SAMPO PLC STOCK EXCHANGE RELEASE
17 February 2006 at 9:30
PROPOSAL BY SAMPO'S BOARD OF DIRECTORS TO THE ANNUAL GENERAL MEETING ON A LONG-TERM INCENTIVE SCHEME
The Board proposes to the Annual General Meeting to be held on 5 April 2006 that the "Sampo 2006" share-based incentive scheme for the key management personnel be approved. The scheme covers key management personnel of Sampo or its subsidiaries as decided by the Board and Sampo's Chief Executive Officer.
The scheme is intended to secure continuity of incentives, with consideration to the earlier schemes, their expiration and the current long-term incentives for such persons. The share-based incentive scheme covers the years 2006 - 2010 with the first possible instalment being paid in December 2008.
Within the share-based incentive scheme, the maximum number of Sampo's A shares distributable as a reward is 1,500,000. The scheme includes a limitation of maximum value according to which the amount of the reward payable will be cut in a manner provided in the terms and conditions in the event that the share price of Sampo increases by more than 160 per cent during a specific Performance Period.
Of the amount of the reward eventually payable, 50 per cent is based on the share price development of the Sampo A share and 50 per cent on the development of insurance margin and/or the Sampo Bank Group's return on equity (ROE) at fair value. The shares to be distributed as a reward are partly subject to a two-year lock-up. However, the Board of Directors of Sampo has the right to decide to pay the reward partly or wholly in cash instead of shares.
The terms and conditions of the scheme are attached to this release.
SAMPO PLC
Board of Directors
For more information
Hannu Vuola
Head of communication
Tel. +358 10 516 0040
Jarmo Salonen
Head of Investor relations
Tel. +358 10 516 0030
DISTRIBUTION:
Helsinki Stock Exchange
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Financial Supervision
www.sampo.com
ATTACHMENT
PROPOSAL BY THE BOARD OF DIRECTORS OF SAMPO PLC FOR A LONG-TERM SHARE-BASED INCENTIVE SCHEME "SAMPO 2006" FOR THE KEY MANAGEMENT PERSONNEL OF THE SAMPO GROUP
The Board of Directors of Sampo plc ("Sampo") proposes that the Annual General Meeting to be held on 5 April 2006 resolve on the approval of the share-based incentive scheme "Sampo 2006" pursuant to the terms and conditions attached hereto.
The share-based incentive scheme Sampo 2006 involves the Key Management Personnel of Sampo, including the Managing Director, or its subsidiaries as decided by the Board of Directors of Sampo. The scheme is intended for securing continuity, with consideration to the earlier incentive schemes, their expiration and the current long-term incentives for such persons. The share-based incentive scheme covers the years 2006 - 2010, whereby the first possible instalment would be paid in December 2008.
Within the share-based incentive scheme, the maximum number of Sampo's A shares distributable as a reward is 1,500,000.
The precondition for a reward payable pursuant to the share-based incentive scheme is that the special provisions set out in these terms and conditions and their Appendix be fulfilled wholly or partly. The amount of the reward eventually payable is based on the share price development of the Sampo A share as well as on the development of If Group's insurance margin and/or the Sampo Bank Group's return on equity (ROE) at fair value. In addition, the scheme includes a limitation of maximum value according to which the amount of the reward payable will be cut in a manner provided in the terms and conditions in the event that the share price of Sampo increases by more than 160 per cent during a specific Performance Period. The Person receiving the reward shall also be employed by the Sampo Group at the time of such payment.
The eventual reward will be paid in 2008, 2009 and 2010. The shares to be distributed as a reward are subject to a two-year lock-up as provided in the terms and conditions. However, the Board of Directors of Sampo has the right to decide to pay the reward partly or wholly in cash instead of shares.
