LeapFrog 2005 Annual Report Download - page 106

LEAPFROG ENTERPRISES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share and percent data)
faith in denying the Company coverage for the Company’s costs with respect to patent infringement claims filed
against the Company in three prior litigations. The Company is seeking approximately $3.5 million in damages
to recover the Company’s defense fees and indemnity payments. A hearing on cross-motions for summary
judgment was held on November 3, 2005. On January 4, 2006, the court granted the Company’s motion for
summary adjudication on three causes of action.
Stockholder Class Actions
On December 2, 2003, a class action complaint entitled Miller v. LeapFrog Enterprises, Inc., et al.,
No. 03-5421 RMW, was filed in federal district court for the Northern District of California against the Company
and certain of its current and former officers and directors alleging violations of the Securities Exchange Act of
1934, or 1934 Act. Subsequently, three similar actions were filed in the same court: Weil v. LeapFrog Enterprises,
Inc., et al., No. 03-5481 MJJ; Abrams v. LeapFrog Enterprises Inc., et al., No. 03-5486 MJJ; and Ornelas v.
LeapFrog Enterprises, Inc., et al., No. 03-5593 SBA. Each of those complaints purported to be a class action
lawsuit brought on behalf of persons who acquired the Company’s Class A common stock during the period of
July 24, 2003 through October 21, 2003, except that the plaintiff in the Weil action sought to maintain a class action
on behalf of persons who acquired the Company’s Class A common stock during the longer period of July 24, 2003
through February 10, 2004 and also alleged that the Company’s financial statements were false and misleading. The
complaints did not specify the amount of damages sought. On March 31, 2005, the Court entered an order
consolidating these actions, appointing lead plaintiffs, and appointing lead class counsel.
On April 25, 2005, another class action complaint entitled The Parnassus Fund et al. v. LeapFrog Enterprises,
Inc., et al., No. 05-01695 JSW, was filed in federal district court for the Northern District of California against the
Company, its current CEO and its former CFO alleging violations of the Securities Exchange Act of 1934. On
June 3, 2005, a nearly identical class action complaint entitled Fredde Gentry et al. v. LeapFrog Enterprises, Inc. et
al., No. 05-02279 MJJ, was filed in federal district court for the Northern District of California. Both the Parnassus
and Gentry complaints purport to be class actions brought on behalf of persons who acquired LeapFrog securities
during the period of February 11, 2004 through October 18, 2004. The complaints alleged that the defendants
caused the Company to make false and misleading statements about its business, operations, management and value
of its common stock, which allowed insiders to sell the Company’s common stock at artificially inflated prices and
which caused plaintiffs to purchase the Company’s common stock at artificially inflated prices. Neither of these
complaints specified the amount of damages sought.
On June 17, 2005, lead plaintiffs in the class actions that were consolidated under the March 31, 2005
order filed a consolidated complaint. The consolidated complaint alleged that the defendants caused the Company to
make false and misleading statements about the Company’s business and forecasts about the Company’s financial
performance, that certain of its individual officers and directors sold portions of their stock holdings while in the
possession of adverse, non-public information, and that certain of the Company’s financial statements were false
and misleading. The consolidated complaint also alleged an expanded class period of July 24, 2003 through
October 18, 2004 (thereby including the purported class period of the Parnassus and Gentry complaints), and
sought unspecified damages. On May 10, 2005 and June 28, 2005, lead plaintiffs for the Miller, etc. actions also
filed notices to relate and consolidate the Parnassus and Gentry actions, respectively, with the original class actions
that had been consolidated by the March 31, 2005 order. In July 2005, the Court entered an order relating the
Parnassus and Gentry actions with the cases consolidated under the March 31, 2005 consolidation order.
On November 23, 2005, the Court entered an order appointing the plaintiffs in the Parnassus action as lead
plaintiffs. On January 27, 2006, the lead plaintiffs filed an amended and consolidated complaint. The class period
and defendants are identical to that alleged in the complaint filed on June 17, 2005 by the previous lead plaintiffs,
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