According to a regulatory filing that was made to settle a shareholder lawsuit, Yahoo overhauled a severance program it passed earlier this year to thwart an unsolicited buyout bid by Microsoft.

The plan promised generous cash and stock benefits to virtually all of Yahoo’s nearly 14,000 employees if they were fired, took a pay cut or resigned after being involuntarily reassigned to another job within two years of a takeover.

The sweeping coverage would have cost Microsoft an additional $462 million to $2.1 billion had the software maker been able to buy Yahoo at its initial offer of $44.6 billion, or $31 per share, according to internal Yahoo documents turned over during the shareholder case in Delaware court.

Yahoo agreed to revisions that will make it more difficult for employees to qualify for severance pay after a takeover. The changes also limit the eligibility period to the first year following a sale and allows the board to scrap the plan entirely  an option that wasn’t available under the original terms.

The revisions also specify the severance packages won’t be available if Yahoo decides to sell its search operations to Microsoft.

A major shareholder of Yahoo, Ivory Investment Management,  which owns a 1.5%, concluded that  selling the search engine could boost Yahoo’s profit and lift the company’s stock price to $24 to $29 per share.

Yahoo shares gained $1.21, or nearly 10 percent, to finish Wednesday at $13.40.

The company’s revisions to the severance plan take effect immediately, but will expire in 90 days if the lawsuit settlement isn’t approved by then.

Today also marked the day that Yahoo started handing out the pink slips to some of the 1,500 employees it announced a couple of months ago.