The
information in this preliminary prospectus supplement is not
complete and may be changed. This preliminary prospectus
supplement and the accompanying prospectus are not an offer to
sell these securities nor are we soliciting offers to buy these
securities in any place where the offer or sale is not
permitted.
|
Filed Pursuant to Rule 424(b)(3)
File No. 333-173953
|
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PROSPECTUS
SUPPLEMENT (Subject to Completion)
|
Issued May 5, 2011
|
(To
Prospectus dated May 5, 2011)
3,750,000 Shares
COMMON STOCK
The selling stockholders identified in this prospectus
supplement are offering 3,750,000 shares of our common
stock. The selling stockholders will receive all net proceeds
from the sale of the shares of our common stock in this
offering.
Our common stock is listed on The Nasdaq Global Select
Market under the symbol ACOM. On May 5, 2011, the last sale
price of the shares on The Nasdaq Global Select Market was
$41.29 per share.
Investing in the common stock involves
risks. See Risk Factors beginning on page
S-12.
PRICE
$
A SHARE
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Underwriting
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Proceeds to
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Price to
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Discounts and
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Selling
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Public
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Commissions
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Stockholders
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Per Share
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$
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$
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$
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Total
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$
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$
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$
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Certain of the selling stockholders have granted the
underwriters the right to purchase an additional
562,500 shares of common stock to cover over-allotments. We
expect to enter into an agreement with the selling stockholders,
including our chief executive officer Timothy Sullivan and
affiliates of Spectrum Equity Investors V, L.P., to
repurchase approximately $25 million worth of our common
stock,
or shares,
directly from the selling stockholders in a private,
non-underwritten transaction at a price per share equal to the
net proceeds per share the selling stockholders receive in this
offering.
The Securities and Exchange Commission and state securities
commission have not approved or disapproved these securities, or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of common stock to
purchasers on May , 2011.
|
|
MORGAN
STANLEY
|
BofA MERRILL LYNCH
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ALLEN &
COMPANY LLC
|
CITI
|
PIPER JAFFRAY
|
,
2011.
TABLE OF
CONTENTS
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Page
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PROSPECTUS SUPPLEMENT
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S-1
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S-6
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S-12
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S-31
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S-32
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S-32
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S-32
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S-33
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S-38
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S-43
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S-43
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PROSPECTUS
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For investors outside the United States: Neither we, the
selling stockholders nor any of the underwriters have done
anything that would permit this offering or possession or
distribution of this prospectus supplement, the accompanying
prospectus and any related free writing prospectus in any
jurisdiction where action for that purpose is required, other
than in the United States. You are required to inform yourselves
about and to observe any restrictions relating to this offering
and the distribution of this prospectus supplement, the
accompanying prospectus and any related free writing
prospectus.
i
ABOUT
THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus
supplement, including the documents incorporated by reference,
which contains information about us and specific information
about the selling stockholders and the terms on which the
selling stockholders are offering and selling our common stock.
The second part is the accompanying prospectus dated May 5,
2011, which contains and incorporates by reference important
business and financial information about us and other
information about the offering.
You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus or in any related free writing
prospectus. We have not, and the underwriters have not,
authorized anyone to provide you with different information. If
anyone provides you with different or inconsistent information,
you should not rely on it. We are not, and the underwriters are
not, making an offer to sell the common stock in any
jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus
supplement, the accompanying prospectus and the documents
incorporated by reference in either this prospectus supplement
or the accompanying prospectus is accurate only as of their
respective dates. Our business, financial condition, results of
operations and prospects may have changed since those dates.
This prospectus supplement may add, update or change information
contained in the accompanying prospectus. To the extent that any
statement that we make in this prospectus supplement is
inconsistent with statements made in the accompanying prospectus
or any documents incorporated by reference therein, the
statements made in this prospectus supplement will be deemed to
modify or supersede those made in the accompanying prospectus
and such documents incorporated by reference therein.
Before you invest in our common stock, you should carefully read
the registration statement (including the exhibits thereto) of
which this prospectus supplement and the accompanying prospectus
form a part, this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference into this
prospectus supplement and accompanying prospectus as described
in the sections of the accompanying prospectus under the
captions Where You Can Find Additional Information
and Incorporation of Certain Information by
Reference.
Unless the context indicates otherwise, the terms
Ancestry.com, Company, we
and our in this prospectus supplement refer to
Ancestry.com Inc. and its consolidated subsidiaries.
ii
PROSPECTUS
SUMMARY
This summary highlights selected information contained in, or
incorporated by reference into, this prospectus supplement and
the accompanying prospectus and does not contain all of the
information that you should consider in making your investment
decision. You should read this summary together with the more
detailed information appearing elsewhere in this prospectus
supplement, as well as the information in the accompanying
prospectus and in the documents incorporated by reference into
this prospectus supplement or the accompanying prospectus. You
should carefully consider, among other things, the matters
discussed in the sections titled Risk Factors on
page
S-12
of
this prospectus supplement.
ANCESTRY.COM
INC.
Mission
Ancestry.coms mission is to help everyone discover,
preserve and share their family history.
Overview
Ancestry.com is the worlds largest online family history
resource, with over 1.6 million paying subscribers around
the world as of March 31, 2011. We have been a leader in
the family history market for over 20 years and have helped
pioneer the market for online family history research. We
believe that most people have a fundamental desire to understand
who they are and from where they came, and that anyone
interested in discovering, preserving and sharing their family
history is a potential user of Ancestry.com. We strive to make
our service valuable to individuals ranging from the most
committed family historians to those taking their first steps
towards satisfying their curiosity about their family stories.
The foundation of our service is an extensive and unique
collection of billions of historical records that we have
digitized, indexed and put online over the past 14 years.
Our subscribers use our proprietary online platform, extensive
digital historical record collection, and easy-to-use technology
to research their family histories, build their family trees,
collaborate with other subscribers, upload their own records and
publish and share their stories. We offer our service on a
subscription basis, typically annually or monthly. These
subscribers are our primary source of revenue. We charge each
subscriber for their subscription at the commencement of their
subscription period and at each renewal date. Monthly
subscribers recently have become an increasing proportion of our
subscribers, although a majority of our subscribers continue to
subscribe on an annual basis. We provide ongoing value to our
subscribers by regularly adding new historical content,
enhancing our Web sites with new tools and features and enabling
greater collaboration among our users through the growth of our
global community.
Our goal is to remain the leading online resource for family
history and to grow our subscriber base in the United States and
around the world by offering a superior value proposition to
anyone interested in learning more about their family history.
We have focused on, and will continue to focus on, retaining our
loyal base of existing subscribers, on acquiring new subscribers
and on expanding the market to new consumers. We believe our
previous investments in technology and content have provided a
foundation for a scalable business model that will help us to
increase our margins over the long term and effectively manage
our costs as our business grows. However, we expect to continue
to devote substantial resources and funds to improving our
technologies and product offerings, acquiring new and relevant
content and talent, and expanding the awareness of our brand and
category through global marketing, any of which may adversely
affect our margin expansion in the near term.
Industry
Background
Societies around the world have historically documented the
names, dates and places associated with important events of
their citizenry. However, due to the vast, dispersed and
disorganized nature of these data collections, the process of
researching family history generally has been time consuming,
painstaking and expensive. The introduction of Web-based
technologies greatly enhances opportunities to make family
history research easier, but businesses attempting to leverage
the Internet must tailor their products and services to address
the distinctive challenges of family history research.
S-1
The
Ancestry.com Solution
Through the design and development of a unique consumer Internet
application and underlying proprietary technologies, substantial
investment in content and the aggregation of network scale, we
are revolutionizing how people discover, preserve and share
their family history. Our solution includes:
Consumer
Benefits
Easy-to-Use
Web Site.
Our technology platform makes family
history research and networking easier, more enjoyable and more
rewarding. We seek to make Ancestry.com relevant and easy to use
for both new and experienced subscribers, and we continue to
advance our online tools to help our subscribers efficiently
search our content, organize their research, collaborate with
others and share their stories.
Easy Access to Comprehensive Data Sources.
We
have aggregated and organized a comprehensive collection of
historical records, with particular emphasis on records from the
United States, the United Kingdom, Canada and Australia. Our
technologies allow subscribers to locate relevant family history
records quickly and easily, resulting in a rewarding experience
for new subscribers and experienced family historians alike.
Subscribers input information that they know about their
relatives, however limited, and can immediately view the vast
content sources available to populate their family trees. Our
proprietary record hinting technology suggests content to our
subscribers, alerting them through hints delivered
online and by email of potential matches to further populate
their trees from our company-acquired and user-generated
content. We believe that these personalized hints can
substantially advance our subscribers research quickly and
effectively, thereby making their experience more rewarding.
Valuable Community.
Our community of family
history enthusiasts is a significant component of our
subscription value proposition. Our subscribers can collaborate,
contribute content and assist each other with family history
research. The publicly available family trees created by our
registered users can provide new subscribers with a substantial
head start researching their families and the opportunity to
connect with relatives interested and engaged in the discovery
and preservation of a shared family lineage.
Competitive
Advantages
Proprietary Technology Platform Provides Robust Search
Capability and Ease of Use.
We have built a
scalable, proprietary technology platform. Our search technology
is designed to deal with the inherent difficulties of searching
historical content. Our record hinting technology uses a
real-time algorithmic analysis to locate and push relevant
content to our registered users. Our digitization and indexing
processes streamline the complex and time-consuming task of
putting historical records online. Our Web site technology makes
it easy for registered users to upload their own records to
their family trees, thereby making those records searchable by
others.
Extensive and Accessible Content
Collection.
We have digitized and indexed the
largest online collection of family history records in the
world, with collections from the United States, the United
Kingdom, Canada and Australia, as well as Sweden, Germany,
France, Italy and China. We have invested over $100 million
and continue to invest a substantial amount of time and money to
acquire or license, digitize, index and publish additional
records for our subscribers. In total, our collections represent
over six billion records. We have amassed a large collection of
national, state, local and private historical records, including
census, birth, marriage, death, immigration, naturalization,
court, probate, land and military records, as well as
directories and member lists, historic maps, slave narratives,
family and local histories and newspapers and periodicals.
Community of Dedicated and Highly Engaged Subscribers
Enhances Our Value Proposition.
We have an active
and dedicated community of subscribers. We believe our online
community is highly valuable to our subscribers, because the
ever expanding pool of user-generated content and collaboration
and sharing opportunities can significantly enhance the family
history research process. Our registered users have created over
24 million family trees containing over 2.4 billion
profiles. They have uploaded and attached to their trees over
60 million photographs, scanned documents and written
stories. Users have made over 85% of the trees on our Web sites
available to other users, along with associated user-generated
content, offering many subscribers
S-2
a substantial head start in their family history research by
allowing them to review information collected by registered
users with common ancestry. In addition, our subscribers have
attached over 900 million records to their family trees
from our company-acquired content collection, a process that is
helping further organize this collection by associating specific
records with people in family trees. We believe that as our
network of registered users grows, and more registered users
submit content and connect with each other to share their
findings, our value proposition to our subscribers will increase.
Growth
Strategy
Our goal is to remain the leading online resource for family
history and to grow our subscriber base in the United States and
around the world by offering a superior value proposition to
anyone interested in learning more about their family history.
Our plan to achieve long-term and sustainable growth is to
increase our subscriber base in the United States and around the
world by serving our loyal base of existing subscribers, by
attracting new subscribers and by expanding the market to new
consumers. In pursuit of these goals, we will continue to focus
on the following objectives:
Continue to Build Our Premium Brand and Drive Category
Awareness.
We continue to expand and improve our
consumer marketing activities in the United States, which we
believe have substantially increased our brand awareness. As
part of our marketing efforts, we have purchased product
integration for the third season of the television show
Who Do You Think You Are? in the United States,
which currently is scheduled to air on NBC in the 2011-2012
season. We believe that the program will continue to increase
awareness of the family history category and our brand. We
believe that continued investments in broadcast media and
consumer marketing will allow us to enhance our premium brand,
increase awareness of the family history category and enhance
our ability to acquire new subscribers.
Further Improve Our Product and User
Experience.
We believe that investments in our
product platform can make family history research easier, more
enjoyable and more accessible. We continuously seek to advance
and improve our core search and hinting technologies, our
document image viewer, our family tree building and viewing
experience and our sharing and publishing capabilities. We
believe that we can leverage the latest Web technologies to
further transform the way people discover family history online.
Regularly Add New Content.
A vast universe of
historical records around the world is yet to be digitized, and
we intend to continue to expand our collection of digital
historical records. We will seek to maintain and extend our
existing relationships with archives and other holders of
content throughout the world and to find new sources of unique
family history content. We also plan to continue to promote the
growth of user-generated content by making the Ancestry.com Web
sites even better places to upload and share personal family
history documents and memories.
Enhance Our Collaboration Technologies.
With
over 1.6 million subscribers around the world as of
March 31, 2011, we believe that we have the scale to
further expand our unique family history collaboration network
and to help relatives share insights and discoveries about
common ancestors. We believe that collaboration is a fundamental
part of family history research and that social networking
technologies applied to family history research can provide our
subscribers with even greater value. We intend to make family
history research more collaborative and appealing to a larger
market.
Grow Our Business Internationally.
We have
well-established and growing businesses in the United States,
the United Kingdom, Australia and Canada. We believe that our
business model of digitizing historical content and making
records available online has appeal in multiple markets around
the world, and we will seek to implement this model in other
international markets, as we have recently done with our
acquisition of Genline AB, owner and operator of the Swedish
family history Web site Genline.se. We continue to invest in
Mundia.com, our global,
multi-language
family history networking service, to build our international
growth. We will continue to seek to implement our business model
in other international markets.
We believe our previous investments in technology and content
have provided a foundation for a scalable business model that
will help us to increase our margins over the long term and
effectively manage our costs while
S-3
growing our business. However, we expect to continue to devote
substantial resources and funds to improving our technologies
and service offerings and acquiring new and relevant content,
and also to expanding awareness of our brand and category
through marketing, which may reduce our margins in the near term.
Risks
Associated with Our Business
Our business is subject to numerous risks and uncertainties, as
discussed more fully in the section entitled Risk
Factors immediately following this prospectus summary. We
generate substantially all of our revenue from subscriptions to
our services. We must continue to retain existing and attract
new subscribers. If our efforts to satisfy our existing
subscribers are not successful, we may not be able to retain
them, and as a result, our revenues would be adversely affected.
We face competition from a number of sources, some of which
provide genealogical records free of charge. Because we depend
upon our online family history services for substantially all of
our revenue, factors such as changes in consumer preferences for
these products may have a disproportionately greater impact on
us than if we offered multiple services. Our efforts to grow
internationally may prove difficult due to, among other things,
different and conflicting legal and regulatory regimes, cultural
differences and technical difficulties and costs associated with
the localization of our service offerings. Additionally, our
recent performance may not be sustainable.
Other
Information
Our principal executive offices are located at 360 West
4800 North, Provo, UT 84604, and our telephone number at that
address is
(801) 705-7000.
Our corporate Web site address is
http://
corporate.ancestry.com
.
The contents of our Web sites are not incorporated in, or
otherwise to be regarded as part of, this prospectus. We were
originally incorporated in Utah in 1983 under the name Ancestry,
Inc. We changed our name to Ancestry.com, Inc. in July 1998 and
reincorporated in Delaware in November 1998. Our name was
subsequently changed to MyFamily.com, Inc. in November 1999, and
then to The Generations Network, Inc. in November 2006.
In July 2009, to better align our corporate identity with the
premier branding of Ancestry.com, we changed our name to
Ancestry.com Inc. References herein to Ancestry.com,
the company, we, our and
us refer to the operations of Ancestry.com Inc. and
its consolidated subsidiaries in both the predecessor and
successor periods, unless otherwise specified. We are a holding
company, and substantially all of our operations are conducted
by our wholly-owned subsidiary Ancestry.com Operations Inc.,
which we refer to as the operating company, and its subsidiaries.
Our investor relations Web site is located at
http://
ir.ancestry.com
.
We make available, free of charge, on our investor relations Web
site under Financials/SEC Filings, our Annual
Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to these reports as soon as reasonably
practicable after electronically filing or furnishing those
reports to the Securities and Exchange Commission, or SEC.
Terminology
In this prospectus we use the terms subscriber, registered user,
Ancestry.com Web sites, record and database.
A subscriber is an individual who pays for renewable access or
redeems a gift subscription to one of our Ancestry.com Web
sites, and a registered user is a person who has registered on
one of our Ancestry.com Web sites, and includes subscribers. Our
operations consist primarily of our flagship Web site
Ancestry.com, which is part of a global family of Web sites that
includes Ancestry.co.uk, Ancestry.com.au, Ancestry.ca,
Ancestry.de, Ancestry.fr, Ancestry.it, and Ancestry.se. We refer
to these Web sites collectively as the Ancestry.com Web sites.
We use the term record in different ways depending
on the content source. When referring to a number of records in
certain of our company-acquired content collections, such as a
census record, we mean information about each specific person.
For example, a draft card will typically be counted as one
record, as will each line in a census, because each contains
information about a specific individual. When referring to
unstructured data, such as a newspaper, we define each page in
those data sources as a record. When referring to a number of
databases, we mean groups of records we have distinguished as
unique sets based on one or more common characteristics shared
by the records in each set, such as a common time period, place
or subject matter.
S-4
THE
OFFERING
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Common stock offered by the selling stockholders
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3,750,000 shares
|
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Total common stock to be outstanding after this offering
|
|
46,106,940 shares
|
|
Over-allotment option
|
|
562,500 shares
|
|
Use of proceeds
|
|
The selling stockholders will receive all of the net proceeds
from the offering and we will not receive any proceeds from the
sale of shares in this offering. See Use of Proceeds.
|
|
Risk factors
|
|
See Risk Factors for a discussion of factors that
you should consider carefully before deciding whether to
purchase shares of our common stock.
|
|
Exercise of certain options
|
|
Certain options granted to our chief executive officer, Timothy
Sullivan, under our existing equity incentive plans to purchase
226,087 shares (260,000 shares if the
underwriters over-allotment option is exercised in full)
of our common stock, will be exercised by Mr. Sullivan to
acquire shares being sold in the offering.
|
|
Nasdaq Global Select Market symbol
|
|
ACOM
|
We expect to enter into an agreement with the selling
stockholders, including our chief executive officer, Timothy
Sullivan, and affiliates of Spectrum Equity Investors V,
L.P., to repurchase approximately $25.0 million worth of
common stock,
or shares,
directly from the selling stockholders in a private,
non-underwritten transaction at a price per share equal to the
net proceeds per share the selling stockholders receive in this
offering. We expect to fund the repurchase using cash on hand
and $ million in borrowings under
our credit facility.
We expect to incur non-recurring professional fees and costs of
approximately $1 million in connection with this offering,
which will negatively affect our adjusted EBITDA for the quarter
ended June 30, 2011 and the full year ending
December 31, 2011.
This offering will not result in the dilution of shares
currently outstanding. The number of shares outstanding after
the offering does not reflect shares we expect to repurchase
from the selling stockholders upon the completion of this
offering. After the offering and after giving effect to our
repurchase
of shares
of our common stock from the selling stockholders, there will
be shares
outstanding.
