| Sohu.com Inc. Shareholders' Equity | 9. Sohu.com Inc. ShareholdersÂ’ 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 SohuÂ’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.com Inc. that are no longer outstanding and are held by Sohu.com Inc. Treasury stock is accounted for under the cost method. For the three months ended March 31, 2016 and 2015, the Company did not repurchase any shares of
its common stock. Stock Incentive Plan Sohu
(excluding Sohu Video), Sogou, Changyou, and Sohu Video have incentive plans for the granting of share-based awards, including common stock or ordinary shares, share options, restricted shares and restricted share units, to their directors,
management and other key employees. 1) Sohu.com Inc. Share-based Awards SohuÂ’s 2000 Stock Incentive Plan SohuÂ’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. A new plan (the “Sohu 2010 Stock Incentive Plan”) was adopted by Sohu’s shareholders on July 2, 2010. For both
the three months ended March 31, 2016 and the three months ended March 31, 2015, no share-based compensation expense was recognized for awards under the Sohu 2000 Stock Incentive Plan. For the three months ended March 31, 2016 and
2015, total cash received from the exercise of share options amounted to nil and $0.7 million, respectively. SohuÂ’s 2010 Stock Incentive Plan
On July 2, 2010, the CompanyÂ’s shareholders adopted the Sohu 2010 Stock Incentive Plan, which provides for the issuance of up to
1,500,000 shares of common stock, including shares issued pursuant to the vesting and settlement of restricted share units and pursuant to the exercise of share options. The maximum term of any stock right granted 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 March 31, 2016, 341,680 shares were available for grant under the Sohu 2010 Stock Incentive Plan. i) Summary of share option activity On February 7, 2015,
the CompanyÂ’s Board of Directors approved contractual grants to members of the CompanyÂ’s management and key employees of options for the purchase of an aggregate of 1,068,000 shares of common stock, with nominal exercise prices of $0.001.
These share options vest and become exercisable in four equal installments over a period of four years, with each installment vesting upon the satisfaction of a service period requirement and certain subjective performance targets. These share
options are substantially similar to restricted share units except for the nominal exercise price, which would be zero for restricted share units. Under
ASC 718-10-25 ASC 718-10-55 On February 7, 2016, 266,000 of these share options had been granted and had become vested, as a mutual understanding of the subjective performance targets
had been reached between the Company and the recipients, the targets had been satisfied, and the service period requirements had been fulfilled. For the total of 266,000 granted share options, the cumulative share-based compensation expense has been
adjusted and fixed based on the fair value at the grant date of $11.3 million. A summary of share option activity under the Sohu 2010 Stock Incentive
Plan as of and for the three months ended March 31, 2016 is presented below:
Options Number Of Shares Weighted Weighted Aggregate
Outstanding at January 1, 2016 0 $ $
Granted 266 0.001
Exercised (4 ) 0.001
Forfeited or expired 0
Outstanding at March 31, 2016 262 0.001 8.85 12,992
Vested at March 31, 2016 262 0.001 8.85 12,992
Exercisable at March 31, 2016 262 0.001 8.85 12,992
Note (1): The aggregated intrinsic value in the preceding table represents the difference between SohuÂ’s closing stock
price of $49.54 on March 31, 2016 and the nominal exercise price of share option. For the three months ended March 31, 2016 and 2015, for the
1,068,000 share options, total share-based compensation expense recognized was negative $0.7 million and $3.8 million, respectively. ii) Summary of restricted share unit
activity A summary of restricted share unit activity under the Sohu 2010 Stock Incentive Plan as of and for the three months ended March 31, 2016 is
presented below:
Restricted Share Units Number of Weighted-Average
Unvested at January 1, 2016 32 $ 70.24
Granted 11 51.00
Vested (3 ) 66.74
Forfeited (1 ) 72.92
Unvested at March 31, 2016 39 64.99
Expected to vest after March 31, 2016 31 63.66
For the three months ended March 31, 2016 and 2015, total share-based compensation expense recognized for restricted
share units was $0.4 million and $0.6 million, respectively. As of March 31, 2016, there was $1.4 million of unrecognized compensation expense
related to unvested restricted share units. The expense is expected to be recognized over a weighted average period of 0.72 years. The total fair value on their respective vesting dates of restricted share units that vested during the three months
ended March 31, 2016 and 2015 was $169,701 and $130,900, respectively. 2) Sogou Inc. Share-based Awards Sogou 2010 Share Incentive Plan Sogou adopted a
share incentive plan on October 20, 2010. The number of Sogou ordinary shares issuable under the plan was 41,500,000 after an amendment that was effective August 22, 2014 (as amended, the “Sogou 2010 Share Incentive Plan”).
