Directors' Report - Alibaba

NOTES TO THE FINANCIAL STATEMENTS
For the year ended December 31, 2010
27 SHARE-BASED COMPENSATION (Continued)
(a) Share-based incentive schemes operated by the Group (Continued)
Put options and earn-in arrangement of HiChina
Upon the acquisition of HiChina (Note 1), the Group has granted put options which are exercisable on certain specified
dates over a three-year period from 2011 to 2013, to certain founder shareholders of HiChina. On the condition that
HiChina meets certain post-completion performance milestones, these shareholders may require the Group to further
acquire up to a 14.67% equity interest in HiChina from them for a maximum consideration of RMB104.5 million (US$15.3
million).
In addition, the Group has also agreed, among other things, that it might transfer certain earn-in shares of HiChina to
certain key employees, subject to these employees achieving other post-completion performance milestones to be set based
on the ongoing business strategies and objectives of HiChina on an annual basis over each of the five years starting 2010.
As the vesting of put options is conditional on employment-related elements, the fair value of the put options is recognized
as share-based compensation expense over the vesting period. Similarly, the fair value of the earn-in shares is also accounted
for as share-based compensation expense in the consolidated statement of comprehensive income upon vesting.
Share-based compensation expense for schemes operated by the Group
In 2010, the Group recognized share-based compensation expense of RMB246,532,000 (2009: RMB110,992,000) in
connection with all the share-based incentive schemes operated by the Group.
(b) Share-based incentive schemes operated by the ultimate holding company
Senior management equity incentive scheme
In 2010, the ultimate holding company adopted the senior management equity incentive scheme, pursuant to which
selected senior management of the ultimate holding company (including certain directors and senior management of the
Group) were invited to subscribe for rights to acquire ordinary shares of the ultimate holding company. These rights, subject
to non-compete provision but without any vesting conditions upon employment or other services, are exercisable after the
dates as specified in the relevant agreements. As certain participants of the scheme are employees of the Group, deemed
share-based compensation expense from accounting perspectives, measured by the difference between the fair value of the
rights and the related subscription price, of RMB56,956,000 was recognized in full by the Group in 2010 (2009: nil).
The fair value of the rights to acquire ordinary shares of the ultimate holding company was determined based on the Black-
Scholes Model. The significant inputs into the Black-Scholes Model in determining the grant date fair value were as follows:
Risk-free annual interest rate 1.32%-1.42%
Dividend yield 0%
Expected life (years) 5.00
Expected volatility (i) 55.00%
Weighted average fair value of each right US$2.32
(i) Expected volatility is assumed based on the historical volatility of the share price of the comparable companies of the ultimate holding company
in a period that has the same length of expected life.
Alibaba.com Limited Annual Report 2010
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