United Airlines 2012 Annual Report Download - page 103

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Continental 2005 Broad Based Employee Stock Option Plan, which vested over three years and have a term of six years, were already fully vested on the
Merger closing date. Outstanding stock options granted under the Continental Incentive Plan 2000, the Continental 1998 Stock Incentive Plan, and the
Continental 1997 Stock Incentive Plan became exercisable in full upon the closing of the Merger. Outstanding stock options granted under the Continental
Incentive Plan 2010 vest on their original vesting schedule or earlier if the holder experiences an involuntary termination within two years of the Merger closing
date.
The table below summarizes stock option transactions pursuant to Continental plans for Continental Predecessor activity for the nine months ended
September 30, 2010 (shares in thousands):












Outstanding at January 1, 2010 8,114 $ 16.08
Granted 654 23.83
Exercised (1,652) 11.92 $ 18
Surrendered (92) 29.59
Outstanding at September 30, 2010 7,024 17.60 2.0 61
The following table provides additional information for options granted by Continental Predecessor in 2010.
 
Risk-free interest rate 1.4%
Dividend yield —%
Expected market price volatility of Continental common stock 88%
Expected life of options (years) 3.8
Weighted-average fair value $14.55
The Black-Scholes-Merton option-pricing model was used to value the options at the grant date. The risk-free interest rate was based on the U.S. Treasury
yield curve in effect for the expected term of the option at the time of grant. The dividend yield on Continental common stock was assumed to be zero since
Continental historically had not paid dividends. The market price volatility of Continental common stock was based on the historical volatility of the common
stock over a time period equal to the expected term of the option and ending on the grant date. The expected life of the options was based on Continental’s
historical experience for various work groups. Expense was recognized only for those option awards expected to vest, using an estimated forfeiture rate based
on historical experience.
Profit Based RSU Awards. See , above, for a discussion of the impact of the Merger on
PBRSU awards. Continental issued PBRSU awards pursuant to its long-term incentive and RSU programs, which provided for cash payments to
Continental’s officers upon the achievement of specified profit sharing-based performance targets. The performance targets required that Continental reach
target levels of cumulative employee profit sharing during the performance period and that Continental had net income calculated in accordance with GAAP for
the applicable fiscal year in which the cumulative profit sharing target was met. To serve as a retention feature, payments related to the achievement of a
performance target generally were made in annual increments over a three-year period to participants who remain continuously employed by Continental
through each payment date. Payments also were conditioned on Continental having, at the end of the fiscal year preceding the date any payment was made, a
minimum unrestricted cash, cash equivalents and short-term investments balance as set by the Human Resources Committee of Continental’s Board of
Directors. If Continental did not achieve the minimum cash balance
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