LeapFrog 2003 Annual Report Download - page 57

We are subject to international, federal, state and local laws and regulations that could impose additional
costs on the conduct of our business.
In addition to being subject to regulation by the CPSC and similar state regulatory authorities, we must also
comply with other laws and regulations. The Children’s Online Privacy Protection Act, as implemented, requires
us to obtain verifiable, informed parental consent before we collect, use or disclose personal information from
children under the age of 13. Additionally, the Robinson-Patman Act requires us to offer non-discriminatory
pricing to similarly situated customers and to offer any promotional allowances and services to competing
retailers and distributors within their respective classes of trade on proportionally equal terms. Our SchoolHouse
division is affected by a number of laws and regulations regarding education and government funding. We are
subject to other various laws, including international and U.S. immigration laws, wage and hour laws and laws
regarding the classification of workers. Compliance with these and other laws and regulations impose additional
costs on the conduct of our business, and failure to comply with these and other laws and regulations or changes
in these and other laws and regulations may impose additional costs on the conduct of our business.
Knowledge Universe, L.L.C., Lawrence J. Ellison, Michael R. Milken and Lowell J. Milken, together
control all stockholder voting power as well as the composition of our board of directors.
Holders of our Class A common stock will not be able to affect the outcome of any stockholder vote. Our
Class A common stock entitles its holders to one vote per share, and our Class B common stock entitles its
holders to ten votes per share on all matters submitted to a vote of our stockholders. As of December 31, 2003,
Lawrence J. Ellison and entities controlled by him, Michael R. Milken, Lowell J. Milken, and Knowledge
Universe (which is controlled by Messrs. Milken, Milken and Ellison) and its affiliates, or, collectively, the “KU
Control Group,” in the aggregate beneficially owned approximately 27.9 million shares of our Class B common
stock, which represents approximately 90.0% of the combined voting power of our Class A common stock and
Class B common stock. As a result, the KU Control Group controls all stockholder voting power, including with
respect to:
•the composition of our board of directors and, through it, any determination with respect to our business
direction and policies, including the appointment and removal of officers;
•any determinations with respect to mergers, other business combinations, or changes in control;
•our acquisition or disposition of assets;
•our financing activities; and
•the payment of dividends on our capital stock, subject to the limitations imposed by our credit facility.
This control by the KU Control Group could depress the market price of our Class A common stock or delay
or prevent a change in control of LeapFrog. The KU Control Group is not prohibited from selling a controlling
interest in us to a third party and can do so without requiring a buyer to acquire any of our Class A common
stock.
Lawrence J. Ellison, Michael R. Milken and Lowell J. Milken may each be deemed to control Knowledge
Universe. As a result, Lawrence J. Ellison, Michael R. Milken and Lowell J. Milken may each be deemed to have
or share the power to direct the voting and disposition, and therefore to have beneficial ownership, of shares of
our capital stock owned directly or indirectly by Knowledge Universe.
Conflicts of interest may arise between our controlling stockholders and us.
Four of our eleven directors are officers or directors of Knowledge Universe or its affiliates other than us.
Our directors who are also officers or directors of Knowledge Universe or its other affiliates will have
obligations to and interests in these companies as well as in us, and conflicts or potential conflicts of interest may
result for these board members. Lawrence J. Ellison, Michael R. Milken and Lowell J. Milken formed
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