UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934

 

Check the appropriate box:

LEAPFROG ENTERPRISES, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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LEAPFROG ENTERPRISES, INC.
6401 Hollis Street, Suite 100
Emeryville, California 94608-1463

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On Thursday, August 13, 2015

Dear Stockholder:

You are cordially invited to attend the 2015 annual meeting of stockholders of LeapFrog Enterprises, Inc. (the “Annual Meeting”). The Annual Meeting will be held on Thursday, August 13, 2015 at 9:00 a.m. Pacific Daylight Time at our headquarters located at 6401 Hollis Street, Suite 100, Emeryville, California.

Proposals to be considered at the Annual Meeting:

These items of business are more fully described in the proxy statement accompanying this notice. The record date for the Annual Meeting is June 18, 2015. Only stockholders of record at the close of business on that date may vote at the Annual Meeting or any postponement or adjournment thereof.

We are providing our stockholders with access to the proxy materials over the Internet using the “Notice and Access” delivery model established by the Securities and Exchange Commission. This permits us to conserve natural resources and reduces our printing costs, while giving our stockholders a convenient and efficient way to access our proxy materials and vote their shares. On or about July 2, 2015, we intend to mail a Notice of Internet Availability of Proxy Materials to our stockholders, informing them that our notice of annual meeting and proxy statement, annual report to stockholders and voting instructions are available on the Internet. As described in more detail in that notice, stockholders may choose to access our materials through the Internet or may request to receive paper copies of the proxy materials.

By Order of the Board of Directors

Robert L. Lattuga
Senior Vice President and General Counsel

Emeryville, California
July 2, 2015

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2015 ANNUAL MEETING OF STOCKHOLDERS
PROXY STATEMENT
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PROXY SUMMARY			1
GENERAL INFORMATION			3
Voting Instructions and Information			3
Submission of Stockholder Proposals			5
Eliminating Duplicative Proxy Materials			5
Available Information			6
PROPOSAL ONE — ELECTION OF DIRECTORS			7
Nominees			7
Required Vote			12
Recommendation			12
PROPOSAL TWO — RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			13
Independent Registered Public Accounting Firm Fee Information			14
Pre-Approval Procedures of Audit and Non-Audit Services by the Independent Registered Public Accounting Firm			14
Required Vote			14
Recommendation			14
Report of the Audit Committee			15
PROPOSAL THREE — AMENDMENT TO AMENDED AND RESTATED BYLAWS			16
The Proposal			16
Reasons for the Proposal			16
Required Vote			17
Recommendation			17
PROPOSAL FOUR — AMENDMENT TO THE LEAPFROG ENTERPRISES, INC. 2011 EQUITY AND INCENTIVE PLAN			18
Background			18
Summary of the Amended and Restated 2011 EIP			21
Other Equity Compensation Plan Information			26
Required Vote			26
Recommendation			26
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			27
Beneficial Ownership of Our Common Stock			27
Section 16(A) Beneficial Ownership Reporting Compliance			29
BOARD OF DIRECTORS AND CORPORATE GOVERNANCE			30
Board Leadership Structure			30
Director Independence			30

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Board Meetings and Executive Sessions			30
Role of Board in Risk Oversight			31
Committees of the Board			32
Corporate Governance			36
Transactions With Related Persons			37
Communication with Directors			38
DIRECTOR COMPENSATION			39
Director Compensation for Fiscal Year 2015 and the Transition Period			39
Discussion of Director Compensation			40
EXECUTIVE COMPENSATION			42
Compensation Discussion and Analysis			42
Report of the Compensation Committee			54
Summary Compensation Information			55
Grants of Plan-Based Awards			57
Employment Arrangements			58
Outstanding Equity Awards at Fiscal Year End			59
Option Exercises and Stock Vested			61
Potential Payments Upon Termination or Change in Control			63
No Additional Executive Benefit Plans			68

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PROXY SUMMARY

This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.

ANNUAL MEETING OF STOCKHOLDERS

Time and Date:		August 13, 2015 at 9:00 a.m., Pacific Daylight Time
Place:		LeapFrog’s headquarters at 6401 Hollis Street, Suite 100, Emeryville, California 94608
Record Date:		June 18, 2015
Mailing Date:		On or about July 2, 2015

VOTING MATTERS AND BOARD RECOMMENDATIONS

Matter		Our Board’s Recommendation
Election of our board’s nine (9) nominees for director (Page 7)		FOR each director nominee
Ratification of PricewaterhouseCoopers LLP as our independent accounting firm for the 2016 Fiscal Year (Page 13)		FOR
Approval of an amendment to our Amended and Restated Bylaws (Page 16)		FOR
Approval of an amendment to the LeapFrog Enterprises, Inc. 2011 Equity and Incentive Plan (Page 18)		FOR

BOARD NOMINEES

Name		Age		Director Since		Experience/Qualification		Independent		Other Public Company Boards
John Barbour		56		2011		Leadership/Retail/E-commerce		No		0
William B. Chiasson		63		2010		Leadership/Finance/Consumer Products		Yes		1
Thomas J. Kalinske		70		1997		Leadership/Video Game and Toy Industries		Yes		1
Stanley E. Maron		67		1997		Corporate Governance/Tax/Transactional		Yes		0
E. Stanton McKee, Jr.		70		2003		Finance/Video Game Industry		Yes		1
Joanna Rees		53		2014		Finance/Marketing/Education		Yes		1
Randy O. Rissman		67		2011		Leadership/Game and Toy Industries		Yes		0
Caden C. Wang		63		2005		Finance/Retail/Consumer Products		Yes		0
Stephen M. Youngwood		45		2014		Digital Media/Entertainment		Yes		0

HIGHLIGHTS FROM THE COMPENSATION DISCUSSION & ANALYSIS

Financial Results		Net sales of $362 million and an operating loss of $84 million for the 2014 calendar year were below expectations for the year.
Key Compensation Decisions		Annual Incentives:  Annual performance-based bonuses were not paid during the fiscal year ended March 31, 2015 (Fiscal 2015) or the transition period from January 1, 2014 to March 31, 2014 (Transition Period).
		Long-Term Incentives:  All named executive officers received equity awards during Fiscal 2015 or the Transition Period, reinforcing alignment of their long-term incentives with stockholder interests.
		Base Salaries:  Named executive officers received base salaries increases between 3.0 – 4.3% as part of our company-wide annual review process after the 2013 calendar year.

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Effective Governance Practices		Our compensation philosophy and related corporate governance policies and practices are designed to align our executive compensation with long-term stockholder interests. The majority of the target total direct compensation opportunity for each of our executive officers is performance-based.
		We maintain specific corporate governance and compensation practices to ensure consistency with the Company’s short-term and long-term goals.
Say-on-Pay Votes		In the 2014 calendar year, our stockholders approved the compensation of our named executive officers with over 97.7% of the votes cast.
		Our board of directors has selected every three years as the frequency of future stockholder advisory (“say-on-pay”) votes on the compensation of our named executive officers. Accordingly, our next say-on-pay vote will be in the 2017 calendar year.

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6401 Hollis Street, Suite 100
Emeryville, California 94608-1463

PROXY STATEMENT
FOR THE 2015 ANNUAL MEETING OF STOCKHOLDERS

GENERAL INFORMATION

VOTING INSTRUCTIONS AND INFORMATION

Who Can Vote

Only stockholders of record of LeapFrog Enterprises, Inc. (which we refer to in this proxy statement as LeapFrog, the Company, we or us) at the close of business on June 18, 2015, the record date, will be entitled to vote at the 2015 annual meeting of stockholders of LeapFrog (the “Annual Meeting”). On the record date, there were 66,328,506 shares of Class A common stock and 4,394,354 shares of Class B common stock outstanding and entitled to vote. Each share of our Class A common stock is entitled to one vote, and each share of Class B common stock is entitled to ten votes.

Voting Your Proxy

If your shares are held in an account at a brokerage firm, bank, dealer, or other similar organization, then your shares are held in “street name” and you will receive instructions from such entity that you must follow in order to have your shares voted. You are also invited to attend the Annual Meeting. However, you may not vote your shares in person at the meeting unless you request and obtain a valid proxy from your broker or other agent.

If your shares are registered directly with American Stock Transfer and Trust Company, our transfer agent for our Class A common stock, or you hold Class B common stock, then you are a stockholder of record and you can instruct the proxies how to vote following the instructions listed on the Notice of Internet Availability or the proxy card. You can vote your shares via the Internet by following the instructions in the Notice of Internet Availability. If you vote via the Internet, you do not need to mail a proxy card. You can also vote your shares by mail by filling out the proxy card and returning it per the instructions on the card. You can also come to the meeting and vote your shares in person.

Whichever method you select to transmit your instructions, the proxies will vote your shares in accordance with those instructions. If you sign and return a proxy card without giving specific voting instructions, your shares will be voted as recommended by the board of directors: for each director nominee, for ratification of the appointment of our independent registered public accounting firm, for the amendment to our Amended and Restated Bylaws and for the amendment to the LeapFrog Enterprises, Inc. 2011 Equity and Incentive Plan (“2011 EIP”).

Revoking Your Proxy

You can revoke your proxy at any time before the final vote at the meeting. If your shares are held in street name, you must follow the instructions of your broker, bank or other nominee to revoke your voting instructions. If you are the record holder of record of your shares, you may revoke your proxy in any one of four ways:

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Matters to be Presented

There are four matters scheduled for a vote and for which we are soliciting your proxy:

Our board of directors knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matter is properly presented at the meeting, your proxy (one of the individuals named on your proxy card) will vote your shares using his best judgment.

Quorum; How are Votes Counted

A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if at the meeting there is present in person, by remote communication or represented by proxy the holders of stock representing a majority of the voting power of all outstanding shares of stock entitled to vote. On the record date, there were 66,328,506 shares of Class A common stock outstanding and 4,394,354 shares of Class B common stock outstanding, all of which are entitled to vote and represent a total 110,272,046 votes. Thus, holders of shares representing at least 55,136,024 votes must be present or represented by proxy at the meeting to have a quorum.

Shares that are voted in person, by remote communication or by proxy are counted for purposes of establishing a quorum, even if you abstain from voting on some or all matters introduced at the meeting. In addition, broker non-votes will also be counted for purposes of calculating whether a quorum is present. If there is no quorum, the holders of shares representing a majority of the votes present at the meeting may adjourn the meeting to another date.

Voting

Votes will be counted by the inspector of election appointed for the meeting. For the election of directors, you may either vote “For” all the nominees to the board of directors or you may “Withhold” your vote for any nominee(s) you specify. For the proposal to ratify the selection of PwC as our independent registered public accounting firm, for the approval of an amendment to our bylaws and for the approval of the amendment to the 2011 EIP, you may vote “For” or “Against” the proposal or abstain from voting.

The nine nominees for director receiving the most “For” votes will be elected to our board of directors. Broker non-votes will not count for or against any nominees. With respect to the ratification of PwC, the proposal to amend our bylaws and the proposal to amend the 2011 EIP, the proposal must receive a “For” vote from the holders of a majority of the voting power present and entitled to vote either in person or by proxy on the proposal. Broker non-votes will not count for or against the proposals to amend our bylaws or to amend the 2011 EIP. If you “Abstain” from voting for the ratification of PwC, the approval of an amendment to our bylaws or the approval of an amendment to the 2011 EIP, it will have the same effect as an “Against” vote.

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Attending the Annual Meeting

The meeting will be held on Thursday, August 13, 2015 at 9:00 a.m. Pacific Daylight Time at our headquarters located at 6401 Hollis Street, Suite 100, in Emeryville, California. Directions to the Annual Meeting may be found at www.leapfrog.com under “Contact Us.” If you attend the Annual Meeting, you will be asked to present photo identification, such as a driver’s license. If you are a holder of record, the top half of your proxy card or your Notice of Internet Availability is your admission ticket. If you hold your shares in street name, you will need proof of ownership to be admitted to the meeting. A recent brokerage statement or a letter from your bank or broker are examples of proof of ownership. If you want to vote your shares held in street name in person, you must get a legal proxy in your name from the broker, bank or other nominee that holds your shares.

Cost of Proxy Solicitation

We are providing you with these proxy materials because our board of directors is soliciting your proxy to vote at the Annual Meeting. We are paying for the entire cost of soliciting proxies. In addition to these proxy materials, our directors and employees may also solicit proxies in person, by telephone or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.

Broker Non-votes

If your shares are held in street name, and you do not give instructions to your broker, your broker can vote your shares with respect to routine “discretionary” items, but not with respect to “non-discretionary” items under the rules of the New York Stock Exchange, or NYSE. On non-discretionary items for which you do not give your broker instructions, the shares will be treated as broker non-votes. Under NYSE rules, elections of directors, an amendment to bylaws and an amendment to an equity plan are considered to be non-routine and, therefore, brokers and other nominees will not be able to vote in these three matters unless they receive instructions from the beneficial owners of the shares.

SUBMISSION OF STOCKHOLDER PROPOSALS

If you wish to submit a proposal for inclusion in next year’s proxy materials, your proposal must be submitted in writing by March 4, 2016 to our Corporate Secretary at 6401 Hollis Street, Suite 100, Emeryville, California 94608-1463. If you wish to submit a proposal that is not to be included in next year’s proxy materials or nominate a director, you must do so between March 4, 2016 and April 4, 2016. You are also advised to review our bylaws, which contain additional requirements about advance notice of stockholder proposals and director nominations.

ELIMINATING DUPLICATIVE PROXY MATERIALS

A single proxy statement and annual report, along with individual proxy cards, or individual Notices of Internet Availability will be delivered in one envelope to multiple stockholders having the same last name and address and to individuals with more than one account registered at American Stock Transfer & Trust Company with the same address unless contrary instructions have been received from an affected stockholder. If you would like to enroll in this service or if you would prefer to receive a separate Notice of Internet Availability or other proxy materials, you may: (1) notify your broker; (2) direct your written request to our Director of Investor Relations, 6401 Hollis Street, Suite 100, Emeryville, California 94608 or to ir@leapfrog.com or (3) call our Investor Relations department at (510) 420-5150.

In addition, we will promptly deliver, upon written or oral request to the address or telephone number above, a separate copy of the Notice of Internet Availability to a stockholder at a shared address to which a single copy of the documents was delivered.

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AVAILABLE INFORMATION

We will provide to any stockholder entitled to vote at the Annual Meeting, at no charge, a copy of our 2015 Annual Report on Form 10-K for the fiscal year ended March 31, 2015, filed with the United States Securities and Exchange Commission (“SEC”) on June 15, 2015, and our Quarterly Report on Form 10-Q for the transitional period ending March 31, 2014, filed with the SEC on June 23, 2014, including in each case the financial statements and the financial statement schedules contained therein. We make our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, as well as our other SEC filings, available free of charge through the investor relations section of our website located at www.leapfroginvestor.com under “Financial Information —  SEC Filings” as soon as reasonably practicable after they are filed with or furnished to the SEC. Information contained on or accessible through our website or contained on other websites is not deemed to be part of this proxy statement. In addition, you may request a copy of the Annual Report on Form 10-K of the Quarterly Report on Form 10-Q for the Transition Period in writing by sending an e-mail request to our investor relations department, attention Nancy Lee, at ir@leapfrog.com, calling (510) 420-5150, or writing to Investor Relations at LeapFrog Enterprises, 6401 Hollis Street, Suite 100, Emeryville, California 94608-1463.

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PROPOSAL ONE
 
ELECTION OF DIRECTORS

Pursuant to our certificate of incorporation, the number of authorized LeapFrog directors has been set at nine by a resolution of our board of directors. There are nine nominees for director at the Annual Meeting. Stockholders cannot submit proxies voting for more than nine directors. Each director to be elected will hold office until the next annual meeting of stockholders and until his or her successor is elected or until the director’s death, resignation or removal. Each nominee listed below is currently a director of LeapFrog. Each of these nominees was elected by the stockholders, except for Mr. Stephen Youngwood, who was appointed by our board of directors on June 26, 2014.

Directors are elected by a plurality of the votes properly cast in person or by proxy. The nine nominees receiving the highest number of affirmative votes will be elected. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the nine nominees named below. If any nominee becomes unavailable for election as a result of an unexpected occurrence, shares that would have been voted for such nominee will instead be voted for the election of a substitute nominee proposed by our board of directors and the nominating and corporate governance committee. Each person nominated for election has agreed to serve if elected. LeapFrog has no reason to believe that any nominee will be unable to serve.

NOMINEES

The following table sets forth information as of June 30, 2015, with respect to the nominees for election to our board of directors:

Name		Age		Position/Office Held with LeapFrog
John Barbour		56		Chief Executive Officer and Director
William B. Chiasson		63		Chairman of the Board
Thomas J. Kalinske		70		Vice Chairman of the Board
Stanley E. Maron		67		Director
E. Stanton McKee, Jr.		70		Director
Joanna Rees		53		Director
Randy O. Rissman		67		Director
Caden C. Wang		63		Director
Stephen M. Youngwood		45		Director

Our board of directors and the nominating and corporate governance committee seek to assemble a board that possesses a diversity of background and experience in areas relevant to our business. To that end, the nominating and corporate governance committee has identified and evaluated nominees in the context of the board’s overall composition, with the goal of recruiting and nominating members who complement and strengthen the skills of other members and who possess the highest personal and professional ethics, integrity and values and have demonstrated excellence in his or her field, have the ability to exercise sound business judgment and have the commitment to rigorously represent the long-term interests of the Company’s stockholders. The brief biographies below include information regarding the specific and particular experience, qualifications, attributes or skills of each nominee that led the nominating and corporate governance committee to believe that, as of the date of this proxy statement, that nominee should continue to serve on the board. However, each of the members of the nominating and corporate governance committee may have a variety of reasons why he or she believes a particular person would be an appropriate board member, and these views may differ from the views of other members.

