Yahoo described many details of the Yahoo-Google search ad deal on Thursday, but some more are in a Friday regulatory filing with the Securities and Exchange Commission. Here's the full text of the filing, lightly edited for easier readability.
On June 12, 2008 (the "Effective Date"), Yahoo, a Delaware corporation ("Yahoo!"), and Google, a Delaware corporation ("Google"), entered into a Services Agreement (the "Services Agreement"), pursuant to which Google will provide Yahoo! with advertisements through Google's AdSense for Search service (the "AFS Services") and AdSense for Content service (the "AFC Services," and together with the "AFS Services," the "Services") for display on Web sites and other applications owned and operated by Yahoo and its subsidiaries (the "Yahoo Properties") and certain of Yahoo's business partners/affiliates (the "Yahoo Partner Properties"). The Services Agreement applies to properties within the United States and Canada.
Under the Services Agreement, Yahoo has sole discretion to choose which search queries to send to Google and is not obligated to send any minimum number of search queries. Yahoo also has sole discretion to decide on which pages to display ads provided by Google through its AFC Services.
In addition, the Services Agreement is nonexclusive, and expressly provides that Yahoo is not prevented from implementing any other advertising, promotion, or marketing service or monetization method, including any that are the same as or substantially similar in nature to the Services or displaying comparable advertisements.
Yahoo also has sole discretion, with respect to the placement and location of ads generated from the Services, the number of ads requested, and the formatting of ads. Additionally, Yahoo may serve its own ads or third-party ads alongside Google ads.
Google will pay Yahoo a percentage of the gross revenues generated from AFS Services on the Yahoo Properties, with such percentage adjusting based on specified monthly gross revenue thresholds, and with respect to the Yahoo Partner Properties will pay a similar percentage of gross revenues, less a separate specified percentage.
Google will also pay Yahoo a fixed percentage of gross revenues generated from AFC Services on the Yahoo Properties and a fixed percentage of gross revenues for AFC Services on Yahoo Partner Properties.
The initial term of the Services Agreement commenced on the Effective Date and will continue for a period of four years thereafter. Yahoo may, at its option, extend the term of the Services Agreement for up to two additional periods of three years each.
Either party may terminate the Services Agreement upon notice to the other party (i) in the event of an uncured material breach of the Services Agreement by the other party, subject to dispute resolution procedures and certain limitations; (ii) in the event of a Change in Control (as defined below) involving either party; (iii) 120 days after the Effective Date, in order to avoid or end a lawsuit or similar action filed on competition law grounds, if the terminating party has taken all actions required under the Services Agreement, with respect to regulatory matters, and defending such action is not commercially reasonable for that party (taking all factors into account); or (iv) if a court of competent jurisdiction has entered an order enjoining the implementation of the Services Agreement.
In addition, Google may terminate the Services Agreement if, after 10 months after the Services are first launched, and each month thereafter, the gross revenues recognized by Google under the Services Agreement are less than $83,333,333 for the four prior calendar months.
As defined in the Services Agreement, the term "Change in Control" means (a) a merger, consolidation, statutory share exchange, recapitalization, restructuring, or business combination involving directly or indirectly a party or a subsidiary of a party in which voting securities of the party outstanding immediately prior to such transaction do not continue to represent more than 50 percent (or 65 percent, in the case of a transaction involving Microsoft, Time Warner, or News Corp., in each case together with their respective affiliates) of the voting power represented by the outstanding voting securities of the surviving entity immediately following the transaction; (b) any "person" or "group" becoming the "beneficial owner" (as such terms are used or defined in Sections 13(d) and 14(d) under the Securities Exchange Act of 1934, as amended) of more than 50 percent of the voting power of the then-outstanding voting securities of the party, except that, in the case of Time Warner and News Corp., the percentage will be 35 percent instead of 50 percent and, in the case of Microsoft, the percentage will be 15 percent instead of 50 percent, and a Change in Control will also be deemed to occur if Microsoft (i) beneficially owns 15 percent of the voting power of the party or (ii) acquires directly from a party any equity or voting securities of that party representing (or having a right to receive in the aggregate) 5 percent or more of the total equity value of the party or 1 percent or more of the party's annual revenues on a consolidated basis); (c) approval by the stockholders of a party of a plan of liquidation or dissolution; (d) the sale or disposition of all or substantially all the consolidated assets of a party; or (e) at any point in time, Yahoo no longer owns and, with respect to the U.S. and Canada, controls a majority portion of Yahoo's technology and intellectual-property assets that in the 12-month period prior to that time had been owned by Yahoo and used by Yahoo to provide services in the U.S. and Canada for either its algorithmic-search or search-advertising business.
