Chegg 2014 Annual Report Download - page 117

Table of Contents
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Department of Revenue's tax assessments against Chegg and further vacating all penalties and interest. The Kentucky
Department of Revenue has appealed the Circuit Court ruling. 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, 2014.
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;
• All of our outstanding convertible preferred stock warrants were automatically converted into warrants to purchase
1,118,282 shares of our common stock (see Note 10);
• We reclassified our outstanding preferred stock warrant liability to additional paid-in capital and recorded a gain of
$3.3 million, which occurred on the closing of our IPO (see Note 10);
• We recognized share-based compensation expense related to the vesting of RSUs granted prior to the IPO that were
outstanding as of the IPO date (see Note 14); and
• We granted 931,791 options and 472,644 RSUs under our Designated IPO Equity Incentive Program (see Note 14).
Upon conversion of our preferred stock outstanding we issued 11,667,254 shares of our common stock in the form of a
deemed stock dividend to the holders of our Series D and Series E convertible preferred stock, valued at approximately $102.6
million. The terms of our Series D and Series E convertible preferred stock provided that the ratio at which shares of such
series of preferred stock would automatically convert into shares of common stock upon the completion of our IPO would
increase if the IPO was below approximately $26 per share. Because the offering price was below the indicated conversion
threshold price for the Series D and Series E convertible preferred stock, the conversion ratio for such series of preferred stock
was adjusted, which resulted in additional shares of our common stock being issued in the form of a deemed stock dividend
upon conversion of our Series D and Series E preferred stock.
During 2012, we repurchased and retired 318,793 shares of common stock from certain current and former employees
related to our acquisitions at purchase prices ranging between $0.001 and $12.00 per share. The aggregate purchase price was
approximately $3.4 million.
We are authorized to issue 400.0 million shares of common stock, with a par value per share of $0.001. As of
December 31, 2014, we have reserved the following shares of common stock for future issuance (in thousands):