Enom 2011 Annual Report Download - page 34

and regulations, including restrictions imposed by the Foreign Corrupt Practices Act, or FCPA, as well as trade sanctions administered by the Office of
Foreign Assets Control, or OFAC, and the Commerce Department. The FCPA is intended to prohibit bribery of foreign officials or parties and requires public
companies in the United States to keep books and records that accurately and fairly reflect those companies' transactions. OFAC and the Commerce
Department administer and enforce economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign states,
organizations and individuals.
If we fail to comply with these laws and regulations, we could be exposed to claims for damages, financial penalties, reputational harm,
incarceration of our employees or restrictions on our operations, which could increase our costs of operations, reduce our profits or cause us to forgo
opportunities that would otherwise support our growth.
A reclassification of our freelance creative professionals from independent contractors to employees by tax authorities could require us to pay retroactive
taxes and penalties and significantly increase our cost of operations.
We contract with freelance creative professionals as independent contractors to create the substantial majority of the content for our owned and
operated websites and for our network of customer websites. Because we consider our freelance creative professionals 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 creative
professionals. Our contracts with our independent contractor freelance creative professionals obligate these freelance creative professionals to pay these taxes.
The classification of freelance creative professionals 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 creative professionals 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 are subject to risks related to credit card payments we accept. If we fail to be in compliance with applicable credit card rules and regulations, we may
incur additional fees, fines and ultimately the revocation of the right to accept credit card payments, which would have a material adverse effect on our
business, financial condition or results of operations.
Many of the customers of our Content & Media and Registrar service offerings pay amounts owed to us using a credit card or debit card. For credit
and debit card payments, we pay interchange and other fees, which may increase over time and raise our operating expenses and adversely affect our net
income. We are also subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which
could change or be reinterpreted to make it difficult or impossible for us to comply. We believe we are compliant in all material respects with the Payment
Card Industry Data Security Standard, which incorporates Visa's Cardholder Information Security Program and MasterCard's Site Data Protection standard.
However, there is no guarantee that we will maintain such compliance or that compliance will prevent illegal or improper use of our payment system. If we
fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card
payments from our customers. A failure to adequately control fraudulent credit card transactions would result in significantly higher credit card-related costs
and could have a material adverse effect on our business, revenue, financial condition and results of operations.
Our revolving credit facility with a syndicate of commercial banks contains financial and other restrictive covenants which, if breached, could result in
the acceleration of any outstanding indebtedness we may have under the facility.
Our revolving 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, a maximum net senior leverage ratio and a maximum net total leverage ratio. In addition, our revolving credit facility
contains covenants restricting our ability to, among other things:
• incur additional debt or incur or permit to exist certain liens;
• pay dividends or make other distributions or payments on capital stock;
• make investments and acquisitions;
• enter into transactions with affiliates; and
• transfer or sell our assets.
30