Notice of the Extraordinary General Meeting to approve a stock option program for all employees of Observer group

Notice of the Extraordinary General Meeting to approve a stock option program for all employees of Observer group Shareholders of Observer AB (publ) are hereby notified of the Extraordinary General Meeting to be held at 8:30 a.m. on February 8, 2001 at the company's head office, Linnégatan 87, Stockholm. Notification of attendance Shareholders who wish to participate in the Annual General Meeting: * must be recorded in the shareholder register issued by the Swedish Securities Register Center (VPC AB) on January 29, 2001, and * must notify the Company of their intention to participate by 4:00 p.m. on February 5, 2001. Notification may be submitted in writing to Observer AB, SE-114 88 Stockholm, Sweden, or by phone +46 8 507 410 13, fax +46 8 507 410 25 or e-mail:info@observergroup.com Include your name, personal ID or registration number (for Swedish citizens or companies), address, telephone number and registered shareholding. Shareholders who intend to vote by proxy should enclose a power of attorney or other documentation with their notification. If you plan to be accompanied at the Meeting, please indicate this as well on your notification. Shareholders whose shares are held in trust must temporarily re-register them in their own names in order to participate in the Meeting. Re- registration must be effected by January 29, 2001, so shareholders are advised to notify their trustees well in advance. reholder's name several banking days prior to April 14, 2000. Agenda 1. Opening of the Meeting. 2. Election of the Chairman of the Meeting. 3. Preparation and approval of the voting list. 4. Election of one or two persons to attest to the accuracy of the minutes. 5. Approval of the agenda. 6. Determination whether the Meeting has been properly convened. 7. Resolution on the stock option program and issuance of promissory notes with detachable warrants. 8. Closing of the Meeting. Draft resolution on the stock option program and issuance of promissory notes with detachable warrants (point 7) The Board of Directors of Observer AB is proposing that the company introduce a Group-wide incentive program for all employees. The Board of Directors' proposal requires the approval of at least nine tenths of the votes and shares represented at the Annual General Meeting. New incentive program for the Observer Group The Board of Directors of Observer is proposing that the company introduce a stock option program. According to the program, all employees will be offered options free of charge. The stock options can then be exercised to purchase Observer shares (Class B) by those who have been employed by Observer for at least two years after allocation. The maximum number of shares that can be issued in connection with the program corresponds to a dilution of maximum 4.5 percent. Background and reason for introducing the stock option program Observer is a growth company and the world leader in its field. In recent years it has generated annual organic growth of approximately 20 percent, compared with an industry average of about 8 percent. Observer is currently active in the UK, Sweden, Germany, Norway, Finland, Denmark, Estonia, Latvia and Lithuania. The operations outside Sweden account for approximately 70 percent of the turnover. Observer operates on a stable and supply-driven market and there is a high potential for continued international growth. It is in the areas of media and market monitoring, analysis, evaluations and communication that Observer expects to develop and grow. The proposed option program will, in addition to dilution, lead to certain ongoing expenses for Observer in the form of social security contributions. The dilution and the expenses only arise, however, if the company's share price increases. The fact that options are being exercised therefore means that existing shareholders are benefiting from the most of the appreciation value that is being created. Observer's continued development rests on two fundamental factors: * high organic growth through the continuous development of new services, methods and client applications * acquisitions of companies in markets where the company is not yet active, and the implementation of Observer's business concept into these companies Value-added services account for an increasingly important share of Observer's service range and future growth. The ability of our employees to develop new value-added services and competitive client applications are vital to the company. Working internationally is important because clients' needs are increasingly global in scope. A key factor in Observer's growth strategy is its intention to expand into new markets, primarily by acquiring companies that are low on added value, and developing their operations with an eye to leading the market in terms of their size as well as their assortment of services. By exploiting the spin-off advantages that arise, the company will be able to combine rapid growth with high profitability. The company's ambitions to maintain a higher organic growth than market average and the fast international expansion requires access to the right key employees. Thus