NetFlix 2011 Annual Report Download - page 19

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.
We may lose key employees or may be unable to hire qualified employees.
We rely on the continued service of our senior management, including our Chief Executive Officer and
co-founder Reed Hastings, members of our executive team and other key employees and the hiring of new
qualified employees. In our industry, there is substantial and continuous competition for highly skilled business,
product development, technical and other personnel. We may not be successful in recruiting new personnel and
in retaining and motivating existing personnel, which may be disruptive to our operations.
Risks Related to Our Stock Ownership
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;
• provide for a classified board of directors;
• prohibit our stockholders from acting by written consent;
• establish advance notice requirements for proposing matters to be approved by stockholders at
stockholder meetings; and
• prohibit stockholders from calling a special meeting of stockholders.
In addition, a merger or acquisition may trigger retention payments to certain executive employees under the
terms of our Executive Severance and Retention Incentive Plan, thereby increasing the cost of such a transaction.
As a Delaware corporation, we are also subject to certain Delaware anti-takeover provisions. Under Delaware
law, a corporation may not engage in a business combination with any holder of 15% or more of its capital stock
unless the holder has held the stock for three years or, among other things, the board of directors has approved
the transaction. Our board of directors could rely on Delaware law to prevent or delay an acquisition of us.
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