LeapFrog 2005 Annual Report Download - page 129

COMPENSATION OF DIRECTORS
Each non-employee director of LeapFrog receives a cash meeting fee of $1,500 for each board of directors
and committee meeting attended. Prior to February 2006, if there was a board meeting and a committee meeting
on the same day, only one meeting fee was paid for both meetings. In February 2006, the board approved a
change in the compensation of directors to permit the non-employee directors to receive the $1,500 meeting fee
for each board or committee meeting attended, regardless of whether the meetings occurred on the same day. In
addition to this meeting fee, in April 2004, the Compensation Committee of our board of directors approved the
payment of the following annual retainers, which are pro-rated for each month served on the board during the
year, to our non-employee directors, which amounts remained effective for the 2005 fiscal year:
• Each non-employee director will receive an annual retainer of $30,000, provided that a non-employee
director who holds the position of Chairman of our board will receive an annual retainer of $60,000 in
lieu of an annual retainer of $30,000.
• Each non-employee director who serves as a member of our Audit Committee will receive an annual
retainer of $5,000, provided that the Chairman of our Audit Committee will receive an annual retainer
of $10,000 in lieu of an annual retainer of $5,000.
• Each non-employee director who serves as the Chairman of our Compensation Committee, Nominating
and Corporate Governance Committee, and any other committee created by our board of directors will
receive an annual retainer of $5,000.
In the fiscal year ended December 31, 2005, the total cash compensation paid to non-employee directors
was $365,403. The members of our board of directors are also eligible for reimbursement of their expenses
incurred in attending board meetings.
In February 2006, the board approved an increase in the amount of the annual retainer to be paid to the
Chairman and members of the Audit Committee of the board. Effective February 2006, the annual retainer to be
paid to the Chairman of our Audit Committee was increased from $10,000 to $20,000, and the annual retainer fee
for each Audit Committee member was increased from $5,000 to $10,000.
Each non-employee director of LeapFrog also receives stock option grants under the 2002 Non-Employee
Directors’ Stock Option Plan, or Director Plan. Only non-employee directors of LeapFrog are eligible to receive
options under the Director Plan. Options granted under the Director Plan are intended by LeapFrog not to qualify
as incentive stock options under the Internal Revenue Code.
Option grants under the Director Plan are non-discretionary. Upon election to LeapFrog’s board of directors,
a non-employee director is granted an initial option to purchase 30,000 shares of LeapFrog’s Class A common
stock. On July 1 of each year (or the next business day if that date is a legal holiday), each member of
LeapFrog’s board of directors who is not an employee of LeapFrog is automatically granted an option to
purchase 15,000 shares of LeapFrog’s Class A common stock under the Director Plan, provided that a
non-employee director who holds the position of Chairman of our board of directors at the time of the annual
grant will receive an annual grant of 25,000 shares in lieu of an annual grant of 15,000 shares. No other options
may be granted at any time under the Director Plan. The exercise price of options granted under the Director Plan
is 100% of the fair market value of the common stock subject to the option on the date of the option grant.
Options granted under the Director Plan vest in equal monthly installments over a three year period in
accordance with its terms. The term of options granted under the Director Plan is ten years. In the event of a
merger of LeapFrog with or into another corporation or a consolidation, acquisition of assets or other
change-in-control transaction involving LeapFrog, the vesting of each option will accelerate and become fully
vested and immediately exercisable, if, as of the completion of the change-in-control transaction or within 12
months of such transaction, the non-employee director’s service terminates; provided that such acceleration will
not occur if the termination was a result of the non-employee director’s resignation (other than any resignation
contemplated by the terms of the change-in-control transaction or required by LeapFrog or the acquiring entity
pursuant to the change in control).
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