LeapFrog 2007 Annual Report Download - page 33

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
entitled to ten votes per share on all matters to be voted on by stockholders. The holders of our Class B common
stock have various additional voting rights, including the right to approve the issuance of any additional shares of
Class B common stock and any amendment of our certificate of incorporation that adversely affects the rights of
our Class B common stock. The difference in the voting rights of our Class A common stock and Class B
common stock could diminish the value of our Class A common stock to the extent that investors or any potential
future purchasers of our Class A common stock attribute value to the superior voting or other rights of our Class
B common stock.
Provisions in our charter documents, Delaware law and our credit facility agreement may delay or prevent
an acquisition of our Company, which could decrease the value of our Class A common stock.
Our certificate of incorporation and bylaws and Delaware law contain provisions that could make it harder
for a third-party to acquire us without the consent of our board of directors. These provisions include limitations
on actions by our stockholders by written consent, requirements for advance notice of stockholder proposals and
director nominations, and the voting power associated with our Class B common stock. In addition, our board of
directors has the right to issue preferred stock without stockholder approval, which could be used by our board of
directors to affect a rights plan or “poison pill” that could dilute the stock ownership of a potential hostile
acquirer and may have the effect of delaying, discouraging or preventing an acquisition of our company.
Delaware law also imposes some restrictions on mergers and other business combinations between us and any
holder of 15% or more of our outstanding voting stock. Although we believe these provisions provide for an
opportunity to receive a higher bid by requiring potential acquirers to negotiate with our board of directors, these
provisions apply even if an offer may be considered beneficial by some stockholders. In addition, under the terms
of our credit agreement, we may need to seek the written consent of our lenders of the acquisition of our
company.
Our stockholders may experience significant additional dilution upon the exercise of options or issuance of
stock awards.
As of December 31, 2007, there were outstanding awards under our equity incentive plans that could result
in the issuance of approximately 10.2 million shares of Class A common stock. To the extent we issue shares
upon the exercise of any options or vesting of any other equity incentive awards, investors in our Class A
common stock will experience additional dilution.
Our stock price could become more volatile and your investment could lose value.
All the factors discussed in this section could affect our stock price. The timing of announcements in the
public markets regarding new products, product enhancements or product recalls by us or our competitors or any
other material announcements could affect our stock price. Speculation in the media and analyst community,
changes in recommendations or earnings estimates by financial analysts, changes in investors’ or analysts’
valuation measures for our stock and market trends unrelated to our stock can cause the price of our stock to
change. A significant drop in the price of our stock could also expose us to the risk of securities class action
lawsuits, which could result in substantial costs and divert management’s attention and resources, which could
adversely affect our business.
Item 1B. Unresolved Staff Comments
Not applicable.
25