Sample Business Contracts


Stock Option Agreement - LeapFrog Enterprises Inc.


                           LEAPFROG ENTERPRISES, INC.
                 2002 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

                             STOCK OPTION AGREEMENT
                           (NONSTATUTORY STOCK OPTION)


      Pursuant to your Stock Option Grant Notice ("Grant Notice") and this Stock
Option Agreement, LeapFrog Enterprises, Inc. (the "Company") has granted you an
option under its 2002 Non-Employee Directors' Stock Option Plan (the "Plan") to
purchase the number of shares of the Company's Class A Common Stock indicated in
your Grant Notice at the exercise price indicated in your Grant Notice. Defined
terms not explicitly defined in this Stock Option Agreement but defined in the
Plan shall have the same definitions as in the Plan.

      The details of your option are as follows:

      1.    VESTING. Subject to the limitations contained herein, your option
will vest as provided in your Grant Notice, provided that vesting will cease
upon the termination of your Continuous Service.

      2.    NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Class A
Common Stock subject to your option and your exercise price per share referenced
in your Grant Notice may be adjusted from time to time for Capitalization
Adjustments.

[NOTE RE EARLY EXERCISE: DELETE SECTION 3 (AND RENUMBER REMAINING PROVISIONS
ACCORDINGLY IF THIS METHOD OF EXERCISING AN OPTION IS NOT PERMITTED IN THE GRANT
NOTICE.]

      3.    EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in your
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of your option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:

            (a)   a partial exercise of your option shall be deemed to cover
first vested shares of Class A Common Stock and then the earliest vesting
installment of unvested shares of Class A Common Stock;

            (b)   any shares of Class A Common Stock so purchased from
installments that have not vested as of the date of exercise shall be subject to
the purchase option in favor of the Company as described in the Company's form
of Early Exercise Stock Purchase Agreement; and

            (c)   you shall enter into the Company's form of Early Exercise
Stock Purchase Agreement with a vesting schedule that will result in the same
vesting as if no early exercise had occurred.



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      4.    METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner PERMITTED BY YOUR
GRANT NOTICE, which may include one or more of the following:

            (a)   In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Class A Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve Board
that, prior to the issuance of Class A Common Stock, results in either the
receipt of cash (or check) by the Company or the receipt of irrevocable
instructions to pay the aggregate exercise price to the Company from the sales
proceeds.

            (b)   Provided that at the time of exercise the Class A Common Stock
is publicly traded and quoted regularly in The Wall Street Journal, by delivery
of already-owned shares of Class A Common Stock either that you have held for
the period required to avoid a charge to the Company's reported earnings
(generally six (6) months) or that you did not acquire, directly or indirectly
from the Company, that are owned free and clear of any liens, claims,
encumbrances or security interests, and that are valued at Fair Market Value on
the date of exercise. "Delivery" for these purposes, in the sole discretion of
the Company at the time you exercise your option, shall include delivery to the
Company of your attestation of ownership of such shares of Class A Common Stock
in a form approved by the Company. Notwithstanding the foregoing, you may not
exercise your option by tender to the Company of Class A Common Stock to the
extent such tender would violate the provisions of any law, regulation or
agreement restricting the redemption of the Company's stock.

      5.    WHOLE SHARES. You may exercise your option only for whole shares of
Class A Common Stock.

      6.    SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Class A
Common Stock issuable upon such exercise are then registered under the
Securities Act or, if such shares of Class A Common Stock are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act. The exercise of
your option also must comply with other applicable laws and regulations
governing your option, and you may not exercise your option if the Company
determines that such exercise would not be in material compliance with such laws
and regulations.

      7.    TERM. You may not exercise your option before the commencement or
after the expiration of its term. The term of your option commences on the Date
of Grant and expires upon the earliest of the following:

            (a)   three (3) months after the termination of your Continuous
Service for any reason other than your Disability or death, provided that if
during any part of such three (3) month period your option is not exercisable
solely because of the condition set forth in the above section "Securities Law
Compliance," your option shall not expire until the earlier of the Expiration
Date or until it shall have been exercisable for an aggregate period of three
(3) months after the termination of your Continuous Service;



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            (b)   six (6) months after the termination of your Continuous
Service due to your Disability;

            (c)   six (6) months after your death if you die either during your
Continuous Service or within three (3) months after your Continuous Service
terminates;

            (d)   the Expiration Date indicated in your Grant Notice; or

            (e)   the day before the tenth (10th) anniversary of the Date of
Grant.

      8.    EXERCISE.

            (a)   You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.

            (b)   By exercising your option you agree that, as a condition to
any exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Class A Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Class A Common Stock acquired upon such exercise.

            (c)   By exercising your option you agree that you shall not sell,
dispose of, transfer, make any short sale of, grant any option for the purchase
of, or enter into any hedging or similar transaction with the same economic
effect as a sale, any shares of Common Stock or other securities of the Company
held by you, for a period of time specified by the managing underwriter(s) (not
to exceed one hundred eighty (180) days) following the effective date of a
registration statement of the Company filed under the Securities Act, other than
a Form S-8 registration statement, (the "Lock Up Period"); provided, however,
that nothing contained in this section shall prevent the exercise of a
repurchase option, if any, in favor of the Company during the Lock Up Period.
You further agree to execute and deliver such other agreements as may be
reasonably requested by the Company and/or the underwriter(s) that are
consistent with the foregoing or that are necessary to give further effect
thereto. In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to your shares of Common Stock until the
end of such period. The underwriters of the Company's stock are intended third
party beneficiaries of this paragraph (c) and shall have the right, power and
authority to enforce the provisions hereof as though they were a party hereto.