Except as otherwise indicated, all information in this
prospectus:
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assumes that the underwriters will not exercise their option to
purchase 562,500 additional shares from the selling stockholders;
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|
excludes 7,024,348 shares issuable upon the exercise of
options outstanding as of March 31, 2011, including options
that will not be exercised by the selling stockholders, with a
weighted average exercise price of $6.23 per share;
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excludes 782,288 restricted stock units outstanding as of
March 31, 2011; and
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excludes an estimated 4,424,840 shares reserved for
issuance pursuant to future grants of awards under our
2009 Stock Incentive Plan as of March 31, 2011.
|
S-5
SUMMARY
CONSOLIDATED HISTORICAL FINANCIAL AND OTHER DATA
The following tables summarize the consolidated historical
financial and other data for the periods indicated. The summary
consolidated statements of income data presented below for the
years ended December 31, 2010, 2009 and 2008 have been
derived from our consolidated financial statements which have
been audited by Ernst & Young LLP, an independent
registered public accounting firm, and incorporated by reference
from our Annual Report on
Form 10-K
for the year ended December 31, 2010. The summary
consolidated statements of income data for the three month
periods ended March 31, 2011 and 2010 and the balance sheet
data at March 31, 2011 are derived from our unaudited
interim condensed consolidated financial statements incorporated
by reference from our Quarterly Report on
Form 10-Q
for the three months ended March 31, 2011 and include all
adjustments, consisting of normal and recurring adjustments,
that we consider necessary for a fair presentation of the
financial position and results of operations as of and for such
periods. Operating results for the three months ended
March 31, 2011 are not necessarily indicative of the
results that may be expected for the full 2011 fiscal year.
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Three Months
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Ended
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March 31,
|
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Year Ended December 31,
|
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|
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2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands, except per share data)
|
|
|
Consolidated Statements of Income Data:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription revenues
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|
$
|
85,183
|
|
|
$
|
59,560
|
|
|
$
|
281,670
|
|
|
$
|
207,707
|
|
|
$
|
181,391
|
|
Product and other revenues
|
|
|
5,845
|
|
|
|
4,861
|
|
|
|
19,261
|
|
|
|
17,195
|
|
|
|
16,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
91,028
|
|
|
|
64,421
|
|
|
|
300,931
|
|
|
|
224,902
|
|
|
|
197,591
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription revenues
|
|
|
13,887
|
|
|
|
11,501
|
|
|
|
46,409
|
|
|
|
40,183
|
|
|
|
38,187
|
|
Cost of product and other revenues
|
|
|
1,828
|
|
|
|
1,494
|
|
|
|
5,698
|
|
|
|
6,140
|
|
|
|
5,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
15,715
|
|
|
|
12,995
|
|
|
|
52,107
|
|
|
|
46,323
|
|
|
|
43,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
75,313
|
|
|
|
51,426
|
|
|
|
248,824
|
|
|
|
178,579
|
|
|
|
153,977
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and development
|
|
|
13,668
|
|
|
|
9,927
|
|
|
|
42,296
|
|
|
|
36,236
|
|
|
|
33,206
|
|
Marketing and advertising
|
|
|
33,808
|
|
|
|
22,446
|
|
|
|
94,573
|
|
|
|
61,625
|
|
|
|
52,341
|
|
General and administrative
|
|
|
9,357
|
|
|
|
7,742
|
|
|
|
35,390
|
|
|
|
32,540
|
|
|
|
28,931
|
|
Amortization of acquired intangible assets
|
|
|
4,270
|
|
|
|
3,679
|
|
|
|
15,959
|
|
|
|
16,217
|
|
|
|
23,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
61,103
|
|
|
|
43,794
|
|
|
|
188,218
|
|
|
|
146,618
|
|
|
|
138,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
14,210
|
|
|
|
7,632
|
|
|
|
60,606
|
|
|
|
31,961
|
|
|
|
15,720
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(184
|
)
|
|
|
(1,216
|
)
|
|
|
(5,083
|
)
|
|
|
(6,139
|
)
|
|
|
(12,355
|
)
|
Interest income
|
|
|
46
|
|
|
|
63
|
|
|
|
386
|
|
|
|
792
|
|
|
|
872
|
|
Other income (expense), net
|
|
|
31
|
|
|
|
9
|
|
|
|
439
|
|
|
|
21
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
14,103
|
|
|
|
6,488
|
|
|
|
56,348
|
|
|
|
26,635
|
|
|
|
4,229
|
|
Income tax expense
|
|
|
(5,132
|
)
|
|
|
(2,526
|
)
|
|
|
(19,503
|
)
|
|
|
(5,340
|
)
|
|
|
(1,845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8,971
|
|
|
$
|
3,962
|
|
|
$
|
36,845
|
|
|
$
|
21,295
|
|
|
$
|
2,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
$
|
0.09
|
|
|
$
|
0.85
|
|
|
$
|
0.55
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.18
|
|
|
$
|
0.08
|
|
|
$
|
0.76
|
|
|
$
|
0.51
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
25,604
|
|
|
$
|
17,013
|
|
|
$
|
100,974
|
|
|
$
|
71,585
|
(1)
|
|
$
|
62,645
|
|
Free cash flow
|
|
|
18,742
|
|
|
|
11,410
|
|
|
|
60,359
|
|
|
|
29,613
|
(1)
|
|
|
31,712
|
|
Stock-based compensation expense included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of subscription revenues
|
|
$
|
62
|
|
|
$
|
28
|
|
|
$
|
194
|
|
|
$
|
96
|
|
|
$
|
80
|
|
Technology and development
|
|
|
776
|
|
|
|
397
|
|
|
|
2,091
|
|
|
|
1,631
|
|
|
|
1,132
|
|
Marketing and advertising
|
|
|
325
|
|
|
|
68
|
|
|
|
673
|
|
|
|
370
|
|
|
|
254
|
|
General and administrative
|
|
|
562
|
|
|
|
511
|
|
|
|
2,111
|
|
|
|
3,377
|
|
|
|
3,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
1,725
|
|
|
$
|
1,004
|
|
|
$
|
5,069
|
|
|
$
|
5,474
|
|
|
$
|
4,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Income from operations and net
income, and therefore adjusted EBITDA and free cash flow,
include an expense related to a settlement in the third quarter
of 2009 of a claim regarding the timeliness and accuracy of a
content index we created. The settlement resulted in an expense
of approximately $2.3 million in 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subscribers
|
|
|
1,615,169
|
|
|
|
1,211,978
|
|
|
|
1,394,910
|
|
|
|
1,066,123
|
|
|
|
913,683
|
|
Gross subscriber additions
|
|
|
424,531
|
|
|
|
279,100
|
|
|
|
1,023,936
|
|
|
|
673,991
|
|
|
|
556,045
|
|
Monthly
churn
(1)
|
|
|
3.7
|
%
|
|
|
3.3
|
%
|
|
|
3.9
|
%
|
|
|
3.8
|
%
|
|
|
4.0
|
%
|
Subscriber acquisition
cost
(2)
|
|
$
|
69.56
|
|
|
$
|
69.57
|
|
|
$
|
79.19
|
|
|
$
|
72.46
|
|
|
$
|
71.99
|
|
Average monthly revenue per
subscriber
(3)
|
|
$
|
18.05
|
|
|
$
|
16.70
|
|
|
$
|
18.34
|
|
|
$
|
16.55
|
|
|
$
|
16.09
|
|
|
|
|
(1)
|
|
Monthly churn is a measure
representing the number of subscribers that cancel in the
quarter divided by the sum of beginning subscribers and gross
subscriber additions during the quarter. To arrive at monthly
churn, we divide the result by three.
|
|
(2)
|
|
Subscriber acquisition cost is
external marketing and advertising expense, divided by gross
subscriber additions in the period.
|
|
(3)
|
|
Average monthly revenue per
subscriber is total subscription revenues earned in the period
from subscriptions to one of the Ancestry.com Web sites divided
by the average number of subscribers in the period, divided by
the number of months in the period. The average number of
subscribers for the period is calculated by taking the average
of the beginning and ending number of subscribers for the period.
|
|
|
|
|
|
|
|
As of March 31,
2011
|
|
|
|
(in thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
102,263
|
|
Total assets
|
|
|
553,566
|
|
Deferred revenues
|
|
|
109,237
|
|
Total liabilities
|
|
|
171,645
|
|
Total stockholders equity
|
|
|
381,921
|
|
S-7
Definitions
of Other Financial Data
Adjusted EBITDA.
We define adjusted EBITDA as
net income plus net interest expense; income tax expense;
non-cash charges including depreciation, amortization,
impairment of intangible assets and stock-based compensation
expense; and other (income) expense.
Free Cash Flow.
We define free cash flow as
net income plus net interest expense; income tax expense;
non-cash charges including depreciation, amortization,
impairment of intangible assets and stock-based compensation
expense; other (income) expense; minus capitalization of content
database costs, purchases of property and equipment and cash
paid for income taxes and interest.
Discussion
of Other Financial Data
Management believes that adjusted EBITDA and free cash flow are
useful measures of operating performance because they exclude
items that we do not consider indicative of our core
performance. In the case of adjusted EBITDA, we adjust net
income for such things as interest, income taxes, stock-based
compensation and certain non-cash and non-recurring items. Free
cash flow subtracts from adjusted EBITDA the capitalization of
content database costs, purchases of property and equipment and
cash paid for income taxes and interest expense. However, these
financial measures are not prepared in accordance with
accounting principles generally accepted in the United States,
or GAAP, and should be considered in addition to,
not as a substitute for or superior to, net income and net cash
provided by operating activities, or other financial measures
prepared in accordance with GAAP. A reconciliation to net
income, the most directly comparable GAAP financial measure, is
contained in tabular form below.
Our management uses adjusted EBITDA and free cash flow as
measures of operating performance; for planning purposes,
including the preparation of our annual operating budget; to
allocate resources to enhance the financial performance of our
business; to evaluate the effectiveness of our business
strategies; to provide consistency and comparability with past
financial performance; to facilitate a comparison of our results
with those of other companies; and in communications with our
board of directors concerning our financial performance.
Adjusted EBITDA together with revenues has also been used as a
financial performance objective in determining the bonus pool
under our recent performance incentive programs. Management also
uses adjusted EBITDA to evaluate compliance with the financial
ratios in our credit facility, which use EBITDA as a component.
The definition of EBITDA under our credit facility is
substantially similar to our definition of adjusted EBITDA in
this prospectus, and differs primarily because the definition in
the credit facility does not exclude interest income (though it
does exclude interest expense) and other income (expense).
Management believes that the use of adjusted EBITDA and free
cash flow provides consistency and comparability with our past
financial performance, facilitates period to period comparisons
of operations, and also facilitates comparisons with other peer
companies, many of which use similar non-GAAP financial measures
to supplement their GAAP results. Management believes that it is
useful to exclude non-cash charges such as depreciation,
amortization, impairment of intangible assets and acquired
in-process research and development and stock-based compensation
from adjusted EBITDA and free cash flow because (i) the
amount of such non-cash expenses in any specific period may not
directly correlate to the underlying performance of our business
operations and (ii) such expenses can vary significantly
between periods as a result of new acquisitions, full
amortization of previously acquired tangible and intangible
assets or the timing of new stock-based awards, as the case may
be.
More specifically, we believe it is appropriate to exclude
stock-based compensation expense from adjusted EBITDA and free
cash flow because non-cash equity grants made at a certain price
and point in time do not reflect how our business is performing
at any particular time. While we believe that stockholders
should have information about any dilutive effect of outstanding
options and the cost of that compensation, we also believe that
stockholders should have the ability to view the non-GAAP
financial measures that exclude these costs that management uses
to evaluate our business. The determination of stock-based
compensation expense is based on many subjective inputs at a
point in time and many of these inputs are not necessarily
directly related to the performance of our business. Therefore,
excluding this cost gives us a clearer view of the operating
performance of our business. Because of varying available
valuation methodologies, subjective assumptions and the variety
of award types that companies may use under GAAP, as well as the
impact of non-operational factors such as our share price, on
the magnitude of
S-8
this expense, management believes that providing non-GAAP
financial measures that exclude this stock-based compensation
expense allows investors and analysts to make meaningful
comparisons between our operating results with those of other
companies. Stock-based compensation has been a significant
non-cash recurring expense in our business and has been used as
a key incentive offered to our employees. We believe such
compensation contributed to the revenues earned during the
periods presented and also believe it will contribute to the
generation of future period revenues. Stock-based compensation
expense will recur in future periods for GAAP purposes. There
are material limitations to our exclusion of stock-based
compensation from adjusted EBITDA and free cash flow, primarily
that these expenses reduce our GAAP net income. See below for a
further discussion of these limitations on our use of adjusted
EBITDA and free cash flow as an analytical tool, as well as the
manner in which management compensates for these limitations.
We believe it is appropriate to exclude depreciation and
amortization from adjusted EBITDA and free cash flow because
depreciation is a function of our capital expenditures which are
included in our cash flow measure, while amortization reflects
other asset acquisitions made at a point in time and their
associated costs. In analyzing the performance of our business
currently, management believes it is helpful also to consider
the business without taking into account costs or benefits
accruing from historical decisions on infrastructure and
capacity. While these matters do affect the overall financial
health of our company, they are separately evaluated and relate
to historic decisions that do not affect current operations of
our business on a cash flow basis. Further, depreciation and
amortization do not result in ongoing cash expenditures.
Investors should note that the use of assets being depreciated
or amortized contributed to revenues earned during the periods
presented and will continue to contribute to future period
revenues. This depreciation and amortization expense will recur
in future periods for GAAP purposes. There are material
limitations to our exclusion of depreciation and amortization
from adjusted EBITDA and free cash flow, primarily that these
expenses reduce our GAAP net income and the assets being
depreciated or amortized will often have to be replaced in the
future, resulting in future cash requirements. See below for a
further discussion of these limitations on our use of adjusted
EBITDA and free cash flow as an analytical tool, as well as the
manner in which management compensates for these limitations.
We believe it is appropriate to exclude impairment of intangible
assets and acquired in-process research and development from
adjusted EBITDA and free cash flow because these charges relate
to specific past events. In analyzing the performance of our
business currently, management believes it is helpful also to
consider the business without taking into account costs or
benefits accruing from historical decisions or acquisitions.
Further, these charges do not result in ongoing cash
expenditures. There are material limitations to our exclusion of
impairment of intangible assets and in-process research and
design from adjusted EBITDA and free cash flow, primarily that
these expenses reduce our GAAP net income. See below for a
further discussion of these limitations on our use of adjusted
EBITDA and free cash flow as an analytical tool, as well as the
manner in which management compensates for these limitations.
Management believes that it is useful to exclude other income
(expense) from adjusted EBITDA and free cash flow because that
line item consists of items that do not correlate to the
underlying performance of our business, such as retirement and
disposal of non-operating assets and gain or loss on
non-operating investments. There are material limitations to our
exclusion of other income (expense) from adjusted EBITDA and
free cash flow, primarily that these may include cash income or
expense that increase or reduce our GAAP net income. See below
for a further discussion of these limitations on our use of
adjusted EBITDA and free cash flow as an analytical tool, as
well as the manner in which management compensates for these
limitations.
We believe adjusted EBITDA and free cash flow are useful to
investors in evaluating our operating performance because
securities analysts use adjusted EBITDA and free cash flow as
supplemental measures to evaluate the overall operating
performance of companies.
Material
Limitations of Non-GAAP Measures
Although adjusted EBITDA and free cash flow are frequently used
by investors and securities analysts in their evaluations of
companies, adjusted EBITDA and free cash flow each have
limitations as an analytical tool, and you
S-9
should not consider them in isolation or as a substitute for
analysis of our results of operations as reported under GAAP.
Some of these limitations are:
|
|
|
|
|
adjusted EBITDA and free cash flow do not reflect our future
requirements for contractual commitments and adjusted EBITDA
does not reflect our cash expenditures or future requirements
for content database costs, property and equipment;
|
|
|
|
adjusted EBITDA and free cash flow do not reflect changes in, or
cash requirements for, our working capital;
|
|
|
|
adjusted EBITDA does not reflect interest income or interest
expense;
|
|
|
|
adjusted EBITDA does not reflect cash requirements for income
taxes;
|
|
|
|
adjusted EBITDA and free cash flow do not reflect the non-cash
component of employee compensation;
|
|
|
|
although depreciation, amortization and impairment of intangible
assets and acquired in-process research and development are
non-cash charges, the assets being depreciated or amortized will
often have to be replaced in the future, and adjusted EBITDA
does not reflect any cash requirements for these
replacements; and
|
|
|
|
other companies in our industry may calculate adjusted EBITDA or
free cash flow or similarly titled measures differently than we
do, limiting their usefulness as comparative measures.
|
Management compensates for the inherent limitations associated
with using the adjusted EBITDA and free cash flow measures
through disclosure of such limitations, presentation of our
financial statements in accordance with GAAP and reconciliation
of adjusted EBITDA and free cash flow to the most directly
comparable GAAP measure, net income (loss). Further, management
also reviews GAAP measures, and evaluates individual measures
that are not included in adjusted EBITDA such as our level of
capital expenditures, equity issuance and interest expense,
among other measures.
S-10
The following table presents a reconciliation of adjusted EBITDA
and free cash flow to net income, the most comparable GAAP
measure, for each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Reconciliation of adjusted EBITDA and free cash flow to net
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8,971
|
|
|
$
|
3,962
|
|
|
$
|
36,845
|
|
|
$
|
21,295
|
|
|
$
|
2,384
|
|
Interest expense, net
|
|
|
138
|
|
|
|
1,153
|
|
|
|
4,697
|
|
|
|
5,347
|
|
|
|
11,483
|
|
Income tax expense
|
|
|
5,132
|
|
|
|
2,526
|
|
|
|
19,503
|
|
|
|
5,340
|
|
|
|
1,845
|
|
Depreciation expense
|
|
|
3,264
|
|
|
|
2,864
|
|
|
|
11,773
|
|
|
|
10,936
|
|
|
|
10,732
|
|
Amortization expense
|
|
|
6,405
|
|
|
|
5,513
|
|
|
|
23,526
|
|
|
|
23,214
|
|
|
|
30,046
|
|
Stock-based compensation
|
|
|
1,725
|
|
|
|
1,004
|
|
|
|
5,069
|
|
|
|
5,474
|
|
|
|
4,672
|
|
Other (income) expense, net
|
|
|
(31
|
)
|
|
|
(9
|
)
|
|
|
(439
|
)
|
|
|
(21
|
)
|
|
|
8
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
25,604
|
|
|
$
|
17,013
|
|
|
$
|
100,974
|
|
|
$
|
71,585
|
(1)
|
|
$
|
62,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization of content database costs
|
|
|
(5,747
|
)
|
|
|
(2,792
|
)
|
|
$
|
(13,874
|
)
|
|
$
|
(9,398
|
)
|
|
$
|
(8,965
|
)
|
Purchase of property and equipment
|
|
|
(725
|
)
|
|
|
(1,407
|
)
|
|
|
(12,968
|
)
|
|
|
(13,362
|
)
|
|
|
(11,621
|
)
|
Cash paid for interest
|
|
|
(115
|
)
|
|
|
(1,001
|
)
|
|
|
(2,645
|
)
|
|
|
(7,740
|
)
|
|
|
(10,068
|
)
|
Cash paid for income taxes
|
|
|
(275
|
)
|
|
|
(403
|
)
|
|
|
(11,128
|
)
|
|
|
(11,472
|
)
|
|
|
(279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
18,742
|
|
|
$
|
11,410
|
|
|
$
|
60,359
|
|
|
$
|
29,613
|
(1)
|
|
$
|
31,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Income from operations and net
income, and therefore adjusted EBITDA and free cash flow,
include an expense related to settlement in the third quarter of
2009 of a claim regarding the timeliness and accuracy of a
content index we created. The settlement resulted in an expense
of approximately $2.3 million in 2009.
|
S-11
RISK
FACTORS
An investment in our common stock involves a high degree of
risk. You should carefully consider the risks described below
and all of the other information contained in this prospectus
before deciding whether to purchase our stock. Our business,
prospects, financial condition or operating results could be
materially adversely affected by any of these risks, as well as
other risks not currently known to us or that we currently
consider immaterial. The trading price of our common stock could
decline due to any of these risks, and you may lose all or part
of your investment. In assessing the risks described below, you
should also refer to the other information contained in the
prospectus, including our consolidated financial statements and
the related notes, before deciding to purchase any shares of our
common stock.
