Ellison throws shareholder weight around at LeapFrog annual meeting

leapfrog-logoLeapFrog Enterprises, the maker of technology based educational toys, changed its bylaws at its annual shareholder meeting held June 4 to allow shareholders to fill vacancies that occur on the company’s board of directors.

The proposal, to which the board took no position either pro or con, was submitted by Mollusk Holdings, an entity controlled by Oracle founder and Chief Executive Larry Ellison. Through Mollusk, Ellison owns some 16.1 million LeapFrog shares, or 52.4 percent of its outstanding stock.

When the bylaw change takes effect, Ellison will be able to name whomever he likes to replace any vacancies on the board created by directors who “resign or otherwise depart” or to fill “newly created directorships.”

Ellison also wants the company to cease being governed by a part of corporate law in Delaware, where LeapFrog is incorporated, which restricts “business combinations and certain other transactions between us and any holder of 15% or more of (LeapFrog’s) outstanding voting stock.”

When that change takes effect after a 12-month waiting period, who knows what Ellison might have in mind for LeapFrog. Whatever it is it will no doubt be, as always, educational.

Ellison also wanted the right of any shareholder holding “at least 25% of the voting power” of LeapFrog’s outstanding stock to call a special shareholder meeting. In addition to Ellison, the only other shareholder who could meet that hurdle is one-time junk-bond financier, felon and philanthropist, Michael Milkin, who owns a 31 percent stake in LeapFrog.

There’s no way of knowing whether acceptance of these measures by the board was a quid pro quo in return for a special meeting called for August at which shareholders will be asked to approve an option repricing plan that would apply to all employees, executives and directors included.

Shares of LeapFrog, which have lost value every year since 2004, are down 22 percent more so far in 2009. Ellison’s stake, which was worth more than $750 million when LeapFrog shares closed at their all-time high of $46.54, were worth $44 million today when LeapFrog shares closes at $2.72.

 

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