NOTE 35
The Group operates share option plans as part of the management’s incentive and commitment system. Each option gives its holder the right to subscribe for one Kesko Corporation B share at the 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 options are exercisable as follows:
After the distribution of dividends for 2009, the price of a B share subscribed for with option 2003F was €12.98. The option exercise period expired on 30 April 2010.
On 26 March 2007, the Annual General Meeting decided to grant a total of 3,000,000 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 option entitles its holder to subscribe for one new Kesko Corporation B share. In addition, the option scheme also includes an obligation to buy company shares for permanent ownership for the value of 25% of the proceeds from the sale of options. The options are marked with the symbols 2007A, 2007B and 2007C in units of 1,000,000 options each.
The options are exercisable as follows:
The original price of a share subscribed for with option 2007A was 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), with option 2007B, between 1 April and 30 April 2008 (€26.57), and with option 2007C, between 1 April and 30 April 2009 (€16.84). The prices of shares subscribed for with stock options are 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 2009, the price of a B share subscribed for with option 2007A was €42.32 at the and of 2010, with option 2007B €24.67, and with option 2007C €15.94. The exercise period of option 2007A began on 1 April 2010. The exercise periods of options 2007B and 2007C have not begun yet. The option scheme covers approximately 130 people.
If all of the exercisable share options were exercised, the shares subscribed for with all of the 2007 options would account for 2.95% of all shares and for 0.77% of all votes. The subscriptions made with share options can raise the number of the company’s shares to 101,641,292. As a result of the subscriptions, the voting rights carried by all shares could increase to 387,274,355 votes.
Dividend rights and other shareholder rights of the shares will apply after the share capital increase has been entered in the Trade Register.
The company has not granted other options or special rights entitling to shares
Share options in the financial year 1 January–31 December 2010 |
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Principal terms of the plans |
2003 share options | 2007 share options | |||
| Grant date | 31 March 2003 | 26 March 2007 | |||
| Instrument | share option | share option | |||
| Target group | management | management, other key personnel | |||
| 2003F | 2007A | 2007B | 2007C | ||
| Original number of options | 600,000 | 1,000,000 | 1,000,000 | 1,000,000 | |
| Number of subscribable shares per option | 1 | 1 | 1 | 1 | |
| Original exercise price per share | €19.08 | €45.82 | €26.57 | €16.84 | |
| Dividend adjustment | Yes | Yes | Yes | Yes | |
| Exercise price 31 Dec. 2006 | €17.98 | - | - | - | |
| Exercise price 31 Dec. 2007 | €16.48 | €45.82 | - | - | |
| Exercise price 31 Dec. 2008 | €14.88 | €44.22 | €26.57 | ||
| Exercise price 31 Dec. 2009 | €13.88 | €43.22 | €25.57 | €16.84 | |
| Exercise price 31 Dec. 2010 | €12.98 | €42.32 | €24.67 | €15.94 | |
| Fair value at grant date | |||||
| 17 Jul. 2007: 2007A | €50.25 | ||||
| 19 Sep. 2007: 2007A | €45.02 | ||||
| 12 Dec. 2007: 2007A | €39.42 | ||||
| 13 Sep. 2010: 2007A | €32.57 | ||||
| 29 May 2008: 2007B | €26.47 | ||||
| 13 Sep. 2010: 2007B | €32.57 | ||||
| 27 May 2009: 2007C | €20.12 | ||||
| 13 Sep. 2010: 2007C | €32.57 | ||||
| Fist allocation, date | 1 Apr. 2007 | 1 Apr. 2010 | 1 Apr. 2011 | 1 Apr. 2012 | |
| Expiry date | 30 Apr. 2010 | 30 Apr. 2012 | 30 Apr. 2013 | 30 Apr. 2014 | |
| Remaining vesting period, years | expired | 1.3 | 2.3 | 3.3 | |
| Plan participants at end of financial year | - | 114 | 115 | 123 | |
Movements in quantities and exercise prices 2010 |
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| 2003 share options | 2007 share options | ||||
| 2010 | 2003F | 2007A | 2007B | 2007C | Weighted
average exercise price |
| Options outstanding at beginning of period | 319,764 | 737,500 | 745,500 | 782,500 | €28.30 |
| Options available for grant at beginning of period | 47,500 | 262,500 | 254,500 | 217,500 | €29.29 |
| Options granted during period | 0 | 1,700 | 1,700 | 1,700 | €28.54 |
| Options forfeited during period | 0 | 10,500 | 47,000 | 31,500 | €24.56 |
| Options exercised during period | 319,763 | ||||
| Options expired during period | 47,501 | ||||
| Options outstanding at end of period | 728,700 | 700,200 | 752,700 | €28.45 | |
| Options exercisable at end of period | 0 | 1,000,000 | 1,000,000 | 1,000,000 | €28.54 |
| Average price weighted by grant date trading volume* | €26.62 | ||||
| Kesko B share price at end of grant year | |||||
| 2007 | €37.72 | ||||
| 2008 | €17.80 | ||||
| 2009 | €23.08 | ||||
| 2010 | €34.93 | €34.93 | €34.93 | ||
Movements in quantities and exercise prices in 2009 |
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| 2003 share options | 2007 share options | ||||
| 2009 | 2003F | 2007A | 2007B | 2007C | Weighted average exercise price |
| Options outstanding at beginning of period | 433,045 | 756,500 | 767,500 | €35.33 | |
| Options available for grant at beginning of period | 47,500 | 243,500 | 232,500 | 1,000,000 | €35.60 |
| Options granted during period | 0 | 785,500 | €16.84 | ||
| Options forfeited during period | 0 | 19,000 | 22,000 | 3,000 | €32.60 |
| Options exercised during period | 113,281 | ||||
| Options expired during period | |||||
| Options outstanding at end of period | 319,764 | 737,500 | 745,500 | 782,500 | €28.30 |
| Options exercisable at end of period | 367,264 | 1,000,000 | 1,000,000 | 1,000,000 | €28.54 |
| Average price weighted by grant date trading volume* | €19.19 | ||||
*2003F: weighted average price of a B share in 2009 |
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For fair value measurement of options, Kesko Corporation has consulted Evli Alexander Management Oy. The fair value of options has been calculated using the Black-Scholes valuation model. The fair value determined for options at grant date has been recognised as an expense over their vesting period.
In the financial year 1 January – 31 December 2010, the options contributed €5.0 million (€8.1 million) to the Group’s profit.
| Black-Scholes model assumptions | |||||
| Granted in 2010 | Granted in 2009 | Granted in 2008 | Granted in 2007 | All options | |
| Number of options granted | 5,100 | 785,500 | 776,000 | 789,000 | 2,350,500 |
| B share average (weighted) price | €32.57 | 20.12 € | 26.47 € | 49.37 € | 32.03 € |
| Average (weighted) exercise price | €29.74 | 16.84 € | 26.57 € | 45.82 € | 29.78 € |
| Expected average (weighted) volatility | 34.7% | 32.0 % | 27.4 % | 21.7 % | 27.0 % |
| Average (weighted) vesting period | 2.6 yrs | 4.9 v | 4.9 v | 4.8 v | 4.9 v |
| Average (weighted) risk-free interest | 1.1% | 3.0 % | 4.4 % | 4.5 % | 4.0 % |
| Returned options (weighted average) | 0.0% | 0.4 % | 3.9 % | 6.1 % | 4.09 % |
| Total fair value, € | 51,173 | 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.