LeapFrog 2012 Annual Report Download - page 24

we have achieved compliance or that we will be in compliance in the future. Failure to comply with the
relevant regulations could result in monetary liabilities and other sanctions, which could have a negative
impact on our business, financial condition and results of operations. In addition, changes in laws or
regulations may lead to increased costs, changes in our effective tax rate, or the interruption of normal
business operations that would negatively impact our financial condition and results of operations.
Political developments, changes in trade relations, the threat or occurrence of armed hostilities,
terrorism, labor strikes, natural disasters or public health issues could have a material adverse effect on
our business.
Our business is international in scope. The deterioration of the political situation in a country in which we
have significant sales, operations or third-party manufacturers or suppliers, or the breakdown of trade relations
between the U.S. and a foreign country in which we have or utilize significant manufacturing facilities or have
other operations, could adversely affect our business, financial condition, and results of operations. For
example, a change in trade status for China could result in a substantial increase in the import duty of toys
manufactured in China and imported into the U.S. In addition, armed hostilities, terrorism, natural disasters, or
public health issues, whether in the U.S. or abroad, could cause damage and disruption to our company, our
suppliers, our manufacturers, or our customers or could create political or economic instability, any of which
could have a material adverse impact on our business. For example, our U.S. distribution center and our
corporate headquarters are located in California near major earthquake faults that have experienced
earthquakes in the past and that are expected to recur in the future. Although it is impossible to predict the
consequences of any such events, they could result in a decrease in demand for our product or create delay or
inefficiencies in our supply chain by making it difficult or impossible for us to deliver products to our
customers, for our manufacturers to deliver products to us, or for suppliers to provide component parts.
The loss of members of our executive management team or other key employees could adversely affect
our business.
We had a number of changes to our executive management team during 2012 and 2011. These changes had an
immediate financial impact as a result of the payment of severance compensation and charges associated with
equity grants for the retention of new management. While these changes can be a positive long-term change
for us, there is an inherent loss of institutional knowledge associated with such turnover and this may create a
risk, among other things, of overloading the remaining executives. In addition, transition associated with such
changes has required, and may continue to require, significant management attention and consumption of time
and resources, diverting away from the regular operations of our business. New executives typically bring
change to an organization, as a result of implementing new goals and plans, which in turn can lead to changes
in operating direction and the associated impact on the operations of the business, which may be uncertain or
unknown. Furthermore, we cannot provide any assurances that we will retain our new or existing management
and other key employees or that they will be successful in implanting our strategic vision or their new goals
and plans. The loss of services of members of our executive management team or other key employees could
have an adverse effect on our business. If we are unable to retain key personnel, then it may be difficult for us
to maintain a competitive position within our industry or implement our strategic priorities.
A few stockholders control a significant percentage 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, 2012, Lawrence J. Ellison and entities controlled by him beneficially owned
approximately 1.3 million shares of our Class B common stock and 1.6 million shares of our Class A common
stock, Michael Milken and Lowell Milken together owned, directly and indirectly, approximately 3.6 million
shares of our Class B common stock and 0.3 million shares of our Class A common stock and Sandra Milken
beneficially owned 0.8 million shares of our Class B common stock. Together, these four stockholders
represented approximately 49.6% of the combined voting power of our Class A common stock and Class B
common stock as of December 31, 2012. As a result, Mr. Ellison, Messrs. Michael and Lowell Milken, and
Ms. Milken, if voting together would have significant influence on stockholder vote outcomes, including with
respect to:
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