Exhibit 10.2
E MPLOYMENT A GREEMENT
This E MPLOYMENT A GREEMENT (“ Agreement ”), is entered
into between L EAPFROG E NTERPRISES , I NC . , a
Delaware corporation (the “ Company ”), and
J OHN
B ARBOUR (“ Executive ”) and shall be
deemed effective as of March 7, 2011 (the “ Effective
Date ”). The Company and Executive are each separately
referred to as a “ Party ” and collectively as
the “ Parties .”
RECITALS:
WHEREAS , the Company deems Executive’s employment
services as contemplated by this Agreement to be material and
significant to the Company’s success and desires to ensure
that the skills and experience of Executive be made available to
the Company; and
WHEREAS , the Parties desire to enter into this
Agreement providing for the employment of Executive by the Company
on the terms and conditions hereinafter set forth.
AGREEMENT:
NOW, THEREFORE
, in consideration of the mutual
promises and subject to the terms and conditions set forth herein,
the Parties agree as follows:
Section 1.
EMPLOYMENT.
1.1 Position, Duties,
Responsibilities, Authority. The Company shall employ Executive as its Chief
Executive Officer, with all such duties, responsibilities and
authority as are commensurate with such position and assigned to
him from time to time by the Board of Directors of the Company (the
“ Board ”). Executive shall report to the Board.
All departments of the Company shall report to Executive, either
directly or indirectly, through senior managers designated by
Executive. Executive shall be authorized to hire all employees who
will report to him directly, subject to approval by the
Compensation Committee of the Board of all proposed compensation
terms for such employees. Executive shall have authority to sign
and approve matters on behalf of the Company consistent with such
authority granted to him by the Board. Executive’s primary
office location shall be at the Company’s corporate
headquarters in Emeryville, California, but the Company reserves
the right to reasonably require Executive to perform his duties at
places other than its corporate headquarters from time to time and
to require reasonable business travel.
1.2 Policies and
Procedures. The
employment relationship between the Parties shall be governed by
the general employment policies of the Company, including those
relating to protection of confidential information and assignment
of inventions, except that when the terms of this Agreement differ
from or are in conflict with the Company’s general employment
policies or practices, this Agreement shall control.
1.3 Exclusive
Employment. Executive
shall devote all of his business time and attention to his duties
and responsibilities to the Company. During his
employment,
1.
Executive shall not, without the Board’s
prior written approval, render any business, professional or
commercial services of any kind to any other person, firm or
corporation, whether for compensation or otherwise, except that
Executive may engage in civic, philanthropic and community service
activities so long as such activities do not interfere with
Executive’s ability to comply with his obligations under this
Agreement and do not otherwise conflict with the policies or
interest of the Company, as determined by the Board in its
reasonable discretion. Notwithstanding the provisions of this
Section 1.3, Executive may serve on the board of directors of
one company of his choice, provided that the Board, in its sole
discretion, first shall have determined that such service will not
interfere with Executive’s ability to comply with his
obligations under this Agreement or otherwise conflict with the
policies or interest of the Company.
1.4 Board of
Directors. Executive
acknowledges that he will be appointed to the Board to serve as a
director of the Company. Executive agrees that if his employment
with the Company is terminated for any reason, either voluntarily
or involuntarily, with or without cause, he shall resign his
position as a member of the Board simultaneously with the
termination of his employment, unless the Board shall otherwise
determine. So long as Executive serves as an employee of the
Company, Executive will receive no compensation for service as a
director.
Section 2. COMPENSATION AND
OTHER EXECUTIVE BENEFITS.
In consideration of
Executive’s employment, and except as otherwise provided
herein, Executive shall receive from the Company the compensation
and benefits described in this Section 2. Executive authorizes
the Company to deduct and withhold from all compensation to be paid
to him any and all sums required to be deducted or withheld
pursuant to federal, state, or local law, regulation, ruling, or
ordinance, including, but not limited to, income tax withholding
and payroll taxes.
