LeapFrog 2004 Annual Report Download - page 146

residence that exceeds the amount of net proceeds from the sale of Mr. Perez’s New York residence, less any tax
deduction Mr. Perez would receive for a portion of the mortgage interest payments, plus an amount sufficient to
gross-up Mr. Perez’s tax on a portion of the reimbursement amount (the “Mortgage Interest Reimbursement”).
LeapFrog’s obligation to pay the Mortgage Interest Reimbursement terminates on the earliest of: (1) the date Mr.
Perez’s employment with LeapFrog terminates; (2) the date Mr. Perez ceases making mortgage payments on his
Bay Area residence; or (3) five years after the date Mr. Perez purchased his residence in the Bay Area. In 2004,
the Mortgage Interest Reimbursement totaled $87,434. In the event Mr. Perez’s employment terminates within
the first three years of his employment with LeapFrog and he sells his Bay Area residence within 12 months after
the termination date to an unaffiliated third party for a sale price that is less than his purchase price, he will be
reimbursed for his lost principal investment in the Bay Area residence and the amount he is required to pay the
mortgagor upon the sale in excess of the sale price, up to a maximum of $750,000 total reimbursement. Mr.
Perez is also entitled to a car allowance of $650 per month and up to $5,000 each year for the cost of term life
insurance providing for an aggregate benefit of $1,000,000.
In the event of a change of control of our company (as defined in the employment agreement), even if Mr.
Perez’s employment is not terminated, he will be entitled to receive:
• If the change of control occurs within the first year of his employment with us, the Option will
accelerate such that a total of 100,000 shares subject to the Option will be fully exercisable
immediately upon the effective date of the change in control. The remaining 300,000 unvested shares
subject to the Option will continue to vest pursuant to the terms of our 2002 Equity Incentive Plan and
corresponding stock option grant notice and stock option agreement.
• If the change of control occurs after the first year of his employment with us, one-half of the shares
subject to the Option that have not otherwise vested as of the effective date of the change of control
will accelerate and become fully exercisable immediately upon the effective date of the change in
control. The remaining unvested shares subject to the option will continue to vest pursuant to the terms
of our 2002 Equity Incentive Plan and the corresponding stock option grant notice and stock option
agreement.
If we terminate Mr. Perez’s employment for any reason other than his death, disability, or cause (as defined
in the employment agreement), or he voluntarily resigns without good reason (as defined in the agreement), he
will be entitled to receive the following severance benefits, if he provides LeapFrog with a general release of
claims in a form reasonably required by the company:
• If the separation occurs within the first year of his employment with us, and the Option has not
accelerated due to a change in control, the Option will accelerate such that a total of 100,000 shares
subject to the Option will be fully exercisable as of his separation date with us. The remaining 300,000
unvested shares subject to the Option will cease vesting and will terminate as of his separation date.
• If the separation occurs after the first year of his employment with us, and the Option has not
accelerated due to a change in control, one-half of the shares subject to the Option that have not
otherwise vested as of his separation date will accelerate and become fully exercisable as of his
separation date with us. The remaining unvested shares subject to the Option will cease vesting and
will terminate as of his separation date.
• Mr. Perez will immediately commence a consulting relationship with LeapFrog under the terms set
forth in the employment agreement. If the separation occurs within the first three years of his
employment with us, the consulting relationship will continue until the third anniversary of his
separation date, and if the separation occurs after the first three years of his employment with us, the
consulting relationship will continue until the second anniversary of his separation date. The consulting
relationship will terminate immediately and LeapFrog will have no continuing obligation to pay Mr.
Perez any consulting fees if Mr. Perez provides any services or assistance in any capacity to a
competitive business (as defined in the employment agreement). Mr. Perez’s consulting fee would be
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