Enom 2010 Annual Report Download - page 42

Table of Contents
New tax treatment of companies engaged in Internet commerce may adversely affect the commercial use of our marketing services and our financial
results.
Due to the global nature of the Internet, it is possible that, although our services and the Internet transmissions related to them originate in California,
Texas, Illinois, Virginia and the Netherlands, governments of other states or foreign countries might attempt to regulate our transmissions or levy sales,
income or other taxes relating to our activities. Tax authorities at the international, federal, state and local levels are currently reviewing the appropriate
treatment of companies engaged in Internet commerce. New or revised international, federal, state or local tax regulations may subject us or our customers to
additional sales, income and other taxes. We cannot predict the effect of current attempts to impose sales, income or other taxes on commerce over the
Internet. New or revised taxes and, in particular, sales taxes, would likely increase the cost of doing business online and decrease the attractiveness of
advertising and selling goods and services over the Internet. New taxes could also create significant increases in internal costs necessary to capture data, and
collect and remit taxes. Any of these events could have an adverse effect on our business and results of operations.
A reclassification of our freelance content creators from independent contractors to employees by tax authorities could require us to pay retroactive taxes
and penalties and significantly increase our cost of operations.
As of December 31, 2010, we contracted with approximately 13,000 freelance content creators as independent contractors to create content for our
owned and operated websites and for our network of customer websites. Because we consider our freelance content creators with whom we contract to be
independent contractors, as opposed to employees, we do not withhold federal or state income or other employment related taxes, make federal or state
unemployment tax or Federal Insurance Contributions Act payments, or provide workers' compensation insurance with respect to such freelance content
creators. Our contracts with our independent contractor freelance content creators obligate these freelance content creators to pay these taxes. The
classification of freelance content creators as independent contractors depends on the facts and circumstances of the relationship. In the event of a
determination by federal or state taxing authorities that the freelance content creators engaged as independent contractors are employees, we may be adversely
affected and subject to retroactive taxes and penalties. In addition, if it was determined that our content creators were employees, the costs associated with
content creation would increase significantly and our financial results would be adversely affected.
We rely on outside providers for our billing, collection, payment processing and payroll. If these outside service providers are not able to fulfill their
service obligations, our business and operations could be disrupted, and our operating results could be harmed.
Outside providers perform various functions for us, such as billing, collection, payment processing and payroll. These functions are critical to our
operations and involve sensitive interactions between us and our advertisers, customers and employees. Although in some instances we have implemented
service level agreements and have established monitoring controls, if we do not successfully manage our service providers or if the service providers do not
perform satisfactorily to agreed-upon service levels, our operations could be disrupted resulting in advertiser, customer or employee dissatisfaction. In
addition, our business, revenue, financial condition and results of operations could be adversely affected.
Our credit facility with a syndicate of commercial banks contains financial and other restrictive covenants which, if breached, could result in the
acceleration of our outstanding indebtedness.
Our existing credit facility with a syndicate of commercial banks contains financial covenants that require, among other things, that we maintain a
minimum fixed charge coverage ratio and a maximum
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