2.1 Base Compensation and
Bonus.
2.1.1 Base Salary.
The Company shall pay Executive for
his services hereunder a base salary at the rate of $575,000 per
year, subject to required withholdings and deductions, paid on the
payroll schedule for the Company’s senior executives in
effect from time to time. Executive’s base salary shall be
subject to annual review by the Board and may be increased, but not
decreased, from time to time by the Board. The base salary as
determined herein from time to time shall constitute
Executive’s “ Base Salary ” for purposes
of this Agreement.
2.1.2 Annual Bonus.
Executive shall be eligible to
receive an annual bonus (the “ Bonus ”) based on
Executive’s achievement of certain performance objectives
established for him, with Executive’s advice and
consultation, by the Board or the Compensation Committee of the
Board, as applicable, (the “ Objectives ”), as
well as the Company’s overall business and financial
performance. Executive’s target-level Bonus will be set at
one hundred percent (100%) of his Base Salary (the “
Target Bonus ”), assuming established target-level
Objectives for the Bonus year are achieved in all material
respects. Executive shall also have an opportunity to receive an
additional bonus for exemplary performance pursuant to
stretch-level
2.
objectives, such additional bonus opportunity
and stretch-level objectives to be determined by the Board in its
discretion, after consultation with Executive. Executive must
remain employed by the Company through and including the last day
of each Bonus year in order to be eligible to receive a Bonus for
that year, and no prorated Bonus can be earned other than as set
forth below in this Section 2.1.2 or in Section 4. The
Board (or Compensation Committee), in its sole discretion, will
determine whether Executive has earned a Bonus, and the amount of
any such Bonus in accordance with the Objectives. The Bonus shall
be payable within ten (10) business days after the date the
Bonus has been determined, but no later than ninety (90) days
following the last day of the Bonus year. Notwithstanding the
foregoing, Executive’s Bonus for 2011 shall be a guaranteed
Target Bonus, which shall be prorated based on the portion of
calendar year 2011 during which Executive is employed by the
Company and shall be paid in monthly installments during 2011;
provided, however, that if Executive does not remain
employed by the Company through the end of 2011, he shall be
obligated to repay to the Company the full amount of all
installment payments previously received unless such termination of
employment is described in Section 4.3, 4.5 or 4.6
below.
2.2 Vacation.
Executive shall be entitled to
accrue twenty (20) days of paid vacation each calendar year,
accrued on a monthly basis in accordance with Company vacation and
leave policies in effect from time to time, up to a maximum accrual
of thirty-five (35) days of paid vacation. Executive shall
plan and take vacation consistent with his duties and obligations
hereunder.
2.3 Benefits.
2.3.1 General
Benefits. Executive shall
be entitled to receive all welfare, retirement and fringe benefits
(including group medical and dental coverage for Executive, his
spouse and dependent children, life and disability insurance
coverage, and paid sick leave) and perquisites (collectively, the
“ Executive Benefit Plans ”) that are made
available to the Company’s senior executives generally, in
accordance with all terms and conditions governing such benefits in
effect from time to time. The life insurance coverage provided to
Executive shall provide a death benefit of no less than $2 million,
or such lesser amount as may be obtained for an annual premium that
does not exceed $5,000.
2.3.2 Business
Travel/Expenses. Executive shall be required to travel in the
performance of his duties hereunder, and the Company shall
reimburse Executive for all reasonable documented business expenses
incurred by Executive in connection with his services hereunder,
upon submission to the Company, in accordance with Company policy,
of a written accounting of such expenses, which accounting shall
include an itemized list of all expenses incurred, the business
purposes for which such expenses were incurred, and all such
receipts as Executive reasonably has been able to
obtain.
