LeapFrog 2011 Annual Report Download - page 119

to meet a contingency or condition required to vest such shares or were reacquired or withheld by the
Company to satisfy a tax withholding obligation or as consideration for the exercise of an option. Since the
adoption of the 2011 EIP, the number of shares subject to outstanding stock awards granted under the Prior
Plan decreased by 1,508,447 shares as the result of the vesting or exercise of outstanding stock awards. These
shares are no longer eligible to be included in the share reserve of the 2011 EIP as Returning Shares.
Consequently, we are removing these shares from the calculation of the share reserve, which reduces the
overall share reserve by 1,508,447 shares.
The Shares Available for Grant under the 2011 EIP are Insufficient for our Budgeting Purposes
As of March 31, 2012, the 2011 EIP has approximately 8.3 million shares remaining available for grant.
Due in part to the planned termination and the reduction in the number of shares available as returning shares
from our Prior Plan, and as a result of budgeting for future issuances of equity awards to our named executive
officers, key employees, consultants and, now, our non-employee directors, we have decided to ask our
stockholders to approve an increase in the shares available under the 2011 EIP to provide us with sufficient
shares available for grant through our forecasted period. 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 amendment to the 2011 EIP.
Elimination of Fungible Share Reserve
Currently, the number of shares available for issuance under the 2011 EIP is reduced by two shares for
each share of Class A Common Stock issued pursuant to a restricted stock award, restricted stock unit award,
performance stock award or other stock awards (not including stock options or stock appreciation rights),
or Full Value Awards. This has a tendency to inflate the overhang of the 2011 EIP because this method
requires us to reserve more shares than we will ultimately issue under our 2011 EIP to account for the
issuance of Full Value Awards as part of our equity awards. Although we do not currently intend to increase
the ratio of Full Value Awards we issue as part of our overall compensation package, we believe that
decreasing the overall overhang of the 2011 EIP provides a more accurate measure of the shares that may be
issued under 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.
SUMMARY OF THE AMENDED AND RESTATED 2011 EIP
A summary of the principal features of the Amended and Restated 2011 EIP follows. The summary is
qualified in its entirety by the full text of the Amended and Restated 2011 EIP that is attached as Appendix A
to this proxy statement. Stockholders are encouraged to read the actual text of the Amended and Restated
2011 EIP in its entirety. For ease of reference, we refer to the Amended and Restated 2011 EIP as the 2011
EIP below.
Eligibility
Only employees (including officers), consultants and non-employee directors of LeapFrog and its
affiliates are eligible to receive awards under the 2011 EIP. Pursuant to applicable tax law, we may only
grant incentive stock options to our employees (including officers) and employees of our affiliates. The
compensation committee, or a subcommittee thereof, determines who will participate in the 2011 EIP and
the terms of those grants.
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