LeapFrog 2011 Annual Report Download - page 28

A few stockholders control a majority of our voting power.
The majority of holders of our Class A common stock may 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, 2011, Lawrence J. Ellison and entities controlled by him beneficially owned
approximately 6.7 million shares of our Class B common stock and 3.8 million shares of our Class A
common stock, while Michael Milken and Lowell Milken together owned directly and indirectly
approximately 3.6 million shares of our Class B common stock and 0.9 million shares of our Class A common
stock. Together, these three stockholders represented approximately 64.87% of the combined voting power of
our Class A common stock and Class B common stock as of December 31, 2011. As a result, Mr. Ellison and
Messrs. Michael and Lowell Milken, if voting together may be able to determine stockholder vote outcomes,
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; and
• our financing activities.
Mr. Ellison and Messrs. Michael and Lowell Milken could have interests that diverge from those of our other
stockholders. This control by a few stockholders 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. For example, in the past our operating
results have frequently failed to meet analysts’ expectations, negatively impacting the price of our stock. 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.
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