John Barbour has served as our Chief Executive Officer and as a member of our board of directors since March 2011. Prior to joining LeapFrog, he served as President of the GameHouse division of RealNetworks, Inc., a digital media company, from October 2008 to August 2010. From October 2006 to October 2008, Mr. Barbour served as the Managing Partner of Volta Capital, LLC, a strategy and investment consulting firm. From 1999 to June 2006, Mr. Barbour served in various capacities for Toys “R” Us, Inc., a retailer of children’s toys and products. He served as President, Toys “R” Us U.S. from August 2004 to June 2006, as President, Toys “R” Us International and Chairman, Toys “R” Us Japan from February 2002 to August 2004,

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and President and Chief Executive Officer of toysrus.com from 1999 to 2002. Mr. Barbour has also held senior level positions with Hasbro, Inc., OddzOn Products, Inc., and Universal Matchbox Group, Ltd. In addition, Mr. Barbour has served as a director of the Toy Industry of America since 2013. Mr. Barbour holds a B.Sc. in Chemistry, with Honors, from the University of Glasgow.

Mr. Barbour’s in-depth knowledge and experience, both in the U.S. and globally, with the products, technologies, distribution channels, and consumer preferences in our core markets provides considerable value and expertise to the board of directors. He has spent more than 25 years building global consumer and Internet businesses in both traditional retail and direct-to-consumer environments. He has knowledge and experience with how our largest customers operate, having led the successful turnaround of the Toys “R” Us U.S. and International divisions. He also has leadership experience at other world-class toy companies such as Hasbro, Russ Berrie and Matchbox. His online toy and gaming experience, building toysrus.com into a leading global online retailer of toys and while at the GameHouse division of RealNetworks, brings an experienced perspective necessary to the board of directors in Internet and e-commerce issues, an area that is of strategic importance to the Company.

William B. Chiasson has served as a member of our board of directors since March 2010 and as the Chairman of our board of directors since March 2011. Previously, Mr. Chiasson served as our Chief Executive Officer from September 2010 to March 2011, as President and Chief Executive Officer from March 2010 to September 2010 and as Chief Financial Officer from November 2004 to February 2010. Since August 2013, Mr. Chiasson serves on the board of directors of Fossil Group, a publicly-held company that designs, develops, markets and distributes fashion-related consumer products, and, since May 2015, as chair of its audit committee. Mr. Chiasson has served as a member of the board of directors of The ERGObaby Carrier, Inc., a designer, marketer and distributor of premium baby carriers and related products, since February 2012 and is currently Chairman of its board of directors and a member of its audit committee. In addition, Mr. Chiasson served as its Chief Executive Officer from October 2012 to May 2013. He served as Senior Vice President and Chief Financial Officer of Levi Strauss & Co., a marketer of apparel, from August 1998 to December 2003. From January 1988 to August 1998, Mr. Chiasson served in varying capacities with Kraft Foods, Inc., a division of Phillip Morris Companies and a manufacturer and seller of branded foods and beverages, most recently as Senior Vice President, Finance and Information Technology. From June 1979 to January 1988, Mr. Chiasson served in varying capacities with Baxter Healthcare, most recently as its Vice President and Controller for the Hospital Group. Mr. Chiasson received his B.A. from the University of Arizona and his M.B.A. from the University of Southern California.

Mr. Chiasson’s ongoing leadership role at LeapFrog contributes a deep understanding of our day-to-day operations to the board of directors. He brings many years of experience with branded consumer products companies through his experience at Fossil Group, The ERGObaby Carrier, Inc., LeapFrog, Levi Strauss & Co. and Kraft Foods, Inc. Also, his long service as a public-company executive officer gives him extensive knowledge of and experience with business operations and strategy, including compensation and corporate governance matters, finance and accounting issues, regulatory requirements, and risk awareness and management. Mr. Chiasson also offers substantial finance and strategy experience, having served as our Chief Financial Officer and as the Chief Financial Officer of Levi Strauss & Co., and in other senior financial roles at other public companies. Mr. Chiasson is an independent director under Section 303A.02 of the NYSE listing standards.

Thomas J. Kalinske has served on our board of directors since September 1997, and has served as the Vice Chairman of our board of directors since July 2006. He was the Chairman of our board of directors from September 1997 to February 2004. Mr. Kalinske served as our Chief Executive Officer at two different times, first from September 1997 to March 2002 and again from February 2004 to July 2006. From April 2007 to May 2008, Mr. Kalinske served as Chief Executive Officer of cFares, Inc., an online meta-search company. From 1996 to February 2004, Mr. Kalinske served as the President of Knowledge Universe (now Mounte LLC), a private company focused on building leading companies in areas relating to education, technology and career management and the improvement of individual and corporate performance. From 1990 to 1996, he served as President and Chief Executive Officer of Sega of America, a leading video game and entertainment company. Prior to that, he was President and Chief Executive Officer of the Universal Matchbox Group, a manufacturer of games, toys and children’s vehicles, from 1987 to 1990. Prior to that, he served as President

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and Co-Chief Executive Officer of Mattel, Inc., a leading toy manufacturer and public company. He has also served as Chair of the Toy Manufacturers Association of America. Since January 2012, Mr. Kalinske has served as Executive Chairman of Global Education Learning, a startup dedicated to the online teaching of English and other subjects to children in Asia. He has also served as a member of the board of directors and on the audit committee of Cambium Learning Group, Inc., a publicly-held company that provides research-based learning solutions for at-risk and special student populations, since February 2010. Mr. Kalinske also serves on the board of directors of Gazillion, an online video game company, Genyous, a cancer drug development company and the Wisconsin Center for Educational Products and Services, a non-profit organization affiliated with the University of Wisconsin. Mr. Kalinske served as a director on the board of directors of Blackboard Inc., a publicly-held company that provided enterprise learning software applications, from April 2007 until its acquisition in October 2011. Mr. Kalinske earned a B.S. from the University of Wisconsin and an M.B.A. from the University of Arizona. Mr. Kalinske has served on our nominating and corporate governance committee since June 2012.

Mr. Kalinske is one of only 68 inductees in the Toy Industry Hall of Fame, which recognizes outstanding contributions and/or service to the toy industry and to the Toy Industry Association. His leadership in leading toy and education companies and his extensive experience in the areas of technology, toys, gaming and educational ventures, all align closely with LeapFrog’s continuing strategic focus on technology-based multimedia learning platforms and provide the board of directors with highly specialized experience and perspective and pertinent strategic and business insight. His deep connections in the toy industry provide the board of directors and Company with access to leading companies and thought leaders worldwide. His extensive contacts in the toy and educational service industry serve both the board of directors and the nominating and corporate governance committee, where he can provide world-class assistance to the committee in the identification, review and evaluation of candidates to serve as directors of the Company. Mr. Kalinske is an independent director under Section 303A.02 of the NYSE listing standards.

Stanley E. Maron has served as a member of our board of directors since September 1997. Since 1994, Mr. Maron has served as a senior partner in the law firm of Maron & Sandler, a Professional Corporation, which he co-founded. He specializes in corporate and tax law. Prior to forming Maron & Sandler, he was a senior partner in the Los Angeles law firm of Buchalter, Nemer, Fields & Younger (now Buchalter Nemer), serving at the firm from 1975 to 1994. Mr. Maron currently serves as a director of Heron International, a privately-held European real estate development company, and also serves as an officer and director of privately-held companies affiliated with Knowledge Learning Corporation, a provider of early child care learning. Mr. Maron earned a B.A. from the University of California, Berkeley and a J.D. from the University of California, Los Angeles. Mr. Maron has served on our audit committee since 2006 and on our compensation and nominating and corporate governance committees since 2008.

Mr. Maron’s long tenure on our board of directors contributes continuity and a detailed understanding of LeapFrog’s business and industry to our board of directors and the three committees on which he serves. His ongoing work as a senior corporate and tax attorney gives him legal expertise and experience that are valuable to the board of directors when analyzing issues that involve such legal considerations. His experience serving as a director of LeapFrog and other companies has also provided him with valuable knowledge regarding accounting and financial reporting matters. In addition, his experience as a corporate lawyer and his service as a director of other companies provides him with a broad perspective on corporate governance practices for boards of directors, knowledge and experience with board duties and responsibilities in the context of major corporate transactions and the phases of corporate existence, and insight into trends and best practices for areas like compensation and benefits, risk management and talent development. Mr. Maron is an independent director under Section 303A.02 of the NYSE listing standards, which permits him to serve on our audit committee, and he also meets the heightened NYSE independence requirements for members of the compensation committee. In addition, Mr. Maron qualifies as a “non-employee director” within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and as an “outside” director within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code.

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E. Stanton McKee, Jr. has served as a member of our board of directors since November 2003. From 1989 until his retirement in November 2002, Mr. McKee served in various positions at Electronic Arts Inc., a publicly-held company that develops and publishes interactive entertainment, most recently as Executive Vice President and Chief Financial and Administrative Officer. From 1982 to 1989, Mr. McKee was Chief Financial Officer of Digital Research, Inc., a privately-held developer of operating systems, computer languages and applications. Mr. McKee also served in the consulting division of Arthur Andersen for seven years. Mr. McKee serves on the board of directors of King Digital Entertainment Plc, a publicly-traded casual-social gaming company, and as chair of its audit committee. Mr. McKee served on the board of directors and as Chair of the audit committee of ArcSight, Inc., a publicly-held company that provided security and compliance management software and appliances to government and commercial entities, from February 2005 until its acquisition by Hewlett-Packard in 2010. Mr. McKee has served on numerous private company and joint venture boards and currently serves on the board of directors of several private companies. Mr. McKee earned a B.A. and an M.B.A. from Stanford University. Mr. McKee has served as the Chair of our audit committee since 2003 and as a member of our compensation committee since 2009.

Mr. McKee has extensive financial reporting, financial transaction, investor relations, and general financial and management experience, having served as a chief financial officer for more than 20 years, including more than 13 years with a publicly-held company. He has also had responsibility for manufacturing, supply chain, and some international operations, all of which are components of LeapFrog’s business. He has extensive experience with mergers and acquisitions and strategic transactions having been responsible for corporate development for a number of years at Electronic Arts Inc., executing many acquisitions, investments and joint ventures, both domestically and internationally, in addition to his chief financial officer duties. His experience in the electronic game business, including both content development and retail distribution oversight, has direct applicability to LeapFrog’s business. His work at Electronic Arts and his service on the boards of directors of several companies give him broad-based knowledge in corporate governance, compensation and financial matters currently faced by companies operating in industries similar to LeapFrog’s. He is a financial expert as defined in applicable SEC rules, and was appointed chairman of our audit committee based on his education and substantial experience in the field. Mr. McKee is an independent director under Section 303A.02 of the NYSE listing standards, which permits him to serve on our audit committee and he meets the heightened NYSE independence requirements for members of the compensation committee. In addition, Mr. McKee qualifies as a “non-employee director” within the meaning of Section 16 of the Exchange Act, and as an “outside” director within the meaning of Section 162(m) of the Internal Revenue Code.

Joanna Rees was appointed to our board of directors effective April 2014. Ms. Rees is a Managing Director of Soda Rock Partners, an investment and consulting firm, where she serves as an investor, board member and senior advisor to several private high-growth companies. In 1996, Ms. Rees founded VSP Capital, a San Francisco-based venture capital firm, where she served as Managing Partner until 2011. Previously, Ms. Rees worked at Vrolyk & Company, a boutique merchant bank, from 1995 to 1996 and Banc of America Securities, an investment banking subsidiary of Bank of America, from 1993 to 1995, focused on private placements and mergers & acquisitions for retail, restaurant and branded consumer companies. Ms. Rees spent her early career in advertising and brand management. She oversaw multiple brands at Groupe Danone, a world leader in the food industry, from 1984 to 1989 and also was head of new product development in the U.S. She started her career at Benton & Bowels (now DMB&B), an advertising agency, in 1983, working on multiple consumer brands. Ms. Rees was the co-creator of the Build Brand Value CEO forum which she led from 1997 to 2003. She has also served on the Board of the National Venture Capital Association, the Coppola Companies, and as Chairman of the USA for Madrid-based FON. Ms. Rees currently serves on the board of the Fair Isaac Corporation, a public software company whose products measure consumer credit risk. She is a senior mentor and a seminar moderator at the Aspen Institute and has been an Adjunct Professor at Santa Clara University since 2007, where she teaches Leadership in the Leavey School of Business. Ms. Rees earned her M.B.A. from Columbia University and a B.S. from Duke University. Ms. Rees has been recognized by several well-known institutions. In 2000, Ms. Rees was selected as a Global Leader for Tomorrow by The World Economic Forum and in 2002, the Aspen Institute selected Ms. Rees for its 2002 Class of Henry Crown Fellows.

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Ms. Rees’s leadership and experience in investing in, advising and building leading growth companies are valuable to the Company as it seeks to continue to grow its business and broaden its portfolio with innovative new product categories. In addition, Ms. Rees has deep connections across a wide range of industries, including the technology and education industries, and access to thought leaders worldwide through her work with Soda Rock Partners and the Aspen Institute. Ms. Rees is an independent director under Section 303A.02 of the NYSE listing standards.

Randy O. Rissman has served as a member of our board of directors since August 2011. Mr. Rissman is currently managing director of Leo Capital Holdings, LLC, a venture capital firm he founded in 2000, which makes early stage investments in technology and media-based companies focused on consumer Internet and mobile applications. From 2005 to 2010, he was a director of 4Kids Entertainment, Inc., a publicly-held licensing and television production company. In 2010, he served as director of GrubHub, Inc., a food delivery, menu and online ordering company. From 1978 to 1998, Mr. Rissman served as Chief Executive Officer of Tiger Electronics, Inc., an early pioneer of children’s electronic gaming he co-founded, which was sold to Hasbro, Inc. in 1998. From 1998 until 2000, Mr. Rissman served as Chief Executive Officer of Tiger Electronics, Ltd., a Hasbro company. Mr. Rissman currently serves on the board of several private companies in which Leo Capital Holdings has made an investment. Mr. Rissman holds a bachelor’s degree from the University of Michigan and an M.B.A. from the Harvard Business School. Mr. Rissman has served as the Chair of our compensation committee since June 2012.

Mr. Rissman brings deep experience in manufacturing and marketing branded children’s products, including 20 years’ experience as chief executive officer of Tiger Electronics, Inc. His long service within the toy industry gives him extensive knowledge of and experience with business operations and strategy, including strategic planning, compensation plans, and sales and marketing. Mr. Rissman is an independent director under Section 303A.02 of the NYSE listing standards and he meets the heightened NYSE independence requirements for members of the compensation committee. In addition, Mr. Rissman qualifies as a “non-employee director” within the meaning of Section 16 of the Exchange Act, and as an “outside” director within the meaning of Section 162(m) of the Internal Revenue Code.

Caden C. Wang has served as a member of our board of directors since April 2005. From June 1999 until his retirement in December 2001, Mr. Wang served as Executive Vice President and Chief Financial Officer of LVMH Moët Hennessy Louis Vuitton S.A. Selective Retailing Group, which included various international retail holdings such as DFS, Sephora and Miami Cruiseline Services. He also served as the Chief Financial Officer for DFS Group Limited, a leading luxury retailer catering to the traveling public, Gump’s Corp., a luxury home furnishings and home décor retailer, and Cost Plus, Inc., a chain of specialty import/retail stores. From October 2003 until July 2014, Mr. Wang served on the board of directors of bebe stores, inc., a publicly-held company that designs, develops and produces women’s apparel and accessories. He earned a B.A. and an M.B.A. from the University of California, Los Angeles. Mr. Wang has served as a member of our audit committee since 2005 and a member of our nominating and corporate governance committee since 2006 (and as the Chair since 2009). He also served as a member of our compensation committee from 2009 until 2011, and previously as a member and the Chair of our compensation committee from 2005 to 2006.

Mr. Wang has extensive accounting, financial reporting and finance experience, having served as the chief financial officer of various private companies during his career and as the chair of the audit committee of a public company. Mr. Wang’s experience as an executive officer of various consumer products and retail companies and as a director of multiple public companies gives him broad-based experience in corporate governance, compensation and financial matters currently faced by public consumer products companies. In addition, Mr. Wang brings extensive knowledge of and experience with business operations and strategy from his service with these companies, including international operations. He is a financial expert, as defined in applicable SEC rules, based on his formal education and substantial experience in the field. Mr. Wang is an independent director under Section 303A.02 of the NYSE listing standards and he qualifies as a “non-employee director” within the meaning of Section 16 of the Exchange Act, which permits him to serve on the audit committee.

