Notes to the Consolidated Financial Statement

 

20. Share-based payments 

 

The Group has had stock option schemes in place since 15 September 1999 and has also offered share-based bonuses as part of key personnel commitment and incentive scheme as of 31 May 2007. Options granted after 2003 have been recognised in the financial statements for 2005 in accordance with the standard IFRS 2 Share-based Payment. Stock options expire if they are not exercised during a period separately defined in the option scheme. Stock options are also lost if the employee resigns from the company before the right is vested.

On 30 September 2009, the Digia Board of Directors decided to offer key personnel an option conversion, such that one Digia share and a cash amount equalling the value of the share would be provided in exchange for twenty (20) A options, for four (4) B options and for two and two-thirds (2 2/3) C options. The conversion offer was made to the holders of warrants under the 2005 scheme. The conversion offer was approved fully, and a total of 276,000 warrants held by key personnel were converted into 51,900 Digia shares and the equivalent cash amount in order to cover the tax cost of the incentive. The conversion was carried out with existing Digia shares.

At the end of the financial year, all A options in the 2005 scheme had expired. 11,000 B options were held by previous employees of the company, while all the rest had been returned to the company. All C options had been returned. The returned options will not be exercised for subscribing shares. The maximum dilution effect of the remaining warrants was 0.001 per cent on 31 December 2010.

The Group had the stock option schemes described below in the financial year.

Option scheme 2005

 

The number of warrants under the 2005 stock option scheme totals 900,000, 300,000 of which are marked as 2005A, 300,000 as 2005B and 300,000 as 2005C. The warrants entitle their holders to subscribe a maximum total of 900,000 Digia Plc shares.

The share subscription price for 2005B warrants is EUR 3.75 (dividend-adjusted) and for 2005C warrants it is EUR 3.78. The 2005A warrants expired on 30 November 2009. On the record date for each distribution of dividends, the share subscription price based on the stock options will be deducted by the amount of dividends for which the decision to distribute has been made between the beginning of the price-setting period and the date of subscription. However, the minimum subscription price will always be the nominal value of the share. The share subscription period for the 2005A warrants will be between 1 November 2007 and 30 November 2009, for the 2005B warrants between 1 November 2008 and 30 November 2010 and for the 2005C warrants between 1 November 2009 and 30 November 2011. As a result of share subscriptions using warrants 2005A, 2005B and 2005C, the share capital of Digia Plc may increase by a maximum of EUR 90,000, and the number of shares may increase by a maximum of 900,000 new shares. On 31 December 2010, Digia Plc's wholly owned subsidiary Digia Partners Oy held a total of 578,000 warrants under the 2005 option scheme.

 

Warrants 2005

2010

 2005A
  2005B
2005C
       

Maximum number of options

300,000

300,000

300,000

Shares available for subscription per option

1

1

1

Original subscription price *

€ 4.33

€ 3.98

€ 3.93

Dividend adjustment

Yes

Yes

Yes

Subscription price on 31 December 2008

€ 4.10

€ 3.80

€ 3.83

Subscription price on 31 December 2009

expired

€ 3.75

€ 3.78

 Subscription price on 31 December 2010 expired € 3.61
€ 3.64

Vesting date

1 November 2007

1 November 2008

1 November 2009

Expiry date

30 November 2009

30 November 2010

30 November 2011

Exercise period, years

expired

expired

0.9

Persons at end of financial period

expired

expired

no longer binding

 

 

 

 

 

 

 

 

Events in 2010 fiscal year

 

 

 

Amounts 1 January 2010
     

Options granted

-

148,000

60,000

Options returned

-

126,000

60,000

Options outstanding

-

22,000

0

Options in reserve

-

278,000

300,000

 

 

 

 

Changes during the period

 

 

 

Shares subscribed using options

-

11,000

-

 

 

 

 

Amounts on 31 December 2010

 

 

 

Options granted

-

148,000

60,000

Options returned

-

126,000

60,000

Shares subscribed with optios
(not yet registered)

-

11,000

-

Options in reserve

-

278,000

300,000

       

* At the end of the fiscal year, the subscription price for warrants in force was determined as follows:
2005A: Trading-weighted average share price on the Helsinki Stock Exchange calculated for the 20 days following the publication of Digia's Interim Report Q1/2005.
2005B: Trading-weighted average share price on the Helsinki Stock Exchange calculated for the 20 days following the publication of Digia's Interim Report Q1/2006.
2005C: Trading-weighted average share price on the Helsinki Stock Exchange calculated for the 20 days following the publication of Digia's Interim Report Q1/2007.

