LeapFrog 2006 Annual Report Download - page 120

Adjustments upon Changes in Stock. If any change is made in the Class A common stock subject to the
Equity Plan or subject to any stock award without receipt of consideration by LeapFrog (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split,
liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the
class(es) and maximum number of shares subject to the Equity Plan, the maximum annual award limit applicable
under the Equity Plan and the class(es) and number of shares and price per share of stock subject to outstanding
stock awards will be appropriately adjusted.
Corporate Transactions. In the event of a Corporate Transaction (as defined in the Equity Plan), any
surviving or acquiring corporation may assume or continue any stock awards outstanding under the Equity Plan
or may substitute similar awards for those outstanding under the Equity Plan. A surviving corporation or
acquiring corporation (or its parent) may choose to assume or continue only a portion of a stock award or
substitute a similar stock award for only a portion of a stock award. If a surviving or acquiring corporation does
not assume or continue such stock awards or substitute similar awards, then, unless otherwise provided by the
board of directors, any outstanding stock awards that have not been assumed or substituted may be exercised (to
the extent vested) prior to the effective time of such corporate transaction, and any such stock awards will
terminate if not exercised prior to the effective time of such corporate transaction.
Changes in Control. In the event of a Change in Control (as defined in the Equity Plan), an outstanding
stock award held by a recipient whose relationship with us, or any affiliate of ours, has not terminated may be
subject to additional acceleration of vesting and exercisability upon or after such Change in Control to the extent
provided in a stock award agreement or any other written agreement between the recipient and us or an affiliate.
In the absence of such provision, however, no such acceleration will occur.
Amendments to the Equity Plan. The board of directors has the authority to amend the Equity Plan, so
long as such action does not impair any stock award previously granted under the Equity Plan, unless consented
to in writing by the holder of such award. 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 Equity Plan
for stockholder approval.
Termination or Suspension of the Equity Plan. The board of directors may suspend or terminate the
Equity Plan at any time. No stock awards may be granted under the Equity Plan while the Equity Plan is
suspended or after it is terminated.
Federal Income Tax Consequences of the Equity Plan.
The following is a summary of the principal United States federal income tax consequences to participants
and LeapFrog with respect to participation in the Equity Plan. This summary is not intended to be exhaustive,
and does not discuss the income tax laws of any city, state or foreign jurisdiction in which a participant may
reside.
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 one year. Slightly different
rules may apply to optionees who are subject to Section 16(b) of the Exchange Act.
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