Earthlink 2001 Annual Report Download - page 49

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In November 2001, Sprint obtained approximately 3.0 million shares of the Company's common stock upon conversion of approximately
3.1 million shares of the Company's Series A convertible preferred stock. The underlying shares were registered for sale through a Rule 144
filing.
As of December 31, 2001, the Company has reserved 26.9 million shares of its common stock underlying Series A and B convertible
preferred stock.
10. Deductions for Dividends on Convertible Preferred Stock
Dividends on Series A and B convertible preferred stock are reflected as an increase to net loss attributable to common stockholders. This
adjustment reflects the liquidation dividend of $20.4 million based on a 3% dividend (note 9) and the accretion of a $9.5 million dividend
related to the beneficial conversion feature of the Series A and Series B convertible preferred stock in accordance with Emerging Issues Task
Force Topic No. 98-5 based upon the rate at which the preferred stock becomes convertible.
F-23
11. Stock Options and Warrants
Option Plans
Options to purchase the Company's common stock under various plans have been granted to employees and directors. All such plans are
administered by the compensation committee appointed by the Board of Directors, which determines the terms of the options granted,
including the exercise price, the number of shares subject to option, and the option vesting period. The exercise price of all options granted
under the plan must be at least 100% of the fair market value on the date of grant. Options generally have a maximum term of ten years and
vest over terms of four to five years. As of December 31, 2001, the Company has reserved 21.0 million shares of its common stock for further
issuance under stock option plans and warrant agreements.
Value of Options Granted to Employees
For disclosure purposes, the fair value of all stock options granted is estimated using the Black-Scholes option-pricing model. The
following weighted average assumptions were used for stock options granted by EarthLink:
If compensation cost were determined on the basis of fair value pursuant to SFAS No. 123, net loss attributable to common stockholders
and net loss per share attributable to common stockholders would have been increased as follows:
Year Ended December 31,
1999
2000
2001
Annual dividends
zero
zero
zero
Expected volatility
89%
92%
93%
Risk free interest rate
5.42%
5.96%
4.63%
Expected life
5.34 years
6.6 years
6.6 years
Year Ended December 31,
1999
2000
2001
(In thousands, except per share data)
Net loss attributable to common stockholders
As reported $
(187,800
) $
(369,652
) $
(370,941
)
Pro forma $
(227,772
) $
(432,428
) $
(428,544
)
Basic and diluted net loss per share
As reported $
(1.65
) $
(2.99
) $
(2.73
)
Pro forma $
(2.00
) $
(3.50
) $
(3.16
)