LeapFrog 2007 Annual Report Download - page 132

The actual exchange ratios will be determined once the closing price of our Class A common stock on the
day prior to the closing of the exchange offer is reported by the NYSE. We currently expect to close the
exchange offer on or about June 6, 2008, assuming the Option Exchange Program is approved by our
stockholders. New Options granted in accordance with the actual exchange ratios will be rounded down to the
nearest whole share on a grant-by-grant basis. Adjustments to any of the assumptions used to calculate the
information in the above table will result in a change to the number of shares underlying New Options that may
be granted under the Option Exchange Program.
Election to Participate. Participation in the Option Exchange Program will be voluntary. Eligible
Participants will be permitted to exchange all or none of their Eligible Options for New Options on a grant-by-
grant basis, except that Eligible Participants who hold single grants of options to purchase 100,000 shares or
more may elect to exchange all or a portion of these large grants. In certain cases, Eligible Participants, including
our executive officers, were granted stock options that had tiered exercise pricing (“Tiered Options”), which are
described in more detail in the section below entitled “Tiered Options.” Eligible Participants who hold Tiered
Options where the number of options granted at the lowest exercise price is 100,000 shares or greater may elect
to exchange all or a portion of the Tiered Options.
Exercise Price of New Options. All New Options will be granted with an exercise price equal to the higher
of $7.50 or the Adjusted Market Price (which will be $0.25 above the closing NYSE price of our stock on the day
prior to the close of the exchange offer). Tiered Options will be treated as described in the section below entitled
“Tiered Options.”
Tiered Options. In certain cases, our employees, including our executive officers, were granted stock
options that had tiered exercise pricing, meaning that a portion of the stock options were granted with exercise
prices set at premiums approximately 33% and 66% higher than the fair market value at the time of grant. With
these tiered stock option grants, Eligible Participants will be allowed to exchange such options only if the lowest
exercise price in the tier (i.e. the option granted with no premium) is greater than the higher of $7.50 or the
Adjusted Market Price. If an eligible Tiered Option is exchanged, options in each of the tiers must be
surrendered, and the exercise prices of the New Options issued in exchange will reflect the same premiums
applied to the exercise prices of the surrendered Tiered Option. For example, if upon the close of the Offer to
Exchange, the exercise price of the New Options is $7.50, and a Tiered Option with a base exercise price of
$9.33 and premium exercise prices of $12.41 and $15.49 (33% and 66% premiums, respectively) is surrendered,
the resulting New Option will have exercise prices of $7.50, $9.98 and $12.45, respectively. The number of
options that will be issued at each of these new exercise price tiers will be determined on a tier-by-tier basis using
exchange ratios based on the Black-Scholes option valuation model, which will take into account, among other
variables, the original exercise price of each tier of the surrendered Tiered Option and our stock price at the
closing of the Offer to Exchange, and which should result in the fair value of the New Option being equal to the
fair value of the Tiered Option surrendered.
Vesting of New Options. The New Options will have the same vesting schedules as the surrendered
options, except that, if any surrendered options are already vested or will vest within 12 months of the closing
date of the Offer to Exchange, the New Options granted in exchange for these surrendered options will now vest
upon the 12-month anniversary of the closing of the Offer to Exchange.
Term of the New Options. The New Options, including the New Options that may be granted to our CEO
in exchange for his Inducement Grants, will have the same expiration date as the original options surrendered.
Other Terms and Conditions of the New Options. The other terms and conditions of the New Options will
be set forth in an option agreement to be entered into as of the New Option grant date. Any additional terms and
conditions will be comparable to the other terms and conditions of the Eligible Options. All New Options will be
nonstatutory stock options granted under our 2002 Equity Incentive Plan, regardless of the tax status of the
Eligible Options tendered for exchange, provided that the New Options issued to our Chief Executive Office in
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