercised. |
8,270,000 share options will become vested and exercisable in four or five equal installments, with (i) the first installment vesting upon Sogou’s completion of an initial public offering of its ordinary shares (“Sogou’s IPO”) and the expiration of all underwriters’ lockup periods applicable to the IPO, and (ii) each of the three or four subsequent installments vesting on the first, second, third and, if applicable, fourth anniversary dates, respectively, of the closing of Sogou’s IPO. |
The remaining 3,960,000 share options will become vested and exercisable in four equal installments, with (i) the first installment vesting upon the first anniversary of the occurrence of either of the following events (“Event”): (a) completion of Sogou’s IPO; (b) the consolidation of Sogou with or the acquisition of Sogou by another person or entity in a sale of all or substantially all of its assets or shares, and (ii) each of the three subsequent installments vesting on the second, third and fourth anniversary dates, respectively, of the occurrence of an Event. If there has not been an Event within 24 months from June 15, 2013 (the “Vesting Cessation Date”), all installments of the remaining 3,960,000 share options will cease to vest. |
All installments of the 8,270,000 and 3,960,000 share options that are subject to vesting upon the completion of Sogou’s IPO or an Event were considered granted upon the issuance of the options. The completion of a firm commitment IPO or such an Event is considered to be a performance condition of the awards. An IPO event or such an Event is not considered to be probable until it is completed. Under ASC 718, compensation cost should be accrued if it is probable that the performance condition will be achieved and should not be accrued if it is not probable that the performance condition will be achieved. As a result, no compensation expense will be recognized related to these options until the completion of an IPO or the occurrence of an Event, and hence no share-based compensation expense was recognized for the three and nine months ended September 30, 2013 for the 8,270,000 and 3,960,000 share options that are subject to vesting upon the completion of Sogou’s IPO or an Event. |
A summary of share option activity under the amended Sogou 2010 Stock Incentive Plan as of and for the nine months ended September 30, 2013 is presented below: |
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| | | | | | | | Weighted | | | | | |
| | Number | | | Weighted | | | Average | | | | | |
| | Of | | | Average | | | Remaining | | | | | |
| | Shares | | | Exercise | | | Contractual | | | | | |
Options | | (in thousands) | | | Price | | | Life (Years) | | | | | |
Outstanding at January 1, 2013 | | | 6,345 | | | $ | 0.001 | | | | | | | | | |
Granted | | | 17,076 | | | | 0.264 | | | | | | | | | |
Exercised | | | (5,339 | ) | | | 0.001 | | | | | | | | | |
Forfeited or expired | | | (96 | ) | | | 0.001 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at September 30, 2013 | | | 17,986 | | | | 0.251 | | | | 8.9 | | | | | |
| | | | | | | | | | | | | | | | |
Vested at September 30, 2013 and expected to vest thereafter | | | 5,641 | | | | | | | | | | | | | |
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Exercisable at September 30, 2013 | | | 6 | | | | | | | | | | | | | |
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For the three and nine months ended September 30, 2013, total share-based compensation expense recognized for share options under the amended Sogou 2010 Share Incentive Plan was $1.7 million and $1.8 million, respectively. For the three and nine months ended September 30, 2012, total share-based compensation expense recognized for share options under the Sogou 2010 Share Incentive Plan was $1.4 million and $2.4 million, respectively. |
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As of September 30, 2013, there was $2.0 million of unrecognized compensation expense related to the unvested share options. The expense is expected to be recognized over a weighted average period of 0.27 years. |
The fair value of the ordinary shares of Sogou was assessed using the income approach /discounted cash flow method, with a discount for lack of marketability, given that the shares underlying the award were not publicly traded at the time of grant, and was determined with the assistance of a qualified professional appraiser using management’s estimates and assumptions. This assessment required complex and subjective judgments regarding Sogou’s projected financial and operating results, its unique business risks, the liquidity of its ordinary shares and its operating history and prospects at the time the grants were made. |
The fair value of the options granted to Sogou management and key employees was estimated on the date of grant using the Binomial option - pricing model (the “BP Model”) with the following assumptions used: |
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| | | | | | | | | | | | | | | | |
Granted to Employees | | 2013 | | | | | | | | | | | | | | |
Average risk-free interest rate | | 2.10%~2.87% | | | | | | | | | | | | | | |
Exercise multiple | | 2~3 | | | | | | | | | | | | | | |
Expected forfeiture rate (Post-vesting) | | 1.3%~6.0% | | | | | | | | | | | | | | |
Weighted average expected option life | | 10 | | | | | | | | | | | | | | |
Volatility rate | | 47.00%~49.00% | | | | | | | | | | | | | | |
Dividend yield | | 0% | | | | | | | | | | | | | | |
Fair value | | 0.67 | | | | | | | | | | | | | | |
Sogou estimated the risk free rate based on the yield to maturity of China Sovereign bonds denominated in United States dollars as of the valuation date. An exercise multiple was estimated as the ratio of fair value of the shares over the exercise price as of the time the option is exercised, based on consideration of research studies regarding exercise patterns based on historical statistical data. In Sogou’s valuation analysis, a multiple of two was applied for employees and a multiple of three was applied for management. Sogou estimated the forfeiture rate to be 1.3% for Sogou management’s share options granted as of September 30, 2013 and 6.0% for Sogou employees’ share options granted as of September 30, 2013. The life of the share options is the contract life of the option. Based on the option agreement, the contract life of the option is 10 years. The expected volatility at the valuation date was estimated based on the historical volatility of comparable companies for the period before the grant date with length commensurate with the expected term of the options. Sogou has no history or expectation of paying dividends on its ordinary shares. Accordingly, the dividend yield is estimated to be 0%. |
Share-based Awards to Sohu management |
