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This excerpt taken from the EBAY DEF 14A filed Mar 19, 2009. Exchange
Ratios
The exchange ratios set forth below for the option exchange
(that is, how many options an employee must surrender in order
to receive one RSU) will be determined using the Black-Scholes
option pricing model with a computation of expected volatility
based on a combination of historical and market-based implied
volatility from traded options on our common stock. Volatility
is calculated on the same basis as we use for calculating stock
expense under FAS 123(R). We chose to use this model to
enable us to implement the option exchange in a manner that will
result in the granting of new RSUs that have approximately 90%
of the fair value of the stock options that are surrendered, and
to avoid the stockholder dilution that occurs when all options
are exchanged on a one option for
Table of Contents
one RSU basis. New RSU grants calculated according to the
exchange ratios will be rounded down to the nearest whole share
on a
grant-by-grant
basis. Fractional RSUs will not be issued.
The exchange ratios set forth below are for illustrative
purposes only. They were established based on (i) an
illustrative stock price of $12.00, (ii) the assumption
that the highest per share trading price of our common stock for
the 52-week period immediately preceding the start of the option
exchange was at or below $27.01, (iii) the assumption that
the expected volatility used for the valuations was between
40.79% and 42.97% (depending upon the expected remaining life of
the individual option grant), and (iv) on the principle
that the new RSUs granted will have approximately 90% of the
fair value of the stock options that are surrendered in the
option exchange. Since the majority of eligible options were
granted as part of our periodic broad-based focal grants and the
terms of the options granted in connection with a particular
focal grant are substantially similar, we have calculated
exchange ratios separately for those options granted as part of
our periodic broad-based focal grants and those granted apart
from our focal grants. The actual exchange ratios will be
determined at the time the option exchange commences based on
our then-current stock price and volatility.
The illustrative exchange ratios for new RSUs granted in
exchange for surrendered options which were originally part of a
periodic broad-based focal grant are set forth in the table
below.
The illustrative exchange ratios for new RSUs granted in
exchange for surrendered options which were granted apart from a
periodic broad-based focal grant are set forth in the table
below.
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