LeapFrog 2005 Annual Report Download - page 157

provided, however, that in the case of stock awards intended to qualify as “performance-based compensation”
within the meaning of Section 162(m) of the Code, or that are made to persons who are subject to Section 16 of
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, purchase or strike price of each stock award. In granting a performance-based stock
award, the Committee will set a period of time (a Performance Period) which will generally be three years long,
over which the attainment of one or more goals (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 (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 established Performance Goals have
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 21,000,000, 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 21,000,000. If this Proposal Three is approved by the
stockholders, then effective as of June 16, 2006, the number of shares available for issuance under the Equity
Plan shall be reduced by (i) one share for each share of Class A common stock issued pursuant to an option or a
stock appreciation right, and (ii) two shares for each share of Class A common stock issued pursuant to a stock
bonus award, restricted stock award or restricted stock unit award.
No person may be granted awards under the Equity Plan covering more than 2,000,000 shares of Class A
common stock in any calendar year. Shares may be issued in connection with a merger or acquisition as
permitted by the rules of the applicable national securities exchange, and such issuance shall not reduce the
number of shares available for issuance under the Equity Plan. 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. Awards that are terminated, forfeited or
repurchased shall result in an increase in the share reserve of the Equity Plan corresponding to the reduction
originally made in respect of the award. If stock awards granted under the Equity Plan are not delivered to a
participant because (i) the stock award is exercised through a reduction in the number of shares subject to the
stock award (a “net exercise”), (ii) the appreciation distribution upon exercise of a stock appreciation right is paid
in shares of Class A common stock, or (c) shares are withheld in satisfaction of applicable withholding taxes, the
number of shares not delivered will become again available for subsequent issuance under the Equity Plan.
Finally, if the exercise price is satisfied by tendering shares of Class A common stock previously held by a
participant, the number of shares so tendered will become again available for subsequent issuance 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
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