the group must be able to attract the most competent and internationally experienced leaders and specialists in the industry. A broad-based stock option program that complements existing incentive programs is regarded as essential if Observer is going to retain and recruit the right employees and therewith hereafter be able to. The benefit that an option program is expected to provide in terms of growth and profitability - as well as shareholder value - is likely to measure several percentage points. Terms All personnel who are employed on January 1 of each year will be included in the program. In total, 1,600 employees will benefit from the initial allocation. Outside Board members will not be part of the program. The options will be allocated free of charge. Employees will be able to exercise their options after two years but no later than four years to purchase a corresponding number of Observer shares at the market price in effect when their options were issued. If an employee leaves the Group, the options will be forfeited. The options are not transferable. The purpose is to allow employees to share in the future appreciation in value of the Observer share. Scheduled allocations The program covers the years 2001-2003. The main allocation will take place anually after publication of Observer's preliminary year end report respective year. There will also be additional opportunities for allocations on an individual basis three times a year, two weeks after Observer has published its quarterly reports. If the Extraordinary General Meeting approves the program, the current year's allocation will take place two weeks after publication of the preliminary year-end report for 2000. Dilution The maximum number of Class B shares that can be issued in connection with the program corresponds to approximately 4.5 percent of the total number of shares in Observer. The annual dilution amounts to a maximum of 1.5 percent. Today there are 55,510,442 Observer shares, and the program will add a maximum of 2,496,000. After the stock options are exercised, Observer will report the dilution effect in the following yearly or quarterly report. Strike price The options may be exercised to subscribe for Class B shares at a strike price corresponding to the volume-weighted average of the quoted price paid for the company's B share during the five trading days following the fifth trading day after the announcement of the company's preliminary year end reports for 2000, 2001 and 2002. The full-year results for 2000 will be announced on February 20, 2001. Individual allocations All employees of Observer are covered by the incentive program. The majority of employees will be allocated 100 options a year. Other allocations will be made on an individual basis based on the employee's importance to the group's earnings and valuation and taking into account the particular competitive situation for that employee. Employees are divided into four categories for allocation purposes. Those with greater seniority may be allocated more options. Allocation decisions will be made by a committee appointed by the Board of Directors and which do not include the CEO. Category one comprises the CEO, Group Management and subsidiary managing directors with a maximum allocation estimated at 10,000 options per year. Category two covers other subsidiary managers and key employees, with an average allocation of 2,000 options. Category three includes mid-level managers and specialists, with an average allocation of 500 options. The fourth category consists of slightly over 1,300 other employees. Each employee in this category will receive an annual allocation of 100 options. Category Individua No. of individuals Estimated avg. Maximum ls (Jan. 2001) allocation/year allocation/ year Category 1 President 15 10,000 40,000 , Executive Mgmt. and subsidiar y president s Category 2 Other 70 2,000 8,000 subsidiar y managers and key employees Category 3 Mid-level 250 500 2,000 managers and specialis ts Category 4 Other 1,280 100 100 employees Example: Given a 10-percent annual appreciation in the value of the Observer share, an employee in category one who exercises his options to buy shares after two years would gain SEK 231,000 before tax. If he exercises his options in the end of the fourth year, he would see them rise in value by SEK 510,000 before tax. The latter figure corresponds to an annual appreciation of SEK 127,000 over the four-year period. These calculations assume: * A one-year allocation * A strike price of SEK 110 * An allocation of 10,000 options Using the same example but assuming a 20-percent appreciation in the value, those in category one would see their options appreciate by SEK 484,000 after two years and SEK 1,181,000 after four years, in both cases before tax. The latter example corresponds to an annual appreciation of SEK 295,000 for the four-year period. Tax consequences In many countries, there are no tax consequences for employees when they are granted stock options. When the options are exercised, however, the employees must pay income tax on the appreciated value they receive, i.e. the difference between the price of the underlying Observer shares and the strike price. At the same time, Observer will