LeapFrog 2003 Annual Report Download - page 133

the Exchange Act, the Committee will consist, respectively, solely of two or more “outside directors” within the
meaning of Section 162(m) of the Code and solely of two or more “non-employee directors” within the meaning
of Section 16 of the Exchange Act. Subject to the terms of the Equity Plan, the Committee determines recipients,
the numbers and types of stock awards to be granted and the terms and conditions of the stock awards, including
the period of their exercisability and vesting. Subject to the limitations set forth below, the Committee will also
determine the exercise price of options granted and the purchase price for rights to purchase restricted stock. In
granting a performance-based stock award, the Committee will set a period of time, or a Performance Period,
which will generally be three years long, over which the attainment of one or more goals, or Performance Goals,
will be measured for the purpose of determining whether the award recipient has a vested right in or to such stock
award. Within the time period prescribed by Section 162(m) of the Code (typically before the 90th day of a
Performance Period), the Committee will establish the Performance Goals, based upon one or more pre-
established criteria, or Performance Criteria, enumerated in the Equity Plan. As soon as administratively
practicable following the end of the Performance Period, the Committee will certify (in writing) whether the
Performance Goal has been satisfied. As used herein with respect to the Equity Plan, the “board of directors”
refers to any committee to which the board of directors delegates administration of the Equity Plan (and, if
applicable, such a subcommittee) as well as to the board of directors itself.
Stock Subject to the Equity Plan. Subject to this proposal, the maximum number of shares of Class A
common stock available for issuance under the Equity Plan is 19,000,000, except as described below under
“Adjustment Upon Changes in Stock,” and the maximum number of shares of Class A common stock that may
be awarded pursuant to incentive stock options is 19,000,000. Within this overall maximum number, no more
than 4,500,00 shares of Class A common stock may be issued pursuant to stock awards other than options. In
addition, no person may be granted awards under the Equity Plan covering more than 2,000,000 shares of Class
Acommon stock in any calendar year. If an award granted under the Equity Plan expires or otherwise terminates
without having been exercised in full, the shares of Class A common stock subject to such awards will again
become available for issuance under the Equity Plan. If any shares issued pursuant to a stock award under the
Equity Plan are forfeited back to or repurchased by LeapFrog, the forfeited or reacquired stock will again become
available for reissuance under the Equity Plan. Shares issued under the Equity Plan may be previously unissued
shares or reacquired shares bought on the market or otherwise
Stock Options. Stock options are granted pursuant to stock option agreements. The exercise price of
incentive stock options must be at least 100% of the fair market value of the Class A common stock on the date
of the grant and, in some cases, at least 110% of such fair market value, as described below. The exercise price of
nonstatutory stock options must be at least 50% of the fair market value of the Class A common stock on the
grant date (except for any nonstatutory stock option that is issued in exchange for a stock appreciation right under
our Employee Equity Participation Plan). However, the exercise price for any option intended to qualify as
“performance-based compensation” within the meaning of Section 162(m) of the Code cannot be less than 100%
of the fair market value of the Class A common stock on the date of grant.
Options granted under the Equity Plan vest at the rate and under the terms and conditions specified in the
option agreement. A stock option may provide for an early exercise feature pursuant to which the option may be
exercised prior to full vesting, resulting in unvested shares of Class A common stock being subject to repurchase
by us in the event of the optionee’s cessation of service prior to the vesting of the shares.
In general, stock options granted under the Equity Plan may not be exercised after the expiration of ten years
from the date of grant. If an optionee’s relationship with us, or any affiliate of ours, terminates for any reason
other than disability or death, the optionee may exercise his or her option (to the extent that such option was
vested at the time of termination), but only within the period of time ending on the earlier of (i) 3 months
following such termination (or such longer or shorter period as specified in the option agreement) or (ii) the
expiration of the term of the option as set forth in the option agreement. If an optionee’s relationship with us, or
any affiliate of ours, terminates due to disability, the optionee may exercise his or her option (to the extent that
such option was vested at the time of termination), but only within the period ending on the earlier of (i) 6
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