Helsinki, 17 February 2006
SAMPO PLC
Board of Directors
APPENDIX TO THE BOARD PROPOSAL: BELONGING TO ATTACHMENT : TERMS AND CONDITIONS OF THE LONG-TERM INCENTIVE SCHEME "SAMPO 2006" FOR THE KEY MANAGEMENT PERSONNEL OF THE SAMPO GROUP
1. General description of the long-term share-based incentive scheme
The long-term share-based incentive scheme pursuant to these terms and conditions concerns the key management personnel of Sampo plc (below "Sampo")or its subsidiaries (together referred to as the "Sampo Group" and each separately the "Group Company") and the Managing Director of Sampo in accordance with the resolution of Sampo's Board of Directors (below, both together referred to as the "Key Management Persons"). The share-based incentive scheme covers the years 2006 - 2010. The precondition for a reward to be disbursed pursuant to the share-based incentive scheme is that the special provisions set out in these terms and conditions and their Appendix be fulfilled wholly or partly.
The reward to be disbursed pursuant to the share-based incentive scheme is based on the share price development of Sampo's A share and the Insurance Margin and/or the development of ROE. In the Performance Conditions the share price development of Sampo's A share will be adjusted by the Dividend Adjustment. The reward will be disbursed on the basis of the performance periods in 2008, 2009 and 2010. The shares to be distributed as a reward are to a certain extent subject to a two-year lock-up. Sampo's Board of Directors may decide also to wholly or partly pay the reward in cash instead of shares.
Within the share-based incentive scheme, the maximum number of Sampo's A shares distributable as a reward is 1.500.000. Should the market price of Sampo's A share rise during a Performance Period over 160%, the amount of the reward to be disbursed will be reduced as specified in the terms and conditions.
2. Key definitions
The following definitions will be used in these terms and conditions:
Starting Price:
Performance Period I: The Starting Price will be determined by the volume-weighted average price of Sampo's A share during the first ten trading days in the Helsinki Exchanges starting on the Grant Date (inclusive of the Grant Date).
Performance Period II: The Starting Price will be determined by the volume-weighted average price of the A share during the ten trading days following the day Sampo has released its financial statement 2006 (including the date of release).
Performance Period III: The Starting Price will be determined by the volume-weighted average price of the A share during the ten trading days following the day Sampo has released its financial statement 2007 (inclusive of the date of release).
Maximum Value:
After the price of the A share has risen over 160% from the Starting Price, the reward will be reduced as specified in section 4.3.
End Price:
The End Price will be determined by the volume-weighted average price of the A share during the ten trading days following the day Sampo has released its interim report for 1 January - 30 September preceding the Disbursement Date of each reward (inclusive of the date of release).
Grant Date:
The date when the Board of Directors decides that a Key Management Person is entitled to participate in the share-based incentive scheme and resolves on the Maximum Number of Shares to be distributed to such Key Management Person.
Maximum Number of Shares:
The maximum number of shares granted by the Board of Directors of Sampo to each Key Management Person prior to taking into account the Maximum Value and the Performance Conditions.
Dividend Adjustment
In the Performance Conditions the share price development of Sampo's A share will be adjusted by the Dividend Adjustment as defined in Appendix 1.
Performance Conditions:
Performance Conditions refer to the provisions specified in Appendix 1 to these terms and conditions. The Performance Conditions are based on the share price development of Sampo's A share, the Insurance Margin and/or ROE.
Performance Period: Any of the Performance Periods I - III.
Performance Period I: Share price development of Sampo's A share: Performance Period I commences on the Grant Date and ends ten trading days after the day Sampo has released its interim report for 1 January - 30 September 2008 (inclusive of the date of release).
Insurance Margin: 1 January 2006 - 30 September 2008.
ROE: 1 January 2006 - 30 September 2008.
Performance Period II: Share price development of Sampo's A share: Performance Period II commences on the day Sampo has released its financial statements 2006 and ends ten trading days after the day Sampo has released its interim report for 1 January - 30 September 2009 (inclusive of the date of release).
Insurance Margin: 1 January 2007 - 30 September 2009.
ROE: 1 January 2007 - 30 September 2009.
Performance Period III: Price development of Sampo's A share: Performance Period III commences on the day Sampo has released its financial statements 2007 and ends ten trading days after the day Sampo has released its interim report for 1 January - 30 September 2010 (inclusive of the date of release).
Insurance Margin: 1 January 2008 - 30 September 2010.
ROE: 1 January 2008 - 30 September 2010.
Disbursement Date:
The date on which the reward is disbursed to a Key Management Person pursuant to these terms and conditions of the share-based incentive scheme, especially in accordance with section 5.
