Annual report and accounts 2008

Notes contents

Notes to the consolidated financial statements
As of December 31, 2008, 2007 and 2006

22.Share based compensation

Share options

Up until May 30, 2006, share options were granted to directors, senior executives, officers and selected employees. The exercise price of the granted options was equal to or higher than the market price of the shares on the date of grant. The options were conditional on the employee or Director completing one to five years service (the vesting period). The options were exercisable starting from one year to five years from the grant date. The options have a contractual option term of six years from the grant date for employees and of twenty years for directors (amended in 2005). Share options grants for directors prior to 2005 had an indefinite life. Shares issued when share options are exercised have the same rights as common shares.

The following table summarizes information about share options outstanding at December 31, 2008. The market price of the Company's shares as at December 31, 2008 was $44.91 (2007: $117.94).

Share options outstanding at the end of the year have the following expiry date and exercise prices:

The following table summarizes the Company's share options as of December 31, 2008, 2007 and 2006, and changes during the years then ended:

• (i)In 2006, former directors who continue to be employed by related parties of Millicom requested to exercise options that were deemed to be forfeited in prior years. Upon investigation, it was determined that the options should not have been forfeited. Consequently, all exercisable options granted to former directors who continue to be employed by related parties are presented in these financial statements. This has no effect on share based compensation in the financial statements as at December 31, 2006 and 2005 as the options were granted prior the adoption of IFRS 2—Share based payment.

The range of fair value of options granted determined using option pricing models was $6.30 to $8.31 for 2006. The significant inputs into the model were share price of $19.21 for 2006 at the grant date, exercise price as disclosed above, expected exercise date based on previous exercise behavior for employees and for directors between 1 and 20 years, option contractual term as previously disclosed, annual risk-free interest rate of 3.74% for 2006 and expected share price volatility of 46.5% for 2006 based on statistical analysis of daily share prices over the last 2 years amended for the change in the debt levels of the Company over the same period of time. No new options were granted in 2008 and 2007.

In May 2006 at the Annual General Meeting, it was agreed to accelerate the vesting period for share options held by the directors from three years to one year to correspond to the directors' one-year term in office. It was also agreed to change the term of the share options so that they no longer expire when a director is no longer a member of the board. In addition, the directors entered into an agreement with Millicom, whereby if Millicom is subject to a change of control the directors' share options will vest immediately and the restricted shares will become unrestricted upon the change of control.

For the year ended December 31, 2008 Millicom recorded a charge of $1 million (2007: $1 million; 2006: $3 million) related to share options.

Restricted share grants

Starting on May 30, 2006, the grant of options was replaced by the grant of restricted shares whereby these shares cannot be sold or transferred for 12 months. Grants to directors and employees in 2008 were as follows:

Grants to directors and employees in 2007 were as follows:

Compensation expense for the total number of shares awarded in 2008 to directors was measured on the grant dates, the date of the Annual General Meeting of Shareholders on May 27, 2008 and on May 29, 2007, using Millicom's closing share price as quoted on the NASDAQ National Market on that dates.

Compensation expense for the total number of shares awarded to employees was measured on the grant date, the date the employees were notified of their individual share allocations on April 4, 2007, using Millicom's closing share price as quoted on the NASDAQ National Market on that date. The shares are subject to a restriction of a one-year holding period. As the shares related to services provided in 2006, they vested immediately on the grant date.

Long term incentive plans

In May 2006 at the Annual General Meeting a long term incentive plan (“2006 LTIP”) was approved although the terms and conditions of the plan were not finalized until 2007. This long term incentive plan was based on a target share award granted to eligible Millicom employees, limited to Millicom senior level employees, key high potential employees and certain critical new recruits. The shares granted are subject to a one-year holding period once the shares are vested.

The shares awarded under the 2006 LTIP will vest at the end of a three year period, subject to specified market and performance conditions related to Millicom's share price growth compared to a peer group index, revenue growth, EBITDA margin, and profit margin. The achievement of a certain level of each condition, measured at the end of the three years, yields a specific percentage of shares awarded to each employee at the grant date.

The plan has been designed so that the shares normally vest at the end of the three-year performance period. However, for the performance period from 2006 through 2008 only, the shares granted vest 20% on December 31, 2006, 20% on December 31, 2007 and 60% on December 31, 2008. In addition at the end of the third-year performance period there was an additional 32% of shares that vested, because performance targets relating to Millicom's share price growth compared to a peer group index, revenue growth, EBITDA margin, and profit margin were achieved.

The total charge for the above plan was $23 million which was recorded over the service period.

Long term incentive awards for 2008 (“2008 LTIP”) and 2007 (“2007 LTIP”) were approved by the Board on December 4 and on March 15, 2007. These plans consist of two elements: performance share plan and a matching share award plan.

The shares awarded under the performance share plan will vest at the end of a three year period, subject to performance conditions related to Millicom’s “earnings per share”. The achievement of a certain level of each condition, measured at the end of the three years, yields a specific percentage of shares awarded to each employee at the grant date.

The matching share award plan requires employees to invest in shares of the Group in order to receive potential matching shares. The shares awarded under this plan vest at the end of a three year period, subject to market conditions that are based on the “total shareholder return” (“TSR”) of Millicom’s shares compared to the TSR of five similar mobile telephony companies during the three-year period of the plan. A fair value has been determined for potential shares under this plan based on this market condition and this value is applied to the total potential number of matching shares and will be expensed over the vesting period. Under the matching share award plan rules, Millicom issued 9,344 new shares on June 16, 2008 and 9,214 new shares on June 22, 2007 which were purchased by employees at fair market value.

As at December 31, 2008, the total charge for the above plans was estimated at $13 million for the 2008 LTIP and at $15 million for the 2007 LTIP, both to be recorded over the service periods.

The number of share awards under the long term incentive plans is as follows:

Bonus shares

A charge of $1 million was recorded in 2008 (2007 and 2006: nil) as bonus shares.

Total share based compensation expense

Total share-based compensation for years ended December 31, 2008, 2007 and 2006 was as follows: