LeapFrog 2015 Annual Report Download - page 164

jurisdictions, however, it is more common for employees to enter into employment agreements with their
employers. Our only UK-based executive officer, Mr. Hicks, also has an employment agreement with the
Company. A description of these two 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 does not apply to
compensation that is considered to be ‘‘performance-based’’ compensation or which satisfies the conditions of
another exception to the deduction limit.
Our 2011 EIP 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. 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
EIP 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
LeapFrog and our 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 the 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.
REPORT OF THE COMPENSATION COMMITTEE
(2)
The compensation committee has reviewed and discussed with management the Compensation Discussion
& Analysis contained in this proxy statement. Based on this review and discussion, the compensation
committee has recommended to the board of directors that the Compensation Discussion & Analysis be
included in this proxy statement and incorporated by reference into our Annual Report on Form 10-K for the
fiscal year ended March 31, 2015.
Compensation Committee
Randy O. Rissman (Chair)
Stanley E. Maron
E. Stanton McKee, Jr.
(2) The material in this report is not ‘‘soliciting material,’’ is not deemed ‘‘filed’’ with the SEC, and is not to
be incorporated by reference into any filing of LeapFrog under the Securities Act or the Exchange Act,
other than LeapFrog’s Annual Report on Form 10-K, where it shall be deemed to be ‘‘furnished,’’
whether made before or after the date hereof and irrespective of any general incorporation language
contained in such filing.
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