LeapFrog 2008 Annual Report Download - page 151

determined using multiple financial and non-financial metrics. The threshold payment amount is 80% of the
target amount, if all incentive plan metrics are achieved at the threshold performance level. If performance
against all incentive plan metrics is below the threshold, the payout is zero. The maximum payment is 200%
of the target amount. In February 2009, the compensation committee and board determined that no bonus
awards would be paid to our executive officers under the 2008 bonus plan, as discussed in this proxy
statement in “Compensation Discussion and Analysis” under “Performance-Based Annual Bonus Awards.”
However, we have presented the estimated future payouts to show what the levels could have been assuming
sufficient funding of the bonus pool.
(3) Restricted stock units are granted under the 2002 Equity Incentive Plan and, consistent with the grants to the
other employees, vest at the rate of 25% of the shares subject to the award on each of the four subsequent
anniversaries of the vesting commencement date. On each vesting date, any vested shares subject to the
restricted stock unit grants are automatically issued and immediately released to the employee.
(4) Options vest over a four-year period in 48 equal monthly installments, consistent with grants to other
employees.
(5) Messrs. Katz and Chiasson and Ms. McIntyre participated in our one-time option exchange program
approved by stockholders on June 5, 2008. New options were granted on June 9, 2008 on a value-for-value
basis with similar terms and conditions to the original grants, except that, for any option shares that were
already vested or would have been vested by June 9, 2009 under tendered options, the vesting was reset as
to the same percentage of shares subject to the new award so that such new option shares would vest on
June 9, 2009. Any remaining shares subject to the new award would vest in accordance with the original
vesting schedule. Each of our named executive officers has previously been granted “tiered” options to
purchase shares of our stock at then fair market value as well as at strike prices that were approximately
133% and 166% of then fair market value. Named executive officers who elected to surrender tiered options
in the program received in exchange option grants with a similar tier structure, with the result that the new
options would include the same proportions of out-of-the-money strike prices as the surrendered options.
See accompanying footnotes to the Outstanding Equity Awards at December 31, 2008 table for more details
regarding the exchange.
(6) As provided in the 2002 Equity Incentive Plan, we grant options to purchase our common stock at an
exercise price equal to the closing market price of our common stock on the trading day immediately
preceding the date of grant.
(7) Represents the full fair value or, in the case of replacement options granted in our option exchange program,
the incremental fair value, of the option or award computed as of the grant date in accordance with SFAS
123R. Where incremental fair value of a grant is shown, the amount is net of the value of options canceled
in exchange for the grant. See Note 14 of Notes to Financial Statements included in our Annual Report on
Form 10-K for the year ended December 31, 2008 for a discussion of assumptions made in determining the
grant date fair value and compensation expense of equity awards.
Notes Regarding Summary Compensation Table and Grants of Plan-Based Awards Table
Both the “Summary Compensation” table and the “Grants of Plan-Based Awards in Fiscal 2008” table
reflect terms contained in the employment agreement that LeapFrog entered into with Mr. Katz, who began
employment with LeapFrog on July 3, 2006. Mr. Katz’s employment agreement provides for an annual base
salary of $600,000 and a sign-on bonus of $300,000. Mr. Katz is eligible to receive an annual bonus based on his
achievement of certain individual objectives and LeapFrog financial performance measures established by the
board, at the target bonus opportunity level of 100% of Mr. Katz’s annual base salary and at a maximum 200% of
his annual base salary for exemplary performance pursuant to stretch-level objectives. Mr. Katz must be an active
employee of LeapFrog through and as of the last day of each bonus year in order to be eligible to receive a bonus
for that year. Mr. Katz was eligible to and did receive a bonus for performance in 2006, prorated for his partial
year of service in 2006. For the first year of Mr. Katz’s employment, until Mr. Katz established a permanent
residency in the San Francisco Bay area, we reimbursed him for reasonable expenses incurred in commuting
47