LeapFrog 2009 Annual Report Download - page 154

he joined our company as our CEO in 2006. For more information about the terms and conditions of his
severance and change-in-control arrangements, see “Potential Payments upon Termination or Change in Control”
below.
Mr. Wong and Ms. MacIntyre ceased serving as executives in December 2009 and departed from LeapFrog
in the first quarter of 2010 after a brief transition period. Each was eligible to receive severance payments and
benefits under the Severance Plan and did receive such benefits upon executing a release agreement in the first
quarter of 2010. In addition, the compensation committee approved an extension of the post-termination exercise
period for their outstanding vested stock options from the standard three months to 12 months from the date of
cessation of their continuous service, as defined in the 2002 Equity Incentive Plan. For more information about
the severance payments and benefits to be received by Mr. Wong and Ms. MacIntyre, see “Potential Payments
upon Termination or Change in Control” below.
Other Benefits and Perquisites
We offer our executives various benefits, including healthcare coverage and the opportunity to participate in
our Section 401(k) plan and employee stock purchase plan, on the same general conditions as are made available
to all our full-time employees. We do not offer our executive or other employees guaranteed retirement or
pension benefits.
In view of the high cost of housing in the San Francisco Bay Area relative to other parts of the country, we
have, in the past, offered newly-hired executives reimbursement of relocation expenses and mortgage interest
differential payments, where appropriate. Typically, the amount and duration of these payments is negotiated and
set forth in the new executive’s employment agreement or offer letter. None of our named executive officers
received any such reimbursements or payments in 2009 and no other perquisites or personal benefits were
offered in 2009.
Tax and Accounting Considerations
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to a public reporting
company for compensation exceeding $1 million paid to its chief executive officer and, pursuant to recent
Internal Revenue Service guidance, its three other most highly-compensated executive officers (other than its
chief financial officer). This limitation applies only to compensation that is not considered to be “performance-
based.”
Our 2002 Equity Incentive Plan includes various provisions designed to allow us to qualify stock options
and other equity awards as “performance-based” compensation under Section 162(m), including a limitation on
the maximum number of shares subject to awards that may be granted to an individual under the plan in any one
year. In August 2009, to facilitate greater flexibility in granting equity awards to executives, our stockholders
approved a proposal from our board to amend our 2002 Equity Incentive Plan to increase from 2,000,000 to
3,500,000 the limitation on the maximum number of shares subject to awards that may be granted to an
individual under the plan in any one year. Generally, we intend to grant stock options to our executives in a
manner that satisfies the requirements for “performance-based” compensation to avoid any deduction
disallowance for these awards under Section 162(m).
The compensation committee believes that it is appropriate for us to retain the flexibility to pay
compensation that is not necessarily deductible if it deems such compensation to be in the best interests of our
company and stockholders. Accordingly, from time to time, we may pay compensation to our executives that is
not deductible, including cash bonuses and equity awards.
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