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Enclosure E
This is a non-official translation of
the Swedish original wording. In case of differences between the
English translation and the Swedish original, the Swedish text shall
prevail.
Item 16
STOCK PURCHASE PLAN 2003
The Board's proposal on decision concerning (1.) implementation of
the Stock Purchase Plan 2003 and, on account of this, (2.) amendment
of the Articles of Association, (3.) directed share issue, (4.)
authorisation for the Board to decide on a directed offer to acquire
own shares and (5.) transfer of repurchased own shares.
BACKGROUND
The Annual General Meeting of shareholders in Telefonaktiebolaget LM
Ericsson ("Ericsson") 28 March 2001 resolved on inter alia the
issuance and purchase of treasury stock in connection with a stock
related incentive program, the Global Stock Incentive Program 2001,
comprising two parts, a Stock Option Plan 2001 - 2002 and a two-year
Stock Purchase Plan.
The Ericsson Board has decided to propose the Annual General Meeting
of shareholders to be held on 8 April 2003 a continued stock purchase
plan, the Stock Purchase Plan 2003, on the same principles as set out
in the stock purchase plan launched in 2001.
In order to implement the Stock Purchase Plan 2003 in a cost
effective and flexible manner, the Board proposes the General Meeting
of Shareholders to resolve to amend the Articles of Association to
the effect that the maximum amount C-shares that can be issued is
increased from the present 155,000,000 shares to 158,000,000 shares.
Further, it is proposed that a directed share issue of a total of
158,000,000 C-shares is offered to AB Industriv�rden and/or Investor
AB or subsidiaries of those companies, and the subscription price
shall equal the nominal amount of the share (SEK 1), that the Board
be authorised to decide on a directed offer to acquire all
outstanding C-shares at a price in the interval SEK 1 - SEK 1.10 per
share, further that C-shares, subsequent to conversion to B-shares,
can be transferred to employees in the Ericsson Group and moreover
that a portion of the shares also can be transferred on
Stockholmsb�rsen in order to cover inter alia social security
payments.
Reasons for the proposal
Stock related incentives have become an important part of Swedish and
international remuneration practice. Therefore the Board of Ericsson
finds it important to continue to use stock as a vital incentive
within the company. In times of economic decline it is particularly
important to encourage the efforts of all employees. Consequently,
the Board proposes a continuation of the Stock Purchase Plan directed
to all employees. The Board is convinced that offering employees an
incentive to become shareholders is of benefit also for the current
shareholders.
After two years with economic decline in which employee numbers have
almost halved, the extensive participation in the Stock Purchase Plan
during 2002 was highly encouraging. It demonstrates a confidence in
the future within the company. Ericsson remains a knowledge company
in which the creativity and drive of its employees are its primary
asset. A new plan, allowing further employee investments during two
years and subsequent corresponding matching awards, is proposed to
maintain confidence and enhance value of the company.
The latest stock incentive program decided upon in 2001 comprised two
complementary parts, the Stock Purchase Plan directed to all
employees as well as an employee stock option plan to the senior
management and other key contributors. The situation has changed
since then. In view of considerable decline in share prices there are
new requirements on the design of option plans and for the time being
there is no pressure for recruitment in the telecom sector. The Board
of Ericsson has thus decided to use the period up to the next annual
general meeting of shareholders to evaluate previous option plans and
find a stock based incentive for senior management and key
contributors designed to meet the company's needs and the
shareholders' interest.
The Board of Ericsson is convinced that the continuation of annual
long-term incentive programs is essential to retain and in the future
recruit key personnel and thereby support the company's future
development and creation of value.
Previous incentive programs
Ericsson already has incentive programs according to the below. The
figures have, when appropriate, been subject to recalculation as a
result of bonus issue, split and new issue of shares.
Convertible debentures
In 1997, convertible debentures of nominal SEK 6,000,000,000 to
employees were issued. The convertible debentures are convertible at
the option of the holder into B-shares for SEK 41.70 per share
through 30 May 2003. Outstanding loans as of 31 December 2002
equalled SEK 4,510,782,694 due 30 June 2003, to the extent not
converted.
