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a) Long Term Incentive Plans (LTIP)
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 18th December 2006 meeting, the Board of Directors of the Company, using the authorisation given to it by the shareholders’ meeting of 4th 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 2007, compensation expense for Stock Option Plans was recognised for an amount of €39 million (in 2006: €40 million). For the 613,519 options execised during the year 2007, the average share price at the date of exercise has been €23.88.
At its 7th December 2007 meeting, the Board of Directors of the Company approved the granting of performance units and restricted units in the Company. The grant of so called “units” will not physically be settled in shares but represents a cash settled plan in accordance with IFRS 2.
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The fair value of units granted per vesting date is as follows:
|
In € (per unit granted) |
FV of restricted units to be settled in cash |
FV of performance units to be settled in cash |
|
|
|
|
|
May 2011 |
21.03 |
21.03 |
|
November 2011 |
20.93 |
20.93 |
|
May 2012 |
20.84 |
20.84 |
|
November 2012 |
20.74 |
20.74 |
The following major input parameters where used in order to calculate the fair value of the stock options granted:
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|
Input parameters for the Black Scholes Option Pricing Model |
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|
|
LTIP 2006 |
LTIP 2005 | ||||
|
|
|
| ||||
|
Share price (€) |
25.34 |
32.79 | ||||
|
Exercise price (€) |
25.65(1) |
33.91 | ||||
|
Risk-free interest rate (%)(2) |
4.13 |
3.24 | ||||
|
Expected volatility (%) |
30.7 |
24.8 | ||||
|
Estimated Life (years) |
5.5 |
5.5 | ||||
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 measurement purposes performance criteria are considered to be met.
The estimated option life of 5.5 years (in 2006 and 2005) was based on historical experience and incorporated the effect of expected early exercises.
The lifetime of the performance and restricted units (2007) is contractually fixed (see table below). The measurement is based on the share price as of the balance sheet date (€21.83 as of 31st December 2007) from which the present value of the expected dividend payments is deducted.
The principal characteristics of the options, performance and restricted shares as well as performance and restricted units as at 31st December 2007 are summarised in the various tables below:
| ||||
|
|
First tranche |
Second tranche | ||
|
|
|
| ||
|
Date of shareholders’ meeting |
24th May 2000 |
24th May 2000 | ||
|
Date of Board of Directors meeting (grant date) |
26th May 2000 |
20th October 2000 | ||
|
Number of options granted |
5,324,884 |
240,000 | ||
|
Number of options outstanding |
1,671,380 |
32,000 | ||
|
Total number of eligible employees |
850 |
34 | ||
|
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 |
8th July 2010 |
8th July 2010 | ||
|
Conversion right |
One option for one share |
One option for one share | ||
|
Vested |
100% |
100% | ||
|
Exercise price |
€20.90 |
€20.90 | ||
|
Exercise price conditions |
110% of fair market value of the shares at the date of grant | |||
|
Number of exercised options |
2,892,020 |
188,000 | ||
|
|
|
| ||
|
|
Third tranche |
Fourth tranche | ||
|
Date of shareholders’ meeting |
10th May 2001 |
10th May 2001 | ||
|
Date of Board of Directors meeting (grant date) |
12th July 2001 |
9th August 2002 | ||
|
Number of options granted |
8,524,250 |
7,276,700 | ||
|
Number of options outstanding |
3,773,169 |
2,706,434 | ||
|
Total number of eligible employees |
1,650 |
1,562 | ||
|
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 |
12th July 2011 |
