LeapFrog 2009 Annual Report Download - page 152

In view of the May 2009 award and based on the compensation committee’s assessment of the value of the
outstanding equity held by our senior management team and other key contributors following our August 2009
stock option exchange program, none of the named executive officers, with the exception of Mr. Dodd, received
additional stock awards as part of a more general stock award grant to employees in October 2009. Mr. Dodd
received an option to purchase 35,000 shares of our Class A common stock, based on an evaluation of his
performance and a determination by the compensation committee that he was one of our key employees critical
to the successful execution of our business plan through 2010 and beyond. The size of the award was determined
based on our projected share usage under 2002 Equity Incentive Plan, and a budget of shares to be allocated
among specified key leaders, including Mr. Dodd but excluding the other named executive officers. In
accordance with our equity award grant policy, this option was granted as of November 16, 2009. It had an
exercise price of $4.04 per share and a four-year vesting schedule.
Stock Option Exchange Program
In June 2009, our board approved a “value-for-value” stock option exchange program designed to replenish
the share pool for our 2002 Equity Incentive Plan. The program was approved by our stockholders in August
2009. Under the program, employees were given the opportunity to exchange their outstanding
“out-of-the-money” stock options with an exercise price in excess of $4.00 per share for new stock options with
an exercise price equal to $3.79 per share (the closing price for our Class A common stock on the NYSE on the
business day prior to the expiration of the exchange offer) but for a lesser number of shares (with the goal of
having the accounting fair value of the replacement options generally equal to or less than the accounting fair
value of the surrendered options). As a result, the aggregate number of shares subject to outstanding stock
options would be reduced, with the surrendered option shares returned to the share pool of the 2002 Equity
Incentive Plan, and without causing us to recognize any significant accounting expense.
All our U.S. employees and certain non-U.S. employees holding eligible options, including the named
executive officers, and our non-employee directors, were eligible to participate in the stock option exchange
program. The board and compensation committee approved the participation of our executives in the program
since they (along with our directors) held stock options covering approximately 60% of the total number of
shares issuable under the 2002 Equity Incentive Plan. To improve the attractiveness of the stock option exchange
program to stockholders, however, the stock option exchange program provided that the minimum exercise price
of the replacement stock options granted to our CEO (and directors) would be $6.25 per share, but that such
replacement stock options would have an exchange ratio based on a $3.79 exercise price (yielding a lower
assumed fair value for the replacement options). As a result, our CEO received replacement options covering
fewer shares than he would have received if such replacement options had been valued using their actual exercise
price. The board and compensation committee believed that $6.25 exercise price for our CEO would reduce the
likelihood that he would exercise the options in the near term and emphasized the importance of achieving
significantly improved results before yielding significant compensation value.
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