LeapFrog 2004 Annual Report Download - page 145

EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS
Thomas J. Kalinske
In April 2004, we entered into a new employment agreement with Thomas J. Kalinske, under which he
agreed to serve as our Chief Executive Officer. The agreement provides for an annual base salary of $495,000
and a guaranteed annual bonus of $67,500. Mr. Kalinske is also eligible to receive an annual discretionary bonus
of up to 100% of his then-current annual salary, less $67,500, based on LeapFrog’s performance and Mr.
Kalinske’s achievement of performance objectives established in writing by the board of directors. Mr. Kalinske
must be an active employee of LeapFrog as of December 31 of the bonus year in order to receive the guaranteed
bonus and the discretionary bonus. Mr. Kalinske waived his right to receive his 2004 guaranteed bonus. Mr.
Kalinske is entitled to a car allowance of $600 per month and up to $20,000 each year for the cost of term life
insurance providing for an aggregate benefit of $2,000,000.
If we terminate Mr. Kalinske’s employment without cause (as defined in the agreement), or if he terminates
his employment for good reason (as defined in the agreement), he is entitled to receive (i) a lump sum payment in
an amount equivalent to his annual base salary in effect on the separation date, (ii) his annual guaranteed bonus
and a pro rata portion of the incentive bonus he would have been entitled to receive but for his separation and
(iii) reimbursement for health insurance premiums for him and his dependents for up to 12 months from the date
his employment with LeapFrog ends. In addition, all unvested stock options held by Mr. Kalinske will accelerate
vesting such that the number of shares that would otherwise vest within a twelve-month period under each option
grant will become fully exercisable as of Mr. Kalinske’s separation date with us. In addition, if Mr. Kalinske’s
employment is terminated for any reason other than death, disability or cause, and if Mr. Kalinske has
satisfactorily performed his duties under his employment agreement, LeapFrog will negotiate with Mr. Kalinkse
in good faith regarding a subsequent consulting or other relationship with Mr. Kalinske that would allow him to
continue to vest with respect to 266,389 unvested options held by Mr. Kalinske at the time he entered into his
employment agreement.
If we terminate Mr. Kalinske’s employment without cause during the 90 days prior to or 12 months
following a change in control (as defined in the agreement) of our company, or if he terminates his employment
for good reason during the same period, Mr. Kalinske would be entitled to an amount equal to one hundred fifty
percent of his base salary plus his guaranteed bonus and incentive bonus for the preceding year, and all of Mr.
Kalinske’s unvested options would immediately vest, regardless of whether Mr. Kalinske’s employment is
terminated. Mr. Kalinske would also be entitled to receive reimbursement for health insurance premiums paid by
Mr. Kalinske for him and his dependents for up to 12 months from the date his employment with LeapFrog ends.
Mr. Kalinske’s employment agreement terminates on April 20, 2008, unless terminated earlier pursuant to
the terms of the agreement.
Jerome J. Perez
In February 2004, we entered into an employment agreement with Jerome J. Perez, under which he agreed
to serve as our President. The term of the agreement is for an unspecified duration. The agreement provides for
an annual base salary of $350,000 and an annual discretionary bonus of up to an additional 80% of Mr. Perez’s
then-current annual salary. In 2004 only, Mr. Perez was entitled to receive a guaranteed bonus equal to 80% of
his then-current annual salary. Mr. Perez waived his right to receive this guaranteed bonus. Under the terms of
the employment agreement, Mr. Perez received an option to purchase 400,000 shares of LeapFrog’s common
stock, granted under LeapFrog’s 2002 Equity Incentive Plan (the “Option”). These shares vest over a four-year
period, with 1/48th of the option vesting monthly for 48 months. Mr. Perez received a signing bonus of $50,000 in
2004, subject to a repayment obligation if he voluntary resigns without good reason (as defined in the
employment agreement) within the first two years of his employment, and the payment of certain relocation
expenses under terms of his employment agreement. The employment agreement also provides for monthly
reimbursement of the interest payments on the portion of the mortgage on Mr. Perez’s San Francisco Bay Area
33