Yahoo's Dispute of Eric Jackson's Articles

Yahoo's public relations firm sent an official dispute to Seeking Alpha regarding Eric Jackson's recent articles on CEO Carol Bartz's sale of stock and compensation agreement. The text of Yahoo's dispute follows:

• • •

The transaction reported by Carol Bartz on Oct. 2 was not an open market sale of Yahoo! stock. Ms. Bartz filed a mandatory Form 4 on October 2, which shows Yahoo! withheld a portion of a restricted stock award, which vested on September 30, 2009, to satisfy Yahoo!’s tax withholding obligations in connection with the vesting of those restricted shares.

The terms of Ms. Bartz’s grant agreement, which was previously disclosed and filed, require that Yahoo! will satisfy its tax withholding obligations in this manner.

Yahoo! is required to satisfy its tax withholding obligations. The withholding of shares to satisfy related tax withholding obligations is used at many companies in connection with restricted stock and stock unit awards because it is far more practical to manage tax withholding obligations this way than to collect cash from employees at each vesting event. We currently use this withholding method for all restricted stock and RSU awards, and it does not involve the sale of shares by the employees in the open market.

Mr. Jackson’s statements suggesting Ms. Bartz made a discretionary sale of shares are inaccurate and misleading. We believe Ms. Bartz’s interests and those Yahoo!’s shareholders are closely aligned.

• • •

As [Seeking Alpha] requested, the provision regarding tax withholding of Carol Bartz’s Restricted Stock Award Agreement is below. This was filed as exhibit 10.17(D) to our 10-K in Feb 2009.

The provision regarding tax withholding is section 2(i), which reads as follows (emphasis added):

(i) Income Taxes. Except as provided in the next sentence, the Company shall withhold and/or reacquire a number of Shares having a Fair Market Value equal to the taxes that the Company determines it is required to withhold under applicable tax laws with respect to the Restricted Stock (with such withholding obligation determined based on any applicable minimum statutory withholding rates), in connection with the vesting of the Restricted Stock. In the event the Company cannot (under applicable legal, regulatory, listing or other requirements) satisfy such tax withholding obligation in such method, the Grantee makes a Section 83(b) election pursuant to Section 2(j) below, or the parties otherwise agree in writing, then , the Company may satisfy such withholding by any one or combination of the following methods: (i) by requiring the Grantee to pay such amount in cash or check; ; (ii) by deducting such amount out of any other compensation otherwise payable to the Grantee; and/or (iii) by allowing the Grantee to surrender shares of Common Stock of the Company which (a) in the case of shares initially acquired from the Company (upon exercise of a stock option or otherwise), have been owned by the Grantee for such period (if any) as may be required to avoid a charge to the Company’s earnings, and (b) have a Fair Market Value on the date of surrender equal to the amount required to be withheld. For these purposes, the Fair Market Value of the Shares to be withheld or repurchased, as applicable, shall be determined on the date that the amount of tax to be withheld is to be determined.

Comments

[madmilker:]

tats like saying tat deal last year between YHOO, CBS, and WMT had nothing to do with 60 Minutes Vanity Fair Poll released stating "Wal-Mart best symbolizes America"........go figure!
With tat company putting 95% Chinese items in their stores in China....maybe those turnips at CBS and Vanity Fair can come out next month and tell those 7.5 million unemployed American workers tat Wal*Mart moved their Global Procurement Offices to Hong Kong and than to China in order to BUY AMERICAN MADE.

Oct 10 10:13 PM

[Joe Snow:]

So when it comes time for the taxes owed to be paid, will Yahoo! be giving the government the shares they withheld in lieu of cash since no cash was collected?

Oct 11 09:07 AM

[americaninc...:]

I like Walmart. Look at the article on "internationally known brands" and you will see a lot of American ownership. The rest of the world buys American junk, we buy their junk. Of course if America wants to spend a trillion dollars on a war they have to get the money someplace - Americans would never have supported it directly with cash but sending the money to China and getting stuff in return, and letting China lend the money back to America, that was acceptable.

Oct 11 09:20 AM

[icepop:]

So, basically, YAHOO ! is saying that yes this is an open market sale.

The only difference between YAHOO ! rhetoric and EJ's is how/when someone is liable to pay taxes.

It's not surprising that Google is so far ahead of the shallow-enders's @ YAYHOO !!!

Oct 11 10:36 AM

[Paul Wilkinson:]

Nice point Joe. The interplay between options, restricted stock, and cash compensation is rather complex, to say the least. Attempting to figure it out obviously consumes a lot of valuable investor time. Of course, much of this complexity would be unnecessary if it weren't for the cap on corporate deductibility of cash compensation. Shareholders and boards could simply pay their executives cash based on a prudent formula measuring share value, share price stability, long term growth, stable dividend payouts, and other factors they find to be in shareholders' best interests.

Of course, that would make tax law less complex, resulting in fewer billable hours. Since tax lawyers appear to rank among K Street's most powerful lobbying shops (Exhibit 1: convincing Congress to introduce this complexity with the tax preference for options over cash), perhaps reform is a pipe dream. Too bad investors don't have a comparable lobby.

However, it would certainly be in the government's interest to adopt policies to encourage more stable revenue streams. Tax rules facilitating compensation policies (and hence tax revenue streams) based on long term shareholder value instead short term performance couldn't hurt. Executives could focus on company performance instead of spending time figuring out exercise programs and dealing with second guessing of exercise disclosures.

The aggregate effect might even strengthen the dollar. With 10,000 public companies increasing their demand for dollars relative to equity rights, it couldn't hurt. To the extent companies in the global capital market decided to stick with or move to a more dollar-friendly tax and regulatory regime, that would help the dollar. And non-employee shareholders could win too, with more capability to create more effective incentives and less reason to worry about dilution, another complexity that could be mitigated by smarter tax policy. Perhaps someday tax policy will overcome the politics of envy that facilitated the so-called compensation ceiling, and simplicity will overcome complexity. The dollar could certainly benefit from more dollar-friendly tax laws. The ongoing dollar trend seems as good a reason as any to promote dollar-friendly tax, spending, and monetary policies.

Oct 11 11:15 AM

[achates:]

No, the company simply doesn't issue part of the stock that the employee would have received, sending an equivalent amount of money to the Feds as withholding. The shares were never delivered to the employee, so they were never sold.

[IANAL - this is just my understanding of the way it works...]


On Oct 11 10:36 AM icepop wrote:

> So, basically, YAHOO ! is saying that yes this is an open market
> sale.
>
> The only difference between YAHOO ! rhetoric and EJ's is how/when
> someone is liable to pay taxes.
>
> It's not surprising that Google is so far ahead of the shallow-enders's
> @ YAYHOO !!!

Oct 11 01:41 PM

[lorddarley:]

I've never seen a company that didn't do it this way. Taxes have to be paid at vesting, even if the offficer wants to continue holding the stock. Because they are compensatory, the company has to pay the taxes, just like with any other form of wage or bonus.

Tax at vesting is a big difference between options and stock. There is no tax owed when an option vests (unless the option is exercised). There is tax owed when restricted stock vests.

By the way, the company gets a tax deduction for the full amount of the shares based on value at time of vesting.

Finally, issuing restricted stock is better for investors, because fewer shares are issued than with options.

Oct 12 02:21 AM