LeapFrog 2004 Annual Report Download - page 62

that have experienced earthquakes in the past. An earthquake or other natural disasters could disrupt our operations.
Additionally, the loss of electric power, such as the temporary loss of power caused by power shortages in the grid
servicing our facilities in California, could disrupt operations or impair critical systems. Any of these disruptions or
other events outside of our control could impair our distribution of products, damage inventory, interrupt critical
functions or otherwise affect our business negatively, harming our operating results. Our existing earthquake
insurance relating to our distribution center may be insufficient and does not cover any of our other operations. If
the facilities of our third-party finished goods or component manufacturers are affected by earthquakes, power
shortages, floods, monsoons, terrorism or other events outside of our control, our business could suffer.
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, as well as corporate governance laws and regulations, such as the
Sarbanes-Oxley Act of 2002. 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.
One stockholder controls a majority of our 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, 2004,
Lawrence J. Ellison and entities controlled by him beneficially owned approximately 16.8 million shares of our
Class B common stock, which represents approximately 54% of the combined voting power of our Class A
common stock and Class B common stock. As a result, Mr. Ellison 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 Mr. Ellison could depress the market price of our Class A common stock or delay or prevent
a change in control of LeapFrog.
The limited voting rights of our Class A common stock could negatively affect its attractiveness to
investors and its liquidity and, as a result, its market value.
The holders of our Class A and Class B common stock generally have identical rights, except that holders of
our Class A common stock are entitled to one vote per share and holders of our Class B common stock are
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