Earthlink 2002 Annual Report Download - page 69

for accretion dividends includes approximately $16.0 million, $20.4 million and $13.0 million for the years ended December 31, 2000, 2001
and 2002, respectively, related to increases in the liquidation value per share pursuant to the provisions of the convertible preferred stock.
Deductions for accretion dividends also includes amounts related to the beneficial conversion features of the Series A and Series B
convertible preferred stock recognized in accordance with EITF Issue No. 98-5, "Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently
F-30
Adjustable Conversion Ratios," based upon the rate at which the preferred stock becomes convertible. In effect, the Series A and B convertible
preferred stock was issued at a discount to fair value, and the discount is being accreted through deductions for accretion dividends over the
period from the date of issuance to the date the conversion ratio is equal to one to one in June 2003. Deductions for accretion dividends
includes approximately $7.7 million, $9.5 million and $7.0 million for the years ended December 31, 2000, 2001 and 2002, respectively,
related to amounts recognized pursuant to EITF Issue No. 98-5.
F-31
12. Stock Compensation Plans and Warrants
Option Plans
The Company has granted options to purchase the Company's common stock to employees and directors under various stock option plans.
All stock option plans are administered by the Compensation Committee appointed by the Board of Directors, and as a result, the
Compensation Committee determines the terms of the options granted. Stock options are generally granted with an exercise price equal to the
market value of a share of common stock on the date of grant, have a term of ten years or less, and vest over terms of four to six years from the
date of grant. As of December 31, 2002, there were approximately 33.3 million options authorized for grant to purchase EarthLink common
stock under the Company's stock option plans, and 5.3 million were available for grant under the stock options plans as of December 31, 2002.
Warrants
The Company has historically issued to certain members of its Board of Directors, customers, consultants, lessors, creditors and others
warrants to purchase shares of the Company's common stock. During the year ended December 31, 2000, the Company issued warrants to
purchase a total of 164,388 shares of the Company's common stock. The warrants were issued on September 12, 2000 in connection with the
acquisition of OneMain. The warrants have an exercise price of $18.25 per share and expire on September 12, 2005. The value of the warrants
was estimated at $5.86 each under the Black-Scholes method assuming volatility of 93%, a risk free interest rate of 6.11%, a contractual life of
five years, and an annual dividend rate of zero. The Company did not issue warrants during the years ended December 31, 2001 and 2002. As
of December 31, 2002, warrants to purchase a total of 242,793 shares of common stock were outstanding.
Options and Warrants Outstanding
The following table summarizes information concerning stock option and warrant activity during the years ended December 31, 2000,
2001 and 2002:
Stock Options
and Warrants
Weighted
Average Exercise
Price
(in thousands)
Balance at December 31, 1999
13,465
$
14.72
Granted
15,014
$
12.90
Exercised
(2,270
)
$
3.31
Forfeited
(4,043
)
$
24.55
Balance at December 31, 2000
22,166
$
15.07
Granted
4,151
$
13.37
Exercised
(1,821
)
$
4.45
Forfeited
(3,474
)
$
15.63
Balance at December 31, 2001
21,022
$
15.66