LeapFrog 2002 Annual Report Download - page 48

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of Class A common stock issued in exchange for the notes. The amount of these promissory notes exceeded the
purchase price of the underlying stock by an amount necessary to cover the estimated income taxes payable by
the executive officer in connection with the stock purchases. We received promissory notes from the following
executive officers:
Name of Debtor Date of Promissory Note
Shares of Class A
Common Stock
Held By Us As Security Principal Amount of Note
MichaelC.Wood ............ June30,2000 609,756 $1,756,097
Robert W. Lally ............. July5,2000 304,878 $ 878,049
TimothyM.Bender .......... July6,2000 152,440 $ 439,027
L. James Marggraff .......... August 1, 2000 235,285 $ 677,621
Each of these promissory notes was paid in full in January 2003, and as of March 11, 2003, none of the executive
officers listed above was indebted to us.
As of March 11, 2003, Knowledge Universe and its affiliates beneficially owned 31,636,962 shares of our
Class B common stock, which represents approximately 87% of the combined voting power of our Class A
common stock and Class B common stock. For more information, see “—Risk Factors That May Affect Our
Results and Stock Price — Knowledge Universe, L.L.C., which is jointly controlled by Lawrence J. Ellison,
Michael R. Milken and Lowell J. Milken, controls all stockholder voting power as well as our board of
directors.”
We are currently a subsidiary of Knowledge Universe. Beginning in June 2000, we established a line of
credit with Knowledge Universe Capital Co. LLC, an affiliate of Knowledge Universe. The line of credit was
evidenced by a total of six promissory notes dated June 21, 2000, July 20, 2000, July 27, 2000, August 8, 2000,
August 22, 2000 and September 13, 2000, with principal balances of $3.0 million, $2.0 million, $3.0 million,
$5.0 million, $2.5 million and $7.0 million, respectively. Each promissory note bore interest at an annual rate of
10.0% through September 21, 2000 and 12.0% thereafter. In April 2001, we repaid the promissory notes in full.
In August 1999, we purchased a 19.9% ownership interest in Knowledge Kids Media Group, Inc., an
affiliate of Knowledge Universe, for $2.0 million. Knowledge Universe indirectly owns 80.1% of Knowledge
Kids Media Group. Knowledge Kids Media Group owns substantially all of the voting power of Knowledge Kids
Network, Inc. Sarina D. Simon, a member of our board of directors, is Chief Executive Officer of Knowledge
Kids Media Group and Knowledge Kids Network. In 1999 and 2000, we wrote off our entire investment in
Knowledge Kids Media Group. We have no obligation to provide additional funding to Knowledge Kids Media
Group, and we are not responsible for the repayment of any of the existing or future liabilities of the company.
In April 2000, Ubiquity LLC was formed as a subsidiary of NT2LLC, an affiliate, and was formed to
explore magazine publishing applications of our NearTouch technology. Ubiquity was approximately 15%
owned by us and 85% owned by NT2.NT
2was owned by Knowledge Universe. Ubiquity obtained an exclusive
license to use our NearTouch technology. In turn, Ubiquity granted a cross license to us to use certain of
Ubiquity’s inventions related to improvements and use the technology in areas outside of the educational toy
business.
We committed to lend Ubiquity up to $5.0 million pursuant to the terms of a three-year promissory note. We
were obligated to fund the losses of Ubiquity and were the sole source of financing in 2000 for Ubiquity. In
February 2001, Ubiquity discontinued its efforts to pursue uses of the technology outside of educational toys. In
consideration of, among other things, Knowledge Kids, L.L.C. being released from any commitment to invest in
NT2or Ubiquity, Knowledge Kids executed a quitclaim effective as of January 2001, by which it abandoned and
quitclaimed to us all of Knowledge Kids’ title and interest in and to NT2and Ubiquity. Since Knowledge Kids
was the only other entity that held equity interests in NT2or Ubiquity, NT2became our wholly owned subsidiary
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