The Services Agreement also permits Google to suspend performance of the Services under certain circumstances, including a pending Change in Control of Yahoo involving Microsoft, Time Warner, or News Corp., and a change in a majority of the board of directors of Yahoo following an annual or special meeting of stockholders, if a majority of the new directors did not serve on Yahoo's board immediately prior to such stockholder meeting and were nominated or solicited for by Microsoft, Time Warner, or News Corp. or, solely with respect to Yahoo's first two annual or special meetings held after the Effective Date, where the election of a majority of directors is before Yahoo stockholders (but not later than September 1, 2009), by any other person or group.
If the Services Agreement is terminated by either party within 24 months of the Effective Date as a result of a Change in Control of Yahoo (other than a Change in Control triggered only by Microsoft either (x) acquiring beneficial ownership of voting securities representing more than 15 percent of the voting power of outstanding Yahoo voting securities or (y) acquiring directly from Yahoo equity or voting securities representing 5 percent or more of Yahoo's total equity value or 1 percent or more of Yahoo's consolidated annual revenues, unless Microsoft becomes the beneficial owner of more than 35 percent of the voting power of such securities within such 24-month period), Yahoo is required to pay to Google the sum of $250,000,000, which payment will be reduced by one-half of an amount equal to (a) all gross revenues received by Google pursuant to the Services Agreement through the date of termination less (b) the amount equal to Yahoo's share of such gross revenues during the same period.
The Services Agreement will be implemented approximately three and a half months after the Effective Date, or sooner, if regulatory authorities in the United States or Canada, as applicable, have given notice that they have completed their review. Pursuant to the terms of the Services Agreement, Google and Yahoo shall cooperate reasonably in working with regulatory authorities regarding their review of the Services Agreement.
In connection with the Services Agreement, Yahoo and Google have agreed to certain procedures with the Antitrust Division of the United States Department of Justice (the "DOJ") to facilitate review of the Services Agreement by the DOJ, including delaying the implementation of the Services Agreement in order to provide the DOJ with a reasonable period of time to review the Services Agreement.
The Services Agreement may only be assigned by a party with the written consent of the other party or in connection with a Change in Control of the assigning party, subject to the other party's right to terminate.
Yahoo and Google each agrees to maintain the confidentiality of information provided by the other party, and the existence and terms of the Services Agreement, in each case subject to requirements of law and the rules of any national stock market or exchange, and other customary exceptions.
Each of Yahoo and Google agrees to indemnify the other party under certain circumstances, and subject to certain limitations.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Yahoo
(Registrant)
By: /s/ Michael J. Callahan
Name: Michael J. Callahan
Title: Executive Vice President, General Counsel and Secretary
Securities and Exchange Commission regulators on Monday filed civil fraud charges against eight former AOL Time Warner executives over allegations they overstated the Internet company's advertising revenue in excess of $1 billion.
The lawsuits, filed in U.S. District Court for the Southern District of New York, allege John Michael Kelly, former CFO of AOL Time Warner; Steven E. Rindner, a former Business Affairs unit senior executive; Joseph A. Ripp, former CFO of the AOL division; and Mark Wovsaniker, former Accounting and Policy head, created a fraudulent scheme where AOL Time Warner funded its own advertising revenue by giving purchasers funding to buy their own online advertising. That, in turn, allegedly created fraudulent transactions at the media titan between the mid-2000 and mid-2002 period, according to the SEC statement.
The SEC also filed a lawsuit against David M. Colburn, former head of AOL Time Warner's Business Affairs unit; Eric L. Keller and Jay B. Rappaport, former senior managers in the same unit as Colburn; and James F. MacGuidwin, former controller, over allegations the group artificially inflated the company's reported online advertising revenue. These four executives, however, reached a settlement with the SEC.
Under the settlement, all four will pay disgorgement and pre-judgment interest, as well as civil penalties. The total fines and penalties these four executives will pay will reach nearly $8.1 million.
The lawsuits come more than three years after Time Warner agreed to pay a $300 million civil penalty, stemming out of a similar SEC investigation. That agreement called for the company to restate $500 million in advertising revenue for the two-year period ending mid-2002.
