Enom 2014 Annual Report Download - page 23

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costs and impose operational limitations, and/or (iii) issue equity securities, which would dilute our stockholders’ ownership and could
adversely affect the price of our common stock. We may also unknowingly inherit liabilities from previous or future acquisitions that
arise after the acquisition and are not adequately covered by indemnities, and certain stockholders of an acquired company may
dissent from or object to an acquisition or otherwise seek to assert claims related to the transaction. For example, certain former
common stockholders of Saatchi Art have filed a complaint alleging that (i) the former directors of Saatchi Art, certain former officers
of Saatchi Art and certain preferred stockholders of Saatchi Art breached their fiduciary duties to the common stockholders in
connection with the sale of Saatchi Art to us, (ii) certain preferred stockholders of Saatchi Art aided and abetted the former directors’
and officers’ breach of fiduciary duties, and (iii) certain preferred stockholders and the Saatchi Art entity violated a Saatchi Art voting
agreement by breaching the implied covenant of good faith and fair dealing. We may be required to expend significant resources in
connection with this matter and, if any amounts are awarded to the claimants, we may not be able to recover all such amounts from the
escrowed portion of the purchase price set aside to cover post-closing indemnification claims.
We depend on key personnel to operate our business, and if we are unable to retain our current personnel or hire additional
personnel, our ability to develop and successfully market our business could be harmed.
We believe that our future success is highly dependent on the contributions of our executive officers, as well as our ability to
attract and retain highly skilled personnel, including engineers and developers. Since August 2012, several of our executive officers
have resigned, including our Chairman and Chief Executive Officer in October 2013 and our Chief Financial Officer in December
2014. We appointed Sean Moriarty as our new Chief Executive Officer in August 2014 and Rachel Glaser is expected to begin serving
as our new Chief Financial Officer in April 2015. It is important that we retain other key personnel following these changes. In
addition, qualified individuals that are critical to the success of our current and future business, including engineers and developers,
are in high demand, and we may incur significant costs to attract and retain them. All of our officers and other employees are at-will
employees, which means they can terminate their employment relationship with us at any time, and their knowledge of our business
and industry would be extremely difficult to replace. Volatility or under-performance in our stock price may also affect our ability to
attract new employees and retain our existing key employees. Our executive officers and employees may be more inclined to leave us
if the perceived value of equity awards, including restricted stock units and stock options, decline. If we lose the services of key
personnel, especially during this period of leadership transition, or do not hire or retain other personnel for key positions, our business
and results of operation could be adversely affected. In addition, we do not maintain “key person” life insurance policies for any of our
executive officers.
Our business is subject to online security risks, including security breaches, and any actual or perceived security breach could
have a material adverse effect on our business, financial condition and results of operations.
Some of our systems, products and services involve the storage and transmission of information regarding our users, customers,
and advertising and publishing partners, and our information technology and infrastructure may be vulnerable to cyberattacks,
malware or security incidents that result in third parties gaining access to such proprietary information. An increasing number of
websites have recently disclosed online security breaches, some of which have involved sophisticated and highly targeted attacks on
portions of their websites or infrastructure. Our security measures may be breached and unauthorized parties may attempt to gain
access to our systems and information through various means, including hacking into our systems or facilities, fraud, employee error,
malfeasance, or inserting malicious code or malware into our code base. For example, in 2014 we determined that an unauthorized
individual may have gained access to the user names, email addresses and passwords of certain of our eHowNow customers.
Additionally, outside parties may attempt to fraudulently induce employees, users, or customers to disclose sensitive information by
using fraudulent “spoof” and “phishing” emails and they may introduce viruses or other malware through “trojan horse” programs to
our users’ computers in order to gain access to our systems and the data stored therein. Because the techniques used to obtain
unauthorized access, disable or degrade service, or sabotage systems change frequently, often are not recognized until launched
against a target and may be difficult to detect for a long time, we may be unable to anticipate these techniques or to implement
adequate preventative measures. Any security breach or unauthorized access could result in a misappropriation of our proprietary
information or the proprietary information of our users, customers or partners, which could result in significant legal and financial
exposure, an interruption in our operations and damage to our reputation. If an actual or perceived breach of our security occurs, the
market perception of the effectiveness of our security measures could be harmed and we could lose users, customers, advertisers or
publishers, all of which could have a material adverse effect on our business, financial condition and results of operations. Any
security breach at a company providing services to us or our users could have similar effects. In addition, we may need to expend
significant resources to protect against security breaches or to address problems caused by a breach, and the coverage limits on our
insurance policies may not be adequate to reimburse us for any losses caused by security breaches.