ROE:
Sampo Bank Group calculates return on equity (RoE) at fair value by applying method defined in Sampo Group's financial statements for the financial year in question. Profit and equity figures are based on Sampo Bank Group's official profit and loss account, balance sheet and more specific underlying accounting information.
Formula:
Sampo Bank Group's:
+ profit before tax +/- change in fair value reserve +/- change in valuation differences on investment *) -tax (incl. change in deferred tax relating to valuation differences on investments)
ROE-% = --------------------------------------------------- x 100
Sampo Bank Group's (average of values on 1 Jan. and 31 Dec.):
+ (total equity) +/-(valuation differences on investments after deduction of deferred tax) *)
*) valuation differences not included profit and loss account or fair value reserve
Insurance Margin: Technical result in relation to net premiums earned, expressed as a percentage.
Formula:
Technical result - other technical income + other technical expenses
Insurance Margin = ------------------------------------------
Premiums earned, net of reinsurance
3. Persons entitled to the share-based incentive scheme and the reward
The Board of Directors of Sampo will decide on the Key Management Persons entitled to participate in the share-based incentive scheme, the Maximum Number of Shares to be granted to each such person and the Performance Conditions and the Performance Period based on which they are entitled to the reward.
The Key Management Persons belonging to the scheme will be sent a notice notifying them of their participation and of the Maximum Number of Shares that will be granted to them. All notices related to this share-based incentive scheme will be made to the Key Management Persons electronically, in writing or by other means decided by Sampo.
4. Amount of the reward
4.1. The maximum aggregate number of the shares to be distributed as rewards
The maximum aggregate number of shares being offered to Key Management Persons within the scheme is 1.500.000.
4.2. Spread of the reward between the Performance Periods
The amount of the reward of a Key Management Person is based on the Maximum Number of Shares. 1/3 of the Maximum Number of Shares will be disbursed on the basis of Performance Period I, correspondingly 1/3 on the basis of Performance Period II and 1/3 on the basis of Performance Period III, assuming that the Key Management Person is entitled to a reward on the basis of all three Performance Periods. The impact of the Maximum Value and the Performance Conditions will be taken into account prior to the disbursement of the reward.
4.3. Impact of the Maximum Value on the amount of the reward
If the share price of Sampo's A share has risen by the end of a Performance Period by over 160% from the Starting Price, the Maximum Number of Shares distributable for this Performance Period (of which the portion specific to one Performance Period is normally 1/3) will be reduced so that the value of the maximum reward calculated by using the End Price of this Performance Period will not exceed the value calculated by using the Starting Price of this Performance Period by over 160% (the "Maximum Value").
4.4. Impact of the Performance Conditions on the amount of the reward
After the Maximum Value has been taken into account the amount of the reward to be disbursed for each Key Management Person is based on the fulfilment of Performance Conditions. The Performance Conditions are based on the share price development of Sampo's A share, the Insurance Margin and/or ROE as specified in Appendix 1.
5. Disbursement of the reward
5.1 Disbursement Date
The reward based on the scheme will be disbursed in three instalments. Upon disbursement of the reward, the Maximum Value and the Performance Conditions will be taken into account. The reward to be disbursed based on Performance Period I will be paid in December 2008, the one based on Performance Period II in December 2009 and the one based on Performance Period III in December 2010. Sampo will pay the reward to the Key Management Persons, unless otherwise agreed among the Group Companies. The disbursement of the reward will deviate from the abovementioned timetable in situations described in section 6. The Board of Directors will decide the exact date in all situations.
A precondition for the disbursement of the reward is that the Key Management Person is employed by the Sampo Group on the Disbursement Date, unless otherwise decided by the Board of Directors and subject to section 6 below.
5.2. Form of the Disbursement of the reward
5.2.1. Decision of the Board of Directors on the disbursement of the reward and the form thereof
The Board of Directors will decide on whether the reward will be disbursed by granting shares that are already owned by Sampo or by granting A shares that will be acquired later, by issuing Sampo's A shares to the Key Management Persons, in cash or by a combination of these as decided by the Board of Directors. The decision may differ depending on the countries, the grounds of the payment and the date of the payment. In case the Key Management Persons pay a subscription price for the shares, this will be compensated to them in a manner determined by the Board of Directors. The Board of Directors will separately determine on the practical measures relating to the disbursement of the reward.
