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Preferred Stock. In February, 1993, the Company completed a public offering of 1,495,000 shares of Preferred Stock at $50 per share. The Preferred Stock is convertible at the option of the holder into Common Stock at the rate of 2.5397 shares of Common Stock for each share of Preferred Stock. Annual dividends are $2.875 and are cumulative. The Preferred Stock is exchangeable, in whole or in part, at the option of the Company on any dividend payment date beginning February 15, 1995, for the Company’s 5 3/4% Convertible Subordinated Debentures due February 15, 2018, at a rate of $50 principal amount of debentures for each share of Preferred Stock. The Preferred Stock is redeemable at any time, in whole or in part, at the Company’s option, initially at a redemption price of $52.0125 per share and thereafter at redemption prices declining to $50 per share on or after February 15, 2003, plus unpaid dividends to the redemption date. Holders of Preferred Stock have no voting rights unless dividends are in arrears six quarters or more, at which time they have the right to elect two directors of the Company until all dividends have been paid. Dividends of $4,298,000 were paid during 1996, 1995 and 1994. Stock Options. The Company has elected to follow APB 25 and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, “Accounting for Stock-Based Compensation” (“Statement 123”), requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The Company has a stock option plan which provides 2,000,000 shares of Common Stock for the granting of options to directors and key employees of the Company. All options granted are exercisable starting 12 months after the grant date, with 20% of the shares covered thereby becoming exercisable at that time and with an additional 20% of the options shares becoming exercisable on each successive anniversary date, with full vesting occurring on the fifth anniversary date. The options were granted for a term of 10 years. The Company also had a disinterested directors stockholder plan, which provided 225,000 shares of Common Stock for the granting of options to directors who administer the Company’s stock option plan and were not permitted to receive stock option grants under such plan. This plan was terminated in May 1994. The options previously granted under this plan will continue in effect according to their terms. Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant, using a Black-Scholes option pricing model with the following weighted-average assumptions for 1996 and 1995, respectively: risk-free interest rates of 5.8% and 7.3%; dividend yields of .01% and .01%; volatility factors of the expected market price of the Company’s Common Stock of .41 and .37; and a weighted-average expected life of the option of 9.5 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma information follows (in thousands except for earnings per share information):
1996 1995
Net loss - as reported $ (36,603) $ (32,792)
Net loss - pro forma $ (37,379) $ (32,836)
Loss per share - as reported $ (2.10) $ (1.90)
Loss per share - pro forma $ (2.14) $ (1.90)
A summary of the Company’s stock option activity, and related information for the years ended December 31 follows:
1996 1995 1994
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
Outstanding -
beginning of year 688,700 $11.05 628,900 $10.95 589,100 $10.79
Granted 1,101,500 6.44 75,500 11.84 54,700 12.68
Exercised - - (15,700) 10.88 (3,440) 10.88
Forfeited - - - - (11,460) 10.88
Outstanding- end of year 1,790,200 $ 8.21 688,700 $11.05 628,900 $10.95
Exercisable at end of year 476,280 $10.92 338,540 $10.87 222,180 $10.83
Estimated weighted-average
fair value per share of
options granted to
employees during the year $ 3.87 $ 6.88
The following table summarizes information concerning currently outstanding and exercisable options:
Weighted
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
$6 - $8 1,079,000 9.1 $ 6.40 - $ -
$8 - $10 80,500 7.6 9.18 26,600 9.54
$10 - $12 521,000 5.6 10.88 416,800 10.88
$12 - $14 109,700 7.6 12.64 32,880 12.65
1,790,200 476,280
Shareholders’ Rights Plan. Each issued and outstanding share of Common Stock has associated with it one Common Stock purchase right to purchase a share of Common Stock from the Company at a price of $60.00. Such rights are not exerciseable until certain events occur as detailed in the rights agreement. Due to the extent of management shareholders of a predecessor company continuing their ownership interest in the Company subsequent to a 1988 leveraged buyout of the Company, the equity interest of these management shareholders was valued at the predecessor basis rather than at fair market value. Accordingly, the new basis of reporting for the Company’s net assets using fair market values at the date of the leveraged buyout was reduced by $15,371,000 to reflect the carryover basis of the management shareholders. This amount has been offset against additional paid-in capital in the accompanying financial statements. |
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