2.3.3 Initial Travel and
Temporary Housing Expenses. The Company shall pay Executive $150,000,
payable in quarterly installments beginning on the first payroll
date following the Effective Date to provide assistance for travel
and temporary housing (the “ Travel/Housing Subsidy
”). The Travel/Housing Subsidy shall be subject to applicable
tax withholding. In addition, for the first sixty (60) days
following the Effective Date, Executive
3.
shall be entitled to reimbursement for
reasonable hotel expenses, and such reimbursements shall be in
addition to the Travel/Housing Subsidy.
2.3.4 Relocation
Benefits. In addition to
the Travel/Housing Subsidy, Executive shall be entitled to a
relocation package that includes the following:
2.3.4.1 Travel:
The Company will reimburse Executive
for the reasonable hotel expenses, coach airfare from New York, New
York, meals and transportation incurred by his wife for purposes of
making three (3) house-hunting trips to the San Francisco Bay
Area.
2.3.4.2 Shipment of
Goods: Executive’s
household goods in Rye, New York plus three cars will be packed,
loaded and transported to the San Francisco Bay Area via the
Company’s standard carrier. Executive will also be provided
with up to ninety (90) days of storage of the shipped goods,
if needed. The Company will be billed directly for the foregoing
services.
2.3.4.3 Closing Costs:
If Executive sells his home in Rye,
New York within two (2) years following the Effective Date,
the Company will pay standard closing costs on the sale of such
home, including any real estate transfer taxes, title fees and
customary real estate broker commissions. The Company will also pay
the standard closing costs, including any real estate transfer
taxes, title fees, customary real estate broker commissions and up
to two (2) mortgage rate discount points, on the purchase of a
residence (apartment or house) in the San Francisco Bay Area. The
amount paid by the Company under this Section 2.3.4.3 shall
not exceed $150,000.
2.3.4.4 Tax Gross Up:
To the extent that any Company
reimbursement of or payment for the relocation benefits described
in Sections 2.3.4.1 and 2.3.4.2 above is taxable to Executive, the
Company shall pay to him an additional amount that is intended to
offset such taxes, which amount shall be equal to forty-five
percent (45%) of such reimbursement or payment.
2.3.4.5 Mortgage Interest
Differential: Upon the
sale of Executive’s residence in Rye, New York and his
purchase of a primary residence in the Bay Area within two
(2) years following the Effective Date, the Company shall pay
to Executive a monthly reimbursement equal to the Mortgage Interest
Payments (as hereinafter defined) until the Company’s
obligation to make such payments terminates as provided below. As
used herein, the term “Mortgage Interest Payments”
shall mean the lower of: (a) the amount of Executive’s
monthly interest portion of the Stipulated Mortgage Amount after
offsetting the value of any tax deduction that Executive would
receive for such interest payments, and (b) the amount
resulting from the calculation in clause (a) above, assuming
that Executive’s mortgage interest rate is 4.25% per
annum. The Mortgage Interest Payments shall continue until and then
terminate on the earliest to occur of (A) the termination of
Executive’s employment with the Company, (B) Executive
ceasing to make payments on a mortgage on his primary residence in
the San Francisco Bay Area, and (C) the second anniversary of
the date of Executive’s purchase of a residence in the San
Francisco Bay Area. If Executive refinances or sells one San
Francisco Bay Area residence and purchase another in the San
Francisco Bay Area, the amount of the Mortgage
4.
Interest Payments shall not be recalculated and
shall continue unaffected by such transaction. Executive will also
receive an amount that is intended to offset his tax on any
reimbursement of Mortgage Interest Payments pursuant to this
Section 2.3.4.5, which amount shall be equal to forty-five
percent (45%) of such reimbursement of Mortgage Interest
Payments. Notwithstanding the foregoing, the Company’s
reimbursement of Mortgage Interest Payments, including any related
tax gross-up payments, under this Section 2.3.4.5 shall not
exceed $20,000 per year.
