Chegg 2013 Annual Report Download - page 135

CHEGG, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
claims. We may, from time to time, also be subject to various legal or government claims, disputes, or
investigations. Such matters may include, but not be limited to, claims, disputes, or investigations related to
warranty, refund, breach of contract, employment, intellectual property, government regulation, or compliance or
other matters.
In July 2010, the Kentucky Tax Authority issued a property tax assessment of approximately $1.0 million
related to our textbook library located in our Kentucky warehouse for the 2009 and 2010 tax years under audit. In
March 2011, we filed a protest with the Kentucky Board of Tax Appeals that was rejected in March 2012. In
September 2012, we filed a complaint seeking declaratory rights against the Commonwealth of Kentucky in the
Bullitt Circuit Court of Kentucky, and that case was subsequently dismissed in favor of administration remedies
with the Kentucky Tax Authority. We received a final Notice of Tax due in October 2012 from the Kentucky Tax
Authority and we appealed this notice in November 2012 with the Kentucky Board of Tax Appeals. In May
2013, we presented an Offer in Judgment to the Tax Authority of approximately $150,000, excluding tax and
penalties, an amount that we have accrued for the two years under audit. We accrued this amount as of
December 31, 2012. We appealed to the Kentucky Board of Tax Appeals on July 23, 2013 and the Board issued a
ruling in favor of the Department of Revenue on January 13, 2014. On February 7, 2014, we filed an appeal to
the Franklin Circuit Court in Kentucky. Due to the preliminary status and uncertainties related to this matter, we
are unable to evaluate the likelihood of either a favorable or unfavorable outcome. We believe that it is
reasonably possible that we will incur a loss; however, we cannot currently estimate a range of any possible
losses we may experience in connection with this case. Accordingly, we are unable at this time to estimate the
effects of this matter on our financial condition, results of operations, or cash flows.
We are not aware of any other pending legal matters or claims, individually or in the aggregate, that are
expected to have a material adverse impact on our consolidated financial position, results of operations, or cash
flows. However, our analysis of whether a claim may proceed to litigation cannot be predicted with certainty, nor
can the results of litigation be predicted with certainty. Nevertheless, defending any of these actions, regardless
of the outcome, may be costly, time consuming, distract management personnel, and have a negative effect on
our business. An adverse outcome in any of these actions, including a judgment or settlement, may cause a
material adverse effect on our future business, operating results, and/or financial condition.
Note 12. Guarantees and Indemnifications
We have agreed to indemnify our directors and officers for certain events or occurrences, subject to certain
limits, while such persons are or were serving at our request in such capacity. We may terminate the
indemnification agreements with these persons upon termination of employment, but termination will not affect
claims for indemnification related to events occurring prior to the effective date of termination. We have a
directors’ and officers’ insurance policy that limits our potential exposure up to the limits of our insurance
coverage. In addition, we also have other indemnification agreements with various vendors against certain
claims, liabilities, losses, and damages. The maximum amount of potential future indemnification is unlimited.
We believe the fair value of these indemnification agreements is minimal. We have not recorded any
liabilities for these agreements as of December 31, 2013.
Note 13. Convertible Preferred Stock and Common Stock
In November 2013, we completed our IPO, whereby 14,400,000 share of common stock were sold to the
public at a price of $12.50 per share. We received net proceeds of $162.9 million after deducting underwriting
discounts and commissions of $12.6 million and incurred offering costs of $4.5 million. In connection with our IPO:
• All of our outstanding shares of convertible preferred stock were automatically converted into
53,912,261 shares of our common stock;
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