On the recorded date for each distribution of dividends, the share subscription price will be deducted by the amount of dividends for which the decision to distribute has been made between the beginning of the price-setting period and the date of subscription.

The following table presents a summary of the number of warrants and subscription prices on 31 December 2010:

2010

 Options total

 Subscription prices (weighted)

Amounts on 1 January 2010

   

Options granted

208,000

€ 3.94

Options returned

186,000

€ 3.92

Shares subscribed using options

-

-

Options outstanding

22,000

-

Options in reserve

578,000

€ 3.77

 

 

 

Changes during the period

 

 

Options granted

-

-

Options returned

-

-

Shares subscribed using options

11,000

€ 3.61

Options expired

278,000

€ 3.63

 

 

 

Amounts on 31 December 2010

 

 

Options granted

208,000

-

Options returned

186,000

-

Shares subscribed using options

11,000

-

Shares subscribed with options
(not yet registered)

11,000

-

Options in reserve

578,000

-

     

Determination of fair value

 

The fair value of the options is determined using the Black-Scholes option pricing model. A fair value is determined for the date of granting the options and charged to personnel expenses over the vesting period. The granting date is the date of the decision by Board of Directors. The company incurred no expenses from share options or from the conversion offer made as a part of the scheme in 2010 (2009: EUR 348,378).

Comparison data for 2009

 

The following table presents the situation on 31 December 2009 for comparison:


Option scheme

2009

 

2005A

 

 2005B

 

2005C

 

Total

Subscription price €

Amounts on 1 January 2009

         

Options granted

326,000

148,000

60,000

534,000

€ 3.39

Options returned

106,000

33,000

-

139,000

€ 4.03

Shares subscribed using options

-

-

-

-

-

Options outstanding

220,000

115,000

60,000

395,000

€ 3.97

Options in reserve

80,000

185,000

240,000

505,000

€ 3.86

 

 

 

 

 

 

Changes during the period

 

 

 

 

 

Options granted

-

-

-

-

-

Options returned

123,000

93,000

60,000

276,000

€ 3.89

Shares subscribed using options

-

-

-

-

-

Trading-weighted average price during subscription period, € *

 

2.50

 

2.57

  3.32

 

 

-

 

-

Options expired

300,000

-

-

300,000

€ 4.05

     

 

 

 

Amounts on 31 December 2009

 

 

 

 

 

Options granted

326,000

148,000

60,000

534,000

€ 3.94

Options returned

229,000

126,000

60,000

415,000

€ 3.92

Shares subscribed using options

-

-

-

-

-

Options outstanding

-

22,000

-

22,000

-

Options in reserve

-

278,000

300,000

578,000

€ 3.77

           

* Trading-weighted average price of Digia Plc's share from January to November 2009 (2005A) and from January to December 2009 (2005B and 2005C).

Share-based bonuses

 

In addition to stock option schemes, the company offers share-based bonuses as part of its key personnel commitment and incentive scheme. The share-based bonus scheme offers the target group an opportunity to receive shared in Digia Plc shares as a reward for the achievement of specified goals set for an earning period. The Board of Directors decides the earning criteria for the scheme and specifies the targets, as well as the maximum remuneration for the earning period for each person belonging to the target group.

On 30 September 2009, the Board of Directors made the following decisions regarding share-based bonus systems for management and key personnel:

It was decided that the terms of the Chief Executive Officer's 2008 share-based incentive scheme would be changed so that in October 2009 the CEO received a bonus equivalent to the value of 100,000 shares, paid 50/50 in shares and cash. This bonus system entirely replaced the 2008 share-based incentive scheme.

The CEO's new share-based incentive scheme covers the period 2009 and 2010. It entitles the CEO to a maximum bonus equal to the value of 160,000 company shares according to the terms of the scheme, based on the company's EPS. The bonus is payable 50/50 in shares and cash and is made available to the CEO annually after the financial statements are approved.

In a system directed at key personnel, a maximum bonus totalling the value of 200,000 shares will be payable as a 50/50 combination of shares and cash. The instalments will be paid in 2009, 2010, 2011 and 2012. The bonus will be paid annually, without any disposition restrictions, beginning on 30 January 2010, depending on the fulfilment of certain goals set by the Board and on the condition that the recipient is still employed by the company on the payment date.