As used herein, the following terms
shall have the following meanings: “Stipulated Mortgage
Amount” shall mean a mortgage principal amount equal to the
lesser of: (a) difference between the Purchase Price and the
Net Sales Proceeds and (b) $750,000. “Purchase
Price” shall mean the purchase price of Executive’s San
Francisco Bay Area residence and “Net Sales Proceeds”
shall mean the net sales proceeds from the sale of
Executive’s primary residence in Rye, New York.
If Executive receives any of the
relocation benefits set forth in this Section 2.3.4, including
tax gross-up amounts, and resigns without Good Reason prior to the
second anniversary of the Effective Date, he will be required to
reimburse the Company for all such prior reimbursements on a pro
rata basis determined by multiplying the amount of such prior
reimbursements by a fraction, the numerator of which is twenty-four
(24) minus the number of months worked prior to
Executive’s resignation and the denominator of which is
twenty-four (24).
2.4 Attorneys’ Fee
Reimbursement. The
Company shall reimburse Executive for all legal fees actually and
reasonably incurred by him in connection with the negotiation,
review and finalization of this Agreement, up to a maximum total
reimbursement amount of $10,000.
Section 3. EQUITY
COMPENSATION.
3.1 Equity
Compensation. Not later
than the later of (a) the Effective Date and (b) five
(5) business days after the public announcement of
Executive’s employment pursuant to the terms of this
Agreement, the Company shall grant Executive an award of a
nonstatutory stock option with a ten (10) year term to
purchase 850,000 shares of the Company’s Class A Common
Stock (“ Company Common Stock ”) pursuant to the
LeapFrog Enterprises, Inc. 2002 Equity Incentive Plan as in effect
on the Effective Date (the “ Plan ”). Such
option (the “ Option ”) shall have an exercise
price equal to the fair market value of Company Common Stock as
determined by the Board or the Compensation Committee of the Board,
as applicable, on the date of grant and shall vest over a period of
four (4) years, with one fourth (1/4) of the shares
subject to the Option vesting upon Executive’s completion of
one (1) year of continuous employment service following the
Effective Date and one forty-eighth (1/48) of the shares
subject to the Option vesting for each month of Executive’s
continuous employment service thereafter. Effective on
April 15, 2011, the Company also shall grant Executive an
award of a restricted stock unit (the “ Restricted Stock
Unit ”) by which he would receive 150,000 shares of
Company Common Stock pursuant to the Plan. One fourth (1/4) of
the shares of Company Common Stock subject to the Restricted Stock
Unit shall vest and be delivered to Executive upon his completion
of one (1) year of continuous employment service following the
Effective Date, and one forty-eighth (1/48) of the shares of
Company Common Stock subject to the Restricted Stock Unit shall
vest and be delivered to Executive upon his
5.
completion of each month of continuous
employment service thereafter. The Option and the Restricted Stock
Unit shall be subject to all terms and conditions set forth in the
Plan and in a stock option grant notice, stock option agreement,
restricted stock unit grant notice and restricted stock unit
agreement under the Plan.
3.2 Other Equity
Awards. In addition to
the Option and the Restricted Stock Unit, the Company may in the
future award Executive additional stock options or other equity
awards (collectively, the “ Equity Awards ”)
pursuant to the Plan as determined by the Compensation Committee of
the Board, in its sole discretion. Except as expressly provided
herein, the exercisability, vesting and other terms and conditions
governing the Equity Awards shall be governed solely by the
separate written agreements governing such Equity Awards, and not
by this Agreement.
Section 4. AT WILL
EMPLOYMENT; POST-EMPLOYMENT BENEFITS.
4.1 At Will
Employment. Executive’s employment with the Company
shall be at-will. Accordingly, both Executive and the Company shall
remain free to terminate the employment relationship with or
without Cause or Good Reason, at any time, with or without advance
notice, subject to the terms of this Agreement.