5.2.2. Disbursement of the reward in shares
As a precondition for the disbursement of the reward in other situations than those described in section 6, the Key Management Persons agree to hold 40 % or less, if so decided by the Board of Directors, of the shares distributed to them from time to time as a reward at least two years from the date when each such reward was disbursed calculated as of the end of every December. Thus, for instance, 40% of the shares distributed as a reward in December 2008 shall be held at least until the end of December 2010. However, the Key Management Persons shall have the right to assign their shares before the expiration of the two-year term on the basis of a weighty reason and a prior written permission granted by the Board of Directors.
5.2.3. Disbursement of the reward in cash or in a combination of cash and shares
If the reward of a Performance Period is paid in cash, either in whole or in part, the share-specific value will be determined in accordance with the End Price of the applicable Performance Period.
Should the Board of Directors decide to disburse the reward of the Performance Period wholly in cash, the precondition for the payment is that the Key Management Person agrees to acquire A shares in Sampo on the Helsinki Stock Exchange with the amount corresponding to 40%, or less if so decided by the Board of Directors, of the gross amount of the payment on the date when the possible reward is paid in cash or on the first possible date taking into account the insider rules and to hold the shares for two years from the date when the reward was paid calculated as of the end of every December as explained above. Should a part of the reward be paid in cash and a part in shares, the aforementioned amount of shares to be acquired and held will be calculated based on their aggregate amount. The shares to be held for two years may thus be either shares distributed as a reward to the Key Management Persons or shares acquired as described above. The Key Management Persons have the right to assign their shares before the expiration of the two-year term on the basis of a weighty reason and a prior written permission granted by the Board of Directors. There is no obligation to acquire shares in situations described in section 6.
6. Premature disbursement of the reward
In situations described in this section, the amount of the entire reward will be determined based on the Performance Condition related to the share price development of Sampo's A share, and the Performance Conditions mentioned in Appendix 1 will not otherwise be taken into consideration. However, the Maximum Value will be taken into consideration as specified in section 4.3 above.
6.1. Mergers and demergers
If prior to the settlement of the reward, Sampo decides to
- merge with another company as the merging company; or
- merge with a company formed in a combination merger as the merging company, or
- demerge
so that Sampo is dissolved and its shares are removed from the list, the entire reward will be disbursed within two weeks from the time it is possible to determine the amount of the reward. In determining the reward, the End Price of the shares will be calculated on the basis of the volume-weighted average price during the ten trading days following Sampo's General Meeting of Shareholders (in which the merger or demerger was resolved on). The Board of Directors shall otherwise resolve on the procedure as stated in sections 4 and 5 as applicable. If a Performance Period has not yet commenced, the Starting Price for this period shall be the Starting Price of the previously commenced Performance period.
6.2. Redemption of shares
If a shareholder is obliged to make a redemption offer or redeem the remaining shares in Sampo on the basis of the Finnish Securities Market Act, Articles of Association or the Finnish Companies Act before the reward is disbursed, the entire reward will be disbursed within two weeks from the time it is possible to determine the amount of the reward. In determining the reward, the End Price of the shares will be calculated on the basis of the volume-weighted average price during the ten trading days following the formation of the redemption obligation. The Board of Directors shall otherwise resolve on the procedure as stated in sections 4 and 5 as applicable. If a Performance Period has not yet commenced, the Starting Price for this period shall be the Starting Price of the previously commenced Performance period.
6.3. Termination of employment or service contract
If a Key Management Person resigns from Sampo Group or is dismissed due to negligence of duties or other reasons attributable to the Key Management Person himself/herself, no reward shall be disbursed.
If the employment or service contract of the Key Management Person with Sampo Group is terminated due to production-related and financial reasons, or other reasons not attributable to the Key Management Person himself/herself, the reward shall be disbursed as determined by the Board of Directors in accordance with sections 4 and 5 as applicable.
If a Key Management Person retires, the reward shall be disbursed pursuant to the terms and conditions referred to in sections 4 and 5.