On 27 May 2010, the Board of Directors decided on a new share incentive scheme for the CEO and other members of the Group Management Team, as follows:

The scheme comprises four earning periods, which are the calendar years 2010–2013. The earnings principles are the consolidated earnings per share and the growth in consolidated net sales compared to the budget, according to formulae settled separately by the Board.

According to the scheme, rewards totalling a maximum value equivalent to 40,000 shares will be paid for the 2010 earning period, and a maximum value of 200,000 shares will be paid for each of the earning periods from 2011 to 2013. Of the rewards paid, one half will be awarded to the CEO and one half to the other management team members in total. The reward will be paid as a 50/50 combination of shares and cash. The cash portion of the bonus will primarily be used to cover taxes and other comparable costs of the scheme.

The scheme is a continuation of the management share incentive scheme initiated in 2009, which remains effective as planned.

The basic details of the schemes are listed in the table below. 

31 Dec 2010

 

  Management group share-based incentive scheme 2010–2013

CEO's share-based incentive scheme
2009–2010

Key personnel share-based incentive scheme 2009–2010

 

 

 

 

Granting date

27 May 2010

30 September 2009

30 September 2009

Instrument

Shares and cash

Shares and cash

Shares and cash

Target group

Management group

CEO

Key personnel

Maximum amount of shares *

640,000

160,000

200,000

Beginning of the earning period

 28 May 2010

1 October 2009

1 October 2009

End of the earning period

31 March 2011/

30 March 2010/

30 January 2010/
  31 March 2012/

30 March 2011

30 January 2011/

  31 March 2013/    30 January 2010/
   31 March 2014  

30 January 2013

Vesting condition

Earnings per share,
net sales growth and
employment requirement

Earnings per share, employment requirement

Earnings criterion, employment requirement

Maximum validity, years

3.2

1.5

3.3

Remaining validity, years

0.2

0.2

2.1

Number of persons (31 December 2009)

7

1

30

       

* In addition to the bonus payment in shares, a cash bonus is paid to cover the cost of taxes and similar expenses.

The items related to share-based incentive schemes in 2010 are given in the table below. Because the cash portion of the bonus payment is also recorded as a share-based expense, the sums below are gross, i.e. the bonuses include the shares and the equivalent cash sum.

Events in 2010 fiscal year

 

 

 Management group
share-based incentive scheme
2010–2013

 

CEO's share-based incentive scheme
2009–2010

Key personnel share-based incentive scheme
2009–2010

 

 

 

Total

Gross amounts 1 January 2010 **

 

 

 

 

  Outstanding at beginning of period

0

160,000

200,000

360,000

 

 

 

 

 

Changes during the period

 

 

 

 

  Granted during the year

640,000

0

0

640,000

  Forfeited during the year

0

35,000

4,498

39,498

  Exercised during the year

0

45,000

45,502

90,502

  Expired during the year

0

0

0

0

 

 

 

 

 

Gross amounts 31 December 2010 **

 

 

 

 

  Outstanding at end of period

640,000

80,000

150,000

870,000

  Available for exercising at end of period

640,000

80,000

 150,000

870,000

         

** The amounts include the cash portion (in shares) granted according to the terms of the incentive scheme.

Determination of fair value

 

The fair value of share-based payments is determined on the day on which the scheme is agreed between the company and the recipient group. As the share-based bonus is paid as a combination of shares and cash, the determination of its fair value is divided into two parts in accordance with the IFRS 2 standard: the part settled in shares and the part settled in cash. The part settled in shares is recognised as shareholders' equity and the part settled in cash as a liability. The fair value of the part settled in cash is revalued on each reporting date until the end of the earning period, and thus the fair value of the liability changes in accordance with the price of the Digia share. 

Expense effect of share-based incentive schemes on 2010 income statement


€ 000
Effect on earnings and
financial position
 Management group
share-based
incentive scheme
2010–2013
CEO's
share-based
incentive scheme
2009–2010
Key personnel
share-based
incentive scheme
2009–2010
Total
Share-based payment
expense for the fiscal year
156 295 268 720
Share-based payment
expense for the fiscal year,
shareholders' equity 
72 96 100 267
Liabilities from share-based
payments 31 December 2010
84 101 114 299
         

Comparison data for 2009

€ 000
Effect on earnings and financial position

 

 

CEO's share-based bonus in 2008

 

 

CEO's share-based bonus in 2009

 

CEO's share-based incentive scheme 2009–2010

Key personnel share-based incentive scheme 2009–2010

Total

Share-based payment expense
for the fiscal year, €

 

58

 

306

  99

 

113

576