NetFlix 2014 Annual Report Download - page 63

Table of Contents
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.
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.
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.
In April 2013, the Company issued 2.3 million shares of common stock in connection with the conversion of the Convertible Notes. See
Note 5
to the consolidated financial statements for further details.
Preferred Stock
In 2012, the Company designated 1,000,000 shares of its preferred stock with par value of $0.001 per share as Series A Participating
Preferred Stock. The remaining 9,000,000 shares of preferred stock with par value of $0.001 remained undesignated. In connection with the
expiration of the Rights and the termination of the Rights Agreement on December 30, 2013, the shares that were designated to such series
were returned to the status of authorized but unissued shares of preferred stock of the Company, and the Company therefore now has
10,000,000 shares of preferred stock with a par value of $0.001 that are undesignated.
None of the preferred shares were issued and outstanding at December 31, 2014 and 2013 .
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7. Guarantees—
Indemnification Obligations
8. Stockholders’
Equity