If a Key Management person dies, the entire reward shall be disbursed within two weeks from the time it is possible to determine the amount of the reward. The reward shall be disbursed to the heirs of the Key Management Person, a duly appointed estate administrator or a representative of other legal beneficiary and distributed in accordance with the Key Management Person's will or pursuant to the applicable law. In determining the reward, the End Price of the shares will be calculated on the basis of the volume-weighted average price during the ten trading days following the date of death of the Key Management Person. The Board of Directors shall otherwise resolve on the applicable procedure as stated in sections 4 and 5. If a Performance Period has not yet commenced, the Starting Price for this period shall be the Starting Price of the previously commenced Performance period.
However, due to weighty reasons the Board of Directors may deviate for the benefit of the Key Management Persons from the terms and conditions described in section 6.
7. Changes in capital or corporate structure
If there are changes in Sampo's shares due to the issue of new shares, changes in shareholders' equity, reclassification or reorganisation of shares, share split or combination of shares, bonus issue or other such arrangement, the Board of Directors of Sampo shall evaluate and, to the extent necessary, proportionally adjust the amount of shares or the terms and conditions of the calculation of the reward in a manner that the share-based incentive scheme remains unchanged despite the change in question.
Should Sampo during a Performance Period decide to distribute an extra dividend or a dividend (the record date of which is prior to the Disbursement Date) which is in material deviation to the profit distribution policy released by Sampo from time to time, the Board of Directors may decide to adjust the Maximum Number of Shares, if the Board of Directors determines that to be reasonable. Consequently also the maximum aggregate number of shares shall be adjusted.
If a significant part of the business of Sampo or the Sampo Group is assigned during a Performance Period, the Board of Directors may amend the Performance Conditions as regards the Insurance Margin and ROE in a manner deemed necessary.
8. Other provisions
The Board of Directors is entitled to make other than material amendments to these terms and conditions and resolve on practicalities relating to the scheme. It may also give binding instructions regarding the participating Key Management Persons. Sampo has the sole power to interpret these terms and conditions.
The grant or disbursement of the reward under this share-based incentive scheme does not constitute a term or condition of the Key Management Person's employment relationship, nor does it form a part of the Key Management Person's employment contract under applicable local laws. The reward does not form a part of the Key Management Person's salary or benefit of any kind and it is not included in the basis for calculation of pensions unless otherwise required by law or other obligatory regulation.
Pursuant to laws applicable from time to time, the Group Companies are or may be required to collect withholding taxes, social security charges or fulfil other employment related obligations upon disbursing rewards to the Key Management Persons. The Key Management Persons are personally responsible for any taxes and social security or other charges of their own associated with the reward. However, any transfer tax payable on the transfer of shares to the Key Management Persons shall be covered by Sampo or the Group Company in question. The Group Companies have the right to transfer within the Group or to an agent of the Group any personal data of the Key Management Persons required for the administration of the scheme.
The Key Management Persons shall comply with the terms and conditions of the share-based incentive scheme in force from time to time, as well as any instructions based on such terms given by the Board of Directors. If the Key Management Person breaches these terms and conditions or any instructions, the Board of Directors may at any time prior to the disbursement of the reward rescind the reward to that Key Management Person.
In the event of conflict between the Finnish, Swedish or English language versions of these terms and conditions, the Finnish language version shall prevail.
These terms and conditions shall be governed by the laws of Finland. Disputes arising out of the terms and conditions will be settled by arbitration in Helsinki in accordance with the Arbitration Rules of the Finnish Central Chamber of Commerce and by one arbitrator appointed by the Finnish Central Chamber of Commerce.
Appendix 1: Performance Conditions related to the share-based incentive scheme
The aggregated maximum number of shares being offered to the Key Management Persons according to the long-term share-based incentive scheme prior to the consideration of the Performance Conditions and the Maximum Value is 1.500.000. As regards all Key Management Persons, 50% of the total reward will be tied to the share price development of Sampo's A share and, depending on the Key Management Person, 0 - 50% to the average level of Insurance Margin and/or 0 - 50% to the average level of ROE. The Board of Directors will determine how these Performance Conditions will be taken into consideration separately with each Key Management Person when deciding that the Key Management Person is entitled to participate in the long-term share-based incentive scheme. The Board of Directors may, when deciding on the participation of each Key Management Person in the share-based incentive scheme, deviate from the general determination of the Performance Periods.
