LeapFrog 2008 Annual Report Download - page 143

Stock Award Granting Policy. Our general policy for stock award grants is that we will not seek to time or
select the grant dates of stock options or other stock awards in coordination with the release by us of material
non-public information, nor will we have any program, plan or practice to do so. We also have a specific policy
regarding the grant dates of stock options and other stock awards, including stock awards made to our executive
officers. That policy provides that the grant date of all awards is to be the 15th day of the month subsequent to
the month in which the award is approved by the board (or the next succeeding business day that the NYSE is
open). Accordingly, we have 12 preset grant dates during a calendar year (i.e., the 15th of each month, except as
adjusted due to weekends and holidays). The exercise price of each award equals the closing price of our
common stock on the trading day immediately preceding the grant date, in accordance with the terms of our
equity plan.
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 option holders. 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 August 2008, 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 178,500 shares,
Mr. Chiasson was awarded an option to purchase 51,000 shares, Mr. Dodd was awarded an option to purchase
53,250 shares, Ms. MacIntyre was awarded an option to purchase 70,000 shares, Mr. Campbell was awarded an
option to purchase 21,200 shares, Mr. Moon was awarded an option to purchase 15,900 shares, and Mr. Pidel was
awarded an option to purchase 21,000 shares. All stock option awards for these named executive officers had an
exercise price of $9.33 per share and were granted effective September 15, 2008 in accordance with our stock
award granting policy. These options vest in 48 equal monthly installments from September 15, 2008.
These awards were primarily based on the 2008 equity guidelines developed by Towers Perrin and approved
by the compensation committee in February 2008. However, the compensation committee decided not to grant
RSUs to our executive officers, including the named executive officers, in light of the fact that our recently-
completed option exchange program discussed below had already provided a potentially significant benefit to our
executives. The number of RSUs that our named executive officers would otherwise have been granted were
replaced by options to purchase the same number of shares. 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 in 2007 and the first portion of 2008, strategic impact on the
company, and current equity holdings compared to similar positions within our peer compensation peer group.
The compensation committee approved the stock option award to Mr. Katz by reviewing his overall performance
in achieving corporate and individual goals in 2007 and the first portion of 2008 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. Because RSUs are full value, our practice is to grant fewer shares under RSUs as compared to
options since RSUs have a greater fair value per share than options. Granting RSUs allows us to deliver
competitive compensation value to our key employees and strengthen the retention power of the equity grant
program while, at the same time, reducing the amount of potential dilution for all stockholders. RSUs are
primarily a retention vehicle, as the stock continues to have value even when the stock price declines. In addition,
RSUs can serve as a valuable recruitment tool by offering immediate equity value in our common stock, which
can help us attract talented executives who might forfeit valuable equity stakes at their current employers in order
to join us. Shares of our common stock are not issued when an RSU is granted. Instead, once an RSU vests, one
share of our common stock is issued for each share of RSU vested. RSUs vest at the rate of 25% on each of the
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