LeapFrog 2002 Annual Report Download - page 94

LEAPFROG ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except share, per share and percent data)
years. Excluding these converted rights, 84,580 options at an average price of $12.20 were issued to consultants
in 2002.
During the years ended December 31, 2002, 2001 and 2000, in connection with the grant of certain stock
options to employees, the Company recorded deferred stock compensation for financial statement reporting
purposes of $5,034, $3,250 and $0, respectively. Deferred stock compensation is included as a component of
stockholders’ equity and is being amortized to expense on a straight-line basis over the vesting periods of the
options. The Company recorded $1,752, $681 and $54 of stock-based compensation for the years ended
December 31, 2002, 2001 and 2000, respectively.
Pro forma information regarding net loss is required by SFAS No. 123, and has been determined as if the
Company had accounted for its employee stock options under the fair value method of that statement. The fair
value of these options was estimated at the date of grant using the Black-Scholes option pricing model for
options granted after January 1, 2002 and the minimum value option pricing model was used for options granted
prior to January 1, 2002. The following weighted average assumptions were used for each of the years ended
December 31, 2002, 2001 and 2000, respectively: risk-free interest rates of 4.40%, 4.30% and 5.50%,
respectively; dividend yields of 0%; and a weighted-average expected life of the options of four years. A
volatility factor of 70% was used for stock options granted in 2002.
The minimum value option pricing model is similar to the Black-Scholes option valuation model which was
developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully
transferable, except that it excludes the factor of volatility. In addition, option valuation models require the input
of highly subjective assumptions. Because the Company’s employee stock options have characteristics
significantly different from those of traded options, and because changes in the subjective assumptions can
materially affect the fair value estimate, in management’s opinion the existing models do not necessarily provide
a reliable single measure of the fair value of its employee stock options.
The weighted-average fair value of options granted, which is the value assigned to the options under this
disclosure policy for December 31, 2002, 2001 and 2000 was $7.33, $0.78 and $0.99 per share, respectively.
Employee Stock Purchase Plan
In July 2002, the Company’s stockholders adopted the 2002 Employee Stock Purchase Plan, under which
2,000,000 shares of Class A common stock have been reserved. No shares have been issued under this plan .
Shares Reserved For Future Issuance
The following table summarizes the number of shares of Class A common stock that are reserved for future
issuance at December 31, 2002.
Class A
Options available and outstanding .................................... 15,166,322
Shares issuable under the Employee Stock Purchase Plan .................. 2,000,000
Conversion of Class B Common Stock ................................. 38,678,831
55,845,153
F-25