FairPoint Communications 2011 Annual Report Download - page 118

Table of Contents
the end of the contractual term. This method was utilized for the stock options granted on the Effective Date due to the lack of historical exercise behavior of
the Company’s employees. The stock options granted subsequent to the Effective Date through December 31, 2011 utilized an expected life of 10.00 years
based on an expectation of when the Company believes the stock options will be exercised by employees. For all stock options granted during 2011, no
dividends are expected to be paid over the term of the stock options resulting in the use of a zero expected dividend rate. The expected volatility rate for all stock
options granted during 2011 is based on the observed historical and implied volatilities of comparable companies, which were adjusted to account for the
various differences between the comparable companies and the Company. The risk free interest rate is specific to the date of grant. On the Effective Date, the
risk-free interest rate was interpolated from the yields on the 5-year and 7-year U.S. Treasury bonds. For stock options granted after the Effective Date, the
risk-free interest rate is based on the U.S. Treasury 10 year constant maturity market yield in effect at the time of the grant.
Based upon a fair market value of the Common Stock as of December 31, 2011 of $4.33 per share, the outstanding stock options, including those
options that have vested, under the Long Term Incentive Plan do not have any intrinsic value. The outstanding options and vested options under the Long
Term Incentive Plan each have a weighted average remaining contractual life of 9.1 years.
Restricted stock award activity under the Long Term Incentive Plan is summarized as follows:
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

Non-vested at January 24, 2011 (Predecessor Company) — —
Granted 547,792 $ 18.53
Vested (187,044) 18.53
Forfeited — —
Non-vested at January 24, 2011 (Successor Company) 360,748 $ 18.53
Granted 13,800 $11.52
Vested (4,900) 17.87
Forfeited (17,650) 18.53
Non-vested at December 31, 2011 351,998 $18.26
Except for the restricted stock awards granted on the Effective Date, the grant date fair value per share of the restricted stock awards under the Long
Term Incentive Plan is calculated as the fair market value per share of the Common Stock on the date of grant. The grant date fair value per share of the
restricted stock awarded on the Effective Date is equal to the fair value per share of the Company’s Common Stock calculated in conjunction with fresh start
accounting. During the 24 days ended January 24, 2011 and 341 days ended December 31, 2011, the weighted average grant date fair value of restricted stock
awards granted was $10.2 million and $0.2 million, respectively.
Based upon the fair market values per share of the Common Stock on each respective date of vesting, the aggregate fair value of restricted stock which
vested during the 24 days ended January 24, 2011 and 341 days ended December 31, 2011 was $3.5 million and $0.1 million, respectively.
Stock-Based Compensation Plans of the Predecessor Company
Pursuant to the Plan, all then outstanding equity interests of the Company, including but not limited to all outstanding shares of Common Stock,
options and contractual or other rights to acquire any equity interests, were cancelled and extinguished on the Effective Date.
(a) 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 nonqualified stock options to executives and members of management, at the discretion of the
compensation committee of the board of directors. Options vested in 25% increments on the second, third, fourth and fifth anniversaries of an individual
grant. All options had a term of 10 years from date of grant. In the event
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