Stock Options

Stock options are being issued to all AA employees on U.S. payroll. Here’s a guide to the “Broad Based Stock Plan” program.

Stock Options Defined
A stock option grant gives you the right, but not the obligation, to obtain a certain number of shares of your employer’s stock at a set price within a certain timeframe.

What does my stock option look like at AA?
The company is distributing 25% — more than 37 million of its outstanding common shares to AA employees on U.S. payroll.

• The exact number of options each employee will receive is still being finalized with the various workgroups.
• Once the distribution is final, each employee will receive an individualized award letter.
• The grant or “strike” price at which employees are being given the stock option is $5.00.

That means that if the price of AMR stock goes above $5.00, you can elect to “cash in” your vested options and receive the difference between the current price of AMR stock and the $5.00 strike price, less any taxes, fees, and commissions. Obviously, the higher the stock price goes, the more valuable the options become.

Why Stock Options Work
These stock options are being granted as recognition of the sacrifice employees have made.

These stock options can provide a cash benefit when our company does well financially. We all benefit because our stock prices go up, increasing the value of our stock options.

“Cashing In”
The way employees receive a cash benefit from stock options is by “cashing in” their options if the AMR stock goes above the $5.00 grant price. This is called exercising your options.

Employees may exercise, or “cash in,” their stock options once they are vested. A “vesting period” is the period of time before an employee is able to use their stock options.

Example:
If an employee has 100 stock options that are vested, a strike price of $5 and the market price is $8, then the employee can exercise his/her options and receive the following (less any taxes, fees and commissions):

• Current Market Price: $8 x 100 options = $800
• Strike Price: $5 x 100 options = $500
• Gain to Employee: $300

What is the vesting schedule for my stock options?
The vesting period for this stock option grant is three years — 33% per year — from the grant date of April 17, 2003. This means that 1/3 of the options granted become available to you each year for the next three years. Odd numbers of shares, not divisible by three, will vest in the first or second years. Stock options automatically expire ten years from the grant date.

Example:
If you are granted 152 stock options effective 4/17/2003, then you can exercise those options according to the schedule below; the number shown is the options vested and exercisable, while the dates represent the exercisable period.

• 4/17/2004-4/17/2013: 51
• 4/17/2005-4/17/2013: 51
• 4/17/2006-4/17/2013: 50

So, while there is still some time before you will be able to “cash in” on the options, we can all begin doing what we can to increase their value each day by being as productive as possible and providing the best customer service in the industry.

How do I exercise my options?
There are three methods for “cashing in” on your options once they are vested:

• Cashless Exercise: Requires no cash outlay and should be used if you simply want to sell the shares of stock and obtain the proceeds. Taxes and brokerage fees related to the income resulting from the stock exercise will be deducted from your gross proceeds.
• Exercise and Hold: Stock purchased must be paid by using the grant price ($5.00) along with applicable taxes. Stock will then be held for investment purposes and SEC and brokerage fees will be required when the stock is sold.
• Sell Enough to Cover: If you wish to hold the stock for investment purposes, but do not wish to outlay any cash, the broker can be instructed to sell enough shares to cover the option cost, applicable taxes and fees. The remaining shares are then held in your account.

This is only a summary. If there is any discrepancy, you should reference the stock option agreement to determine your rights and responsibilities.