pay the social security contributions related to this value. After the stock options are exercised, Observer will report the expenses in the following yearly or quarterly report. Expenses and other effects resulting from exercise of the program In many countries social security contributions result from the appreciation in value when a stock option is exercised. Such costs will be charged to Observer's income on a accrual basis. The following tables illustrate the expenses that arise when allocated options are exercised and the relation between these expenses and the appreciation in value gained by the company's shareholders Each year's allocation amounts to a maximum of 832,000 options (= 1.5% of the current number of shares). Observer's share price at the start of the program is assumed to be SEK 110, making the company's market value SEK 6,106 million. Social security contributions are assumed to average 20%. Amounts Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 in SEK Million Annual 10% increase in the share price: Share 110 121 133 146 161 177 195 price (SEK) First year's Cumulative maximum appre- allocation ciation in value 9 19 30 42 - - Cumulative 2 4 6 8 - - social security contributions All three Cumulative years' maximum appre- allocation ciation in value 9 29 63 99 126 141 Cumulative 2 6 13 20 25 28 social security contributions Cumulative The company's appre- market value ciation in value 611 1,282 2,021 2,968 4,023 5,198 Total 6,1066,717 7,388 8,127 9,074 10,129 11,304 value Millions 55.5 55.5 55.5 55.5 56.3 57.2 58.0 of shares Annual 20% increase in the share price: Share 110 132 158 190 228 274 328 price (SEK) First year's Cumulative maximum appre- allocation ciation in value 18 40 67 98 - - Cumulative 4 8 13 20 - - social security contributions All three Cumulative years' maximum appre- allocation ciation in value 18 62 141 236 312 358 Cumulative 4 12 28 47 62 72 social security contributions Cumulative The company's appre- market value ciation in value 1,221 2,687 4,445 6,745 9,543 12,947 Total 6,1067,327 8,793 10,551 12,851 15,650 19,053 value Millions 55.5 55.5 55.5 55.5 56.3 57.2 58.0 of shares Annual 30% increase in the share price: Share 110 143 186 242 314 408 531 price (SEK) First year's Cumulative maximum appre- allocation ciation in value 27 63 110 170 170 170 Cumulative 5 13 22 34 - - social security contributions All three Cumulative years' maximum appre- allocation ciation in value 27 99 238 419 - - Cumulative 5 20 48 84 115 136 social security contributions Cumulative The company's appre- market value ciation in value 1,832 4,213 7,309 11,595 17,245 24,692 Total 6,1067,938 10,319 13,415 17,701 23,351 30,798 value Millions 55.5 55.5 55.5 55.5 56.3 57.2 58.0 of shares The above example shows that the expenses that arise when the options are exercised are relatively small in relation to the appreciation in value gained by the company's shareholders. The Board of Director's view is that the proposed program will have a favorable influence on the appreciaton in value for all shareholders. The Observer Group Employee Benefit Trust The Observer Group Employee Benefit Trust has been established to administer Observer's incentive program. This is a common practice for stock option programs for international companies. The trust, which has its domicile in Jersey, will be managed by a professional trustee that also manages the incentive programs of other Swedish companies. The trust offers no special tax advantages for either Observer or its employees. The employees of Observer will be allocated independent stock options. These options correspond to warrants issued to the trust. The trust will subscribe for promissory notes with detachable warrants to buy new shares. When employees exercise their stock options to buy Observer shares, the trust will subscribe for a corresponding number of new shares by exercising its warrants. Shareholders Observer has approximately 10,000 shareholders, the largest of which is Bure Equity, with 38 percent of the capital and 62 percent of the votes. Observer's Class A and B shares are quoted on the O-list of the OM Stockholm Exchange. Further information Information on the stock option program can be obtained from Observer AB, SE-114 88 Stockholm, Sweden, from the company's head office at Linnégatan 87, by phoning +46 8 507 410 13, faxing +46 8 508 410 25 or online at www.observergroup.com. The Board of Directors' complete proposal for the resolution to approve the issuance of promissory notes with detachable warrants and the documents required in accordance with chap. 4 § 4 of the Swedish Companies Act will be made available as of January 31, 2001 at the company's office at the address above. For further information, please contact: Robert Lundberg, President and CEO, phone +46 8 507 410 10 e-mail robert.lundberg@observergroup.com Jan-Erik Jansson, Chief Financial Officer, phone +46 8 507 410 14 e-mail jan-erik.jansson@observergroup.com Per Blixt, Senior VP Corporate Communications, phone +46 8 507 410 12/+46 70-549 28 08, e-mail per.blixt@observergroup.com ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2001/01/18/20010118BIT00220/bit0001.doc http://www.bit.se/bitonline/2001/01/18/20010118BIT00220/bit0002.pdf