Awards of share rights may be granted under the Sogou 2010 Share Incentive Plan to management and employees of Sogou and of any present or future parents or subsidiaries or variable interest entities of Sogou. The maximum term of any share right
granted under the Sogou 2010 Share Incentive Plan is ten years from the grant date. The Sogou 2010 Share Incentive Plan will expire on October 19, 2020. As of March 31, 2016, Sogou had contractually granted options for the purchase of
36,634,325 ordinary shares under the 2010 Sogou Share Incentive Plan. Of the contractually granted options for the purchase of 36,634,325 shares, options
for the purchase of 29,434,325 shares vest and become exercisable in four equal installments, with each installment vesting upon a service period requirement being met, as well as SogouÂ’s achievement of performance targets for the corresponding
period. Of these options for the purchase of 29,434,325 shares, the terms of options for the purchase of 980,000 shares, which had previously included as vesting conditions a service period requirement and SogouÂ’s completion of an IPO of its
ordinary shares (“Sogou’s IPO”), were amended in the first quarter of 2016 to remove as a condition of vesting upon Sogou’s IPO and to add as a condition of achievement of performance targets. For purposes of recognition of
share-based compensation expense, each installment is considered to be granted as of the date that the performance target has been set. As of March 31, 2016, Sogou had granted options for the purchase of 23,012,697 shares under the 2010 Sogou
Share Incentive Plan. As of March 31, 2016, options for the purchase of 22,923,259 shares had become vested and exercisable because both the service period and the performance requirements had been met, and of such vested options, options for
the purchase of 19,408,630 shares had been exercised. Of the contractually granted share options, options for the purchase of 7,200,000 shares vest and
become exercisable in five equal installments, with (i) the first installment vesting upon SogouÂ’s IPO and the expiration of all underwritersÂ’ lockup periods applicable to SogouÂ’s IPO, and (ii) each of the four subsequent
installments vesting on the first, second, third and fourth anniversary dates, respectively, of the closing of SogouÂ’s IPO. The completion of an IPO is considered to be a performance condition of the awards. An IPO is not considered to be
probable until it is completed. Under ASC 718 As of March 31, 2016, for purposes of
recognition of share-based compensation expense, Sogou had granted options for the purchase of 30,212,697 shares, of which options for the purchase of 10,804,067 shares were outstanding. A summary of share option activity under the Sogou 2010 Stock
Incentive Plan as of and for the three months ended March 31, 2016 is presented below:
Options Number Of Shares Weighted Weighted
Outstanding at January 1, 2016 12,209 $ 0.369
Granted 0
Exercised (290 ) 0.001
Forfeited or expired (1,115 ) 0.001
Outstanding at March 31, 2016 10,804 0.417 6.87
Vested at March 31, 2016 and expected to vest thereafter 3,592
Exercisable at March 31, 2016 3,515
For the three months ended March 31, 2016 and 2015 total share-based compensation expense recognized for share options
under the Sogou 2010 Share Incentive Plan was $1.1 million and $2.8 million, respectively. As of March 31, 2016, there was $0.2 million of
unrecognized compensation expense related to the unvested share options. The expense is expected to be recognized over a weighted average period of 0.6 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 managementÂ’s estimates and assumptions. This assessment required
complex and subjective judgments regarding SogouÂ’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:
Assumptions Adopted
Average risk-free interest rate 2.12%~2.77 %
Exercise multiple 2~3
Expected forfeiture rate (post-vesting) 0%~12 %
Weighted average expected option life 6
Volatility rate 47%~50 %
Dividend yield 0 %
Fair value 3.58~3.93 Sogou estimated the risk-free rate based on the market yields of U.S. Treasury securities with an estimated country-risk
differential as of the valuation date. An exercise multiple was estimated as the ratio of the 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 SogouÂ’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 0% for Sogou
managementÂ’s share options granted as of March 31, 2016 and 12% for Sogou employeesÂ’ share options granted as of March 31, 2016. 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%. Sohu Management Sogou Share Option Arrangement Under an arrangement providing for Sogou share-based awards to be available for grants to members of SohuÂ’s Board of Directors, management and other key
