Note 37

Share-based payments

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.

Year 2003 option plan

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 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.

At the end of 2008, the price of a B share subscribed for with option 2003D was €2.00 (until 30 April 2008), with option 2003E it was €8.99, and with option 2003F it was €14.88. The subscription period of 2003D options expired on 30 April 2008 and a total of 574,088 Kesko B shares were subscribed for. 25,912 options remained ungranted and they expired. 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.

Year 2007 option plan

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 share subscription periods of 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. 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.

At the end of 2008, the price of a B share subscribed for with option 2007A was €44.22, and with option 2007B it was €26.57. The subscription periods have not yet begun. The option plan covers approximately 130 people.

Share of issued stock options of shares and votes

Presuming that shares are subscribed for with all of the 1,800,000 options granted under the year 2003 plan and the 3,000,000 options of the year 2007 plan, the shares subscribed for with stock options account for 4.69% of shares and 1.23% of all votes. The subscriptions made with stock options can raise the number of the company's shares to 101,712,793. As a result of the subscriptions, the voting rights carried by all shares can increase to 387,345,856 votes. The shares 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.




Fair value measurement

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 period 1 January-31 December 2008, the options contributed €5.5 million (€2.3 million) to the Group's profit.

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