Risks
Related to Our Business
If our efforts to retain and attract subscribers are not
successful, our revenues will be adversely affected.
We generate substantially all of our revenues from subscriptions
to our services. We must continue to retain existing and attract
new subscribers. If our efforts to satisfy our existing
subscribers are not successful, we may not be able to retain
them, and as a result, our revenues would be adversely affected.
For example, if consumers do not perceive our services to be
reliable, valuable and of high quality, if we fail to regularly
introduce new and improved services, or if we introduce new
services that are not favorably received by the market, we may
not be able to retain existing or attract new subscribers. We
rely on our marketing and advertising efforts to attract new
subscribers and retain existing subscribers. If we are unable to
effectively retain existing subscribers and attract new
subscribers, our business, financial condition and results of
operations would be adversely affected.
The relative service levels, pricing and related features of
competitors to our products and services are some of the factors
that may adversely impact our ability to retain existing
subscribers and attract new subscribers. Some of our current
competitors provide genealogical records free of charge. Some
governments or private organizations may make historical records
available online at no cost to consumers and some commercial
entities could choose to make such records available on an
advertising-supported basis rather than a subscription basis. If
consumers are able to satisfy their family history research
needs at no or lower cost, they may not perceive value in our
products and services. If our efforts to satisfy and retain our
existing subscribers are not successful, we may not be able to
continue to attract new subscribers through
word-of-mouth
referrals. Further, subscriber growth may decrease as a result
of a decline in interest in family history research. Any of
these factors could cause our subscriber growth rate to fall,
which would adversely impact our business, financial condition
and results of operations.
Our recent performance may not be sustainable, which could
negatively affect our stock price or financial condition and
results of operations.
Our revenues have grown rapidly, increasing from
$150.6 million in 2006 to $300.9 million in 2010,
representing a compound annual growth rate of 18.9%. In the
three months ended March 31, 2011, our revenues grew 41%
over the prior year quarter. We may not be able to sustain our
recent growth rate in future periods and you should not rely on
the revenue growth of these periods or any prior period or year
as an indication of our future performance. Additionally, we
expect to continue to devote substantial resources and funds to
improving our technologies and product offerings and acquiring
new and relevant content, and also to expanding awareness of our
brand and category through marketing, such as the increased
advertising we have undertaken in connection with the television
program Who Do You Think You Are?, which may reduce
our margins in the near term. If our margins or our future
growth resulting from our implementation of these strategies
fail to meet investor or analyst expectations, it could have a
negative effect on our stock price. If our growth rate were to
decline significantly or become negative, it could adversely
affect our financial condition and results of operations.
If we experience excessive rates of subscriber
cancellation, or churn, our revenues and business may be
harmed.
We must continually add new subscribers both to replace
subscribers who choose to cancel their subscriptions and to grow
our business beyond our current subscriber base. Subscribers
choose to cancel their subscriptions for many reasons, including
a desire to reduce discretionary spending, a perception that
they do not have sufficient time
S-12
to use the service or otherwise do not use the service
sufficiently, the service is a poor value, competitive services
provide a better value or experience or subscriber service
issues are not satisfactorily resolved. Subscribers may choose
to cancel their subscription at any time prior to the renewal
date. When we add subscribers as rapidly as we did in 2010, the
rate of subscriber cancellation, or churn, may also increase as
it did beginning in the second quarter of 2010 with churn rising
from 3.3% in the first quarter of 2010 to 4.3% in the second
quarter of 2010. If we are unable to attract new subscribers in
numbers greater than our subscriber churn, our subscriber base
will decrease and our business, financial condition and results
of operations may be adversely affected.
If our subscriber churn increases, we may be required to
increase the rate at which we add new subscribers in order to
maintain and grow our revenues. If excessive numbers of
subscribers cancel our service, we may be required to incur
significantly higher marketing and advertising expenses than we
currently anticipate to replace these subscribers with new
subscribers. A significant increase in our subscriber churn may
have an adverse effect on our business, financial condition and
results of operations.
A change in our mix of subscription durations could have a
significant impact on our revenues, churn and revenue
visibility.
A majority of our subscribers has annual subscriptions. At any
point in time, however, the majority of new subscribers
generally signs up for monthly subscriptions and may or may not
choose to renew. We generally experience higher rates of churn
for monthly subscribers than for annual subscribers. As of
March 31, 2011, the percentage of overall subscribers that
were monthly subscribers had increased by 4 percentage
points to 33% at March 31, 2011 from 29% at
December 31, 2010. If this trend continues, more of our
revenues would become dependent on monthly renewals, and we
would likely have higher churn. We continually evaluate the
types of subscriptions that are most appropriate for us and our
subscribers. As we make these evaluations, we may more
aggressively market subscriptions that are shorter than our
annual subscriptions. Any material change in our mix of
subscription duration could have a significant impact on our
revenues and churn.
Additionally, the largely annual commitments of our subscribers
enhance our near-term visibility on our revenues, which we
believe enables us to more effectively manage the growth of our
business and provide working capital benefits. A shift in
subscriber mix towards more monthly subscriptions may result in
diminished visibility with respect to forecasting revenues,
which could make it more difficult to manage our growth and
effectively budget future working capital requirements.
Because we recognize revenues from subscriptions to our
service over the term of the subscription, downturns or upturns
in subscriptions may not be immediately reflected in our
operating results and therefore could affect our operating
results in later periods.
We recognize revenues from subscribers ratably over the term of
their subscriptions. Given that annual subscriptions represent a
majority of our subscriptions, a large portion of our revenues
for each quarter reflects deferred revenues from subscriptions
entered into during previous quarters. Consequently, a decline
in new or renewed subscriptions in any one quarter will not
necessarily be fully reflected in revenues in that quarter but
will negatively affect our revenues in future quarters.
Accordingly, the effect of significant downturns or upturns in
subscriptions or market acceptance of our service, or changes in
subscriber churn, may not fully impact our results of operations
until future periods.
If our marketing and advertising efforts fail to generate
additional revenues on a cost-effective basis, or if we are
unable to manage our marketing and advertising expenses, it
could harm our results of operations and growth.
Our future growth and profitability, as well as the maintenance
and enhancement of our brands, will depend in large part on the
effectiveness and efficiency of our marketing and advertising
expenditures and the continued success of television programming
related to family history. We use a diverse mix of fixed-cost
and performance-based marketing and advertising programs to
promote our products and services, and we periodically adjust
our mix of marketing and advertising programs. We have
experienced price increases in some of our marketing and
advertising channels. Significant increases in the pricing of
one or more of our marketing and advertising channels
S-13
would increase our marketing and advertising expense or cause us
to choose less expensive but potentially less effective
marketing and advertising channels. Television advertising
comprises a large percentage of our marketing and advertising
expense, which may have significantly higher costs than other
channels and which could adversely affect our profitability.
Further, we may over time become disproportionately reliant on
one channel or partner, such as NBC in future seasons of
Who Do You Think You Are?, which could increase our
operating expenses. We have incurred and may in the future incur
marketing and advertising expenses significantly in advance of
the time we anticipate recognizing revenues associated with such
expenses, as in the case of television programming, and our
marketing and advertising expenditures may not continue to
result in increased revenues or generate sufficient levels of
brand awareness. If we are unable to maintain our marketing and
advertising channels on cost-effective terms or replace existing
marketing and advertising channels with similarly effective
channels, our marketing and advertising expenses could increase
substantially, our subscriber levels could be affected
adversely, and our business, financial condition and results of
operations may suffer. In addition, our expanded marketing
efforts may increase our subscriber acquisition cost, as
additional expenses may not result in sufficient customer growth
to offset cost, which would have an adverse effect on our
business, financial condition and results of operations.
We have begun to distribute free software applications as part
of our marketing efforts to retain and attract new subscribers.
If service providers involved in the distribution of our free
applications were to impose fees or commissions upon us in
connection with the applications, with or without our consent,
we may be forced to cease distributing the applications through
the service providers, incur additional expense, or have limited
information about our customers, which could adversely affect
our financial condition and results of operations.
We cannot predict whether the television show Who Do
You Think You Are? will continue to have an impact on our
business in the future.
We have purchased product integration in all three seasons of
the television show Who Do You Think You Are? in the
United States, including seasons one and two, which aired in
2010 and 2011 respectively, and season three, which NBC recently
announced. Although the airing of this series, together with our
increased television advertising, caused increased interest in
our core business that resulted in a greater number of
subscribers, we cannot guarantee that the show will have a
long-term favorable effect on our net income. We cannot assure
you that NBC will air any future seasons of the show, including
the third season, or, if they do, that we will always
participate. If we do not receive lasting benefits from
Who Do You Think You Are?, or if the show does not
continue to be well received or cancelled, it could have a
negative effect on our business and our stock price. If NBC were
to air the third season of Who Do You Think You Are?
late in 2011, we would likely incur expenses earlier than
anticipated, which would likely have a negative impact on our
2011 results of operations.
Because we generate substantially all of our revenues from
online family history resources, particularly in the United
States and United Kingdom, a decline in demand for our services
or for online family history resources in general, and
particularly of the United States and United Kingdom, could
cause our revenues to decline.
We generate substantially all of our revenues from our online
family history services, and we expect that we will continue to
depend upon our online family history services for substantially
all of our revenues in the foreseeable future. Because we depend
on our online family history services, factors such as changes
in consumer preferences for these products may have a
disproportionately greater impact on us than if we offered
multiple services. The market for online family history
resources, and for consumer services in general, is subject to
rapidly changing consumer demand and trends in preferences. If
consumer interest in our online family history services
declines, or if consumer interest in family history in general
declines, we would likely experience a significant loss of
revenues and net income. Some of the potential factors that
could affect interest in and demand for online family history
services include:
|
|
|
|
|
individuals interest in, and their willingness to spend
time and money, conducting family history research;
|
|
|
|
availability of discretionary funds;
|
|
|
|
awareness of our brand and the family history category,
including through the television show Who Do You Think You
Are?;
|
S-14
|
|
|
|
|
the appeal, reliability and performance of our services;
|
|
|
|
the price, performance and availability of competing family
history products and services;
|
|
|
|
public concern regarding privacy and data security;
|
|
|
|
our ability to maintain high levels of customer
satisfaction; and
|
|
|
|
the rate of growth in online commerce generally.
|
In addition, substantially all of our revenues are from
subscribers in the United States, the United Kingdom, and to a
lesser extent, Canada and Australia. Consequently, a decrease of
interest in and demand for online family history services, or
increased competition, in these countries could have a
disproportionately greater impact on us than if our geographical
mix of revenues was less concentrated.
Challenges in acquiring historical content and making it
available online could adversely affect our ability to retain
and expand our subscriber base, and therefore adversely affect
our business, financial condition and results of
operations.
In order to retain and expand our subscriber base, both
domestically and internationally, we must continue to expend
significant resources to acquire significant amounts of
additional historical content, digitize it and make it available
to our subscribers online. We face legal, logistical, cultural
and commercial challenges in acquiring new content. Relevant
governmental records may be widely dispersed and held at a
national, state or local level.
Religious and private records are even more widely dispersed.
These problems often pose particular challenges in acquiring
content internationally. Desirable content may not be available
to us on favorable terms, or at all, due to competition for a
particular collection, privacy concerns relative to information
contained in a given collection or our lack of negotiating
leverage with a certain content provider. For example, some of
our most popular databases include vital records
content namely, historical birth, marriage and death
records made available by certain governmental
agencies. To help prevent identity theft, or even terrorist
activities, governments may attempt to restrict the release of
all or substantial portions of their vital records content, and
particularly birth records, to third parties. If these efforts
are successful, it may limit or altogether prevent us from
acquiring these types of vital record content or continuing to
make them available online. In some cases, we have to lobby for
legislation to be changed or otherwise work to surmount
administrative or other bureaucratic hurdles to enable
government or other bodies to grant us access to records.
While we own or license most of the images in our database, we
generally do not own the underlying historical documents. If
owners of content have sold or licensed the rights to digitize
that content, even on a non-exclusive basis, they may elect not
to sell or license it for digitization purposes to any other
person. Therefore, if one of our competitors acquires rights to
digitize a set of content, even on a non-exclusive basis, we may
be unable to acquire rights to digitize that content.
Conversely, the owners of historical records may allow more than
one party to digitize those records and our competitors may
digitize and make available the same content that we offer. In
some cases, acquisition of content involves competitive bidding,
and we may choose not to bid or may not successfully bid to
acquire content rights. In addition, a number of governmental
bodies and other organizations are interested in making
historical content available for free and owners of historical
records may license or sell their records to such governmental
bodies and organizations in addition to or instead of licensing
or selling their content to us. Our inability to offer vital
records or other valuable content as part of our family history
research databases or the widespread availability of such
content elsewhere at lower cost or for free could result in our
subscription services becoming less valuable to consumers, which
could have an adverse impact on our number of subscribers or
subscriber churn, and therefore on our business, financial
condition and results of operations.
S-15
We depend in part upon third party licenses for some of
our historical content, and a loss of these licenses, or
disputes regarding royalties under these licenses, could
adversely affect our ability to retain and expand our subscriber
base, and therefore adversely affect our revenues, financial
condition and results of operations.
We acquire a portion of our content pursuant to ongoing license
agreements. Some of these agreements have finite terms and we
may not be able to renew the agreements on terms that are
advantageous to us or at all. For example, we license a
significant amount of our United Kingdom content from the United
Kingdom National Archives under several license agreements that
generally have ten year terms that begin expiring as soon as
2012, and which have varying automatic extension periods. The
agreements are generally terminable by either party for breach
by the other party and by the United Kingdom National Archives
upon our insolvency or bankruptcy. Some of these agreements
permit the United Kingdom National Archives to terminate these
licenses if we undergo a change of control.
If a current or future license for a significant content
collection were to be terminated, we may not be able to obtain a
new license on terms advantageous to us or at all and we could
be required to immediately remove the relevant content from our
Web sites, either immediately or after some period of time. If a
content provider were to license or sell us content in violation
of that content providers agreements with other parties,
we could be required to remove that content from our Web sites.
If we were required to remove a material amount of content from
our Web sites, as a result of the termination of one or more
licenses or otherwise, it could adversely affect our business
and results of operations. Some of these license agreements
restrict the manner in which we use the applicable content,
which could limit our ability to leverage that content for new
uses as we expand our business. We pay royalties under some of
these license agreements, and the other party to those
royalty-bearing agreements may have a right to audit the
calculation of our royalty payments. If there were to be a
disagreement regarding the calculation of royalty payments, we
could be required to make additional payments under those
agreements. We also have indemnification obligations under many
of these agreements. We could experience claims in the future
which, if material, could have a negative impact on our results
of operations and financial condition.
Digitizing and indexing new content can take a significant
amount of time and expense, and can expose us to risks
associated with the loss or damage of historical documents. Our
inability to maintain or acquire content or make new content
available online in a timely and cost-effective manner, or
liability for loss of historical documents, could have an
adverse effect on our business, financial condition and results
of operations.
Digitizing and indexing new historical content can take a
significant amount of time and expense and we generally incur
the expenses related to such content significantly in advance of
the time we can make it available to our subscribers. We have
invested over $100 million to acquire and develop content,
including content acquired through business acquisitions, and we
expect to continue to spend significant resources on content.
Increases in the cost or time required to digitize and index new
content could harm our financial results. Currently, two
transcription vendors perform substantially all of our data
transcription as measured by cost. We do not have long-term
contracts with any of our transcription vendors. If we were to
replace one of these transcription vendors for any reason, we
would be required to provide extensive training to the new
vendor, which could delay our ability to make our new content
available to our subscribers, and our relationships with the new
transcription vendors may be on financial or other terms less
favorable to us than our existing arrangements. Our inability to
maintain or acquire content or to make new content available
online in a timely and cost-effective manner would have an
adverse effect on our business, financial condition and results
of operations.
While we are digitizing content, we may be in possession of
valuable and irreplaceable original historical documents. While
we maintain insurance with respect to such documents, any loss
or damage to such documents, while in our possession, could
cause us significant expense and could have a material adverse
effect on our reputation and the potential willingness of
content owners to license or lend their content to us.
S-16
We face competition from a number of different sources,
and our failure to compete effectively could adversely impact
our revenues, results of operations and financial
condition.
We face competition in our business from a variety of
organizations, some of which provide genealogical records free
of charge. We expect competition to increase in the future. Many
external factors, including the cost of marketing, content
acquisition and technology and our current and future
competitors pricing and marketing strategies, can
significantly affect our competitive strategies, including
pricing. Some of our competitors provide genealogical records
free of charge. If we fail to meet our subscribers
expectations, we could fail to retain existing or attract new
subscribers, either of which could harm our business and results
of operations.
Ancestry.com and our similar international Web sites face
competition from:
|
|
|
|
|
FamilySearch, and its Web site FamilySearch.org, a genealogy
organization that is part of The Church of Jesus Christ of
Latter-day
Saints. FamilySearch has an extensive collection of paper and
microfilm records. FamilySearch has digitized a large quantity
of these records and has published them online at
FamilySearch.org, where it makes them available to the public
for free and through thousands of family history centers located
throughout the world. FamilySearch is a well-funded organization
and is undertaking a large-scale digitization project to make
its collection available online. FamilySearch could partner with
commercial entities to broaden the distribution of its records.
|
|
|
|
Commercial entities, including online genealogical research
services, library content distributors, search engines and
portals, retailers of books and software related to genealogical
research and family tree creation and family history oriented
social networking Web sites.
|
|
|
|
Non-profit entities and organizations, genealogical societies,
governments and agencies that may make vital statistics or other
records available to the public for free or that partner with
commercial entities to make their records widely-available. For
example, Yad Vashem, a Jerusalem-based archive devoted to the
documentation, research, education and commemoration of the
Holocaust, has partnered with Google to facilitate free online
access to the worlds largest historical collection on the
Holocaust.
|
We expect our competition to grow, both through industry
consolidation and the emergence of new participants. Our future
competitors may include other Internet-based and offline
businesses, governments and other entities. The market for
Internet-based services evolves at a very rapid pace and our
competitors may offer products and services that are superior to
any of our products and services. In addition, Internet business
models are constantly changing. The online family history market
could move to an advertising-supported model to the detriment of
our subscription-based model. Our competitors may have greater
resources, more well-established brand recognition or more
sophisticated technologies, such as search algorithms, than we
do. Additionally, our competitors may more easily obtain
relevant records in domestic and international markets or offer
new categories of content, products or services before us, or at
lower prices, which may give them a competitive advantage in
attracting subscribers. To compete effectively, we may need to
expend significant resources on content acquisition, technology
or marketing and advertising, which could reduce our margins and
have a material adverse effect on our business, financial
condition and results of operations. If we do not compete
effectively, our ability to retain and expand our subscriber
base, and our revenues, results of operations and financial
condition, could be adversely affected.
Our failure to attract, integrate and retain highly
qualified personnel in the future could harm our
business.
To execute our growth plan, we must attract and retain highly
qualified personnel. Competition for these employees is intense,
and we may not be successful in attracting and retaining
qualified personnel. We have from time to time in the past
experienced, and we expect to continue to experience in the
future, difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. Many of the companies
with which we compete for experienced personnel have greater
resources than we have. In addition, in making employment
decisions, particularly in the Internet and high-technology
industries, job candidates often consider the value of the
stock-based awards they may receive in connection with their
employment. Accounting principles generally accepted in the
United States relating to the expensing of stock-based awards
may discourage us from granting the size or type
S-17
of awards that job candidates may require to join our company.
If our stock price declines, we may face increased difficulty
attracting and retaining personnel through the use of
stock-based awards. If we fail to attract new personnel, or fail
to retain and motivate our current personnel, our business and
future growth prospects could be adversely affected.
Our growth could strain our personnel, technology and
infrastructure resources, and if we are unable to implement
appropriate controls and procedures to manage our growth, and
hire and integrate appropriate personnel, we may not be able to
successfully implement our business plan.