4.2 Payments Due Upon Termination
For Any Reason. Upon
termination of Executive’s employment for any reason by any
Party, Executive (or his estate, if applicable) shall be paid any
earned but unpaid Base Salary due to him, all accrued but unused
vacation earned through and including the date Executive’s
employment terminates (the “ Termination Date
”), any earned but unpaid prior year bonus and all accrued
and vested benefits under all Executive Benefit Plans. Executive
(or his estate, if applicable) shall be reimbursed for all
reasonable documented business expenses incurred by Executive in
accordance with the terms of this Agreement and the Company’s
expense reimbursement policies and procedures then in effect. All
payments under this Section 4.2 shall be in addition to any
severance benefits to which Executive may become entitled pursuant
to the terms of this Agreement.
4.3 Termination For
Death/Permanent Disability. Executive’s employment shall
automatically terminate upon Executive’s death or “
Permanent Disability .” For purposes of this
Agreement, Executive shall be deemed to have a Permanent Disability
warranting termination of employment if Executive becomes entitled
to disability benefits under the Company’s long-term
disability insurance plan or policy then in effect; provided,
however , that if there is no such plan or policy in effect,
the term shall have the same meaning as is set forth in
Section 22(e)(3) of the Code. Upon termination of
Executive’s employment pursuant to this Section 4.3,
Executive (or his estate, if applicable) (i) shall receive any
amounts payable to Executive (or his estate, if applicable) under
any life or disability insurance policies obtained for Executive
pursuant to Section 2.3.1 above and (ii) with the
exception of the Bonus for 2011, shall be eligible to receive a
prorated portion (based on completed days of employment during the
relevant year) of the Bonus for the year of such termination, as
determined in accordance with Section 2.1.2 (including,
without limitation, the application of the performance objectives
that have been established for such year), which shall be paid on
the customary Bonus payment date. In addition, Executive
(i) shall be credited with one (1) year of additional
employment service toward vesting of the Option and the Restricted
Stock
6.
Unit and (ii) shall have (or, if
applicable, his estate shall have) one (1) year following the
termination of his employment to exercise the Option and other
Equity Awards that are options, to the extent vested, but not
beyond their original terms.
4.4 Termination For
Cause.
4.4.1 Cause Defined.
The Company may terminate
Executive’s employment for “ Cause ” upon
ten (10) business days’ advance written notice to
Executive, which notice shall specify the facts constituting Cause.
For purposes of this Agreement, “ Cause ” for
termination shall exist if Executive: (i) commits a willful
act of fraud, embezzlement or misappropriation against or involving
the Company; (ii) is convicted of, or enters a plea of guilty
or no contest to, any felony involving moral turpitude or
dishonesty; (iii) commits an act, or fails to commit an act,
involving the Company which amounts to, or with the passage of time
would amount to, willful misconduct, wanton misconduct, gross
negligence or a material breach of this Agreement and which results
or is reasonably likely to result in significant harm to the
Company; or (iv) willfully fails to perform his
responsibilities and duties under this Agreement for a period of
ten (10) business days following receipt of written notice
from the Company specifically describing past instances of willful
failure of performance and providing Executive an opportunity to
cure any such claimed past failure of performance, if it is
reasonably susceptible to cure. No act or failure to act on
Executive’s part shall be considered “willful” if
Executive acted (or failed to act) in good faith, based on a
reasonable belief that Executive’s act or omission was in
(and not opposed to) the best interests of the Company.
4.4.2 No Benefits Upon
Termination For Cause. Executive shall not be entitled to any severance
or other post-employment benefits from the Company upon termination
of his employment for Cause, except as may be provided by contract
or required by law. Executive shall forfeit the Option, the
Restricted Stock Unit and all other Equity Awards, to the extent
unvested as of the Termination Date for Executive’s
employment termination for Cause, and Executive shall have thirty
(30) days after such Termination Date (but not beyond the end
of their applicable terms) to exercise any vested shares subject to
the Options or any other options.
