LeapFrog 2007 Annual Report Download - page 176

Potential Payments Upon Termination or Change in Control
In October 2007, we established our Executive Management Severance and Change-in-Control Plan which
was approved by our compensation committee, which we refer to as the “Severance Plan,” under which our
named executive officers may receive benefits in the event of termination of employment under specified
circumstances, including a change in control of LeapFrog. Mr. Katz, however, is not eligible to participate in the
Severance Plan, but instead is eligible to receive benefits under the terms of the severance and change-in-control
provisions in his employment agreement. The specific terms of these arrangements, as well as an estimate of the
compensation that would have been payable had they been triggered as of the end of 2007 are described in detail
below with respect to each named executive officer. The estimates are based on the assumption that a triggering
event occurred on December 31, 2007 and assume a price per share of our Class A common stock of $6.73,
which was the price of our Class A common stock reported by the NYSE at the close of market on December 31,
2007. 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 realized, if any, will depend upon the extent to which the market value of our
common stock exceeds the exercise price on the date the option is exercised. Due to the number of factors that
affect the nature and amounts of compensation and benefits provided upon the events discussed below, the
amounts paid or distributed upon the actual occurrence of a triggering event may be different from the amounts
set forth below.
Jeffrey G. Katz
Termination
In July 2006, we entered into an employment agreement with Mr. Katz which provides that he 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, and (b) vesting of the options granted to Mr. Katz on July 6, 2006 (the
“Options”) for 12 additional months. In addition, all vested Options would remain exercisable for two years
following his termination date. Assuming, for the purposes of illustration, a termination date of December 31,
2007 and exercise of the Options on the same date, the bonus payment would be $607,800 and, because the
exercise price of the Options exceeded $6.73, the closing price of our Class A common stock as reported by the
NYSE for December 31, 2007, there would have been no realizable value of the vested options.
In addition, if Mr. Katz’s employment is terminated by us for reasons other than cause or by Mr. Katz for
good reason, we have agreed to hire Mr. Katz as a consultant for a period of two years following his termination.
During this two-year consulting period, we will pay Mr. Katz an annual consulting fee equal to the sum of (a) his
base salary at the time of his termination, (b) the higher of his target bonus at the time of his termination and the
average annual bonus amount paid to Mr. Katz for the two fiscal years preceding his termination and
(c) one-third of all self-employment taxes paid by Mr. Katz on the consulting fees. The consulting fees would be
paid to Mr. Katz in equal semi-monthly installments. We have also agreed to pay all health insurance
continuation payments to maintain Mr. Katz’s group health insurance coverage, for himself and his covered
dependents, while he is providing consulting services to LeapFrog. Assuming a termination date of December 31,
2007, the total consulting fees that could be paid to Mr. Katz would be approximately $2,601,000 and the
payments to maintain group health insurance coverage for himself and his covered dependents would be
approximately $29,300.
The prior benefits described in the preceding two paragraphs are hereinafter referred to as the “Katz
Severance Benefits.”
Under the terms of Mr. Katz’s employment agreement, the term “cause” means:
• commission of an act of fraud, embezzlement or misappropriation against or involving LeapFrog;
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