Stock Incentive Plan

The Veoneer, Inc. 2018 Stock Incentive Plan was adopted and effective as of the Distribution Date to govern the Company’s stock-based awards that will be granted in the future as well as awards granted in connection with the conversion of outstanding awards granted under the Autoliv equity compensation program. The Veoneer, Inc. 2018 Stock Incentive Plan authorizes the grant of 3 million shares of Veoneer common stock for future equity awards to Veoneer employees, non-employee directors and other service-providers. In addition, the board authorized 957,388 shares for the conversion of the outstanding Autoliv stock awards in connection with the Spin-Off.

Prior to the Spin-Off, certain eligible employees and non-employee directors of Veoneer participated in the Autoliv, Inc. 1997 Stock Incentive Plan and received Autoliv stock-based awards, which included stock options, restricted stock units and performance shares. In connection with the Spin-Off, each outstanding Autoliv stock-based award as of the Distribution Date was converted to a stock award having underlying shares of both Autoliv and Veoneer common stock.

The conversion that occurred on the Distribution Date was based on the following:


•	Stock Options (SOs) - A number of SOs comprising 50% of the value of the outstanding SOs calculated immediately prior to the Spin-Off continued to be applicable to Autoliv common stock. A number of SOs comprising the remaining 50% of the pre-spin value were replaced with options to acquire shares of Veoneer common stock.


•	Restricted Stock Units (RSUs) - A number of RSUs comprising 50% of the value of the outstanding RSU calculated immediately prior to the Spin-Off continued to be applicable to Autoliv common stock. A number of RSUs comprising the remaining 50% of the pre-spin value were replaced with RSUs with underlying Veoneer common stock.


•	Performance Shares (PSs) - Outstanding PSs were converted to time-based RSUs and were treated in the same manner as other outstanding RSUs (as described above) on the Distribution Date. The number of outstanding PSs were converted based on:


1)	The level of actual achievement of performance goals for each outstanding PS for the period between the first day of the performance period and December 31, 2017 (the “Performance Measurement Date”), referred to as “Level of Performance-to-Date”, and


2)	The greater of the Level of Performance-to-Date and estimated target performance level (i.e., 100%) for the period between the Performance Measurement Date and the last day of the performance period.

In each case above, the conversion was intended to generally preserve the intrinsic value of the original award determined as of the Distribution Date. The number of converted RSUs and SOs for Autoliv and Veoneer was based on the average of Autoliv closing stock prices for the last 5 trading days prior to the Spin-Off and the average of closing stock prices of Autoliv and Veoneer, respectively, for the first 5 trading days after the Spin-Off.

As a result of the Spin-Off and the related conversion, it was determined that the stock-based awards were modified in accordance with ASC 718, Compensation – Stock Compensation. As a result, the fair value of the RSUs and SOs immediately before and after the modification was assessed in order to determine if the modification resulted in any incremental compensation cost related to the awards, including consideration of the impact of conversion using the 5 trading day average. Based on the valuation performed, it was determined that the conversion did not result in any incremental compensation cost for any of the outstanding awards.

With certain limited exceptions, including the freezing of the Performance Measurement Date to December 31, 2017 as noted above, the adjusted SOs and RSUs outstanding after the Spin-Off are subject to the same terms and conditions (including with respect to vesting and expiration) that were applicable to such Autoliv stock-based awards immediately prior to the conversion. There was no stock-based compensation expense related to SOs for the years ended December 31, 2018 and 2017.

The RSUs granted by the Former Parent on February 15, 2016 and May 9, 2016 vest in three approximately equal annual installments beginning on the first anniversary of the grant date. The RSUs and PSs granted by the Former Parent on February 19, 2017 and February 15, 2018 will each vest in one installment on the third anniversary of the grant date. The RSUs and PSs granted in 2017 and the RSUs granted in 2018 entitle the grantee to receive dividend equivalents in the form of additional RSUs and PSs subject to the same vesting conditions as the underlying RSUs and PSs, respectively.

