Enom 2012 Annual Report Download - page 36

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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.
These covenants could adversely affect our ability to finance our future operations or capital needs or to pursue available
business opportunities, including acquisitions. A breach of any of these covenants could result in a default and acceleration of
our indebtedness. Furthermore, if the syndicate of commercial banks is unwilling to waive certain covenants, we may be forced
to amend our revolving or replace credit facility on terms less favorable than current terms or enter into new financing
arrangements. As of December 31, 2012, we had no indebtedness outstanding under this facility, but had outstanding standby
letters of credit of approximately $10 million.