LeapFrog 2002 Annual Report Download - page 60

As a result, Knowledge Universe 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
• the payment of dividends on our capital stock, subject to the limitations imposed by our credit facility.
This control by Knowledge Universe and its controlling owners could depress the market price of our Class
A common stock or delay or prevent a change in control of LeapFrog. Knowledge Universe is not prohibited
from selling a controlling interest in us to a third party and can do so without requiring a buyer to acquire any of
our Class A common stock. In addition, there could occur a deadlock among the three controlling owners of
Knowledge Universe (two of whom are brothers) with respect to the voting of the shares of our capital stock they
jointly control through Knowledge Universe, which could result in our being unable to obtain stockholder
approval of any matter requiring such approval, such as the election of directors or a proposed merger.
Lawrence J. Ellison, Michael R. Milken and Lowell J. Milken may each be deemed to control Knowledge
Universe. As a result, Lawrence J. Ellison, Michael R. Milken and Lowell J. Milken may each be deemed to have
or share the power to direct the voting and disposition, and therefore to have beneficial ownership, of shares of
our capital stock owned directly or indirectly by Knowledge Universe. For further information concerning
Knowledge Universe, its beneficial ownership of our common stock, Lawrence J. Ellison, Michael R. Milken and
Lowell J. Milken, see “Security Ownership of Certain Beneficial Owners and Management” in our proxy
statement for our annual meeting of stockholders to be held on May 21, 2003 to be filed with the SEC by April
30, 2003.
Conflicts of interest may arise between Knowledge Universe and its other affiliates and us.
Four of our nine directors are officers or directors of Knowledge Universe or its affiliates other than us. Our
directors who are also officers or directors of Knowledge Universe or its other affiliates will have obligations to
and interests in these companies as well as in us, and conflicts or potential conflicts of interest may result for
these board members. Lawrence J. Ellison, Michael R. Milken and Lowell J. Milken formed Knowledge
Universe to build, through a combination of internal development and acquisitions, leading companies in areas
relating to education, technology and career management and the improvement of individual and corporate
performance. Knowledge Universe has formed, invested in or acquired, and in the future may form, invest in or
acquire, other businesses that are involved in these and related areas, which businesses may be operated under the
control of Knowledge Universe independently of us. Conflicts of interest between Knowledge Universe and its
other affiliates and us may arise, and such conflicts of interest may not be resolved in a manner favorable to us,
including potential competitive business activities, corporate opportunities, indemnity arrangements, registration
rights, sales or distributions by Knowledge Universe or its affiliates of our common stock and the exercise by
Knowledge Universe of its ability to control our management and affairs. Our certificate of incorporation does
not contain any provisions designed to facilitate resolution of actual or potential conflicts of interest, or to ensure
that potential business opportunities that may become available to both Knowledge Universe or its other affiliates
and us will be reserved for or made available to us. Pertinent provisions of law will govern any such matters if
they arise.
The limited voting rights of our Class A common stock could negatively affect its attractiveness to
investors and its liquidity and, as a result, its market value.
The holders of our Class A and Class B common stock generally have identical rights, except that holders of
our Class A common stock are entitled to one vote per share and holders of our Class B common stock are
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