Notes to the Consolidated Financial Statements
Years ended December 31, 2008 and 2007 (In thousands of dollars, except per share amounts)
17. Share option plan:
The Company established a share option plan in 2002, the year of its initial public offering. All employees of the Company and those of its designated subsidiaries at or above the director level are eligible to be granted share options under the share option plan.
On May 1, 2008, in connection with the acquisition of MX, the Company issued share options to holders of MX share options using an exchange ratio of 0.7784 for each MX share option exchanged. The Company issued 162,194 share options (the “replacement options”) in exchange for 208,400 MX share options. The replacement options granted will vest based 50% on the passage of time and 50% on achieving certain performance criteria, if any, as determined by the Human Resources Committee of the Board, over a four year period of time. Only those replacement options not subject to performance criteria have been included in the aggregate purchase price (note 2).
According to the terms of the Company’s plan, under no circumstances may any one person’s share options and all other share compensation arrangements exceed 5% of the outstanding common shares issued of the Company. 4,252,296 common shares of the Company remain reserved for issuance upon exercise of share options granted under the plan, representing approximately 5% of the outstanding common shares of the Company.
The fair value of each share option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in 2008: dividend yield of 2.9% (2007 – 2.52%); expected volatility of 23.6% (2007 – 25%); risk-free interest rate of 4.1% (2007 – 4%) and expected life of 7 years (2007 – 7 years).
Share options granted in 2008 have strike prices in the range of $36.46 to $54.50. Share options granted in 2007 had strike prices in the range of $42.80 to $53.04.
Options granted will expire in 2011, 2012, 2013, 2014 and 2015.
Share options:
| 2008 | 2007 | |||||||
| Weighted | Weighted | |||||||
| Number of share | average | Number of share | average | |||||
| options | exercise price | options | exercise price | |||||
| Outstanding, beginning | ||||||||
| of year | 973,522 | $ | 31.64 | 1,096,650 | $ | 25.17 | ||
| Granted | 526,228 | 44.71 | 219,948 | 52.48 | ||||
| Forfeited | (146,083) | 50.46 | (86,108) | 45.59 | ||||
| Exercised | (331,848) | 20.97 | (256,968) | 17.19 | ||||
| Outstanding, end of year | 1,021,819 | $ | 39.14 | 973,522 | $ | 31.64 | ||
At December 31, 2008, 466,026 options were fully vested and exercisable at strike prices in the range of $10.53 to $54.50. During 2008, the Company recognized compensation costs of $2,473 in relation to its share option plan (2007 – $2,283).
