LeapFrog 2011 Annual Report Download - page 118

PROPOSAL THREE
APPROVAL OF AN AMENDMENT TO THE LEAPFROG ENTERPRISES, INC.
2011 EQUITY INCENTIVE PLAN
On March 30, 2012, the board of directors adopted, subject to stockholder approval, an amendment to
the LeapFrog Enterprises, Inc. 2011 Equity Incentive Plan, or the 2011 EIP. The amendment to the 2011 EIP
makes the following changes:
• increases the number of shares of Class A common stock reserved for issuance under the 2011 EIP
by 2.7 million shares. These shares are in addition to the shares otherwise currently available for
awards under the 2011 EIP and any shares subject to awards issued under the LeapFrog Enterprises,
Inc. 2002 Equity Incentive Plan, or the Prior Plan, which are forfeited or otherwise returned to the
share reserve of the 2011 EIP.
• decreases the number of returning shares eligible to be included in the share reserve of the 2011 EIP
by 1,508,447 shares. These shares correspond to shares which, at the time of the approval of the
2011 EIP, were subject to outstanding awards under the Prior Plan and were eligible to be added to
the share reserve of the 2011 EIP, but which awards have since been exercised.
• eliminates the fungible share reserve, so that all stock awards granted under the 2011 EIP count
against the share reserve of the 2011 EIP on a 1:1 basis.
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. Having sufficient shares available under 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
employees. For a discussion of our executive compensation philosophy, see ‘‘Compensation Discussion and
Analysis.’’
Retiring of the 2002 Non-Employee Director Stock Award Plan
In the past, we have generally issued equity to our non-employee directors out of our 2002
Non-Employee Directors’ Stock Award Plan, or NEDSAP. Currently, the trend is for corporations of our size
to issue all of their equity awards out of one plan to, among other things, ease the administrative and
reporting burden associated with having two equity plans. There are currently 57,000 shares available for
issuance under the NEDSAP. When all of the shares available for issuance under the NEDSAP have been
awarded, our board of directors intends to suspend the NEDSAP such that no further grants will be made
therefrom, and instead issue grants to non-employee directors under the 2011 EIP.
Reduction in Number of Shares from Prior Plan Eligible for Inclusion in 2011 EIP Share Reserve
The 2011 EIP replaced the Prior Plan. The Company has not issued any new awards under the Prior Plan
since the adoption of the 2011 EIP. However, all stock awards outstanding under the Prior Plan at the time of
the adoption of the 2011 EIP are still subject to the terms and conditions of the Prior Plan.
When it was approved, the share reserve of the 2011 EIP included up to 6,376,278 shares of Class A
common stock (the ‘‘Returning Shares’’) which were subject to outstanding stock awards granted under the
Prior Plan but were eligible to return to the 2011 EIP share reserve if such outstanding stock award expired or
terminated for any reason prior to exercise or settlement or if the shares were forfeited because of the failure
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