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Stephen M. Youngwood was appointed to our board of directors in July 2014. Mr. Youngwood has served as Chief Operating Officer of Sesame Workshop, a non-profit organization that produces educational children’s media and outreach programs around the world, since April 2015. From 1997 to 2014, he served with Viacom, most recently as Executive Vice President and General Manager of Nickelodeon’s Digital Media and Entertainment Products, where he led all Nickelodeon Digital efforts, including websites, mobile, connected TVs, TV Everywhere and other emerging platforms. Mr. Youngwood also led Nickelodeon’s video, gaming, and book publishing businesses across all digital and traditional retail channels and oversaw the acquisition and integration of various digital companies. Earlier at Viacom, he held senior management positions working with Paramount, Comedy Central and Nickelodeon brands and focused on consumer products, television and magazines. Prior to Viacom, Mr. Youngwood worked for McKinsey & Company in the U.S. and Germany and also at Disney Educational Publishing. He also has served from 2012 to 2014 on the board of directors of the private Educational Products Company, Learning Resources, and was a Media Industry Fellow at L2Inc from 2014 to 2015. Mr. Youngwood earned his Masters of Business Administration degree from the Stanford Graduate School of Business and graduated cum laude with a Bachelor of Arts degree in History from Yale College.

Mr. Youngwood is a proven and well respected leader in the children’s television and digital media industry. We believe his experience in building leading children’s entertainment media will benefit LeapFrog as we invest in growing our content portfolio and diversifying our business with new media delivery platforms. Mr. Youngwood was recommended to our board of directors by Mr. Barbour. Mr. Youngwood is an independent director under Section 303A.02 of the NYSE listing standards.

REQUIRED VOTE

The nine nominees receiving the highest number of “FOR” votes shall be elected as directors. Under the rules of the NYSE, brokers are prohibited from giving proxies to vote on elections of directors unless the beneficial owner of such shares has given voting instructions on the matter. This means that if your broker is the record holder of your shares, you must give voting instructions to your broker with respect to the nine nominees in this Proposal One if you want your broker to vote your shares on the matter. Otherwise, your shares will be treated as broker non-votes. Broker non-votes will have no effect on the outcome of the vote.

RECOMMENDATION

The Board of Directors recommends a vote FOR each named nominee.

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PROPOSAL TWO
 
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

The audit committee of our board of directors has selected PricewaterhouseCoopers LLP, or PwC, as our independent registered public accounting firm and as auditors of the Company’s consolidated financial statements for the fiscal year ending March 31, 2016. PwC has audited our consolidated financial statements since September 2013. In deciding to engage PwC, the audit committee reviewed auditor independence and existing commercial relationships with PwC, and concluded that PwC has no commercial relationship with the Company that would impair its independence.

The audit committee has directed that management submit the selection of PwC as the Company’s independent registered public accounting firm for the fiscal year ending March 31, 2016 for ratification by the stockholders at the Annual Meeting. Neither our bylaws nor other governing documents or law require stockholder ratification of the selection of our independent registered public accounting firm. However, the audit committee is submitting the selection of PwC to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the audit committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the audit committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if they determine that such a change would be in the best interests of the company and our stockholders. Representatives of PwC are expected to be present at the Annual Meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

Prior to September 2013, Ernst & Young LLP, or Ernst & Young, had served as the Company’s independent registered public accounting firm since 1997. The selection of PwC followed a competitive selection process, conducted in September 2013, to determine the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2013. The audit committee invited several international public accounting firms to participate in this process, including Ernst & Young. As a result of this process, on September 17, 2013, the audit committee approved the appointment of PwC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2013. Also on September 17, 2013, the audit committee dismissed Ernst & Young as the Company’s independent registered public accounting firm effective as of that date.

The reports of Ernst & Young on the Company’s financial statements for the fiscal years ended December 31, 2012 and 2011 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with the audits of the Company's financial statements for the fiscal years ended December 31, 2012 and 2011, and in the subsequent interim period through September 17, 2013, there were no disagreements with Ernst & Young on any matters of accounting principles or practices, financial statement disclosure or auditing scope and procedures which, if not resolved to the satisfaction of Ernst & Young, would have caused Ernst & Young to make reference to the matter in their report. There were no reportable events (as that term is described in Item 304(a)(1)(v) of Regulation S-K) during the two fiscal years ended December 31, 2012 and 2011, or in the subsequent period through September 17, 2013.

The Company provided Ernst & Young with a copy of the disclosures it would make in a Current Report on Form 8-K (the “Report”) prior to the time the Report was filed with the SEC. The Company requested that Ernst & Young furnish a letter addressed to the SEC stating whether or not it agreed with the statements made therein. A copy of Ernst & Young’s letter dated September 20, 2013 was attached as Exhibit 16.1 to the Report filed September 20, 2013.

During the years ended December 31, 2011 and December 31, 2012 and in the subsequent interim period through September 17, 2013, the Company had not consulted with PwC with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that would have been rendered on the Company’s consolidated financial statements, or any other matters set forth in Item 304(a)(2)(i) or (ii) of Regulation S-K.

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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEE INFORMATION

In connection with the audit of our 2016 fiscal year financial statements, we expect to enter into an engagement agreement with PwC that will set forth the terms by which PwC would perform audit services for us, including responsibilities of PwC and management in the conduct of the audit and estimated fees.

The following table sets forth the fees billed or to be billed to us for services performed for the fiscal year ended December 31, 2013 (Fiscal 2013), the transition period from January 1, 2014 to March 31, 2014 (TP or Transition Period) and the fiscal year ended March 31, 2015 (Fiscal 2015).

		Period (in thousands)
		Fiscal 2015				TP				Fiscal 2013
Audit Fees(1)		$	1,462			$	300			$	978
Audit-Related Fees			—				—				—
Tax Fees(2)			11				—				37
All Other Fees(3)			25				—				—
Total Fees		$	1,498			$	300			$	1,015

All services provided by our independent registered public accounting firms for the fiscal years ended December 31, 2013, March 31, 2015 and the Transition Period were approved by the audit committee.

PRE-APPROVAL PROCEDURES OF AUDIT AND NON-AUDIT SERVICES BY THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The audit committee’s charter requires it to pre-approve all audit and non-audit services performed by the independent registered public accounting firm. As permitted by the charter, the audit committee has delegated to the Chair of the audit committee the authority to grant such pre-approvals, provided that all approvals made by the Chair are presented to the full audit committee for its ratification at each of its scheduled meetings. In determining whether to approve audit and non-audit services to be performed by its independent registered public accounting firm, the audit committee takes into consideration (i) the fees to be paid for such services and whether such fees would affect the independence of the independent registered public accounting firm in performing its audit function and, (ii) with respect to just non-audit services, whether the performance of such services is compatible with maintaining the independence of the independent registered public accounting firm in performing its audit function and will not include the prohibited activities set forth in Section 201 of the Sarbanes-Oxley Act of 2002. The audit committee has determined that the rendering of the services other than audit services by its independent registered public accounting firm for the fiscal years ended December 31, 2013, March 31, 2015 and the Transition Period was compatible with maintaining the registered public accounting firm’s independence.

REQUIRED VOTE

Ratification of the appointment of PwC as our independent registered public accounting firm for the fiscal year ending March 31, 2016 requires a “FOR” vote from a majority of the voting power present and entitled to vote either in person or by proxy on the proposal in order to be approved. If you “Abstain” from voting, it will have the same effect as an “Against” vote. If you return a signed and dated proxy card or otherwise complete a ballot or voting instructions without marking your selections, your shares will be voted “FOR” ratification of the appointment of PwC.

RECOMMENDATION

The Board of Directors recommends a vote FOR Proposal Two.

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REPORT OF THE AUDIT COMMITTEE⁽¹⁾

The audit committee has reviewed and discussed with LeapFrog’s management the company’s audited consolidated financial statements for the transition period from January 1, 2014 to March 31, 2014 and the fiscal year ended March 31, 2015. The audit committee has also discussed with PricewaterhouseCoopers LLP, the company’s independent registered public accounting firm, the matters required to be discussed by the Auditing Standard No. 16, Communications with Audit Committees (AS 16).

The audit committee has received and reviewed the written disclosures and the letter from PricewaterhouseCoopers LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with PricewaterhouseCoopers LLP its independence.

Based on the review and discussions referred to above, the audit committee recommended to the board that the audited consolidated financial statements be included in the company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2015 for filing with the Securities and Exchange Commission.

Audit Committee.
 
E. Stanton McKee, Jr. (Chair)
Stanley E. Maron
Caden C. Wang

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PROPOSAL THREE
 
AMENDMENT TO AMENDED AND RESTATED BYLAWS

Our Board of Directors is proposing, for approval by our stockholders, an amendment to our Bylaws (the “Bylaws Amendment”) to establish Delaware as the exclusive forum for the adjudication of certain types of specified corporate disputes. Currently, there is no forum selection provision in our bylaws or in our charter.

Although our bylaws allow the Board of Directors to unilaterally adopt amendments to the bylaws without a stockholder vote, our Board of Directors believes, as a matter of good corporate governance, that it is important for our stockholders to consider and decide whether this amendment is appropriate for LeapFrog.

THE PROPOSAL

Under the Bylaws Amendment a new section 33 (Article VI) will be added to the Bylaws that provides as follows:

Forum for Adjudication of Disputes. Unless the corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the corporation to the corporation or the corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (iv) any action asserting a claim governed by the internal affairs doctrine shall be a state or federal court located within the state of Delaware, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article VI.

REASONS FOR THE PROPOSAL

The board of directors believes that the Bylaws Amendment, if adopted by stockholders, would provide substantial benefits to LeapFrog and its stockholders as a whole. The board of directors believes that LeapFrog and its stockholders could benefit from having any future covered disputes resolved by the courts of Delaware, our state of incorporation. Delaware courts are widely regarded for their expertise in and deep experience with corporate law issues. LeapFrog and its shareholders could benefit from greater predictability regarding the outcome of intra-corporate claims, and avoid the risk that Delaware law would be misapplied by a court in another jurisdiction with less familiarity with complex corporate matters.

The board of directors also supports the Bylaw Amendment because it believes that LeapFrog and its stockholders could benefit from minimizing the costs and risks associated with multiple claims being filed in multiple jurisdictions regarding the same or similar issues. Multi-forum litigation can subject companies to conflicting rulings in different jurisdictions as judges in various states, sometimes with little or no experience in the relevant issues, interpret the law of the state of incorporation. Multi-forum litigation also can substantially increase litigation costs. We believe that some plaintiffs pursue multi-forum litigation, or litigation outside of the state of incorporation, as a tactic to increase the likelihood of obtaining an attractive settlement, whether or not the underlying claims have merit.

Under the provisions of the Bylaws Amendment, LeapFrog would retain the ability to consent to an alternative forum, on a case-by-case basis, where the board of directors determines, in the exercise of its business judgment, that it is in the best interests of LeapFrog to permit such a claim to proceed in a forum other than the courts designated by the Bylaws Amendment.

In the last few years, many other companies have adopted similar so-called “exclusive forum” provisions in their bylaws that designate specific courts as the exclusive venue for certain lawsuits against the company or its officers or directors. Recent judicial decisions in Delaware and other jurisdictions have reinforced the validity of these provisions. We believe that their desirability has also been illustrated by the case law and endorsed by a variety of legal commentators.

If adopted, the Bylaws Amendment may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for intra-corporate disputes, and may discourage lawsuits with respect to such claims.

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The Bylaws Amendment, however, will not affect whether stockholder suits may be file litigation, nor will it restrict the kind of remedy stockholders may obtain in such litigation.

The Bylaws Amendment would also not apply to pending stockholder litigation, which is summarized in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015, which we filed with the SEC on June 15, 2015.

This description of the proposed Bylaws Amendment is a summary and is qualified by and subject to the full text of the Bylaws Amendment, which is attached to this proxy statement as Appendix A. Additions of text to our Bylaws contained in Appendix A are indicated by underlining, and deletions of text are indicated by strike-outs.

REQUIRED VOTE

This Proposal Three must receive a “For” vote from a majority of the voting power present and entitled to vote either in person or by proxy on the proposal in order to be approved. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as “Against” votes. Under the rules of the NYSE, brokers are prohibited from giving proxies to vote on non-routine matters unless the beneficial owner of such shares has given voting instructions on the matter. The proposal to amend our bylaws is a non-routine matter. This means that if your broker is the record holder of your shares, you must give voting instructions to your broker with respect to this Proposal Three if you want your broker to vote your shares on the matter. If you do not give your broker voting instructions, your shares will be treated as broker non-votes. Broker non-votes will have no effect on the outcome of the vote.

RECOMMENDATION

The Board of Directors recommends a vote FOR Proposal Three.

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PROPOSAL FOUR
 
AMENDMENT TO THE LEAPFROG ENTERPRISES, INC. 2011 EQUITY AND INCENTIVE PLAN

On May 26, 2015, the board of directors adopted, subject to stockholder approval, an amendment to the LeapFrog Enterprises, Inc. 2011 Equity and Incentive Plan, or the 2011 EIP. The amendment to the 2011 EIP makes the following changes:

We are asking our stockholders to approve the amendments to the 2011 EIP. In addition, we are asking our stockholders to approve the material terms of the 2011 EIP to satisfy the stockholder approval requirements of Section 162(m) of the Internal Revenue Code (“Section 162(m)”). In general, Section 162(m) places a limit on the deductibility for federal income tax purposes of the compensation paid to our Chief Executive Officer and any of our three other most highly compensated executive officers (other than our Chief Financial Officer). Under Section 162(m), compensation paid to such persons in excess of $1 million in a taxable year generally is not deductible. However, compensation that qualifies as “performance-based” under Section 162(m) does not count against the $1 million deduction limitation. We grant awards intended to be “performance-based” to our executive officers under the 2011 EIP. One of the requirements of “performance-based” compensation (other than stock options and stock appreciation rights) for purposes of Section 162(m) is that the material terms of the plan under which compensation may be paid be disclosed to and approved by our stockholders every five years. The material terms of the 2011 EIP are discussed below, and stockholder approval of this Proposal Four is intended to be deemed to constitute approval of the material terms of the 2011 EIP for purposes of the stockholder approval requirements of Section 162(m). If the stockholders approve the amended 2011 EIP, stockholder re-approval of the material terms of the 2011 EIP will not be required again under Section 162(m) until 2020. Obtaining stockholder approval is only one of several conditions that must be satisfied for awards under the 2011 EIP to qualify as performance-based compensation, and the rules and regulations promulgated under Section 162(m) are complicated and subject to change from time to time. Accordingly, it is possible that awards intended to qualify as performance-based compensation could be determined by the Internal Revenue Service not to so qualify. In addition, we may choose to provide awards under the 2011 EIP that are not intended to qualify as performance-based compensation.

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 and equity is an important element of compensation in the industry. As a growth-oriented, entrepreneurial company, equity awards are a critical component of our compensation program because they deliver high potential value with a smaller impact on current income and cash flow. In addition, we believe equity awards provide a strong incentive for individuals to work to grow our business and build stockholder value, and are attractive to individuals who share our entrepreneurial spirit. For a discussion of our executive compensation philosophy, see “Executive Compensation — Compensation Discussion and Analysis.”

Reduction in Number of Shares from Prior Plan Eligible for Inclusion in 2011 EIP Share Reserve

When it was last amended in 2012, the share reserve of the 2011 EIP included up to 4,867,831 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 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 most recent amendment of the 2011 EIP, the number of shares subject to outstanding stock awards granted under the Prior Plan decreased by 2,148,809 shares as the result of the forfeiture 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. Therefore, even though we are adding 3.5 million new shares, the overall share reserve is only increasing by 1,351,191 shares.

The Number of Shares Available for Grant under the 2011 EIP is Likely Insufficient for our Budgeting Purposes

As of May 31, 2015, the 2011 EIP had approximately 3.4 million shares remaining available for grant. Using projections provided by management, the compensation committee reviewed our projected share usage and concluded, in the exercise of its business judgment, that the number of shares available for grant under the 2011 EIP is likely insufficient for our budgeting purposes. In evaluating whether to recommend Proposal Four to stockholders, the compensation committee considered a number of metrics as points of reference, including the balance of shares available for grant, and our historic and projected grant rates, and measures of potential cost and dilution, including burn rate and shareholder value transfer, or SVT.

Over the 12 month period beginning June 1, 2015, we project gross share usage will be approximately 3.4 million shares, which would include annual refresh grants at the beginning of our 2017 fiscal year. In addition, our compensation committee has considered paying our employees all or a portion of bonuses for the 2016 fiscal year (“Fiscal 2016”) in equity instead of cash to further align employee compensation with stock performance, which usage could be 3.5 million shares or higher. Thus, we may not currently have sufficient shares to satisfy our compensation needs prior to the calendar 2016 annual meeting and believe it is prudent to increase the share reserve at this time.

