(11) Stock-Based Compensation

Qurate Retail - Incentive Plans

The Company has granted to certain of its directors, employees and employees of its subsidiaries, restricted stock (“RSAs”), RSUs and options to purchase shares of the Company’s common stock (collectively, "Awards"). The Company measures the cost of employee services received in exchange for an equity classified Award (such as stock options and restricted stock) based on the grant-date fair value (“GDFV”) of the Award, and recognizes that cost over the period during which the employee is required to provide service (usually the vesting period of the Award). The Company measures the cost of employee services received in exchange for a liability classified Award based on the current fair value of the Award, and remeasures the fair value of the Award at each reporting date.

Pursuant to the Qurate Retail, Inc. 2020 Omnibus Incentive Plan (the “2020 Plan”), the Company may grant Awards in respect of a maximum of 30.0 million shares of Qurate Retail common stock plus the shares remaining available for Awards under the prior Qurate Retail, Inc. 2016 Omnibus Incentive Plan (the “2016 Plan”), as amended, as of close of business on May 20, 2020, the day before the effective date of the 2020 Plan. Any forfeited shares from the 2016 Plan shall also be available again under the 2020 Plan. Awards generally vest over 1-5 years and have a term of 7-10 years. Qurate Retail issues new shares upon exercise of equity awards.

Qurate Retail – Grants

The following table presents the number and weighted average GDFV of options granted by Qurate Retail during the years ended December 31, 2021, 2020 and 2019:

During the years ended December 31, 2021, 2020 and 2019, Qurate Retail granted to employees and directors 6.0 million, 10.1 million and 3.5 million RSUs of QRTEA, respectively, which RSUs have a weighted average GDFV of $11.98, $4.78 and $15.47 per share, respectively, and generally vest annually over four years.  In addition to the stock option grants to the Qurate Retail Chairman of the Board, and in connection with his employment agreement, Qurate Retail granted time-based and performance-based RSUs. During the years ended December 31, 2021 and 2020, Qurate Retail granted to our Chairman 229 thousand and 584 thousand performance-based RSUs, respectively, of QRTEA.  Such RSUs had a GDFV of $12.90 per share and $4.44 per share, respectively, at the time they were granted. During the year ended December 31, 2019, Qurate Retail granted 194 thousand performance-based RSUs of QRTEB to our Chairman.  Such RSUs had a GDFV of $17.90 per share at the time they were granted.  The 2021, 2020 and 2019 performance-based RSUs granted to our Chairman vest one year from the month of grant, subject to the satisfaction of certain performance objectives and based on an amount determined by the compensation committee.  As a result of the Letter Agreement discussed in Note 10, during the year ended December 31, 2021, Qurate Retail granted 1.1 million time-based RSAs of QRTEB to our Chairman, which RSAs have a GDFV of $13.65 per share and vest in two equal tranches on December 10, 2024 and June 3, 2026, subject to earlier vesting under certain circumstances.  During the year ended December 31, 2020, Qurate Retail granted 38 thousand time-based RSUs of QRTEA to our Chairman, which RSUs had a GDFV of $7.44 per share and cliff vested on December 10, 2020.  This RSU grant was issued in lieu of our Chairman receiving 50% of his remaining base

salary for the last three quarters of calendar year 2020, and he waived his right to receive the other 50%, in each case, in light of the ongoing financial impact of COVID-19. During the year ended December 31, 2019, Qurate Retail granted 19 thousand time-based RSUs of QRTEB to our Chairman. Such RSUs had a GDFV of $17.90 per share at the time they were granted and cliff vested on March 11, 2019.

During the year ended December 31, 2021, Qurate Retail granted 684 thousand time-based RSUs of QRTEA to Mike George. Such RSUs had a weighted average GDFV of $12.84 per share at the time they were granted and mainly cliff vested on December 10, 2021.  Also during the years ended December 31, 2021, 2020 and 2019, Qurate Retail granted approximately 423 thousand, 725 thousand and 191 thousand performance-based RSUs, respectively, of QRTEA to Mr. George. Such RSUs had a GDFV of $12.90, $4.44 and $17.90 per share, respectively, at the time they were granted.  The 2021, 2020 and 2019 performance-based RSUs granted to Mr. George cliff vest one year from the month of grant, subject to the satisfaction of certain performance objectives and based on an amount determined by the compensation committee.  

Also during the year ended December 31, 2021, Qurate Retail granted 509 thousand time-based RSUs and 143 thousand performance-based RSUs of QRTEA to Mr. Rawlinson in connection with his employment agreement.  Both the time-based and performance-based QRTEA RSUs had a GDFV of $10.50 per share at the time they were granted.  The time-based RSUs vest over three years, and the performance-based RSUs cliff vest in March 2022, subject to the satisfaction of certain performance objectives and based on an amount determined by the compensation committee.  Performance objectives, which are subjective, are considered in determining the timing and amount of the compensation expense recognized.  As the satisfaction of the performance objectives becomes probable, the Company records compensation expense.  The probability of satisfying the performance objectives is assessed at the end of each reporting period.

