Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years Ended December 31, 2001, 2000 and 1999
pages directory service. The warrants have an exercise price of $1.50 per share. The warrants were valued using the fair value method, as
required under SFAS No. 123. The fair value of the warrants was approximately $3,300,000 at the date of grant, and is being amortized ratably
over the four year vesting period. The underlying assumptions used to determine the value of the warrants are an expected life of six years and
a 5.5% risk free interest rate. AOL exercised no warrants in 2001 and exercised 3,464,696 warrants in 2000.
: The Company assumed warrants to purchase 144,404 shares of the Company's common stock as a result of the
acquisition of INEX Corporation (Note 7). These warrants were issued to seven third party INEX investors. Two of the third party investors
exercised 24,486 of the warrants in December 1999. The remaining warrants were exercised during 2000.
: The Company assumed warrants to purchase 447,203 shares of the Company's stock as a result of the acquisition of
Prio, Inc. with an exercise price of $9.97 per share. The warrants were issued to a third party investor in December 1998 in connection with a
marketing agreement and are exercisable over a maximum of a 48 month period, based on achievement of performance milestones and other
criteria as defined in the marketing agreement. In 1999, Prio recorded warrant expense for all the warrants issued of $17.7 million based on the
fair value of these warrants using the Black Scholes option pricing model with the following assumptions: dividend yield of 0%; expected
volatility of 75%; contractual life of nine years; and risk free interest rate of 6.37%. The compensation cost for the unvested warrants was
remeasured when vesting occurred and additional warrant expense of $2.9 million was recognized in the year ended December 31, 2000. The
compensation cost is reflected in sales, general and administrative expenses on the Statement of Operations. All of these warrants were
exercised in 2000.
1998 Employee Stock Purchase Plan
: The Company adopted the 1998 Employee Stock Purchase Plan (the ESPP) in August 1998. The
ESPP was implemented upon the effectiveness of the initial public offering. The ESPP is intended to qualify under Section 423 of the Code,
and permits eligible employees of the Company and its subsidiaries to purchase common stock through payroll deductions of up to 15% of
their compensation. Under the ESPP, no employee may purchase common stock worth more than $25,000 in any calendar year, valued as of
the first day of each offering period. In addition, owners of 5% or more of the Company or subsidiary's common stock and the Company's
executives may not participate in the ESPP. An aggregate of 3,600,000 shares of common stock are authorized for issuance under the ESPP.
The ESPP was implemented with six month offering periods that begin on each February 1 and August 1. The price of common stock
purchased under the ESPP will be the lesser of 85% of the fair market value on the first day of an offering period and 85% of the fair market
value on the last day of an offering period. The ESPP does not have a fixed expiration date, but may be terminated by the Company's Board of
Directors at any time. There were 55,092 shares issued for ESPP periods that ended in 2000 and 499,153 shares issued for ESPP periods that
ended in 2001.
Preferred stock dividend
: On March 15, 1999, Go2Net entered into a Stock Purchase Agreement under which Go2Net agreed to issue
and sell to Vulcan Ventures Incorporated (Vulcan) 546,000 (all shares and share prices include the exchange ratio of 1.82 used in the
Company's acquisition of Go2Net) shares of Go2Net's Series A Convertible Preferred Stock, par value $.01 per share, for a purchase price of
$549.05 per share, in two separate issuances of 304,863 (the First Issuance) and 241,137 shares (the Second Issuance). The Series A
Convertible Preferred Stock was initially convertible at a conversion price of $18.1648 per share into 16,517,923 shares of common stock and
had a liquidation preference of $549.05 per share. The First Issuance was consummated concurrently with the execution of the Stock Purchase
Agreement on March 15, 1999. The Second Issuance was consummated June 17, 1999. The total proceeds to the Company for both issuances
were $291.0 million.