All information presented below relates to Concentra Holding stock and stock option activity.
(a) Employee Stock Purchase Plan
Until March 2, 1999, Concentra Holding maintained an employee stock purchase plan that permitted substantially all employees to acquire up to 500,000 shares of Concentra Holding common stock at the end of each specified period at a purchase price of 85% of the lower of the fair market value of the stock on the first or last business day of the purchase period. Purchase periods were semi-annual and began on January 1 and July 1 of each year. Employees were allowed to designate up to 15% of their base compensation for the purchase of common stock. The option and compensation committee of the board of directors administered the employee stock purchase plan. On March 2, 1999, Concentra Holding terminated the employee stock purchase plan. The final period for which participating employees acquired shares of Concentra Holding's common stock began on January 1, 1999 and ended March 2, 1999. Concentra Holding issued 63,358 shares of common stock at a weighted average purchase price of $8.55 under the employee stock purchase plans during 1999.
(b) Concentra 1997 Long-Term Incentive Plan
Concentra Holding historically has granted awards with respect to shares under Concentra Holding's 1997 Long-Term Incentive Plan (the ''1997 Incentive Plan''). The awards under the 1997 Incentive Plan include: (i) incentive stock options qualified as such under U.S. federal income tax laws, (ii) stock options that do not qualify as incentive stock options, (iii) stock appreciation rights, (iv) restricted stock awards and (v) performance units. Generally each stock option grant vests over a four year period (25% annually), subject to continued employment.
During 1998, the Company granted restricted stock for 48,000 shares of common stock under the 1997 Incentive Plan which were valued at $1.4 million based upon the market value of the shares at the time of issuance. The restricted stock grants vest 25% per year beginning January 1, 2002. If the Company's financial performance exceeds certain established performance goals, however, the vesting of these shares could accelerate whereby 33 1/3% the shares could become vested on January 1, 2000, and each year thereafter. For the years ended December 31, 2001, 2000 and 1999, the Company recorded amortization of $0.4 million, $0.8 million and $0.4 million, respectively, in connection with the deferred compensation associated with the restricted stock grants.
After the 1997 Merger, no additional awards were made under the former CRA and OccuSystems stock option plans and only that number of shares of common stock issuable upon exercise of awards granted under the former CRA and OccuSystems stock option plans as of the 1997 Merger were reserved for issuance by Concentra Holding.
During 1999, the Company granted 10,000 options under the 1997 Incentive Plan. There were 1,416,289 options exercised and 4,436,997 options canceled under the 1997 Incentive Plan, primarily in connection with the 1999 Merger. Simultaneous with the 1999 Merger, no additional awards will be made under the 1997 Incentive Plan. Only that number of shares of Concentra Holding stock issuable upon exercise of awards granted under the 1997 Incentive Plan as of the 1999 Merger were reserved for issuance by Concentra Holding. During 2001 and 2000, 57,250 and 68,250 options were canceled, respectively under the 1997 Incentive Plan. During 2001, 15,000 options were exercised, and no options were exercised in 2000 under the 1997 Incentive Plan.
(c) Concentra 1999 Long-Term Incentive Plan
Concentra Holding’s board and stockholders approved its 1999 Stock Option and Restricted Stock Purchase Plan (''the 1999 Stock Plan'') in August 1999. The 1999 Stock Plan provides for the grant of options or awards to purchase an aggregate 3,750,000 shares of Concentra Holding common stock, either in the form of incentive stock options qualified as such under the U.S. Federal Income Tax Laws, nonqualified stock options or restricted stock purchase awards. The 1999 Stock Plan includes provisions for adjustment of the number of shares of common stock available for grant of award thereunder and in the number of shares of common stock underlying outstanding options in the event of any stock splits, stock dividends or other relevant changes in the capitalization of Concentra Holding. Under the 1999 Stock Plan, employees, including officers, are eligible to receive grants of either incentive stock options or nonqualified stock options and restricted stock purchase awards. Non-employee directors are eligible to be granted only nonqualified options and awards.
