Siemens 2006 Annual Report Download - page 216

Notes to Consolidated Financial Statements
(in millions of €, except where otherwise stated and per share amounts)
212
Description of plans – 2001 Siemens Stock Option Plan
At the Annual Shareholders’ Meeting on February 22, 2001, shareholders authorized Siemens
AG to establish the 2001 Siemens Stock Option Plan, making available up to 55 million options.
Compared to the 1999 Plan, the number of eligible recipients is significantly larger. The
option grants are subject to a two-year vesting period, after which they may be exercised for
a period of up to three years. The exercise price is equal to 120% of the reference price, which
corresponds to the average opening market price of Siemens AG during the five trading days
preceding the date of the stock option grant. However, an option may only be exercised if the
trading price of the Company’s shares reaches a performance target which is equal to the exer-
cise price at least once during the life of the option. The terms of the plan allow the Company,
at its discretion upon exercise of the option, to offer optionees settlement of the options in
either newly issued shares of common stock of Siemens AG from the Conditional Capital
reserved for this purpose, treasury stock or cash. The alternatives offered to optionees are
determined by the Managing Board in each case as approved by the Supervisory Board. Com-
pensation in cash shall be equal to the difference between the exercise price and the opening
market price of the Company’s stock on the day of exercising the stock options. The amount
of shares authorized to be issued to accommodate stock option exercises is 63,797 thousand
as of September 30, 2006. The Company is also authorized to repurchase up to 10% of the
€2,673 common stock until July 25, 2007.
The issuance of stock options to members of the Managing Board on or after October 1,
2003, has been subject to the proviso that the Supervisory Board may restrict the stock option
exercise in the event of extraordinary, unforeseen changes in the market price of the Siemens
share. Those restrictions may reduce the number of options exercisable by each Board Mem-
ber, provide for an exercise in cash for a constricted amount only, or suspend the exercise of
the option until the extraordinary effects on the share price have ceased. The fair value of the
options has not been adjusted for effects resulting from such restrictions. Reasonable esti-
mates cannot be made until it is probable that such adverse events will occur. Since it is not
possible to reasonably estimate the fair value of those options at the grant date, compensation
costs are determined based on the current intrinsic value of the option until the date at
which the number of shares to which a Board member is entitled to and the exercise price
are determinable. Upon that date, fair value will be determined in accordance with the fair
value recognition provisions of SFAS 123R, Share-Based Payment based on an appropriate fair
value option pricing model.
The Supervisory Board as well as the Managing Board decided not to grant any stock
options in fiscal year 2007. Since the authority to distribute options under the 2001 Siemens
Stock Option Plan expires on December 13, 2006, no further options will be granted under this
plan.
In November 2005, the Supervisory Board and Managing Board granted options to 597 key
executives for 3,023,830 shares with an exercise price of €74.59 of which options for 315,495
shares were granted to the Managing Board. In November 2004, the Supervisory Board and
Managing Board granted options to 624 key executives for 2,945,035 shares with an exercise
price of €72.54 of which options for 296,270 shares were granted to the Managing Board.