LeapFrog 2009 Annual Report Download - page 77

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
documents; defaults in respect of other indebtedness; bankruptcy, insolvency and inability to pay debts
when due; material judgments; change-in-control provisions and the invalidity of the guaranty or
security agreements. If any event of default under the Loan Agreement occurs, the Agent or the other
Lenders may terminate their respective commitments, declare immediately due all borrowings under the
facility and foreclose on the collateral. A cross-default provision applies if a default occurs on other
indebtedness in excess of $5,000 and the applicable grace period in respect of the indebtedness has
expired, such that the lender of, or trustee for, the defaulted indebtedness has the right to accelerate.
• The Company has granted a security interest in substantially all of its assets to the Agent as security for
its obligations under the facility.
• The Company is required to maintain a ratio of EBITDA to fixed charges, each as defined in the Loan
Agreement, of at least 1.1 to 1.0 when the covenant is required to be tested (compared to 1.0 to 1.0
under the Terminated Agreement). As with the Terminated Agreement, the ratio is measured only if
certain borrowing-availability thresholds are not met.
Under the Loan Agreement for the new credit facility, the interest rate is, initially, for LIBOR rate loans, 4.00%
over the LIBOR rate or, for base rate loans, 3.00% over the Agent’s prime rate. After six months the interest rate
will vary based on borrowing availability.
10. Employee Benefit Plan
LeapFrog sponsors a defined contribution plan under Section 401(k) of the Internal Revenue Code. Effective
September 1, 2005, the 401(k) plan provides that employees may defer up to 100% of their annual compensation,
not to exceed the IRS maximum contribution limit. LeapFrog matches 50% of employee contributions up to the
lesser of $2 or 6% of the participant’s compensation per plan year, which vests over three years. During 2009,
2008 and 2007, the Company recorded total compensation expense of $578, $799 and $592, respectively, related
to the defined contribution plan.
11. Stock-Based Compensation
Pursuant to the Company’s 2002 Equity Incentive Plan and its 2002 Non-Employee Directors’ Stock Award
Plan, (collectively, the “Plans”), the Company issues stock options, restricted stock awards (“RSAs”) and
restricted stock units (“RSUs”) to its employees, directors and occasionally to non-employee service providers, to
purchase shares of the Company’s Class A common stock. The maximum term of the stock-based awards is 10
years. The required vesting period is generally four years. Effective February 28, 2007, the Company terminated
its performance share program after conducting a full review of the total compensation components for key
executives. There were no performance shares outstanding at December 31, 2009 and 2008. The Company also
has an employee stock purchase plan (“ESPP”).
On August 26, 2009, the stockholders of the Company approved a stock option exchange program, as described
in the Company’s definitive proxy statement filed with the SEC on July 15, 2009. Under the option exchange
program (“the Offer”), the Company offered to exchange, for new lower-priced options, certain outstanding
options previously granted under either our 2002 Equity Incentive Plan or 2002 Non-Employee Director Stock
Award Plan or under two non-plan options held by our Chief Executive Officer. Option holders eligible to
participate in the Offer to exchange tendered, and the Company accepted for cancellation, options to purchase an
aggregate of 6,372 shares of the Company’s Class A common stock from 214 participants, representing 96.5% of
the total shares of Class A common stock underlying options eligible for exchange in the Offer.
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