CONCENTRA OPERATING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Stock options granted in 2001 vest over a five year period (20% annually), subject to continued employment. A portion of the stock options granted prior to 2001 vest over a five year period (20% annually), the remaining portion is subject to cliff vesting in seven years with provisions allowing for accelerated vesting based upon specific performance criteria. Prior to vesting, these options are subject to cancellation upon termination of employment. The exercise price of incentive stock options may not be less than 100% of the fair market value of the shares of common stock, as determined by Concentra Holding’s board of directors or the compensation committee, as the case may be, on the date the option is granted. The exercise price of non-qualified stock options may not be less than 100% of the fair market value of the shares of Concentra Holding common stock on the date the option is granted. In addition, the aggregate fair market value of the shares of stock with respect to which incentive stock options are exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. In addition, no incentive stock option shall be granted to an optionee who owns more than 10% of the total combined voting power for all classes of stock of Concentra Holding, unless the exercise price is at least 110% of the fair market value of the shares of Concentra Holding's common stock and the exercise period does not exceed 5 years.
The Company granted 1,218,500 and 1,916,257 options and canceled 282,245 and 65,713 options under the 1999 Stock Plan in 2001 and 2000, respectively. Restricted stock purchase awards granted under the 1999 Stock Plan will continue in effect until August 17, 2009, unless terminated prior to such date by the Board.
A summary of the status for all outstanding options at December 31, 1999, 2000 and 2001, and changes during the years then ended is presented in the table below:
Number of Shares Weighted Average Exercise Price Per Share Balance, December 31, 1998 6,693,549 $ 20.21 Granted 708,840 16.43 Exercised (1,416,289) 6.13 Canceled (4,526,958) 27.11 Balance, December 31, 1999 1,459,142 10.60 Granted 1,916,257 16.50 Exercised — — Canceled (134,822) 9.89 Balance, December 31, 2000 3,240,577 14.12 Granted 1,218,500 21.77 Exercised (29,448) 9.39 Canceled (339,495) 7.89 Balance, December 31, 2001 4,090,134 $ 16.95
The weighted average fair market value of options granted in 2001, 2000 and 1999 were $7.19, $4.52 and $4.31, respectively. There were 890,453 and 667,324 exercisable options outstanding with a weighted average exercise price of $13.07 and $12.37 as of December 31, 2001 and 2000, respectively. No options were exercisable as of December 31, 1999. A further breakdown of the outstanding options at December 31, 2001 is as follows:
Range of Exercise Prices Number of
Options Weighted Average Price Weighted Average Contractual Life (Years) Number of Exercisable Options Weighted Average Price of Exercisable Options $4.23–$8.06 539,029 $ 8.02 6.78 359,654 $ 8.00 $16.50–$18.00 2,406,605 16.52 8.30 530,799 16.50 $22.06 1,144,500 22.06 10.15 — 0.00 4,090,134 $ 16.95 8.62 890,453 $ 13.20
CONCENTRA OPERATING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(d) SFAS 123, Accounting for Stock-Based Compensation, Disclosures
The Company accounts for these plans under APB No. 25, “Accounting for Stock Issued to Employees,” under which no compensation cost has been recognized related to stock option grants when the exercise price is equal to the market price on the date of grant. Had compensation cost for these plans been determined consistent with SFAS 123, ''Accounting for Stock-Based Compensation'' (''SFAS 123''), the Company's net loss would have been increased to the following supplemental pro forma net loss amounts (in thousands):
2001 2000 1999
Net loss:
As reported $ (9,720) $ (6,813) $(25,781)
Supplemental pro forma $(12,151) $ (7,478) $(27,506)
Because the method of accounting under SFAS 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. Additionally, the 1999 pro forma amount includes $102,000 related to purchase discounts offered on employee stock purchase plans. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in 2001, 2000 and 1999, respectively:
2001 2000 1999
Risk-free interest rates 4.72% 6.11% 6.08%
Expected volatility 21.88% 0.00% 0.00%
Expected dividend yield — — —
Expected weighted average life of options in years 2.8-6.0 5.0 5.0