SkyWest Airlines 2005 Annual Report Download - page 64

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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, 2005, there were approximately 940,000 employee 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 3,696,477 options had been issued as of December 31, 2005. The Allshare Plan
provides for the issuance of options to purchase up to 4,000,000 shares of common stock to employees of the Company, of which
2,508,961 options had been issued as of December 31, 2005. 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, 2005, 2004 and 2003.
2005 2004 2003
Expected annual dividend rate 0.70% 0.63% 0.76%
Risk-free interest rate 3.87% 2.75% 2.56%
Average expected life (years) 6 4 4
Expected volatility of common stock 0.391 0.422 0.603
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, 2005, 2004 and 2003:
2005
2004 2003
Number of
Options
Weighted
Average
Price
Number of
Options
Weighted
Average
Price
Number of
Options
Weighted
Average
Price
Outstanding at beginning of year 5,531,101 $ 19.39 4,690,122 $ 19.27 3,679,925 $ 21.70
Granted 1,826,050 17.11 1,134,812 19.18 1,116,915 10.57
Exercised (891,292) 21.71 (207,755) 12.12 (24,396) 11.97
Canceled (164,857) 17.58 (86,078) 18.31 (82,322) 21.20
Outstanding at end of year 6,301,002 18.38 5,531,101 19.39 4,690,122 19.27
Weighted average fair value of
options granted during the year $ 7.04 $ 6.66 $ 4.85