Gross share usage in Fiscal 2015 was 2.5 million shares and projected usage in Fiscal 2016 is 3.4 million shares. Even though we currently project that gross share usage will increase in Fiscal 2016, we intend to manage our equity awards carefully, recognizing that equity awards dilute existing stockholders. The compensation committee monitors our equity award use carefully to balance the goal of compensating, motivating and retaining our employees against our stockholders’ interest in limiting dilution from equity grants. In connection with that effort, the compensation committee considers in the exercise of its business judgment historical share usage, adjusted gross burn rate and SVT, among other factors.

Our compensation committee was presented with information from its compensation consultant regarding our historical burn rate, as compared to industry benchmarks used by Institutional Shareholder Services Inc. (“ISS”), a proxy advisory service, and estimations of SVT as calculated by ISS. The compensation committee considered, as a point of reference, factors and methodologies used by ISS in determining whether to recommend approval of Proposal Four, and did so to help assess whether there will be broad shareholder support for Proposal Four, a practice that is typical for many companies seeking stockholder approval of amendments to equity plans.

Data relating to the SVT of our 2011 EIP was presented by our compensation consultant to the compensation committee. SVT is one method of measuring the potential dilution of existing stockholders due to the potential grant, vesting or exercise of equity awards. The SVT methodology assigns a dollar value to all outstanding grants and available shares, which is then expressed as a percent of the market capitalization.

The compensation committee was informed that ISS will likely use the 200-day average share price of our stock as of March 1, 2015, which was $5.63, in its calculation of SVT. Thus, ISS is likely to estimate SVT associated with our outstanding awards to be 9.9% and the SVT associated with outstanding awards and the total SVT with the increased share reserve to be 19.9%. Because of the decline in our share price during

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the 2015 calendar year, we believe this methodology significant overstates the dilution attributable to our outstanding equity awards as well as shares available for future awards.

The compensation committee reviewed SVT calculated using an assumed $1.50 share price based on the trading history of our Class A common stock beginning on June 12, 2015. If stockholders approve Proposal Four, SVT, including outstanding and available shares and based on our current share price, will increase from 11.3% to approximately 16.3%, which we believe reasonably balances compensation needs with shareholder dilution.

The following data regarding SVT was presented to the compensation committee by its compensation consultant:

		Estimated SVT Using 200-Day Moving Average Share Price as of 3/1/15 ($5.63)				Estimated SVT Using Assumed $1.50 Share Price
Outstanding Awards			9.9	%			6.3	%
2011 EIP Available Reserve as of May 2015			5.0	%			5.0	%
Additional Shares Requested			5.0	%			5.0	%
Total SVT			19.9	%			16.3	%

Our Compensation Committee also reviewed the information below relating to our annual share usage, which indicates that our three year average adjusted gross burn rate is 5.6%. This compares to the ISS burn rate benchmarks for the Company of 4.28% and 3.89% as of December 2013 and 2014, respectively. ISS’s burn rate benchmark is determined by ISS’s classification of LeapFrog as a Russell 3000 member of the “Leisure Products” industry sector. We believe that this classification significantly underestimates the extent to which we compete for talent in the technology, digital media and software industries in the San Francisco Bay Area, and accordingly the competitive equity compensation we need to offer to attract and retain talent.

The following data regarding the Adjusted Gross Burn Rate was presented to the compensation committee by its compensation consultant:

Time Period*		Options Granted				Restricted Stock Units Granted				Weighted Average Shares Outstanding				Adjusted Gross Burn Rate
Fiscal 2015			1,323,000				1,130,000				69,997,000				5.1	%
Calendar Year 2013			2,097,000				834,000				68,411,000				5.5	%
Calendar Year 2012			2,307,000				933,000				67,100,000				6.2	%
3-Year Average															5.6	%

As used in the table, adjusted gross burn rate means shares subject to equity awards granted during a fiscal year under the 2011 EIP, as a percentage of weighted average Class A and B Common Stock outstanding during such year. For purposes of calculating adjusted gross burn rate, each RSU granted is counted as two shares and each stock option granted is counted as one share. Gross share usage does not take into account shares returned to the 2011 EIP due to cancellations, expiration or forfeitures.

The projected Fiscal 2016 share usage and burn rate numbers from our management and compensation consultant, although presented above with numerical specificity, are projections, and reflect numerous assumptions and estimates as to future events made by our management that our management believed were reasonable at the time the forecasts were prepared and other factors such as industry performance and general business, economic, regulatory, market and financial conditions, as well as factors specific to our business, all of which are difficult to predict and many of which are beyond the control of our management. Actual usage may also very depending on business judgments made in the future about various matters. For example, our compensation committee has considered paying our employees all or a portion of Fiscal 2016 bonuses in equity instead of cash. In addition, the actual number of shares available for grant in the future depends on the number of shares returned to the 2011 EIP due to cancellations, expiration and forfeitures, which varies

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depending on future stock price, employee departures and other factors. We expect that at least approximately 420,000 shares will return to the plan in the remainder of Fiscal 2016 due to cancelled and expired options. The projections are forward-looking statements that we do not intend to update, and involve risks and uncertainties that could cause actual outcomes to differ materially from those in the forward-looking statements, including our ability to attract and retain talent, achievement of performance metrics with respect to certain equity-based awards, the extent of option exercise activity, and others described in our Form 10-K for the year ended March 31, 2015 filed with the SEC on June 15, 2015.

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 B 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. As of May 31, 2015, there were approximately 523 employees, including five named executive officers, approximately 40 consultants and eight non-employee directors, each of whom would be eligible to be granted awards under the 2011 EIP.

Awards

The 2011 EIP allows the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards and other stock awards. Subject to plan limits, the compensation committee has the discretionary authority to determine the size of awards to employees, however the committee has adopted a series of equity award guidelines designed to manage the usage of the pool of shares available for future. The use of performance-based awards will be considered in the context of our total compensation program and the significant level of pay-for-performance requirements already incorporated into our compensation practices.

The following table sets forth, as of May 31, 2015, information regarding outstanding equity and shares of common stock available for future equity awards as of May 31, 2015 (without giving effect to approval of the proposed amendment and restatement of the 2011 EIP):

		2011 EIP*				Other LeapFrog Equity Award Plans				All LeapFrog Equity Award Plans**
Total shares of Class A common stock underlying outstanding stock options			6,007,232				2,137,932				8,145,164
Weighted average exercise price of outstanding stock options			$6.64				$4.45				$6.07
Weighted average remaining contractual life of outstanding stock options			8.14 years				4.22 years				7.11 years
Total shares of Class A common stock underlying outstanding unvested restricted stock and RSUs			2,751,489				66,653				2,818,142
Total shares of Class A common stock available for grant			3,413,084				100,121				3,513,205

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Shares Authorized and Share Reserve

The share reserve of the 2011 EIP consists of 12.2 million newly authorized shares, plus 4,183,697 shares which were part of the share reserve on the effective date, and any Returning Shares (as defined in the 2011 EIP), up to a maximum of 2,719,022 shares. The number of shares available for issuance under the 2011 EIP is reduced by one share for each share of common stock issued pursuant to all stock awards granted under the 2011 EIP.

Vesting and Exercise of Awards

The exercise price of stock options and SARs granted under the 2011 EIP may not be less than the fair market value of the common stock on the date of grant. The term of any stock option or SAR may not be longer than 10 years. For other types of awards under the 2011 EIP, the compensation committee will determine the vesting and exercisability (or settlement) terms for each award, including the establishment of any performance vesting criteria.

Eligibility Under Section 162(m)

Stockholder approval of the amendment to the 2011 EIP is designed to constitute approval of the plan’s material features for purposes of Section 162(m) of the Tax Code. The maximum number of shares subject to options, RSUs, stock appreciation rights or other stock awards that may be granted to a participant during a calendar year is 3,500,000 shares. The foregoing limitation shall be adjusted proportionately by the board of directors in the event of a stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or any similar equity restructuring transaction.

Awards may, but need not, include performance criteria that satisfy Section 162(m). To the extent that awards are intended to qualify as “performance-based compensation” under Section 162(m), the performance criteria will be based on stock price appreciation (in the case of options or SARs) or on one or more of the following factors (which may be adjusted as provided in the plan): (i) earnings (including earnings per share and net earnings); (ii) earnings before interest, taxes and depreciation; (iii) earnings before interest, taxes, depreciation and amortization; (iv) total stockholder return; (v) return on equity or average stockholder’s equity; (vi) return on assets, investment, or capital employed; (vii) stock price; (viii) margin (including gross margin); (ix) income (before or after taxes); (x) operating income; (xi) operating income after taxes; (xii) pre-tax profit; (xiii) operating cash flow; (xiv) sales or revenue targets; (xv) increases in revenue or product revenue; (xvi) expenses and cost reduction goals; (xvii) improvement in or attainment of working capital levels; (xiii) economic value added (or an equivalent metric); (xix) market share; (xx) cash flow; (xxi) cash flow per share; (xxii) share price performance; (xxiii) debt reduction; (xxiv) implementation or completion of projects or processes; (xxv) customer satisfaction; (xxvi) stockholders’ equity; (xxvii) capital expenditures; (xxiii) debt levels; (xxix) operating profit or net operating profit; (xxx) workforce diversity; (xxxi) growth of net income or operating income; (xxxii) billings; and (xxxiii) to the extent that an award is not intended to comply with Section 162(m) of the Tax Code, other measures of performance selected by the board of directors. The factors are applied on a Company-wide basis, with respect to one or more business units, divisions, affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices, in each case as specified by the compensation committee in the award.

Transferability

Awards granted under the 2011 EIP are transferable only by will or the laws of descent and distribution, or to the extent otherwise determined by the compensation committee. The compensation committee has sole discretion to permit the transfer of an award.

Administration

The compensation committee, which is made up of independent directors, has been delegated the authority by the board of directors to administer our equity compensation plans and will administer the 2011 EIP. The compensation committee, or a subcommittee thereof, will select the employees who receive awards, when and how the awards are granted, what type or combination of types of awards to be granted, the provisions of each award granted and the number of shares granted. The compensation committee may

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delegate to a committee of one or more directors the ability to grant awards and take certain other actions with respect to participants who are not executive officers, and may delegate certain administrative functions under the 2011 EIP to an officer or officers. The compensation committee has delegated authority to a management stock award committee (“MSAC”) consisting of the Chief Executive Officer and the Chief Financial Officer to grant awards to non-executive employees within limits and a budget pre-approved by the compensation committee. The compensation committee may interpret the 2011 EIP and awards granted under it and establish, amend and revoke any rules relating to the 2011 EIP.

Duration, Suspension, Termination, and Amendment

The board of directors may suspend or terminate the 2011 EIP at any time. Unless sooner terminated by our board of directors, the 2011 EIP shall automatically terminate on March 16, 2021, which is the day before the tenth anniversary of the date the 2011 EIP was adopted by the board of directors. No awards may be granted under the 2011 EIP while the 2011 EIP is suspended or after it is terminated.

The board of directors may amend the 2011 EIP at any time. However, no amendment or termination of the plan will adversely affect any rights under awards already granted to a participant unless agreed to by the affected participant. In addition, we will obtain stockholder approval of any amendment to the 2011 EIP, if required by applicable law or listing requirement that would:

Adjustments; Corporate Transactions

In the event of a capitalization adjustment, the compensation committee shall appropriately and proportionately adjust the number and kind of shares available for grant under the 2011 EIP, and subject to the various limitations set forth in the 2011 EIP, the number and kind of shares subject to outstanding awards under the 2011 EIP, and the exercise or settlement price of outstanding stock options and of other awards.

In the event of a corporate transaction, the board of directors may arrange for the assumption of the outstanding awards, the acceleration of vesting of outstanding awards, the assignment of rights with respect to the awards, the cancellation of the awards or a payment to award holders, as determined by the board of directors. For purposes of the 2011 EIP, a corporate transaction will be deemed to occur in the event of (i) the consummation of a sale of all or substantially all of our consolidated assets, (ii) the consummation of a sale of at least 90% of our outstanding securities, (iii) the consummation of a merger or consolidation in which we are not the surviving corporation, or (iv) the consummation of a merger or consolidation in which we are the surviving corporation but shares of our outstanding common stock are converted into other property by the virtue of the transaction, as determined by the board of directors.

Tax Withholding

The board of directors may require a participant to satisfy any federal, state, local, or foreign tax withholding obligation relating to a stock award by (a) causing the participant to tender a cash payment; (b) withholding shares of common stock from the shares of common stock issued or otherwise issuable to the participant in connection with the award; (c) withholding cash from an award settled in cash or from other amounts payable to the participant; or (d) by other method set forth in the award agreement. We generally are required to withhold whenever an employee recognizes ordinary income under the 2011 EIP.

U.S. Federal Tax Consequences

The following is a summary of the principal U.S. federal income taxation consequences to participants and LeapFrog with respect to participation in the 2011 EIP. The information is based upon current federal

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income tax rules and therefore is subject to change when those rules change. It is not intended as tax advice to participants, who should consult their own tax adviser. The 2011 EIP is not qualified under the provisions of Section 401(a) of the Tax Code, and is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974. Our ability to realize the benefit of any tax deductions described below depends on our generation of taxable income as well as the requirement of reasonableness, the provisions of Section 162(m) of the Tax Code and the satisfaction of our tax reporting obligations.

Incentive Stock Options

The 2011 EIP provides for the grant of stock options that qualify as “incentive stock options,” as defined in Section 422 of the Tax Code. Under the Tax Code, an optionee generally is not subject to ordinary income tax upon the grant or exercise of an incentive stock option. If the optionee holds a share received on the exercise of an incentive stock option for more than two years from the date the option was granted and more than one year from the date the option was exercised, which is referred to as the required holding period, the difference, if any, between the amount realized on a sale or other taxable disposition of that share and the holder’s tax basis in that share will be long-term capital gain or loss.

If, however, an optionee disposes of a share acquired on exercise of an incentive stock option before the end of the required holding period, which is referred to as a disqualifying disposition, the optionee generally will recognize ordinary income in the year of the disqualifying disposition equal to the excess, if any, of the fair market value of the share on the date the incentive stock option was exercised over the exercise price. However, if the sales proceeds are less than the fair market value of the share on the date of exercise of the option, the amount of ordinary income recognized by the optionee will not exceed the gain, if any, realized on the sale. If the amount realized on a disqualifying disposition exceeds the fair market value of the share on the date of exercise of the option, that excess will be short-term or long-term capital gain, depending on whether the holding period for the share exceeds one year.

For purposes of the alternative minimum tax, the amount by which the fair market value of a share of stock acquired on exercise of an incentive stock option exceeds the exercise price of that option generally will be an adjustment included in the optionee’s alternative minimum taxable income for the year in which the option is exercised. If, however, there is a disqualifying disposition of the share in the year in which the option is exercised, there will be no adjustment for alternative minimum tax purposes with respect to that share. In computing alternative minimum taxable income, the tax basis of a share acquired on exercise of an incentive stock option is increased by the amount of the adjustment taken into account with respect to that share for alternative minimum tax purposes in the year the option is exercised.

We are not allowed an income tax deduction with respect to the grant or exercise of an incentive stock option or the disposition of a share acquired on exercise of an incentive stock option after the required holding period. If there is a disqualifying disposition of a share, however, we are allowed a deduction in an amount equal to the ordinary income includible in income by the optionee.

Nonstatutory Stock Options

Generally, there is no taxation upon the grant of a nonstatutory stock option if the option is granted with an exercise price equal to the fair market value of the underlying stock on the grant date. On exercise, an optionee will recognize ordinary income equal to the excess, if any, of the fair market value on the date of exercise of the stock over the exercise price. Generally, the optionee’s tax basis in those shares will be equal to their fair market value on the date of exercise of the option, and the optionee’s capital gain holding period for those shares will begin on that date. We will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the optionee.

Restricted Stock Awards

Generally, the recipient of a restricted stock award will recognize ordinary compensation income at the time the stock is received equal to the excess, if any, of the fair market value of the stock received over any amount paid by the recipient in exchange for the stock. If, however, the stock is not vested when it is received (for example, if the employee is required to work for a period of time in order to have the right to sell the stock), the recipient generally will not recognize income until the stock becomes vested, at which time the recipient will recognize ordinary compensation income equal to the excess, if any, of the fair market value of

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the stock on the date it becomes vested over any amount paid by the recipient in exchange for the stock. A recipient may, however, file an election with the Internal Revenue Service, within 30 days of his or her receipt of the stock award, to recognize ordinary compensation income, as of the date the recipient receives the award, equal to the excess, if any, of the fair market value of the stock on the date the award is granted over any amount paid by the recipient in exchange for the stock.

The recipient’s basis for the determination of gain or loss upon the subsequent disposition of shares acquired from stock awards will be the amount paid for such shares plus any ordinary income recognized either when the stock is received or when the stock becomes vested.

Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Tax Code and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the stock award.

Restricted Stock Units

Generally, no taxable income is recognized upon receipt of a restricted stock unit award. The participant will recognize ordinary income in the year in which the shares subject to that unit are actually issued to the participant in an amount equal to the fair market value of the shares on the date of issuance. Generally, we will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the participant at the time the shares are issued.

