LeapFrog 2007 Annual Report Download - page 165

the 15th day of the month as a result of the open or closed status of our trading window, which had applied to
approvals related to our executive officers. As a result, all stock awards, including awards for our executive
officers, will be granted on the 15th day of the month subsequent to the month in which a stock award was
approved by the compensation committee. This policy will establish 12 pre-set grant dates during a calendar year
(i.e., the 15th of each month, except as adjusted due to weekends and holidays) which, in the compensation
committee’s view, will provide greater consistency in granting activity as well as reduce the opportunity for
discretion regarding the timing or selection of grant dates.
Stock Options. The compensation committee believes that stock options provide management with a
strong link to long-term corporate performance and the creation of stockholder value. Appreciation of our stock
price will benefit both stockholders and employees that are optionholders. Option grants made to our executive
officers typically have a four-year vesting period and a strike price equal to 100% of the fair market value of the
underlying Class A common stock, as defined under our equity plan. Employees, including our executive
officers, are generally eligible for “new hire” grants upon initial hire, and then annually thereafter, based on
factors including individual performance and total equity position, anticipated future contribution to our success,
and alignment among similarly situated employees.
In January 2007, the compensation committee approved a grant to Mr. Pidel of an option to purchase 75,000
shares of our Class A common stock. This option has three tiers—50% of the shares have a strike price of $9.34
per share, which was equal to fair market value of our stock on the grant date, 25% of the shares have a strike
price of $12.42 per share (133% of fair market value) and 25% of the shares have a strike price of $15.50 per
share (166% of fair market value). Each of the three tiers of this option vests at the rate of 25% on the first
anniversary of the grant date, with the remaining portion vesting in thirty-six equal monthly installments for the
three years thereafter. In February 2007, the compensation committee approved a grant for Ms. MacIntyre of an
option to purchase 100,000 shares of our Class A common stock. This option has three tiers—50% of the shares
have a strike price of $10.39 per share, which was equal to fair market value of our stock on the grant date, 25%
of the shares have a strike price of $13.82 (133% of fair market value) and 25% of the shares have a strike price
of $17.25 (166% of fair market value). Each of the three tiers of this option vests 25% on the first anniversary
date of the grant, with the remaining portion vesting in thirty-six equal monthly installments for the three years
thereafter. Premiums to fair market value were placed on the strike prices of half of Mr. Pidel’s and
Ms. MacIntyre’s new hire stock option grants in order to encourage actions that could enhance long-term
stockholder value.
In August 2007, the compensation committee approved the grant of stock options to our named executive
officers as part of our annual equity grant process. Mr. Katz was awarded an option to purchase 180,000 shares,
Mr. Chiasson was awarded an option to purchase 20,000 shares, Mr. Dodd was awarded an option to purchase
30,000 shares, Ms MacIntyre was awarded an option to purchase 40,000 shares and Mr. Pidel was awarded an
option to purchase 30,000 shares. All stock option awards for these named executive officers have a strike price
of $7.02 per share and were granted effective September 17, 2007 in accordance with our stock award granting
policy. These awards were based on the 2007 equity guidelines developed by Towers Perrin and approved by the
compensation committee in February 2007. Stock option awards for each of the named executive officers (other
than the CEO) were recommended by the CEO upon consideration of a number of factors, including the
executive’s overall performance during the first portion of 2007, strategic impact on the company and current
equity holdings compared to similar positions within our peer compensation group. Further, the compensation
committee approved awards for Mr. Pidel and Ms. MacIntyre that were above guidelines by 9,000 and 10,000
shares, respectively, to better align each of their total equity holdings with the scope of their responsibilities and
with the rest of the executive management team. The compensation committee approved the stock option award
to Mr. Katz by reviewing his overall performance in achieving corporate and individual goals during the first
portion of 2007 and his total direct compensation compared to CEOs in our compensation peer group.
Restricted Stock Units (RSUs). Restricted stock units, or RSUs, represent full-value shares of Class A
common stock. Our practice is to grant fewer shares under RSUs as compared to options. As a result, granting
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