FairPoint Communications 2004 Annual Report Download - page 112

in July 2003 were paid with 14,442 shares subject to the put option. In February 2005, the remaining 1,963 shares were
redeemed by the Company.
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(a) Compensation Expense
On December 31, 2002, the Company extended the exercise period on 40,399 options under the FairPoint
Communications, Inc. (formerly MJD Communications, Inc.) 1995 Stock Option Plan (the 1995 Plan). The Company
recognized a compensation charge of $1.2 million related to the modification of these options during 2002. On October 1, 2004,
the Company extended the exercise period on 18,013 options under the 1995 Plan. The Company recognized a compensation
charge of $0.3 million related to the modification of these options during 2004.
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 $0.4 million and
$0.3 million in 2004 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.
(b) 1995 Stock Option Plan
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 215,410 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 161,596 shares at
$1.32 per share. No options have been granted since 1995.
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 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.
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