FairPoint Communications 2004 Annual Report Download - page 116

The remaining contractual life for the options outstanding at December 31, 2004 was 7.85 years, and 103,111 options
were exercisable.
The per share weighted average fair value of stock options granted under the 2000 Plan during 2003, and 2002 were
$8.39 and $14.99, respectively, on the date of grant using the Black Scholes option-pricing model. Input variables used in the
model included no expected dividend yields, a weighted average risk free interest rate of 4.26%, and 5.28% in 2003 and 2002,
respectively, and an estimated option life of 10 years. Because the Company was nonpublic on the date of grant, no
assumption as to the volatility of the stock price was made. No stock options were granted under the 2000 Plan during 2004.
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(a) Competitive Communications Business Operations
In October and November of 2001, Carrier Services sold certain assets of its competitive communications operations to
Advanced TelCom, Inc., a wholly owned subsidiary of Advance Telcom Group, Inc. and to Choice One. Total proceeds from
these sales of assets were $9.0 million in cash and 2,500,000 restricted shares of Choice One common stock (valued at
$7.9 million). The Company recorded a net loss of $31.1 million from the sale of these assets. In April 2002, Carrier Services
earned an additional 1,000,000 restricted shares of Choice One common stock based on the number of access lines converted
to the Choice One operating platform within 120 days after closing. The value of these additional shares, $0.8 million, was
recognized as a gain within discontinued operations in 2002.
In November 2001, in connection with the sale of certain of its assets as previously discussed, the Company announced
its plan to discontinue the competitive communications business operations of its wholly owned subsidiary, Carrier Services.
As a result of the adoption of the plan to discontinue the competitive communications operations, these results are presented
as discontinued operations. The Company recognized a total charge of $95.3 million on the disposal of its competitive
communications operations, including the $31.1 million loss on the sale of assets; $36.1 million for the write-off of the
remaining operating assets, including property, plant, and equipment; and $28.1 million for expenses the Company estimated
it would incur during the phase-out period, net of estimated revenue to be received from customers until they were transitioned
to other carriers. Estimated expense for the phase-out period included interest expense. Interest expense was allocated to
discontinued operations based on the interest incurred by the Company under the Carrier Services credit facility and the two
interest rate swaps related to this facility.
On May 2002, Carrier Services entered into an amended and restated credit facility with its lenders to restructure the
obligations under its credit facility. In the restructuring, (i) Carrier Services paid certain of its lenders $5.0 million to satisfy
$7.0 million of obligations under the credit facility, (ii) the lenders converted approximately $93.9 million of the loans under the
credit facility into shares of FairPoint's series A preferred stock having a liquidation preference equal to the amount of such
loans, and (iii) the remaining loans under the credit facility and certain swap obligations were converted into $27.9 million of
new term loans.
As a result of this restructuring in 2002, the Company recorded a gain in discontinued operations of $17.5 million for the
extinguishment of debt and settlement of its interest rate
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