Air Canada 2010 Annual Report Download - page 119

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Consolidated Financial Statements and Notes
119
10. STOCK-BASED COMPENSATION
Air Canada Long-Term Incentive Plan
Certain of the Corporation’s employees participate in the Air Canada Long-term Incentive Plan (the “Long-term Incentive
Plan”). The Long-term Incentive Plan provides for the grant of options and performance share units to senior management
and officers of Air Canada. 19,470,294 shares are authorized for issuance under the Long-term Incentive Plan in respect of
either of stock options or performance share units.
The options to purchase shares granted under the Long-term Incentive Plan have a maximum term of 10 years and an
exercise price based on the fair market value of the shares at the time of the grant of the options. Fifty percent of all
options vest over four years. The remaining options will vest based upon performance conditions. The performance vesting
conditions are based on operating margin (operating income over operating revenues) and net income targets established
by the Air Canada Board over the same time period. The terms of the Long-term Incentive Plan specify that upon the
retirement of the employee, options granted may be exercised as the rights to exercise accrue within three years from the
retirement date.
The number of Air Canada stock options granted to employees, the related compensation expense recorded and the
assumptions used to determine stock-based compensation expense, using the Black-Scholes option valuation model are as
follows:
 2010 2009
Compensation expense ($ millions) $ 1 $ 2
Number of stock options granted to Air Canada employees 50,000 2,330,000
Weighted average fair value per option granted ($) $ 1.06 $ 1.06
Aggregated fair value of options granted ($ millions) $ - $ 2
Weighted average assumptions:
Risk-free interest rate 2.55 - 3.23 % 1.73 - 3.14 %
Expected volatility 80.0 - 83.6 % 83.0 - 84.7 %
Dividend yield 0 % 0 %
Expected option life (years) 4.50 4.50
A summary of the Long-term Incentive Plan option activity is as follows:
2010 2009
Options
Weighted
Average Exercise
Price/Share Options
Weighted
Average Exercise
Price/Share
Beginning of year 3,963,474 $ 8.66 1,701,447 $ 19.14
Granted 50,000 1.85 2,330,000 1.32
Exercised (5,625) 1.59 - -
Forfeited (719,918) 19.63 (67,973) 19.44
Outstanding options, end of year 3,287,931 $ 6.17 3,963,474 $ 8.66
Options exercisable, end of year 1,038,986 $ 14.42 551,544 $ 19.60