Shutterfly 2009 Annual Report Download - page 92

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SHUTTERFLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Indemnifications
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representation and warranties
and provide for general indemnifications. The Company’
s exposure under these agreements is unknown because it involves future claims that
may be made against the Company, but have not yet been made. To date, the Company has not paid any claims or been required to defend any
action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification
obligations.
Contingencies
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The
Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably
estimated.
Line of Credit
In April 2008, the Company entered into a line of credit facility (the “Facility”)
with JPMorgan Chase Bank, N.A. The Facility is a $20.0
million 364-
day revolving line of credit, and is collateralized by substantially all of the assets of the Company. The Company will use amounts
borrowed under the Facility, if any, to finance the company’
s working capital needs and for general corporate purposes, including future
acquisitions. As of December 31, 2008, the Company has not drawn on the line of credit. The Company incurred $236,000 of Facility origination
costs which have been capitalized within prepaid expenses and are being amortized over the 12 month term of the Facility.
Legal Matters
On or about June 18, 2007, Fotomedia Technologies, LLC (“Fotomedia”)
filed suit in the United States District Court for the Eastern
District of Texas, against the Company and several other defendants alleging infringement of U.S. Patent Nos. 6,018,774; 6,542,936 B1; and
6,871,231 B2. Fotomedia seeks unspecified damages, costs, interest and attorneys’
fees, and a permanent injunction. Fact discovery is currently
open, and the court has set May 28, 2009, as the date for the claims construction hearing, and set November 2, 2009, as the date for trial.
On or about February 5, 2008, Parallel Networks, LLC filed a lawsuit in the United States District Court for the Eastern District of Texas,
against the Company and several other defendants alleging patent infringement. The Parallel Networks complaint seeks unspecified damages,
costs, interest and attorneys’
fees, and an injunction against all parties. The Company filed an answer to the complaint on April 29, 2008. On
July 14, 2008, the Company and other defendants filed a motion to stay the lawsuit pending the reexamination of the patents-in-
suit by the
United States Patent and Trademark Office. On December 23, 2008 that motion was denied. On January 12, 2009, the court entered a revised
Agreed Docket Control order setting a schedule for deadlines in the case. Under that schedule, the claims construction hearing would be held on
August 13, 2009, and trial would be held in March 2010.
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