Our growth in operations has placed a significant strain on our
management, administrative, technological, operational and
financial infrastructure. Anticipated future growth, including
growth related to the broadening of our product and service
offerings, will continue to place similar strains on our
personnel, technology and infrastructure. Our full-time employee
headcount increased 20% in 2010, and we plan to continue to hire
aggressively in 2011. Particularly when adding staff quickly, we
may not make optimal hiring decisions or may not integrate
personnel effectively. A sudden increase in the number of our
registered users could strain our capacity and result in Web
site performance issues. Our success will depend in part upon
the management ability of our officers with respect to growth
opportunities. To manage the expected growth of our operations,
we will need to continue to improve our operational, financial,
technological and management controls and our reporting systems
and procedures. Additional personnel and capital investments
will increase our cost base, which, if we fall short of
anticipated revenue growth, will make it more difficult to
decrease expenses in the short term. If we fail to successfully
manage our growth, it could adversely affect our business,
financial condition and results of operations.
Any significant disruption in service on our Web sites or
in our computer systems, which are currently hosted primarily by
a single third-party, could damage our reputation and result in
a loss of subscribers, which would harm our business and
operating results.
Subscribers access our service through our Web sites, where our
family history research databases are located, and our internal
billing software and operations are integrated with our product
and service offerings. Our brand, reputation and ability to
attract, retain and serve our subscribers depend upon the
reliable performance of our Web sites, network infrastructure,
content delivery processes and payment systems. We have
experienced interruptions in these systems in the past,
including server failures that temporarily slowed down our Web
sites performance and users access to content, or
made our Web sites inaccessible, and we may experience
interruptions in the future. Interruptions in these systems,
whether due to system failures, computer viruses or physical or
electronic break-ins, could affect the security or availability
of our Web sites and prevent our subscribers from accessing our
data and using our products and services. Problems with the
reliability or security of our systems may harm our reputation
and require disclosure to our lenders, and the cost of remedying
these problems could negatively affect our business, financial
condition and results of operations.
Substantially all of our communications, network and computer
hardware used to operate our Web sites are co-located in a
facility in Salt Lake City, Utah. We do not own or control the
operation of this facility. We have established a disaster
recovery facility located at a third-party facility in Denver,
Colorado. Our systems and operations are vulnerable to damage or
interruption from fire, flood, power loss, telecommunications
failure, terrorist attacks, acts of war, electronic and physical
break-ins, computer viruses, earthquakes and similar events. The
occurrence of any of the foregoing events could result in damage
to our systems and hardware or could cause them to fail
completely, and our insurance may not cover such events or may
be insufficient to compensate us for losses that may occur. Our
systems are not completely redundant, so a failure of our system
at our primary site could result in reduced functionality for
our subscribers, and a total failure of our systems at both
sites could cause our Web sites to be inaccessible by our
subscribers. Problems faced by our third-party Web hosting
provider, with the telecommunications network providers with
whom it contracts or with the systems by which it allocates
capacity among its customers, including us, could adversely
affect the experience of our subscribers. Our third-party Web
hosting provider could decide to close its facilities without
adequate notice. In addition, any financial difficulties, such
as bankruptcy reorganization, faced by our third-party Web
hosting provider or any of the service providers with whom it
contracts may have negative effects on our business, the nature
and extent of which are difficult to predict. Additionally, if
our third-party Web hosting provider is unable to keep up with
our growing needs for
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capacity, this could have an adverse effect on our business. Any
errors, defects, disruptions or other performance problems with
our services could harm our reputation and have an adverse
effect on our business, financial condition and results of
operations.
Businesses or technologies we acquire could prove
difficult to integrate, disrupt our ongoing business, dilute
stockholder value or have an adverse effect on our results of
operations.
As part of our business strategy, we may engage in acquisitions
of businesses or technologies to augment our organic or internal
growth, as we did in 2010. While we have engaged in acquisitions
in the past, our experience with integrating and managing
acquired businesses or assets is still limited. Acquisitions
involve challenges and risks in negotiation, execution,
valuation and integration. Moreover, we may not be able to find
suitable acquisition opportunities on terms that are acceptable
to us. Even if successfully negotiated, closed and integrated,
certain acquisitions may not advance our business strategy, may
fall short of expected
return-on-investment
targets or may fail. Any recent or future acquisition could
involve numerous risks including:
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potential disruption of our ongoing business and distraction of
management;
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difficulty integrating the operations and products of the
acquired business;
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use of cash or borrowings under our credit facility or otherwise
to fund the acquisition or for unanticipated expenses;
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inability to effectively operate the new business;
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exposure to unknown liabilities, including litigation, against
the companies we acquire;
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additional costs due to differences in culture, geographical
locations and duplication of key talent;
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acquisition-related accounting charges affecting our balance
sheet and results of operations;
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difficulty integrating the financial reports of the acquired
business in our consolidated financial statements and
implementing our internal controls in the acquired business;
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potential impairment of goodwill and acquired intangible assets;
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dilution to our current stockholders from the issuance of equity
securities; and
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potential loss of key employees or customers of the acquired
company.
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In the event we enter into any acquisition agreements, closing
of the transactions could be delayed or prevented by regulatory
approval requirements, including antitrust review, or other
conditions. We may not be successful in addressing these risks
or any other problems encountered in connection with any
attempted acquisitions, and we could assume the economic risks
of such failed or unsuccessful acquisitions.
We face many risks associated with our plans to continue
to expand our international offerings and marketing and
advertising efforts, which could harm our business, financial
condition and results of operations.
In addition to our United States and United Kingdom Web sites,
we have launched Web sites directed at Canada, Australia,
Sweden, Germany, France, Italy and China and launched our global
Mundia.com Web site. As of March 31, 2011, approximately
29% of subscribers to our Ancestry.com Web sites, and, for the
three months ended March 31, 2011, approximately 25% of our
subscription revenues were from locations outside the United
States. We are subject to many of the risks of doing business
internationally, including the following:
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exposure to foreign currency exchange rate fluctuations;
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compliance with changing tax laws and the interpretation of
those laws;
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compliance with changing and conflicting legal and regulatory
regimes;
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compliance with U.S. laws affecting operations outside of
the U.S., including the Foreign Corrupt Practices Act;
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S-19
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compliance with varying and conflicting intellectual property
laws;
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difficulties in staffing and managing international operations;
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prevention of business or user fraud; and
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effective implementation of internal controls and processes
across diverse operations and a dispersed employee base.
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We anticipate that our continuing international expansion will
entail increased marketing and advertising of our products,
services and brands, and the development of localized Web sites
throughout our geographical markets. We may not succeed in these
efforts or achieve our subscriber acquisition or other goals.
For some international markets, customer preferences and buying
behaviors may be different than those in our current markets,
and we may use business models that are different from our
traditional subscription models. Our revenues from new foreign
markets may not exceed the costs of acquiring, establishing,
marketing and maintaining international offerings, and therefore
may not be profitable on a sustained basis, if at all. The risks
of international expansion include:
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difficulties in developing and marketing our offerings and
brands as a result of distance, language and cultural
differences;
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more stringent consumer and data protection laws;
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inability to effectively deal with local socio-economic and
political conditions;
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technical difficulties and costs associated with the
localization of our service offerings;
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strong local competitors; and
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lack of experience in certain geographical markets.
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One or more of these factors could harm our business, financial
condition and results of operations.
If we are unable to improve market recognition of and
loyalty to our brands, or if our reputation were to be harmed,
we could lose subscribers or fail to increase the number of
subscribers, which could harm our revenues, results of
operations and financial condition.
We believe that maintaining and enhancing our Ancestry.com brand
and other brands is critical to our success. We believe that the
importance of brand recognition and loyalty will only increase
in light of increasing competition in our markets. We plan to
continue to promote our brands, both domestically and
internationally, but there is no guarantee that our selected
strategies will increase the favorable recognition of our
brands. Some of our existing and potential competitors,
including search engines, media companies and government and
religious institutions have well-established brands with greater
brand recognition than we have.
Additionally, from time to time, our subscribers express
dissatisfaction with our service, including, among other things,
dissatisfaction with our auto-renewal and other billing
policies, our handling of personal data and the way our services
operate. To the extent that dissatisfaction with our service is
widespread or not adequately addressed, our brand may be
adversely impacted. If our efforts to promote and maintain our
brand are not successful, our operating results and our ability
to attract and retain subscribers may be adversely affected. In
addition, even if our brand recognition and loyalty increases,
this may not result in increased use of our products and
services or higher revenues. Many of our subscribers are
passionate about family history research, and many of these
subscribers participate in blogs on this topic both on our Web
sites and elsewhere. If actions we take or changes we make to
our products upset these subscribers, their blogging could
negatively affect our brand and reputation, which could harm our
revenues, results of operations and financial condition.
Our future growth may differ materially from our historic
growth rates and our projections, which could harm our results
of operations and financial condition.
Online family history research is a relatively young industry.
Consequently, it is difficult to predict the ultimate size of
the industry and the acceptance by the market of our products
and services. Our business strategy and projections rely on a
number of assumptions, some or all of which may be incorrect.
For example, we believe that
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consumers will be willing to pay for subscriptions to our online
family history resources, notwithstanding the fact that some of
our current and future competitors may provide such resources
free of charge. We cannot accurately predict whether our
products and services will achieve significant acceptance by
potential users in significantly larger numbers than at present.
You should therefore not rely on our historic growth rates as an
indication of future growth.
If we are unable to continually enhance our products and
services and adapt them to technological changes and subscriber
needs, we may not remain competitive and our business may fail
to grow or decline.
Our business is rapidly changing. To remain competitive, we must
continue to provide relevant content and enhance and improve the
functionality and features of our products and services. If we
fail to do so, or if competitors introduce new solutions
embodying new technologies, our existing products and services
may become obsolete. Our future success will depend, among other
things, on our ability to:
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anticipate demand for new products and services;
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enhance our existing solutions, cross-platform compatibility,
systems capacity and processing speed; and
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respond to technological advances on a cost-effective and timely
basis.
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Developing the technologies in our products entails significant
technical and business risks. We may use new technologies
ineffectively, or we may fail to adapt our products and services
to the demands of our subscribers. If we face material delays in
introducing new or enhanced solutions, our subscribers may
forego the use of our solutions in favor of those of our
competitors.
Undetected product or service errors or defects could
result in the loss of revenues, delayed market acceptance of our
products or services or claims against us.
We offer a variety of Internet-based services and a software
product, Family Tree Maker, which are complex and frequently
upgraded. Our Internet-based services and software product may
contain undetected errors, defects, failures or viruses,
especially when first introduced or when new versions or
enhancements are released. Despite product testing, our
products, or third party products that we incorporate into ours,
may contain undetected errors, defects or viruses that could,
among other things:
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require us to make extensive changes to our subscription
services or software product, which would increase our expenses;
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expose us to claims for damages;
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require us to incur additional technical support costs;
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cause a negative registered user reaction that could reduce
future sales;
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generate negative publicity regarding us and our subscription
services and software product; or
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result in subscribers delaying their subscription or software
purchase or electing not to renew their subscriptions.
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Any of these occurrences could have an adverse effect upon our
business, financial condition and results of operations.
Privacy concerns could require us to incur significant
expense and modify our operations in a manner that could result
in restrictions and prohibitions on our use of certain
information, and therefore harm our business.
As part of our business, we make biographical and historical
data available through our Web sites, we use registered
users personal data for internal purposes and we host Web
sites and message boards, among other things, that contain
content supplied by third parties. In addition, in connection
with our Ancestry.com DNA product, we obtain biological DNA
samples used for genetic testing. For privacy or security
reasons, privacy groups, governmental agencies and individuals
may seek to restrict or prevent our use or publication of
certain biological or
S-21
historical information pertaining to individuals, particularly
living persons. We will also face additional privacy issues as
we expand into other international markets, as many nations have
privacy protections more stringent than those in the United
States. We have incurred, and will continue to incur, expenses
to comply with privacy and security standards and protocols
imposed by law, regulation, industry standards or contractual
obligations. Increased domestic or international regulation of
data utilization and distribution practices, including
self-regulation, could require us to modify our operations and
incur significant expense, which could have an adverse effect on
our business, financial condition and results of operations.
Our possession and use of personal information presents
risks and expenses that could harm our business. Unauthorized
disclosure or manipulation of such data, whether through breach
of our network security or otherwise, could expose us to costly
litigation and damage our reputation.
Maintaining our network security is of critical importance
because our online systems store confidential registered user,
employee and other sensitive data, such as names, addresses,
credit card numbers and other personal information. In
particular, a substantial majority of our subscribers use credit
and debit cards to purchase our products and services. If we or
our processing vendors were to have problems with our billing
software, it could have an adverse effect on our subscriber
satisfaction and could cause one or more of the major credit
card companies to disallow our continued use of their payment
services. In addition, if our billing software fails to work
properly and, as a result, we do not automatically charge our
subscribers credit cards on a timely basis or at all, our
business, financial condition, cash flows and results of
operations could be adversely affected.
In addition, our online systems store the content that our
registered users upload onto our Web sites, such as family
records and photos. This content is often personally meaningful,
and our registered users may rely on our online system to store
digital copies of such content. If we were to lose such content,
if our users private content were to be publicly available
or if third parties were able to access and manipulate such
content, we may face liability and harm to our brand and
reputation.
We and our vendors use commercially available encryption
technology to transmit personal information when taking orders.
We use security and business controls to limit access and use of
personal information, including registered users uploaded
content. However, third parties may be able to circumvent these
security and business measures by developing and deploying
viruses, worms and other malicious software programs that are
designed to attack or attempt to infiltrate our systems and
networks. In addition, employee error, malfeasance or other
errors in the storage, use or transmission of personal
information could result in a breach of registered user or
employee privacy.
If third parties improperly obtain and use the personal
information of our registered users or employees, we may be
required to expend significant resources to resolve these
problems. A major breach of our network security and systems
could have serious negative consequences for our businesses,
including possible fines, penalties and damages, reduced demand
for our products and services, an unwillingness of subscribers
to provide us with their credit card or payment information, an
unwillingness of registered users to upload family records or
photos onto our Web sites, harm to our reputation and brand and
loss of our ability to accept and process subscriber credit card
orders. Similarly, if a well-publicized breach of data security
at any other major consumer Web site were to occur, there could
be a general public loss of confidence in the use of the
Internet for commercial transactions. Any of these events could
have adverse effects on our business, financial condition and
results of operations.
Any claims related to activities of registered users and
the content they upload could result in expenses that could harm
our results of operations and financial condition.
Our registered users often upload their own content onto our Web
sites. The terms of use of such content are set forth in the
terms and conditions of our Web sites and a submission agreement
to which registered users must agree when they upload their
content. Disputes or negative publicity about the use of such
content could make members more reluctant to upload personal
content or harm our reputation. We do not review or monitor
content uploaded by our registered users, and could face claims
arising from or liability for making any such content available
on our Web sites. In addition, our collaboration tools and other
features of our site allow registered users to contact each
other. While registered users can choose to remain anonymous in
such communications, registered users may choose to engage with
one another without anonymity. If any such contact were to lead
to fraud or other harm, we
S-22
may face claims against us and negative publicity. Litigation to
defend these claims or efforts to counter any negative publicity
could be costly and any other liabilities we incur in connection
with any such claims may harm our business, financial condition
and results of operations.
Increases in credit card processing fees would increase
our operating expenses and adversely affect our results of
operations, and the termination of our relationship with any
major credit card company could have a severe, negative impact
on our ability to collect revenues from subscribers.
The substantial majority of our subscribers pay for our products
and services using credit cards. From time to time, the major
credit card companies or the issuing banks may increase the fees
that they charge for each transaction using their cards. An
increase in those fees would require us to increase the prices
we charge for our products and services or negatively impact our
profitability, either of which could adversely affect our
business, financial condition and results of operations.
In addition, our credit card fees may be increased by credit
card companies if our chargeback rate or the refund rate exceeds
certain thresholds. If we are unable to maintain our chargeback
rate at acceptable levels, our credit card fees for chargeback
transactions, or for all credit card transactions, may be
increased, and, if the problem significantly worsens, credit
card companies may further increase our fees or terminate their
relationships with us. Any increases in our credit card fees
could adversely affect our results of operations, particularly
if we elect not to raise our subscription rates to offset the
increase. The termination of our ability to process payments on
any major credit or debit card would significantly impair our
ability to collect revenues from subscribers.
Our operating results depend on numerous factors and may
fluctuate from period to period, which could make them difficult
to predict.
Our quarterly and annual operating results are tied to certain
financial and operational metrics that have fluctuated in the
past and may fluctuate significantly in the future. As a result,
you should not rely upon our past operating results as
indicators of future performance. Our operating results depend
on numerous factors, many of which are outside of our control.
For the reasons set forth in this Risk Factors section or other
reasons, the results of any prior quarterly or annual periods
should not be relied upon as indications of our future
performance and our revenues and operating results in the future
may differ materially from the expectations of management or
investors.
If government regulation of the Internet or other areas of
our business changes or if consumer attitudes toward use of the
Internet change, we may need to change the manner in which we
conduct our business in a manner that is less profitable or
incur greater operating expenses, which could harm our results
of operations.
The adoption, modification or interpretation of laws or
regulations relating to the Internet or other areas of our
business could adversely affect the manner in which we conduct
our business or the overall popularity or growth in use of the
Internet. Such laws and regulations may cover automatic
subscription renewal, credit card processing procedures, sales
and other procedures, tariffs, user privacy, data protection,
pricing, content, copyrights, distribution, electronic
contracts, consumer protection, broadband residential Internet
access and the characteristics and quality of services. In
foreign countries, such as countries in Europe, such laws may be
more restrictive than in the United States. It is not clear how
existing laws governing issues such as property ownership, sales
and other taxes, libel and personal privacy apply to the
Internet. If we are required to comply with new regulations or
legislation or new interpretations of existing regulations or
legislation, this compliance could cause us to incur additional
expenses, make it more difficult to renew subscriptions
automatically, make it more difficult to attract new subscribers
or otherwise alter our business model. Any of these outcomes
could have a material adverse effect on our business, financial
condition or results of operations.
Our revenues may be adversely affected if we are required
to charge sales taxes in additional jurisdictions and/or other
taxes for our products and services.
We collect or have imposed upon us sales or other taxes related
to the products and services we sell in certain states and other
jurisdictions. Additional states or one or more countries or
other jurisdictions may seek to impose
S-23
sales or other tax collection obligations on us in the future or
states or jurisdictions in which we already pay tax may increase
the amount of taxes we are required to pay. A successful
assertion by any country, state or other jurisdiction in which
we do business that we should be collecting sales or other taxes
on the sale of our products and services could, among other
things, result in substantial tax liabilities for past sales,
create significant administrative burdens for us, discourage
registered users from purchasing from us or otherwise
substantially harm our business and results of operations.
Our credit facility contains a number of financial and
operating covenants which could limit our flexibility in
operating our business.
Our credit facility contains a number of financial and operating
covenants that could limit our flexibility in operating our
business, including a covenant to maintain a specified ratio of
a measure of certain funded indebtedness (excluding subordinated
indebtedness) to a measure of EBITDA (as EBITDA is defined in
our credit facility) and a covenant to maintain a specified
ratio of a measure of EBITDA to a measure of fixed charges.
As of March 31, 2011, we had no borrowings outstanding
under our credit facility. Our future indebtedness could:
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make us more vulnerable to unfavorable economic conditions;
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make it more difficult to obtain additional financing in the
future for working capital, capital expenditures or other
general corporate purposes;
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limit our flexibility in planning for, or reacting to, changes
in our business and the markets in which we operate;
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require us to dedicate or reserve a large portion of our cash
flow from operations for making payments on our indebtedness,
which would prevent us from using it for other purposes;
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make us susceptible to fluctuations in market interest rates
that affect the cost of our borrowings to the extent that our
variable rate debt is not covered by interest rate derivative
agreements, if any; and
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make it more difficult to pursue strategic acquisitions,
alliances and collaborations.
