NOTE 35
The Group operates option plans as part of the management's incentive and commitment arrangements. Each option gives its holder the right to subscribe for one Kesko Corporation B share at a price, and during the period, specified in the terms of the option scheme. The options are forfeit if the employee leaves the company before the end of the vesting period, unless, in an individual case, the Board decides that the option recipient may keep all or some of the options under offering obligation.
On 31 March 2003, the Annual General Meeting resolved to grant a total of 1,800,000 options with no consideration to the management of the Kesko Group as well as to a wholly-owned subsidiary of Kesko Corporation. A deviation was made from the shareholders' pre-emptive subscription rights, since the share options form a part of the incentive and commitment programme for the management. Each option entitles its holder to subscribe for one new Kesko Corporation B share. The options are marked with the symbols 2003D (KESBVEW103), 2003E (KESBVEW203) and 2003F (KESBVEW303) in units of 600,000 options each. The share subscription periods of the options are:
The original exercise price per share of option 2003D was equal to the volume weighted average price of a Kesko Corporation B share on the Helsinki Stock Exchange between 1 April-30 April 2003 (€9.63), that of option 2003E between 1 April-30 April 2004 (€15.19) and that of option 2003F between 1 April-30 April 2005 (€19.08). From the share subscription price of share options shall, as per the dividend record date, be deducted the amount of the dividend decided after the beginning of the period for determination of the subscription price but before share subscription.
After the distribution of dividends for the year 2007, the price of a B share subscribed for with option 2003D was €2.00. The subscription period expired on 30 April 2008, and a total of 574,088 Kesko B shares were subscribed. 25,912 options remained ungranted and they expired. After the distribution of dividends for the year 2008, the price of a B share subscribed for with option 2003E was €7.99. The subscription period expired on 30 April 2009, and a total of 576,000 Kesko B shares were subscribed. 24,000 options remained ungranted and they expired. After the distribution of dividends for the year 2008,
the price of a B share subscribed for with option 2003F is €13.88, and the subscription period began on 1 April 2007.
The option plan covers approximately 50 people. A total of 1,800,000 new B shares can be subscribed for under this option plan, which can increase the company's share capital by a maximum of €3,600,000.
On 26 March 2007, the Annual General Meeting decided to grant a total of 3,000,000 stock options for no consideration to the management of the Kesko Group, other key personnel, and a subsidiary wholly owned by Kesko Corporation. The Company had a weighty financial reason for granting the options because they are intended to be part of Kesko's share-based incentive system. Each stock option entitles its holder to subscribe for one new Kesko Corporation B share. In addition, the option plan also includes an obligation to buy company shares for permanent ownership for the value of 25% of the proceeds from the sale of stock options. The options are marked with the symbols 2007A, 2007B and 2007C in units of 1,000,000 options each. The share subscription periods of the options are:
The original subscription price for stock option 2007A shall be the trade volume weighted average quotation of a Kesko Corporation B share on the Helsinki Stock Exchange between 1 April and 30 April 2007 (€45.82), for stock option 2007B, between 1 April and 30 April 2008 (€26.57), and for stock option 2007C, between
1 April and 30 April 2009 (€16.84). The subscription prices of shares subscribed for with stock options shall be reduced by the amount decided after the beginning of the period for the determination of the subscription price but before the subscription, as at the record date for each distribution of profits or other assets.
After the distribution of dividends for the year 2008, the price of a B share subscribed for with option 2007A was €43.22, with option 2007B €25.57, and with option 2007C €16.84. The subscription periods have not yet begun. The option plan covers approximately 130 people.
If shares were subscribed for with all exercisable options, the shares subscribed for with all of the 2003 and 2007 plan options would account for 4.67% of shares and 1.23% of all votes. The subscriptions made with stock options could raise the number of the company's shares to 101,688,793. As a result of the subscriptions, the voting rights carried by all shares could increase to 387,321,856 votes.
The shares subscribed for with stock options entitle to dividends and carry other shareholder rights after the corresponding share capital increase has been entered in the Trade Register.
The company has not granted other options or special rights entitling to shares.
