LeapFrog 2008 Annual Report Download - page 120

TRANSACTIONS WITH RELATED PERSONS
Related-Person Transactions Policy and Procedures
In February 2008, we adopted a written policy regarding transactions with related persons that sets forth our
policies and procedures regarding the identification, review, consideration and approval or ratification of
“related-persons transactions.” For purposes of our policy only, a “related-person transaction” is a transaction,
arrangement or relationship (or any series of similar transactions, arrangements or relationships) involving an
amount that exceeds $120,000 in which LeapFrog and any “related person” are participants. Transactions
involving compensation for services provided to LeapFrog as an employee, director, consultant or similar
capacity by a related person are not covered by this policy. A related person is any executive officer, director, or
more than 5% stockholder of LeapFrog (as determined by the combined voting power of all classes of stock),
including any of their immediate family members, and any entity owned or controlled by such persons.
Under the policy, where a transaction has been identified as a related-person transaction, management must
present information regarding the proposed related-person transaction to our board of directors for consideration
and approval or ratification. The presentation must include a description of, among other things, the material
facts, the interests, direct and indirect, of the related persons, the benefits to LeapFrog of the transaction and
whether any alternative transactions were available. To identify related-person transactions, we rely on
information supplied by our management and directors. In considering related-person transactions, the board
takes into account the relevant available facts and circumstances including, but not limited to (a) the risks, costs
and benefits to LeapFrog, (b) the impact on a director’s independence if the related person is a director,
immediate family member of a director or an entity with which a director is affiliated, (c) the terms of the
transaction, (d) the availability of other sources for comparable services or products and (e) the terms available to
or from, as the case may be, unrelated third parties or to or from employees generally. If a director has an interest
in the proposed transaction, the director must recuse himself or herself from the deliberations and approval. The
policy requires that, in determining whether to approve, ratify or reject a related-person transaction, the board
must look at, in light of known circumstances, whether the transaction is in, or is not inconsistent with, the best
interests of LeapFrog and its stockholders, as the board determines in the good faith exercise of its discretion.
Certain Related-Person Transactions
Since April 2004, we have been a majority-owned subsidiary of Mollusk Holdings, an entity controlled by
Lawrence J. Ellison that owns shares representing a majority of our voting power. In 2008 we purchased software
products and support services from Oracle Corporation totaling $1,095,180. As of December 31, 2008, Lawrence
J. Ellison, the 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 approximately 16.2 million shares
of our Class B common stock, which represents approximately 52.4% of the combined voting power of our
Class A common stock and Class B common stock. For a more complete discussion of Mr. Ellison’s beneficial
ownership of our common stock, see “Security Ownership of Certain Beneficial Owners and Management.”
Messrs. Simon and Marinelli are President and Vice President, respectively, of Lawrence Investments, an
entity controlled by Lawrence J. Ellison that controls Mollusk Holdings. Mollusk Holdings owns shares of our
Class B common stock representing a majority of the combined voting power of all outstanding shares.
Mr. Simon is also a director and officer of Pillar Data Systems, Inc., an entity in which Lawrence J. Ellison is a
majority stockholder and that billed us for approximately $427,000 in equipment fees in 2008. Mr. Simon’s
compensation arrangements with Lawrence Investments include an interest in certain profits resulting from
Mr. Ellison’s investment in Pillar Data Systems, Inc.
We are involved in a dispute with Mounte LLC arising out of a 2002 tax sharing agreement between
LeapFrog and Knowledge Universe, Inc., the predecessor in interest of Mounte LLC. We are claiming a
$635,000 refund of amounts we previously paid under the agreement, while Mounte LLC is claiming we owe it
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