| Schedule of Outstanding Options |
Newcastle’s outstanding options were summarized as follows:
| |
|
December 31, 2012
|
|
|
December 31, 2011
|
|
| |
|
Issued Prior to
2011
|
|
|
Issued in 2011
and 2012
|
|
|
Total
|
|
|
Issued Prior to
2011
|
|
|
Issued in 2011
|
|
|
Total
|
|
|
Held by the Manager
|
|
|
1,751,172 |
|
|
|
7,934,166 |
|
|
|
9,685,338 |
|
|
|
1,686,447 |
|
|
|
4,312,500 |
|
|
|
5,998,947 |
|
|
Issued to the Manager and subsequently
transferred to certain of Manager’s employees
|
|
|
701,937 |
|
|
|
3,010,000 |
|
|
|
3,711,937 |
|
|
|
798,162 |
|
|
|
— |
|
|
|
798,162 |
|
|
Issued to the independent directors
|
|
|
10,000 |
|
|
|
2,000 |
|
|
|
12,000 |
|
|
|
14,000 |
|
|
|
2,000 |
|
|
|
16,000 |
|
|
Total
|
|
|
2,463,109 |
|
|
|
10,946,166 |
|
|
|
13,409,275 |
|
|
|
2,498,609 |
|
|
|
4,314,500 |
|
|
|
6,813,109 |
|
|
| Schedule of Options Rollforward |
The following table summarizes Newcastle’s outstanding options at December 31, 2012. Note that the last sales price on the New York Stock Exchange for Newcastle’s common stock in the year ended December 31, 2012 was $8.68 per share.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recipient
|
|
Date of Grant/Exercise
|
|
|
Number of Options
|
|
|
Options Exercisable at
December 31, 2012
|
|
|
Weighted Average
Exercise Price (A)
|
|
|
Fair Value At Grant
Date (Millions) (B)
|
|
Intrinsic Value at
December 31, 2012
(millions)
|
|
|
Directors
|
|
Various
|
|
|
|
20,000 |
|
|
|
12,000 |
|
|
$ |
17.07 |
|
|
Not Material
|
|
|
— |
|
|
Manager (C)
|
|
2002 - 2007
|
|
|
|
3,523,727 |
|
|
|
2,453,109 |
|
|
$ |
26.87 |
|
|
$6.4 |
|
|
— |
|
|
Manager (C)
|
|
Mar-11
|
|
|
|
1,725,000 |
|
|
|
1,207,500 |
|
|
$ |
6.00 |
|
|
$7.0 |
(F)
|
$ |
4.5 |
|
|
Manager (C)
|
|
Sep-11
|
|
|
|
2,587,500 |
|
|
|
1,293,750 |
|
|
$ |
4.55 |
|
|
$5.6 |
(G)
|
$ |
10.5 |
|
|
Manager (C)
|
|
Apr-12
|
|
|
|
1,897,500 |
|
|
|
506,000 |
|
|
$ |
6.22 |
|
|
$5.6 |
(H)
|
$ |
4.7 |
|
|
Manager (C)
|
|
May-12
|
|
|
|
2,300,000 |
|
|
|
536,667 |
|
|
$ |
6.71 |
|
|
$7.6 |
(I)
|
$ |
4.5 |
|
|
Manager (C)
|
|
Jul-12
|
|
|
|
2,530,000 |
|
|
|
421,667 |
|
|
$ |
6.70 |
|
|
$8.3 |
(J)
|
$ |
5.0 |
|
|
Exercised (D)
|
|
Prior to 2008
|
|
|
|
(1,043,118 |
) |
|
|
N/A |
|
|
$ |
15.70 |
|
|
N/A |
|
|
N/A |
|
|
Exercised (E)
|
|
Oct-12
|
|
|
|
(95,834 |
) |
|
|
N/A |
|
|
$ |
5.28 |
|
|
N/A |
|
|
N/A |
|
|
Expired unexercised
|
|
2002
|
|
|
|
(35,500 |
) |
|
|
N/A |
|
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
Outstanding
|
|
|
|
|
|
|
13,409,275 |
|
|
|
6,430,693 |
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
The strike prices are subject to adjustment in connection with return of capital dividends. A portion of Newcastle’s 2008 dividends was deemed return of capital dividends. The effect on the strike prices was not significant. As of December 31, 2012, the weighted average strike price of the outstanding options issued prior to 2011 was $26.84.
