LeapFrog 2003 Annual Report Download - page 152

the time of grant, and, if certificates are issued, a separate certificate or certificates shall be issued for shares of
Class A Common Stock purchased on exercise of each type of Option. The provisions of separate Options need
not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the
Option or otherwise) the substance of each of the following provisions:
(a) Term. Subject to the provisions of Section 5(b) regarding Ten Percent Stockholders, no Incentive
Stock Option shall be exercisable after the expiration of ten (10) years from the date on which it was granted.
(b) Exercise Price of an Incentive Stock Option. Subject to the provisions of Section 5(b) regarding Ten
Percent Stockholders, the exercise price of each Incentive Stock Option shall be not less than one hundred
percent (100%) of the Fair Market Value of the Class A Common Stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise
price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) Exercise Price of a Nonstatutory Stock Option. The exercise price of each Nonstatutory Stock
Option shall be not less than fifty percent (50%) of the Fair Market Value of the Class A Common Stock subject
to the Option on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option may
be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code. The foregoing restriction shall not apply to any NSO issued in exchange for a stock
appreciation right (“SAR”), pursuant to Section 3.3 of the Company’s Employee Equity Participation Plan (the
“SAR Plan”).
(d) Consideration. The purchase price of Class A Common Stock acquired pursuant to an Option shall be
paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is
exercised or (ii) at the discretion of the Board at the time of the grant of the Option (or subsequently in the case
of a Nonstatutory Stock Option) (1) pursuant to a program developed under Regulation T as promulgated by the
Federal Reserve Board, (2) by delivery to the Company of other Class A Common Stock, (3) according to a
deferred payment or other similar arrangement with the Optionholder or (4) in any other form of legal
consideration that may be acceptable to the Board. Unless otherwise specifically provided in the Option, the
purchase price of Class A Common Stock acquired pursuant to an Option that is paid by delivery to the Company
of other Class A Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares
of the Class A Common Stock of the Company that have been held for more than six (6) months (or such longer
or shorter period of time required to avoid a charge to earnings for financial accounting purposes). At any time
that the Company is incorporated in Delaware, payment of the Class A Common Stock’s “par value,” as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall
be charged at the minimum rate of interest necessary to avoid (1) the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment
arrangement and (2) the treatment of the Option as a variable award for financial accounting purposes.
(e) Transferability of an Incentive Stock Option. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering
written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of
the death of the Optionholder, shall thereafter be entitled to exercise the Option.
(f) Transferability of a Nonstatutory Stock Option. ANonstatutory Stock Option shall be transferable
to the extent provided in the Option Agreement. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of
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