LeapFrog 2010 Annual Report Download - page 123

The Shares Available for Grant Under Our Prior Plan are Insufficient
As of March 31, 2011, our Prior Plan has 3,356,242, shares remaining available for grant; therefore, we are
limited in our ability to issue equity to our named executive officers, key employees, or consultants unless our
stockholders increase the reserve under our Prior Plan or approve a new stock plan. While we could increase cash
compensation if we are unable to grant equity incentives, we have taken measures to conserve our use of cash
and anticipate that we will have difficulty attracting, retaining, and motivating our named executive officers, our
key employees and our directors if we are unable to make equity grants to them. Equity awards are a more
effective executive compensation vehicle than cash at a growth-oriented, entrepreneurial company because they
deliver high potential value with a smaller impact on current income and cash flow. Therefore, we are asking our
stockholders to approve the 2011 EIP.
We Manage Our Equity Award Use Carefully
We continue to believe that equity awards such as stock options are a vital part of our overall compensation
program. However, we recognize that equity awards dilute existing stockholders and therefore we must
responsibly manage the growth of our equity compensation program. We are committed to effectively managing
our equity compensation share reserve, including our burn rate.
The 2011 EIP Combines Compensation and Governance Best Practices
We note that our 2011 EIP contains provisions that are designed to protect our stockholders’ interests and to
reflect compensation and corporate governance best practices, including:
•Stockholder approval is required for additional shares. The 2011 EIP does not contain an annual
“evergreen” provision that provides for automatic increases of shares on an ongoing basis. The 2011
EIP authorizes a fixed number for our share reserve, so that stockholder approval is required to issue
any additional shares from the 2011 EIP once we have used all shares available for issuance.
•No discounted stock options or stock appreciation rights. All stock options and stock appreciation
rights will have an exercise price equal to or greater than the fair market value of our Class A common
stock on the date the stock option or stock appreciation right is granted.
•Repricing is not allowed. The 2011 EIP prohibits the repricing or exchange of underwater stock options
and stock appreciation rights without prior stockholder approval.
•Fungible Share Reserve. As with the Prior Plan, the 2011 EIP has a flexible or “fungible” share
reserve, which increases the rate at which the share reserve is depleted for full value awards such as
restricted stock awards and RSUs, in order to minimize stockholder dilution.
SUMMARY OF THE 2011 EIP
A summary of the principal features of the 2011 EIP follows. The summary is qualified in its entirety by the
full text of the 2011 EIP that is attached as Appendix A to this proxy statement. Stockholders are encouraged to
read the actual text of the 2011 EIP in its entirety.
Key Terms
Plan Term: June 2011 to March 2021, subject to stockholder approval
Administrator The compensation committee has been delegated the authority by the board
of directors to administer our equity compensation plans.
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