FairPoint Communications 2006 Annual Report Download - page 89

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

(a) 1995 Stock Incentive Plan
In February 1995, the Company adopted the FairPoint Communications, Inc. (formerly MJD Communications, Inc.) 1995 Stock Incentive Plan (the
1995 Plan). The 1995 Plan covers officers, directors, and employees of the Company. The Company was allowed to issue qualified or nonqualified stock
options to purchase up to 215,410 shares of the Company’s Class A common stock to employees that would 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 161,596 shares at $1.32 per
share. No options have been granted since 1995. Effective in February 2005, the Company may no longer grant awards under the 1995 Plan. As of
January 1, 2006, only 18,013 options remained outstanding. The life of these options had previously been extended to May 21, 2008. In March 2006 the
remaining 18,013 options outstanding were exercised. The intrinsic value of these options on the date of exercise was $230,000, the cash received was $24,000
and the tax benefit was $87,000.
These stock options were granted by the Company prior to becoming a public company and therefore the Company is accounting for these options under
the prospective method under SFAS 123(R). The per share weighted average fair value of stock options granted during 1995 was $0.69 on the date of grant
using the Black-Scholes option-pricing model. Input variables used in the model included no expected dividend yield, a risk-free interest rate of 6.41%, and an
estimated option life of five years. Because the Company was not public 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:
  
Outstanding at January 1: 18,013 112,265 112,265
Granted — — —
Exercised (18,013)(94,252) —
Forfeited — — —
Outstanding at December 31 —18,013 112,265
Exercisable at December 31, 2006 —
Stock options available to grant at December 31, 2006 —
(b) 1998 Stock Incentive Plan
In August 1998, the Company adopted the FairPoint Communications, Inc. (formerly MJD Communications, Inc.) Stock Incentive Plan (the 1998
Plan). The 1998 Plan provided for grants of up to 1,317,425 of nonqualified stock options to executives and members of management, at the discretion of the
compensation committee of the board of directors. Options vest in 25% increments on the second, third, fourth, and fifth anniversaries of an individual grant.
In the event of a change in control, outstanding options will vest immediately. Effective in February 2005, the Company may no longer grant awards under the
1998 Plan.
Pursuant to the terms of the grant, options granted in 1998 and 1999 become exercisable only in the event that the Company is sold, an initial public
offering of the Company’s common stock results in the principal shareholders holding less than 10% of their original ownership, or other changes in control,
as defined, occur. The number of options that may become ultimately exercisable also depends upon the
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