employees (“Sohu Management Sogou Share Option Arrangement”), which was approved by the boards of directors of Sohu and Sogou in March 2011, Sohu has the right to provide to members of Sohu’ Board of Directors, management and other
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 or $0.001 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 $2.0 million. As of March 31, 2016, Sohu had contractually granted options for the purchase of
10,724,500 Sogou ordinary shares to members of SohuÂ’ Board of Directors, management and other key employees under the Sohu Management Sogou Share Option Arrangement. Of the contractually granted options for
the purchase of 10,724,500 shares, options for the purchase of 8,309,500 shares vest and become exercisable in four equal installments, with each installment vesting upon a service period requirement for SohuÂ’s management and key employees
being met, as well as SogouÂ’s achievement of performance targets for the corresponding period. The performance target for each installment is set at the beginning of each vesting period. Accordingly, for purposes of recognition of share-based
compensation expense, each installment is considered to be granted as of that date. As of March 31, 2016, Sohu had granted options for the purchase of 8,232,000 shares under the Sohu Management Sogou Share Option Arrangement. As of
March 31, 2016, options for the purchase of 8,232,000 shares had become vested and exercisable because both the service period and the performance requirements had been met, and vested options for the purchase of 7,020,500 shares had been
exercised. As of December 31, 2015, options for the purchase of 15,000 ordinary shares of Sogou granted to members of SohuÂ’ Board of Directors
had vested and become exercisable, as the service period requirement for vesting had been met. The remaining options for the purchase of 2,400,000 shares
vest and become exercisable in five equal installments, with (i) the first installment vesting upon SogouÂ’s IPO and the expiration of all underwritersÂ’ 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 SogouÂ’s IPO. All installments of the options for the purchase of 2,400,000 shares that are subject to vesting upon the completion of
SogouÂ’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 As of March 31, 2016, for purposes of recognition of share-based compensation expense, Sohu had granted options for the purchase of 10,647,000 shares, of
which options for the purchase of 3,623,500 shares were outstanding. A summary of share option activity under the Sohu Management Sogou Share Option Arrangement as of and for the three months ended March 31, 2016 is presented below:
Options Number Of Shares Weighted Weighted
Outstanding at January 1, 2016 3,664 $ 0.623
Granted 0
Exercised (40 ) 0.001
Forfeited or expired 0
Outstanding at March 31, 2016 3,624 0.623 6.43
Vested at March 31, 2016 1,224
Exercisable at March 31, 2016 1,224
For the three months ended March 31, 2016 and 2015, total share-based compensation expense recognized for share options
under the Sohu Management Sogou Share Option Arrangement was $297,106 and $569,450, respectively. As of March 31, 2016, there was no unrecognized
compensation expense related to unvested Sogou share options. The method used to determine the fair value of share options granted to members of
SohuÂ’s Board of Directors, management and other employees was the same as the method used for the share options granted to SogouÂ’s management and key employees as described above, except for the assumptions used in the BP Model as
presented below:
Assumptions Adopted
Average risk-free interest rate 2.12%~2.15 %
Exercise multiple 3
Expected forfeiture rate (post-vesting) 0 %
Weighted average expected option life 5
Volatility rate 47 %
Dividend yield 0 %
Fair value 3.31 Option Modification In the first and second quarter of 2013, a portion of the share options granted under the Sogou 2010 Share Incentive Plan and the Sohu Management Sogou Share
Option Arrangement were exercised early, and the Sogou ordinary shares issued upon exercise were transferred to trusts with the original option grantees as beneficiaries. The trusts will distribute the shares to those beneficiaries in installments
based on the vesting requirements under the option agreements. Although these trust arrangements caused a modification of the terms of these share options, the modification was not considered substantive. Accordingly, 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 March 31, 2016, options for the