Stock Appreciation Rights

Generally, stock appreciation rights are subject to similar tax rules as nonstatutory stock options. This means that, generally, no taxable income is realized upon the receipt of a stock appreciation right. Upon exercise of the stock appreciation right, the fair market value of the shares (or cash in lieu of shares) received, less any strike price paid for such shares, is recognized as ordinary income to the participant in the year of such exercise. Generally, with respect to employees, we are required to withhold from the payment made on exercise of the stock appreciation right or from regular wages or supplemental wage payments an amount based on the ordinary income recognized. We will generally be entitled to an income tax deduction equal to the amount of ordinary income recognized by the participant.

Section 162(m)

Section 162(m) of the Tax Code requires, among other things, that the maximum number of shares awarded to an individual under a stock awards, or the maximum value of any cash award, must be approved by stockholders in order for the awards granted under the plan to be eligible for treatment as performance-based compensation that will not be subject to the $1 million limitation on tax deductibility for compensation paid to certain specified senior executives. Accordingly, the 2011 EIP limits awards granted under the plan to an individual participant in any calendar year to: (i) No more than 3.5 million shares subject to stock options or SARs (or other stock awards whose value is determined by reference to an increase over an exercise or strike price) to an individual participant; (ii) No more than 3.5 million shares subject to performance-based restricted stock or RSU awards to an individual participant; and (iii) No more than $1.0 million subject to performance cash awards to an individual participant. These limits are greater than the number of shares or cash subject to any particular award that we have granted to any individual in the past.

Plan Benefits

The future benefits or amounts that would be received under this amendment to the 2011 EIP are discretionary and are therefore not determinable at this time. Similarly, the benefits or amounts which would have been received by or allocated to executive officers and our other employees for the last completed fiscal year if this amendment to the 2011 EIP had been in effect cannot be determined. Information about awards granted in Fiscal 2015 to the named executive officers can be found under “Grants of Plan-Based Awards.” Information about awards granted in Fiscal 2015 to our non-employee directors can be found under “Director Compensation.”

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OTHER EQUITY COMPENSATION PLAN INFORMATION

Information, as of March 31, 2015, regarding equity compensation plans approved and not approved by stockholders is summarized in the following table:

Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)				Weighted-average exercise price of outstanding options, warrants and rights (b)				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders			8,595,301			$	6.66				6,638,587	(1)
Equity compensation plans not approved by security holders			—				—				—
TOTAL

REQUIRED VOTE

Approval of the amendment to the 2011 EIP requires affirmative “For” vote from a majority of the voting power present and entitled to vote either in person or by proxy on this Proposal Four at the Annual Meeting. Abstentions will be counted toward the tabulation of votes cast on the proposal and will have the same effect as “Against” votes. Under the rules of the NYSE, brokers are prohibited from giving proxies to vote on the implementation of any equity compensation plan unless the beneficial owner of such shares has given voting instructions on the matter. This means that if your broker is the record holder of your shares, you must give voting instructions to your broker with respect to this Proposal Four if you want your broker to vote your shares on the matter. If you do not give your broker voting instructions, your shares will be treated as broker non-votes. Broker non-votes will have no effect on the outcome of the vote.

RECOMMENDATION

The Board of Directors recommends a vote FOR Proposal Four.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

BENEFICIAL OWNERSHIP OF OUR COMMON STOCK

The following table sets forth certain information regarding the ownership of LeapFrog’s Class A common stock and Class B common stock (convertible into Class A common stock) as of May 31, 2015, by: (i) each director; (ii) each of the executive officers named in the Summary Compensation Table later in this proxy statement; (iii) all executive officers and directors of LeapFrog as a group; and (iv) all those known by the Company to be beneficial owners of more than five percent of our Class A or Class B common stock. Information with respect to beneficial ownership has been furnished by each director, executive officer or beneficial owner of more than five percent of the shares of our Class A or Class B common stock.

Beneficial ownership is determined in accordance with SEC rules, which generally attribute beneficial ownership of securities to each person who possesses, either solely or shared with others, the power to vote or dispose of those securities. These rules also treat as outstanding all shares of capital stock that a person would receive upon exercise of stock options held by that person that are immediately exercisable or exercisable within 60 days of May 31, 2015. These shares are deemed to be outstanding and to be beneficially owned by the person holding those options for the purpose of computing the number of shares beneficially owned and the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated and to the extent known, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.

		Number of Shares Beneficially Owned												Percentage of Shares Beneficially Owned(1)												Percentage of Combined Voting Power of All Classes of Stock(3)
Beneficial Owner		Class A				Class B				Total				Class A				Class B				Total(2)
Michael R. Milken(4)			1,789				3,076,516				3,078,305					*			70.0	%			4.4	%			27.9	%
Sandra Milken(5)			—				796,335				796,335				—				18.1	%			1.1	%			7.2	%
Lowell J. Milken(6)			—				532,914				532,914				—				12.1	%				*			4.8	%
Franklin Resources, Inc.(7)			6,300,750				—				6,300,750				9.5	%			—				8.9	%			5.7	%
The Vanguard Group(8)			3,811,954				—				3,811,954				5.8	%			—				5.4	%			3.5	%
BlackRock, Inc.(9)			3,747,485				—				3,747,485				5.7	%			—				5.3	%			3.4	%
Kenneth Adams(10)			163,506				—				163,506					*			—					*				*
Gregory B. Ahearn(11)			373,273				—				373,273					*			—					*				*
Raymond L. Arthur(12)			409,792				—				409,792					*			—					*				*
John Barbour(13)			1,686,699				—				1,686,699				2.5	%			—				2.3	%			1.5	%
William B. Chiasson(14)			488,194				—				488,194					*			—					*				*
Antony Hicks(15)			4,687				—				4,687					*			—					*				*
Thomas J. Kalinske(16)			387,597				—				387,597					*			—					*				*
Stanley E. Maron(17)			181,561				168				181,729					*				*				*				*
E. Stanton McKee, Jr.(18)			195,308				—				195,308					*			—					*				*
Joanna Rees(19)			14,942				—				14,942					*			—					*				*
Randy O. Rissman(20)			609,956				—				609,956					*			—					*				*
Caden C. Wang(21)			163,966				—				163,966					*			—					*				*
Stephen M. Youngwood(22)			13,528				—				13,528					*			—					*				*
All directors and executive officers as a group (13 persons)(23)			4,693,009				168				4,693,177				6.8	%				*			6.4	%			4.1	%

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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Class A common stock and other equity securities of LeapFrog. Officers, directors and greater-than-ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.

To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended March 31, 2015, all Section 16(a) filing requirements applicable to our officers, directors and greater-than-ten percent beneficial owners were filed in a timely manner except for a late Form 3 filing on July 9, 2014 for Stephen Youngwood disclosing his initial ownership of LeapFrog stock.

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BOARD OF DIRECTORS AND CORPORATE GOVERNANCE

BOARD LEADERSHIP STRUCTURE

The Company’s governance documents provide our board of directors with flexibility to select the appropriate board leadership structure for the Company. In making leadership structure determinations, the board of directors considers many factors, including the specific needs of the business and what is in the best interests of the Company’s stockholders. The leadership structure currently consists of a non-employee Chairman of the Board and a Vice Chairman, both of whom are independent directors within the meaning of the NYSE listing standards. The board of directors believes the current separation of the Chairman and Chief Executive Officer (“CEO”) roles allows the CEO to focus his time and energy on operating and managing the Company and leverages the Chairman’s experience and perspectives. In addition, there are appropriate safeguards and oversight by independent directors, which contributes to the effectiveness of the board of directors as a whole.

William B. Chiasson serves as the Chairman of the Board. The regular duties of the Chairman of the Board are described in our bylaws, which provide that the Chairman presides over meetings of the board of directors and at meetings of our stockholders, and performs any other duties commonly incident to the office or designated by our board of directors. The Chairman role includes serving as a liaison between the other members of the board of directors and management, working with management and other directors to develop agendas for meetings of the board of directors, helping build consensus on proposed actions of the board of directors, and serving as the chair of meetings of the board of directors.

We believe that having an independent Chairman serves to create an environment that is conducive to objective evaluation and oversight of management’s performance and compensation. In addition, Mr. Chiasson’s familiarity with the operations and management of the Company, gained while serving as the Company’s chief executive officer and chief financial officer, provides insight to the Company’s strategic and operational plans and also enables him to effectively consult with senior management and members of the board of directors to facilitate regular, open and direct communication between directors and our management.

Thomas J. Kalinske, who served as our chief executive officer from September 1997 to March 2002 and again from February 2004 to July 2006, serves as the Vice Chairman of the Board. Although the role of Vice Chairman has no defined duties in our corporate governance documents, Mr. Kalinske’s deep experience and contacts in the industry enable him to be an effective representative of the Company.

DIRECTOR INDEPENDENCE

The NYSE listing standards require that companies have a board of directors comprised of at least a majority of independent directors. Generally, under NYSE rules, a director qualifies as independent if the board of directors affirmatively determines that the director has no material relationship with the listed company and so long as that director has not been an employee of the listed company for the previous three years or received in excess of $120,000 in compensation from the Company.

After review of all relevant transactions or relationships between (i) each director, or any family member, and (ii) LeapFrog, our senior management and our independent registered public accounting firm, our board of directors affirmatively determined in May 2015 that all of our continuing directors are independent within the meaning of the applicable NYSE listing standards, except for Mr. Barbour, our Chief Executive Officer.

BOARD MEETINGS AND EXECUTIVE SESSIONS

The board of directors held five meetings during Fiscal 2015 and two meetings during the Transition Period. Each of our incumbent directors attended at least 75% of the aggregate number of meetings of the board of directors and of the committees on which the director served. Board members are expected to regularly attend all meetings of the board of directors and committees on which they serve. Directors are also invited to attend the Annual Meeting, but attendance is not mandatory. In 2014, Mr. Chiasson attended the annual meeting of stockholders.

Our Chairman presides over all executive sessions of the board of directors, including independent executive sessions (meetings of the non-management directors who are also independent directors) of the board of directors. If our Chairman is absent from an executive session of the board of directors, the

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remaining directors select a temporary chairman to lead the meeting. For executive sessions of committees, the chair of the committee presides over all executive sessions of his or her committee. If a committee chair is absent for a committee executive session, the remaining committee members determine as a group the presiding director for executive sessions on a case-by-case basis.

ROLE OF BOARD IN RISK OVERSIGHT

One of the key functions of our board of directors is informed oversight of our risk management. The Company has built internal processes and a strong internal control environment which facilitate not only the identification and management of risks, but also regular communication with and oversight by the board of directors in this regard.

The Company’s internal audit function oversees an enterprise risk management program and the Company maintains a Compliance Committee consisting of the chief financial officer, the general counsel, the senior director of human resources and the director of internal audit. The Compliance Committee reports directly to the chair of the audit committee. In addition, the Company has regular internal management disclosure committee meetings, maintains a Code of Business Conduct and Ethics, product quality standards and processes and a variety of other policies and procedures designed to control and minimize risk. Management communicates routinely with the board of directors, board committees and individual directors on the significant risks identified and how they are being managed. Directors are free to, and often do, communicate directly with senior management on these and other risk-related topics.

The board of directors implements its risk oversight function both as a whole and through delegation to board committees, which meet regularly and report back to the full board. All committees play significant roles in carrying out the risk oversight function. The board and its committees’ risk oversight function includes the following:

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COMMITTEES OF THE BOARD

In the Fiscal 2015 and in the Transition Period, our board of directors had three standing committees: An audit committee, a compensation committee and a nominating and corporate governance committee. Each of the committees has authority to engage legal counsel or other experts or consultants, as it deems appropriate, to carry out its responsibilities. The following table provides membership and meeting information for each of the board committees for the 2015 fiscal year and the Transition Period:

Member of our board of directors in 2014 – 2015

Audit

Compensation

Nominating and Corporate Governance

Thomas J. Kalinske

X

Stanley E. Maron

X

X

X

(1)

E. Stanton McKee, Jr.

X*

X

Joanna Rees

X

(2)

Randy O. Rissman

X*

Caden C. Wang

X

X*

Total meetings during the Transition Period

3

2

1

Total meetings in Fiscal 2015

6

5

4

The board of directors concluded that each of the board members currently serving on a committee is “independent” as defined in the NYSE listing standards.

Below is a description of each committee of the board of directors.

Audit Committee

The audit committee of our board of directors was established by our board of directors in accordance with Section (3)(a)(58)(A) of the Exchange Act, and oversees our corporate accounting and financial reporting process and the audits of our financial statements. For this purpose, the audit committee performs several functions. Among other things, the audit committee:

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The audit committee is currently composed of three directors: Messrs. McKee (Chair), Maron and Wang. The audit committee met six times during our 2015 fiscal year and twice during the Transition Period. The board has determined that all members of LeapFrog’s audit committee are independent (as defined in Section 303A.02 of the NYSE listing standards) and meet the independence requirements for audit committee members as set forth in Section 10A(m)(3) of the Exchange Act and Rule 10A-3(b) promulgated under the Exchange Act. None of our audit committee members simultaneously serves on the audit committees of more than three public companies. Our board of directors has determined that Mr. McKee, the Chair of our audit committee, and Mr. Wang, each qualify as an “audit committee financial expert,” as defined in applicable SEC rules. In doing so, the board of directors made a qualitative assessment of Messrs. McKee’s and Wang’s level of knowledge and experience based on a number of factors, including their formal education and experience, in the case of Mr. McKee, as a chief financial officer for a public reporting company, and in the case of Mr. Wang, as chief financial officer for various privately-held companies and as the chair of the audit committee of another public reporting company.

The audit committee has adopted a written audit committee charter that is posted on our website at www.leapfroginvestor.com under the heading “Corporate Governance.”

Compensation Committee

The compensation committee has the authority to review and approve the overall compensation strategy and policies for LeapFrog. This role includes review and approval of corporate performance goals and objectives relevant to the compensation of our executive officers and other senior management, and the compensation and other terms of employment of our CEO. In addition, the compensation committee administers LeapFrog’s equity incentive and stock purchase plans and other similar programs. The compensation committee has authority to form and delegate authority to subcommittees, as appropriate.

The compensation committee reviews and considers evaluations and recommendations from our CEO submitted to the compensation committee and the compensation consultant engaged by the committee with respect to the compensation of our other executive officers. The compensation committee reviews and considers market data provided by the compensation consultant engaged by the committee and from our board

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of directors with respect to the compensation of our CEO. Our CEO is not present during any deliberations or decisions concerning his compensation.

The compensation committee is authorized under its charter to obtain, at the expense of the Company, advice and assistance from internal and external legal, accounting or other advisors and consultants that the compensation committee considers necessary or appropriate in the performance of its duties. During the past fiscal year, the compensation committee directly engaged Compensia, Inc. as its compensation consultant. The compensation committee requested that Compensia evaluate the Company’s compensation policies and practices and assist in developing and implementing our executive compensation program and philosophy. Compensia developed a compensation peer group and performed analyses of the competitive performance and compensation levels of the companies in the peer group. Having been previously engaged by the compensation committee, Compensia is familiar with the Company’s business operations and strategy, key performance measures and target goals and the labor markets in which we compete. Compensia provided peer and market compensation data that were reviewed and considered as part of the pay decisions made by the compensation committee for the 2015 fiscal year. The specific tasks and responsibilities in implementing the directive of the compensation committee are described in greater detail under the heading “Compensation Discussion and Analysis” below in this proxy statement.

Compensia (including its affiliates) did not perform any services for the Company or any of our affiliates other than compensation consulting services related to determining or recommending the form or amount of executive and director compensation, advising on the design and implementation of incentive plans and providing information on industry and compensation peer group pay practices, which services were provided directly to the compensation committee.

Among other considerations in administering our compensation programs, the compensation committee considers whether and to what extent such programs have a potential to encourage excessive risk-taking by our employees, including our executive officers. Specific features of our compensation program and plans identified by the compensation committee as discouraging or potentially mitigating excessive risk-taking behavior include:

The compensation committee monitors our compensation programs to evaluate, on a regular basis, whether they provide an appropriate balance of incentives and whether they discourage employees from taking unreasonable risks. Based on these assessments in March 2014, the board of directors and the compensation committee concluded that our compensation policies and practices for our employees do not create risks that are reasonably likely to have a material adverse effect on the Company.

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The compensation committee is currently composed of three directors, Messrs. Rissman (Chair), Maron, and McKee. The board of directors has determined that all members of the compensation committee meet the heightened independence requirements in the NYSE Listing Standards for members of the compensation committee. In addition, each of these directors qualifies as a “non-employee director” within the meaning of Section 16 of the Exchange Act, and as an “outside” director within the meaning of Section 162(m) of the Internal Revenue Code. The compensation committee met nine times during the Transition Period and Fiscal 2015. The compensation committee has adopted a written charter that is posted on our website at www.leapfroginvestor.com under the heading “Corporate Governance.”

Compensation Committee Interlocks and Insider Participation

Messrs. Rissman, Maron and McKee served on our compensation committee during the 2015 fiscal year and the Transition Period. During this time, none of these directors was an officer or employee of the Company or any of our subsidiaries, nor are any of these directors former officers of the Company or any of our subsidiaries.