The Board of Directors will decide on possible questions of interpretation regarding the Performance Conditions. If the reward to be disbursed amounts to fractions of shares, the number of the shares to be distributed will be rounded up to the nearest whole number.
1. The part tied to the price development of Sampo's A share
50% of all Key Management Persons' Maximum Number of Shares is dependent upon the price development of Sampo's A share during Performance Periods I - III. The dividends paid during the Performance Period will be taken into account in the calculation of the share price development by reinvesting the dividends computationally in the A shares of Sampo on the dividend payment date by using volume-weighted average trading price ("Dividend Adjustment"). Therefore, in the Performance Conditions the End Price will be adjusted by the Dividend Adjustment.
Determining the reward
The reward to be disbursed based on the share price development of the A share will be determined as follows:
- As a precondition for the disbursement of the reward depending on the price development of the A share, the End Price shall be not less than 26% higher than the Starting Price at the end of the Performance Period taking into consideration the Dividend Adjustment (the "Minimum Requirement for Share Price").
- If the Minimum Requirement for Share Price of 26% is achieved, 20% of the maximum amount of the reward tied to the price development of the A share shall be disbursed.
- If the Minimum Requirement for Share Price is exceeded, the amount of the reward will be increased linearly up to the achievement of the maximum amount.
- The maximum amount of the reward tied to the price development of the A share will be disbursed for each performance period if the computational price growth during the Performance Period is at least 64%.
The above preconditions have been set according to a Performance Period of two years and six months. Thus, the preconditions set out for Performance Periods are adjusted linearly when the Performance Period is materially shorter than this.
An example of the determination of a part of the reward tied to the share price development of the A share in December 2009 on the basis of Performance Period II:
The Maximum Number of Shares of the Key Management Person within the share-based incentive scheme is 30,000 shares, of which 50%, i.e. 15,000 shares, is tied to the share price development of the A share. On the basis of section 5 of the terms and conditions of the share-based incentive scheme, 1/3, i.e. up to 5,000 shares will be distributed in December 2009. During the Performance Period the price of the A share has computationally increased by 45% (taking into account the Dividend Adjustment), which means that 20% * 5,000 plus (45 - 26) / (64 - 26) * 80% * 5,000, i.e. 3.000 shares will be distributed. In addition, the part of the reward based on the development of the Insurance Margin and/or ROE may become payable.
2. The part tied to the Insurance Margin
For the Key Management Persons decided by the Board of Directors, 0 - 50% of the Maximum Number of Shares will be dependent on the Insurance Margin during Performance Periods I - III. The amount of the reward of the other Key Management Persons is not dependent on the Insurance Margin at all.
Determining the reward
The reward to be disbursed on the basis of the Insurance Margin will be determined as follows:
- A precondition for the disbursement of the reward tied to the Insurance Margin is that the average insurance margin during the applicable Performance Period is at least 5% ("Minimum Requirement for Insurance Margin").
- If the Minimum Requirement for Insurance Margin 5% is achieved, 40% of the maximum amount of the reward tied to the Insurance Margin for the period in question will be disbursed.
- If the Minimum Requirement for Insurance Margin is exceeded, the amount of the reward will be increased linearly up to the achievement of the maximum amount.
- The maximum amount of the reward tied to the Insurance Margin will be disbursed for the applicable Performance Period if the Insurance Margin during the Performance Period is on average at least 10,5 %.
3. The part tied to ROE
For the Key Management Persons decided by the Board of Directors, 0 - 50% of the entire Maximum Number of Shares will be dependent on the ROE during Performance Periods I - III. The amount of the reward of other Key Management Persons is not dependent on the ROE at all.
The reward to be disbursed on the basis of ROE will be determined as follows:
- A precondition for the disbursement of the reward tied to ROE is that the average ROE during the applicable Performance Period is at least 12% ("Minimum Requirement for ROE").
- If the Minimum Requirement for ROE of 12% is achieved, 40% of the maximum amount of the reward tied to ROE for the period in question will be disbursed.
- If the Minimum Requirement for ROE is exceeded, the amount of the reward will be increased linearly up to the achievement of the maximum amount.
- The maximum amount of the reward tied to ROE will be disbursed for the applicable Performance Period if the ROE during the Performance Period is on average at least 22%.