LeapFrog 2006 Annual Report Download - page 157

Potential Payments Upon Termination or Change-in-Control
We have entered into certain agreements and maintain certain plans that will require us to provide
compensation to the named executive officers in the event of a termination of employment or a change-in-control
of LeapFrog. The amount of compensation payable to each named executive officer in each situation is described
below and, with respect to the named executive officers that were employed with us at the end of fiscal 2006, is
based on an assumed triggering event occurring on December 29, 2006 and an assumed price per share of our
common stock of $9.48. With respect to the estimated or potential value of options that are accelerated and/or
have extended exercise periods in connection with a named executive officer’s termination or a change-in-control
of LeapFrog, the actual value of the options, if any, realized will depend on the extent to which the market value
of our common stock exceeds the exercise price on the date the option is exercised. There is no assurance that the
value realized will be at or near the values described below and these amounts should not be used to predict stock
performance.
Jeffrey G. Katz
Termination
Mr. Katz will be entitled to certain benefits if his employment is terminated by us for reasons other than
cause or by Mr. Katz for good reason or due to his death or permanent disability. Upon such a termination,
Mr. Katz (or his estate), would be entitled to receive (a) on our customary bonus payment date, a prorated portion
of his target bonus for the year in which his termination occurs, (b) 12 months of additional vesting of the options
granted to Mr. Katz on July 6, 2006 (the “Options”), and (c) all vested Options would remain exercisable for two
years following the termination date. Assuming a termination date of December 29, 2006, the bonus payment
would be $300,000 and the potential realizable value of the vested Options, assuming a 5% annual rate of
appreciation for the price of our common stock on such date, would be $475,000. The prior benefits are
hereinafter referred to as the “Katz Severance Benefits”).
A termination other than for cause shall mean the termination of Mr. Katz’s employment for any reason
other than his (a) commission of an act of fraud, embezzlement or misappropriation against or involving
LeapFrog, (b) conviction, or entry of a guilty or no contest plea, for any felony involving moral turpitude or
dishonesty, (c) commission of an act or failure to commit an act, involving LeapFrog that would amount to
willful misconduct, wanton misconduct, gross negligence or a material breach of his employment agreement and
which would result in significant harm to LeapFrog, or (d) willful failure to perform the responsibilities and
duties set forth in his employment agreement for a period of ten days following receipt of written notice from
LeapFrog regarding such failure (collectively, “Cause”). A termination by Mr. Katz is for good reason if it is for
any of the following reasons: (a) a substantial reduction in the nature or status of his responsibilities (the
requirement that Mr. Katz assume any position other than the senior-most position upon a change-in-control
transaction shall be deemed a substantial reduction for purposes of triggering termination payments), (b) the
failure to re-elect, or the removal of, Mr. Katz from our board of directors, (c) any reduction in his base salary or
target bonus, (d) relocation of his place of work to any place more than 35 miles from the office he regularly
occupies or 35 miles from Mr. Katz’s residence in southern California, (e) failure by any successor entity
following a change-in-control transaction, within ten days of the request by Mr. Katz, to deliver confirmation of
the successor entity’s commitment to honor Mr. Katz’s employment agreement, or (f) the appointment, prior to
July 3, 2009, of anyone other than Mr. Katz to served as successor chairman of our board of directors upon the
resignation or removal of Mr. Fink from that position.
Change-in-Control
Upon the occurrence of a change-in-control, we would accelerate the vesting of any equity awards then held
by Mr. Katz such that all of his equity awards would be vested as of the date of the change-in-control. The value
of this additional vesting, assuming a change-in-control occurred on December 29, 2006, would be $475,000,
assuming a 5% annual rate of appreciation for the price of our common stock. In addition, if during the two-year
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