The Securities and Exchange Commission has charged two current and two former key executives of chipmaker Broadcom with backdating stock options.
The SEC announced Wednesday it had filed a federal complaint against Chairman and Chief Technology Officer Henry Samueli and general counsel David Dull, as well as former Chief Executive Officer Henry Nicholas and former Chief Financial Officer William Ruehle. The chipmaker later announced that Samueli and Dull had taken leaves of absence from their positions until the matter is resolved.
Samueli, who co-founded the company, also resigned as chairman of the board. The board appointed director John Major to serve as nonexecutive chairman.
Major said Broadcom would not comment on allegations, but pointed out that the charges were "half a decade to nearly a decade" old.
The SEC charges that, from 1998 to 2003, the four schemed to fraudulently backdate stock-option grants, failing to record billions of dollars of compensation expenses, and falsifying documents to further the fraud. As a result of the scheme, Broadcom restated its financial results in January 2007 and reported more than $2 billion in additional compensation expenses, the SEC said.
Ruehle and Dull each personally benefited from the backdating scheme by receiving and exercising backdated grants that were in-the-money by more than $100,000 for Ruehle and $1.8 million for Dull, the SEC said in a statement.
The move follows Broadcom's agreement last month to pay a civil penalty of $12 million to settle SEC charges that it fraudulently backdated stock options.
Ann Mather, a Google board member, could well find herself on the receiving end of a Securities and Exchange Commission lawsuit regarding stock option transactions made while she was chief financial officer at Pixar Animation Studios.
"On April 23, 2008, Ann was advised by the staff of the Los Angeles office of the Securities and Exchange Commission (SEC) that it intends to recommend that the SEC initiate a civil proceeding against her, alleging violation of federal securities laws related to certain stock option transactions involving her former employer, Pixar Animation Studios," Google said in a regulatory filing Monday.
Mather was Pixar's CFO from 1999 to 2004. She's been on Google's board since November 2005.
She's also on the board of Zappos.com, Central European Media Enterprises Group, and Ariat International.
This post was last updated at 7:37 AM PT.
Claiming that it is both undervalued and underappreciated, Yahoo has fired some key financial forecasts over the bow of an acquisitive Microsoft.
On Tuesday, Yahoo reported the contents of a presentation to investors detailing the company's strategy for the next three years, as seen in a filing with the Securities and Exchange Commission.
The presentation was first shown to investors in December 2007, prior to Microsoft's announcement that it planned to acquire Yahoo. But on Tuesday, Yahoo underscored the contents of the presentation as evidence that Microsoft's unsolicited takeover bid, issued January 31, "substantially undervalues" the company.
In its new broadside, Yahoo said it hopes to double its operating cash flow from $1.9 billion to $3.7 billion over the next three years, and in 2010 aims to pull in $8.8 billion in revenue excluding traffic acquisition costs. The company is also sticking to the first-quarter outlook that it issued in January.
One presentation slide sums it up bluntly: "We believe our growth and profitability prospects are not fully appreciated by the public market." A ballsy assertion for a company that laid off 1,100 less than two months ago.
Anticipating that its growth will outpace the rest of the market, Yahoo projected $1.9 billion in added revenue (excluding traffic acquisition costs) from display and video advertising over the three-year period. In the search advertising sector, Yahoo expected that its growth would parallel the market and result in $1.4 billion in added revenue.
It's an optimistic outlook, and Yahoo is clearly banking on strong conditions in 2009 and 2010, something that recent economic news may render less likely. And Yahoo's presentation does cite global home-page figures for January, an area where Yahoo has been lagging significantly behind Google, with 425 million unique users versus 305 million for Yahoo. Yahoo search, too, has long operated in Google's shadow, with global query figures for the last quarter of 2007 showing Yahoo search with a 27 percent share, Google with 53 percent.
Perhaps with the gloomy U.S. economic forecast in mind, Yahoo's presentation highlighted the company's strategic position in Asian markets, citing the dominance of Yahoo Japan, in which it holds a 33 percent stake; and the success of business-to-business site Alibaba, in which it holds a 28 percent stake. According to the details of the presentation, these heavy investments in Asian dot-coms typically are not taken into account nearly enough in assessments of Yahoo's value.