The 1999 Option Plan
The 1999 Option Plan is based on 1.8 million repurchased B-shares,
including shares designated for covering social security payments. In
March of 2000, employee options were granted to app. 1,800 key
employees and senior executives, corresponding to app. 1.4 million
shares. Of the originally granted employee options, there remained,
as of 31 December 2002, options outstanding corresponding to app. 1
million shares. Each option entitles the holder to purchase one
B-share at SEK 128. The options expire 28 February 2007 and are
subject to vesting requirements, meaning that they are exercisable as
follows: 30 percent in 2003, an additional 40 percent in 2004 and the
remaining 30 percent in 2005.
The Millennium Stock Option Plan
The Millennium Stock Option Plan is based on warrants, i.e. options
that entitles the holder to subscribe for app. 81.1 million new
B-shares, including options designated for covering social security
costs. In January 2000, employee options, corresponding to app. 71.6
million shares, were granted to app. 8,000 key employees and senior
executives. Of the originally granted employee options, there
remained, as of 31 December 2002, options outstanding corresponding
to app. 46 million shares. Each employee option entitles the holder
to purchase one B-share for SEK 93.80. The employee options expire 18
January 2007 and are subject to vesting requirements, meaning that
one third is exercisable after one year, another third after two
years and the last third after three years after the grant.
The Global Stock Incentive Program 2001
The Global Stock Incentive Program 2001 is comprised by two parts,
one Stock Option Plan 2001-2002 and one Stock Purchase Plan.
The Stock Option Plan 2001-2002 is based on 120 million B-shares
(issued as C-shares, repurchased and converted to B-shares),
including shares designated for covering social security payments. In
May and November 2001 and in November 2002 employee options,
corresponding to app. 101.4 million shares, were granted to app.
15,000 key employees. Of the originally issued employee options,
there remained, as of 31 December 2002, employee options outstanding
corresponding to app. 91 million shares. Each employee option
entitles the holder to purchase one B-share for SEK 30.50 (the May
2001 grant), SEK 25.70 (the November 2001 grant) and SEK 7.80 (the
November 2002 grant), respectively. The options expire 14 May 2008
(the May 2001 grant), 19 November 2008 (the November 2001 grant) and
11 November 2009 (the November 2002 grant) and are subject to vesting
requirements, meaning that one third is exercisable after one year,
another third after two years and the last third after three years
after the grant.
The Stock Purchase Plan is based on 35 million B-shares (issued as
C-shares, repurchased and converted to B-shares), including shares
designated for covering social security payments. Participants were
able to, during a period of up to 24 months, save up to 7.5 percent
of the gross salary, not exceeding SEK 50,000 per twelve-month
period, for purchase of B-shares. If the purchased shares are
retained by the employee for three years after the investment and
employment with the Ericsson Group continues during that time, the
employee will be given a corresponding number of B-shares free of
consideration, a so called matching.
The Stock Purchase Plan was implemented in 2002 and a majority of the
employees were invited to participate. During 2002, app. 27,000
employees in 71 countries participated in the plan and invested in
app. 29.6 million shares. The initially scheduled 24-month period of
employee salary deductions and investments was closed already in the
autumn of 2002 since all shares included in the plan had been
reserved for future matching and for covering social security
payments earlier than expected due to the low share price. There will
be no further employee investments made under the plan. As of 31
December 2002, app. 2.5 million shares, of the totally 35 million
shares available, had been either transferred to employees through
premature matching as a result of redundancy or sold on
Stockholmsb�rsen in order to cover the social security payments,
which had occurred due to the matching.
The preparation of the matter
The proposal on the Stock Purchase Plan 2003 to the General Meeting
of Shareholders has been prepared by the Remuneration Committee of
the Board consisting of the following Board Members: Peter Sutherland
(chairman of the Committee), Lena Torell, Michael Treschow and Per
Lindh. The Remuneration Committee briefed the Board on the main
features of a new incentive program at the Board Meetings held 19
December 2002 and 2 February 2003. At the Board Meeting 26 February
2003, the Board decided that a proposal on Stock Purchase Plan 2003
should be presented for the General Meeting of Shareholders. The
chairman of the Board, Michael Treschow, was authorised to finalise
the details of the proposal. The proposal, in its final form, was
completed 4 March 2003. No employee who may be included in the
program has participated when preparing the program, with exception
for the Remuneration Committee's employee representative and those
officials who have prepared the matter for the Remuneration
Committee.