During the fourth quarter of 2021 and in connection with the November Special Dividend, holders of QRTEA or QRTEB (together, “QRTEA/B”) RSAs and RSUs outstanding at the close of business on the record date received a special cash dividend in the amount of $1.25 per share for each QRTEA/B RSA or RSU so held (“November Cash Dividend”).

The November Cash Dividend for RSA holders was paid upon distribution.  The November Cash Dividend for RSU holders is subject to the same vesting schedules as those applicable to the corresponding original QRTEA RSUs.

Also in connection with the November Special Dividend, outstanding stock options and stock appreciation rights (“SARs”) to purchase shares of QRTEA/B on the record date were adjusted pursuant to the anti-dilution provisions of the incentive plans under which the stock options and SARs were granted.  The adjustment to the exercise price and the number of shares subject to the original stock option or SAR award preserved:

During the third quarter of 2020 and in connection with the Special Dividend, holders of RSAs and RSUs of QRTEA outstanding at the close of business on the record date received:

The Cash Dividend for RSA holders was paid upon distribution. The Cash Dividend for RSU holders along with the QRTEP RSAs and RSUs are subject to the same vesting schedules as those applicable to the corresponding original QRTEA RSAs and RSUs.  

Also in connection with the Special Dividend, outstanding stock options and SARs to purchase shares of QRTEA/B on the record date were adjusted pursuant to the anti-dilution provisions of the incentive plans under which the stock options and SARs were granted. The adjustment to the exercise price and the number of shares subject to the original stock option or SAR award was calculated in the same manner as the November Special Dividend discussed above.

During the fourth quarter of 2020 and in connection with the December Special Dividend, holders of QRTEA RSAs and RSUs outstanding at the close of business on the record date received a special cash dividend in the amount of $1.50 per share for each QRTEA RSA or RSU so held (“December Cash Dividend”).

The December Cash Dividend for RSA holders was paid upon distribution.  The December Cash Dividend for RSU holders is subject to the same vesting schedules as those applicable to the corresponding original QRTEA RSUs.

Also in connection with the December Special Dividend, outstanding stock options and SARs to purchase shares of QRTEA/B on the record date were adjusted pursuant to the anti-dilution provisions of the incentive plans under which the stock options and SARs were granted.  The adjustment to the exercise price and the number of shares subject to the original stock option or SAR award was calculated in the same manner as the November Special Dividend discussed above.

The Company has calculated the GDFV for all of its equity classified awards using the Black-Scholes-Merton Model. The Company estimates the expected term of the Awards based on historical exercise and forfeiture data.  For grants made in 2021, 2020 and 2019, the range of expected terms was 5.3 to 6.3 years. The volatility used in the calculation for Awards is based on the historical volatility of the Company's stocks and the implied volatility of publicly traded Qurate Retail options. The Company uses a zero dividend rate and the risk-free rate for Treasury Bonds with a term similar to that of the subject options

The following table presents the range of volatilities used by Qurate Retail in the Black-Scholes-Merton Model for the 2021, 2020 and 2019 Qurate Retail grants.

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Qurate Retail - Outstanding Awards

The following table presents the number and weighted average exercise price ("WAEP") of Awards to purchase Qurate Retail common stock granted to certain officers, employees and directors of the Company, as well as the weighted average remaining life and aggregate intrinsic value of the Awards.

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As of December 31, 2021, the total unrecognized compensation cost related to unvested Qurate Retail Awards was approximately $119 million. Such amount will be recognized in the Company's consolidated statements of operations over a weighted average period of approximately 1.8 years.

As of December 31, 2021, Qurate Retail reserved 44.3 million shares of Series A and Series B common stock for issuance under exercise privileges of outstanding stock Awards.

Qurate Retail - Exercises

The aggregate intrinsic value of all options exercised during the years ended December 31, 2021, 2020 and 2019 was $19 million, $7 million and $2 million, respectively.  

Qurate Retail - Restricted Stock and Restricted Stock Units

The Company has approximately 12.9 million, 1.1 million and 188 thousand unvested RSAs and RSUs of QRTEA, QRTEB and QRTEP, respectively, held by certain directors, officers and employees of the Company as of December 31, 2021.  The QRTEA and QRTEB unvested RSAs and RSUs have a weighted average GDFV of $9.41 per share and $13.65 per share, respectively, and 155 thousand of the QRTEP unvested RSUs have an incremental cost of $48.99 per share.

The aggregate fair value of all QRTEA, QRTEB and QRTEP RSAs and RSUs that vested during the years ended December 31, 2021, 2020 and 2019 was $95 million, $17 million and $25 million, respectively.