EADS Annual Report and Registration Document 2006

Long Term Incentive Plans
Employee Stock Ownership Plan (ESOP

a) Long Term Incentive Plans

Based on the authorisation given to it by the shareholders’ meetings (see dates below), the Group’s Board of Directors approved (see dates below) stock option plans in 2006, 2005, 2004, 2003, 2002, 2001 and 2000. These plans provide to the members of the Executive Committee as well as to the Group’s senior management the grant of options for the purchase of EADS shares. At its 18^th, December 2006 meeting, the Board of Directors of the Company, using the authorisation given to it by the shareholders’ meeting of 4^th, May 2006 approved the granting of performance shares and restricted shares to eligible employees of the Company.

For the 2006 Stock Option Plan, analogous to all of EADS’ previous existing stock option plans, the granted exercise price was exceeding the share price at grant date.

In 2006, compensation expense for Stock Option Plans was recognised for an amount of 40 M € (2005: 24 M €).

The fair value of one option granted under the 8^th tranche amounts to €8.37, the fair value of one performance and restricted shares amounts to €24.26 as of grant date, respectively.

The following major input parameters where used in order to calculate the fair value of the stock options granted:

Input parameters for the Black Scholes Option Pricing Model		Download Excel
	SOP 2006	SOP 2005	SOP 2004

Share price (€)	25.34	32.79	22.83
Exercise price (€)⁽¹⁾	25.65	33.91	24.32
Risk-free interest rate (%)⁽²⁾	4.13	3.24	3.35
Expected volatility (%)	30.7	24.8	27.0
Estimated option life (years)	5.5	5.5	5.5

(1)	The exercise price for the performance and restricted shares are 0 €.
(2)	The risk-free interest rate is based on a 5 years zero coupon yield curve.

EADS uses the historical volatilities of its share price as an indicator to estimate the volatility of its stock options granted. To test whether those historical volatilities sufficiently approximate expected future volatilities, they are compared to the implied volatilities of EADS options, which are traded at the market as of grant date. Such options typically have a shorter life of up to two years. In case of only minor differences between the historical volatilities and the implied volatilities, EADS uses historical volatilities as input parameters to the Black Scholes Option Pricing Model (please refer to Note 2 “Summary of significant accounting policies”). For valuation purposes performance criteria are considered to be met.

The estimated option life of 5.5 years is based on historical experience and incorporates the effect of expected early exercises.

The principal characteristics of these options, performance and restricted shares as at 31^st, December 2006 are summarised in the tables below:

Download Excel

	First Tranche	Second Tranche	Third Tranche
Date of shareholders’ meeting	May 24^th, 2000	May 24^th, 2000	May 10^th, 2001
Date of Board of Directors meeting (grant date)	May 26^th, 2000	October 26^th, 2000	July 12^th, 2001
Number of options granted	5,324,884	240,000	8,524,250
Number of options outstanding	1,743,489	32,000	3,856,519
Total number of eligible employees	850	34	1,650
Exercise date	50% of options may be exercised after a period of two years and four weeks from the date of grant of the options; 50% of options may be exercised as of the third anniversary of the date of grant of the options (subject to specific provisions contained in the Insider Trading Rules - see “Part 2/3.1.3 Governing Law - Dutch Regulations”.
Expiry date	July 8^th, 2010	July 8^th, 2010	July 12^th, 2011
Conversion right	One option for one share
Vested	100%	100%	100%
Exercise price	Euro 20.90	Euro 20.90	Euro 24.66
Exercise price conditions	110% of fair market value of the shares at the date of grant	110% of fair market value of the shares at the date of grant	110% of fair market value of the shares at the date of grant
Number of exercised options	2,856,911	188,000	3,490,831

	Fourth Tranche	Fifth Tranche	Sixth Tranche
Date of shareholders’ meeting	May 10^th, 2001	May 6^th, 2003	May 6^th, 2003
Date of Board of Directors meeting (grant date)	August 9^th, 2002	October 10^th, 2003	October 8^th, 2004
Number of options granted	7,276,700	7,563,980	7,777,280
Number of options outstanding	2,911,916	5,229,965	7,599,700
Total number of eligible employees	1,562	1,491	1,495
Exercise date	50% of options may be exercised after a period of two years and four weeks from the date of grant of the options; 50% of options may be exercised as of the third anniversary of the date of grant of the options (subject to specific provisions contained in the Insider Trading Rules - see “Part 2/3.1.3 Governing Law - Dutch Regulations”). As regards to the sixth tranche, part of the options granted to the top EADS Executives are performance related.
Expiry date	August 8^th, 2012	October 9^th, 2013	October 7^th, 2014
Conversion right	One option for one share
Vested	100%	100%	50%
Exercise price	Euro 16.96	Euro 15.65	Euro 24.32
Exercise price conditions	110% of fair market value of the shares at the date of grant	110% of fair market value of the shares at the date of grant	110% of fair market value of the shares at the date of grant
Number of exercised options	4,115,534	2,116,545	2,400

	Seventh Tranche	Eighth Tranche
Date of shareholders’ meeting	May¹¹th, 2005	May 4^th, 2006
Date of Board of Directors meeting (grant date)	December 9^th, 2005	December 18^th, 2006⁽¹⁾
Number of options granted	7,981,760	1,747,500
Number of options outstanding	7,907,600	1,747,500
Total number of eligible employees	1,608	221
Exercise date	50% of options may be exercised after a period of two years from the date of grant of the options; 50% of options may be exercised as of the third anniversary of the date of grant of the options (subject to specific provisions contained in the Insider Trading Rules - see “Part 2/3.1.3 Governing Law - Dutch Regulations”). As regards to the seventh tranche, part of the options granted to the top EADS Executives are performance related.

