LeapFrog 2002 Annual Report Download - page 50

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In March 2001, we sold 2,000,000 shares of our Series A preferred stock for an aggregate consideration of
$25 million to CSC LF Holdings, LLC, Publishing and Broadcasting International Ltd. and Windsor Digital
Studio LLC. In connection with this sale, we entered into an Amended and Restated Stockholders Agreement
with these purchasers, Knowledge Kids, L.L.C., an affiliate of Knowledge Universe, FrogPond, Michael C.
Wood, our President and Chief Executive Officer, and Explore Technologies, a holder of our Class A common
stock. This agreement was amended and restated in July 2002. Under the agreement, CSC, Publishing and
Broadcasting International, Windsor Digital Studio, Knowledge Kids, Knowledge Universe Learning Group,
LLC, Knowledge Universe II LLC and FrogPond had the right to purchase their pro rata share of any of our
future equity offerings, except shares issued in connection with our initial public offering and other underwritten
public offerings, options or other employee equity incentives, exercises of options or warrants or any merger or
acquisition. CSC, Publishing and Broadcasting International and Windsor Digital Studio also had the right to sell
alongside holders of Class A common stock and Class B common stock in any transaction where a majority of
stock or voting power changes hands, or if Knowledge Universe or its affiliates sell a majority of the Class B
common stock then held by them. The parties to the agreement also agreed to elect to our board of directors a
representative designated by CSC. However, CSC has not designated a representative to serve on our board of
directors, and in July 2002, CSC waived its right to do so. Pursuant to the agreement all of the foregoing rights
were terminated in 2002 as our Class A common stock maintained a minimum closing price of $18.75 for 30
consecutive trading days and the aggregate value of all outstanding freely tradable Class A common stock held
by non-affiliates equals or exceeds $100 million, and the Series A preferred stock was automatically converted
into Class A common stock on November 21, 2002. The agreement also grants registration rights to CSC,
Publishing and Broadcasting International, Windsor Digital Studio, Knowledge Kids, FrogPond, Explore
Holdings LLC, which is the successor to Explore Technologies, and Michael C. Wood. Knowledge Universe
Learning Group and Knowledge Universe II, affiliates of Knowledge Universe, became parties to the agreement
in connection with the transfer of 6,000,000 shares and 15,901,207 shares of Class B common stock,
respectively, from Knowledge Kids on December 29, 2001 and February 19, 2002.
At our request, the underwriters of our initial public offering allowed us to sell at our initial public offering
approximately 500,000 shares of our Class A common stock at the initial public offering price to persons who
were directors, officers or employees, or who were otherwise associated with us, through a directed shares
program. Paul A. Rioux purchased 500 shares of our Class A common stock and Stewart A. Resnick purchased
89,330 shares of our Class A common stock through the directed share program, and were the only two executive
officers and directors who participated in the program.
Recent Accounting Pronouncements
In December 2002, the FASB issued Statement No. 148, Accounting for Stock-Based Compensation—
Transition and Disclosure, SFAS 148. SFAS amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, SFAS 123 to provide alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation. SFAS 148 also amends the
disclosure provisions of SFAS 123 to require more prominent disclosure about the effects on reported net income
of an entity’s accounting policy decisions with respect to stock-based employee compensation. SFAS 148 also
amends APB Opinion No. 28, Interim Financial Reporting (“APB 28”) to require disclosure about the net
income effects in interim financial information. The provisions of this statement are effective for financial
statements for fiscal years ending after December 15, 2002. The disclosure provisions of this statement have been
included in our 2002 financial statements.
In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure
Requirement for Guarantees, Including Indirect Guarantees of Indebtedness of Others, FIN 45. FIN 45 elaborates
on the existing disclosure requirements for most guarantees, including residual value guarantees issued in
conjunction with operating lease agreements. It also clarifies that at the time a company issues a guarantee, the
company must recognize an initial liability for the fair value of the obligation it assumes under that guarantee and
must disclose that information in its interim and annual financial statements. The initial recognition and
45