Heavy emphasis is also placed on Yahoo's freshest social-media projects, like social news site Yahoo Buzz and the yet-to-launch mobile service, Yahoo OneConnect. They're both innovative projects and initial analysis of Buzz seems to indicate early success, but Yahoo's track record in the social media space has been spotty. Yahoo Groups are a longtime staple, but the Yahoo Mash social network, launched in September, failed to get much traction.
Somewhat ironically, the presentation also details a strategic initiative on Yahoo's part called Must Buy. It's referring to ad inventory and making it easier for advertisers and publishers to work with Yahoo, but given Microsoft's bid, "Must Buy" has some snicker-inducing connotations that Yahoo might not want.
This week, Cisco did something it is extremely good at: it announced yet another marketing-focused initiative called the Cisco Trusted Security, or TrustSec. The company describes TrustSec as "a new architecture that integrates identity and role-based security measures for scaled implementation across enterprise networks."
Hey, great idea! If I knew who was on my network and what they were doing, I could certainly get a better handle on security, business process management, workflow, and regulatory compliance controls. That said, we've been talking about this for a long time. I would also argue that a number of vendors including Extreme, Hewlett-Packard, and Nortel are already pretty far along with products that support an identity-based networking and security model. Nevertheless, there is only one Cisco and if John Chambers and Co. can promote this model, everyone may win.
So what are the implications of identity and/or role-based security on the network? Here are a few of my thoughts:
1. Isn't this just a superset of Network Access Control (NAC)? If we use NAC and the 802.1X protocol, we can identify a device, check it for its health status, and then apply certain networking rules based upon parameters like device type (i.e. laptop or mobile device), network location, time of day, etc. I think what Cisco is suggesting is that we marry device and user identity and then come up with an additional set of policies, controls, and reports. Sounds good, but it sounds like user-centric NAC to me.
2. The underappreciated workhorse in Cisco's model is good old Radius. Cisco will release its latest Radius offering, ACS 5.0, in 2008. When it does, TrustSec and Cisco NAC become much more real. Large organizations thinking about this type of network security model should start by assessing the state of their Radius architecture. You may find that it is a mismatch for the scale and availability requirements you will need. I'm sure Cisco ACS 5.0 will be a vast improvement over its current Radius server, but Identity Engines and Juniper/Funk are pretty good alternatives.
3. Network-based identity and security is Act 1. Act 2 is marrying network identity with application identity. Imagine if I could look at users networking traffic patterns and what they actually did in loads of different applications. There are two ramifications for Cisco: No. 1, other than RADIUS, Cisco doesn't play much in the identity space yet but it recently purchased Securent for this very purpose. Don't be surprised if Cisco decides that it needs additional "up-the-stack" tools in areas such as multi-factor authentication, public key infrastructure, single sign-on. No. 2, Cisco may have its eyes on user auditing, which may also mean log management. Sounds like a good partnering opportunity for focused vendors like LogLogic and LogRhythm.
Cisco isn't always the first vendor to embrace a new model, but it can really move the market when it does. As Cisco adds identity-based networking and security to its equipment, everyone else will be forced to ramp up their own efforts. Ultimately this will improve the security, flexibility, and service levels of all networks.
Dell actually beat analysts' expectations Thursday when it released the preliminary results of its earnings for the second quarter of fiscal year 2008, but again opted against the traditional follow-up conference call with company executives, investors and the media.
Dell has failed to file its last six quarterly earnings reports and its last annual report with the SEC due to the company's internal investigation into its accounting practices. The probe, which was wrapped up earlier this month, found that Dell accountants were regularly fudging quarterly earnings numbers as far back as 2003 to meet or surpass Wall Street expectations. Meanwhile, the SEC's own investigation continues.
Dell says it's going to get current with its SEC filings in the first week of November, which is good timing. The NASDAQ informed Dell last week it had until November 12 to get its act together or it will be delisted.
Dell says its next earnings report is due November 29, at which time it will return to regularly scheduled programming of taking calls from investors and reporters.
But this quarter was decent. The company reported preliminary results of $14.8 billion in revenue and earnings of 32 cents per share. Servers were the company's strength again, responsible for $1.6 billion in revenue.
According to Gartner, Dell continues to lose worldwide market share in the PC space to Hewlett-Packard. Though still No. 1 in PCs shipped in the U.S., its shipment growth has declined 11 percent from a year ago.