Under the Management Share Option Arrangement approved by the Board of Directors of Sohu and Sogou in March 2011, Sohu has the right to provide to Sohu management and key employees the opportunity to purchase from Sohu up to 12,000,000 ordinary shares of Sogou at a fixed exercise price of $0.625 per share. Of these 12,000,000 ordinary shares, 8,800,000 are Sogou ordinary shares previously held by Sohu and 3,200,000 are Sogou ordinary shares that were newly-issued on April 14, 2011 by Sogou to Sohu at a price of $0.625 per share, or a total of $2 million. As of September 30, 2013, Sohu had issued options for the purchase of 11,378,500 Sogou ordinary shares to Sohu management and key employees under this arrangement. |
Of the 11,378,500 issued share options, 8,978,500 share options will become vested and exercisable in four equal installments, with each installment vesting upon a service period requirement for management and key employees being met, as well as Sogou’s achievement of performance targets for the corresponding period. The performance target for each installment will be set at the beginning of each vesting period; therefore, for purposes of recognition of share-based compensation expense, each installment is considered to be granted at that date. As of September 30, 2013, performance targets had been set for 6,585,750 share options and, accordingly, those options vesting upon service period requirements for management and key employees being met and Sogou’s achievement of performance targets were considered granted. As of September 30, 2013, 5,105,500 share options had become vested and exercisable because both the service period and the performance requirements had been met, and all of the vested shares had been exercised. |
The remaining 2,400,000 share options will become vested and exercisable in five equal installments, with (i) the first installment vesting upon Sogou’s IPO and the expiration of all underwriters’ lockup periods applicable to the IPO, and (ii) each of the four subsequent installments vesting on the first, second, third and fourth anniversary dates, respectively, of the closing of Sogou’s IPO. All installments of the 2,400,000 share options that are subject to vesting upon the completion of Sogou’s IPO were considered granted upon the issuance of the options. The completion of a firm commitment IPO is considered to be a performance condition of the awards. An IPO event is not considered to be probable until it is completed. Under ASC 718, compensation cost should be accrued if it is probable that the performance condition will be achieved and should not be accrued if it is not probable that the performance condition will be achieved. As a result, no compensation expense will be recognized related to these options until the completion of an IPO, and hence no share-based compensation expense was recognized for the three and nine months ended September 30, 2013, for the 2,400,000 share options that are subject to vesting upon the completion of Sogou’s IPO. |
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A summary of share option activity as of and for the nine months ended September 30, 2013 is presented below: |
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| | | | | | | | Weighted | | | | | |
| | Number | | | Weighted | | | Average | | | | | |
| | Of | | | Average | | | Remaining | | | | | |
| | Shares | | | Exercise | | | Contractual | | | | | |
Options | | (in thousands) | | | Price | | | Life (Years) | | | | | |
Outstanding at January 1, 2013 | | | 2,178 | | | $ | 0.625 | | | | | | | | | |
Granted | | | 4,638 | | | | 0.625 | | | | | | | | | |
Exercised | | | (2,936 | ) | | | 0.625 | | | | | | | | | |
Forfeited or expired | | | 0 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at September 30, 2013 | | | 3,880 | | | | 0.625 | | | | 8.74 | | | | | |
| | | | | | | | | | | | | | | | |
Vested at September 30, 2013 and expected to vest thereafter | | | 1,475 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Exercisable at September 30, 2013 | | | 0 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
For the three months and the nine months ended September 30, 2013, total share-based compensation expense recognized for share options under the Management Share Option Arrangement was $0.5 million and $0.5 million, respectively. For the three months and the nine months ended September 30, 2012, total share-based compensation expense recognized for share options under the Management Share Option Arrangement was $200,000 and $382,000, respectively. |
As of September 30, 2013, there was $0.3 million of unrecognized compensation expense related to the unvested share options. The expense is expected to be recognized over a weighted average period of 0.25 years. |
The method used to determine the fair value of share options granted to Sohu management and key employees was the same as the method used for the share options granted to Sogou’s management and key employees as described above, except for the assumptions used in the BP Model as presented below: |
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| | | | | | | | | | | | | | | | |
Granted to Employees | | 2013 | | | | | | | | | | | | | | |
Average risk-free interest rate | | 2.10%~2.87% | | | | | | | | | | | | | | |
Exercise multiple | | 2~3 | | | | | | | | | | | | | | |
Expected forfeiture rate (Post-vesting) | | 0%-8% | | | | | | | | | | | | | | |
Weighted average expected option life | | 10 | | | | | | | | | | | | | | |
Volatility rate | | 47.00%-48.00% | | | | | | | | | | | | | | |
Dividend yield | | 0% | | | | | | | | | | | | | | |
Fair value | | 0.27-0.38 | | | | | | | | | | | | | | |
Option Modification |
In the first and second quarter of 2013, a portion of the share options granted under the amended Sogou 2010 Share Incentive Plan and the Management Share Option Arrangement were exercised early, and the resulting Sogou ordinary shares were transferred to a trust with the original option grantees as beneficiaries. The trust will distribute the shares to those beneficiaries in installments based on the vesting requirements under the original option agreements. Although this trust arrangement caused a modification of the terms of these share options, the modification was not considered substantive; therefore no incremental fair value related to these shares resulted from the modification, and the remaining share-based compensation expense for these shares will continue to be recognized over the original remaining vesting period. |
As of September 30, 2013, 19,245,000 share options granted under the amended Sogou 2010 Share Incentive Plan and 1,225,000 share options granted under the Management Share Option Arrangement, or a total of 20,470,000 share options, were exercised early. |
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4) Sohu Video Share-based Awards and 7Road Share-based Awards |
See Note 3 - Share-Based Compensation Expense. |