Enom 2013 Annual Report Download - page 34

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 could have a
material adverse effect on our business, financial condition or results of operations.
Many of our customers 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 o perating 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 could 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, financial condition and results of
operations.
Our credit facility contains financial and other restrictive covenants which could limit our ability to operate our business and compete
effectively. If these covenants are breached, the lenders could accelerate any outstanding indebtedness we may have under the facility.
Our credit facility, which includes a revolving and term loan facility with a syndicate of commercial banks, contains financial covenants
that require that we maintain a minimum consolidated fixed charge coverage ratio and a maximum consolidated leverage ratio. In addition, our
credit facility contains covenants restricting our ability to, among other things:
These covenants could adversely affect our ability to finance our future operations or capital needs or to pursue available business
opportunities, including acquisitions. If we want to take certain actions restricted by the covenants and the lenders are unwilling to waive such
covenants, we may be forced to amend the credit facility on terms less favorable than the current terms or enter into new fi nancing
arrangements. Furthermore, if we breach any of these covenants, it could result in a default and acceleration of any outstanding indebtedness. As
of December 31, 2013, we had $96.3 million of term loans outstanding under the credit facility. As of December 31, 2013, no principal balance
was outstanding and approximately $113.8 million was available for borrowing under the revolving loan facility, after deducting the face amount
of outstanding standby letters of credit of approximately $11.2 million.
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incur additional debt or incur or permit to exist certain liens;
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pay dividends, make other distributions or payments on capital stock or repurchase our common stock;
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make investments and acquisitions;
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enter into transactions with affiliates; and
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transfer or sell our assets.