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Any obligations under our credit facility are secured by
collateral, which includes substantially all of our assets,
including our intellectual property. If we draw funds under our
credit facility and we are not able to satisfy our obligations
under the credit facility, the lenders could exercise their
rights under the credit facility, including taking control of
the collateral, including our intellectual property, which would
have a material adverse effect on our business. In addition, we
cannot assure you that our lenders will have sufficient
liquidity to provide funds to us if and when we seek to borrow
under the credit facility.
We face risk associated with currency exchange rate
fluctuations, which could adversely affect our revenues and
operating results.
For the three months ended March 31, 2011, approximately
22% of our total revenues were received, and approximately 9% of
our total expenses were paid, in currencies other than the
United States dollar, such as the British pound sterling, the
Canadian dollar and the Australian dollar. As a result, we are
at risk for exchange rate fluctuations between such foreign
currencies and the United States dollar, which could affect our
revenues and results of operations. If the U.S. dollar
strengthens against foreign currencies, the translation of these
foreign currency denominated transactions will result in
decreased revenues, operating expenses and net income. We may
not be able to offset adverse foreign currency impact with
increased subscription pricing or volume. We attempt to limit
our exposure by paying our operating expenses incurred in
foreign jurisdictions with revenues received in the applicable
currency, but if we do not have enough local currency to pay all
our expenses in that currency, we are exposed to currency
exchange rate risk with respect to those expenses. We are also
exposed to exchange rate risk with respect to our revenues
earned in foreign currencies. Even if we were to implement
hedging strategies to mitigate foreign currency risk, these
strategies might not eliminate our exposure to foreign exchange
rate fluctuations and would involve costs and risks of their
own, such as ongoing management time and expertise, external
costs to implement the strategies and potential accounting
implications.
S-24
Our business may be significantly impacted by a change in
the economy, including any resulting effect on consumer
spending.
Our business may be affected by changes in the economy
generally, including any resulting effect on consumer spending
specifically. Our products and services are discretionary
purchases, and consumers may reduce their discretionary spending
on our products and services during an economic downturn such as
the one we recently experienced. Although we did not experience
a material increase in subscription cancellations or a material
reduction in subscription renewals during that downturn, we may
yet be impacted if employment and personal income do not
improve. Conversely, consumers may spend more time using the
Internet during an economic downturn and may have less time for
our products and services in a period of economic growth. In
addition, we have already seen a rise in media prices, including
television advertising, and prices may further increase if the
economy continues to recover or grow, which could significantly
increase our marketing and advertising expenses. As a result,
our business, financial condition and results of operations may
be significantly affected by changes in the economy generally.
The
loss of one or more of our key personnel could harm our
business.
We depend on the continued service and performance of our key
personnel, including Timothy Sullivan, our President and Chief
Executive Officer. We do not maintain key man insurance on any
of our officers or key employees. We also do not have long-term
employment agreements with any of our officers or key employees.
In addition, much of our key technology and systems are
custom-made for our business by our personnel. The loss of key
personnel, including key members of our management team, as well
as certain of our key marketing, product development or
technology personnel could disrupt our operations and have an
adverse effect on our ability to operate our business.
We have made significant estimates in calculating our
income tax provision and other tax assets and liabilities. If
these estimates are incorrect, our operating results and
financial condition may be adversely affected.
We are subject to regular review and audit by both domestic and
foreign tax authorities. Any adverse outcome of such a review or
audit could have a negative effect on our operating results and
financial condition. In addition, the determination of our
provision for income taxes and other tax assets and liabilities
requires significant judgment, and there are many transactions
and calculations where the ultimate tax determination is
uncertain at the present time. Although we believe our estimates
are reasonable, the ultimate tax outcome may differ from the
amounts recorded in our financial statements and may have an
adverse effect on our operating results and financial condition.
Expenses
or liabilities resulting from litigation could adversely affect
our results of operations and financial condition.
From time to time, we may be subject to claims or litigation.
Any such claims or litigation may be time-consuming and costly,
divert management resources, require us to change our products
and services, require us to accept returns of software products
or have other adverse effects on our business. Any of the
foregoing could have a material adverse effect on our results of
operations and could require us to pay significant monetary
damages. For example, in August 2009, we received a letter from
Shutterfly, Inc., alleging infringement of certain of their
patents by our operation of the MyCanvas.com Web site. While
MyCanvas.com revenues have represented a small percentage of our
total revenues, intellectual property litigation is subject to
inherent uncertainties, and there can be no assurance that the
expenses associated with defending any litigation or the
resolution of this dispute would not have a material adverse
impact on our results of operations or cash flows. We cannot
assure you of the ultimate outcome of any legal proceeding or
contingency in which we are or may become involved.
S-25
Risks
Related to Intellectual Property
If our intellectual property and technologies are not
adequately protected to prevent use or appropriation by our
competitors, the value of our brand and other intangible assets
may be diminished, and our business may be adversely
affected.
Our future success and competitive position depend in part on
our ability to protect our proprietary technologies and
intellectual property. We rely and expect to continue to rely on
a combination of confidentiality and license agreements with our
employees, consultants and third parties with whom we have
relationships, as well as trademark, copyright, patent and trade
secret protection laws, to protect our proprietary technologies
and intellectual property. Many of our trademarks contain words
or terms having a somewhat common usage and, as a result, we may
have difficulty registering them in certain jurisdictions.
Although we possess intellectual property rights in some aspects
of our digital content, search technology, software products and
digitization and indexing processes, our digital content is not
protected by any registered copyrights or other registered
intellectual property or statutory rights. Rather, our digital
content is protected by user agreements that limit access to and
use of our data, and by our proprietary indexing and search
technology that we apply to make our digital content searchable.
However, compliance with use restrictions is difficult to
monitor, and our proprietary rights in our digital content
databases may be more difficult to enforce than other forms of
intellectual property rights.
There can be no assurance that the steps we take will be
adequate to protect our technologies and intellectual property,
that our patent and trademark applications will lead to issued
patents and registered trademarks in all instances, that others
will not develop or patent similar or superior technologies,
products or services, or that our patents, trademarks and other
intellectual property will not be challenged, invalidated or
circumvented by others. Furthermore, the intellectual property
laws of other countries at which our Web sites are or may be in
the future be directed may not protect our products and
intellectual property rights to the same extent as the laws of
the United States. The legal standards relating to the validity,
enforceability and scope of protection of intellectual property
rights in Internet-related industries are uncertain and still
evolving, both in the United States and in other countries. In
addition, third parties may knowingly or unknowingly infringe
our patents, trademarks and other intellectual property rights,
and litigation may be necessary to protect and enforce our
intellectual property rights. Any such litigation could be very
costly and could divert management attention and resources. If
the protection of our technologies and intellectual property is
inadequate to prevent use or appropriation by third parties, the
value of our brand and other intangible assets may be diminished
and competitors may be able to more effectively mimic our
subscription services and methods of operations. Any of these
events would have a material adverse effect on our business,
financial condition and results of operations.
We also expect that the more successful we are, the more likely
it will become that competitors will try to develop products
that are similar to ours, which may infringe on our proprietary
rights. It may also be more likely that competitors will claim
that our products and services infringe on their proprietary
rights. If we are unable to protect our proprietary rights or if
third parties independently develop or gain access to our or
similar technologies, our business, revenues, reputation and
competitive position could be harmed.
Confidentiality agreements with employees and others may
not adequately prevent disclosure of trade secrets and other
proprietary information. Failure to protect our proprietary
information could make it easier for third parties to compete
with our products and harm our business.
A substantial amount of our tools and technologies are protected
by trade secret laws. In order to protect our proprietary
technologies and processes, we rely in part on security
measures, as well as confidentiality agreements with our
employees, licensees, independent contractors and other
advisors. These measures and agreements may not effectively
prevent disclosure of confidential information, including trade
secrets, and may not provide an adequate remedy in the event of
unauthorized disclosure of confidential information. We could
potentially lose future trade secret protection if any
unauthorized disclosure of such information occurs. In addition,
others may independently discover our trade secrets and
proprietary information, and in such cases we could not assert
any trade secret rights against such parties. Laws regarding
trade secret rights in certain markets in which we operate may
afford little or no protection to our trade secrets. The loss of
trade secret protection could make it easier for third parties
to compete with our products by copying functionality. In
addition, any changes in or unexpected
S-26
interpretations of the trade secret and other intellectual
property laws in any country in which we operate may compromise
our ability to enforce our trade secret and intellectual
property rights. Costly and time-consuming litigation could be
necessary to enforce and determine the scope of our proprietary
rights, and failure to obtain or maintain trade secret
protection could adversely affect our business, revenues,
reputation and competitive position.
Intellectual property claims against us could be costly
and result in the loss of significant rights related to, among
other things, our Web sites, content indexes, and marketing and
advertising activities.
Trademark, copyright, patent and other intellectual property
rights are important to us and other companies. Our intellectual
property rights extend to our technologies, business processes
and the content on our Web sites. We use intellectual property
licensed from third parties in merchandising our products and
marketing and advertising our services. From time to time, third
parties may allege that we have violated their intellectual
property rights. If there is a valid claim against us for
infringement, misappropriation, misuse or other violation of
third party intellectual property rights, and we are unable to
obtain sufficient rights or develop non-infringing intellectual
property or otherwise alter our business practices on a timely
basis, our business and competitive position may be adversely
affected. Many companies are devoting significant resources to
obtaining patents that could potentially affect many aspects of
our business. There are numerous patents that broadly claim
means and methods of conducting business on the Internet. We
have not exhaustively searched patents relevant to our
technologies and business. If we are forced to defend ourselves
against intellectual property infringement claims, whether they
are with or without merit or are determined in our favor, we may
face costly litigation, diversion of technical and management
personnel, limitations on our ability to use our current Web
sites or inability to market or provide our products or
services. As a result of any such dispute, we may have to
develop non-infringing technology, pay damages, enter into
royalty or licensing agreements, cease providing certain
products or services, adjust our merchandizing or marketing and
advertising activities or take other actions to resolve the
claims. These actions, if required, may be costly or unavailable
on terms acceptable to us. In addition, many of our co-branding,
distribution and other partnering agreements require us to
indemnify our partners for third-party intellectual property
infringement claims, which could increase the cost to us of an
adverse ruling in such an action.
In addition, as a publisher of online content, we face potential
liability for negligence, copyright, patent or trademark
infringement or other claims based on the nature and content of
data and materials that we publish or distribute. These claims
could potentially arise with respect to both company-acquired
content and user-generated content. Litigation to defend these
claims could be costly and any other liabilities we incur in
connection with the claims may harm our business, financial
condition and results of operations.
If we are unable to protect our domain names, our
reputation and brand could be affected adversely, which may
negatively impact our ability to compete.
We have registered domain names for Web site destinations that
we use in our business, such as Ancestry.com, Ancestry.co.uk and
iArchives. However, if we are unable to maintain our rights in
these domain names, our competitors could capitalize on our
brand recognition by using these domain names for their own
benefit. In addition, our competitors could capitalize on our
brand recognition by using domain names similar to ours. Domain
names similar to ours have been registered in the United States
and elsewhere, and in many countries the top-level domain names
ancestry or genealogy are owned by other
parties. Although we own the ancestry.co.uk domain
name in the United Kingdom, we might not be able to, or may
choose not to, acquire or maintain other country-specific
versions of the ancestry and genealogy
domain names. Further, the relationship between regulations
governing domain names and laws protecting trademarks and
similar proprietary rights varies from jurisdiction to
jurisdiction and is unclear in some jurisdictions. We may be
unable to prevent third parties from acquiring and using domain
names that infringe on, are similar to, or otherwise decrease
the value of, our brand or our trademarks or service marks.
Protecting and enforcing our rights in our domain names and
determining the rights of others may require litigation, which
could result in substantial costs and divert management
attention. We may not prevail if any such litigation is
initiated.
S-27
Risks
Related to this Offering and our Common Stock
Delaware law and our corporate charter and bylaws contain
anti-takeover provisions that could delay or discourage takeover
attempts that stockholders may consider favorable.
Provisions in our certificate of incorporation and bylaws may
have the effect of delaying or preventing a change of control or
changes in our management. For example, our board of directors
has the authority to issue up to five million shares of
preferred stock in one or more series and to fix the powers,
preferences and rights of each series without stockholder
approval. The ability to issue preferred stock could discourage
unsolicited acquisition proposals or make it more difficult for
a third party to gain control of our company, or otherwise could
adversely affect the market price of our common stock. Our
certificate of incorporation requires that any action to be
taken by stockholders must be taken at a duly called meeting of
stockholders, which may only be called by our board of
directors, the chairperson of our board of directors or the
chief executive officer, with the concurrence of a majority of
our board of directors, and may not be taken by written consent.
Our bylaws also require that any stockholder proposals or
nominations for election to our board of directors meet specific
advance notice requirements and procedures, which make it more
difficult for our stockholders to make proposals or director
nominations. In addition, we have a classified board of
directors with three-year staggered terms, which could delay the
ability of stockholders to change membership of a majority of
our board of directors.
Furthermore, because we are incorporated in Delaware, we are
governed by the provisions of Section 203 of the Delaware
General Corporation Law. These provisions may prohibit or
restrict large stockholders, in particular those owning 15% or
more of our outstanding voting stock, from merging or combining
with us. These provisions in our certificate of incorporation
and bylaws and under Delaware law could discourage potential
takeover attempts and could reduce the price that investors
might be willing to pay for shares of our common stock in the
future and result in our market price being lower than it would
without these provisions.
Our share price may be volatile due to fluctuations in our
operating results and other factors, each of which could cause
our stock price to decline.
The market price of shares of our common stock could be subject
to wide fluctuations in response to many risks listed herein and
others beyond our control, including:
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actual or anticipated fluctuations in our key operating metrics,
financial condition and operating results;
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a greater than expected gain or loss of existing subscribers;
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a change in one or more of our key metrics;
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actual or anticipated changes in our growth rate;
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issuance of new or updated research or reports by securities
analysts;
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our announcement of actual results for a fiscal period that are
higher or lower than projected or expected results or our
announcement of revenues or earnings guidance that is higher or
lower than expected;
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fluctuations in the valuation of companies perceived by
investors to be comparable to us;
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share price and volume fluctuations attributable to inconsistent
trading volume levels of our shares;
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sales or expected sales of common stock by us or others; or
market reaction to announced repurchases of common stock by us;
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announcements from, or operating results of, our
competitors; or
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general economic and market conditions.
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Furthermore, during the last few years, the stock markets have
experienced extreme price and volume fluctuations and the market
prices of some equity securities continue to be volatile. These
fluctuations often have been unrelated or disproportionate to
the operating performance of these companies. These broad market
and industry fluctuations, as well as general economic,
political and market conditions such as recessions, interest
rate changes or international currency fluctuations, may cause
the market price of shares of our common stock to
S-28
decline. In the past, companies that have experienced volatility
in the market price of their stock have been subject to
securities class action litigation. We may be the target of this
type of litigation in the future. Securities litigation against
us could result in substantial costs and divert our
managements attention from other business concerns, which
could seriously harm our business.
Our
stock price may be affected by coverage by securities
analysts.
The trading of our common stock is influenced by the reports and
research that industry or securities analysts publish about us
or our business. If analysts stop covering us, or if too few
analysts cover us, the trading price of our stock would likely
decrease. If one or more of the analysts who cover us downgrade
our stock, our stock price will likely decline. If one or more
of these analysts cease coverage of our company or fail to
regularly publish reports on us, we could lose visibility in the
financial markets, which in turn could cause our stock price or
trading volume to decline.
Financial forecasting by us and financial analysts who may
publish estimates of our performance may differ materially from
actual results.
Given the dynamic nature of our business, the current uncertain
economic climate and the inherent limitations in predicting the
future, forecasts of our revenues, gross margin, operating
expenses, number of paying subscribers and other financial and
operating data may differ materially from actual results. Such
discrepancies could cause a decline in the trading price of our
common stock.
Spectrum Equity Investors and its affiliates own a
substantial portion of our outstanding common stock, and their
interests may not always coincide with the interests of the
other holders of our common stock.
As of March 31, 2011, Spectrum Equity Investors V,
L.P. and certain of its affiliates beneficially owned in the
aggregate shares representing approximately 41% of our
outstanding voting power. After this offering and after giving
effect to our repurchase
of shares
of our common stock from the selling stockholders, Spectrum
Equity Investors V, L.P. and certain of its affiliates will
beneficially own in the aggregate shares representing
approximately % of our outstanding voting power, or
approximately %, if the underwriters exercise their
over-allotment option in full. Two persons associated with
Spectrum Equity Investors V, L.P. currently serve on our
board of directors. As a result, Spectrum Equity
Investors V, L.P. and certain of its affiliates could have
significant influence over all matters presented to our
stockholders for approval, including election and removal of our
directors and change of control transactions. The interests of
Spectrum Equity Investors V, L.P. and certain of its
affiliates may not always coincide with the interests of the
other holders of our common stock.
We do not currently intend to pay dividends on our common
stock and, consequently, your ability to achieve a return on
your investment will depend on appreciation in the price of our
common stock.
We have never declared or paid any cash dividends on our common
stock and do not intend to do so for the foreseeable future. We
currently intend to invest our future earnings, if any, to
finance our growth or share repurchases. In addition, the
provisions of our credit facility prohibit us from paying cash
dividends. Therefore, you are not likely to receive any
dividends on your common stock for the foreseeable future and
the success of an investment in shares of our common stock will
depend upon any future appreciation in their value. There is no
guarantee that shares of our common stock will appreciate in
value or even maintain the price at which our stockholders have
purchased their shares.
Substantial sales of our common stock by our stockholders,
including sales pursuant to 10b5-1 plans, could depress our
stock price regardless of our operating results.
Sales of substantial amounts of our common stock in the public
market, or the perception that these sales could occur, could
reduce the prevailing market prices for our common stock. On
November 10, 2009 we completed our initial public offering
of approximately 7.4 million shares of common stock on The
Nasdaq Global Select Market. As of March 31, 2011, there
were approximately 45.7 million shares of common stock
outstanding along with vested and exercisable options to
purchase approximately 6.9 million shares of common stock.
Substantially all of
S-29
our outstanding common stock is eligible for sale, subject to
Rule 144 volume limitations for holders affected by such
limitations, as is common stock issuable under vested and
exercisable stock options. If our existing stockholders sell a
large number of shares of our common stock or the public market
perceives that existing stockholders might sell shares of common
stock, including sales pursuant to
Rule 10b5-1
plans, the market price of our common stock could decline
significantly. These sales might also make it more difficult for
us to sell equity securities at a time and price that we deem
appropriate.
S-30
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference into
the registration statement of which this prospectus is a part
contain forward-looking statements relating to future events and
future performance within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. All
statements other than those that are purely historical may be
forward-looking statements. We may, in some cases, use words
such as project, believe,
anticipate, continue, plan,
expect, estimate, intend,
should, would, could,
potentially, will or may, or
other words that convey uncertainty of future events or outcomes
to identify these forward-looking statements. Forward-looking
statements in this prospectus include statements about:
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our future financial performance, including our revenues, cost
of revenues, operating expenses and ability to sustain
profitability;
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our rate of revenue and expense growth;
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the pool of our potential subscribers;
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our ability to attract and retain subscribers and their choice
of subscription package;
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our ability to manage growth;
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our ability to generate additional revenues on a cost-effective
basis;
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our ability to acquire content and make it available online;
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our ability to enhance the subscribers experience with
added tools and features and provide value;
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our success with respect to any future or recent acquisitions;
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our international expansion plans;
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our ability to adequately manage costs and control margins and
trends;
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our investments in technology and the success of our promotional
programs and new products;
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our development of brand awareness;
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our ability to retain and hire necessary employees;
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our competitive position;
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our liquidity and working capital requirements and the
availability of cash and credit;
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our plans to repurchase shares of our common stock;
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the seasonality of our business;
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the impact of external market forces;
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the impact of claims or litigation; and
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the impact of potential legislation on privacy, subscription
renewal or other aspects of our business.