4.5 Termination Without
Cause. Upon termination
of Executive’s employment without Cause and Executive’s
satisfaction of the release requirements set forth in
Section 4.9 below and continuing satisfaction of the covenants
set forth in Section 9 below, the Company shall provide
Executive cash severance benefits, payable in eighteen
(18) monthly installments, equal to the following:
(i) eighteen (18) months of Base Salary, at the rate in
effect during the last regularly scheduled payment period
immediately preceding the Termination Date; and (ii) a payment
equal to one and one-half (1 1 / 2
) times Executive’s
Target Bonus for the calendar year in which such termination
occurs. The foregoing cash severance benefits are hereinafter
referred to as the “Severance Benefits .” In
addition, Executive (i) with the exception of the Bonus for
2011 shall be eligible to receive a prorated portion (based on
completed days of employment during the relevant year) of the Bonus
for the year of such termination, as determined in accordance with
Section 2.1.2 (including, without limitation, the application
of the performance objectives that have been established for such
year), which shall be paid on the customary Bonus payment date;
(ii) shall be credited with one (1) year of additional
employment service toward vesting of the Option and the Restricted
Stock Unit; (iii)
7.
shall have one (1) year following the
termination of his employment to exercise the Option and other
Equity Awards that are options, to the extent vested, but not
beyond their original terms; and (iv) shall be entitled to
receive the health benefit subsidy pursuant to Section 4.7
below.
4.6 Resignation for Good
Reason.
4.6.1 Good Reason
Defined. For purposes of
this Agreement, a resignation from employment for “ Good
Reason ” means a voluntary termination by Executive
within one hundred (100) days after the occurrence of one of
the following events without his express written consent:
(i) a material diminution in Executive’s authority,
duties or responsibilities (subject to the clarification in the
immediately following sentence); (ii) Executive is required to
report to an officer or other employee of the Company rather than
to the Board (subject to the clarification in the immediately
following sentence); (iii) a material reduction in
Executive’s Base Salary; (iv) a change in the geographic
location of Executive’s workplace that either is more than
fifty (50) miles from its previous location or, if Executive
should purchase a primary residence in the San Francisco Bay Area,
increases his one-way commute from such primary residence by more
than thirty (30) miles; (v) the expiration of
Executive’s term as a member of the Board without his
re-election (x) at a time when more than fifty percent
(50%) of the voting power for election of members of the Board
is held by an individual, a group or another company (a
“Controlled Company”) or (y) at a time when the
Company is not such a Controlled Company and has failed to nominate
him for re-election; or (vi) a material breach by the Company,
or its successor, of this Agreement (including the failure of a
successor to assume the obligations of this Agreement).
For the avoidance of doubt, any
Change in Control, immediately following which Executive does not
hold the senior-most position in his functional area in the
surviving top-most parent company (disregarding for these purposes
any company that is an investment fund or other non-operating
company), whether public or private, and does not report directly
to the chief executive officer of such top-most parent company (or
to the board of directors of such top-most parent company if
Executive is the chief executive officer of the Company immediately
prior to the Change in Control) shall be regarded as a material
diminution in Executive’s authority, duties or
responsibilities for purposes of this definition, provided that
Executive, as a condition of resigning for Good Reason on such
basis, shall first have remained in employment with the Company, or
its successor, on a full time basis (or on a less than full time
basis, as the Company or its successor shall determine), with a
Base Salary, Target Bonus, vesting in Equity Awards and aggregate
level of benefits that are no less than they were immediately prior
to the Change in Control (unadjusted for employment on a less than
full time basis), for a period of six (6) months (or such
shorter period as the Company or its successor shall determine) in
order to provide transition support to the Company or its
successor.
Prior to any resignation for Good
Reason, Executive must provide written notice to the Company of the
existence of the Good Reason event within forty-five (45) days
following its initial existence, and the Company shall have a
period of forty-five (45) days following such notice within
which to cure the event. If the event is cured within such time
period, Executive shall not be entitled to resign from his
employment for Good Reason.
8.
