LeapFrog 2002 Annual Report Download - page 84

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LEAPFROG ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except share, per share and percent data)
Kids Media Group. Knowledge Kids Media Group owns substantially all of the voting power of Knowledge Kids
Network, Inc. Sarina D. Simon, a member of the Company’s board of directors, is Chief Executive Officer of
Knowledge Kids Media Group and Knowledge Kids Network. In 1999 and 2000, the Company wrote off its
entire investment in Knowledge Kids Media Group.
In April 2000, Ubiquity LLC (“Ubiquity”) was formed as a subsidiary of NT(2) LLC, an affiliate. Ubiquity
was approximately 15% owned by the Company and 85% owned by NT(2). NT(2) was owned by Knowledge
Universe. Ubiquity obtained an exclusive license to use the Company’s NearTouch technology. In turn, Ubiquity
granted a cross license to the Company to use certain of Ubiquity’s inventions related to improvements and use
the technology in areas outside of the educational toy business.
The Company committed to lend Ubiquity up to $5,000 pursuant to the terms of a three-year promissory
note. The Company was obligated to fund the losses of Ubiquity and was the sole source of financing in 2000 for
Ubiquity. In February 2001, Ubiquity discontinued its efforts to pursue uses of the technology outside of
educational toys. In consideration of, among other things, Knowledge Kids, L.L.C. being released from any
commitment to invest in NT(2) or Ubiquity, Knowledge Kids executed a quitclaim effective as of January 2001,
by which it abandoned and quitclaimed to the Company all of Knowledge Kids’ title and interest in and to NT(2)
and Ubiquity. Since Knowledge Kids was the only other entity that held equity interests in NT(2) or Ubiquity,
NT(2) became a wholly owned subsidiary of the Company and Ubiquity became an indirect wholly owned
subsidiary of the Company upon the execution of the quitclaim by Knowledge Kids. As the Company provided
the financing for the development efforts of Ubiquity, the funded amounts totaling $1,913 in 2001 and $1,831 in
2000 have been classified as research and development in the accompanying statement of operations. No funding
was made in 2002.
The law firm of Maron & Sandler has served as the Company’s primary outside general counsel from
August 1997 through July 2002 and they continue to provide legal services to the Company. Maron & Sandler is
the transfer agent for the Company’s Class B common stock. Stanley E. Maron, the Company’s secretary and a
member of the Board, is a partner of Maron & Sandler. In 2002, 2001 and 2000, the Company paid Maron &
Sandler $320, $222 and $131, respectively, for legal services rendered to the Company. Accounts payable to
Maron & Sandler was $1 and $26 at December 31, 2002 and 2001, respectively. In addition, Mr. Maron and
other attorneys of Maron & Sandler hold interests in an entity that holds non-voting units of a limited liability
company that holds an equity interest in Knowledge Universe. These non-voting units amount to a less than 1%
economic interest in Knowledge Universe.
In 2002 and 2001 the Company purchased software products and support services from Oracle Corporation
totaling $280 and $137, respectively. Lawrence J. Ellison, the Chairman and Chief Executive Officer of Oracle
Corporation, may be deemed to have or share the power to direct the voting and disposition, and therefore to
have beneficial ownership, of any shares of the Company’s capital stock owned directly or indirectly by
Knowledge Universe. Jeffrey Berg, a director of the Company, is a member of Oracle Corporation’s board of
directors.
Knowledge Universe IT, an affiliate of Knowledge Universe, provided information management services to
the Company. In 2002, 2001, and 2000, $0, $83 and $52, respectively, was incurred by the Company for services
provided by Knowledge Universe IT. Accounts payable to Knowledge Universe IT was $0 at December 31, 2002
and 2001.
Affinity Squared, Inc., an affiliate of Knowledge Universe, provides health and welfare plan administration
services to us. In 2002, 2001 and 2000, $267, $414 and $0, respectively, was incurred by us for services provided
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