| STOCK OPTIONS DURING THE FINANCIAL YEAR 1 JANUARY–31 DECEMBER 2009 | ||||||
| Main terms and conditions of the plans | 2003 STOCK OPTIONS | 2007 STOCK OPTIONS | ||||
| Grant date | 31 March 2003 | 26 March 2007 | ||||
| Instrument | stock option | stock option | ||||
| Target group | management | management, other key personnel | ||||
| 2003D | 2003E | 2003F | 2007A | 2007B | 2007C | |
| Original number of options | 600,000 | 600,000 | 600,000 | 1,000,000 | 1,000,000 | 1,000,000 |
| Number of shares per option | 1 | 1 | 1 | 1 | 1 | 1 |
| Original exercise price per share | 9.63 € | 15.19 € | 19.08 € | 45.82 € | 26.57 € | 16.84 € |
| Dividend adjustment | Yes | Yes | Yes | Yes | Yes | Yes |
| Exercise price 31 Dec. 2006 | 4.53 € | 12.09 € | 17.98 € | - | - | - |
| Exercise price 31 Dec. 2007 | 3.03 € | 10.59 € | 16.48 € | 45.82 € | - | - |
| Exercise price 31 Dec. 2008 | 2.00 € | 8.99 € | 14.88 € | 44.22 € | 26.57 € | |
| Exercise price 31 Dec. 2009 | 7.99 € | 13.88 € | 43.22 € | 25.57 € | 16.84 € | |
| Fair value at grant date | ||||||
| 17 Jul. 2007:2007A | 50.25 € | |||||
| 19 Sep. 2007: 2007A | 45.02 € | |||||
| 12 Dec. 2007:2007A | 39.42 € | |||||
| 29 May 2008:2007B | 26.47 € | |||||
| 27 May 2009:2007C | 20.12 € | |||||
| First allocation, date | 1 Apr. 2005 | 1 Apr. 2006 | 1 Apr. 2007 | 1 Apr. 2010 | 1 Apr. 2011 | 1 Apr. 2012 |
| Expiry, date | 30 Apr. 2008 | 30 Apr. 2009 | 30 Apr. 2010 | 30 Apr. 2012 | 30 Apr. 2013 | 30 Apr. 2014 |
| Remaining vesting period, years | expired | expired | 0.3 | 2.3 | 3.3 | 4.3 |
| Plan participants at end of financial year | - | - | 32 | 116 | 124 | 128 |
| Movements in quantities and exercise prices 2009 | ||||||||
| 2003 STOCK OPTIONS | 2007 STOCK OPTIONS | |||||||
| 2009 | 2003D | 2003E | 2003F | Weighted average exercise price |
2007A | 2007B | 2007C | Weighted average exercise price |
| Options outstanding at beginning of period | 383,394 | 433,045 | 12.11 € | 756,500 | 767,500 | 35.33 € | ||
| Options available for grant at beginning of period | 24,000 | 47,500 | 12.90 € | 243,500 | 232,500 | 1,000,000 | 35.60 € | |
| Options granted during period | 785,500 | 16.84 € | ||||||
| Options forfeited during period | 19,000 | 22,000 | 3,000 | 32.60 € | ||||
| Options exercised during period | 383,394 | 113,281 | 9.33 € | |||||
| Options lapsed during period | 24,000 | 7.99 € | ||||||
| Options outstanding at end of period | 319,764 | 13.88 € | 737,500 | 745,500 | 782,500 | 28.30 € | ||
| Options exercisable at end of period | 367,264 | 13.88 € | 1,000,000 | 1,000,000 | 1,000,000 | 28.54 € | ||
| Average price weighted by grant date trading volume* | 17.05 € | 19.19 € | ||||||
| Kesko B share price at end of grant year | ||||||||
| 2007 | 37.72 € | |||||||
| 2008 | 17.80 € | |||||||
| 2009 | 23.08 € | |||||||
| * for 2003E: trade volume weighted average price of a B share in January-April 2009, for 2003F: trade volume weighted average price of a B share in 2009 | ||||||||
| Movements in quantities and exercise prices 2008 | ||||||||
| 2003 STOCK OPTIONS | 2007 STOCK OPTIONS | |||||||
| 2008 | 2003D | 2003E | 2003F | Weighted average exercise price |
2007A | 2007B | 2007C | Weighted average exercise price |
| Options outstanding at beginning of period | 33,150 | 406,133 | 434,245 | 13.23 € | 786,000 | 45.82 € | ||
| Options available for grant at beginning of period | 25,912 | 24,000 | 47,500 | 11.45 € | 214,000 | 1,000,000 | 1,000,000 | 45.82 € |
| Options granted during period | 776,000 | 26.57 € | ||||||
| Options forfeited during period | 29,500 | 8,500 | 40.27 € | |||||
| Options exercised during period | 33,150 | 22,739 | 1,200 | 5.05 € | ||||
| Options lapsed during period | 25,912 | 2.00 € | ||||||
| Options outstanding at end of period | 383,394 | 433,045 | 12.11 € | 756,500 | 767,500 | 35.33 € | ||
| Options exercisable at end of period | 407,394 | 480,545 | 12.18 € | 1,000,000 | 1,000,000 | 1,000,000 | 35.40 € | |
| Average price weighted by grant date trading volume* |
30.87 € | 23.61 € | 23.61 € | |||||
| * for 2003D: trade volume weighted average price of a B share in January-April 2008, for 2003E and 2003F: trade volume weighted average price of a B share in 2008 | ||||||||
For fair value measurement Kesko Corporation has consulted Alexander Corporate Finance Oy. The fair value of options has been calculated using the Black-Scholes share pricing model.
The fair value of options determined on the date of the grant has been expensed over their vesting period.
During the financial year 1 January-31 December 2009, the options contributed €8.1 million (€5.5 million) to the Group's profit.
| Black-Scholes model assumptions | ||||
| € million | Granted in 2009 | Granted in 2008 | Granted in 2007 | All options |
| Number of options granted, pcs | 785,500 | 776,000 | 789,000 | 2,350,500 |
| B share average (weighted) price | 20.12 € | 26.47 € | 49.37 € | 32.03 € |
| Average (weighted) exercise price | 16.84 € | 26.57 € | 45.82 € | 29.78 € |
| Expected average (weighted) volatility | 32.0 % | 27.4 % | 21.7 % | 27.0 % |
| Average (weighted) vesting period | 4.9 v | 4.9 v | 4.8 v | 4.9 v |
| Average (weighted) risk-free interest rate | 3.0 % | 4.4 % | 4.5 % | 4.0 % |
| Returned options (weighted average) | 0.4 % | 3.9 % | 6.1 % | 4.09 % |
| Total fair value, € | 6,320,122 | 6,406,920 | 11,697,744 | 24,424,787 |
The expected volatility of a Kesko B share has been estimated based on historic volatility using weekly changes over a period of time corresponding to the option's vesting period. The risk-free interest rate is the government zero coupon bond interest rate at the measurement date with a maturity equalling the option vesting period.