Carphone Warehouse 2012 Annual Report Download - page 69

Carphone Warehouse Group plc Annual Report 2012 65
5 Employee costs and share-based payments continued
Share-based payments
a) Value enhancement schemes
Prior to the Demerger during the year ended 31 March 2010, Old Carphone Warehouse introduced the Best Buy Europe VES, to provide
long‑term incentives to its senior management group in relation to Best Buy Europe.
The Best Buy Europe VES allowed participants to invest at market value in shares which enabled them to share in up to 2.24% of any
increase in the value of Best Buy Europe over an opening valuation determined by the Old Carphone Warehouse board as at 1 April 2009.
The incremental value was measured after aminimum annual rate of return of 7% on this valuation, and was subject to an adjustment
forany change in the Company's market capitalisation since 6 April 2009.
The Group advanced loans totalling £5.8m to participants to enable them to purchase A shares in CPW Retail Holdings Limited, which held
part of the Group’s investment in Best Buy Europe. The Company had an obligation to acquire these shares if performance conditions were
met, toprovide participants with the share of value described above. Performance was to be measured over performance periods toJuly
2013 and July 2014, at which point participants had put options over the shares.
In order to facilitate the Best Buy Mobile Disposal and the B/C Share Scheme, these shares were exchanged for shares in the Company
atfair market value, as determined by the Remuneration Committee, supported by third party advisors. As part of this agreement,
participants are not permitted (unless the Remuneration Committee determines otherwise) to sell these shares until June 2015.
This transaction with participants was effected on 20 January 2012 following the approval of the Best Buy Mobile Disposal and
theB/CShare Scheme at a general meeting of the Company and resulted in the issue of approximately 15.7m shares inthe Company,
inexchange for their shares in CPW Retail Holdings Limited, toparticipants. The loans of£5.8million, together with accrued interest,
wererepaid byparticipants in February 2012.
Prior to the Demerger, Old Carphone Warehouse introduced the TalkTalk VES, in which certain directors and other key management participate.
The scheme has a similar structure to the Best Buy Europe VES, but is based on the value of TalkTalk Group, with the obligation to acquire
the relevant shares lying with TalkTalk Group. As with the Best Buy Europe VES, the Group advanced loans to participants to enable them
to purchase TalkTalk VES shares. Loans are ordinarily repayable in full if performance conditions are met. Performance is measured over
an initial period to September 2012, at which point participants have a put option over 60% of their shares, and a subsequent performance
period to September 2013, at which point participants have a put option over the remainder of their shares.
b) Share option schemes
At the start of the year a number of options were held over the Company’s shares by employees and former employees of the Group,
OldCarphone Warehouse Group and TalkTalk Group. These options included schemes which had vested prior to the Demerger and
options issued to employees of the Group under the Carphone Warehouse 2010 LTIP.
Under the Carphone Warehouse 2010 LTIP, market‑priced and zero‑priced options were granted in March and April 2010. The options
were subject toTSR performance targets and were measured over a performance period to 29 March 2013. As a consequence of the Best
Buy Mobile Disposal the Remuneration Committee allowed the Carphone Warehouse 2010 LTIP to vest, based on TSR performance to date,
inorder to avoid a substantial loss in value as a result of the Best Buy Mobile Disposal and the B/C Share Scheme. As part of this agreement,
participants are not permitted (unless the Remuneration Committee determines otherwise) to sell these shares until June 2015. Loans of
£2.5m were made to participants in relation to the tax and national insurance due on the exercise of these share options. These loans bear
interest at market rates and were outstanding at the end of the year.
The following table summarises the number and weighted average exercise price ("WAEP") of share options for the schemes:
2012 2011
Number WAEP Number WAEP
million £million £
Outstanding at the beginning of the year 6.1 0.70 14.3 0.49
Granted during the year — — 0.7 0.77
Lapsed during the year — — (3.6) —
Exercised during the year (6.1) 0.70 (5.3) 0.64
Outstanding at the end of the year — — 6.1 0.70
Exercisable at the end of the year — — 4.0 0.47
The options exercised during the year were exercised at a weighted average market price of £3.29 (2011: £2.57).
Overview Business review Governance Financial statements