We will call him Mr. "Lucky"

We are told that Mr. "Lucky" was granted employee

stock options when he went to work for Yahoo on

April 16, 2001. The stock was trading at $17.61

However, he did not start as CEO and Chairman

untill May 1, 2001 when the stock was $22.10.

Could it be that Mr. Lucky was really granted those

options on May 1, 2001 and they were back-dated

to a day when the stock was 4.5 points lower.

The stock was at $17.61 and he received a total of

10 million ESOs to buy stock at prices as below:

5,000,000 at 17.61

2,500,000 at 30

1,500,000 at 60

1,000,000 at 75

The "Fair Value" (theoretical value) of those above

options were approximately $110,000,000 U.S.

Perhaps the largest bonus ever paid to attract a CEO

to a job.

Why was not May 1, 2001 the day of the grant?

It was the day he became CEO and Chairman.

Something's suspicious.

--------------------------------------------------

After five and one half months Yahoo stock was

down to $9.24. On Oct 2, 2001. Mr. "Lucky" was

granted another million ESOs at 9.24.

"Fair Value" was about $6,000,000.

-------------------------------------------------

With the stock about $12.92 on July 11, 2002, Mr.

Lucky received a mere 2,000,000 ESOs to buy the

stock at 12.92 and another 800,000 at 16.46 on

Dec 12, 2002. The combined theoretical value was

$20, 500,000 for a bonus for a job well done.

The stock was only down 45% since he started as CEO

twenty months earlier (or down 30% from the day of

the $110,000,000 grant).

Lucky Time

But things changed and Mr. Lucky starts to get lucky.

He begins to cash in on some of those options

and duly exercises 500,000 ESOs with 8 years to

expiration (only case I've seen of exercising with

8 years to go). He then sells the stock at prices

between 32 and 32.64 in 19 different trades.

He nets 23.10 pts (32.34 - 9.24) on 437,500 shares

= $10,106,250.00 plus 15.90 on 62,500

shares = $993,750.00

total = $11,100,000 jackpot

---------------------------------------------------

On Oct 14, 2003 Mr. Lucky is back exercising ESOs

prematurely and selling stock.

He exercises 333,334 shares with a strike price

of 12.92 and sells the stock between 42.3125

and 42.70.

On the same day he also exercises 62,500 of

his 9.24 ESOs and 104,166 exercisable at 16.46

with an average of 7 years remaining on the

options.

His net looks as follows:

29.60 x 333,334 = $9,866,686.64 plus

33.25 x 62,500 = $2,078,125.00 plus

26.06 x 104,166= $ 2,714,565.90

Total Gain = $ 14,659,376

-----------------------------------------------

Mr.Lucky exercises and sells 63,200 ESOs with a

strike price of 9.24 and sells at 48 on Feb 12, 2004.

Range of the stock 47.23 - 48.07.

63,200 x 38.76 = Gain of $2,449,632

-----------------------------------------------

If you thought he was lucky, now the real

luck begins.

On March 10 or thereabouts Mr. "Lucky" is granted

2,900,000 ESOs with a exercise price of $41.70

(five cents higher than the lowest close of 2004.

It would look bad if he got the absolute low).

Better to be lucky than good.

On April 7, 2004, Yahoo announces record earnings

and a 2/1 split of the stock.

The stock moved up before the news to 48 (perhaps

Mr. "Lucky" helped some of his friends get lucky and

they were buying stock because Mr. Lucky did not

want all the grub himself) and opened after the news

at $56 and change.

On April 12, Mr. Lucky exercised 1,500,000 ESOs

with strike prices of 9.24, 12.92 and 16.46 with perhaps

5.5 years to go and sells some size stock at the lucky

prices of 54.88 to 55.65.

Gain $60,000,000 jackpot

---------------------------------------------------

April 15, 16, 2004 Mr. Lucky exercises another 500,000

ESOs and sells stock between 54.29 and 54.70.

$3,262,616 + $ 5,219,773 = Gain of $8,482,389

---------------------------------------------------

On July 13, 2004, Mr "Lucky" exercises a total of

1,632,500 ESOs with strike prices of 4.62, 6.46, 8.23,

and 8.81. These exercise prices were ajusted for the split.

$3,222,500 + $11.970,000 + $2,217,000 + $19,592,925 =

Gain = $37,002,425 big jackpot

----------------------------------------------------

Lucky exercises 367,500 on July 14, 2004 at 8.81 and

sells at prices ranging between 30.45-30.58

Gain = $7,974,750

--------------------------------------------------

Lucky exercises another 1,000,000 ESOs at 8.81 and

sells at between 29.85 and 30.05 on July 27, 2004. .

Gain = $21,140,000

--------------------------------------------------

Lucky is at it again. On Oct 19, 2004, he exercises

900,000 ESOs at 4.62, 8.23, and at 8.81 and sells with

a little help from his friends at between 35 and 35.53 .

Stock closes at 34.64

Gain $3,830,000 + $2,704,027 + $ 17,860,473

Gain = $24,394,500

----------------------------------------------------

On Oct. 20, 2004 Mr. Lucky exercises 167,000 ESOs and

sells at an average 34.35.

Gain = $4,265,180

----------------------------------------------------

Mr. Lucky goes on exercising and selling again.

1,383,000 at 8.81. Gets prices from 35.10 to 35.80

on Oct 21, 2004.

Gain = $36,856,950 jackpot

------------------------------------------------

On Oct 22,2004 , Mr. Lucky exercised 550,000 at

8.81 and sells for between 35.60 and 36.60

Gain = $15,009,500

-------------------------------------------------

Mr. Lucky gets bonus grant of 1,400,000 mllion ESOs

with a strike price of 37.08 on Dec. 16, 2004.

