LeapFrog 2010 Annual Report Download - page 30

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, 2010, Lawrence J. Ellison and entities controlled by him beneficially owned approximately
15.6 million shares of our Class B common stock and 0.2 million shares of our Class A common stock, which
represents approximately 61.5% 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
• payment of dividends on our capital stock, subject to the limitations imposed by our credit facility.
In addition, two of our directors, Philip B. Simon and Paul T. Marinelli, are President and Vice President,
respectively, of Lawrence Investments, LLC, an entity also controlled by Mr. Ellison. As a result, as permitted by
New York Stock Exchange (“NYSE”) rules for controlled companies, our Compensation Committee and
Nominating and Corporate Governance Committee are not composed entirely of independent directors.
Mr. Ellison could have interests that diverge from those of our other stockholders. This control by Mr. Ellison
could depress the market price of our Class A common stock; deter, delay or prevent a change in control of
LeapFrog; or affect other significant corporate transactions that otherwise might be viewed as beneficial for other
stockholders.
Our stock price has been volatile over the past several years and could decline in the future, resulting in
losses for our investors and harming the employee-retention and recruiting value of our equity
compensation.
All the factors discussed in this section or any other material announcements could affect our stock price.
Speculation in the media and analyst communities, 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, adversely affecting our business.
Our future success depends partly on the continued contribution of our key executives and technical, sales,
marketing, manufacturing and administrative personnel. Part of our compensation package includes stock and/or
stock options. To the extent our stock performs poorly, it may adversely affect our ability to retain or attract key
employees, potentially resulting in lost institutional knowledge and key talent. Changes in compensation
packages or costs could impact our profitability and/or our ability to attract and retain sufficient qualified
personnel.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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