LeapFrog 2010 Annual Report Download - page 73

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
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 is also
required to maintain a ratio of Earnings Before Interest, Taxes, Depreciation and Amortization, or EBITDA, to
fixed charges, as defined in the loan agreement, of at least 1.1 to 1.0 when the covenant is required to be tested.
The ratio is measured only if certain borrowing-availability thresholds are not met.
During the fourth quarter of 2010, the Company borrowed a total of $42.0 million on the line with an interest rate
per annum of 4.38% through the final repayment date, and repaid the full amount during the same quarter from
cash provided by operations. The Company had no borrowings outstanding under this agreement at
December 31, 2010.
On January 31, 2011, the Company entered into an amendment to the agreement that, among other things,
(i) extends the maturity date of the agreement to August 13, 2013, (ii) reduces, starting January 1, 2011, the
applicable interest rate margins to a range of 0.50% to 1.00% above the applicable base rate for base rate loans as
compared to 3.00% above the applicable base rate in the original agreement, and 2.25% to 2.75% above the
applicable LIBOR rate for LIBOR rate loans as compared to 4.00% above the applicable LIBOR rate in the
original agreement, in each case depending on the Company’s borrowing availability, and (iii) reduces, starting
January 1, 2011, the unused line fee to 0.375% per year if utilization of the line is greater than or equal to 50%,
and to 0.50% per year if utilization of the line is less than 50% as compared to 1.00% per year in the original
agreement.
11. 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. In 2009 and 2008, LeapFrog matched 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 and 2008, the Company recorded total compensation expense of $578 and $799, respectively,
related to the defined contribution plan. The Company discontinued its matching program in 2010 and therefore
did not incur any related compensation expense.
12. Stock-Based Compensation
Stock-based compensation arrangements
Pursuant to the Company’s 2002 Equity Incentive Plan and its 2002 Non-Employee Directors’ Stock Award
Plan, (collectively, the “Plans”), the Company offers three types of stock-based compensation awards to its
employees, directors and certain consultants: stock options, RSUs and RSAs. Both stock options and RSUs can
be used to purchase shares of the Company’s Class A common stock, are exercisable over a period not to exceed
ten years, and are most commonly assigned four-year vesting periods. The Company does not currently have any
outstanding RSAs. 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, 2010 and 2009. 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 Securities and Exchange Commission (“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 its 2002 Equity Incentive Plan
or 2002 Non-Employee Director Stock Award Plan or under two non-plan options held by its CEO. Option
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