None of our other executive officers or directors serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

Nominating and Corporate Governance Committee

The nominating and corporate governance committee of the board of directors is responsible for identifying, reviewing and evaluating candidates to serve as directors on our board of directors (consistent with criteria approved by the board of directors), reviewing and evaluating incumbent directors, recommending to the board of directors for selection candidates for election to the board of directors, making recommendations to the board of directors regarding the membership of the committees of the board of directors, assessing the performance of the board of directors, reviewing the compensation paid to non-employee directors for their service on our board of directors and its committees, and developing our corporate governance principles.

When searching for new board members, the nominating and corporate governance committee uses its network of contacts to compile a list of potential candidates, but may also engage, if it deems appropriate, a professional search firm. The nominating and corporate governance committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the board. The nominating and corporate governance committee meets to discuss and consider the candidates’ qualifications and then selects a nominee for recommendation to the board of directors.

The nominating and corporate governance committee will consider director candidates recommended by stockholders. The nominating and corporate governance committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, based on whether or not the candidate was recommended by a stockholder. Stockholders who wish to recommend individuals for consideration by the nominating and corporate governance committee to become nominees for election to the board for next year’s annual meeting of stockholders may do so by delivering a written recommendation to the nominating and corporate governance committee at the following address: Chair of the Nominating and Corporate Governance Committee c/o Corporate Secretary of LeapFrog at 6401 Hollis Street, Suite 100, Emeryville, California 94608, by March 4, 2016. Submissions must include the full name of the proposed nominee, a description of the proposed nominee’s business experience for at least the previous five years, complete biographical information, a description of the proposed nominee’s qualifications as a director and a representation that the nominating stockholder is a beneficial or record owner of our Class A or Class B common stock. Any such submission must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected.

Our nominating and corporate governance committee is currently composed of three directors, Messrs. Wang and Kalinske and Ms. Rees. The board of directors has determined that all current members of the nominating and corporate governance committee are independent (as defined in the NYSE listing standards). The nominating and corporate governance committee met four times during our 2015 fiscal year

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and once during the Transition Period. Our nominating and corporate governance committee charter is posted on our website at www.leapfroginvestor.com under the heading “Corporate Governance.”

CORPORATE GOVERNANCE

Corporate Governance Guidelines

Our board of directors has adopted written Corporate Governance Guidelines to assure that the board of directors will have the necessary authority and practices in place to review and evaluate our business operations as needed and to make decisions that are independent of our management. The guidelines are also intended to align the interests of directors and management with those of our stockholders and set forth the role of the board of directors and guidelines for other areas of corporate practice of the Company.

The guidelines set forth the practices the board of directors intends to follow with respect to board composition and selection. The guidelines state that, when evaluating the suitability of individual candidates for board membership, the nominating and corporate governance committee, together with the board of directors, will assess the independence, character and acumen of candidates to collectively establish a diversity of background and experience in areas relevant to our business. Board membership qualifications include (i) any director “independence” requirements of the NYSE and other membership qualifications, including having sufficient time to devote to the affairs of the Company, (ii) demonstrated excellence in his or her field, (iii) having the ability to exercise sound business judgment and (iv) having the commitment to rigorously represent the long-term interests of the Company’s stockholders. Candidates for director are reviewed in the context of the current composition of the board of directors, the operating requirements of LeapFrog and the long-term interests of stockholders. The guidelines state that in conducting this assessment, the nominating and corporate governance committee considers diversity, age, skills, and such other factors as it deems appropriate given the current needs of the board of directors and LeapFrog, to maintain a balance of knowledge, experience and capability. In the case of incumbent directors, the nominating and corporate governance committee reviews these directors’ overall service to LeapFrog during their terms, including the number of meetings attended, level of participation, quality of performance, and any other relationships and transactions that might impair such directors’ independence.

While our board of directors and nominating and corporate governance committee do not have a policy regarding the consideration of diversity in identifying director nominees, the guidelines allow the nominating and corporate governance committee to include in its consideration of director candidates an assessment of the current composition of the board of directors, and how it may be possible to strengthen the diversity of the board of directors by adding individuals who could add to the breadth of the overall experiences and perspectives of the board of directors. This may include selecting candidates with gender, ethnic, national or other backgrounds that are different from those already represented on the board of directors at the time of consideration.

The guidelines provide that the board of directors should have at least four regular meetings each year, although in practice the board of directors may hold meetings more frequently. The guidelines also provide that the board of directors and its committees may take action by unanimous written consent. The guidelines establish that members of the board of directors have complete and open access to the Company’s management and employees. The guidelines also provide for an annual review of the chief executive officer’s performance, as well as for the establishment of plans and policies for succession. The nominating and corporate governance committee assists the board in implementing and adhering to the guidelines.

Our Corporate Governance Guidelines are posted on the investor relations section of our website at www.leapfroginvestor.com under the heading “Corporate Governance.” In addition, stockholders may obtain a print copy of our Corporate Governance Guidelines as well as the charters of our audit committee, compensation committee and nominating and corporate governance committee by writing to our Corporate Secretary at 6401 Hollis Street, Suite 100, Emeryville, California 94608.

Prohibition Against Insider Trading and Hedging

We maintain a policy (the “Insider Trading Policy”) against trading on the basis of inside information which applies to all employees, including our executive officers, and members of the board of directors. In addition to prohibiting trading the Company’s securities on the basis of inside information the Insider Trading

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Policy also prohibits any employees, executive officers or directors from, directly or indirectly, short selling or hedging any of the Company’s equity securities, which includes the purchase of any financial instrument designed to offset or reduce exposure to the risk of price fluctuations in a corresponding equity security. In addition, the Insider Trading Policy requires all employees, including executive officers, and directors, to obtain clearance from the Company before entering into a pledging transaction involving any of the Company’s equity securities. Executive officers must receive clearance from the general counsel, except our CEO, who must receive clearance from the compensation committee. Non-employee directors must receive clearance from our nominating and corporate governance committee.

Code of Ethics

We have adopted the LeapFrog Code of Business Conduct and Ethics that applies to all officers, directors and employees. Our Code of Business Conduct and Ethics is available on the investor relations section of our website at www.leapfroginvestor.com under the heading “Corporate Governance.” Stockholders may also obtain a print copy of our Code of Business Conduct and Ethics by writing to our Corporate Secretary at 6401 Hollis Street, Suite 100, Emeryville, California 94608. If we make any substantive amendments to our Code of Business Conduct and Ethics or grant any waiver from a provision of the Code of Business Conduct and Ethics to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on the investor relations section of our website at www.leapfroginvestor.com under the heading “Corporate Governance.”

TRANSACTIONS WITH RELATED PERSONS

Our board of directors has approved a written policy regarding transactions with related persons that sets forth our policies and procedures regarding the identification, review, consideration and approval or ratification of “related-person transactions.” For purposes of our policy only, a “related-person transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) involving an amount that exceeds $120,000 in which LeapFrog and any “related person” (as defined below) are participants. Transactions involving compensation for services provided to LeapFrog as an employee, director, consultant or similar capacity by a related person are not covered by this policy. A related person is any executive officer, director, or holder of more than 5% of the stock of LeapFrog (as determined by the combined voting power of all classes of stock), including any of their immediate family members, and any entity owned or controlled by such persons.

Under the policy, where a transaction has been identified as a related-person transaction, management must present information regarding the proposed related-person transaction to our board of directors for consideration and approval or ratification. The presentation must include a description of, among other things, the material facts, the interests, direct and indirect, of the related persons, the benefits to LeapFrog of the transaction and whether any alternative transactions were available. In considering related-person transactions, the board takes into account the relevant available facts and circumstances including, but not limited to (a) the risks, costs and benefits to LeapFrog, (b) the impact on a director’s independence if the related person is a director, immediate family member of a director or an entity with which a director is affiliated, (c) the terms of the transaction, (d) the availability of other sources for comparable services or products and (e) the terms available to or from, as the case may be, unrelated third parties or to or from employees generally. If a director has an interest in the proposed transaction, the director must recuse himself or herself from the deliberations and approval. The policy requires that, in determining whether to approve, ratify or reject a related-person transaction, the board of directors must look at, in light of known circumstances, whether the transaction is in, or is not inconsistent with, the best interests of LeapFrog and its stockholders, as the board of directors determines in the good-faith exercise of its discretion.

During Fiscal 2015, we paid the Toy Industry Association, Inc. (TIA) $132,900, and during the Transition Period, we paid the TIA $120,000. The TIA is a trade association for members of the U.S. toy industry. Our Chief Executive Officer, Mr. Barbour, serves on the board of the TIA. These payments were for TIA membership and sponsorship, and were made on terms the Company believes are comparable to those it would obtain in an arm’s-length relationship with the TIA.

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COMMUNICATION WITH DIRECTORS

LeapFrog’s board of directors has adopted a formal process by which any stockholder or other interested party may communicate with the board of directors or any of its directors, including the Chairman, or to the non-management or independent directors generally. Stockholders and other interested parties who wish to communicate with the board of directors or any of the directors may do so by sending written communications addressed to the Corporate Secretary of LeapFrog at 6401 Hollis Street, Suite 100, Emeryville, California 94608. The board of directors has established procedures to deal with all direct communications. All communications will be compiled and reviewed by our Corporate Secretary, who will determine whether they should be presented to the board of directors. The purpose of this screening is to allow the board of directors to avoid having to consider irrelevant or inappropriate communications (such as advertisements and solicitations). Once screened, the relevant correspondence will be submitted by our Corporate Secretary to the board of directors. The screening procedures have been approved by a majority of the non-management directors of the board of directors. Directors may at any time request that we forward to them immediately all communications received by us. All communications directed to the audit committee in accordance with the procedures set forth in this paragraph that relate to accounting, internal accounting controls or auditing matters involving LeapFrog will be promptly and directly forwarded to the audit committee. A summary of these communication procedures is posted on our website at www.leapfroginvestor.com under the heading “Corporate Governance.”

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DIRECTOR COMPENSATION

During the fiscal year ended March 31, 2015 and the Transition Period, our non-employee directors who served during such time received the following compensation for their service on our board of directors.

DIRECTOR COMPENSATION FOR FISCAL YEAR 2015 AND THE TRANSITION PERIOD

Name		Period				Fees Earned or Paid in Cash ($)(1)				Stock Awards ($)(2)(3)(4)				Option Awards ($)(2)(3)(4)				Total ($)
William B. Chiasson			2015				60,000				49,995				50,025				160,020
			TP				15,000				—				—				15,000
Thomas J. Kalinske			2015				45,000				37,498				37,517				120,015
			TP				11,250				—				—				11,250
Stanley E. Maron			2015				73,098				37,498				37,517				148,113
			TP				18,750				—				—				18,750
E. Stanton McKee, Jr.			2015				80,000				37,498				37,517				155,015
			TP				20,000				—				—				20,000
Theodore R. Mitchell			2015				17,143				—				—				17,143
			TP				10,000				—				—				10,000
Joanna Rees			2015				31,902				109,371				109,381				250,654
			TP				—				—				—				—
Randy O. Rissman			2015				55,000				37,498				37,517				130,015
			TP				13,750				—				—				13,750
Caden C. Wang			2015				70,000				37,498				37,517				145,015
			TP				17,500				—				—				17,500
Stephen M. Youngwood			2015				20,000				99,996				100,043				220,039
			TP				—				—				—				—

		Stock Awards (number of shares)												Stock Options (number of shares)
Name		Vested				Unvested				Total Outstanding				Vested				Unvested				Total Outstanding
William B. Chiasson			4,907				6,561				11,468				338,627				11,962				350,589
Thomas J. Kalinske			—				4,921				4,921				191,753				8,971				200,724
Stanley E. Maron			23,681				4,921				28,602				127,569				8,971				136,540
E. Stanton McKee, Jr.			28,681				4,921				33,602				127,569				8,971				136,540
Theodore R. Mitchell			—				—				—				9,675				—				9,675
Joanna Rees			—				15,914				15,914				7,369				18,991				26,360
Randy O. Rissman			—				4,921				4,921				69,122				8,971				78,093
Caden C. Wang			23,681				4,921				28,602				134,686				8,971				143,657
Stephen M. Youngwood			—				13,642				13,642				6,217				18,652				24,869

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Name		Restricted Stock Unit Awards (Number of Shares)				Grant Date Fair Value ($)				Stock Option Awards (Number of Shares)				Grant Date Fair Value ($)
William B. Chiasson			6,561				49,995				11,962				50,025
Thomas J. Kalinske			4,921				37,498				8,971				37,517
Stanley E. Maron			4,921				37,498				8,971				37,517
E. Stanton McKee, Jr.			4,921				37,498				8,971				37,517
Joanna Rees			1,230				9,373				2,243				9,380
Randy O. Rissman			4,921				37,498				8,971				37,517
Caden C. Wang			4,921				37,498				8,971				37,517

DISCUSSION OF DIRECTOR COMPENSATION

For our 2015 fiscal year and the Transition Period, we paid the following annual retainer fees to our non-employee directors:

Retainers are paid in quarterly installments in arrears. In cases where a non-employee director served for a part of the year in a capacity entitling him to a retainer, the retainer was pro-rated to reflect his actual period of service in that capacity. In the fiscal year ended March 31, 2015, the total cash compensation paid to our non-employee directors was $452,143 and in the Transition Period, it was $106,250. The non-employee directors are also eligible for reimbursement of their expenses incurred in attending board meetings.

Non-employee directors are granted equity awards under the LeapFrog 2011 Equity and Incentive Plan, or the 2011 EIP. All non-employee directors receive an equity award upon their appointment to the board of directors. These initial equity awards have an accounting value of $200,000. Non-employee directors also receive an annual equity award for each year they serve on the board of directors. These annual equity awards have an accounting value of $75,000, except that the accounting value of the annual equity award to the Chairman of the Board is $100,000. For both the initial and the annual equity award, 50% of the value of such award is granted in the form of a stock option and 50% of such award is granted in the form of an RSU award. The accounting value of these stock awards is calculated using the same methodology as is applied by LeapFrog for purposes of determining the accounting expense associated with all equity awards to our executive officers and other employees.

The exercise price of stock options granted to our non-employee directors is 100% of the fair market value of the Class A common stock subject to the option on the date of grant. Stock options granted pursuant to initial equity awards to non-employee directors vest in equal monthly installments over a three-year period in accordance with their terms. RSU awards granted pursuant to initial equity awards to non-employee directors vest as to one-third of the shares subject to such awards on each annual anniversary of the grant over a three-year period in accordance with their terms. Stock awards granted pursuant to annual equity awards to non-employee directors vest on the last day of the month prior to the month in which the annual meeting of

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stockholders occurs on the year following the year of such annual grant. For example, stock awards granted pursuant to the annual equity grant in 2014 will vest on July 31, 2015.

The term of stock options granted to non-employee directors is 10 years unless earlier terminated based on termination of continuous service or other conditions. In the event of a merger of LeapFrog with or into another corporation or a consolidation, acquisition of assets or other change-in-control transaction, the vesting of stock options and stock awards granted to non-employee directors will accelerate and become fully vested and immediately exercisable, if, as of the completion of the change-in-control transaction or within 12 months of such transaction, the non-employee director’s service terminates, provided that such acceleration will not occur if the termination was a result of the non-employee director’s resignation (other than any resignation contemplated by the terms of the change-in-control transaction or required by LeapFrog or the acquiring entity pursuant to the change in control).

All existing equity awards granted to our non-employee directors are governed by the terms of the 2011 EIP, except those previously issued equity awards granted under, and governed by the terms of, our 2002 Non-employee Director Stock Award Plan prior to its suspension in October 2011.

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EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis, or CD&A, provides a detailed description of our executive compensation philosophy and program, the compensation decisions made by the compensation committee of our board of directors, or the compensation committee, for the 2015 fiscal year (“Fiscal 2015”) and the transition period from January 1, 2014 to March 31, 2014 (the “Transition Period”) and the factors considered in making those decisions. This CD&A focuses on the compensation of our “named executive officers” for Fiscal 2015, who were:

Name		Title
John Barbour		Chief Executive Officer
Raymond L. Arthur		Chief Financial Officer
Kenneth A. Adams		Senior Vice President, Sales
Gregory B. Ahearn		Chief Marketing Officer
Antony Hicks		Chief International Officer

Overview

Executive Compensation Decisions

The compensation committee made the following key compensation decisions for the Transition Period and Fiscal 2015:

Key Compensation-Related Corporate Governance Practices

The compensation committee evaluates our executive compensation program on an ongoing basis to ensure that it is consistent with the Company’s short-term and long-term goals given the dynamic nature of our business and the market in which we compete for executive talent. Working together with the full board of directors and our nominating and corporate governance committee, we maintain the following key compensation-related governance practices:

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Key Executive Compensation Policies and Practices

Our compensation philosophy and related corporate governance policies and practices are complemented by several specific compensation practices that are designed to align our executive compensation program with long-term stockholder interests, including the following:

Prior Say-on-Pay Vote

At our 2014 Annual Meeting of Stockholders, our stockholders had the opportunity to provide an advisory vote on the compensation of our named executive officers, or a “say-on-pay” vote. Over 97% of the votes cast by our stockholders approved the compensation of our named executive officers, as disclosed in our 2014 proxy statement. Our board of directors and compensation committee reviewed these vote results and determined that such results affirmed stockholder support of our overall approach to executive compensation and thus we have not made any changes to our executive compensation program or related policies directly in response to the vote results.