Costs
The Board estimates that the Stock Purchase Plan 2003 will give rise
to costs as set out below. The costs shall be compared with
Ericsson's total remuneration costs, which 2002 amounted to app. 47
billion, including social security fees. Each cost item has an effect
on the consolidated income statement, but only the administration
costs will have effect on the cash flow.
Costs that affect income statement and cash flow
* Administration costs have been estimated to totally app.
SEK 27 million, unevenly distributed over the plan period, up to
and including 2008.
Costs that affect the income statement, but will not have an effect
on the cash flow
* Social security charges as a result of the transfer of
shares to employees have been estimated to range between app. SEK
250 million and app. SEK 1,300 million based on an average share
price at matching of shares between SEK 10 and SEK 50.
* Compensation costs corresponding to the value of matching
shares transferred to employees have been estimated to app. SEK 900
- 1,000 million over the plan period 2003 - 2008. The estimation is
based on the level of participation in the Stock Purchase Plan
launched in 2001 and the assumption that the average share price
during the two year contribution period will not be below SEK 7.
The compensation costs are calculated as the number of matching
shares multiplied with the price for the share on the day for the
investment and are distributed over the vesting period, i.e. the
period of 3 years between the investment and the matching.
Dilution and effects on important key figures
The Company has issued 15,974,258,678 shares, of which 152,993,689
shares were held as treasury stock as per February 26, 2003. The
Stock Purchase Plan 2003 requires a total of 158,000,000 shares,
corresponding to app. 0.99 percent of the total number of issued
shares and app. 1 percent of the number of outstanding shares.
Including existing incentive programs, the number of shares covered
by such programs, including shares to cover social security payments,
amounts to app. 356 million[1], corresponding to app. 2.25 percent of
the number of outstanding shares.
Out of the 158,000,000 shares under the Stock Purchase Plan,
132,000,000 shares may be transferred to employees free of
consideration, which could cause a dilutive effect of 0.83 percent on
earnings per share. The dilutive effect of the matching shares,
0.83 percent, is not effected by the price for the shares at the time
of matching since they are transferred free of consideration to the
employee. There will, however, be no dilutive effect on earnings per
share of the 26,000,000 shares, which may be transferred at
Stockholmsb�rsen as the shares are sold at actual market value.
PROPOSAL
1. The Stock Purchase Plan 2003
The Ericsson Board proposes that the General Meeting of Shareholders
resolves on a Stock Purchase Plan 2003, including 158,000,000 shares
of series B, according to the principle guidelines below. No more
than half the number of the shares under the plan, i.e. no more than
79,000,000 shares, may be related to the employees' savings during
the plan's first 12-month period.
a) Employees who participate in the Stock Purchase Plan 2003
shall, during a 24 months period from the implementation of the plan,
be able to save up to 7.5 percent of gross salary, not exceeding SEK
50,000 per 12-month period, for the purchase of shares of series B.
If the purchased shares are retained by the employee for three years
from the investment date and the employment with the Ericsson Group
continues during that time, the employee will be given a
corresponding number of shares of series B free of consideration.
b) All employees within the Ericsson Group, except for what is
mentioned in item c) below, i.e. app. 60,000 persons, will be offered
to participate in the Stock Purchase Plan 2003.
c) Participation in the Stock Purchase Plan 2003 presupposes that
such participation is legally possible as well as possible with
reasonable administrative costs and financial efforts according to
the assessment of Ericsson.
__________
In order to implement the Stock Purchase Plan 2003
according to the above, the Board proposes resolutions as set out
below.
2. Amendment of the Articles of Association
Amendment of the Articles of Association to the
effect that the number of shares of series C which may be issued is
changed from 155,000,000 shares as a maximum, as presently
stipulated, to 158,000,000 shares as a maximum (Section 6).
3. Directed share issue
Increase of Ericsson's share capital by SEK
158,000,000 through an issue of 158,000,000 shares of series C, each
share of nominal SEK 1.