purchase of 11,370,000 shares granted under the Sogou 2010 Share Incentive Plan had been exercised early but had not been distributed to the beneficiaries of the trusts. All of the early-exercised shares that were distributed to those beneficiaries
by the trusts in accordance with the vesting requirements under the option agreements have been included in the disclosures under the heading “Sogou 2010 Share Incentive Plan” above. Tencent Share-based Awards Granted to Employees Who Transferred to Sogou with Soso Search-related Businesses Certain persons who became Sogou employees when Tencent’s Soso search-related businesses were transferred to Sogou on September 16, 2013 had been
granted restricted share units under TencentÂ’s share award arrangements prior to the transfer of the businesses to Sogou. These Tencent restricted share units will continue to vest under the original Tencent share award arrangements provided
the transferred employees continue to be employed by Sogou during the requisite service period. After the transfer of the Soso search-related businesses to Sogou, Sogou applied the guidance in ASC 505-50 As of March 31, 2016, unvested Tencent restricted share unit awards held by these employees provided for the issuance of
up to 168,050 ordinary shares of Tencent, taking into consideration a five-for-one split of TencentÂ’s shares that became effective in May 2014. For the three months ended March 31, 2016 and 2015, share-based compensation expense of $0.3
million and $1.4 million, respectively, related to these Tencent restricted share units was recognized in the GroupÂ’s consolidated statements of comprehensive income. As of March 31, 2016, there was $0.8 million of unrecognized
compensation expense related to these unvested restricted share units. This amount is expected to be recognized over a weighted average period of 1.75 years. 3) 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 ordinary shares issued pursuant to the exercise of share options and upon vesting and settlement of restricted share units. The 2,000,000 reserved shares became 20,000,000 ordinary shares in March 2009 when Changyou effected a
ten-for-one share split of its ordinary shares. Most of the awards granted under the Changyou 2008 Share Incentive Plan vest over a period of four years. The maximum term of any share right granted 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. Prior to the completion of ChangyouÂ’s initial public
offering, Changyou had granted under the Changyou 2008 Share Incentive Plan 15,000,000 ordinary shares to its former chief executive officer Tao Wang, through Prominence Investments Ltd., which is an entity that may be deemed under applicable rules
of the Securities and Exchange Commission to be beneficially owned by Tao Wang. Through March 31, 2016, Changyou had also granted under the Changyou 2008 Share Incentive Plan restricted share units, settleable upon vesting by the issuance of an
aggregate of 4,614,098 ordinary shares, to certain members of its management other than Tao Wang, and certain other Changyou employees. i) Share-based
Awards granted before ChangyouÂ’s IPO All of the restricted ordinary shares and restricted share units granted before ChangyouÂ’s IPO became
vested in 2012 and 2013, respectively. Hence there was no share-based compensation expense recognized with respect to such restricted ordinary shares and restricted share units since their respective vesting dates. ii) Share-based Awards granted after
ChangyouÂ’s IPO Through March 31, 2016, in addition to the share-based awards granted before ChangyouÂ’s IPO, Changyou had granted restricted
share units, settleable upon vesting with the issuance of an aggregate of 1,581,226 ordinary shares, to certain members of its management other than Tao Wang and to certain of its other 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 ChangyouÂ’s ADSs on the grant date. A summary of activity for these restricted share units as of and for the
three months ended March 31, 2016 is presented below:
Restricted Share Units Number of Units (in thousands) Weighted-Average
Unvested at January 1, 2016 20 $ 14.25
Granted 0
Vested 0
Forfeited 0
Unvested at March 31, 2016 20 14.25
Expected to vest after March 31, 2016 20 14.25
For the three months ended March 31, 2016 and 2015, total share-based compensation expense recognized for the above
restricted share units was $22,000 and negative $42,000, respectively. The negative $42,000 represents ChangyouÂ’s true-up of share-based compensation expense for forfeited restricted share units that would have become vested during the quarter.
