LeapFrog 2003 Annual Report Download - page 141

the vesting acceleration of an option granted to a non-employee director results in the imposition of the “golden
parachute” excise tax under Section 4999 of the Internal Revenue Code, then the “golden parachute” payment
will be reduced to the extent necessary to avoid the imposition of the excise tax, but only if the reduction in
vesting acceleration would result in a greater total payment for the non-employee director taking into account all
applicable taxes, including the excise tax.
Amendments to the Director Plan. The board of directors has the authority to amend the Director Plan,
so long as such action does not impair any option previously granted under the Director Plan, unless consented to
in writing by the optionee. In addition, no amendment will be effective unless approved by our stockholders
where such amendment requires stockholder approval under applicable law or stock exchange requirements. The
board of directors may in its sole discretion submit any other amendment to the Director Plan for stockholder
approval.
Termination or Suspension of the Director Plan. The board of directors may suspend or terminate the
Director Plan at any time. No options may be granted under the Director Plan while the Director Plan is
suspended or after it is terminated.
Federal Income Tax Consequences of the Director Plan. Options granted under the Director Plan are
nonstatutory options.There are no federal income tax consequences to the optionee or us by reason of the grant
of a nonstatutory stock option. Upon exercise of a nonstatutory stock option, the optionee normally will
recognize taxable ordinary income equal to the excess of the fair market value of our Class A common stock on
the date of exercise over the option exercise price. With respect to employees, we are generally required to
withhold an amount based on the ordinary income recognized. Generally, we will be entitled to a business
expense deduction equal to the taxable ordinary income realized by the optionee. Upon disposition of the stock,
the optionee will recognize a capital gain or loss equal to the difference between the selling price and the sum of
the amount paid for such stock plus any amount recognized as ordinary income upon exercise of the option. Such
gain or loss will be long-term or short-term depending on whether the stock was held for more than 1 year.
Slightly different rules may apply to optionees who are subject to Section 16(b) of the Exchange Act.
NEW PLAN BENEFITS
The following table presents the annual grants to be received by our non-employee directors in July 2004,
assuming the amendments to the Director Plan contemplated by this Proposal 3 are approved by our
stockholders. If this Proposal 3 is not approved by our stockholders, our non-employee directors will be entitled
to the benefits set forth in our original Director Plan.
Name and Position
Number of Shares of
Class A Common Stock
Underlying Options
Steven B. Fink (Chairman) ................................... 25,000
Jeffery Berg ............................................... 15,000
Barry Munitz .............................................. 15,000
Stanley Maron ............................................. 15,000
E. Stanton McKee .......................................... 15,000
Stewart Resnick ............................................ 15,000
Equity Compensation Plan Information
For certain information concerning our Class A common stock to be issued in connection with our Equity
Plan and our Director Plan as of December 31, 2003, see “Equity Compensation Plan Information” in Proposal 2
above.
The Board of Directors Recommends
aVote in Favor of Proposal Three.
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