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Although we believe that the assumptions underlying the
forward-looking statements are reasonable, we cannot guarantee
future results, level of activity, performance or achievements.
There are a number of important factors that could cause actual
results to differ materially from the results anticipated by
these forward-looking statements, which statements speak only as
of the date of this prospectus. These important factors include
those that we discuss in the documents incorporated by reference
and in this prospectus. You should read these factors and the
other cautionary statements we make as being applicable to all
related forward-looking statements wherever they appear in this
prospectus or the documents incorporated by reference. If one or
more of these factors materialize, or if any underlying
assumptions prove incorrect, our actual results, performance or
achievements may vary materially from any future results,
performance or achievements expressed or implied by these
forward-looking statements. All subsequent written or spoken
forward-looking statements attributable to our company or
persons acting on our behalf are expressly qualified in their
entirety by these cautionary statements. Each forward-looking
statement speaks only as of the date of the particular
statement, and we undertake no obligation to publicly update any
forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
law.
S-31
USE OF
PROCEEDS
The selling stockholders will receive all net proceeds from the
sale of our common stock in this offering. We will not receive
any of the proceeds from the sale of the shares of our common
stock by the selling stockholders.
PRICE
RANGE OF COMMON STOCK
Our common stock has traded on The Nasdaq Global Select Market
under the symbol ACOM. The following table sets forth, for the
periods indicated, the high and low sales prices per share of
our common stock as reported on The Nasdaq Global Select Market.
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High
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Low
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Fiscal Year Ended December 31, 2010
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First Quarter
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$
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19.10
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$
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13.35
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Second Quarter
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$
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20.92
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$
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15.23
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Third Quarter
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$
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23.58
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$
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16.95
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Fourth Quarter
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$
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30.70
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$
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22.22
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Fiscal Year Ended December 31, 2011
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First Quarter
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$
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38.69
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$
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27.78
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Second Quarter (through May 4, 2011)
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$
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45.79
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$
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30.95
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On May 5, 2011, the closing price per share of our common
stock on The Nasdaq Global Select Market was $41.29.
DIVIDEND
POLICY
We have never declared or paid any cash dividends on our capital
stock. Our credit facility prohibits us from paying cash
dividends. We currently expect to retain future earnings to
finance the growth and development of our business or share
repurchases and do not anticipate paying any cash dividends in
the foreseeable future. Any determination to pay dividends in
the future will be at the discretion of our board of directors
and will be dependent on then-existing conditions.
S-32
SELLING
STOCKHOLDERS
The following table, which was prepared based on information
supplied to us by the selling stockholders, sets forth the name
of each of the selling stockholders, the number of shares of
common stock beneficially owned by each of the selling
stockholders and the number of shares to be offered by each of
the selling stockholders pursuant to this prospectus supplement.
The table also provides information regarding the beneficial
ownership of our common stock by each of the selling
stockholders as adjusted to reflect the assumed sale of all of
the shares of common stock offered under this prospectus
supplement. The number and percentage of shares beneficially
owned after the offering also reflect, where indicated,
the shares
the company expects to repurchase from the selling stockholders
as described in The Offering above. The ownership
percentage indicated in the following table is based on
45,707,110 outstanding shares of Ancestry.com common stock as of
March 31, 2011.
We have determined beneficial ownership in accordance with the
rules of the SEC. Except as indicated by the footnotes below, we
believe, based on the information furnished to us, that the
persons and entities named in the tables below have sole voting
and investment power with respect to all shares of common stock
that they beneficially own, subject to applicable community
property laws.
In computing the number of shares of common stock beneficially
owned by a person and the percentage ownership of that person,
we deemed outstanding shares of common stock subject to options,
restricted stock or warrants held by that person that are
currently exercisable or exercisable within 60 days of
March 31, 2011. We did not deem these shares outstanding,
however, for the purpose of computing the percentage ownership
of any other person.
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Beneficial
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Beneficial Ownership
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Beneficial Ownership
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Shares
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Beneficial
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Ownership After
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After Offering
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After Offering
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Being
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Ownership After
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Offering Assuming
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Assuming No
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Assuming Full
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Before
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Offered in
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Offering Assuming
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Full Exercise of
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Exercise of Over-
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Exercise of Over-
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Offering and
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Over-
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No Exercise of Over-
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Over-Allotment
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Allotment Option
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Allotment Option
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Repurchase
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Shares
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Allotment
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Allotment Option
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Option
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Shares to be
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and the Repurchase
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and the Repurchase
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Name
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Shares
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Percent
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Being Offered
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Option
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Shares
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Percent
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Shares
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Percent
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Repurchased
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Shares
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Percent
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Shares
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Percent
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Affiliates of Spectrum Equity Investors V,
L.P.
(1)
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18,593,563
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40.7
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%
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3,523,913
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528,587
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15,069,650
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33.0
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%
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14,541,063
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31.8
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%
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%
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%
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Timothy
Sullivan
(2)
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2,636,581
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5.5
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%
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226,087
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33,913
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2,410,494
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5.0
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%
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2,376,581
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4.9
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%
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%
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%
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(1)
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Consists of 13,340,964 shares
of our common stock held by Spectrum Equity Investors V,
L.P. (SEI V), the general partner of which is
Spectrum Equity Associates V, L.P., the general partner of
which is SEA V Management, LLC, over which Brion B. Applegate,
William P. Collatos, Kevin J. Maroni, Randy J. Henderson,
Michael J. Kennealy, Victor E. Parker, Benjamin M. Coughlin and
Christopher T. Mitchell exercise voting and dispositive power;
62,999 shares of our common stock held by Spectrum V
Investment Managers Fund, L.P. (IMF V), the
general partner of which is SEA V Management, LLC, over which
Brion B. Applegate, William P. Collatos, Kevin J. Maroni, Randy
J. Henderson, Michael J. Kennealy, Victor E. Parker, Benjamin M.
Coughlin and Christopher T. Mitchell exercise voting and
dispositive power; 4,760,575 shares of our common stock
held by Spectrum Equity Investors III, L.P. (SEI
III), the general partner of which is Spectrum Equity
Associates III, L.P., over which Brion B. Applegate, William P.
Collatos, Kevin J. Maroni and Randy J. Henderson exercise voting
and dispositive power; 333,987 shares of our common stock
held by SEI III Entrepreneurs Fund, L.P.
(Entrepreneurs III), the general partner of
which is SEI III Entrepreneurs LLC, over which Brion B.
Applegate, William P. Collatos, Kevin J. Maroni and Randy J.
Henderson exercise voting and dispositive power;
79,997 shares held by Spectrum III Investment
Managers Fund, L.P. (IMF III, and together
with SEI V, IMF V, SEI III and Entrepreneurs
III, the Spectrum Funds), over which Brion B.
Applegate, William P. Collatos, Kevin J. Maroni and Randy J.
Henderson exercise voting and dispositive power and are the
general partners, 9,260 shares of our common stock held by
Brion B. Applegate, 4,625 shares of our common stock held
by William P. Collatos and 1,156 shares of our common stock
held by Randy J. Henderson. Each of the controlling entities,
individual general partners and managing directors of the
Spectrum Funds, as the case may be, including Mr. Parker
who is a managing director of the general partner of the general
partner of SEI V and a managing director of the general partner
of IMF V, and serves on our board of directors, Brion B.
Applegate, William P. Collatos, Kevin J. Maroni, Randy J.
Henderson, Michael J. Kennealy, Victor E. Parker, Benjamin M.
Coughlin and Christopher T. Mitchell disclaims beneficial
ownership of these shares except to the extent of any pecuniary
interest therein. The principal business address of each of the
Spectrum Funds is 333 Middlefield Road, Suite 200, Menlo
Park, CA 94025.
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(2)
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Includes options to purchase
2,312,507 shares of our common stock exercisable within
60 days as of March 31, 2011.
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S-33
MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal
income tax consequences relating to the ownership and
disposition of shares of our common stock, as of the date
hereof. This summary deals only with shares of our common stock
that are held as capital assets within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as
amended, or the Code (generally, property held for investment).
This summary does not discuss any U.S. federal tax
consequences other than those relating to income taxes (such as
estate or gift tax consequences) and does not discuss any state,
local or
non-U.S. tax
consequences. In addition, this summary does not discuss all
aspects of U.S. federal income taxation that may be
relevant to the ownership or disposition of our common stock by
prospective investors in light of their particular
circumstances. In particular, except to the extent discussed
below, this summary does not address all of the tax consequences
that may be relevant to certain types of investors subject to
special treatment under U.S. federal income tax laws, such
as:
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dealers in securities or currencies, brokers, financial
institutions, controlled foreign corporations, passive foreign
investment companies, regulated investment companies, real
estate investment trusts, retirement plans, certain former
citizens or long-term residents of the United States, tax-exempt
entities, traders in securities that elect to use a
mark-to-market
method of accounting for their securities holdings or insurance
companies;
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U.S. Holders (as defined below) of shares of our common
stock whose functional currency is not the
U.S. dollar;
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persons holding shares of our common stock as part of a hedging,
integrated, constructive sale, or conversion transaction or a
straddle;
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entities that are treated as partnerships for U.S. federal
income tax purposes; or
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persons liable for alternative minimum tax.
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The discussion below is based upon the provisions of the Code,
applicable U.S. Treasury regulations promulgated
thereunder, and administrative rulings and judicial decisions as
of the date hereof. Those authorities are subject to different
interpretations and may be changed, perhaps retroactively, so as
to result in U.S. federal income tax consequences different
from those discussed below.
If a partnership (or other entity treated as a partnership for
U.S. federal income tax purposes) holds shares of our
common stock, the tax treatment of a partner in the partnership
will generally depend upon the status of the partner and the
activities of the partnership. If you are a partner of a
partnership holding shares of our common stock, you should
consult your tax advisor as to the particular U.S. federal
income tax consequences applicable to you.
If you are considering the purchase of shares of our common
stock, you should consult your own tax advisors concerning the
U.S. federal tax consequences to you and any consequences
arising under the laws of any state, local,
non-U.S. or
other taxing jurisdiction. Each prospective investor should seek
advice based on its particular circumstances from an independent
tax advisor.
For purposes of this summary, a U.S. Holder
means a beneficial owner of a share of our common stock that is:
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an individual who is a citizen or resident of the United States;
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a corporation (or any other entity treated as a corporation for
U.S. federal income tax purposes) created or organized in
or under the laws of the United States or any state thereof or
the District of Columbia;
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an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust if (i) it is subject to the primary supervision of
a court within the United States and one or more
U.S. persons have the authority to control all substantial
decisions of the trust or (ii) it has a valid election in
effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
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S-34
Consequences
to U.S. Holders
The following is a summary of the material U.S. federal
income tax consequences that will apply to a U.S. Holder of
shares of our common stock.
Distributions
If we make a distribution in respect of our common stock, the
distribution will be treated as a dividend to the extent it is
paid from our current or accumulated earnings and profits, as
determined under U.S. federal income tax principles. If the
distribution exceeds current and accumulated earnings and
profits, the excess will be treated as a nontaxable return of
capital reducing the holders adjusted tax basis in the
common stock to the extent of the holders adjusted tax
basis in that stock. Any remaining excess will be treated as
capital gain.
If a U.S. Holder is an individual, dividends received by
such holder on or prior to December 31, 2012 generally will
be subject to a reduced maximum tax rate of 15% provided certain
holding period and other requirements are met. Beginning
January 1, 2013, the rate applicable to dividends is
scheduled to return to the tax rate generally applicable to
ordinary income. If a U.S. Holder is a
U.S. corporation, it may be able to claim the deduction
allowed to U.S. corporations in respect of dividends
received from other U.S. corporations equal to a portion of
any dividends received, subject to generally applicable
limitations on that deduction. In general, a dividend
distribution to a corporate U.S. Holder may qualify for the
70% dividends-received deduction if the U.S. Holder owns
less than 20% of the voting power and value of our stock.
U.S. Holders should consult their tax advisors regarding
the holding period requirements that must be satisfied in order
to qualify for the dividends-received deduction and the reduced
maximum tax rate on dividends.
Sale,
Exchange or Other Disposition of Stock
A U.S. Holder will generally recognize capital gain or loss
on a sale, exchange or other disposition of our common stock.
The U.S. Holders gain or loss will equal the
difference between the amount realized by the U.S. Holder
and the U.S. Holders adjusted tax basis in the stock.
The amount realized by the U.S. Holder will include the
amount of any cash and the fair market value of any other
property received for the stock. Gain or loss recognized by a
U.S. Holder on a sale or exchange of stock will be
long-term capital gain or loss if the holder held the stock for
more than one year. Long-term capital gains of non-corporate
taxpayers currently are eligible for reduced rates of taxation.
The deductibility of capital losses is subject to certain
limitations.
New
Healthcare Legislation
Under the Health Care and Education Reconciliation Act of 2010,
certain U.S. Holders who are individuals, estates or trusts
will be required to pay an additional 3.8% tax on, among other
things, dividends on and capital gains from the sale or other
disposition of stock for taxable years beginning after
December 31, 2012. U.S. Holders should consult their
tax advisors regarding the effect, if any, of this legislation
on their ownership and disposition of our common stock.
Information
Reporting and Backup Withholding
We or our paying agent must report annually to U.S. Holders
(other than exempt holders) and the Internal Revenue Service, or
the IRS, amounts paid to such holders on or with respect to our
common stock during each calendar year and the amount of tax, if
any, withheld from such payments. A U.S. Holder will be
subject to backup withholding on dividends paid on our common
stock and proceeds from the sale of our common stock at the
applicable rate if the U.S. Holder is not otherwise exempt
and (i) the holder fails to provide us or our paying agent
with a correct taxpayer identification number, (ii) we or
our paying agent are notified by the IRS that the holder
provided an incorrect taxpayer identification number,
(iii) we or our paying agent are notified by the IRS that
the holder failed to properly report payments of interest or
dividends or (iv) the holder fails to certify under penalty
of perjury that it has provided a correct taxpayer
identification number and has not been notified by the IRS that
it is subject to backup withholding. A U.S. Holder
generally may establish that it is exempt from or otherwise not
subject to backup withholding by providing a properly completed
IRS
Form W-9
to us or our paying agent. Any amounts withheld under the backup
withholding rules will generally be allowed as a refund or a
credit against a U.S. Holders
S-35
U.S. federal income tax liability, provided the required
information is properly furnished to the IRS on a timely basis.
Consequences
to
Non-U.S.
Holders
The following is a summary of the material U.S. federal
income tax consequences that will apply to a
Non-U.S. Holder
of shares of our common stock. The term
Non-U.S. Holder
means a beneficial owner of shares of our common stock that is
an individual, corporation, estate or trust for
U.S. federal income tax purposes and is not a
U.S. Holder.
Distributions
Distributions on our common stock will constitute dividends to
the extent described above in
Consequences to
U.S. Holders Distributions. Any dividends
paid to
Non-U.S. Holders
with respect to the shares of our common stock will generally be
subject to U.S. withholding tax at a 30% rate or such lower
rate as specified by an applicable income tax treaty. To receive
the benefit of a reduced treaty rate, a
Non-U.S. Holder
must furnish to us or our paying agent a valid IRS
Form W-8BEN
(or applicable successor form) certifying such holders
qualification for the reduced rate. This certification must be
provided to us or our paying agent prior to the payment of
dividends and must be updated periodically. If a
Non-U.S. Holder
is eligible for a reduced rate of U.S. withholding tax
pursuant to an income tax treaty but fails to timely provide the
required certification, the holder may obtain a refund or credit
of any excess amounts withheld by timely filing an appropriate
claim for such refund or credit with the IRS. Dividends that are
effectively connected with a
Non-U.S. Holders
conduct of a trade or business within the United States are
generally not subject to U.S. withholding tax, provided the
Non-U.S. Holder
furnishes to us or our paying agent a properly executed IRS
Form W-8ECI
(or applicable successor form) prior to the payment of
dividends. Instead, dividends that are effectively connected
with a
Non-U.S. Holders
conduct of a U.S. trade or business and, where an
applicable tax treaty so requires, are attributable to such
Non-U.S. Holders
permanent establishment in the United States, are subject to
U.S. federal income tax on a net income basis at applicable
graduated individual or corporate rates. Any such effectively
connected dividends received by a foreign corporation may, under
certain circumstances, be subject to an additional branch
profits tax at a 30% rate or such lower rate as specified by an
applicable income tax treaty.
Non-U.S. Holders
should consult their tax advisors regarding the potential
application of tax treaties and their eligibility for treaty
benefits.
Sale,
Exchange or Other Disposition of Stock
Any gain realized by a
Non-U.S. Holder
upon the sale, exchange or other taxable disposition of shares
of our common stock generally will not be subject to
U.S. federal income tax unless:
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that gain is effectively connected with such
Non-U.S. Holders
conduct of a trade or business in the United States (and, if
required by an applicable income tax treaty, is attributable to
a U.S. permanent establishment);
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the
Non-U.S. Holder
is an individual who is present in the United States for
183 days or more in the taxable year of that disposition,
and certain other conditions are met; or
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we are or have been a United States real property holding
corporation for U.S. federal income tax purposes at
any time within the shorter of the five-year period preceding
the date of disposition or the period that such
Non-U.S. Holder
held shares of our common stock and either our common stock was
not regularly traded on an established securities market at any
time during the calendar year in which the disposition occurs,
or the
Non-U.S. Holder
owns or owned (actually or constructively) more than five
percent of the total fair market value of shares of our common
stock at any time during the five-year period preceding the date
of disposition. We are not, and do not anticipate that we will
become, a U.S. real property holding
corporation for U.S. federal income tax purposes.
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A
Non-U.S. Holder
described in the first bullet point above will generally be
subject to U.S. federal income tax on the net gain derived
from the sale under regular graduated U.S. federal income
tax rates or such lower rate as specified by an applicable
income tax treaty. A
Non-U.S. Holder
that is a foreign corporation may, in addition, be subject to a
branch profits tax at a 30% rate or a lower rate specified by an
applicable income tax treaty. An
S-36
individual
Non-U.S. Holder
described in the second bullet point above will generally be
subject to a flat 30% U.S. federal income tax on the gain
derived from the sale, which may be offset by U.S. source
capital losses. If a
Non-U.S. Holder
is eligible for the benefits of a tax treaty between the United
States and its country of residence, any gain described in the
second bullet point will be subject to U.S. federal income
tax in the manner specified by the treaty and generally will
only be subject to such tax if such gain is attributable to a
permanent establishment maintained by the
Non-U.S. Holder
in the United States. To claim the benefit of any applicable tax
treaty, a
Non-U.S. Holder
must properly submit an IRS
Form W-8BEN
(or suitable successor or substitute form).
Non-U.S. Holders
should consult their tax advisors regarding the potential
application of tax treaties and their eligibility for treaty
benefits.
Information
Reporting and Backup Withholding
We must report annually to the IRS the amount of dividends or
other distributions we pay to you on shares of our common stock
and the amount of tax we withhold on these distributions. These
information reporting requirements apply even if no withholding
was required. Copies of the information returns reporting such
distributions and any withholding may also be made available to
the tax authorities in the country in which the holder resides
under the provisions of an applicable income tax treaty. The
United States imposes a backup withholding tax on dividends and
certain other types of payments to U.S. persons. A
Non-U.S. Holder
will not be subject to backup withholding tax (but may be
subject to other withholding as described above) on dividends
the holder receives on shares of our common stock if the holder
provides proper certification (usually on an IRS
Form W-8BEN
(or suitable successor or substitute form)) of the holders
status as a
non-U.S. person
or other exempt status.