Expiry date	December 8^th, 2015	December 16^th, 2016
Conversion right	One option for one share
Vested	0%	0%
Exercise price	Euro 33.91	Euro 25.65
Exercise price conditions	110% of fair market value of the shares at the date of grant	110% of fair market value of the shares at the date of grant
Number of exercised options	0	0

	Eighth Tranche
	Performance share plan	Restricted share plan

Number of shares granted	1,344,625	391,300
Date of Board of Directors meeting (grant date)	December 18^th, 2006⁽¹⁾	December 18^th, 2006⁽¹⁾
Total number of eligible employees	1,637
Vesting date	The performance and restricted shares will vest if the participant is still employed by an EADS company and, in the case of performance shares, upon achievement of mid-term business performance. The vesting period will end at the date of publication of the 2009 annual results, expected in March 2010.

(1)	The eighth tranche was published to the employees up to January 8^th, 2007.

The following table summarises the development of the number of stock options:

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First & Second Tranches	Number of Options
	Options granted	Balance at January 1	Exercised	Forfeited	Balance at December 31

2000	5,564,884	-	-	(189,484)	5,375,400
2001	-	5,375,400	-	-	5,375,400
2002	-	5,375,400	-	-	5,375,400
2003	-	5,375,400	-	(75,000)	5,300,400
2004	-	5,300,400	(90,500)	(336,000)	4,873,900
2005	-	4,873,900	(2,208,169)	(121,000)	2,544,731
2006		2,544,731	(746,242)	(23,000)	1,775,489

Third Tranche	Number of Options
	Options granted	Balance at January 1	Exercised	Forfeited	Balance at December 31

2001	8,524,250	-	-	(597,825)	7,926,425
2002	-	7,926,425	-	-	7,926,425
2003	-	7,926,425	-	(107,700)	7,818,725
2004	-	7,818,725	-	(328,500)	7,490,225
2005	-	7,490,225	(2,069,027)	(132,475)	5,288,723
2006		5,288,723	(1,421,804)	(10,400)	3,856,519

Fourth Tranche	Number of Options
	Options granted	Balance at January 1	Exercised	Forfeited	Balance at December 31

2002	7,276,700	-	-	(600)	7,276,100
2003	-	7,276,100	-	(70,125)	7,205,975
2004	-	7,205,975	(262,647)	(165,500)	6,777,828
2005	-	6,777,828	(2,409,389)	(9,250)	4,359,189
2006		4,359,189	(1,443,498)	(3,775)	2,911,916

Fifth Tranche	Number of Options
	Options granted	Balance at January 1	Exercised	Forfeited	Balance at December 31

2003	7,563,980	-	-	-	7,563,980
2004	-	7,563,980	(9,600)	(97,940)	7,456,440
2005	-	7,456,440	(875,525)	(87,910)	6,493,005
2006		6,493,005	(1,231,420)	(31,620)	5,229,965

Sixth Tranche	Number of Options
	Options granted	Balance at January 1	Exercised	Forfeited	Balance at December 31

2004	7,777,280	-	-	-	7,777,280
2005	-	7,777,280	-	(78,220)	7,699,060
2006		7,699,060	(2,400)	(96,960)	7,599,700

Seventh Tranche	Number of Options
	Options granted	Balance at January 1	Exercised	Forfeited	Balance at December 31

2005	7,981,760	-	-	-	7,981,760
2006		7,981,760	-	(74,160)	7,907,600

Eighth Tranche	Number of Options
	Options granted	Balance at January 1	Exercised	Forfeited	Balance at December 31

2006	1,747,500	-	-	-	1,747,500

Total options for all Tranches	46,436,354	-	(12,770,221)	(2,637,444)	31,028,689


Performance/ restricted shares plan	Number of Shares
Performance/ restricted shares plan	Shares granted	Balance at January 1	Vested	Forfeited	Balance at December 31

Performance shares in 2006	1,344,625	-	-	-	1,344,625
Restricted shares in 2006	391,300	-	-	-	391,300
Total shares	1,735,925	-	-	-	1,735,925

b) Employee Stock Ownership Plan (ESOP)

In 2006, no ESOP was issued by the company. Therefore, no compensation expense was recognised in 2006 (2005: 9 M €) in connection with the ESOPs.

Notes (IFRS)

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31. Share-Based Payment

a) Long Term Incentive Plans

b) Employee Stock Ownership Plan (ESOP)