FairPoint Communications 2003 Annual Report Download - page 49

—authorized 100,000,000 nonvoting, convertible, cumulative participating preferred shares at a par value of
$0.01 per share.
In May 2002, the Company amended and restated its certificate of incorporation to eliminate its Series D preferred stock and to designate
and authorize the issuance of up to 1,000,000 shares of Series A preferred stock.
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In connection with the acquisition of Fremont, the Company issued 457,318 shares of Class A common stock to certain of the former
owners of Fremont. Under the terms of the agreements, these
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shares can be put back to the Company at any time. The purchase price for such stock is the higher of the current fair market value or the fair
market value of the Company's common stock on the date of the acquisition of Fremont. Such former owners of Fremont exercised their put
options on 75,418 shares in December 2000 and on 66,676 shares in March 2001. The Company has recorded the common stock subject
to put options as temporary equity in the accompanying consolidated balance sheets. In May 2001, the Company loaned $999,980 to such
former owners of Fremont. In January 2002, these loans were paid with 76,218 shares subject to the put options. In January 2003, put
options on 76,218 shares were exercised for $999,980. In July 2003, the Company loaned $999,980 to such former owners of Fremont;
these loans mature on January 2, 2005. In January 2004, put options on 76,218 shares were exercised for $999,980.
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In April 2000, the Company issued stock options under the 1998 Plan to employee participants in the FairPoint Communications Corp.
Stock Incentive Plan (Carrier Services' Plan) in consideration of the cancellation of all options previously granted under the Carrier Services'
Plan. The Company issued 1,620,465 and 73,200 options to purchase Class A common stock of the Company at an exercise price of $3.28
per share and $13.12 per share, respectively. The Company was recognizing a compensation charge on these Carrier Services' options for
the amount the market value of the Company's common stock exceeded the exercise price on the date of grant. In order to maintain the
same economic benefits as previously existed under the Carrier Services' Plan, Carrier Services also intended to provide a cash bonus to its
employees for each option exercised. The Company was amortizing the compensation charge related to the Carrier Services' option grant
and the cash bonus over the vesting period of five years up to the settlement of these options in 2001.
On December 31, 2001, the Company extended the exercise period on 284,200 1995 Plan stock options. The Company recognized a
compensation charge of $2.2 million related to the modification of these options during 2001. On December 31, 2002, the Company
extended the exercise period on 213,200 1995 Plan Stock Options. The Company recognized a compensation charge of $1.2 million related
to the modification of these options during 2002.
Certain principal shareholders of the Company granted stock appreciation rights to certain members of management. The stock
appreciation rights are fully vested. The stock appreciation rights may be settled in cash or stock, at the option of the granting shareholders. In
connection with the stock appreciation rights, the Company recognized a benefit of $0.9 million and $0.3 million in 2001 and 2002,
respectively, as the value associated with the stock appreciation rights declined. There were no adjustments to the stock appreciation rights in
the year ended December 31, 2003, as the fair market value per share of the Company's common stock remained flat during the year.
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In February 1995, the Company adopted the 1995 Plan. The 1995 Plan covers officers, directors, and employees of the Company. The
Company may issue qualified or nonqualified stock options to purchase up to 1,136,800 shares of the Company's Class A common stock to
employees that will vest equally over 5 years from the date of employment of the recipient and are exercisable during years 5 through 10. In
1995, the Company granted options to purchase 852,800 shares at $0.25 per share. There were no options granted since 1995.
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The per share weighted average fair value of stock options granted during 1995 was $0.13 on the date of grant using the Black Scholes
option-pricing model. Input variables used in the model included no expected dividend yields, a risk-free interest rate of 6.41%, and an
estimated option life of five years. Because the Company was nonpublic on the date of the grant, no assumption as to the volatility of the
stock price was made.
Stock option activity under the 1995 Plan is summarized as follows:
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Outstanding at January 1 592,460 592,460 592,460
Granted — — —
Exercised — — —
Forfeited — — —