Information reporting and backup withholding generally are not
required with respect to the amount of any proceeds from the
sale of shares of our common stock outside the United States
through a foreign office of a foreign broker that does not have
certain specified connections to the United States. However, if
a
Non-U.S. Holder
sells shares of our common stock through a U.S. broker or
the U.S. office of a foreign broker, the broker will be
required to report the amount of proceeds paid to the
Non-U.S. Holder
to the IRS and also backup withhold on that amount unless the
Non-U.S. Holder
provides appropriate certification (usually on an IRS
Form W-8BEN
(or suitable successor or substitute form)) to the broker of the
holders status as a
non-U.S. person
or other exempt status.
Any amounts withheld under the backup withholding rules will
generally be allowed as a refund or a credit against a
Non-U.S. Holders
U.S. federal income tax liability provided the required
information is properly furnished to the IRS on a timely basis.
Legislation
Relating to Foreign Accounts
Certain types of payments made to foreign financial
institutions, as defined under those rules, and certain
other
non-U.S. entities
after December 31, 2012 may be subject to withholding tax
under certain legislation. The legislation imposes a 30%
withholding tax on dividends on, or gross proceeds from the sale
or other disposition of, our common stock paid to a foreign
financial institution unless the foreign financial institution
enters into an agreement with the U.S. Treasury to, among
other things, undertake to identify accounts held by certain
U.S. persons or
U.S.-owned
foreign entities, annually report certain information about such
accounts, and withhold 30% on payments to account holders whose
actions prevent it from complying with these reporting and other
requirements. In addition, the legislation imposes a 30%
withholding tax on the same types of payments to a foreign
non-financial entity unless the entity certifies that it does
not have any substantial U.S. owners or furnishes
identifying information regarding each substantial
U.S. owner. Under certain circumstances,
Non-U.S. Holders
may be eligible for refunds or credits of such taxes.
Prospective investors should consult their tax advisors
regarding this legislation.
The foregoing discussion of material U.S. federal income tax
considerations is for general information purposes only and is
not tax or legal advice. You should consult your own tax advisor
as to the particular tax consequences to you of owning and
disposing of our common stock, including the applicability and
effect of any U.S. federal, state or local or
non-U.S.
tax
laws, and of any changes or proposed changes in applicable
law.
S-37
UNDERWRITERS
Under the terms and subject to the conditions in an underwriting
agreement dated the date of this prospectus, the underwriters
named below, for whom Morgan Stanley & Co.
Incorporated and Merrill Lynch, Pierce, Fenner & Smith
Incorporated are acting as representatives, have severally
agreed to purchase, and the selling stockholders have agreed to
sell to them, severally, the number of shares indicated below:
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Name
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Number of Shares
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Morgan Stanley & Co. Incorporated
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Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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Allen & Company LLC
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Citigroup Global Markets, Inc.
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Piper Jaffray & Co.
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Total
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The underwriters and the representatives are collectively
referred to as the underwriters and the
representatives, respectively. The underwriters are
offering the shares of common stock subject to their acceptance
of the shares and subject to prior sale. The underwriting
agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of
common stock offered by this prospectus are subject to the
approval of certain legal matters by their counsel and to
certain other conditions. The underwriters are obligated to take
and pay for all of the shares of common stock offered by this
prospectus if any such shares are taken. However, the
underwriters are not required to take or pay for the shares
covered by the underwriters over-allotment option,
described below.
The underwriters initially propose to offer part of the shares
of common stock directly to the public at the offering price
listed on the cover page of this prospectus and part to certain
dealers at a price that represents a concession not in excess of
$ a share under the public
offering price. After the initial offering of the shares of
common stock, the offering price and other selling terms may
from time to time be varied by the representatives.
The selling stockholders have granted to the underwriters an
option, exercisable for 30 days from the date of this
prospectus, to purchase up
to
additional shares of common stock at the public offering price
listed on the cover page of this prospectus, less underwriting
discounts and commissions. The underwriters may exercise this
option solely for the purpose of covering over-allotments, if
any, made in connection with the offering of the shares of
common stock offered by this prospectus. To the extent the
option is exercised, each underwriter will become obligated,
subject to certain conditions, to purchase the same percentage
of the additional shares of common stock as the number listed
next to the underwriters name in the preceding table bears
to the total number of shares of common stock listed next to the
names of all underwriters in the preceding table.
The following table shows the per share and total public
offering price, underwriting discounts and commissions, and
proceeds before expenses to the selling stockholders. These
amounts are shown assuming both no exercise and full exercise of
the underwriters option to purchase up to an
additional shares
of common stock from the selling stockholders.
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Total
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Total
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Full
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Per Share
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No Exercise
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Exercise
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Public offering price
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$
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$
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$
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Underwriting discounts and commissions to be paid by the selling
stockholders
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$
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$
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$
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Proceeds, before expenses, to selling stockholders
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$
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$
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$
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The estimated offering expenses payable by us, exclusive of the
underwriting discounts and commissions, are approximately
$1.0 million.
The underwriters have informed us that they do not intend sales
to discretionary accounts to exceed 5% of the total number of
shares of common stock offered by them.
S-38
Our common stock is listed on The Nasdaq Global Select Market
under the symbol ACOM. On May 5, 2011, the last sale price
of the shares on The Nasdaq Global Select Market was $41.29 per
share.
We, the selling stockholders, our chief executive officer, chief
financial officer and certain other executive officers have
agreed with the underwriters that, without the prior written
consent of Morgan Stanley & Co. Incorporated and
Merrill Lynch, Pierce, Fenner & Smith Incorporated on
behalf of the underwriters, we and they will not, during the
period ending 90 days, or 30 days in the case of executive
officers other than our chief executive officer and our chief
financial officer, after the date of this prospectus:
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offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of directly or indirectly, any
shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock;
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enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences
of ownership of the common stock; or
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make any demand for, or exercise any right with respect to, the
registration of any shares of common stock or any security
convertible into or exercisable or exchangeable for common stock.
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In addition, we and the selling stockholders agree that, without
the prior written consent of Morgan Stanley & Co.
Incorporated and Merrill Lynch, Pierce, Fenner & Smith
Incorporated on behalf of the underwriters, we and they will
not, during the respective restricted periods after the date of
this prospectus, file any registration statement with the SEC
relating to the offering of any shares of common stock or any
securities convertible into or exercisable or exchangeable for
common stock.
The restrictions described in the immediately preceding
paragraphs do not apply to, among other things:
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the sale of shares to the underwriters or the sale of shares to
us in connection with the proposed share repurchase as described
herein;
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the issuance by us of shares of common stock upon the exercise
of an option or a warrant or the conversion of a security
outstanding on the date of this prospectus of which the
underwriters have been advised in writing;
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transactions by any person other than us relating to shares of
common stock or other securities acquired in open market
transactions after the completion of the offering of the shares,
provided that no filing under the Exchange Act (other than a
filing on a Form 5, Schedule 13D or Schedule 13G
(or 13D/A or 13G/A) made after the expiration of the
restricted period) shall be required or shall be voluntarily
made in connection with subsequent sales of common stock or
other securities acquired in such open market transactions;
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transfers of shares of common stock or any security convertible
into common stock as a bona fide gift, to a trust, or to
affiliates of a stockholder, including limited partners,
members, or stockholders of the stockholder, provided that in
the case of any such transfer or distribution, the transferee
agrees to be bound in writing by the terms of the
lock-up
agreement prior to such transfer and no filing under the
Exchange Act, reporting a reduction in beneficial ownership of
shares of common stock shall be required or shall be voluntarily
made in respect of the transfer or distribution during the
180 day restricted period;
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the sale of shares under a trading plan pursuant to
Rule 10b5-1
under the Exchange Act in effect prior to the date
hereof; or
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the establishment of a trading plan pursuant to
Rule 10b5-1
under the Exchange Act, for the transfer of shares of common
stock, provided that such plan does not provide for the transfer
of common stock during the restricted period.
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The respective restricted periods described in the preceding
paragraphs will be extended if:
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during the last 17 days of the respective restricted
periods we issue an earnings release or material news event
relating to us occurs, or
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prior to the expiration of the respective restricted periods, we
announce that we will release earnings results during the
16-day
period beginning on the last day of the respective restricted
period,
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S-39
in which case the restrictions described in the preceding
paragraph will continue to apply until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
In order to facilitate the offering of the common stock, the
underwriters may engage in transactions that stabilize, maintain
or otherwise affect the price of the common stock. Specifically,
the underwriters may sell more shares than they are obligated to
purchase under the underwriting agreement, creating a short
position. A short sale is covered if the short position is no
greater than the number of shares available for purchase by the
underwriters under the over-allotment option. The underwriters
can close out a covered short sale by exercising the
over-allotment option or purchasing shares in the open market.
In determining the source of shares to close out a covered short
sale, the underwriters will consider, among other things, the
open market price of shares compared to the price available
under the over-allotment option. The underwriters may also sell
shares in excess of the over-allotment option, creating a naked
short position. The underwriters must close out any naked short
position by purchasing shares in the open market. A naked short
position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of
the common stock in the open market after pricing that could
adversely affect investors who purchase in this offering. As an
additional means of facilitating this offering, the underwriters
may bid for, and purchase, shares of common stock in the open
market to stabilize the price of the common stock. The
underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of such underwriter in stabilizing or short covering
transactions. These activities may raise or maintain the market
price of the common stock above independent market levels or
prevent or retard a decline in the market price of the common
stock. The underwriters are not required to engage in these
activities and may end any of these activities at any time.
The underwriters and their respective affiliates are full
service financial institutions engaged in various activities,
which may include securities trading, commercial and investment
banking, financial advisory, investment management, principal
investment, hedging, financing and brokerage activities. Certain
of the underwriters and their respective affiliates have in the
past and may in the future perform various financial advisory,
investment banking, commercial banking and lending services for
the issuer, for which they would receive customary fees and
expenses. In particular, certain of the underwriters served as
underwriters in connection with our initial public offering in
November 2009, for which they received customary fees and
expenses. Certain affiliates of certain underwriters have also
acted as agents and lenders in connection with our new credit
facility, for which they received, and will receive, customary
fees and expenses.
We, the selling stockholders and the underwriters have agreed to
indemnify each other against certain liabilities, including
liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make because of any
of these liabilities.
A prospectus in electronic format may be made available on Web
sites maintained by one or more underwriters, or selling group
members, if any, participating in this offering. The
representatives may agree to allocate a number of shares of
common stock to underwriters for sale to their online brokerage
account holders. Internet distributions will be allocated by the
representatives to underwriters that may make Internet
distributions on the same basis as other allocations.
European
Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State), with effect from and
including the date on which the Prospectus Directive is
implemented in that Relevant Member State (the Relevant
Implementation Date), no offer of shares may be made to
the public in that Relevant Member State other than:
A. to any legal entity which is a qualified investor as
defined in the Prospectus Directive;
B. to fewer than 100 or, if the Relevant Member State has
implemented the relevant provision of the 2010 PD Amending
Directive, 150, natural or legal persons (other than qualified
investors as defined in the
S-40
Prospectus Directive), as permitted under the Prospectus
Directive, subject to obtaining the prior consent of the
representatives; or
C. in any other circumstances falling within
Article 3(2) of the Prospectus Directive,
provided that no such offer of shares shall require the Company
or the representatives to publish a prospectus pursuant to
Article 3 of the Prospectus Directive or supplement a
prospectus pursuant to Article 16 of the Prospectus
Directive.
Each person in a Relevant Member State (other than a Relevant
Member State where there is a Permitted Public Offer) who
initially acquires any shares or to whom any offer is made will
be deemed to have represented, acknowledged and agreed that
(A) it is a qualified investor within the
meaning of the law in that Relevant Member State implementing
Article 2(1)(e) of the Prospectus Directive, and
(B) in the case of any shares acquired by it as a financial
intermediary, as that term is used in Article 3(2) of the
Prospectus Directive, the shares acquired by it in the offering
have not been acquired on behalf of, nor have they been acquired
with a view to their offer or resale to, persons in any Relevant
Member State other than qualified investors as
defined in the Prospectus Directive, or in circumstances in
which the prior consent of the Subscribers has been given to the
offer or resale. In the case of any shares being offered to a
financial intermediary as that term is used in Article 3(2)
of the Prospectus Directive, each such financial intermediary
will be deemed to have represented, acknowledged and agreed that
the shares acquired by it in the offer have not been acquired on
a non-discretionary basis on behalf of, nor have they been
acquired with a view to their offer or resale to, persons in
circumstances which may give rise to an offer of any shares to
the public other than their offer or resale in a Relevant Member
State to qualified investors as so defined or in circumstances
in which the prior consent of the representatives has been
obtained to each such proposed offer or resale.
The Company, the representatives and their affiliates will rely
upon the truth and accuracy of the foregoing representation,
acknowledgement and agreement.
This prospectus has been prepared on the basis that any offer of
shares in any Relevant Member State will be made pursuant to an
exemption under the Prospectus Directive from the requirement to
publish a prospectus for offers of shares. Accordingly any
person making or intending to make an offer in that Relevant
Member State of shares which are the subject of the offering
contemplated in this prospectus may only do so in circumstances
in which no obligation arises for the Company or any of the
underwriters to publish a prospectus pursuant to Article 3
of the Prospectus Directive in relation to such offer. Neither
the Company nor the underwriters have authorized, nor do they
authorize, the making of any offer of shares in circumstances in
which an obligation arises for the Company or the underwriters
to publish a prospectus for such offer.
For the purpose of the above provisions, the expression an
offer to the public in relation to any shares in any
Relevant Member State means the communication in any form and by
any means of sufficient information on the terms of the offer
and the shares to be offered so as to enable an investor to
decide to purchase or subscribe the shares, as the same may be
varied in the Relevant Member State by any measure implementing
the Prospectus Directive in the Relevant Member State and the
expression Prospectus Directive means Directive
2003/71/EC (including the 2010 PD Amending Directive, to the
extent implemented in the Relevant Member States) and includes
any relevant implementing measure in the Relevant Member State
and the expression 2010 PD Amending Directive means
Directive 2010/73/EU.
United
Kingdom
In addition, in the United Kingdom, this document is being
distributed only to, and is directed only at, and any offer
subsequently made may only be directed at persons who are
qualified investors (as defined in the Prospectus
Directive) (i) who have professional experience in matters
relating to investments falling within Article 19
(5) of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005, as amended (the
Order)
and/or
(ii) who are high net worth companies (or persons to whom
it may otherwise be lawfully communicated) falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as relevant persons).
This document must not be acted on or relied on in the United
Kingdom by persons who are not relevant persons. In the United
Kingdom, any investment or investment activity to which this
document relates is only available to, and will be engaged in
with, relevant persons.
S-41
Switzerland
The shares may not be publicly offered in Switzerland and will
not be listed on the SIX Swiss Exchange (SIX) or on
any other stock exchange or regulated trading facility in
Switzerland. This document has been prepared without regard to
the disclosure standards for issuance prospectuses under art.
652a or art. 1156 of the Swiss Code of Obligations or the
disclosure standards for listing prospectuses under art. 27 ff.
of the SIX Listing Rules or the listing rules of any other stock
exchange or regulated trading facility in Switzerland. Neither
this document nor any other offering or marketing material
relating to the shares or the offering may be publicly
distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing
material relating to the offering, the Company, the shares have
been or will be filed with or approved by any Swiss regulatory
authority. In particular, this document will not be filed with,
and the offer of shares will not be supervised by, the Swiss
Financial Market Supervisory Authority FINMA (FINMA), and the
offer of shares has not been and will not be authorized under
the Swiss Federal Act on Collective Investment Schemes
(CISA). The investor protection afforded to
acquirers of interests in collective investment schemes under
the CISA does not extend to acquirers of shares.
Dubai
International Financial Centre
This prospectus supplement relates to an Exempt Offer in
accordance with the Offered Securities Rules of the Dubai
Financial Services Authority (DFSA). This prospectus
supplement is intended for distribution only to persons of a
type specified in the Offered Securities Rules of the DFSA. It
must not be delivered to, or relied on by, any other person. The
DFSA has no responsibility for reviewing or verifying any
documents in connection with Exempt Offers. The DFSA has not
approved this prospectus supplement nor taken steps to verify
the information set forth herein and has no responsibility for
the prospectus supplement. The shares to which this prospectus
supplement relates may be illiquid
and/or
subject to restrictions on their resale. Prospective purchasers
of the shares offered should conduct their own due diligence on
the shares. If you do not understand the contents of this
prospectus supplement you should consult an authorized financial
advisor.
S-42
LEGAL
MATTERS
The validity of the shares of our common stock offering in the
offering will be passed upon for us by Gibson, Dunn &
Crutcher LLP, New York, New York. The underwriters are being
represented in this offering by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo
Alto, California.
EXPERTS
The consolidated financial statements of Ancestry.com Inc.
appearing in Ancestry.coms Annual Report
(Form 10-K)
for the year ended December 31, 2010, have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their reports thereon, included
therein, and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in
reliance upon such reports given on the authority of such firm
as experts in accounting and auditing.
S-43
PROSPECTUS
Common
Stock
We, or any selling stockholder, may offer and sell shares of our
common stock from time to time in amounts, at prices and on
terms that will be determined at the time of any such offering.
This prospectus describes some of the general terms that may
apply to offers and sales of our common stock. Each time any
common stock is offered pursuant to this prospectus, we or any
selling stockholder will provide a prospectus supplement and
attach it to this prospectus. The prospectus supplement will
contain more specific information about the offering, including
the number of shares of our common stock to be sold by us or any
selling stockholder. The prospectus supplement may also add,
update or change information contained in this prospectus. You
should read this prospectus and the accompanying prospectus
supplement carefully before you make your investment decision.
This prospectus may not be used to offer and sell shares of our
common stock unless accompanied by a prospectus supplement or a
free writing prospectus.
The shares of our common stock may be sold at fixed prices,
prevailing market prices at the times of sale, prices related to
the prevailing market prices, varying prices determined at the
times of sale or negotiated prices. The shares of our common
stock offered by this prospectus and the accompanying prospectus
supplement may be offered by us or any selling stockholder
directly to investors or to or through underwriters, dealers or
other agents. The prospectus supplement for each offering will
describe in detail the plan of distribution for that offering
and will set forth the names of any underwriters, dealers or
agents involved in the offering and any applicable fees,
commissions or discount arrangements.
Our common stock is listed on The Nasdaq Global Select Market
under the symbol ACOM. On May 4, 2011, the closing sale
price of our common stock as reported on The Nasdaq Global
Select Market was $40.16 per share.
Investing
in our common stock involves risks. See Risk Factors
in our Quarterly Report on Form
10-Q
for the
fiscal quarter ended March 31, 2011, in our subsequent
periodic filings with the Securities and Exchange Commission
incorporated by reference in this prospectus and in the
applicable prospectus supplement or any related free writing
prospectus related to an offering.
Neither the Securities and Exchange Commission nor any state
securities commissions has approved or disapproved these
securities, or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is May 5, 2011.
TABLE OF
CONTENTS
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You
should rely only on the information we have provided or
incorporated by reference in this prospectus. We have not
authorized any person to provide you with additional or
different information. We are not making an offer of these
securities in any jurisdiction where the offer is not permitted.
You should not assume that the information in this prospectus is
accurate as of any date other than the date on the cover page of
this prospectus or that any information we have incorporated by
reference is accurate as of any date other than the date of the
documents incorporated by reference. Our business, financial
condition, results of operations and prospectus may have changed
since those dates.
ABOUT
THIS PROSPECTUS
This prospectus is part of an automatic shelf registration
statement that we filed with the Securities and Exchange
Commission, or SEC, as a well-known seasoned issuer
as defined in Rule 405 under the Securities Act of 1933,
which we refer to as the Securities Act. Under the automatic
shelf process, we or any selling stockholder to be named in a
prospectus supplement may offer and sell, from time to time,
shares of our common stock. We or any selling stockholder will
also be required to provide a prospectus supplement containing
specific information about us or such selling stockholder and
the terms on which our common stock is being offered and sold.
