Stock Option Plan for Executive Officers

The objective of the Stock Option Plan of Bombardier is to reward executives with an incentive to enhance shareholder value by providing them with a form of compensation that is tied to increases in the market value of the Class B subordinate shares.

The granting of stock options is subject to the following rules:

  • the granting of non-assignable options to purchase Class B subordinate shares may not exceed 135,782,688;
  • the annual grant of stock options is made within a 1% dilution limit; and
  • in any given one-year period, any insider or his or her associates may not be issued a number of shares exceeding 5% of all issued and outstanding Class B subordinate shares

The main rules of the Stock Option Plan are as follows:

  • a grant of stock options represents the right to purchase an equal number of Class B subordinate shares of Bombardier at the determined exercise price;
  • the exercise price equals the weighted average trading price of the Class B subordinate shares traded on the TSX on the five trading days immediately preceding the day on which an option is granted;
  • stock options granted prior to June 2009 are conventional options with a term of seven years; they vest at the rate of 25% at the end of the first, second, third and fourth anniversary of the date of grant if the performance vesting criteria is met;
  • the performance criteria for the stock options granted before June 2009 are based on the price of the Bombardier Class B subordinate shares; the weighted average trading price of these shares has to reach the target price established at the time of the grant for at least 21 consecutive trading days in each year following the grant date. If the target price is not reached in a given year, the exercise of the grant is carried forward to the following year at the target price of the following year;
  • stock options granted since June 2009 are conventional time-vested options with a term of seven years vesting at a rate of 100% at the end of the third anniversary of the date of grant; the three-year vesting period was selected to align the vesting rules of the long-term incentive plan to the vesting schedule of the PSU/DSU plans;
  • if the expiration date of an option falls during, or within ten (10) business days following the expiration of a blackout period, such expiration date shall automatically be extended for a period of ten (10) business days following the end of the blackout period; and
  • please refer to the “Termination and Change of Control Provisions” pages for the treatment of stock options in such cases.

In addition, the Stock Option Plan provides that no option or any right in respect thereof shall be transferable or assignable otherwise than by will or pursuant to the laws of succession.

For stock options granted in 2008-2009, the performance vesting condition requires that the target price threshold for Class B subordinate shares reaches $8.00 Cdn. This target price threshold has not yet been attained.

Additional Restrictions of the 2010 DSUP and the Stock Option Plan

Under the terms of the 2010 DSUP and the Stock Option Plan:

  • the total number of Class B subordinate shares issuable from treasury, together with the Class B subordinate shares issuable from treasury under all of the Corporation’s other security based compensation arrangements, at any time, may not exceed 10% of the total issued and outstanding Class B subordinate shares;
  • the total number of Class B subordinate shares issuable from treasury to insiders and their associates, together with the Class B subordinate shares issuable from treasury to insiders and their associates under all of the Corporation’s other security based compensation arrangements, at any time, may not exceed 5% of the total issued and outstanding Class B subordinate shares;
  • the number of Class B subordinate shares issued from treasury to insiders and their associates, together with the Class B subordinate shares issued from treasury to insiders and their associates under all of the Corporation’s other security based compensation arrangements, within any given one-year period, may not exceed 10% of the total issued and outstanding Class B subordinate shares; and
  • a single person cannot hold DSUs covering, or options to acquire, as the case may be, more than 5% of the Class B subordinate shares issued and outstanding; and
  • the total number of stock options issued in the financial year ended December 31, 2014 (being 8,630,184 stock options), as a percentage of the total number of Class A shares and Class B subordinate shares that were issued and outstanding as at December 31, 2014, is 0.49%.

As of March 9, 2015, the status is as follows:

  Plan Issued Issuable under DSUs granted but not vested OR options granted but unexercised Issuable for future DSU OR option grants
Class B subordinate shares Stock Option Plan 43,267,681 (1)
32,308,107
50,824,236 (2)
2010 DSUP 362,191 9,020,473 14,317,336
% of total number of Class A shares and Class B subordinate shares issued and outstanding Stock Option Plan 2.46% 1.84% 2.89%
2010 DSUP 0.02 % 0.51% 0.83%
  1. Including a number of 403,000 shares which were issued pursuant to the exercise of stock options granted under the stock option plan for the benefit of the non-executive directors of Bombardier, which was abolished effective October 1, 2003.
  2. The granting of non-assignable options to purchase Class B subordinate shares may not exceed, taking into account the aggregate number of Class B subordinate shares issuable under any other security based compensation arrangement of the Corporation, 135,782,688.