At the time of our initial say-on-pay vote at our 2011 Annual Meeting of Stockholders, three years was selected as the preferred frequency of future say-on-pay votes by over 90% of the votes cast. Accordingly, our board of directors will not hold an advisory vote on the compensation of our named executive officers this year. Consistent with the recommendation of our stockholders, our board of directors will next hold an advisory vote on the compensation of our named executive officers in 2017. In addition, pursuant to SEC regulations, our board of directors currently plans to hold its next vote on the preferred frequency of future say-on-pay votes at the 2017 Annual Meeting of Stockholders.

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Executive Compensation Philosophy

Our philosophy is to provide total compensation to our executive officers, including our named executive officers, which reasonably, equitably and responsibly meets the following objectives:

We implement this philosophy through the following key principles:

Executive Compensation Considerations

Role of Compensation Committee and Management

Our compensation committee is responsible for the design, implementation, and oversight of our executive compensation program. Generally, our Chief Executive Officer makes recommendations to the compensation committee regarding the short-term and long-term compensation for our executive officers, including our named executive officers (other than with respect to his own compensation). These

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recommendations are based on his assessment of our financial and operational results, each executive officer’s contribution to these results, the executive officer’s progress toward achieving his or her individual goals, and input from the compensation consultant retained by the compensation committee to provide information on competitive market practices. The compensation committee’s decisions regarding our Chief Executive Officer’s compensation are based on its assessment of our financial and operational results, his contributions to these results, and, to a lesser extent, his progress toward achieving his individual goals, and information on competitive market practices.

Role of Compensation Consultant

The compensation committee engaged Compensia, Inc., or Compensia, a national compensation consulting firm, to provide independent advice and guidance on our executive compensation policies and practices and to provide relevant information about the executive compensation practices of similarly situated companies. Compensia assisted in the preparation of compensation materials on executive compensation proposals in advance of compensation committee meetings, including changes to compensation levels for our executive officers, the design of our equity programs and other executive benefit programs. In addition, Compensia reviewed and advised the compensation committee on compensation materials relating to executive compensation prepared by management for its consideration.

As part of our annual executive compensation review process, Compensia, under the direction of the compensation committee, conducted a review of the competitiveness of our executive compensation program, including base salaries, annual bonus opportunities, equity awards, and other executive benefits, by analyzing the compensation practices of the companies in our compensation peer group (as described below), as well as data from third-party compensation surveys. The compensation committee used the results of this analysis to assess the competitiveness and risks of our executive officers’ total compensation packages.

Based on the consideration of the various factors set forth in applicable SEC rules and the listing standards of the New York Stock Exchange, the compensation committee does not believe that its relationship with Compensia and the work of Compensia on behalf of the compensation committee has raised any conflict of interest.

Use of Competitive Data

To monitor the competitiveness of our executive officers’ compensation, the compensation committee uses a compensation peer group that reflects the pay of executives in comparable positions at similarly situated companies. Typically, this compensation peer group, or the Peer Group, is composed of a cross-section of direct competitors, as well as companies in relevant industries with a focus on software, educational and leisure products. The Peer Group consists of both “direct peers” and “industry reference peers.”

The direct peers are companies which the compensation committee uses to determine the competitiveness of our executive and director compensation programs. In determining the direct peers, the compensation committee analyzed publicly-held companies with market capitalizations and net revenues similar to our own and which operate in relevant industries. Revenue is chosen as a key indicator because, when other variables are held constant, revenue is the key indicator of executive cash compensation levels. Market capitalization is used because market capitalization generally has the greatest correlation to equity compensation levels.

To be considered a “direct peer,” a company should be in the software, educational or leisure products industries, have net revenue in the range of $300 million – $1.0 billion and have a market capitalization between $150 million and $2.0 billion. These criteria represent general guidelines and are intended to identify companies with revenue and market capitalization that were comparable to LeapFrog at the time of the peer selection while positioning the Company at or near the median of the peer group in key financial measures. However, given the limited number of directly comparable companies to LeapFrog, the selection criteria was not strictly applied to those companies that were the closest fits from an industry perspective. Not all of the Company’s direct peers met all of the selection criteria.

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The following companies were approved by our compensation committee in March 2014 as our direct peers for the ensuing year:

Arctic Cat		Demand Media		JAKKS Pacific
K12		Rosetta Stone		Rovi
Shutterfly		Skullcandy		Take-Two Interactive Software
TiVo		United Online		Universal Electronics
Plantronics

In addition, an industry reference peer group is used as a secondary reference point for our executive and director compensation programs to identify compensation design trends and “best practices” in our industry. For 2014, the industry reference peers were Activision Blizzard, Electronic Arts, Hasbro and Mattel, companies that provide software and/or children’s products. Although they operate in a relevant business or industry, these companies are included in the industry reference group rather than the direct peer group because they are significantly larger than we are and were not within the targeted range for net revenue or market capitalization.

While the compensation committee does not believe that the compensation data generated for the Peer Group is appropriate as a stand-alone tool for setting compensation due to the unique nature of our business, it considers this information to be a valuable reference during its decision-making process. In addition to reviewing analyses of compensation data from the Peer Group, the compensation committee employs the collective experience and judgment of its members and advisors (including Compensia, management and the Company’s human resources department) and the full board of directors in determining the total compensation and the various components provided to our executive officers.

In 2014, the compensation committee directed Compensia to conduct an analysis of the compensation of our executive officers using data compiled from the Peer Group, supplemented with data from a selected set of the Radford Global Technology Executive Compensation Survey, including companies with revenue between $100 million and $1.2 billion. The Radford survey is a broad-based third-party survey that reflects widespread compensation practices among more than 700 high-technology companies.

Compensation Design and Mix

Each year, the compensation committee evaluates the total compensation of our executive officers with respect to our overall Company performance, individual performance, changes in scope of responsibility and any changes in the competitive market for each position. The compensation committee does not have a pre-established policy or target for the allocation between cash and non-cash compensation or short-term and long-term incentive compensation. Rather, the compensation committee determines the appropriate level and mix of incentive compensation, taking into consideration the data provided by Compensia and how the equity mix creates or awards incentives that might lead to excessive risk-taking. In general, the level of an executive officer’s variable compensation opportunity (short-term and long-term incentive compensation) increases with his or her level of responsibility. The compensation committee, however, is careful (i) not to increase the variable compensation component to such an extent so as to unduly increase the associated level of risk-taking behavior by our executive officers and (ii) to select performance criteria for the variable compensation component that aligns individual performance with long-term stockholder interest.

Risk Considerations

Members of our senior management, including the chief executive officer, chief financial officer and general counsel, along with members of our human resources department, with oversight by the compensation committee, reviewed our compensation programs and policies to determine whether the incentives provided by these programs and policies were appropriate or had the potential to encourage excessive risk-taking by our employees. This assessment was discussed at and in conjunction with our board of directors and compensation committee meetings held in March 2014, and at a special risk review session of our board of directors in July 2014.

Our risk assessment focused on the key terms of the Company’s equity compensation and variable cash compensation programs, such as bonus plans. Our compensation programs were analyzed to determine whether they introduced or encouraged excessive risk-taking or other behaviors that could have an adverse

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impact on our business and whether existing risk mitigation features were sufficient in light of the overall structure and composition of our compensation programs. In particular, the risk assessment focused on the ability of participants to affect the level of the variable component of their compensation and the controls over participant action and variable compensation. For more general information regarding the features of our compensation plans and programs that have been identified as discouraging or potentially mitigating excessive risk-taking behavior, see the information discussed under the heading “Board of Directors and Corporate Governance — Committees of the Board — Compensation Committee” earlier in this proxy statement.

The compensation committee determined that our compensation programs do not encourage excessive risk-taking by our executive officers and other employees and instead encourage behaviors that support sustainable value generation.

Elements of Executive Compensation

The compensation committee uses a mix of cash and equity compensation, along with severance, health, and other benefits, to develop total compensation packages for our executive officers that meet our compensation objectives. The elements of our executive compensation program are:

Base Salary

The compensation committee reviews and adjusts, as necessary or appropriate, the base salaries of our executive officers, including our named executive officers, on an annual basis, and makes decisions with respect to the base salaries of new executive officers at the time of hire. In making its determinations, the compensation committee considers several factors, including our overall financial performance, individual performance, the executive officer’s potential to contribute to our long-term strategic goals, his or her scope of responsibilities and experience and competitive market practices for base salary.

In March 2014, our named executive officers received an increase in their annual base salaries, as set forth below.

Executive Officer		Previous Base Salary				New Base Salary				Percentage Increase
John Barbour		$	575,000			$	600,000				4.3	%
Ken Adams		$	350,000			$	360,500				3.0	%
Greg Ahearn		$	525,000			$	540,750				3.0	%
Ray Arthur		$	525,000			$	540,750				3.0	%
Antony Hicks(1)			—				—				—

The base salary increases were approved by the compensation committee as part of a company-wide annual review process undertaken in February and March 2014. The annual review process included an increase in employee salaries in view of the competitive market for talent.

Performance-Based Bonuses

We use performance-based cash bonuses to drive achievement of key business results and to recognize individuals based on their contribution to those results. These bonuses are awarded under the performance cash award provisions of the LeapFrog 2011 Equity and Incentive Plan, or the 2011 EIP. The amount of these bonuses is determined based on an assessment of the Company’s performance against pre-established financial objectives and each executive officer’s performance against his individual goals. Although the Company

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adopted a March 31 fiscal year in May 2014, the most recent performance-based bonuses were for the January 1 – December 31, 2014 calendar year.

The following formula is used to calculate the performance-based bonuses awarded to each executive officer, including each named executive officer.

Base Salary  X  Target Bonus Opportunity (as a percentage of base salary)  X  Bonus Factor

The target bonus opportunity for our named executive officers is expressed as a percentage of their base salaries earned during the fiscal year. These target bonus opportunities are established in each executive officer’s employment agreement or offer letter (or subsequent amendment) and are based on competitive market practices for each individual’s position.

The Bonus Factor is calculated each year by the compensation committee based on the level of achievement of the Company’s performance against pre-established financial objectives and each executive officer’s performance against his individual goals. The Bonus Factor can fall within a range of 0 – 180% for our chief executive officer and 0 – 175% for our other named executive officers. The Bonus Factor has a higher range for our chief executive officer because a higher percentage of his target bonus opportunity is based on Company performance, which has a higher potential multiplying effect, than individual performance objectives, as described more fully below. Our chief executive officer’s bonus was more heavily weighted toward corporate performance compared to our other named executive officers because the compensation committee determined that our chief executive officer’s bonus should more closely track company performance against objectives.

The following table shows how the formula is applied to determine the range of the potential performance-based bonus awards under the formula for each named executive officer for the 2014 calendar year.

Name		Base Salary Earned in Calendar 2014				X				Target Bonus Opportunity (% of Salary)				X				Bonus Factor				=				Potential Calendar Year 2014 Performance-Based Bonus
Mr. Barbour		$	594,792				X				100	%			X				0 – 180	%			=			$	0 – 1,070,626
Mr. Arthur		$	537,469				X				75	%			X				0 – 175	%			=			$	0 – 705,427
Mr. Adams		$	358,313				X				50	%			X				0 – 175	%			=			$	0 – 313,524
Mr. Ahearn		$	537,469				X				75	%			X				0 – 175	%			=			$	0 – 705,427
Mr. Hicks(1)			—								—								—								—

Performance Objectives and the Bonus Factor

The Bonus Factor is calculated by adding the level of achievement of the different components of the performance-based bonus objectives. In calendar year 2014, for each named executive officer, the bonus objectives consisted of a Company performance component and an individual performance component. For Mr. Adams, the Company performance component was further divided into a work group component and a Company component. The allocation between Company and individual performance was determined by the compensation committee based on its evaluation of competitive market practices, its assessment of the amount of compensation that should be based on Company performance versus individual performance and our objective of managing and mitigating excessive risk-taking. The Company performance component was based on two financial measures, a Net Sales component and an Operating Income component.

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The allocation of the Company and individual performance objectives for each named executive officer is set forth below.

		Individual Component				+				Company Component												=				Total Performance Objectives
Name										Net Sales				+				Operating Income
Mr. Barbour			20	%			+				32	%			+				48	%			=				100	%
Mr. Arthur			25	%			+				30	%			+				45	%			=				100	%
Mr. Adams			25	%			+				30	%			+				45	%			=				100	%
Mr. Ahearn			25	%			+				30	%			+				45	%			=				100	%
Mr. Hicks(1)

To calculate the Bonus Factor, the percentage weight of each component was multiplied by the level of achievement of that component, as determined by the compensation committee based on its evaluation of Company and individual performance. The maximum (cap) for the Bonus Factor for our chief executive officer was 180% and for our other named executive officers was 175% (in other words, any result in the formula above 180% or 175%, respectively would still yield the maximum Bonus Factor).

Bonus Factor

=

Individual Component Weight %

×

Level of Achievement %

+

Net Sales Component Weight %

×

Level of Achievement %

+

Operating Income Component Weight %

×

Level of Achievement %

Individual Performance Component.  Our named executive officers were eligible for this portion of their target bonus opportunity, based on their actual performance against their individual goals, but only if the Company had positive operating income for the 2014 calendar year. Each named executive officer’s individual goals, except those of our chief executive officer, were developed with and recommended by our chief executive officer and approved by the compensation committee. Our chief executive officer’s goals were developed by our compensation committee.

The individual performance goals for our named executive officers were divided into two categories: (i) achievement of financial goals relevant to each executive officer’s department; and (ii) achievement of goals related to the Company’s long-term strategic objectives.

Since the Company did not have positive operating income for the 2014 calendar year, the compensation committee did not assign a goal completion score for the named executive officers.

Company Component — Net Sales.  A portion of each named executive officer’s bonus depended upon achievement of a specified Net Sales result. Several levels of achievement for Net Sales were established by the compensation committee in March 2014, based on our 2014 operating plan and data regarding our financial results and business expectations as of that time, including toy industry sales growth projections and Company resources and capabilities. In addition, these levels were consistent with the relative risk acceptable to our board of directors in approving the Company’s operating plan.

The compensation committee then established achievement levels of the Net Sales objective for each potential result. In each instance, net sales achievement between the various achievement levels would result in a ratable achievement level score for the Net Sales measure.

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The Net Sales performance levels and related achievement level (for purposes of calculating the Bonus Factor) for 2014 were as follows:

Net Sales		Achievement Level
$567 million			50	%
$580 million			100	%
$590 million			105	%
$602 million			120	%
$614 million			140	%
$626 million			160	%
$638 million			180	%
$650 million			200	%

When it selected net sales as a measure for the 2014 bonus awards, the compensation committee believed that the measure was appropriate because the level of our net sales would be one of the most significant measures of the type of growth necessary to increase long-term stockholder value.

The Company achieved actual net sales of $362.1 million in the 2014 calendar year. Since our actual Net Sales were below the lowest level of 50%, the achievement level for this component of the annual performance-based bonus plan was zero.

Company Component — Operating Income.  The other portion of the Company component depended upon achievement of a specified Operating Income level. As with the Net Sales measure, several achievement levels for operating income were established by the compensation committee in March 2014 based on our 2014 operating plan and data regarding our financial results and business expectations as of that time, including toy industry and technology company financial benchmarks for product margin, operating expenses and operating income as a percentage of net sales, and Company resources and capabilities. In addition, these levels were consistent with the relative risk acceptable to our board of directors in approving the Company’s operating plan.

The compensation committee then established achievement levels for each result. In each instance, operating income achievement between the various achievement levels would result in ratable funding achievement level score for the Operating Income measure.

The Operating Income performance levels and related achievement levels (for purposes of calculating the Bonus Factor) for 2014 were as follows:

Operating Income		Achievement Level
$25.0 million			50	%
$30.0 million			100	%
$35.0 million			105	%
$38.9 million			120	%
$42.7 million			140	%
$46.7 million			160	%
$51.1 million			180	%
$55.7 million			200	%

When it selected operating income as a measure for the 2014 bonus awards, the compensation committee believed that the measure was appropriate because the level of our operating income would be one of our most significant measures of the sustainability of our business results. While net sales is an important measure of Company growth, the operating income financial measure indicates the profitable and sustainable growth necessary to maintain long-term stockholder value. Operating income was weighted more highly than net sales because our board of directors had established improving the profitability of the business as a key priority.

The Company had an actual operating loss of $84.0 million in the 2014 calendar year. Since our actual Operating Income was below the threshold performance level, the achievement level for this component of the annual performance-based bonus plan was zero.

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Calculating the Bonus Factor

Since all of the variables in the Bonus Factor were zero, the Bonus Factor for each named executive officer was zero.

