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Litigation
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| On May 9, 2001, the Company and a significant customer jointly announced a tentative settlement regarding the litigation over the terms of the long-term supply contract the parties entered in April 1996. The pending litigation relating to that contract has been previously reported in the Company's annual report on Form 10-K for the year ended December 31, 2000 and in the previous quarterly reports on Form 10-Q. Under the terms of the tentative settlement, the Company and a wholly-owned subsidiary of the customer have entered into a new ten-year agreement under which the Company would supply a minimum of 50,000 tons of gypsum facing paper per year to the customer. Implementation of the new agreement, and settlement of the pending litigation over the 1996 agreement, is subject to satisfactory completion of a transition period. The transition period initially was to expire no later than August 6, 2001. As described below, however, the parties have twice agreed to extend the outside termination date of the transition period, most recently to April 1, 2002. During the transition period, the Company is supplying the customer with such facing paper as it requests to enable it to evaluate the paper's compliance with its specifications for quality and end-use suitability. Once the customer is satisfied with the paper, it is to notify the Company that the transition period has ended, and at that time the term of the new agreement, including the annual minimum quantity requirement described above, is to commence. If and when the new agreement commences, the parties will dismiss all pending litigation relating to the 1996 agreement. Under the terms of the tentative settlement, either party may terminate its obligations under the new agreement during the transition period without cause and without liability to the other party.
During the second quarter of 2001, ongoing discussions with the customer led to a mutual agreement to extend the outside expiration date of the transition period initially to December 31, 2001. The extension was the result of the customer's recent curtailment of a significant portion of its gypsum wallboard manufacturing capacity because of adverse market conditions. This curtailment, along with the customer's stated reservations about committing to the minimum tonnage requirement under the new agreement in light of current market conditions, led the parties to agree to the extension of the transition period. Continued recent discussions, however, have led the parties to agree to further extend the outside expiration date of the transition period to April 1, 2002.
Although the Company believes that it will be able to satisfy the customer's product requirements, the Company can give no assurance that the new agreement will be implemented in accordance with its terms or that the pending litigation will be dismissed. Specifically, the Company cannot predict whether the customer's recent curtailment of gypsum wallboard manufacturing capacity will further affect whether, when or how a new agreement is implemented, including whether such curtailment will result in modifications to the ultimate volume requirements under any new contract that may be implemented. Accordingly, the Company believes that its operating results and financial condition will continue to be materially and adversely affected by the loss of contract volume from the customer unless and until a new supply agreement is implemented with significant volume requirements, and until a new supply agreement has been effective long enough to generate a substantial volume of required purchases from the customer.
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| The Company is involved in certain other litigation arising in the ordinary course of business. In the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on the Company's financial condition or results of operations. |
7. Stock Option and Deferred
Compensation Plans
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Director Equity Plan
During 1996, the Company's board of directors approved a director equity plan. Under the plan, directors who are not employees or former employees of the Company ("Eligible Directors") are paid a portion of their fees in the Company's common stock. Additionally, each Eligible Director is granted an option to purchase 1,000 shares of the Company's common stock at an option price equal to the fair market value at the date of grant. These options are immediately exercisable and expire ten years following the grant. A maximum of 100,000 shares of common stock may be granted under this plan. During 2001, 2000 and 1999, 8,339, 4,171 and 2,930 shares, respectively, of common stock and options to purchase 6,000 shares of common stock were issued under this plan in each year. |
Incentive Stock Option and Bonus Plans
During 1992, the Company's board of directors approved a qualified incentive stock option and bonus plan (the "1993 Plan"), which became effective January 1, 1993 and terminated December 31, 1997. Under the provisions of the 1993 Plan, selected members of management received one share of common stock ("bonus share") for each two shares purchased at market value. In addition, the 1993 Plan provided for the issuance of options at prices not less than market value at the date of grant. The options and bonus shares awarded under the 1993 Plan are subject to four-year and five-year respective vesting periods. The Company's board of directors authorized 1,400,000 common shares for grant under the 1993 Plan. Compensation expense of approximately $186,000, $246,000 and $336,000 related to bonus shares was recorded in 2001, 2000 and 1999, respectively.
During 1998, the Company's board of directors approved a qualified incentive stock option and bonus plan (the "1998 Plan"), which became effective March 10, 1998. Under the provisions of the 1998 Plan, selected members of management may receive the right to acquire one share of restricted stock contingent upon the direct purchase of two shares of unrestricted common stock at market value. In addition, the 1998 Plan provides for the issuance of both traditional and performance stock options at market price and 120 percent of market price, respectively. Restricted stock and options awarded under the 1998 Plan are subject to five-year vesting periods and the options expire after ten years. The Company's board of directors authorized 3,800,000 common shares for grant under the 1998 Plan. During 2001, 2000 and 1999, the Company issued 108,323, 784,621 and 363,728 options, respectively, under the 1998 Plan. During 2001, 2000 and 1999, the Company issued 759, 10,699 and 9,374 shares, respectively, of restricted stock. The Company recorded approximately $82,000, $105,000 and $20,000 of compensation expense related to the issuance of restricted stock during 2001, 2000 and 1999, respectively.
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