• The Associated Press, Thursday, December 11, 2008 10:47 AM

One of Yahoo's defense mechanisms back when Microsoft was trying to acquire the company for $31 per share was a so-called "poison pill," a hefty employee severance plan promising cash and stock benefits that would have made it even more expensive for Microsoft to acquire the ailing Web giant. In response to that plan, angry Yahoo shareholders sued the company in February. On Wednesday, the same day that it began sweeping job cuts, Yahoo announced the settlement of that suit, significantly weakening the takeover severance plan.

According to The Associated Press, the former severance plan, guaranteed to each of Yahoo's 14,000 employees, would have cost Microsoft or another buyer an additional $462 million to $2.1 billion. If employees were fired, forced to take a pay cut, or resigned after being involuntarily moved to a new position by the buyer within two years of the takeover, they would have been able to draw on the plan.

Yahoo has now agreed to revisions that make it more difficult for employees to qualify for the severance plan after a takeover. The changes allow the board to ditch the plan entirely, an option that wasn't available previously, and they also specify that if Yahoo decides to sell its search operations to Microsoft, the severance packages won't be available.

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