Annual Report 2005/06 THE WORLD OF SOUND - Sonova

Capital StructureChanges in capital structure since 2004As of March 31, the capital of Phonak Holding AGcomprised the following:2006 2005 2004Share capital (in CHF) 3,318,046 3,301,120 3,273,110Total shares 66,360,925 66,022,400 65,462,200Conditional capital (in CHF) 412,400 264,270 292,280Conditional shares 8,247,995 5,285,400 5,845,600Authorized capital (in CHF) 165,056 0 0Authorized shares 3,301,120 0 0Phonak Holding AG registered shares have been quotedon the Swiss stock exchange (SWX Swiss Exchange) sinceNovember 1994. The par value of one standard registeredshare amounts to CHF 0.05. The share capital is fully paid up.With the exception of the shares held by the company itself,each ordinary share bears one voting right at the AnnualGeneral Shareholders’ Meeting and is entitled to dividend payments.As of March 31, 2006, the company held 34,633(previous year 7,700) own shares.Ordinary share capitalThe Annual General Shareholders’ Meeting of July 5,2001, approved a capital reduction and repayment of CHF 15on the par value per share. At the same time, shareholdersapproved a 1:100 share split. This reduced the par value ofPhonak registered shares from CHF 20 to CHF 0.05.In the financial year 2005/06, a total of 338,525 employeeoptions were exercised. Each option provides the right to purchaseone registered share out of the conditional share capital.In the financial years 2004/05 and 2003/04, a total of 560,200and 90,000 employee options were exercised. As a result, as ofMarch 31 in each year, the total number of issued shares aswell as the share capital increased correspondingly. At the sametime, the exercising of these options led to a correspondingdecrease in the conditional share capital reserved for key employeesshare option plans (see also table on page 30).Conditional share capitalAs of March 31, 2006, the company had a total conditionalshare capital of 8,247,995 registered shares with a par valueof CHF 0.05 per share.The Annual General Shareholders’ Meeting held on July 7,2005, approved the creation of conditional share capital of3,301,120 registered shares with a par value of CHF 0.05 pershare. The purpose of the extra conditional share capitalcreated is to improve the company’s financial flexibility. Thiscapital may be used for exercising option and conversionrights granted in connection with bonds or similar debt instrumentsissued by the company for the purpose of financingthe acquisition of or investment in companies. The conditionalshare capital of 3,301,120 registered shares created on July 7,2005, has not yet been used.At the Annual General Shareholders’ Meetings in 1994and 2000, conditional share capital was created with the purposeof offering Phonak shares, through an option program,to key employees of the Phonak Group. From a maximum of8,000,000 approved shares with a par value of CHF 0.05,3,053,125 shares have been issued up to March 31, 2006, reducingthe maximum conditional share capital reserved forkey employees share option plans to 4,946,875 (previous year5,285,400) shares.In the financial year 2005/06, a total of 420,818 optionswere granted as part of the Phonak Executive Equity Award Plan(EEAP). In the financial year 2004/05, a total of 712,000 options(as part of the EEAP), and in the financial year 2003/04, a totalof 780,450 options (as part of the Key People Program) weregranted.At March 31, 2006, a total of 1,842,693 (prior year1,852,250) options were outstanding. Each of these optionsentitles the holder to purchase one registered share inPhonak Holding AG with a par value of CHF 0.05.Corporate Governance21