CDW 2012 Annual Report Download - page 81

Table of Contents CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continued to serve as Chairman of the Board through December 31, 2012. In accordance with this agreement, Mr. Edwardson's
unvested Class B Common Units continued to vest beyond his separation date as he remained employed by the Company through
December 31, 2012, resulting in a modification of the grants for accounting purposes. As a result of this modification, the Company
recorded incremental equity-based compensation expense of $6.6 million and $3.3 million during the years ended December 31, 2012
and 2011, respectively.
In the first quarter of 2010, the Board of Managers made certain changes to the CDW Holdings Limited Liability Company Agreement
(“LLC Agreement”). The restated LLC Agreement was revised largely to eliminate the capital preference on the Class A Common
Units in connection with the reduction of the participation threshold for certain outstanding Class B Common Units to $0.01 from
$1,000 . The modification of outstanding Class B Common Units was effective March 10, 2010. Under the revised Class B Common
Unit agreement, the units vest daily on a pro rata basis commencing January 1, 2010 and continuing through December 31, 2014. As
part of the modification, vesting was reset on those units that previously had vested, subjecting them to a new five -year vesting period.
There were 140,428 Class B Common Units modified that were held by 101 coworkers. The total incremental compensation cost
resulting from the modification of $8.4 million , or $60.00 per unit, is being recognized over the new vesting period. The $60.00 per
unit modification cost was determined as a difference in value of the modified Class B Common Units ( $120.00 ) and the value of the
Class B Common Units immediately prior to the modification ( $60.00 ). The Company adopted a bifurcated method of accounting for
the modification whereby the compensation cost associated with the original grant of the modified units continues to be expensed over
the original vesting period.
MPK II Units
The Company agreed with Michael P. Krasny, CDW Corporation founder and former chairman and CEO, to establish the MPK
Coworker Incentive Plan II (the “MPK Plan”) for the benefit of all of the coworkers of the Company other than members of senior
management that received incentive equity awards under the Plan on October 15, 2007.
The MPK Plan consisted of a cash award component, and in the case of coworkers hired on or prior to January 1, 2007, a long-term
incentive award component. The cash award component, an expense of CDW Corporation prior to the Acquisition, entitled each
participant to a one-time cash bonus payment, which was paid in December 2007. The long-term incentive award component
established an “account” for each eligible participant which was notionally credited with a number of Class A Common Units of CDW
Holdings LLC on October 15, 2007, the day the plan was established. As of December 31, 2012 , there were 66,137 notional units
granted and outstanding under the MPK Plan.
The notional units credited to participants' accounts are unvested and subject to forfeiture as set forth in the MPK Plan. Participants
become fully vested on the earlier of (1) the date which is three months following the 10th anniversary of the effective date of the MPK
Plan, and (2) the later of the date such participant attains age 62 and the date such participant has reached 10 years of service with the
Company and its subsidiaries. Participants will also become fully vested upon termination of employment due to death or disability (as
defined in the MPK Plan). Vesting can be accelerated upon certain events including a sale of the Company or an initial public offering,
each as defined in the MPK Plan.
The Company has agreed with Mr. Krasny to contribute the fair market value of all awards that are forfeited under the MPK Plan to a
charitable foundation. The Company has also agreed to contribute to the charitable foundation an amount equal to the tax benefits the
Company derives in connection with settlements/payouts to participants under the MPK Plan. At the Company’s election, these
contributions may be made in the form of cash or equity interests of CDW Holdings LLC or the Company or, in the case of the tax
benefit payment, a subordinated promissory note of the Company in the event a cash payment is prohibited under a financing
agreement.
Valuation and Expense Information
The Company attributes the value of equity-based compensation awards to the various periods during which the recipient must perform
services in order to vest in the award using the straight-line method.
The grant date fair value of Class B Common Unit grants is calculated using the Option-Pricing Method. This method considers
Class A Common Units and Class B Common Units as call options on the total equity value, giving consideration to liquidation
preferences and conversion of the preferred units. Such Class A Common Units and Class B Common Units are modeled as call options
that give their owners the right, but not the obligation, to buy the underlying equity value at a predetermined (or exercise) price. Class B
Common Units are considered to be call options with a claim on equity value at an exercise price equal to the remaining value
immediately after the Class A Common Units and Class B Common Units with a lower participation threshold are liquidated. The
Option-Pricing
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