The Board of Ericsson has decided to propose a continued stock purchase plan in order to encourage an increased shareholding among the employees. In the Board's opinion it is particularly important to encourage the efforts of the employees in times of economic decline. Moreover, the Board is convinced that offering employees an incentive to become shareholders is of benefit also for the current shareholders.
Basically all employees within the Ericsson Group shall be offered to participate in the stock purchase plan, which will comprise totally 158,000,000 B-shares. Employees will be able to save up to 7.5 % of the gross salary during a 24-month contribution period, however not exceeding SEK 50,000 per 12-month period, for the purchase of B-shares in Ericsson. If the shares purchased are retained by the employee for three years and the employment with the Ericsson Group continues during that time, the employee will be given a corresponding number of B-shares free of consideration.
In order to implement the stock purchase plan in a cost effective and flexible manner the Board has decided to present also the following proposals for the shareholders' meeting:
Amendment of the Articles of Association: The maximum number of C-shares which may be issued is changed from the current 155,000,000 shares to 158,000,000 shares.
Directed share issue: Ericsson's share capital is increased by SEK 158,000,000 by an issue of 158,000,000 C-shares. The new shares shall - with deviation from the shareholders' preferential right to subscribe for shares - be subscribed for by AB Industrivärden and/or Investor AB, or subsidiaries to these companies, at a price corresponding to the nominal amount of the share, i.e. SEK 1.
Authorization to decide on acquisition of own shares: The Board is authorized to take a decision before the Annual General Meeting of shareholders in 2004 on acquisition of shares directed to all holders of C-shares in Ericsson. Acquisition of 158,000,000 C-shares at a price of not less than SEK 1 and not more than SEK 1.10 per share shall be allowed under the authorization. Payment shall be made in cash.
Following acquisition of C-shares the Board will decide on conversion of all C-shares to B-shares.
Transfer of own shares: Not more than 158,000,000 B-shares shall be transferred to employees covered by the terms of the stock purchase plan. However, of these shares it shall be possible to, before the Annual General Meeting of shareholders in 2004, transfer not more than 26,000,000 B-shares at Stockholmsbörsen at a price within the, at each time, registered price interval for the share in order to cover inter alia social security payments.
Dilution and costs
The Stock Purchase Plan 2003 requires a total of 158,000,000 shares, corresponding to approximately 0.99 percent of the total number of issued shares and 1.00 percent of the number of outstanding shares. Including existing incentive programs the number of shares covered by such programs amounts to approximately 356 million shares (after deduction of forfeited options and Ericsson's convertible debenture program from 1997 which at present is not considered to result in any further dilution), corresponding to approximately 2.25 percent of the number of outstanding shares. Ericsson currently holds 152,993,689 own shares.
The 132,000,000 shares transferred to employees free of consideration will cause a dilutive effect of 0,83 percent on earnings per share. There will, however, be no dilutive effect of the 26,000,000 shares disposed of at Stockholmsbörsen, as the shares are sold at full market value.
The Board estimates that the Stock Purchase Plan 2003 will result in costs as set out below. The costs shall be compared with Ericsson's total remuneration costs, which 2001 amounted to approximately SEK 56 billion, including social security fees. Each cost item has an effect on the consolidated income statement, but only the administration costs have an effect on the cash flow.
Administration costs (affect the income statement and the cash flow) have been estimated to approximately SEK 27 million, unevenly distributed, up to and including 2008.
Social security fees (affect the income statement, but not the cash flow) have been estimated to range between approximately SEK 250 million and approximately SEK 1,300 million, based on an average share price at matching of shares between SEK 10 and SEK 50.
Compensation costs (affect the income statement, but not the cash flow), corresponding to the value of matching shares, have been estimated to approximately SEK 900 - 1,000 million during the period 2003 - 2008.
Following the decision at the shareholders' meeting the proposed share issue and offer to acquire shares are scheduled to be completed prior to the summer 2003.
The complete proposal of the Board will be available on Ericsson's website, www.ericsson.com, as from 25 March 2003.