Enom 2013 Annual Report Download - page 36

(the “Tax Matters Agreement”), an intellectual property assignment and license agreement, and an employee matters agreement. These
agreements will govern our relationship with Rightside subsequent to the Proposed Business Separation. If we are required to indemnify
Rightside for certain liabilities and related losses arising in connection with any of these agreements or if Rightside is required to indemnify us
for certain liabilities and related losses arising in connection with any of these agreements and does not fulfill its obligations to us, we may be
subject to substantial liabilities, which could have a material adverse effect on our financial position.
Although Rightside will be contractually obligated to provide us with certain services during the term of the Transition Services
Agreement, we cannot assure you that these services will be performed as efficiently or proficiently as they were performed prior to the
separation. When Rightside ceases to provide services pursuant to the Transition Services Agreement, our costs of procuring those services from
third parties may increase. In addition, we may not be able to replace these services in a timely manner or enter into appropriate third-party
agreements on terms and conditions comparable to those under the Transition Services Agreement. To the extent that we require additional
support from Rightside not addressed in the Transition Services Agreement, we would need to negotiate the terms of receiving such support in
future agreements.
If, following the completion of the Proposed Business Separation, there is a determination that the separation is taxable for U.S. federal
income tax purposes because the facts, assumptions, representations or undertakings underlying the IRS ruling or the tax opinion are
incorrect, or for any other reason, then Demand Media, our stockholders that are subject to U.S. federal income tax and Rightside could
incur significant U.S. federal income tax liabilities.
The Distribution is conditioned upon our receipt of a private letter ruling from the IRS , together with an opinion of Latham & Watkins
LLP, tax counsel to us (the “Tax Opinion”), substantially to the effect that, among other things, the Proposed Business Separation will qualify as
a transaction that is tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. We received the private
letter ruling on January 31, 2014. The private letter ruling relies, and the Tax Opinion will rely, on certain facts, assumptions, representations and
undertakings from us and Rightside regarding the past and future conduct of the companies’ respective businesses and other matters. The private
letter ruling does not address all the requirements for determining whether the separation will qualify for tax-free treatment, and the Tax
Opinion, which will address all such requirements but will rely on the private letter ruling as to matters covered by the ruling, will not be binding
on the IRS or the courts. Notwithstanding the private letter ruling and the Tax Opinion, the IRS could determine on audit that the separation is
taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it
disagrees with the conclusions in the Tax Opinion that are not covered by the private letter ruling, or for other reasons, including as a result of
certain significant changes in the stock ownership of us or Rightside after the separation.
If the separation were to fail to qualify for tax-free treatment under the Code, we would be subject to tax as if we had sold our common
stock in a taxable sale for its fair market value, and our stockholders would be subject to tax as if they had received a taxable distribution equal
to the fair market value of Rightside’s common stock that was distributed to them. Under the Tax Matters Agreement, we may be required to
indemnify Rightside against all or a portion of the taxes incurred by Rightside in the event the separation were to fail to qualify for tax-free
treatment under the CodeIf we are required to pay any tax liabilities in connection with the separation pursuant to the Tax Matters Agreement or
pursuant to applicable tax law, the amounts may be significant.
Risks Relating to Owning Our Common Stock
An active, liquid and orderly market for our common stock may not be sustained, and the trading price of our common stock is likely to be
volatile.
An active trading market for our common stock may not be sustained, which could depress the market price of our common stock. The
trading price of our common stock has been, and is likely to be highly volatile and could be subject to wide fluctuations in response to various
factors, some of which are beyond our control. For example, since shares of our common s tock were sold in our initial public offering in
January 2011 at a price of $17.00 per share, our closing stock price has ranged from $4.71 to $24.57 through March 7, 2014. In addition to the
factors discussed in this “Risk Factors” section and elsewhere in this report, these factors include:
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our operating performance and the operating performance of similar companies;
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the overall performance of the equity markets;
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the number of shares of our common stock publicly owned and available for trading;
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any major change in our board of directors or management;
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publication of research reports about us or our industry or changes in recommendations or withdrawal of research coverage by
securities analysts;