8th August 2012 | ||
|
Conversion right |
One option for one share | |||
|
Vested |
100% |
100% | ||
|
Exercise price |
€24.66 |
€16.96 | ||
|
Exercise price conditions |
110% of fair market value of the shares at the date of grant | |||
|
Number of exercised options |
3,492,831 |
4,305,066 | ||
|
|
|
| ||
|
|
Fifth tranche |
Sixth tranche | ||
|
Date of shareholders’ meeting |
6th May 2003 |
6th May 2003 | ||
|
Date of Board of Directors meeting (grant date) |
10th October 2003 |
8th October 2004 | ||
|
Number of options granted |
7,563,980 |
7,777,280 | ||
|
Number of options outstanding |
4,818,873 |
6,240,986(1) | ||
|
Total number of eligible employees |
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”). | |||
|
Expiry date |
9th October 2013 |
7th October 2014 | ||
|
Conversion right |
One option for one share | |||
|
Vested |
100% |
100%(1) | ||
|
Exercise price |
€15.65 |
€24.32 | ||
|
Exercice price conditions |
110% of fair market value of the shares at the date of grant | |||
|
Number of exercised options |
2,503,423 |
2,400 | ||
|
|
|
|
|
|
Seventh tranche | |
|
Date of shareholders’ meeting |
|
11th May 2005 |
|
Date of Board of Directors meeting (grant date) |
|
9th December 2005 |
|
Number of options granted |
|
7,981,760 |
|
Number of options outstanding |
|
7,764,940 |
|
Total number of eligible beneficiaries |
|
1,608 |
|
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 |
|
8th December 2015 |
|
Conversion right |
|
One option for one share |
|
Vested |
|
50% |
|
Exercise price |
|
€33.91 |
|
Exercice price conditions |
110% of fair market value of the shares at the date of grant | |
|
Number of exercised options |
|
0 |
|
|
|
|
|
|
Eighth tranche | |
|
Date of shareholders’ meeting |
|
4th May 2006 |
|
Date of Board of Directors meeting (grant date) |
|
18th December 2006 |
|
|
Stock option plan | |
|
Number of options granted |
|
1,747,500 |
|
Number of options outstanding |
|
1,742,000 |
|
Total number of eligible beneficiaries |
|
221 |
|
Date from which the options may be exercised |
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”) | |
|
Date of expiration |
|
16th December 2016 |
|
Conversion right |
|
One option for one share |
|
Vested |
|
0% |
|
Exercice price |
|
€25.65 |
|
Exercice price conditions |
110% of fair market value of the shares at the date of grant | |
|
Number of exercised options |
|
0 |
|
|
Performance and restricted shares plan | |
|
|
Performance shares |
Restricted shares |
|
Number of shares granted |
1,344,625 |
391,300 |
|
Number of shares outstanding |
1,328,375 |
386,750 |
|
Total number of eligible beneficiaries |
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. | |
|
Number of vested shares |
875,00 |
0 |
|
|
|
|
|
|
Ninth tranche | |
|
Date of Board of Directors meeting (grant date) |
7th December 2007 | |
|
|
Performance and restricted unit plan | |
|
|
Performance units |
Restricted units |
|
Number of units granted |
1,693,940 |
506,060 |
|
Total number of eligible beneficiaries |
1,617 | |
|
Vesting dates |
The performance and restricted units will vest if the participant is still employed by an EADS company at the respective vesting dates and, in the case of performance units, upon achievement of mid-term business performance. Vesting schedule is made up of 4 payments over 2 years: | |
|
|
• 25% expected in May 2011; | |
The following table summarises the development of the number of stock options:
|
First & Second Tranches |
Number of Options | ||||
|
|
Options granted |
Balance at |
Exercised |
Forfeited |
Balance at |
|
|
|
|
|
|
|
|
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 |
|
2007 |
- |
1,775,489 |
(35,109) |
(37,000) |
1,703,380 |
|
|
|
|
|
|
|
|
Third Tranche |
Number of Options | ||||
|
|
Options granted |