As of March 31, 2016, there was $87,000 of unrecognized compensation expense related to these unvested restricted share units. The expense is
expected to be recognized over a weighted average period of 0.76 years. The total fair value of these restricted share units vested during the three months ended March 31, 2016 and 2015 was $nil and $0.3 million, respectively. Changyou 2014 Share Incentive Plan On
June 27, 2014, Changyou reserved 2,000,000 of its Class A ordinary shares under the Changyou.com Limited 2014 Share Incentive Plan (the “Changyou 2014 Share Incentive Plan”) for the purpose of making share incentive awards to
certain members of its management and key employees. On November 2, 2014, the number of Class A ordinary shares reserved under the Changyou 2014 Share Incentive Plan increased from 2,000,000 to 6,000,000. As of March 31, 2016,
2,820,000 shares were available for grant under the Changyou 2014 Share Incentive Plan. i) Summary of share option activity On November 2, 2014, Changyou approved the contractual grant of an aggregate of 2,416,000 Class A restricted share units to certain members of its
management and certain other employees. On February 16, 2015, ChangyouÂ’s Board of Directors approved the conversion of 2,400,000 of these Class A restricted share units into options for the purchase of Class A ordinary shares at
an exercise price of $0.01. On June 1, 2015, ChangyouÂ’s Board of Directors approved the contractual grant of options for the purchase of an aggregate of 1,998,000 Class A ordinary shares to certain members of its management and
certain other employees at an exercise price of $0.01. These share options vest in four equal installments over a period of four years, with each installment vesting upon satisfaction of a service period requirement and the achievement of certain
subjective performance targets. These share options are substantially similar to restricted share units except for the nominal exercise price, which would be zero for restricted share units. Under ASC 718-10-25 ASC 718-10-55 On November 2, 2015, 450,000 of these share options had been granted and had become vested, as a mutual understanding of the subjective
performance targets had been reached between Changyou and the recipients, the targets had been satisfied, and the service period requirements had been fulfilled. For the total of 450,000 granted share options, the cumulative share-based compensation
expense has been adjusted and fixed based on the fair value at the grant date of $4.7 million. A summary of share option activity under
the Changyou 2014 Share Incentive Plan as of and for the three months ended March 31, 2016 is presented below:
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, 2016 450 $ 0.01 8.84 $ 5,580
Granted 0
Exercised (150 ) 0.01
Forfeited or expired 0
Outstanding at March 31, 2016 300 0.01 8.59 2,814
Vested at March 31, 2016 300 0.01 8.59 2,814
Exercisable at March 31, 2016 300 0.01 8.59 2,814
Note (1): The aggregated intrinsic value in the preceding table represents the difference between ChangyouÂ’s closing
price of $18.78 per ADS, or $9.39 per Class A ordinary share, on March 31, 2016 and the nominal exercise price of share option. For the three months
ended March 31, 2016 and 2015, share-based compensation expense recognized for these share options under the Changyou 2014 Share Incentive Plan was negative $1.3 million and $3.9 million, respectively. ii) Summary of restricted share unit activity On
November 2, 2014, Changyou had contractually granted under the 2014 Share Incentive Plan an aggregate of 16,000 Class A restricted share units to an employee. These Class A restricted share units are subject to vesting over a
four-year period commencing on their grant dates. The fair values as of the grant dates of the restricted share units were determined based on market price of ChangyouÂ’s ADSs on the grant dates. Due to the termination of employment of an employee during the second quarter of 2015 prior to vesting of the restricted share units held by the employee,
Changyou reversed share-based compensation expense in the amount of $17,000. As of March 31, 2016, there was no unrecognized compensation expense for these restricted share units, as all of them had been forfeited. 4) Sohu Video Share-based Awards On January 4,
2012, Sohu Video adopted the Video 2011 Share Incentive Plan, under which 25,000,000 ordinary shares of Sohu Video are reserved for the purpose of making share incentive awards to management and key employees of Sohu Video and to Sohu management.
The maximum term of any share incentive award granted under the Video 2011 Share Incentive Plan is ten years from the grant date. The Video 2011 Share Incentive Plan will expire on January 3, 2021. As of March 31, 2016, grants of options
for the purchase of 16,368,200 ordinary shares of Sohu Video had been contractually made and were subject to vesting in four equal installments, with each installment vesting upon a service period requirement being met, as well as Sohu VideoÂ’s
achievement of performance targets for the corresponding period. For purposes of ASC 718-10-25 For the three
months ended March 31, 2016 and 2015, total share-based compensation expense recognized for vested options under the Video 2011 Share Incentive Plan was $0.2 and negative $ 0.8 million, respectively. The negative amount represented
re-measured compensation expense based on the then-current fair value of the awards on March 31, 2015. The fair value of the options contractually
granted to management and key employees of Sohu Video and to Sohu management was estimated on the reporting date using the BP Model, with the following assumptions used:
Assumptions Adopted
Average risk-free interest rate 2.03 %
Exercise multiple 2.8
Expected forfeiture rate (post-vesting) 10 %
Weighted average expected option life 5.8
Volatility rate 57.7 %
Dividend yield 0 %
Fair value 0.92 |
