LeapFrog 2003 Annual Report Download - page 88

LEAPFROG ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share and percent data)
Initial Public Offering
In July 2002, the Company raised $115,100, after offering expenses and underwriters’ commissions, in its
initial public offering of 9,960 shares of its Class A common stock at a price to the public of $13.00 per share.
The Company used $34,100 of the net proceeds to repay the entire balance outstanding under its revolving credit
facility in July 2002.
Conversion of Stock Appreciation Rights
Prior to its initial public offering, the Company granted stock appreciation rights under its Amended and
Restated Employee Equity Participation Plan,
In February 2002, the Company converted 338 stock appreciation rights into options to purchase an
aggregate of 338 shares of Class A common stock. The Company recognized approximately $820 in expense
through February, 2002 related to the vested portion of these rights. Deferred compensation of $868 related to the
unvested portion will be amortized to expense through the third quarter of 2005 as the options vest. To the extent
any of the unvested options are forfeited, the actual expense recognized could be lower than currently
anticipated. Concurrent with the initial public offering, the Company stopped granting stock appreciation rights
under the Employee Equity Participation Plan.
In July 2002, the Company converted 1,586 stock appreciation rights into options to purchase an aggregate
of 1,586 shares of Class A common stock. The expense related to the conversion of the vested stock appreciation
rights was $1,562 through July 2002 based on vested rights with respect to 192 shares of Class A common stock
outstanding as of July 25, 2002 at the Company’s initial public offering price of $13 per share. The Company’s
deferred compensation expense in connection with the conversion of 1,311 unvested stock appreciation rights
held by employees, options to purchase 1,311 shares of Class A common stock, was $4,033 The Company will
recognize this expense over the remaining vesting period of the options into which the unvested rights are
converted. Deferred compensation related to the unvested portion will be amortized to expense as the options
vest.
Stock Option Plans
The Company, with the approval of its stockholders and directors, began the granting of options to
employees, directors and consultants in 1997. The Company adopted a Stock Option Plan (the “Plan”) in March
1999, which covered the conditions of options previously granted. Under the Plan, employees, outside directors
and consultants are able to participate in the Company’s future performance through awards of incentive stock
options and nonqualified stock options. The number of shares reserved and available for grant and issuance
pursuant to the Plan is 15,000 shares.
In May 2002, the Board of Directors adopted the 2002 Equity Incentive Plan, which amends and restates the
Plan. An additional 1,500 shares of Class A common stock have been reserved bringing the total issuable under
the Equity Incentive Plan to 16,500. The Company’s stockholders approved the 2002 Equity Incentive Plan in
July 2002. Each stock option is exercisable pursuant to the vesting schedule set forth in the stock option
agreement granting such stock option. Unless a different period is provided for by the Board or a stock option
agreement, each stock option is generally exercisable for a period of ten years from the date of grant. No stock
option shall be exercisable after the expiration of its option term. Any incentive stock option granted to any
owners of 10% or more of the total combined voting power of the Company may be exercised only until
December 31, 2002. The exercise price of the option shall be 100% of the fair market value of a share of Class A
common stock on the date the stock option is granted, provided that the option price of an incentive stock option
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