The fair value of the RSUs and PSs is calculated as the grant date fair value of the shares expected to be issued. For the grants made during 2017 and 2018, the fair value of a PS and a RSU is calculated by using the closing stock price on the grant date. For the grants made during 2016, the fair value of a RSU and a PS was estimated using the Black Scholes valuation model. The grant date fair value for the RSUs at February 13, 2018 was $6 million and the grant date fair value of the RSUs at February 19, 2017 was $3 million. The grant date fair value of the PSs at February 19, 2017 was $3 million. The cost will be amortized straight line over the vesting period. For PSs, the grant date fair value of the number of awards expected to vest is based on the Former Parent’s best estimate of ultimate performance against the respective targets and is recognized as compensation cost on a straight-line basis over would be the requisite vesting period of the awards. The Former Parent assessed the expected achievement levels at the end of each quarter. As of December 31, 2017, the Former Parent believed it was probable that the performance conditions for the two grants will be met, although at a different level, and has recorded the compensation expense accordingly. The cumulative effect of the change in estimate is recognized in the period of change as an adjustment to compensation expense.

All SOs were granted for 10-year terms, had an exercise price equal to the fair market value of the share on the date of grant, and became exercisable after one year of continued employment following the grant date. The average grant date fair values of SOs were calculated using the Black-Scholes valuation model. The Former Parent used historical exercise data for determining the expected life assumption. Expected volatility was based on historical and implied volatility. There were no SOs granted in 2018, 2017 or 2016. The table below includes the assumptions for all awards issued:



	Year Ended December 31
	2018	2017	2016
PSs and RSUs
Dividend yield ¹	—	—	2.2	%


¹	Dividend equivalent rights applied to grants starting in 2017.

Veoneer recognized total stock (RSUs, PSs and SOs) compensation cost of $5 million, $2 million and $3 million, in the Consolidated Statements of Operations, for the years ended December 31, 2018, 2017 and 2016, respectively. These costs include amounts for individuals specifically identifiable to the Veoneer business as well as an allocation of costs attributable to individuals in corporate functions for the periods prior to the Spin-Off and Veoneer employees subsequent to the Spin-Off. Veoneer has unrecognized compensation cost for Veoneer employees of $6 million related to non-vested awards for RSUs and the weighted average period over which this cost is expected to be recognized is approximately 1.8 years. There is no compensation cost not yet recognized for stock options.

A summary of RSUs activity is presented below:



	Number of RSUs
RSUs¹
Outstanding as of June 30, 2018 (Converted from former Parent in connection with the Spin-Off)	601,740
Granted	9,380
Shares issued	(7,490	)
Cancelled/Forfeited/Expired	(9,636	)
Outstanding as of December 31, 2018	593,994

¹RSUs presented in this table represent Veoneer awards, including those held by Autoliv employees.

The weighted average fair value per share at the grant date for RSUs during the years ended December 31, 2018, 2017 and 2016 was $42.88, $31.98 and $29.81, respectively. The grant date fair value for RSUs vested in 2018 was $2 million.

There were no PSs granted subsequent to the Spin-Off. The weighted average fair value per share at the grant date for PSs during the years ended December 31, 2017 and 2016 was $31.98 and $29.81, respectively. All outstanding PSs were cancelled and converted to RSUs in connection with the Spin-Off. There are no PSs outstanding as of December 31, 2018.

The grant date fair value for RSUs and PSs awarded by the Former Parent were converted with a factor of 3.31.



	Number of Options
SOs¹
Outstanding at June 30, 2018 (Converted from former Parent in connection with the Spin-Off)	355,646
Exercised	(30,062	)
Cancelled/Forfeited/Expired	—
Outstanding as of December 31, 2018	325,584

¹SOs presented in this table represent Veoneer awards, including those held by Autoliv employees.

The following summarizes information about stock options outstanding and exercisable as of December 31, 2018:



	Number Outstanding¹	Remaining Contract life (in years)
EXERCISE PRICES
$4.93	16,796	0.14
$13.51	21,342	1.13
$20.25	21,266	3.15
$20.91	43,934	4.14
$22.04	15,055	2.15
$28.67	80,627	5.14
$34.25	126,564	6.13
	325,584	4.6

¹SOs presented in this table represent Veoneer awards, including those held by Autoliv employees.

The total aggregate intrinsic value, which is the difference between the exercise price and $23.57 (closing price per share as of December 31, 2018), for all “in the money” stock options, both outstanding and exercisable as of December 31, 2018, was $1 million.