Right to Amend the Stock Option Plan

The Board may, subject to receiving the required regulatory and stock exchange approvals, amend, suspend or terminate the 2010 DSUP and any DSUs granted thereunder or the Stock Option Plan and any outstanding stock option, as the case may be, without the prior approval of the shareholders of the Corporation; however, no such amendment or termination shall affect the terms and conditions applicable to unexercised stock options previously granted without the consent of the relevant optionees, unless the rights of such optionees shall have been terminated or exercised at the time of the amendment or termination.

Subject to but without limiting the generality of the foregoing, the Board may:

  • wind up, suspend or terminate the 2010 DSUP or the Stock Option Plan:
  • terminate an award granted under the 2010 DSUP or the Stock Option Plan;
  • modify the eligibility for, and limitations on, participation in the 2010 DSUP or the Stock Option Plan;
  • modify periods during which the options may be exercised under the Stock Option Plan;
  • modify the terms on which the awards may be granted, exercised, terminated, cancelled and adjusted and, in the case of stock options only, exercised;
  • amend the provisions of the 2010 DSUP or the Stock Option Plan to comply with applicable laws, the requirements of regulatory authorities or applicable stock exchanges;
  • amend the provisions of the 2010 DSUP or the Stock Option Plan to modify the maximum number of Class B subordinate shares which may be offered for subscription and purchase under the 2010 DSUP or the Stock Option Plan following the declaration of a stock dividend, a subdivision, consolidation, reclassification, or any other change with respect to the Class B subordinate shares;
  • amend the 2010 DSUP or the Stock Option Plan or an award to correct or rectify an ambiguity, a deficient or inapplicable provision, an error or an omission; and
  • amend a provision of the 2010 DSUP or the Stock Option Plan relating to the administration or technical aspects of the plan.

However, notwithstanding the foregoing, the following amendments must be approved by the shareholders of the Corporation:

1.     In the case of the Stock Option Plan or outstanding options:

  • an amendment allowing the issuance of Class B subordinate shares to an optionee without the payment of a cash consideration, unless provision has been made for a full deduction of the underlying Class B subordinate shares from the number of Class B subordinate shares reserved for issuance under the Stock Option Plan;
  • a reduction in the purchase price for the Class B subordinate shares in respect of any option or an extension of the expiration date of any option beyond the exercise periods provided by the Stock Option Plan;
  • the inclusion, on a discretionary basis, of non-employee directors of the Corporation as participants in the Stock Option Plan;
  • an amendment allowing an optionee to transfer options other than by will or pursuant to the laws of succession;
  • the cancellation of options for the purpose of issuing new options;
  • the grant of financial assistance for the exercise of options;
  • an increase in the number of Class B subordinate shares reserved for issuance under the Stock Option Plan; and
  • any amendment to the method for determining the purchase price for the Class B subordinate shares, in respect of any option. 

2.    In the case of the 2010 DSUP or DSUs granted thereunder:

  • An amendment allowing a participant to transfer DSUs, other than by will or pursuant to the laws of succession; and
  • An increase in the number of treasury Class B subordinate shares reserved for the issuance under the 2010 DSUP.

During the financial year ended December 31, 2014, certain changes were made to the 2010 DSUP in order to allow a transition from the previous organizational structure towards the new organizational structure comprised of four business segments (Transportation, Business Aircraft, Commercial Aircraft and Aerostructures and Engineering Services) and an Aerospace Product Development Team. Further to the announcement of the new organizational structure, the target Return on Invested Capital (“ROIC”) in respect of DSU grants made between November 6, 2014 and August 1, 2015 under the 2010 DSUP was changed from a three-year average to a weighted average: 20% based on the 2014 operating plan, 30% based on the 2015 operating plan and 50% based on the average of the 2015 operating plan and of the 2016 strategic plan. In addition, target ROIC for these grants will be based on the applicable group’s ROIC under the former organizational structure (50% on either Aerospace or Transportation and 50% on consolidated) for the year 2014 and on the applicable business segment’s ROIC (50% on either Transportation, Business Aircraft, Commercial Aircraft or Bombardier Aerostructures and Engineering Services and 50% on consolidated) for the years 2015 and 2016. The Board approved these amendments to the 2010 DSUP on October 29, 2014 and clarified said amendments on January 14, 2015, which amendments are not subject to shareholder approval, and which were approved by the TSX.

