Classmates.com 2011 Annual Report Download - page 26

Table of Contents
potentially jeopardize the security of confidential information, including credit card information, of our customers and of third parties. A number
of other websites have publicly disclosed breaches of their security, some of which have involved sophisticated and highly targeted attacks on
portions of their sites. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change
frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate
preventative measures. If an actual or perceived breach of our security occurs, the perception of the effectiveness of our security measures could
be harmed and we could lose members, customers or vendors. A party that is able to circumvent our security measures could misappropriate our
proprietary information or the information of our members or customers, cause interruption in our operations, or damage our computers or those
of our members or customers.
A significant number of our members and customers authorize us to bill their payment card accounts (credit or debit) directly for all
amounts charged by us. These members and customers provide payment card information and other personally identifiable information which,
depending on the particular payment plan, may be maintained to facilitate future payment card transactions. We rely on third-party and
internally-developed encryption and authentication technology to provide the security and authentication to effectively secure transmission of
confidential information, including payment card numbers. Advances in computer capabilities, new discoveries in the field of cryptography or
other developments may result in the technology used by us to protect transaction data being breached or compromised. Non-technical means,
for example, actions by an employee, can also result in a data breach. Under payment card rules and our contracts with our card processors, if
there is a breach of payment card information that we store, we could be liable to the banks that issue the payment cards for their related
expenses and penalties. In addition, if we fail to follow payment card industry security standards, even if there is no compromise of customer
information, we could incur significant fines or lose our ability to give our members and customers the option of using payment cards. If we
were unable to accept payment cards, our businesses would be seriously harmed.
We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. Security
breaches, including any breach related to us or the parties with which we have commercial relationships, could damage our reputation and
expose us to a risk of loss, litigation and possible liability. We cannot assure you that the security measures we take will be effective in
preventing these types of activities. We also cannot assure you that the security measures of our third-party vendors, including network
providers, providers of customer and billing support services, and other vendors, will be adequate. In addition to potential legal liability, these
activities may adversely impact our reputation or our revenues and may interfere with our ability to provide our products and services, all of
which could adversely impact our business. In addition, the coverages and/or limits of our insurance policies may not be adequate to reimburse
us for losses caused by security breaches.
Changes in laws and regulations and new laws and regulations may adversely affect our business, financial condition, results of operations,
and cash flows.
We are subject to a variety of international, federal, state, and local laws and regulations, including, without limitation, those relating to
taxation, bulk email or "spam," advertising, including, without limitation, targeted or behavioral advertising, user privacy and data protection,
consumer protection, antitrust, and unclaimed property. Compliance with the various laws and regulations, which in many instances are unclear
or unsettled, is complex. New laws and regulations, such as those being considered or recently enacted by certain states or the federal
government related to automatic-renewal practices, user privacy, targeted or behavioral advertising, floral-related fees and advertising, and
taxation, could impact our revenues or certain of our business practices or those of our advertisers. Any changes in the laws and regulations
applicable to us, the enactment of any additional laws or
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