|
|
(B)
|
The fair value of the options was estimated using an option valuation model. Since the Newcastle Option Plan has characteristics significantly different from those of traded options, and since the assumptions used in such model, particularly the volatility assumption, are subject to significant judgment and variability, the actual value of the options could vary materially from management’s estimate. The volatility assumption for these options was estimated based primarily on the historical volatility of Newcastle’s common stock and management’s expectations regarding future volatility. The expected life assumption for options issued prior to 2011 was estimated based on the simplified term method. This simplified method was used because Newcastle did not have sufficient historical data to conclude on the appropriate expected life of its options and because historical data to date was consistent with the simplified term method. The expected life assumption for options issued in 2011 and 2012 was estimated based primarily on the historical expected life of applicable previously issued options.
|
|
(C)
|
The Manager assigned certain of its options to Fortress’s employees as follows:
|
|
Date of Grant
|
|
Range of Strike
Prices
|
|
|
Total Unexercised
Inception to Date
|
|
|
2003
|
|
$20.35-$22.85
|
|
|
164,197
|
|
|
2004
|
|
$25.75-$31.40
|
|
|
226,125
|
|
|
2005
|
|
$29.60
|
|
|
89,925
|
|
|
2006
|
|
$29.42
|
|
|
48,875
|
|
|
2007
|
|
$27.75-$31.30
|
|
|
172,815
|
|
|
2011
|
|
$4.55-$6.00
|
|
|
1,460,000
|
|
|
2012
|
|
$6.22-$6.71
|
|
|
1,550,000
|
|
| |
|
Total
|
|
|
3,711,937
|
|
|
(D)
|
670,620 of the total options exercised were by the Manager. 368,498 of the total options exercised were by employees of Fortress subsequent to their assignment. 4,000 of the total options exercised were by directors.
|
|
(E)
|
Exercised by employees of Fortress subsequent to their assignment. The options exercised had an intrinsic value of $0.2 million.
|
|
(F)
|
The assumptions used in valuing the options were: a 1.7% risk-free rate, 107.8% volatility and a 3.3 year expected term.
|
|
(G)
|
The assumptions used in valuing the options were: a 1.13% risk-free rate, 13.2% dividend yield, 151.1% volatility and a 4.6 year expected term.
|
| (H) |
The assumptions used in valuing the options were: a 1.3% risk-free rate, 12.9% dividend yield, 149.4% volatility and a 4.7 year expected term.
|
| (I) |
The assumptions used in valuing the options were: a 1.05% risk-free rate, 11.9% dividend yield, 148.4% volatility and a 4.8 year expected term. |
| (J) |
The assumptions used in valuing the options were: a 0.75% risk-free rate, 11.9% dividend yield, 147.5% volatility and a 4.8 year expected term. |
|
| Schedule of Options Assigned |
|
(C)
|
The Manager assigned certain of its options to Fortress’s employees as follows:
|
|
Date of Grant
|
|
Range of Strike
Prices
|
|
|
Total Unexercised
Inception to Date
|
|
|
2003
|
|
$20.35-$22.85
|
|
|
164,197
|
|
|
2004
|
|
$25.75-$31.40
|
|
|
226,125
|
|
|
2005
|
|
$29.60
|
|
|
89,925
|
|
|
2006
|
|
$29.42
|
|
|
48,875
|
|
|
2007
|
|
$27.75-$31.30
|
|
|
172,815
|
|
|
2011
|
|
$4.55-$6.00
|
|
|
1,460,000
|
|
|
2012
|
|
$6.22-$6.71
|
|
|
1,550,000
|
|
| |
|
Total
|
|
|
3,711,937
|
|
|