LifeLock 2013 Annual Report Download - page 31

•merging, dissolving, liquidating, consolidating, or disposing of all or substantially all of our assets;
•prepaying and modifying debt instruments; and
•entering into transactions with affiliates.
These restrictions could limit our ability to finance our future operations or capital needs, make acquisitions, or pursue available business
opportunities. Our senior credit facility also requires us to maintain specified financial ratios and satisfy financial condition tests at the end of each fiscal
quarter. Our ability to meet these financial ratios and tests can be affected by events beyond our control, and we may not meet those tests. We may be required
to take action to reduce our indebtedness or to act in a manner contrary to our business objectives to meet these ratios and satisfy these covenants. We could
also incur additional indebtedness in the future having even more restrictive covenants.
Failure to comply with any of the covenants under our senior credit facility, or any other indebtedness we may incur, could result in a default under
such agreements, which could result in an acceleration of the timing of payments on all of our outstanding indebtedness and other negative consequences. In
addition, since our senior credit facility with Bank of America is secured by substantially all of our assets, a default under that facility could result in Bank
of America exercising its lien on substantially all of our assets. Any of these events could have a material adverse effect on our business, operating results, and
financial condition.
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We will incur significant legal, accounting, and other expenses as a public company, including costs resulting from public company reporting
obligations under the Exchange Act and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act, the
Dodd-Frank Act, and the listing requirements of the stock exchange on which our securities are listed. Compliance with these reporting requirements, rules,
and regulations has increased and will continue to increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or
costly, and increase demand on our systems and resources. As a result, management’s attention may be diverted from other business concerns, which could
harm our business and operating results.
In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for public
companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations, and standards are
subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new
guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations, and
standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-
generating activities to compliance activities. If our efforts to comply with new laws, regulations, and standards are unsuccessful, regulatory authorities may
initiate legal proceedings against us and our business may be harmed.
We also expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we
may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These factors could
also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, particularly to serve on our audit and compensation
committees, or as executive officers.
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As of December 31, 2013, we had approximately $199 .4 million of federal and approximately $147.3 million of state net operating loss carry-
forwards. Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, if a corporation undergoes an “ownership
change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three year period), the corporation’s ability to use its pre-
change net operating loss carry-forwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. We
recently completed an analysis of prior year ownership changes and determined that we experienced an “ownership change” as defined by Section 382 of the
Internal Revenue Code. However, we determined that none of our federal and state net operating loss carry-forwards will expire solely as a result of our prior
ownership changes. Additionally, with our initial public offering, or IPO, and other transactions that have occurred over the past three years, we may also
experience an “ownership change” in the future as a result of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability
to use our pre-change net operating loss carry-forwards to offset taxable income may be subject to limitations, which could potentially result in increased future
tax liability to us.
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