Performance-Based Bonus Award Decisions

In March 2015, our chief executive officer recommended that no bonus awards be paid out to our named executive officers for 2014 consistent with the above determinations. This recommendation was then reviewed and approved by the compensation committee. The decision of the compensation committee was based on its analysis of the achievement of the Company performance objectives and the failure to meet the threshold profitability level for payment of individual component of the bonuses. Our board of directors and compensation committee had discretion to vary the amount of the bonus awards paid under the 2011 EIP to our named executive officers, but such discretion was not exercised this year.

Other Bonuses

Mr. Hicks was not an employee of the Company when the performance-based bonus awards were established for the 2014 calendar year. Instead, Mr. Hicks’s employment agreement provided for a guaranteed bonus of 75% of his base salary actually earned through the beginning of his employment, in September 2014 through March 31, 2015. Based on his actual base salary for this period of $221,475, Mr. Hicks’ bonus for Fiscal 2015 was determined to be $160,989.

Equity Awards

We believe that equity incentives are an effective way to attract and retain talented executives, to motivate and reward them for outstanding corporate and individual performance, and to align their interests with those of our stockholders. The compensation committee considers annual grants of equity awards to our executive officers, including our named executive officers, after taking into consideration our overall performance against short-term and long-term financial and strategic goals, the executive officer’s then-current equity holdings, his or her anticipated future contributions to our success, its assessment of his or her potential to contribute to the long-term value of our Company and an analysis of the equity award practices of the Peer Group. In addition, the compensation committee makes initial grants of equity awards upon the initial employment of our executive officers, based on a variety of factors including consideration of a competitive market analysis of the Peer Group.

Award Mix

Typically, we grant a mix of stock options and RSUs to our executive officers as part of their initial compensation packages at the time of hire and, thereafter, on an annual basis. The compensation committee believes that the use of a “portfolio” approach to granting equity awards, pairing options with RSUs, is consistent with current market trends and developments and is the method used by 75% of the companies in our Peer Group. These awards are generally subject to time-based vesting requirements. Recently, our practice has been to grant relatively equal amounts of RSUs and stock options. We believe this is consistent with the industry practice in the market in which we compete for employees, provides additional retention incentives and requires fewer shares granted out of the 2011 EIP equity pool in order to provide a targeted equity value (as compared to granting a higher amount of stock options versus RSUs).

Stock Options.  The compensation committee believes that stock options provide our executive officers with a strong incentive to focus on long-term corporate performance and the creation of stockholder value. Option grants made to our executive officers have an exercise price equal to 100% of the fair market value of the underlying Class A common stock, as defined under our 2011 EIP, on the date of grant.

Restricted Stock Units (RSUs).  RSUs represent full-value shares of Class A common stock. Shares of our Class A common stock are not issued when an RSU award is granted. Instead, once an RSU award vests, one share of our Class A common stock is issued for each vested RSU.

Equity Award Grant Policy

The timing of equity awards is determined by the compensation committee based on its view, from time to time, regarding the sufficiency of our executive officers’ equity holdings for purposes of retention and motivation. Equity awards are generally granted annually, near the beginning of the fiscal year. Our policy

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provides that the exercise price of each stock option is to be equal to the closing market price of our Class A common stock on the date of grant. Our policy is that we will not time or select the grant dates for any stock options or other stock awards in coordination with our release of material non-public information. In addition, we have specific written policies regarding the establishment of grant dates for stock options and other stock awards made to our executive officers and employees designed to minimize the risk associated with the timing of granting stock options or other stock awards.

Fiscal 2015 and Transition Period Equity Awards

The following table sets forth the equity awards granted to our named executive officers in Fiscal 2015 and the Transition Period. Except in the case of Mr. Hicks, all awards were made during the Transition Period.

		Annual Awards to Existing Named Executive Officers (number of shares)								Initial Awards to Newly-Hired Named Executive Officers (number of shares)
Name		Stock Option				RSUs				Stock Option				RSUs
Mr. Barbour(1)			220,000				220,000				—				—
Mr. Arthur(1)			52,000				52,000				—				—
Mr. Adams(1)			45,500				45,250				—				—
Mr. Ahearn(1)			52,000				52,000				—				—
Mr. Hicks(2)			—				—				175,000				100,000

In September and October 2014, in connection with his initial employment as our Chief International Officer, Mr. Hicks was granted the stock option and RSU awards described above. In determining the size of these awards, the compensation committee drew upon the competitive market analysis prepared by Compensia in March 2014 and other sources of equity compensation data relevant to his position. The compensation committee also took into account recommendations and comparative data compiled by the Company’s human resources department.

The compensation committee approved the equity awards granted to the remaining named executive officers in March 2014 as part of its overall compensation review and assessment for the year. We believe in maintaining a strong pay-for-performance relationship for our named executive officers and providing equity awards that constitute a significant portion of the target total direct compensation opportunities of our named executive officers strengthens the pay-for-performance relationship. In addition, the equity awards assure that a significant portion of the total target direct compensation opportunities for our named executive officers is equity-based and “at risk” based on corporate performance. The compensation committee believes that this practice aligns the interests of our executive officers and stockholders. Finally, the awards maintain unvested equity value as a percentage of base salary for our named executive officers at a sufficient level to provide a significant retention motivation.

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Severance Benefits

Our named executive officers are eligible to receive payments and benefits in certain circumstances in the event of their termination of employment, including in connection with a change-in-control of LeapFrog. These payments and benefits are intended to provide assurances of specified benefits upon certain terminations of employment and to minimize distraction and risk of departure of our named executive officers in the event of a potential change-in-control transaction involving LeapFrog. In addition, these benefits align our severance payments and benefits for them with competitive practice.

Each of our named executive officers is eligible to receive payments and benefits if we terminate his employment “without cause.” In addition, each of our named executive officers except Mr. Hicks is eligible to receive payments and benefits if he resigns for “good reason.” In determining amounts payable under these severance arrangements, the compensation committee took into consideration market data, including the severance practices of the companies in our Peer Group.

For more information about the terms and conditions of our severance arrangements, see “Potential Payments Upon Termination or Change in Control” below.

Other Benefits

We offer our executive officers various other benefits, including healthcare coverage and the opportunity to participate in our Section 401(k) plan and employee stock purchase plan, on the same general terms and conditions as are made available to all our regular, full-time employees. We do not offer our U.S. executive officers, or other U.S. employees, guaranteed retirement or pension benefits. However, in the absence of Section 401(k) plans in the United Kingdom, or UK, we contribute a percentage of the salary of our UK employees to individual private pension plans after three months of service on their behalf. Pursuant to the terms of Mr. Hicks’s employment agreement, we contribute 5% of his salary to an individual private pension on his behalf. For more information about how this applies to, Mr. Hicks, see “Employment Agreements — Antony Hicks” below.

In view of the high cost of housing in the San Francisco Bay Area relative to other parts of the country and to attract talented executives, we offer newly-hired executive officers reimbursement of relocation expenses and mortgage interest differential payments, where appropriate. Typically, the amount and duration of these payments is negotiated and set forth in the new executive officer’s employment agreement or offer letter. During the Transition Period and in Fiscal 2015, we extended these benefits to Messrs. Adams, Ahearn and Arthur under the terms of their respective employment offer letters and to Mr. Barbour under the terms of his employment agreement. The table below summarizes payments made to these executive officers in this regard during Fiscal 2015 and the Transition Period.

Name		Amount Paid in Transition Period				Amount Paid in Fiscal 2015
Mr. Barbour		$	150,000			$	1,474
Mr. Adams			—			$	2,643
Mr. Ahearn			—			$	25,972
Mr. Arthur			—			$	287,872

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

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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.

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SUMMARY COMPENSATION INFORMATION

The following table presents the compensation awarded, paid to or earned by, our named executive officers. Our named executive officers during Fiscal 2015 were our chief executive officer, our chief financial officer and our three other most highly-compensated executive officers who were serving as executive officers at the end of Fiscal 2015. The table reports compensation for Fiscal 2015 and, where the individual was a named executive officer in the relevant prior periods, the Transition Period and the 2013 and 2012 fiscal years.

Summary Compensation Table

Name and Principal Position		Fiscal Year				Salary Received ($)				Bonus ($)*				Stock Awards ($)(1)				Option Awards ($)(2)				Non-Equity Incentive Plan Compensation ($)*				All Other Compensation ($)				Total Compensation ($)
John Barbour Chief Executive Officer			2015				600,000				—				1,498,200				743,512				—				9,669				2,851,381
			TP				144,792				—				—				—				—				153,500	(3)			298,292
			2013				575,000				—				925,100				1,297,728				100,050	(4)			8,195	(5)			2,906,073
			2012				575,000				230,000				933,400				1,077,466				862,500	(6)			8,195	(5)			3,686,561
Raymond L. Arthur(7) Chief Financial Officer			2015				540,750				—				354,120				175,739				—				291,372	(8)			1,361,981
			TP				131,906				—				—				—				—				3,500				135,406
			2013				525,000				—				252,300				336,448				66,938	(4)			63,500	(9)			1,244,186
			2012				240,625				456,914				1,049,000				1,806,120				78,415	(10)			66,387	(11)			3,697,461
Kenneth A. Adams(12) Senior Vice President, Sales			2015				360,500				—				308,153				153,772				—				6,143				825,568
			TP				87,938				—				—				—				—				3,500				91,438
			2013				196,314				—				772,800				1,073,220				15,951	(4)			21,500	(13)			2,079,785
Gregory B. Ahearn(14) Chief Marketing Officer			2015				540,750				—				354,120				175,739				—				29,472	(15)			1,100,081
			TP				131,906				—				—				—				—				3,500				135,406
			2013				525,000				—				252,300				336,448				63,984	(4)			66,000	(16)			1,243,732
			2012				284,375				468,398				1,049,000				1,806,120				95,426	(8)			352,312	(17)			4,055,631
Antony Hicks(18), Chief International Officer			2015				214,652				160,989				605,000				534,398				—				19,606	(19)			1,534,645

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GRANTS OF PLAN-BASED AWARDS

The following table presents, for the fiscal year ended March 31, 2015 and the Transition Period, certain information regarding grants of plan-based awards to our named executive officers.

Grants of Plan-Based Awards

Name		Grant Date				All Other Stock Awards: Number of Shares of Stock or Units (#)				All Other Option Awards: Number of Securities Underlying Options (#)				Exercise or Base Price of Option Awards ($/Sh)(1)				Closing Market Price on Grant Date ($/Sh)(1)				Grant Date Fair Value of Stock and Option Awards ($)(2)
John Barbour			4/15/2014				220,000				—				—				6.81				1,498,200
			4/15/2014				—				220,000				6.81				6.81				743,512
Raymond L. Arthur			4/15/2014				52,000				—				—				6.81				354,120
			4/15/2014				—				52,000				6.81				6.81				175,739
Kenneth Adams			4/15/2014				45,250				—				—								308,153
			4/15/2014				—				45,500				6.81				6.81				153,772
Gregory B. Ahearn			4/15/2014				52,000				—				—				6.81				354,120
			4/15/2014				—				52,000				6.81				6.81				175,739
Antony Hicks			10/15/2014				100,000				—				—				6.05				605,000
			9/29/2014				—				175,000				—				6.14				534,398

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EMPLOYMENT ARRANGEMENTS

Generally, our U.S.-based executive officers are employed at will. In recent years, only the individual serving as our chief executive officer has had an employment agreement with LeapFrog. 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. Hicks, also has an employment agreement with LeapFrog. Following is a description of the only two employment agreements entered into by LeapFrog with any of our named executive officers.

John Barbour

Mr. Barbour joined LeapFrog as our Chief Executive Officer in March 2011. He has an employment agreement with LeapFrog which was negotiated and approved by our board of directors at that time. Mr. Barbour’s employment agreement provides for an annual base salary in the amount of $575,000 and a target annual performance-based bonus of $575,000 per year. In March 2014, his annual base salary and, correspondingly his annual performance-based bonus target, was increased to $600,000 per year. Mr. Barbour is eligible to receive an additional bonus for exemplary performance pursuant to stretch-level objectives to be determined by our board of directors in its discretion. In addition, Mr. Barbour was eligible to receive travel and temporary housing assistance in the amount of $150,000, payable in quarterly installments, and certain relocation benefits. Mr. Barbour’s employment agreement also provided for him to receive a grant of an option to purchase 850,000 shares of our Class A common stock and an RSU award covering 150,000 shares of our Class A common stock. These equity awards provide that one-fourth (¼) of the shares subject to each award vest (and, in the case of the RSU, be delivered) upon completion of one year of continuous employment service, and one forty-eighth ( 1/48) of the shares subject to each award vest (and, in the case of the RSUs, be delivered) upon completion of each month of continuous employment service thereafter.

Antony Hicks

In September 2015, in connection with his appointment as Chief International Officer of LeapFrog, Mr. Hicks entered into an employment agreement with our UK subsidiary, LeapFrog Toys (UK) Limited, or LeapFrog UK. Mr. Hicks’s employment agreement provides for an annual base salary in the amount of £280,000 and an annual performance-based target bonus of 75% of his annual base salary per year. Mr. Hicks is eligible to receive a car allowance of £8,900 per year, plus mileage reimbursement. Mr. Hicks’s employment agreement also provided for him to receive a grant of an option to purchase 175,000 shares of our Class A common stock and an RSU award covering 100,000 shares of our Class A common stock. These equity awards provide that one-fourth (¼) of the shares subject to each award vest (and, in the case of the RSU, be delivered) upon completion of one year of continuous employment service. In addition, one forty-eighth ( 1/48^th) of the shares subject to the option award vest upon completion of each month of continuous employment service thereafter, while the remaining shares subject to the RSU award vest and are delivered equally upon completion of each additional year of continuous employment service. LeapFrog UK contributes 5% of Mr. Hicks’s base salary to a stakeholder non-contributory pension scheme in the UK on his behalf.

TABLE OF CONTENTS

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

The following table presents certain information regarding outstanding equity awards held by our named executive officers at March 31, 2015.

Outstanding Equity Awards at March 31, 2015

		Option Awards(1)																Stock Awards(1)
Name		Number of Securities Underlying Unexercised Options (#) Exercisable				Number of Securities Underlying Unexercised Options (#) Unexercisable				Option Exercise Price ($)				Option Expiration Date				Number of Shares or Units of Stock That Have Not Vested (#)				Market Value of Shares or Units of Stock That Have Not Vested ($)(2)				Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)				Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
John Barbour			—				—				—				—				307,500	(3)			670,350				—				—
			850,000				—	(4)			4.39				3/07/2021				—				—				—				—
			195,000				65,000	(5)			7.18				3/15/2022				—				—				—				—
			135,000				135,000	(6)			8.41				3/14/2023				—				—				—				—
			50,416				169,584	(7)			6.81				4/14/2024
Raymond L. Arthur			—				—				—				—				117,000	(8)			255,060				—				—
			200,000				100,000	(9)			10.49				7/15/2022				—				—				—				—
			35,000				35,000	(6)			8.41				3/14/2023				—				—				—				—
			11,916				40,084	(7)			6.81				4/14/2024				—				—				—				—
Kenneth Adams			—				—				—				—				105,250	(10)			229,445				—				—
			87,500				112,500	(11)			9.73				6/9/2023				—				—				—				—
			10,427				35,073	(7)			6.81				4/14/2024
Gregory B. Ahearn			—				—				—				—				117,000	(12)			255,060				—				—
			206,250				93,750	(13)			10.49				7/15/2022				—				—				—				—
			35,000				35,000	(6)			8.41				3/14/2023				—				—				—				—
			11,916				40,084	(7)			6.81				4/14/2024
Antony Hicks			—				—				—				—				100,000	(14)			218,000
			—				175,000	(15)			6.14				9/28/2024				—				—

TABLE OF CONTENTS

TABLE OF CONTENTS

OPTION EXERCISES AND STOCK VESTED

The following table presents certain information regarding stock option exercises and the vesting of stock awards during the fiscal year ended March 31, 2015 and the Transition Period with respect to our named executive officers.

Option Exercises and Stock Vested

		Option Awards								Stock Awards
Name		Number of Shares Acquired on Exercise (#)				Value Realized on Exercise ($)				Number of Shares Acquired on Vesting (#)				Value Realized on Vesting ($)
John Barbour			—				—				3,125				24,781	(1)
			—				—				3,125				22,344	(2)
			—				—				3,125				23,844	(3)
			—				—				32,500				243,100	(4)
											27,500				205,700	(4)
			—				—				3,125				21,906	(5)
			—				—				3,125				21,563	(6)
			—				—				3,125				21,969	(7)
			—				—				3,125				23,625	(8)
			—				—				3,125				18,719	(9)
			—				—				3,125				20,031	(10)
			—				—				3,125				18,594	(11)
			—				—				3,125				14,344	(12)
			—				—				3,125				15,625	(13)
			—				—				3,125				14,000	(14)
			—				—				3,125				7,875	(15)
			—				—				3,125				8,312	(16)
			—				—				32,500				77,675	(17)
											27,500				65,725	(17)
Raymond Arthur			—				—				7,500				56,100	(4)
			—				—				25,000				186,000	(18)
			—				—				7,500				17,925	(17)
Kenneth Adams			—				—				20,000				148,600	(19)
Gregory Ahearn			—				—				7,500				56,100	(4)
			—				—				25,000				245,000	(20)
											7,500				17,925	(17)