Options
The Group has an option program that can result in an allotment of call options on shares in Swedish Match AB.
Background
In 1999, the Board of Directors adopted a stock option programme in Swedish Match. The purpose of the option programme is to further increase the involvement of employees in the Company and their ownership of it, to attract and motivate employees within the Company, and to generate incentives for employees that coincide with the interests of the shareholders. Details of the options programmes have been provided in the Annual Reports for all of the years in question and has been approved at the General Meetings held between 2002 and 2008.
The call option program proposed by the Board for 2008 comprises a maximum of 75 employees (the President and other members of the Group Management Team included). The allocation of options is based on two criteria, namely the improvement in earnings per share and the average return after tax on adjusted operating capital.
Both of these criteria (improvement of earnings per share and improvement in the return after tax on operating capital, adjusted for amortization of intangible assets) are equally weighted when determining allotment in accordance with the option program. When only one of the criteria set forth above is met, allotment will thus comprise a maximum of 50 percent of the maximum allotment.
The market value of the options shall be determined by an independent valuation institute in accordance with a generally accepted valuation model (Black-Scholes). Employees domiciled in countries where the allotment of options constitutes a taxable benefit at the time of grant shall receive a cash payment from the Company equal to the maximum value of allotment and shall at a minimum purchase allotted options from the Company for an amount equal to such payment net after tax. For other employees the options shall be received without payment from the employees. The combined maximum value of the options allotted in accordance with the proposed option program for 2008 shall not exceed 51.7 MSEK. The options are freely transferable and are not conditioned on employment. The options can be exercised to acquire shares in the Company during the period March, 2012 up to and including February, 2014 and shall carry an exercise price corresponding to 120 percent of the average share price during a ten-day period after the published year-end report for 2008.
Commitments under the option program may be hedged by repurchasing shares in the Company and transferring such shares in conjunction with any demand for the redemption of the call options. Any resolution regarding the repurchase and transfer of shares in the Company and the issue of call options for the 2008 option program shall be taken by the 2009 Annual General Meeting. Ultimate allotment, based on the result for 2008, will be determined by the Compensation Committee at the time of the publication of the full-year report for 2008.
The Group Management Team (i.e. the President, Divisional Managers and Senior Vice Presidents in charge of Group functions reporting directly to the President) may be allotted call options with a value that corresponds to a maximum of 65 percent of the respective Group Management Team member’s fixed salary.
Dilution, etc.
On full exercise of options not redeemed on March 10, 2008 of all options issued in accordance with resolutions passed at the Annual General Meetings in 2003-2008, the number of outstanding shares, net after buy-backs, will increase as follows. The percentage change is based on the number of outstanding shares, as of March 10, 2008.
If all options issued in accordance with resolutions at the Annual General Meetings from 2003 until 2008 are exercised, the number of outstanding shares (net after repurchases) will increase by 1.7 per cent. It is estimated that the above options programme in which the options will be earned in 2008 and allocated in 2009 will, if the maximum number of options are allocated and given an option price of 17:10 SEK in conjunction with the allocation, increase the number of outstanding shares (net after repurchases) by a further 1.4 per cent (provided that hedging is effected through the transfer of repurchased shares). Calculated in accordance with the accounting standard of the International Financial Reporting Standards (IFRS) applying to earnings per share, options issued by the Company but not redeemed on December 31, 2007 a total dilution effect on earnings per share of 0:02 SEK per share (from 7:82 to 7:80 SEK), which is equivalent to 0.3 per cent. The options that may be issued in accordance with the 2008 programme also have a dilution effect on earnings per share to the extent that they are secured by repurchased shares.
Options programme