SkyWest Airlines 2003 Annual Report Download - page 48

(5) Capital Transactions
Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred stock in one or more series without shareholder approval. No
shares of preferred stock are presently outstanding. The Board of Directors is authorized, without any further action by the
stockholders of the Company, to (i) divide the preferred stock into series; (ii) designate each such series; (iii) fix and determine
dividend rights; (iv) determine the price, terms and conditions on which shares of preferred stock may be redeemed; (v) determine
the amount payable to holders of preferred stock in the event of voluntary or involuntary liquidation; (vi) determine any sinking
fund provisions; and (vii) establish any conversion privileges.
Stock Options
In August 2000, the Company’s shareholders approved the adoption of two new stock option plans: the Executive Stock Incentive
Plan (the “Executive Plan”) and the 2001 Allshare Stock Option Plan (the “Allshare Plan”). Both plans became effective January
1, 2001. These plans replaced the Company’s Combined Incentive and Non-Statutory Stock Option Plans (the “Prior Plans”);
however, all outstanding options under Prior Plans remain outstanding. No further grants will be made under the Prior Plans. As
of December 31, 2003, there were approximately 1,468,000 options outstanding under the Prior Plans. The Executive Plan
provides for the issuance of options to purchase up to 4,000,000 shares of common stock to officers, directors and other
management employees of which 1,736,794 options had been issued as of December 31, 2003. The Allshare Plan provides for the
issuance of options to purchase up to 4,000,000 shares of common stock to employees of which 1,500,000 options had been
issued as of December 31, 2003. The Executive Plan and Allshare Plan are both administered by the Compensation Committee of
the Company’s Board of Directors (the “Compensation Committee”) who designate option grants as either incentive or non-
statutory. Incentive stock options are granted at not less than 100% of the market value of the underlying common stock on the
date of grant. Non-statutory stock options are granted at a price as determined by the Compensation Committee.
The fair value of stock options was estimated at the grant date using the Black-Scholes option pricing model. The following table
shows the assumptions used for grants in the years ended December 31, 2003, 2002 and 2001.
2003 2002 2001
Expected annual dividend rate 0.76% 0.31% 0.31%
Risk-free interest rate 2.56% 3.91% 4.49%
Average expected life (years) 4 4 4
Expected volatility of common stock 0.603 0.584 0.585
Options are exercisable for a period as defined by the Compensation Committee at the date granted; however, no stock option will
be exercisable before six months have elapsed from the date it is granted and no incentive stock option shall be exercisable after
ten years from the date of grant. The following table summarizes the stock option activity for all plans for the years ended
December 31, 2003, 2002 and 2001:
2003
2002 2001
Number of
Options
Weighted
Average
Price
Number of
Options
Weighted
Average
Price
Number of
Options
Weighted
Average
Price
Outstanding at beginning of year 3,679,925 $ 21.70 3,028,534 $ 18.66 2,864,434 $ 12.39
Granted 1,116,915 10.57 1,073,968 26.24 1,045,911 25.95
Exercised (24,396) 11.97 (389,260) 11.15 (874,550) 7.72
Canceled (82,322) 21.20 (33,317) 22.54 (7,261) 11.97
Outstanding at end of year 4,690,122 19.27 3,679,925 21.70 3,028,534 18.66
Weighted average fair value of
options granted during the year 4.85 12.46 12.51
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