LeapFrog 2013 Annual Report Download - page 142
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Please find page 142 of the 2013 LeapFrog annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.For more information about the payment of relocation benefits, see ‘‘Summary Compensation Table,’’
below.
Except as discussed above, we do not view perquisites or other personal benefits as a significant
component of our executive compensation program. However, from time to time, our board of directors may
provide certain of our named executive officers with perquisites in amounts that it believes to be reasonable
when it believes they may be useful in attracting, motivating, and retaining the executive talent for which we
compete or that these benefits will assist our named executive officers in performing their duties and provide
certain time efficiencies for our named executive officers in appropriate circumstances.
Employment Arrangements
Our U.S.-based executive officers are generally employed at will. In recent years, only the individual
serving as our chief executive officer has had an employment agreement with the Company. In August 2013,
in connection with his transition from President and Chief Operating Officer to Advisor to the CEO, Mr. Dodd
entered into an employment agreement with the Company. In other jurisdictions, however, it is more common
for employees to enter into employment agreements with their employers. Our only UK-based executive
officer, Mr. Spalding, also has an employment agreement with the Company. A description of these three
employment agreements is set forth under ‘‘Employment Arrangements’’ below.
Tax and Accounting Considerations
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to a public reporting
company for compensation exceeding $1 million paid to its chief executive officer and its three other most
highly-compensated executive officers (other than its chief financial officer). This limitation applies only to
compensation that is not considered to be ‘‘performance-based.’’
Our 2011 Plan includes various provisions designed to allow us to grant stock options and other equity
awards that are designed to be ‘‘performance-based’’ compensation for purposes of the exception to the
deduction limit of Section 162(m), including a limitation on the maximum number of shares subject to awards
that may be granted to an individual under the plan in any one year. The 2011 Plan currently includes a
limit of 3.5 million shares as the maximum number of shares subject to awards that may be granted to an
individual under the plan in any one year. Generally, we intend to grant stock options to our executive officers
in a manner that is designed to satisfy the requirements for ‘‘performance-based’’ compensation to avoid the
deduction limit under Section 162(m). In addition, the 2011 Plan provides for performance-based cash
compensation of up to $1 million per individual per year.
The compensation committee believes that it is appropriate for us to retain the flexibility to pay
compensation that is not necessarily deductible if it deems such compensation to be in the best interests of our
company and stockholders. Accordingly, from time to time, we may pay compensation to our executive
officers that is not deductible, including cash bonuses and equity awards, if our compensation committee
determines that such payments are in the best interests of LeapFrog and our stockholders.
Accounting Considerations
We follow Financial Accounting Standards Board Accounting Standards Codification Topic 718, or
ASC 718, for our stock-based compensation awards. ASC 718 requires companies to measure the
compensation expense for all share-based payment awards made to employees, including our executive
officers and directors, including stock options, based on the grant date ‘‘fair value’’ of these awards. This
calculation is performed for accounting purposes and reported in the compensation tables below, even though
our employees and directors may never realize any value from their awards.
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