We may also add, update or change in a prospectus supplement
information contained in this prospectus.
You should rely only on the information contained in this
prospectus and the accompanying prospectus supplement, including
the information incorporated by reference herein as described
under Where You Can Find More Information, and any
free writing prospectus that we prepare and distribute. Neither
we nor any selling stockholder have authorized anyone to provide
you with information different from that contained in or
incorporated by reference into this prospectus, the accompanying
prospectus supplement or any such free writing prospectus.
We and any selling stockholder may only offer to sell, and seek
offers to buy, shares of our common stock in jurisdictions where
offers and sales are permitted.
As permitted by the rules and regulations of the SEC, this
prospectus and any accompanying prospectus supplement or other
offering materials do not contain all of the information
included in the registration statement. For further information,
we refer you to the registration statement on
Form S-3,
including its exhibits. We are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended,
or Exchange Act, and, therefore, file reports and other
information with the SEC. Statements contained in this
prospectus and any accompanying prospectus supplement or other
offering materials about the provisions or contents of any
agreement or other document are only summaries. If SEC rules
require that any agreement or document be filed as an exhibit to
the registration statement, you should refer to that agreement
or document for its complete contents.
You should not assume that the information in this prospectus,
any prospectus supplement or any other offering materials is
accurate as of any date other than the date on the front of each
document. Our business, financial condition, results of
operations and prospects may have changed since then.
Unless the context indicates otherwise, the terms
Ancestry.com, Company, we
and our in this prospectus refer to Ancestry.com
Inc. and its consolidated subsidiaries. The phrase this
prospectus refers to this prospectus and any applicable
prospectus supplement, unless the context otherwise requires.
WHERE YOU
CAN FIND ADDITIONAL INFORMATION
This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in
the registration statement or the exhibits and schedules that
are part of the registration statement. Any statements made in
this prospectus as to the contents of any contract, agreement or
other document are not necessarily complete. With respect to
each such contract, agreement or other document filed as an
exhibit to the registration statement, we refer you to the
exhibit for a more complete description of the matter involved,
and each statement in this prospectus shall be deemed qualified
in its entirety by this reference. You may read and copy all or
any portion of the registration statement or any reports,
statements or other information in the files at the following
public reference facilities of the SEC:
Public
Reference Room
100 F Street, NE
Washington, DC, 20549
You can request copies of these documents upon payment of a
duplicating fee by writing to the SEC. You may call the SEC at
1-800-SEC-0330
for further information on the operation of its public reference
rooms. Our filings, including the registration statement, will
also be available to you on the Internet Web site maintained by
the SEC at www.sec.gov.
1
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to incorporate by reference into
this prospectus the information that we file with the SEC. This
means that we can disclose important information to you by
referring you to those documents. The information incorporated
by reference is deemed to be part of this prospectus. Except to
the extent furnished and not filed with the SEC pursuant to
Item 2.02 or Item 7.01 of
Form 8-K
or as otherwise permitted by the SEC rules, we incorporate by
reference the documents listed below that we have previously
filed with the SEC and any future filings we make with the SEC
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the
Exchange Act after the date of this prospectus and until this
offering is completed:
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Our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010, filed on
March 8, 2011 (including the portions of our Proxy
Statement on Schedule 14A, filed on April 11, 2011,
incorporated by reference therein);
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Our Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2011, filed on
May 3, 2011;
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Our Current Reports on
Form 8-K
filed on January 20, 2011, February 3, 2011,
February 22, 2011, April 11, 2011 and May 4,
2011; and
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The description of our common stock set forth in our
registration statement on
Form 8-A
filed on November 2, 2009.
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We will provide, upon written or oral request, to each person,
including any beneficial owner, to whom a prospectus is
delivered, a copy of any or all of the reports or documents that
have been incorporated by reference (other than exhibits to such
documents unless such exhibits are specifically incorporated by
reference in any such documents) at no cost. We can be contacted
at the address, phone number and
e-mail
address indicated below:
Investor
Relations
Ancestry.com Inc.
360 West 4800 North
Provo, UT 84604
Tel:
(212) 986-6667
investorrelations@ancestry.com
2
ANCESTRY.COM
INC.
Ancestry.com is the worlds largest online family history
resource, with over 1.6 million paying subscribers around
the world as of March 31, 2011. We have been a leader in
the family history market for over 20 years and have helped
pioneer the market for online family history research. We
believe that most people have a fundamental desire to understand
who they are and from where they came, and that anyone
interested in discovering, preserving and sharing their family
history is a potential user of Ancestry.com. We strive to make
our service valuable to individuals ranging from the most
committed family historians to those taking their first steps
towards satisfying their curiosity about their family stories.
Our principal executive offices are located at 360 West
4800 North, Provo, UT 84604, and our telephone number at that
address is
(801) 705-7000.
Our corporate Web site address is
http://corporate.ancestry.com
.
The contents of our Web sites are not incorporated in, or
otherwise to be regarded as part of, this prospectus.
Our investor relations Web site is located at
http://ir.ancestry.com
.
We make available, free of charge, on our investor relations Web
site under Financials/SEC Filings, our Annual
Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to these reports as soon as reasonably
practicable after electronically filing or furnishing those
reports to the SEC.
3
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference into
the registration statement of which this prospectus is a part
contain forward-looking statements relating to future events and
future performance within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. All
statements other than those that are purely historical may be
forward-looking statements. We may, in some cases, use words
such as project, believe,
anticipate, continue, plan,
expect, estimate, intend,
should, would, could,
potentially, will or may, or
other words that convey uncertainty of future events or outcomes
to identify these forward-looking statements. Forward-looking
statements in this prospectus include statements about:
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our future financial performance, including our revenues, cost
of revenues, operating expenses and ability to sustain
profitability;
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our rate of revenue and expense growth;
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the pool of our potential subscribers;
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our ability to attract and retain subscribers and their choice
of subscription package;
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our ability to manage growth;
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our ability to generate additional revenues on a cost-effective
basis;
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our ability to acquire content and make it available online;
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our ability to enhance the subscribers experience with
added tools and features and provide value;
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our success with respect to any future or recent acquisitions;
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our international expansion plans;
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our ability to adequately manage costs and control margins and
trends;
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our investments in technology and the success of our promotional
programs and new products;
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our development of brand awareness;
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our ability to retain and hire necessary employees;
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our competitive position;
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our liquidity and working capital requirements and the
availability of cash and credit;
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our plans to repurchase shares of our common stock;
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the seasonality of our business;
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the impact of external market forces;
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the impact of claims or litigation; and
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the impact of potential legislation on privacy, subscription
renewal or other aspects of our business.
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Although we believe that the assumptions underlying the
forward-looking statements are reasonable, we cannot guarantee
future results, level of activity, performance or achievements.
There are a number of important factors that could cause actual
results to differ materially from the results anticipated by
these forward-looking statements, which statements speak only as
of the date of this prospectus. These important factors include
those that we discuss in the documents incorporated by reference
and in this prospectus. You should read these factors and the
other cautionary statements we make as being applicable to all
related forward-looking statements wherever they appear in this
prospectus or the documents incorporated by reference. If one or
more of these factors materialize, or if any underlying
assumptions prove incorrect, our actual results, performance or
achievements may vary materially from any future results,
performance or achievements expressed or implied by these
forward-looking statements. All subsequent written or spoken
forward-looking statements attributable to our company or
persons acting on our behalf are expressly qualified in their
entirety by these cautionary statements. Each forward-looking
statement
4
speaks only as of the date of the particular statement, and we
undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future
events or otherwise, except as required by law.
RISK
FACTORS
An investment in our common stock involves a high degree of
risk. You should carefully consider the risks described in the
prospectus supplement related to a particular offering,
documents incorporated by reference, including our Quarterly
Report for the period ending March 31, 2011, and our
subsequent periodic filings with the Securities and Exchange
Commission, and all of the other information contained in this
prospectus before deciding whether to purchase our stock. Our
business, prospects, financial condition or operating results
could be materially adversely affected by any of these risks, as
well as other risks not currently known to us or that we
currently consider immaterial. The trading price of our common
stock could decline due to any of these risks, and you may lose
all or part of your investment. In assessing the risks described
in the documents incorporated by reference, you should also
refer to the other information contained in or incorporated by
reference in the prospectus, including our consolidated
financial statements and the related notes, before deciding to
purchase any shares of our common stock.
USE OF
PROCEEDS
We intend to use the net proceeds from the sale of the common
stock as set forth in the applicable prospectus supplement.
Unless otherwise set forth in a prospectus supplement, we will
not receive any proceeds in the event that the common stock is
sold by a selling stockholder.
SELLING
STOCKHOLDERS
Information regarding the beneficial ownership of our common
stock by a selling stockholder, the number of shares being
offered by a selling stockholder and the number of shares
beneficially owned by a selling stockholder after the applicable
offering, where applicable, will be set forth in a prospectus
supplement, in a post-effective amendment, or in filings we make
with the SEC under the Exchange Act that are incorporated by
reference.
PLAN OF
DISTRIBUTION
We may sell the securities offered pursuant to this prospectus
in any of the following ways:
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directly to one or more purchasers;
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through agents;
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through underwriters, brokers or dealers; or
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through a combination of any of these methods of sale.
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We will identify the specific plan of distribution, including
any underwriters, brokers, dealers, agents or direct purchasers
and their compensation in a prospectus supplement.
In addition, to the extent this prospectus is used by any
selling stockholder to resell common stock, information with
respect to the selling securityholder and the plan of
distribution will be contained in a supplement to this
prospectus, in a post-effective amendment or in filings we make
with the SEC under the Exchange Act that are incorporated by
reference.
5
DESCRIPTION
OF CAPITAL STOCK
General
The following is a summary of our capital stock and provisions
of our certificate of incorporation and bylaws, as each is
currently in effect and will be in effect. This summary does not
purport to be complete and is qualified in its entirety by the
provisions of our certificate of incorporation and bylaws,
copies of which are incorporated by reference as exhibits to
this registration statement. References in this section to
the company, we, us and
our refer to Ancestry.com Inc. and not to any of its
subsidiaries.
Our authorized capital consists of 175,000,000 shares of
common stock, $0.001 par value per share, and
5,000,000 shares of undesignated preferred stock,
$0.001 par value per share.
Common
Stock
As of March 31, 2011, there were 45,707,110 shares of
common stock outstanding.
Pursuant to our certificate of incorporation, holders of our
common stock are entitled to one vote on all matters submitted
to a vote of stockholders; provided, however, that, except as
otherwise required by law, holders of common stock, as such,
shall not be entitled to vote on any amendment to our
certificate of incorporation that relates solely to the terms of
one or more outstanding series of preferred stock if the holders
of such affected series are entitled, either separately or
together with the holders of one or more other such series, to
vote thereon pursuant to our certificate of incorporation.
Pursuant to our certificate of incorporation, common
stockholders are not entitled to cumulative voting in the
election of directors. This means that the holders of a majority
of the voting shares are able to elect all of the directors then
standing for election. Subject to the rights, if any, of the
holders of any outstanding series of preferred stock, holders of
our common stock shall be entitled to receive dividends out of
any of our funds legally available when, as and if declared by
the board of directors. Upon the dissolution, liquidation or
winding up of the company, subject to the rights, if any, of the
holders of our preferred stock, the holders of shares of our
common stock shall be entitled to receive the assets of the
company available for distribution to its stockholders ratably
in proportion to the number of shares held by them. Holders of
common stock do not have preemptive or conversion rights or
other subscription rights. There are no redemption or sinking
fund provisions applicable to our common stock. All outstanding
shares of common stock, including those sold by the selling
stockholders, are fully paid and nonassessable.
Preferred
Stock
As of March 31, 2011, there were no shares of preferred
stock outstanding.
Our board of directors is authorized to issue not more than an
aggregate of 5,000,000 shares of preferred stock in one or
more series, without stockholder approval. Our board of
directors is authorized to establish, from time to time, the
number of shares to be included in each series of preferred
stock, and to fix the designation, powers, privileges,
preferences, and relative participating, optional or other
rights, if any, of the shares of each series of preferred stock,
and any of its qualifications, limitations or restrictions. Our
board of directors also is able to increase or decrease the
number of shares of any series of preferred stock, but not below
the number of shares of that series of preferred stock then
outstanding, without any further vote or action by the
stockholders, without any vote or action by stockholders.
In the future, our board of directors may authorize the issuance
of preferred stock with voting or conversion rights that could
harm the voting power or other rights of the holders of our
common stock, or that could decrease the amount of earnings and
assets available for distribution to the holders of our common
stock. The issuance of our preferred stock, while providing
flexibility in connection with possible acquisitions and other
corporate purposes, could, among other consequences, have the
effect of delaying, deferring or preventing a change in our
control and might harm the market price of our common stock and
the voting and other rights of the holders of common stock. We
have no current plans to issue any shares of preferred stock.
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Registration
Rights
Pursuant to the terms of a Registration Rights Agreement between
us and certain holders of our stock, including Spectrum Equity
Investors V, L.P. and certain of its affiliates, certain
holders of our stock are entitled to demand and piggyback rights.
Demand Registration Rights.
At any time, the
holders of a majority of the registrable securities held by
Spectrum Equity Investors V, L.P. and certain of its
affiliates, collectively (the Spectrum registrable
securities), may request registration under the Securities
Act of all or part of their registrable securities on a
Registration Statement on
Form S-1
or any similar long-form registration statement or, if
available, on a Registration Statement on
Form S-3
or any similar short-form registration statement. As of the date
of this prospectus, the holders of a majority of the Spectrum
registrable securities are entitled in the future to request a
total of two long-form registrations in which the company will
pay all registration expenses. In addition, the holders of a
majority of the Spectrum registrable securities are entitled to
request an unlimited number of short-form registrations in which
the company will pay all registration expenses. However, the
aggregate offering value of the registrable securities requested
to be registered by Spectrum Equity Investors V, L.P. and
certain of its affiliates in any short-form registration must
equal at least $1,500,000 in the aggregate.
The company will not be obligated to effect any demand
registration within three months after the effective date of a
previous demand registration. Moreover, the company may postpone
for up to three months the filing of a registration statement
for a demand registration if the companys board of
directors determines in its reasonable good faith judgment and
the holders of at least a majority of the Spectrum registrable
securities agree that such demand registration would reasonably
be expected to have a material adverse effect on any proposal by
the company to engage in a merger, consolidation or similar
transaction. The company may delay a demand registration in this
manner only once in every
12-month
period.
Piggyback Registration Rights.
If we register
any securities for public sale after this offering, our
stockholders with piggyback registration rights under our
Registration Rights Agreement have the right to include their
shares in the registration, subject to certain exceptions. For
example, if the piggyback registration is an underwritten
primary offering and the managing underwriters advise the
company that, in their opinion, the number of securities
requested to be included in the offering exceeds the number
which can be sold in such offering without adversely affecting
the marketability of such offering, the company is required to
include in the offering (i) first, the securities the
company proposes to sell, (ii) second, the registrable
securities requested to be included in such registration, pro
rata among the holders of such registrable securities on the
basis of the number of registrable securities owned by each such
holder and (iii) third, any other securities requested to
be included in such registration pro rata among those holders on
the basis of the number of such securities owned by each such
holder. The registration expenses of the holders of registrable
securities will be paid by us in all piggyback registrations,
regardless of whether such registration is consummated.
Anti-Takeover
Effects of Delaware Law, Our Certificate of Incorporation and
Our Bylaws
Certain provisions of Delaware law and our certificate of
incorporation and bylaws could make the acquisition of the
company more difficult. These provisions of the Delaware General
Corporation Law could prohibit or delay mergers or other
takeover or change of control attempts and, accordingly, may
discourage attempts to acquire us.
These provisions, summarized below, are expected to discourage
certain types of coercive takeover practices and inadequate
takeover bids, and are designed to encourage persons seeking to
acquire control of us to negotiate with our board of directors.
Delaware Anti-Takeover Law.
We are subject to
Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in a
business combination with an interested
stockholder for a period of three years following the date
the person became an interested stockholder, unless the
business combination or the transaction in which the
person became an interested stockholder is approved by our board
of directors in a prescribed manner. Generally, a business
combination includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the
interested stockholder. Generally, an interested
stockholder is a person who, together with affiliates and
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associates, owns or, within three years prior to the
determination of interested stockholder status, did own, 15% or
more of a corporations voting stock. The applicability of
this provision may have an anti-takeover effect with respect to
transactions not approved in advance by the board of directors,
including discouraging attempts that might result in a premium
over the market price for the shares of common stock held by
stockholders.
Stockholder Meetings.
Under our certificate of
incorporation, only the board of directors, or the chairperson
of the board of directors or the Chief Executive Officer with
the concurrence of a majority of the board of directors may call
special meetings of stockholders.
Requirements for Advance Notification of Stockholder
Nominations and Proposals.
Our bylaws establish
advance notice procedures with respect to stockholder proposals
and the nomination of candidates for election as directors.
Elimination of Stockholder Action by Written
Consent.
Our certificate of incorporation
eliminates the right of stockholders to act by written consent
without a meeting. This provision makes it more difficult for
stockholders to take action opposed by the board of directors.
Election and Removal of Directors.
Our board
of directors is divided into three classes, each serving
staggered three-year terms. As a result, only a portion of our
board of directors is elected each year. The board of directors
has the exclusive right to increase or decrease the size of the
board and to fill vacancies on the board. This system of
electing directors may tend to discourage a third party from
making a tender offer or otherwise attempting to obtain control
of us, because it generally makes it more difficult for
stockholders to replace a majority of the directors.
Additionally, directors may be removed for cause only with the
approval of the holders of a majority of our outstanding common
stock. Directors may be removed without cause only with the
approval of two-thirds of our outstanding voting stock.
Undesignated Preferred Stock.
The
authorization of undesignated preferred stock makes it possible
for the board of directors, without stockholder approval, to
issue preferred stock with voting or other rights or preferences
that could impede the success of any attempt to obtain control
of us. These and other provisions may have the effect of
deferring hostile takeovers or delaying changes in control or
management of the company.
Amendment of Provisions in the Certificate of
Incorporation.
Our certificate of incorporation
requires the affirmative vote of the holders of at least
two-thirds of our outstanding voting stock in order to amend any
provision of our certificate of incorporation concerning:
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the required vote to amend or repeal the section of the
certificate of incorporation providing for the right to amend or
repeal provisions of the certificate of incorporation;
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absence of the authority of stockholders to act by written
consent;
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authority to call a special meeting of stockholders;
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number of directors and structure of the board of directors;
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absence of the necessity of directors to be elected by written
ballot; and
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personal liability of directors to us and our stockholders.
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Amendment of Provisions in the Bylaws.
Our
bylaws require the affirmative vote of the holders of at least
two-thirds of our outstanding voting stock in order to amend any
provision of our bylaws concerning:
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meetings of or actions taken by stockholders;
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number of directors and their term of office;
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election of directors;
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removal of directors and the filling of vacancies on the board
of directors;
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indemnification of our directors, officers, employees and
agents; and
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amendment to our bylaws.
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8
Transfer
Agent and Registrar
Mellon Investor Services LLC is the transfer agent and registrar
for our common stock.
Listing
Our common stock is listed on The Nasdaq Global Select Market
under the symbol ACOM.
VALIDITY
OF SECURITIES
The validity of the shares of our common stock offered in the
offering will be passed upon for us by Gibson, Dunn &
Crutcher LLP, New York, New York. Any underwriters will also be
advised as to legal matters by their own counsel, which will be
named in the prospectus supplement.
EXPERTS
The consolidated financial statements of Ancestry.com Inc.
appearing in Ancestry.coms Annual Report
(Form 10-K)
for the year ended December 31, 2010, have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their reports thereon, included
therein, and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in
reliance upon such reports given on the authority of such firm
as experts in accounting and auditing.
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