LeapFrog 2010 Annual Report Download - page 122

PROPOSAL FIVE
APPROVAL OF THE LEAPFROG ENTERPRISES, INC. 2011 EQUITY INCENTIVE PLAN
On March 17, 2011, the board of directors adopted, subject to stockholder approval, the LeapFrog
Enterprises, Inc. 2011 Equity Incentive Plan (the “2011 EIP”). The board of directors recommends that the
stockholders vote to approve the 2011 EIP. If approved, the 2011 EIP will become effective upon stockholder
approval at the Annual Meeting and will replace the LeapFrog Enterprises, Inc. Amended and Restated 2002
Equity Incentive Plan (“Prior Plan”) in advance of its expiration as the sole plan for providing stock-based
incentive compensation to eligible employees and consultants.
The Prior Plan is currently scheduled to expire in May 2012, prior to our next annual meeting of
stockholders. The board of directors has chosen to adopt the 2011 EIP rather than extend the Prior Plan to assure
that the terms and conditions of our equity incentive plans reflect the latest corporate and legal developments.
The board of directors believes that our 2011 EIP is in the best interests of stockholders and LeapFrog, as it will
continue to provide employee and stockholder alignment; maintain our broad-based equity program; and help
attract, motivate and retain employees. Stockholder approval of the 2011 EIP will also constitute approval for
purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Tax Code”).
All outstanding stock awards granted under the Prior Plan will continue to be subject to the terms and
conditions as set forth in the agreements evidencing such stock awards and the terms of the Prior Plan. However,
if our stockholders approve this Proposal Five, then as of the effective date of the 2011 EIP, no new equity
awards shall be granted under the Prior Plan from and after the effective date of the 2011 EIP. Instead, on the
effective date of the 2011 EIP, a total of 6,000,000 newly approved shares of Class A common stock will become
available for grant under the 2011 EIP, and any shares remaining available for new grants under the Prior Plan on
the effective date of the 2011 EIP shall instead become available for issuance under the 2011 EIP. In addition,
any shares subject to outstanding stock awards granted under the Prior Plan that expire or terminate for any
reason prior to exercise or settlement, are forfeited because of the failure to meet a contingency or condition
required to vest such shares or are reacquired or withheld to satisfy a tax withholding obligation or as
consideration for the exercise of a stock option shall become available for issuance pursuant to awards granted
under the 2011 EIP (collectively, the “Returning Shares”). We believe the increase in the share reserve in
connection with the adoption of the 2011 EIP will provide us with a sufficient reserve of common stock to offer
appropriate incentives to our employees and consultants for the next three years.
Our 2002 Non-Employee Directors’ Stock Award Plan (“NEDSAP”) is unaffected by this Proposal Five and
will remain the primary plan pursuant to which stock-based incentive compensation is granted to our
non-employee directors. If stockholders approve the 2011 EIP, we will have two active equity incentive plans in
effect: the 2011 EIP (primarily for employees and consultants, as discussed below under “Eligibility”) and the
NEDSAP (solely for non-employee directors).
BACKGROUND
Equity Compensation Philosophy at LeapFrog
We believe that equity incentive awards are an effective way to attract and retain talented employees, to
motivate and reward them for outstanding company and individual performance, and to align their interests with
those of our stockholders. The 2011 EIP is critical to our ongoing effort to build stockholder value through
retaining and motivating such employees. Like all technology companies, we actively compete for highly
qualified employees. Traditionally, stock options have been the primary focus of our equity program. The
potential value of stock options is realized only if our share price increases, and so we believe stock options
provide a strong incentive for individuals to work to grow our business and build stockholder value, and are most
attractive to individuals who share our entrepreneurial spirit. In addition, we have also granted RSUs in recent
years in order to attract and retain exceptional employees. For a discussion of our executive compensation
philosophy, see “Compensation Discussion and Analysis.”
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