Balance at |
Exercised |
Forfeited |
Balance at |
|
|
|
|
|
|
|
|
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 |
|
2007 |
- |
3,856,519 |
(2,000) |
(81,350) |
3,773,169 |
|
|
|
|
|
|
|
|
Fourth Tranche |
Number of Options | ||||
|
|
Options granted |
Balance at |
Exercised |
Forfeited |
Balance at |
|
|
|
|
|
|
|
|
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 |
|
2007 |
- |
2,911,916 |
(189,532) |
(15,950) |
2,706,434 |
|
|
|
|
|
|
|
|
Fifth Tranche |
Number of Options | ||||
|
|
Options granted |
Balance at |
Exercised |
Forfeited |
Balance at |
|
|
|
|
|
|
|
|
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 |
|
2007 |
- |
5,229,965 |
(386,878) |
(24,214) |
4,818,873 |
|
|
|
|
|
|
|
|
Sixth Tranche |
Number of Options | ||||
|
|
Options granted |
Balance at |
Exercised |
Forfeited |
Balance at |
|
|
|
|
|
|
|
|
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 |
|
2007 |
- |
7,599,700 |
- |
(1,358,714) |
6,240,986 |
|
|
|
|
|
|
|
|
Seventh Tranche |
Number of Options | ||||
|
|
Options granted |
Balance at |
Exercised |
Forfeited |
Balance at |
|
|
|
|
|
|
|
|
2005 |
7,981,760 |
- |
- |
- |
7,981,760 |
|
2006 |
- |
7,981,760 |
- |
(74,160) |
7,907,600 |
|
2007 |
- |
7,907,600 |
- |
(142,660) |
7,764,940 |
|
|
|
|
|
|
|
|
Eighth Tranche |
Number of Options | ||||
|
|
Options granted |
Balance at |
Exercised |
Forfeited |
Balance at |
|
|
|
|
|
|
|
|
2006 |
1,747,500 |
- |
- |
- |
1,747,500 |
|
2007 |
- |
1,747,500 |
- |
(5,500) |
1,742,000 |
|
|
|
|
|
|
|
|
Total options |
46,436,354 |
- |
(13,383,740) |
(4,302,832) |
28,749,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance/restricted shares plan 2006 |
Number of Shares | ||||
|
Shares granted |
Balance at |
Vested |
Forfeited |
Balance at | |
|
|
|
|
|
|
|
|
Performance shares in 2006 |
1,344,625 |
- |
- |
- |
1,344,625 |
|
Performance shares in 2007 |
- |
1,344,625 |
(875) |
(15,375) |
1,328,375 |
|
Restricted shares in 2006 |
391,300 |
- |
- |
- |
391,300 |
|
Restricted shares in 2007 |
- |
391,300 |
- |
(4,550) |
386,750 |
|
Total shares |
1,735,925 |
1,735,925 |
(875) |
(19,925) |
1,715,125 |
|
|
|
|
|
|
|
|
Ninth Tranche |
Number of Units | ||||
|
|
Units granted |
Balance at |
Vested |
Forfeited |
Balance at |
|
|
|
|
|
|
|
|
Performance units in 2007 |
1,693,940 |
- |
- |
- |
1,693,940 |
|
Restricted units in 2007 |
506,060 |
- |
- |
- |
506,060 |
|
Total units |
2,200,000 |
- |
- |
- |
2,200,000 |
b) Employee Stock Ownership Plan (ESOP)
In 2007, the Board of Directors approved an additional ESOP following six ESOPs established in 2005, 2004, 2003, 2002, 2001 and in 2000. For the 2007 ESOP, eligible employees were able to purchase a maximum of 500 shares per employee of previously unissued shares. The offer was broken down into two tranches which were available for all employees to choose. The subscription price for tranche A was €17.16. The subscription price for tranche B was the highest of the subscription price for tranche A or 80% of the average opening market prices for EADS shares on the Paris stock exchange over the twenty trading days preceding 14th May 2007, resulting in a subscription price of €19.62.
During a lockup period of at least one year under tranche A or five years under tranche B, employees are restricted from selling the shares, but have the right to receive all dividends paid. Employees who subscribed to tranche A have in addition the ability to vote at the annual shareholder meetings. EADS issued and sold 2,037,835 ordinary shares with a nominal value of €1.00 under both tranches. Compensation expense of €9 million was recognised in connection with the ESOP 2007. In 2006, no ESOP was issued by the Company. Consequently, no compensation expense was recognised in 2006 in connection with the ESOP programme.