      9.    TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.



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      10.   OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective stockholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.

      11.   WITHHOLDING OBLIGATIONS.

            (a)   At the time you exercise your option, in whole or in part, or
at any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with the exercise of your option.

            (b)   Upon your request and subject to approval by the Company, in
its sole discretion, and compliance with any applicable legal conditions or
restrictions, the Company may withhold from fully vested shares of Class A
Common Stock otherwise issuable to you upon the exercise of your option a number
of whole shares of Class A Common Stock having a Fair Market Value, determined
by the Company as of the date of exercise, not in excess of the minimum amount
of tax required to be withheld by law (or such lower amount as may be necessary
to avoid variable award accounting). If the date of determination of any tax
withholding obligation is deferred to a date later than the date of exercise of
your option, share withholding pursuant to the preceding sentence shall not be
permitted unless you make a proper and timely election under Section 83(b) of
the Code, covering the aggregate number of shares of Class A Common Stock
acquired upon such exercise with respect to which such determination is
otherwise deferred, to accelerate the determination of such tax withholding
obligation to the date of exercise of your option. Notwithstanding the filing of
such election, shares of Class A Common Stock shall be withheld solely from
fully vested shares of Class A Common Stock determined as of the date of
exercise of your option that are otherwise issuable to you upon such exercise.
Any adverse consequences to you arising in connection with such share
withholding procedure shall be your sole responsibility.

            (c)   You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Class A Common Stock or release such shares of Class A Common Stock
from any escrow provided for herein unless such obligations are satisfied.

      12.   CHANGE IN CONTROL.

            (a)   If a Change in Control (as defined in the Plan) occurs and as
of, or within twelve (12) months after, the effective time of such Change in
Control, your Continuous Service


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terminates, then your options will accelerate and become fully vested and
immediately exercisable, unless the termination was a result of your resignation
(other than any resignation contemplated by the terms of the Change in Control
or required by the Company or the acquiring entity pursuant to the Change in
Control).

            (b)   In the event that the acceleration of the vesting and
exercisability of the Options provided for in paragraph (a) of this Section
entitled "Change in Control" and benefits otherwise payable to you ("Payment")
would (i) constitute a "parachute payment" within the meaning of Section 280G of
the Code, and (ii) but for this sentence, be subject to the excise tax imposed
by Section 4999 of the Code (the "Excise Tax"), then such Payment shall be equal
to the Reduced Amount. The "Reduced Amount" shall be either (x) the largest
portion of the Payment that would result in no portion of the Payment being
subject to the Excise Tax or (y) the largest portion, up to and including the
total, of the Payment, whichever amount, after taking into account all
applicable federal, state and local employment taxes, income taxes, and the
Excise Tax (all computed at the highest applicable marginal rate), results in
your receipt, on an after-tax basis, of the greater amount of the Payment
notwithstanding that all or some portion of the Payment may be subject to the
Excise Tax. If a reduction in payments or benefits constituting "parachute
payments" is necessary so that the Payment equals the Reduced Amount, reduction
shall occur in the following order unless you elect in writing a different order
(provided, however, that such election shall be subject to Company approval if
made on or after the effective date of the event that triggers the Payment):
reduction of cash payments; cancellation of accelerated vesting of Options;
reduction of employee benefits. In the event that acceleration of vesting of
Option compensation is to be reduced, such acceleration of vesting shall be
cancelled in the reverse order of the date of grant of your Options (i.e.,
earliest granted Option cancelled last) unless you elect in writing a different
order for cancellation.

The accounting firm engaged by the Company for general audit purposes as of the
day prior to the effective date of the Change in Control shall perform the
foregoing calculations. If the accounting firm so engaged by the Company is
serving as accountant or auditor for the individual, entity or group effecting
the Change in Control, the Company shall appoint a nationally recognized
accounting firm to make the determinations required hereunder. The Company shall
bear all expenses with respect to the determinations by such accounting firm
required to be made hereunder.

The accounting firm engaged to make the determinations hereunder shall provide
its calculations, together with detailed supporting documentation, to you and
the Company within fifteen (15) calendar days after the date on which your right
to a Payment is triggered (if requested at that time by you or the Company) or
such other time as requested by you or the Company. If the accounting firm
determines that no Excise Tax is payable with respect to a Payment, either
before or after the application of the Reduced Amount, it shall furnish you and
the Company with an opinion reasonably acceptable to you that no Excise Tax will
be imposed with respect to such Payment. Any good faith determinations of the
accounting firm made hereunder shall be final, binding and conclusive upon you
and the Company.

      13.   NOTICES. Any notices provided for in your option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by


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mail by the Company to you, five (5) days after deposit in the United States
mail, postage prepaid, addressed to you at the last address you provided to the
Company.

      14.   GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations, which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.







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