FairPoint Communications 2005 Annual Report Download - page 91

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(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 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.
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.
Stock option activity under the 1995 Plan is summarized as follows:
  
Outstanding at January 1: 112,265 112,265 112,265
Granted — — —
Exercised (94,252) — —
Forfeited — — —
Outstanding at December 31 18,013 112,265 112,265
Exercisable at December 31, 2005 18,013
Stock options available to grant at
December 31, 2005 —
(c) MJD Communications, Inc. Stock Incentive Plan
In August 1998, the Company adopted 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 extent to which the price per share obtained in the sale
of the Company would exceed a minimum selling price of $22.59 per share. All options have a term of 10 years from date of grant. For those options granted
in 1998 and 1999, the Company will record compensation expense for the excess of the estimated market value of its common stock over the exercise price of
the options when and if a sale of the Company, at the prices necessary to result in exercisable options under the grant, becomes imminent or likely. The initial
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