Rosetta Stone 2009 Annual Report Download - page 29

Table of Contents
The loss of key personnel or the failure to attract and retain highly qualified personnel could compromise our ability to effectively manage our business
and pursue our growth strategy.
Our future performance depends on the continued service of our key technical, development, sales, services and management personnel. We rely on our
executive officers and senior management to execute our existing business plans and to identify and pursue new opportunities. We rely on our technical and
development personnel for product innovation. We generally do not have employment agreements with our personnel and, therefore, they could terminate
their employment with us at any time. The loss of key employees could result in significant disruptions to our business, and the integration of replacement
personnel could be costly and time consuming, could cause additional disruptions to our business, and could be unsuccessful. We do not carry key person life
insurance covering any of our employees.
Our future success also depends on our continued ability to attract and retain highly qualified technical, development, sales, services and management
personnel. Competition for such personnel is intense, and we may fail to retain our key employees or attract or retain other highly qualified personnel in the
future. Many of our employees are located in Harrisonburg, Virginia, a city that does not have a large pool of qualified replacement personnel. The lack of
qualified local replacement personnel may make it more difficult to quickly find replacement personnel and may increase the costs of identifying and
relocating replacement personnel to Harrisonburg, Virginia.
In addition, wage inflation and the cost of retaining our key personnel in the face of competition for such personnel may increase our costs faster than we
can offset these costs with increased prices or increased sales volume.
If we are unable to hire, train, motivate and retain sales personnel to staff our kiosks, or to identify suitable locations and negotiate site licenses on
acceptable terms, we could lose revenue, our costs could increase and our profitability could decline.
In order to successfully grow our kiosk sales channel we must be able to hire, train, motivate and retain sales personnel to staff these kiosks. Our kiosks
are small and widely dispersed, and, as such, are operated without substantial hands-on management or oversight by us. As a result, we depend on our kiosk
sales personnel to effectively manage sales, customer issues and reporting of financial transactions from these kiosks. The opening and success of new kiosks
will depend upon various additional factors, including our ability to identify suitable locations and our ability to negotiate site licenses on acceptable terms
and labor costs. Specifically, we must identify and negotiate cost-effective site licenses for kiosk locations that will generate sufficient consumer demand.
Many of these site licenses contain terms and conditions that are highly favorable to licensors including allowing licensors to cancel them on short notice,
sometimes as little as thirty days, and broad indemnification terms in favor of licensors. If competition for kiosk space increases, license rates may increase
and other terms may become even less favorable to us, resulting in lower profitability. Our failure to properly manage the expansion of this sales channel
could cause us to lose revenue and increase our expenses.
Failure to maintain the availability of the systems, networks, databases and software required to operate and deliver our internet-based products and
services could damage our reputation and cause us to lose revenue.
We rely on internal systems and external systems, networks and databases maintained by us and third-party providers to process customer orders, handle
customer service requests, and host and deliver our internet-based language learning solutions, including our online language courses and Rosetta Stone
TOTALe, and our SharedTalk online peer-to-peer collaborative and interactive community. Any damage, interruption or failure of our systems, networks and
databases could prevent us from processing customer orders and result in degradation or interruptions in delivery of our products and services.
Notwithstanding our efforts to protect against interruptions in the availability of our e-commerce
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