United Airlines 2012 Annual Report Download - page 100

Table of Contents
Merger Impacts - Continental Predecessor Share-Based Awards. Prior to completion of the Merger, Continental had outstanding stock options, non-employee
director restricted stock awards and performance compensation awards (profit based RSUs) that were issued pursuant to its incentive compensation plans.
Under the terms of Continental’s incentive plans, substantially all of the outstanding equity awards fully vested as a result of the Merger. The equity awards
were assumed and issued by UAL using a 1.05 conversion rate and had a fair value of approximately $78 million at the Merger closing date which was
included in the acquisition cost. In addition, as a result of the Merger, the performance criteria related to the profit based RSUs (“PBRSUs”) was deemed to be
achieved for each open performance period (the three-year periods beginning January 1, 2008, 2009 and 2010) at a payment percentage of 150% and the
minimum cash balance requirement was deemed satisfied. Following the Merger closing date, with limited exceptions as described below, payments under all
outstanding PBRSUs remain subject to continued employment by the participant and will continue to be paid on their normal payment date over a three-year
period. The PBRSUs were converted into a fixed cash equivalent based on a stock price of $23.48, the average closing price per share of Continental common
stock for the 20 trading days preceding the completion of the Merger.
Merger Impacts - United Share-Based Awards. In May 2010, the UAL Board of Directors made a determination that the Merger should be considered a change
of control for purposes of all outstanding awards. Accordingly, upon the completion of the Merger on October 1, 2010, eligible outstanding equity-based
awards immediately vested except for certain officer awards that are subject to separate agreements, as discussed below. In September 2010, the Human
Resources Subcommittee of the UAL Board of Directors elected to settle all eligible RSUs in cash. As a result, participants received $23.66 in exchange for
each share unit, based on the closing price of UAL stock on the day prior to the Merger closing. The cash payment to settle these awards was $18 million and
was paid during the fourth quarter of 2010.
Certain officers entered into separate agreements with the Company pursuant to which they agreed to waive the provisions providing for accelerated vesting
upon the change of control. As part of the agreements, the outstanding restricted stock awards and RSUs were converted into fixed cash equivalents based on a
stock price of $22.33 per share, UAL’s average closing share price for the preceding 20 days prior to the closing of the Merger. Following the Merger, with
limited exceptions as described below, the payment of these awards remains subject to continued employment by the participant and will be paid on the
original vesting dates. Upon termination of employment under certain circumstances following the Merger, the participant is entitled to a cash settlement. In the
fourth quarter of 2010, UAL paid $19 million in cash for settlement of these awards in connection with Merger-related terminations.
Stock Options. The Company has not granted any stock options since 2010. Historically, stock options were awarded with exercise prices equal to the fair
market value of UAL’s common stock on the date of grant. UAL stock options generally vest over a period of either three or four years and have a contractual
life of 10 years. The Continental Predecessor stock options generally have an original contractual life of five years (management level employee options) or 10
years (outside directors). Expense related to each portion of an option grant is recognized on a straight-line basis over the specific vesting period for those
options.
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