The issue shall be subject to the following further terms.
a) The new shares shall - with deviation from the shareholders'
preferential right to subscribe for shares - be subscribed for only
by AB Industriv�rden and/or Investor AB or subsidiaries of those
companies.
b) The new shares shall be subscribed during the period 22 April
2003 - 30 April 2003. Over-subscription is not permitted.
c) The new shares shall be issued at a price of SEK 1 per share.
d) Payment for subscribed shares shall be made at subscription.
e) The new shares shall entitle a dividend at an amount
corresponding to STIBOR 360 days from 30 April 2003 up to and
including 30 April 2004 calculated on the nominal amount of the
company's share.
f) It is noted that the new shares will be subject to
restrictions as set forth in Chapter 3, Section 1, paragraph 6 and
Chapter 6, Section 8 in the Companies Act.
4. Authorisation for the Board to decide on a directed offer to
acquire own shares
Authorisation for the Board to decide on acquisition of shares of
series C in Ericsson on the following terms.
a) Acquisitions may be made through a public offer to all owners
of shares of series C in Ericsson.
b) The authorisation is valid and may be exercised until the
Annual General Meeting of shareholders 2004.
c) The number of shares of series C permitted to be acquired
shall amount to 158,000,000.
d) Acquisition of shares shall be made at a price in the interval
SEK 1 - SEK 1.10 per share.
e) Payment for acquired shares shall be made in cash.
__________
The Board will, after acquisition of shares of series C and in
accordance with provisions in the Articles of Association, decide on
conversion of all shares of series C to shares of series B.
__________
5. Transfer of repurchased own shares
Transfer of repurchased own shares on the following
terms.
a) No more than 158,000,000 shares of series B can be
transferred.
b) Right to acquire shares shall be granted to such persons
within the Ericsson Group covered by the terms and conditions for the
Stock Purchase Plan 2003. Further, subsidiaries within the Ericsson
Group shall have the right to acquire shares free of consideration
and such subsidiaries shall be obligated to immediately transfer free
of consideration shares to its employees covered by the terms of the
Stock Purchase Plan 2003.
c) The employee shall have the right to receive shares during the
period when the employee is entitled to receive shares in accordance
with the terms of the Stock Purchase Plan 2003, i.e. during the
period from 15 November 2003 up to and including 15 November 2008.
d) Employees covered by the terms of the Stock Purchase Plan 2003
shall, subject to certain conditions, receive shares free of
consideration.
e) Further, Ericsson shall have the right to, prior to the Annual
General Meeting of Shareholders 2004, transfer no more than
26,000,000 shares of series B, out of the holding of 158,000,000
shares of series B, in order to cover certain payments, mainly social
security payments. Transfer of the shares shall be effected at
Stockholmsb�rsen at a price within the, at each time, registered
price interval for the share.
________________
The reasons for deviation from shareholders preferential rights and
the base for determination of the issue price and transfer prices are
as follows.
The issue of shares, the acquisition and the transfer of own shares
form a part of the implementation of the Stock Purchase Plan 2003.
The Board considers it to be to an advantage for Ericsson and its
shareholders that the employees are induced to become shareholders in
Ericsson.
The base for determination of the issue price and the transfer prices
is seen from the Board's proposal under relevant headings above.
Special authorization for the managing director
Finally, the Board proposes that the managing director be authorised
to make such minor adjustments in the above proposal that may be
necessary in connection with the registration procedure with the
Patent and Registration Office.
Supermajority
The resolution on implementation of the Stock Purchase Plan 2003 and,
on account of this, amendment of the Articles of Association,
directed share issue, authorisation for the Board to decide on a
directed offer to acquire own shares and transfer of repurchased own
shares shall be made as one "package". Accordingly, the supermajority
rules in the Leo Act shall apply, meaning that 90 per cent of the
shares and votes represented at the General Meeting of Shareholders
must vote to approve of the package.
Stockholm, March 4, 2003
The Board
[1] Options which have been forfeited and the convertible debentures
issued 1997, which are approaching last day for conversion and still
out of the money, are excluded from the figure.
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