Restrictions Regarding Trading of Bombardier Securities

The Code of Ethics and Business Conduct of Bombardier provides the following restrictions on the trading in any Bombardier securities:

  • employees shall only trade in Bombardier shares within predetermined trading periods which start on the fifth working day following the publication of the Bombardier’s quarterly or annual financial statements and end 25 calendar days later; these trading periods are internally published and communicated to all employees who shall not trade in Bombardier shares if they have knowledge of undisclosed material information;
  • employees shall not engage in hedging activities or in any form of transactions of publicly-traded options in Bombardier securities, or any other form of derivatives relating to Bombardier shares, including “puts” and “calls”;
  • employees shall not sell Bombardier securities that they do not own (a “short sale).

The Stock Option Plan also provides that optionees may not enter into any monitization transaction or other hedging procedures.

Stock Ownership Guidelines

Following a recommendation from the HRCC, the Board has introduced, effective June 10, 2009, Stock Ownership Guidelines (SOG) for executives in order to link their interests with those of the shareholders, which guidelines are reviewed by the HRCC whenever necessary. The SOG rules were modified to take into consideration the new organizational structure. The modifications were approved by the HRCC and are effective since January 1, 2015. The SOG requirements apply to the following group of executives:

  • the President and Chief Executive Officer;
  • the President of business segments;
  • the Vice President, Product Development and Chief Engineer, Aerospace; and
  • the executives over determined salary grades reporting directly to the President and Chief Executive Officer, the Presidents of the business segments and the Vice President, Product Development and Chief Engineer, Aerospace, as the case may be, and who are members of their leadership teams.

Each of these executives is required to build and hold a portfolio of Class A shares or Class B subordinate shares of Bombardier with a value equal to at least the applicable multiple of his base salary as described in the following table:

Position held Multiple of annual base salary
President and Chief Executive Officer 5 x

President and Chief Operating Officer of Bombardier Transportation

4 x
President of the other three business segments 3 x
Other executives

3 x or 2 x

depending on salary grade

The value of the portfolio is determined based on the greater of the value at the time of acquisition or the market value of the Bombardier shares held on December 31st of each calendar year. For the purpose of assessing the level of ownership, Bombardier includes the value of shares owned plus vested DSUs. The HRCC monitors, each year, the progress in value of the share portfolios.

Since Bombardier shares are only traded in Canadian dollars, the actual base salary is used at par for executives paid in Canadian or US dollars. For executives paid in other currencies, the base salary at the mid-point of the Canadian salary scale for their equivalent position in Canada is used as the basis to determine their stock ownership target.

There is no prescribed period to reach the stock ownership target. However, executives are not allowed to sell shares acquired through the settlement of PSUs or exercise of options granted on or after June 2009 or after executives become subject to the SOG until they have reached their individual target, except in order to cover the cost of acquiring the shares and the applicable local taxes. Upon the exercise of any options granted prior to June 2009, the stock options holder shall remain the direct owner of at least 25% of the number of shares so acquired for a period of at least one year following the date of purchase of such shares, and may not resell such shares or enter into any monetization transaction with respect thereto during such one-year period. This requirement does not apply for options granted on or after June 2009. DSUs may not be settled until the executive terminates his/her employment, retires or dies.

The following table presents the SOG target of the NEOs as a multiple of base salary and the actual multiple of base salary represented by the aggregate value of shares and vested DSUs held by the NEOs as of December 31, 2014: 

Name of NEOs Target multiple of base salary Actual multiple of base salary as of December 31, 2014
Pierre Beaudoin 5 x 5.4 (1) (target attained)
Pierre Alary 3 x 2.7
Lutz Bertling 4 x -- (2)
Steven Ridolfi 3 x 1.7
Eric Martel 3 x 0.6
  1. Mr. Pierre Beaudoin was President and Chief Executive Officer until February 13, 2015, the date on which he was appointed Executive Chairman.