NetFlix 2013 Annual Report Download - page 64

the Company’s streaming business, violated accounting rules concerning segment reporting, violated provisions
of the California Corporations Code, and wasted corporate assets. The consolidated complaint further alleges that
the defendants caused the Company to buy back stock at artificially inflated prices to the detriment of the
Company and its shareholders while contemporaneously selling personally held Company stock. The Company
filed a demurrer to the consolidated complaint and a motion to stay the derivative litigation in favor of the related
federal securities class action on February 4, 2013. On June 21, 2013, the Court granted the motion to stay the
derivative litigation pending resolution of the related federal securities class action. Management has determined
a potential loss is reasonably possible however, based on its current knowledge, management does not believe
that the amount of such possible loss or a range of potential loss is reasonably estimable.
The Company is involved in other litigation matters not listed above but does not consider the matters to be
material either individually or in the aggregate at this time. The Company’s view of the matters not listed may
change in the future as the litigation and events related thereto unfold.
7. Guarantees—Indemnification Obligations
In the ordinary course of business, the Company has entered into contractual arrangements under which it
has agreed to provide indemnification of varying scope and terms to business partners and other parties with
respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such
agreements and out of intellectual property infringement claims made by third parties. In these circumstances,
payment may be conditional on the other party making a claim pursuant to the procedures specified in the
particular contract.
The Company’s obligations under these agreements may be limited in terms of time or amount, and in some
instances, the Company may have recourse against third parties for certain payments. In addition, the Company
has entered into indemnification agreements with its directors and certain of its officers that will require it,
among other things, to indemnify them against certain liabilities that may arise by reason of their status or service
as directors or officers. The terms of such obligations vary.
It is not possible to make a reasonable estimate of the maximum potential amount of future payments under
these or similar agreements due to the conditional nature of the Company’s obligations and the unique facts and
circumstances involved in each particular agreement. No amount has been accrued in the accompanying financial
statements with respect to these indemnification guarantees.
8. Stockholders’ Equity
On November 2, 2012, the Board of Directors (the “Board”) of the Company authorized and declared a
dividend distribution of one right (a “Right”) for each outstanding share of common stock, par value $0.001 per
share (the “Common Shares”), of the Company to stockholders of record at the close of business on
November 12, 2012 (the “Record Date”). Each Right entitled the registered holder to purchase from the
Company one one-thousandth of a share of Series A Participating Preferred Stock, par value $0.001 per share
(the “Preferred Shares”), of the Company at an exercise price of $350 per one one-thousandth of a Preferred
Share, subject to adjustment (the “Exercise Price”). The Rights were exercisable in the event any person or group
acquires 10% (or 20% in the case of certain institutional investors who report their holdings on Schedule 13G) or
more of the Common Shares without the approval of the Board, and until such time are inseparable from and
trade with the Company’s common stock. The Rights had a de minimus fair value. The Rights Agreement was
amended on December 30, 2013 to accelerate the expiration of the Rights from the close of business on
November 2, 2015 to the close of business on December 30, 2013, and had the effect of terminating the Rights
Agreement on that date. At the time of the termination of the Rights Agreement, all of the Rights distributed to
holders of the Company’s common stock pursuant to the Rights Agreement expired.
On November 28, 2011, the Company issued 2.9 million shares of common stock upon the closing of a
public offering for $200.0 million net of issuance costs of $0.5 million.
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