Overstock.com 2002 Annual Report Download - page 45

No warrants were exercised in 2000 or 2001, and 3 warrants were exercised in 2002.
The Company has reserved sufficient shares of common stock to meet its stock option and warrant obligations. As stated in Note 14, 185 of these
warrants are subject to rescission. At December 31, 2001 and 2002, related parties held 850 of the total warrants outstanding.
15. STOCK OPTION PLANS
The Company's board of directors adopted the Amended and Restated 1999 Stock Option Plan and the 2002 Stock Option Plan (collectively, the
"Plans"), in May 1999 and April 2002, respectively. Under these Plans, the Board of Directors may issue incentive stock options to employees and directors
of the Company and non-qualified stock options to consultants of the Company. Options granted under these Plans generally expire at the end of five years
and vest in accordance with a vesting schedule determined by the Company's Board of Directors, usually over four years from the grant date. As of the initial
public offering, the Amended and Restated 1999 Stock Option Plan was terminated. Future shares will be granted under the 2002 Stock Option Plan. As of
December 31, 2002, 890 shares are available for future grants under these Plans.
The following is a summary of stock option activity:
2000 2001 2002
Shares
Weighted
Average
Exercise
Price Shares
Weighted
Average
Exercise
Price
Weighted
Average
Fair Value Shares
Weighted
Average
Exercise
Price
Weighted
Average
Fair Value
Outstanding—beginning of year 123 $ 4.13 415 $ 5.03 1,161 $ 4.68
Granted at fair value 344 5.50 — — 245 8.05
Granted at price below fair value — — 1,020 4.71 $ 5.97 543 5.07 $ 9.61
Exercised (1) 4.74 (14) 5.06 (146) 4.22
Canceled/forfeited (51) 4.80 (260) 4.82 (388) 5.15
Outstanding—end of year 415 5.03 1,161 4.68 1,415 5.37
Options exercisable at year-end 227 4.50 260 4.61 388 4.93
The following table summarizes information about stock options as of December 31, 2002:
Options Outstanding at
December 31, 2002
Options Exercisable at
December 31, 2002
Range of Exercise Prices Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contract Life Shares
Weighted
Average
Exercise
Price
$2.26-$4.54 210 $ 3.21 7.8 120 $ 3.42
$4.54-$6.80 1,035 5.05 8.1 220 5.07
$6.80-$9.07 77 7.41 7.6 41 7.09
$9.07-$22.68 93 11.94 9.3 7 13.24
1,415 5.37 8.1 388 4.93
The weighted-average grant-date fair value of options granted during 2000, 2001 and 2002 was $4.01, $5.97 and $8.21 per share, respectively (see
Note 2). 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:
2000 2001 2002
Risk-free interest rate 6.18% 5.17% 3.31%
Expected life (in years) 4 4 3
Expected volatility 100% 100% 100%
Expected dividend yield 0% 0% 0%
Stock-based compensation
In connection with certain stock option grants to employees during the years ended December 31, 2001 and 2002, the Company recognized
approximately $2,534 and $3,481, respectively, of unearned stock-based compensation for the excess of deemed fair value of shares of common stock subject
to such options over the exercise price of these options at the date of grant. Such amounts are included as a reduction of stockholders' equity and are being
amortized over the vesting period in accordance with FASB Interpretation Number 28, Accounting for Stock Appreciation Rights and Other Variable Stock
Option or Award Plan. The Company recorded stock-based compensation expense of $727 and $3,276 during the year ended December 31, 2001 and 2002,
respectively. No unearned stock-based compensation expense was recorded prior to 2001.
During the years ended December 31, 2001 and 2002, the Company granted 42 and 177 options to consultants, respectively. The Company recorded
unearned stock-based compensation of $384 and $131 related to these grants, of which $176 and $24 was recognized in operations in 2001 and 2002,
respectively. The fair value for these options was measured at the grant date and is remeasured at the end of each quarter until vesting is complete. At
December 31, 2001 and 2002, the fair value of these options was calculated using a Black-Scholes option pricing model using risk-free rates of 4.65% and
3.31% and an expected life of 5 years and 3 years, respectively, expected volatility of 100%, and a dividend yield of 0%. Because there was no public market
for the Company's common stock during 2001, the fair value of the underlying common stock prior to the Company's initial public offering was estimated.