Rosetta Stone 2011 Annual Report Download - page 39

Table of Contents
become subject to other consequences. In addition, open source licenses generally do not provide warranties or other contractual protections regarding
infringement claims or the quality of the code. Thus, we may have little or no recourse if we become subject to infringement claims relating to the open source
software or if the open source software is defective in any manner.
Risks Related to Owning Our Common Stock
Some of our stockholders could together exert significant influence over our company.
As of December 31, 2011, funds affiliated with ABS Capital Partners beneficially owned in the aggregate shares representing approximately 25% of our
outstanding voting power. Two managing members of the general partner of ABS Capital Partners currently serve on our board of directors. Additionally, as
of December 31, 2011, Norwest Equity Partners VIII, LP, or Norwest, beneficially owned in the aggregate shares representing approximately 16% of our
outstanding voting power. One managing member of the general partner of Norwest currently serves on our board of directors. As a result, these stockholders
could together potentially have significant influence over all matters presented to our stockholders for approval, including election and removal of our
directors and change of control transactions. The interests of these stockholders may not always coincide with the interests of the other holders of our common
stock.
If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our stock, the price of our stock
could decline.
The trading market for our common stock depends in part on the research and reports that industry or financial analysts publish about us or our business.
If one or more of the analysts covering our business downgrade their evaluations of or recommendations regarding our stock, or if one or more of the analysts
cease providing research coverage on our stock, the price of our stock could decline. If one or more of these analysts cease providing research coverage on our
stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.
Provisions in our organizational documents and in the Delaware General Corporation Law may prevent takeover attempts that could be beneficial to our
stockholders.
Provisions in our second amended and restated certificate of incorporation and second amended and restated bylaws, and in the Delaware General
Corporation Law, may make it difficult and expensive for a third party to pursue a takeover attempt we oppose even if a change in control of our company
would be beneficial to the interests of our stockholders. Any provision of our second amended and restated certificate of incorporation or second amended and
restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a
premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock. Our board of
directors has the authority to issue up to 10,000,000 shares of preferred stock in one or more series and to fix the powers, preferences and rights of each series
without stockholder approval. The ability to issue preferred stock could discourage unsolicited acquisition proposals or make it more difficult for a third party
to gain control of our company, or otherwise could adversely affect the market price of our common stock. Further, as a Delaware corporation, we are subject
to Section 203 of the Delaware General Corporation Law. This section generally prohibits us from engaging in mergers and other business combinations with
stockholders that beneficially own 15% or more of our voting stock, or with their affiliates, unless our directors or stockholders approve the business
combination in the prescribed manner. However, because funds affiliated with ABS Capital Partners and Norwest acquired their shares prior to our initial
public offering, Section 203 is currently inapplicable to any business combination or transaction with them or their affiliates. In addition, our second amended
and restated certificate of incorporation includes a classified board of directors and requires that any action to be
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