Annual report 2010 - plazacenters

Financial statements
Notes to the consolidated financial statements
continued
Note 27 – Employee share option plan continued
Key management Key management
personnel personnel Employees Employees
2010 2009 2010 2009
EUR EUR EUR EUR
Fair value of share options and assumptions
Fair value at measurement date (in EUR)* 859,861 26,609 652,132 516,691
Weighted average exercise price 1.14 0.56 1.35 0.99
Expected volatility 46.3%-57.93% 55.9% 40.3%-57.93% 49.01-61.11%
Weighted average share price 0.92 0.62 1.01 1.18
Suboptimal exercise multiple 2 3 1.5 2.39-2.5
Expected dividends – – – –
Risk-free interest rate (based on the yield rates
of the non indexed linked UK treasury bonds) 0.55%-4.37% 1.67%-3.89% 0.65%-5.65% 0.65%-4.57%
During 2010 the total employee costs for the share options granted (including the modifications) was EUR 2,173 (2009: EUR 5,402).
On January 22, 2010 (“grant date”) the Company signed an option agreement with a service provider in connection with his function
as Co Chief Executive Officer of EI. The grantee will perform certain services to the issuer in the field of real estate development in the
United States. The options were granted to the grantee for no consideration and are vested in three equal years starting grant date.
The number of option granted is 1,000,000 and the exercise price is GBP 1.3075. The fair value at grant date was GBP 0.65 and share
price GBP 1.3575. The share options exercise mechanism is the same as the employee share option scheme including a cap of GBP 3.24.
Since Plaza has been a publicly traded company since October 2006, there is not enough information concerning Plaza share price.
Therefore, in order to derive the expected stock price volatility, analysis was performed based on the data of Plaza, and of three other
companies operating in the similar segment, which have similar market capital and are traded at the Warsaw Stock Exchange. In an
attempt to estimate the expected volatility, first calculation of the short-term standard deviation (standard deviation of company’s
share during one year as of the options’ grant date) has been done. In the next stage, calculation of the long-term standard deviation
(standard deviation for the period starting one year prior to the grant date for the remaining period of the plan) has been done, where
the weight of the standard deviation for the Company was ranging between 35% – 50% and the weight of the average of standard
deviations of comparative companies was 50% – 65% (2009: 55.9% – 61.11%). The working assumption is that the standard deviation
of the underlying asset yield converges in the long term with the multi-year average.
Cash settled share-based payment transaction with the Vice-Chairman of EI,
On October 27, 2006, the Company entered into an agreement with the former Executive Vice-Chairman of EI (“VC”) who had
responsibility for the Company’s operations in India, under which the VC will be entitled to receive options (“the Options”) to acquire
up to 5% of the holding company through which the Company will carry on its operations in India. The options are fully vested as of
December 31, 2010. The vested options may be exercised at any time, at a price equal to the Company’s net equity investment made
in the projects as at the option exercise date plus interest at the rate of USD LIBOR plus 2% per annum from the date of the investment
until the options exercise date (“Exercise price”).
VC has cash-in right to require the Company to purchase shares held by him following the exercise of the options, at a price to be
determined by an independent valuator. As of December 31, 2010, the liability recorded in these financial statements in respect of this
agreement, is EUR 1.1 million. VC ceased to be considered as a related party effective June 30, 2010.
On January 17, 2008 EI’s shareholders approved another agreement with the VC according to which EI has undertaken to allot the VC 5%
of the aggregate issued and outstanding share capital in the Company’s jointly controlled subsidiary with EI (refer to note 37), Elbit Plaza
India Real Estate Holdings Limited (“EPI”).
The allotment has been performed and as of the end of the reporting period, VC holds 5% of the shares of EPI, while each of the
Company and EI hold 47.5% of the shares of EPI. The VC shares in EPI shall not be entitled to receive any distributions (including, but not
limited to, payment of dividends, interest, other expenses and principal repayments of shareholder loans, management fees or other
payments made to the VC and any loans provided by the EPI to the VC) from EPI until the Group’s investments (principal and interest
calculated in accordance with a mechanism provided for in the agreement) in EPI have been repaid in full. The agreement includes,
inter alia, “tag along” and “drag along” rights.
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Plaza Centers N.V. Annual report 2010