Dell representatives declined to provide details about when the paint problems delaying backlogged orders of its anticipated Inspiron and XPS 1330 notebooks would be resolved.
This article was updated at 2:45 p.m. PDT.
Dell concluded an internal investigation into its accounting procedures Thursday and found that three years' worth of quarterly earnings statements were improperly adjusted, and senior executives knew about it.
Which executives knew isn't clear yet. A Dell representative said the company is "taking responsibility as a team" and isn't naming names.
According to a statement released by the company, the investigation yielded evidence that "certain adjustments appear to have been motivated by the objective of attaining financial targets," and usually took place at the end of a fiscal quarter. Adjusted account balances were "reviewed, sometime at the request or with the knowledge of senior executives," according to a company statement.
Dell says it will restate earnings filed between 2003 and 2006, and plans to refile with the SEC the first week of November. The cumulative change to Dell's bottom line for the entire period will be between $50 million and $150 million, and earnings per share will be reduced by 2 to 7 cents per share.
The earnings statement from the first fiscal quarter of 2003 and the second fiscal quarter of 2004 will require the most restatement, requiring reductions of between 10 and 13 percent in net income. Earnings from the fourth quarter of fiscal year 2005 will be reduced by 7 percent. But net income for the second quarter of fiscal 2005, and the third and fourth quarters of 2006 will actually be bumped up by 5 to 7 percent.
The company's internal audit committee first announced its preliminary findings in March and said it found "evidence of misconduct." Dell first revealed that it had come under the scrutiny of the SEC last August.
An accounting scandal is another blow to Dell, which has been steadily losing market share to Hewlett-Packard and has seen an exodus of its top executives in the last year, which may or may not be directly related to the outcome of Dell's or the SEC's probe of its accounting practices. CEO Kevin Rollins left in January and was replaced by former CEO and founder Michael Dell. Rollins' departure was preceded by the exit of Jim Schneider, Dell's chief financial officer, who also left in January.
Dell is holding a call with investors regarding the news, so stay tuned for more this afternoon.
Editors' note: This blog initially misstated the price per share of former CEO Kevin Rollins' stock options had he been able to exercise them. The correct price is $28.67. The story should also have included that Rollins' stock options had vested prior to his leaving the company.
Kevin Rollins supposedly walked away from Dell with a measly $5 million payout. Turns out Dell's former CEO is pocketing nearly 10 times that amount.
Dell said in an 8K report filed on Wednesday that once the company finally files an annual report, it intends to pay Rollins $48.5 million. The money comes in the form of a payment in lieu of stock options, the company said in the report.
Rollins, who resigned on Jan. 31, had accumulated 7.3 million shares of Dell stock options since arriving in Round Rock, Texas, in 1995. According to the company, he could exercise his vested options 90 days after he left the company, which came on Aug. 2. Dell couldn't allow him to cash out because the company is under investigation by the Securities and Exchange Commission and is trying to sort out questions over its accounting.
Instead, Dell entered into an agreement to pay Rollins the $48.5 million, which represents the value of his stock options if he had been able to exercise at the price of $28.67, according to David Frink, a Dell spokesman. The price Dell agreed to pay was the average price that Dell shares closed at the week before Rollins' stock options expired.
Dell compensated 400 other current and former employees whose stock was vested and had expired in the same way, Frink said.
When Rollins stepped down, some publications expressed sympathy over his payout. The Register called it a "slap in the face" considering that Hewlett-Packard sent former CEO Carly Fiorina off with $21 million.
Dell's stock price grew after Rollins initially took over in 2004. After topping out at about $42 in Jan. 2005, the stock started a descent and the price has remained below $30 since April 2006.
On Rollins' watch, Dell also came under SEC scrutiny and lost market share to HP.
It might be hard for anyone to feel sorry for Rollins now.
Dell's failure to file a timely earnings report has again earned it notification of possible delisting from the Nasdaq.
It's the fourth such deadline Dell has missed while in the midst of SEC and internal investigations into its accounting practices, including three quarterly reports and its 2006 annual report. The latest deadline passed on May 4, at which time Dell says it notified the Nasdaq Listing and Hearing Review Council of the finding of its own audit committee. In March, Dell announced that its internal investigation yielded what it termed "evidence of misconduct," which could result in the company having to restate past earnings.
Dell said the notice was "expected" and the company has already asked the Nasdaq to extend its conditional listing until it is able to file. The council's decision is still pending.
