Mercedes 1999 Annual Report Download - page 100

NOTES TO THE CONSOLIDATED BALANCE SHEETS
SARs expire ten years from the grant date. The exercise price of a
SAR is equal to the fair market value of DaimlerChrysler’s Ordi-
nary Shares on the date of grant. On February 24, 1999, the Group
issued 11.4 million SARs at an exercise price of €89.70.
As discussed below, DaimlerChrysler converted all options granted
under its existing stock option plans from 1997 and 1998 into
SARs in the second quarter of 1999.
In conjunction with the consummation of the Merger in 1998, the
Group implemented a SAR plan (22.3 million SARs at an exercise
price of $75.56 each). The initial grant of SARs replaced Chrysler
fixed stock options that were converted to DaimlerChrysler Ordi-
nary Shares as of the consummation of the Merger. SARs which re-
placed stock options that were exercisable at the time of the con-
summation of the Merger were immediately exercisable at the date
of grant. SARs related to stock options that were not exercisable at
the date of consummation of the Merger became exercisable in two
installments; 50 percent on the six-month and one-year anniversa-
ries of the consummation date.
A summary of the activity related to the Group’s SAR plans as of
and for the years ended December 31, 1999 and 1998 is presented
below (SARs in millions):
The Group grants performance-based stock awards to certain eli-
gible employees with performance periods of up to three years and
track the value of DaimlerChrysler Ordinary Shares. The amount
ultimately earned in cash compensation at the end of a perform-
ance period is based on the degree of achievement of corporate
goals. In 1999, the Group issued €0.7 million performance-based
stock awards.
Compensation expense or benefit on SARs and performance-based
stock awards is recorded based on changes in the market price of
DaimlerChrysler Ordinary Shares and, in case of performance-
based stock awards, the attainment of certain performance goals.
For the years ended December 31, 1999 and 1998 the Group recog-
nized compensation benefit of €106 and compensation expense of
€251, respectively, for SARs and performance-based stock awards.
Stock Option Plans
DaimlerChrysler established, based on shareholder approvals, the
1998, 1997 and 1996 Stock Option Plans (former Daimler-Benz
plans), which provide for the granting of options (“Stock Options”)
for the purchase of DaimlerChrysler Ordinary Shares to certain
members of management. The options granted under the Plans are
evidenced by non-transferable convertible bonds with a principal
amount of €511 per bond due ten years after issuance. During cer-
tain specified periods each year, each convertible bond may be
converted into 201 DaimlerChrysler Ordinary Shares, if the market
price per share on the day of conversion is at least 15% higher
than the predetermined conversion price and the options (granted
in 1998 and 1997) have been held for a 24 month waiting period.
The specific terms of these plans are as follows:
In the second quarter of 1999, DaimlerChrysler converted all op-
tions granted under the 1998 and 1997 Stock Option Plans into
SARs. All terms and conditions of the new SARs are identical to
the stock options which were replaced, except that the holder of a
SAR has the right to receive cash equal to the difference between
the exercise price of the original option and the fair value of the
Group’s stock at the exercise date rather than receiving
DaimlerChrysler Ordinary Shares.
Conversion
price
1996
1997
1998
Due
Stated
interest
rate
July 2006 5.9% €42.62
July 2007 5.3% €65.90
July 2008 4.4% €92.30
Bonds granted in
94
Outstanding at beginning
of year
Granted
Exchange of Stock Options
for SARs
Exercised
Forfeited
Outstanding at end of year
SARs exercisable
at year-end
Number
of SARs
22.2 €64.58 – –
11.4 89.70 22.3 €64.58
15.2 79.79 – –
(2.2) 64.91 (0.1) 64.58
(0.8) 76.07 – –
45.8 75.68 22.2 64.58
26.8 €64.92 11.3 €64.58
1999
Number
of SARs
Weighted-avg.
exercise
price
1998
Weighted-avg.
exercise
price