NetFlix 2010 Annual Report Download - page 18

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• Limiting our flexibility in planning for, or reacting to, changes in our business and the markets in which
we operate; and
• Limiting our ability to borrow additional funds or to borrow funds at rates or on other terms we find
acceptable.
In addition, it is possible that we may need to incur additional indebtedness in the future in the ordinary
course of business. The terms of indentures governing our outstanding senior notes allow us to incur additional
debt subject to certain limitations. If new debt is added to current debt levels, the risks described above could
intensify.
The agreements governing our indebtedness contain various covenants that limit our discretion in the
operation of our business and also require us to meet certain covenants. The failure to comply with such
covenants could have a material adverse effect on us.
The agreements governing our indebtedness contain various covenants, including those that restrict our
ability to, among other things:
• Borrow money, and guarantee or provide other support for indebtedness of third-parties including
guarantees;
• Pay dividends on, redeem or repurchase our capital stock;
• Make investments in entities that we do not control, including joint ventures;
• Enter into certain asset sale transactions;
• Enter into secured financing arrangements;
• Enter into sale and leaseback transactions; and
• Enter into unrelated businesses.
These covenants may limit our ability to effectively operate our businesses. Any failure to comply with the
restrictions of any agreement governing our other indebtedness may result in an event of default under those
agreements.
Risks Related to Our Stock Ownership
Our officers and directors and their affiliates will exercise control over Netflix.
As of December 31, 2010, our executive officers and directors and their immediate family members
beneficially owned, in the aggregate, approximately 11% of our outstanding common stock and stock options
that are exercisable within 60 days. In particular, Reed Hastings, our Chief Executive Officer, President and
Chairman of the Board, beneficially owned approximately 5%. These stockholders may have individual interests
that are different from other stockholders and will be able to exercise influence over all matters requiring
stockholder approval, including the election of directors and approval of significant corporate transactions, which
could delay or prevent someone from acquiring or merging with us.
Provisions in our charter documents and under Delaware law could discourage a takeover that
stockholders may consider favorable.
Our charter documents may discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable because they:
• authorize our board of directors, without stockholder approval, to issue up to 10,000,000 shares of
undesignated preferred stock;
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