CAPITAL POWER CORPORATION Notes to the Consolidated Financial Statements (Tabular amounts in millions of Canadian dollars, except share and per share amounts) During the year ended December 31, 2012, the Company recorded compensation expenses of $2 million related to share purchase options in staff costs and employee benefits expense (year ended December 31, 2011 - $3 million). The weighted average remaining contractual life of the Company’s outstanding share purchase options as at December 31, 2012 is 4.9 years (December 31, 2011 - 5.3 years). The exercise prices of share purchase options outstanding as at December 31, 2012 and December 31, 2011 range from $22.50 to $24.90. Capital Power Corporation grants performance share units (PSUs) to certain employees, which entitles those employees to receive payments based on an equivalent number of common shares at a specified release date for an amount equal to the market price of such number of common shares on the release date. PSUs have a three-year vesting period from the grant date. Upon vesting, participants receive payments based on the number of units that vest including dividend equivalents with an ending value based on the prevailing market price at vesting. PSUs will be paid in cash based on the Company’s share performance relative to a group of peer organizations ranging from 50 percent to 150 percent times the market price of the PSU at the release date. 1 The fair value of the PSUs at the grant date was $24.28 (2011 - $24.84) 2 The weighted average share price at the date of exercise was $22.43 (2011 - $24.89). During the year ended December 31, 2012, the Company recorded compensation expenses of $1 million (year ended December 31, 2011 - $2 million) related to the outstanding PSUs in staff costs and employee benefits expense. The Company has approved a deferred stock unit (DSU) plan pursuant to which non-employee directors of the Company may receive their annual equity retainer in the form of DSUs. Directors are entitled to elect to receive their annual retainer, committee retainer, and/or committee chair retainer in full or partial DSUs. Directors will receive additional DSUs in respect of dividends payable on common shares of the Company based on the value of a DSU at that time. During the year ended December 31, 2012, the Company recorded compensation expenses of less than $1 million (year ended December 31, 2011 - $1 million) related to the outstanding DSUs in staff costs and employee benefits expense. Details of the fair values of the Company’s derivative instruments are described in note 14. The Company classifies its cash and cash equivalents as loans and receivables and measures them at amortized cost which approximates their fair values. Trade and other receivables are classified as loans and receivables; trade and other payables are classified as other financial liabilities; all of which are measured at amortized cost and their fair values are not materially different from their carrying amounts due to their short-term nature. 117 29. Financial instruments: Fair values Deferred stock units Performance share units 28. Share-based payments, continued: 2012 2011 PSUs outstanding, as at January 1 251,490 153,240 Granted 1 152,048 146,896 Exercised 2 (15,631) (19,416) Dividends reinvested 19,380 12,650 Forfeited (50,354) (41,880) PSUs outstanding, as at December 31 356,933 251,490