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## Assumptions Used in Stock Option Pricing Model 

The table below shows the assumptions used to deter- mine stock-based compensation expense, using the Black-Scholes option pricing model. 

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Starting in 2004, most of the stock options granted contain specific performance targets that must be met before the option can be exercised. This is reflected in the calculation of the weighted average fair value per option granted. 

## Restricted Share Units (RSUs) 

In 2004, BCE Inc. granted RSUs to executives and other key employees. The value of an RSU is always equal to the value of one BCE Inc. common share. Dividends in the form of additional RSUs are credited to the participant’s account on each dividend payment date and are equivalent in value to the dividend paid on BCE Inc. common shares. Each executive is granted a specific number of RSUs for a given performance period, based on his or her position and level of contribution. At the end of each given performance period, RSUs will vest if performance objectives are met or will be forfeited. 

Vested RSUs will be paid in BCE Inc. common shares purchased on the open market, in cash or through a combination of both, as the holder chooses, as long as individual share ownership requirements are met. 

The table below is a summary of the status of RSUs. 

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For the year ended December 31, 2004, we recorded compensation expense for RSUs of $25 million. 

Special Compensation Payments (SCPs) 

Before 2000, when BCE Inc. granted options to offi- cers, vice-presidents and other key employees, related rights to SCPs were also often granted. SCPs are cash payments representing the amount that the market value of the shares on the date of exercise of the related options exceeds the exercise price of these options. 

When the distribution of Nortel common shares was made in 2000, the outstanding options were cancelled and replaced with options to buy BCE Inc. common shares and options to buy Nortel common shares. The related SCPs were adjusted accordingly. 

For each right to an SCP held before the distribu- tion, right holders now have rights related to both BCE Inc. and Nortel common shares. 

The number of SCPs outstanding at December 31, 2004 was: 

• 1,078,394 relating to BCE Inc. common shares 

• 2,443,798 relating to Nortel common shares. 

All of the outstanding SCPs cover the same number of shares as the options to which they relate. It is the employer’s responsibility to make the payments under the SCPs. There was income related to SCPs of $14 mil- lion in 2004, income of $29 million in 2003 and an expense of $1 million in 2002. The amounts include a recovery of SCP expense previously established at $14 million for 2004, $50 million for 2003, and $59 million for 2002, relating to forfeitures of SCPs. 