Theoretical value of ESOs $23,360,040

--------------------------------------------------

On Jan 24, 2005 34.500 ESOs are exercised but

no stock sold. Lucky must have something up his

sleve.

-------------------------------------------------

On Feb 1, 2005, Mr Lucky is granted 2,000,000

ESOs at 34.75 per share

Theoretical value of ESOs $29,000,000

------------------------------------------------

On Feb 4, 2005, Lucky exercises at 4.62 and sells

23,900 shares at 35.09 to 35.23

Gain = $729,906

------------------------------------------------

On April 22, 2005 Mr. Lucky exercises 880,000 ESOs

and sells at varios prices between

34.87 and 35.31

Gain = 35.09 $6,889,267 + $5,372,000 + $11,928,492

Gain = $24,189,759.

---------------------------------------------------

On April 25, 2005 Mr. Lucky exercised prematurely

620,000 ESOs at 8.81 and sold between 34.67 and 35.

Gain = $16,132,400

---------------------------------------------------

On April 27, 2005 He exercised 200,000 ESOs at 8.81

and received sales at 35 and 35.10.

Gain = $5,248,000

--------------------------------------------------

On May 4, 2005 Mr. Lucky exercises 750,000 ESOs

with a strike price of 8.81 and sellsat 35.15 to 35.45 for a

Gain = $19,867,500

----------------------------------------------------

On August 19, 2005, Mr . Lucky is again exercising

options with strike prices of 4.62, 8.23, and 8.81 and

selling stock at prices from 34.23 to 34.45. His total

exercise and sales is 542,886.

Gain is $11,945,155 + $870,032 + $ 1,238,313

= $14,053,500

----------------------------------------------------

On October , 24, 2005 Mr. Lucky cashes in by selling

stock he received from exercising options to buy

66,667 at 8.23, 763,149 at 8.81 and 83,334 at 4.62

His gain is $1,798,008 + 20,139,502 + 2,548,353

= $24,485,863

----------------------------------------------------

On Oct 25, 2005 Mr. Lucky exercises 534,921 ESOs at

15.00 and 104,297 at 8.81and sells at prices bewteen

35.10 and 35.31

Gains $10,805,404 + $2,752,397 = $13,557,801

----------------------------------------------------

On Oct 26, 2005 , Mr. Lucky is exercising 447,632

ESOs at 15 and selling the stock at between 35.05

and 35.58

Gain = $9,091,405

---------------------------------------------------

On Oct 27, 2005 , Mr. Lucky exercises 500,000 ESOs

with ex.pr. of 15 and sells stock at between 35.40

and 35.45

Gain = $10,201,000

---------------------------------------------------

On Oct 28,2005, another 500,000 with str. pr. of 15,

goes at prices between 35.43 and 35.80

Gain = $10,295,000

-------------------------------------------------

On Feb. 15, 2006, Mr. Lucky is still getting lucky as

he unloads more ESOs.266,667 Strike pr. 15 and

133,333 Str. pr. 8.23 at Market prices between

33.03 and 33.32 .

Gains = $4,840,006 + $3,330,658 = $8.170,664

-------------------------------------------------

On Feb 16, and 17, 2006 300,000 ESOs are disposed

of by exercise (str. pr. 15) stock sold at prices from

33.05 to 33.25.

Gain = 300,000 x 18.15 = $ 5,445,000

--------------------------------------------------

On Feb21 and 22, 2006 , 300,000 with ex.pr of 15 are

exercised and the stock sold with prices from 33.03

to 33.10 gain $ 5,418,000

Total Gain before tax on options exercises and

stock sales is $421,000,000 as of this date.

July 4, 2006. This does not include the value of

options granted but not exercised, and does not

include restricted stock received either sold or

held. (estimated at$350,000,000 to

$450,000,000 in addition to the $421,000,000).

---------------------------------------------------

Lucky, on March 10, 2006, is granted ESOs to

purchase 1,300,000 shares of stock at 40.68

Theoretical value = $11,000,000.00 .

The purpose of this grant is unknown. The stock was

trading at 30.58 at the close on March 10, 2006. Why

grant a bonus worth $11,000,000 when the

March 10, 2004 bonus was for 900,000 shares at 41.70

when the stock was trading at 41.70. The

theoretical value of those 900,000 options was almost

$19,000,000 at grant.

---------------------------------------------------

Mr. Lucky then gets real lucky on May 31, 2006 when

he is granted 6,000,000 ESOs to buy the stock at

market value of 31.59. The theoretical value is near

$67,000,000 to $71,000,000 at grant day.

----------------------------------------------------

Is there something coming at the upcoming

earnings announcements to make the stock jump?

We will watch it. Or maybe this story will break and

Yahoo and Mr.

Lucky will have some explaining to do.

Cheers:

John Olagues

I predict that Mr. Lucky will have some papers

delivered to him next week which may make him

feel a bit unlucky.

He also may be feeling a bit unlucky after Yahoo

tumbled 6.5 points on July 19, 2006.

I predict that Mr. Lucky will go the Compensation

Committee and demand more ESOs because of

how much he lost today in value.

Mr. Lucky got a bit unlucky in May 2007 when

Five lawfirms sued him for fraud and

misrepresentation in his "pump and dump scheme"

beginning April 7, 2004.

---------------------------------------------------

 

 

.

Olagues at olagues@hotmail.com for more info.

The author, JOHN OLAGUES, is a former member of the Chicago Board Options Exchange and the Pacific Stock Exchange for over ten years. He offers a unique view of employee stock options from a trader’s standpoint rather than from the standpoint of an accountant, compensation planner or academic. To contact JOHN OLAGUES email olagues@hotmail.com and  see www.optionsforemployees.com.