Juno 2014 Annual Report Download - page 127

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Table of Contents
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
certain Attorneys General of the Multistate Work Group may file litigation against Classmates, Inc. and, in the event of litigation,
Classmates, Inc. intends to vigorously defend itself.
•In 2011, Classmates, Inc. received a civil investigative demand from the Attorney General for the State of Washington regarding its marketing,
refund, cancelation, and renewal practices. Prior to that, in 2009, Classmates, Inc. had received a civil investigative demand from the Attorney
General for the State of Washington regarding certain post-transaction sales practices in which it had previously engaged with certain third-
party vendors. In 2012, the Attorney General for the State of Washington joined the aforementioned Multistate Work Group. The Company
believes that by joining the Multistate Work Group, the Attorney General's investigation may have been consolidated into the Multistate
Work Group's inquiry.
Prior to the completion of the FTD Spin-Off Transaction, the Company and FTD Companies, Inc. entered into a Separation and Distribution Agreement
(the "Separation Agreement"). The Separation Agreement addresses, among other things, the control and settlement of certain litigation matters that relate to
the Company (and certain subsidiaries) and FTD Companies, Inc. (and certain subsidiaries), including the ongoing matters relating to the Multistate Work
Group. The Separation Agreement also provides for the allocation of liabilities and expenses between the Company and FTD Companies, Inc. with respect to
these matters. It also establishes procedures with respect to claims subject to indemnification, insurance claims and related matters.
The Company cannot predict the outcome of these or any other governmental investigations or other legal actions or their potential implications for its
business. In addition, the Company, at times, has negotiated resolutions related to certain governmental investigations. For example, in 2010,
Classmates, Inc. (then known as Classmates Online, Inc.) paid $960,000 to resolve an investigation of the Attorney General for the State of New York related
to its former post-transaction sales practices; and in July 2013, Classmates, Inc. (formerly known as Memory Lane, Inc.) paid $300,000 to resolve an
investigation of the Attorney General for the District of Columbia related to its former post-transaction sales practices. There are no assurances that additional
governmental investigations or other legal actions will not be instituted in connection with the Company's former post-transaction sales practices or other
current or former business practices.
The Company records a liability when it believes that it is both probable that a loss will be incurred, and the amount of loss can be reasonably estimated.
The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously accrued, and
makes adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount. The Company may be unable to
estimate a possible loss or range of possible loss due to various reasons, including, among others: (i) if the damages sought are indeterminate; (ii) if the
proceedings are in early stages; (iii) if there is uncertainty as to the outcome of pending appeals, motions, or settlements; (iv) if there are significant factual
issues to be determined or resolved; and (v) if there are novel or unsettled legal theories presented. In such instances, there is considerable uncertainty
regarding the ultimate resolution of such matters, including a possible eventual loss, if any. At December 31, 2014, the Company had reserves totaling
$8.2 million for estimated losses related to certain of the matters noted above. With respect to the legal matters described above, excluding the Multistate
Work Group's inquiry of Classmates, Inc., the Company has determined, based on its current knowledge, that the amount of possible loss or range of loss,
including
F-45