Karo Bio has one stock option program outstanding which was introduced in accordance with a decision made at the Annual Shareholders’ Meeting in April 2003. The program is a stock option program and covers permanent employees of Karo Bio. 
          The financial exposure from the stock option program is hedged by warrants issued to a wholly-owned subsidiary. A specified portion of the warrants is reserved to cover payroll taxes and other related costs and is transferred to a bank under separate agreements. The agreements stipulate for the bank to provide cash to facilitate payment of such payroll taxes and other related costs. Cash will be generated from the reserved lot of warrants, which are held by the bank. 
          The terms of the stock option program provide for adjustments of the exercise price and number of shares for each stock option if new shares are issued with preferential rights to shareholders. The figures below are adjusted accordingly, unless otherwise indicated.

 PROGRAM 2003
The program originally involved 190,000 stock options, representing 374,300 shares. Additional warrants representing 100,470 shares are reserved to cover payroll taxes. Maximum allocation of stock options represents 39,400 shares to the President, a maximum 9,850 shares per person to executive management and key employees, and maximum 3,940 shares per person to other employees.
          102,136 stock options, representing 201,206 shares, were allocated to employees in 2004. They were issued in four series and at no cost to employees. The stock options vest and become exercisable in one series per year over a four-year period until May 2008. Stock options may vest earlier in certain situations predefined in the terms of the program, such as long-term disability and employment terminated by the employer. Last date for exercise is in April 2011 for all series, provided continued employment. The exercise price is SEK 17.00, 18.70, 20.40 and 22.10 for each series, respectively. Stock options representing 99,525 shares were outstanding in October 2008.
          Ernst & Young has been engaged to carry out a valuation of the stock options allocated. The valuation was made in accordance with IFRS 2 Share-based Payments. The Black-Scholes model for option pricing has been used for the valuation with an anticipated volatility of 50 percent and the share price as of April 30, 2004, which was SEK 23.50. Factual circumstances and expectations relevant to Karo Bio have been considered in accordance with the accounting standard, such as restrictions for exercise, vesting periods and expected life of stock options. Based on the foregoing, the value of the allocated stock options is MSEK 0.4. The valuation serves as the basis for financial reporting in accordance with IFRS effective January 1, 2005.

EFFECT ON FINANCIAL STATEMENTS
The accounting principles for the stock option program are described above.
The cost charged to the income statement in 2007 for Program 2003 amounts to KSEK 34 (70) with a corresponding entry to equity.
          Future exercise of stock options that may occur will have a positive effect on the Company’s financial position, as plan participants shall pay monies to the Company to exercise options in accordance with the exercise price. Additional costs occurring as an effect of the program, consisting primarily of payroll taxes levied upon exercise, will be covered by exercise of the additional warrants held by an external party. There will be no adverse effect on the Company’s financial position from the program, provided that the percentage at which payroll taxes are levied does not change significantly during the remainder of the exercise period.

 INCREASE IN NUMBER OF SHARES
Exercise of all options outstanding under the stock option program would lead to an increase of the number of shares by 0.1 percent, including warrants required to cover payroll taxes. The issued warrants would not imply dilution of earnings per share in 2001–2007, as a conversion to shares would lead to a decrease in the reported loss per share.

ALLOCATION OF STOCK OPTIONS (CORRESPONDING NUMBER OF SHARES)

	2008	2007	2006	2005
Outstanding at January 1	305,629	303,556	315,929	298,838
Allocated	-	-	-	-
Effect from new share issue	-	54,200	-	127,944
Exercised	-	-	-	-
Forfeited	- 203,340	- 52,127	- 12,373	- 110,853
Outstanding at December 31	99,525	305,629	303,556	315,929
Vested	99,525	279,515	215,342	217,905

                                                                        
WEIGHTED AVERAGE EXERCISE PRICE FOR STOCK OPTIONS, SEK

	2007	2006	2005
Outstanding at the beginning of the year	97	114	123
Effect from new share issue	96	-	123
Forfeited during the year	94	118	149
Exercised during the year	-	-	-
Outstanding at the end of the year	97	114	114
Exercisable at the end of the year	104	137	154

          The weighted average remaining period for stock options outstanding at year-end was 1.6 years (2.6) with exercise prices ranging from SEK 17.00 to 151.40.