LeapFrog 2008 Annual Report Download - page 146

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typically been for approximately three years of monthly payments. For our named executive officers, the value of
these benefits is described in the Summary Compensation Table and the related footnotes.
Under his employment offer letter, Mr. Moon received mortgage interest assistance through March 2008
depending on his continued employment and we paid him $5,982 in 2008 under this arrangement. Mr. Pidel also
received reimbursements for his relocation expenses as part of his employment package. In 2008, we paid
Mr. Pidel an aggregate of $78,000 in relocation expense reimbursements, including mortgage interest assistance
payments of $3,000 per month for the eleven months of his 2008 tenure with us, plus a $45,000 lump sum
payment representing a continuation of his mortgage interest subsidy.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to publicly held
companies for compensation exceeding $1.0 million paid to certain of a company’s executive officers. The
limitation applies only to compensation that is not considered to be performance-based. Our 2002 Equity
Incentive Plan includes certain provisions intended to allow us to qualify performance share grants as
“performance-based” compensation under Section 162(m), although, in February 2007, we discontinued our
performance share program. In addition, grants of stock options under our 2002 Equity Incentive Plan are also
designed to qualify as “performance-based,” provided the grants have exercise prices of no less than 100% of fair
market value on the date of grant and do not exceed a calendar year total grant limit for each optionee that is set
forth in the 2002 Equity Incentive Plan. We generally intend to grant stock options to our executives in a manner
that satisfies the requirements for qualified performance-based compensation to avoid any disallowance of
deductions under Section 162(m).
The compensation committee believes it is appropriate for us to retain the flexibility to pay compensation
above $1.0 million if warranted based upon exceptional company and individual performance, and thus, from
time to time, we may pay compensation to executives that is not deductible, including grants of equity and cash
bonuses.
42