Shutterfly 2008 Annual Report Download - page 27

ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES.
We maintain our corporate headquarters in Redwood City, California in a leased facility of approximately 60,420 square feet. The lease for this facility expires on May 31, 2010.
We maintain our West-
coast production and fulfillment operations in Hayward, California in leased facilities totaling approximately 71,708 square feet. Leases for these
facilities expire between September 30, 2009 and July 31, 2010. We have an option to extend these leases for five years and a first right of refusal to lease any immediately adjacent
contiguous space.
We maintain our East-
coast production and fulfillment operations in Charlotte, North Carolina in leased facilities totaling approximately 102,400 square feet. The lease for the
facility commenced on the May 31, 2007, and continues through 2014. We have an option to extend the lease for three additional periods of either three or five years in length, and first
rights of refusal to lease space in certain adjacent buildings.
We have certain temporary office space in Mesa, Arizona in leased facilities totaling approximately 1,000 square feet. The lease for the facility commenced on September 26,
2007 and expires on September 30, 2008.
We believe that our existing facilities are adequate to meet our needs through the first half of 2008, although we expect to require additional corporate facilities to handle future
growth. We believe that suitable additional space will be available in the future on commercially reasonably terms as needed.
ITEM 3. LEGAL PROCEEDINGS.
On August 29, 2006, our former Chief Financial Officer, Virender Ahluwalia, sued us in San Mateo County Superior Court alleging causes of action for reformation of contract,
breach of contract and breach of fiduciary duty. The plaintiff claimed that he was entitled to exercise stock options for an additional 15,535 shares of our common stock because his
vesting schedule should have been deemed to have started one year earlier than the date stated in our corporate records. In addition, the plaintiff claimed that the we initially did not
advise him that withholding taxes were due at the time of exercise of his nonqualified stock options to purchase 292,674 shares of common stock in 2005, but that we later modified
that tax advice, extended his option exercise date, and required that he make provision for the applicable withholding taxes at the time of exercise of such options. The plaintiff claimed
he was damaged by having to immediately sell a portion of those shares upon his exercise in order to raise the funds necessary to pay applicable withholding taxes. He also claimed that
the calculation of the fair market value of the shares for the purpose of calculating his tax liability was improper. The plaintiff was seeking compensatory and punitive damages. The
case was stayed and sent to binding arbitration, and following a hearing on the legal issues and an evidentiary hearing, the Arbitrator issued a Final Award on November 16, 2007
finding us not liable and dismissed all claims brought by Mr. Ahluwalia.
On or about June 18, 2007, Fotomedia Technologies, LLC filed suit in the United States District Court for the Eastern District of Texas against us and several other defendants
alleging patent infringement. The Fotomedia Complaint sought unspecified damages, costs, interest and attorneys’
fees, and a permanent injunction. In lieu of answering the
Fotomedia Complaint, we moved to dismiss it under Rule 12 of the Federal Rules of Civil Procedure, by joining in a motion to the same effect filed by co-
defendant Photobucket.com,
Inc. While the motion was pending and not yet decided, on or about November 6, 2007, Fotomedia filed an Amended Complaint. The Amended Complaint likewise alleges
infringement of the same patents and seeks unspecified damages, costs, interest and attorneys’
fees, and a permanent injunction. However, the amended complaint dropped the
allegations of willful infringement against us in connection with one of the patents-at-
issue. Defendants moved to dismiss the Amended Complaint as well. The motion at this time is
fully briefed but has not yet been ruled upon. As such, we have not yet been required to file an answer or other responsive pleading. On January 8, 2008, the court held a status
conference and set May 28, 2009, as the date for the claims construction hearing, and set November 2, 2009 as the date for trial. Subsequently, the parties agreed upon and submitted
orders that establish a case schedule, which the court entered on February 29, 2008.
On or about February 5, 2008, Parallel Networks, LLC filed a lawsuit in the Eastern District of Texas against the Company and other companies alleging patent
infringement. The Parallel Networks Complaint seeks damages of an unspecified amount, attorneys’
fees, and an injunction against all parties. We have not yet answered or otherwise
responded to the complaint.
In addition, in the ordinary course of our business, we are subject to periodic lawsuits, investigations and claims. Although we cannot predict with certainty the ultimate resolution
of lawsuits, investigations and claims asserted against us, we do not believe that any other currently pending legal proceeding to which we are a party is likely to harm our business,
results of operations, cash flows or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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