Rosetta Stone 2013 Annual Report Download - page 28

Table of Contents
earnings or key performance metrics, confusion on the part of industry analysts and investors about the impact of our subscription offerings, shortfalls in the
number of subscribers, changes in analyst estimates or recommendations, new product announcements by competitors, seasonal variations in demand, loss
of a large customer, variations in competitors' financial performance and regulatory or macro-economic effects.
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.
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None.
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Our corporate headquarters are located in Arlington, Virginia, where we sublease space on two floors of a large office building. The term of this sublease
was amended in the fourth quarter of 2012 and runs through December 31, 2018. In the first quarter of 2014, we vacated one of the floors of our Arlington,
Virginia headquarters and are currently in the process of trying to sublease a portion of the excess space.
We currently own two facilities in Harrisonburg, Virginia, that serve as our operations offices. In addition, we lease a facility in Harrisonburg, Virginia
for use as a packing and distribution center for all of our U.S. and some of our international fulfillment, in addition to sales operations.
We also lease space for small offices used primarily for research and development activities in various locations in the United States and for regional
sales offices in London, United Kingdom, San Paulo, Brazil, Seoul, South Korea, and Toyko, Japan.
With the acquisitions of Vivity and Tell Me More in January 2014, we gained office space in various additional international locations, including near
Versailles, France, and Beijing, China.
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In April 2010, a purported class action lawsuit was filed against us in the Superior Court of the State of California, County of Alameda for damages,
injunctive relief and restitution in the matter of Michael Pierce, Patrick Gould, individually and on behalf of all others similarly situated v. Rosetta Stone Ltd.
and DOES 1 to 50. The complaint alleges that plaintiffs and other persons similarly situated who are or were employed as salaried managers by us in our
retail locations in California are due unpaid wages and other relief for our violations of state wage and hour laws. Plaintiffs moved to amend their complaint to
include a nationwide class in January 2011. In March 2011, the case was removed to the United States District Court for the Northern District of California.
In November 2011, the parties agreed to a mediator’s proposed settlement terms, and as a result, as of September 30, 2011, we reserved $0.6 million for the
proposed settlement amount. We dispute the plaintiffs’ claims and have not admitted any wrongdoing with respect to the case. In September 2013, the court
entered a final order directing payment of the $0.6 million settlement amount and in October 2013, the Company paid this amount in final settlement of the
lawsuit.
In June 2011, Rosetta Stone GmbH was served with a writ filed by Langenscheidt KG (“Langenscheidt”) in the District Court of Cologne, Germany
alleging trademark infringement due to Rosetta Stone GmbH’s use of the color yellow on its packaging of its language-learning software and the advertising
thereof in Germany. In January 2012, the District Court of Cologne ordered an injunction of Rosetta Stone GmbH’s use of the color yellow in packaging, on its
website and in television commercials and declared Rosetta Stone liable for damages, attorneys’ fees and costs to Langenscheidt. No dollar amounts have been
specified yet for the award of damages by the District Court of Cologne. In its decision, the District Court of Cologne also ordered the destruction of Rosetta
Stone GmbH’s product and packaging which utilized the color yellow and which was deemed to have infringed Langenscheidt’s trademark. The Court of
Appeals in Cologne affirmed the District Court's decision. Langenscheidt has not posted the necessary bond to immediately enforce that decision. We
commenced a separate proceeding for the cancellation of Langenscheidt’s German trademark registration of yellow as an abstract color mark. In June 2012, the
German Patent and Trademark Office rendered a decision in the cancellation proceeding denying our request to cancel Langenscheidt’s German trademark
registration. We have filed appeals of the decisions in both cases to the German Federal Supreme Court on the grounds of law. We cannot predict the timing and
ultimate outcome of this matter, however, we believe the range of possible loss is immaterial to our financial statements. Even if the plaintiff is unsuccessful in
its claims against us, we will incur legal fees and other costs in the defense of these claims and appeals.