Avid 2015 Annual Report Download - page 57

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December 31, 2015, our working capital was $(167.5) million, compared to $(157.5) million at December 31, 2014. Our working
capital deficit at both dates was largely due to the significant level of deferred revenues recorded on our balance sheet, which
consist of service obligations that do not represent meaningful cash requirements. We have deferred a significant portion of
revenues from sales transactions and recorded them as deferred revenues. The satisfaction of the obligations that give rise to the
deferred revenue are not expected to require significant use of cash in 2016.
Our cash requirements vary depending on factors such as the growth of our business, changes in working capital, capital
expenditures, our acquisition of businesses or technologies, obligations under restructuring programs, and our debt servicing
costs. We are continuing to focus on maintaining adequate liquidity and further reducing costs and improving our operational
efficiency, including pursuant to the restructuring program we announced in February 2016. We believe that we will have
sufficient cash, cash equivalents, funds generated from operations and funds available under the Credit Facility to meet our
operational objectives for at least the next 12 months, as well as for the foreseeable future. However, if our cash needs fluctuate
significantly we may not have sufficient liquidity to meet all of our obligations. We may need additional financing in the future,
the availability of which will depend on a variety of factors such as our future financial and operating performance and financial
market conditions. We may have difficulty obtaining additional financing on attractive terms or at all.
Cerberus Financing Agreement
On February 26, 2016, we entered into a financing agreement with Cerberus Business Finance, LLC, as collateral and
administrative agent, and other lender parties (the “Cerberus Financing Agreement”). Pursuant to the Cerberus Financing
Agreement, the lenders agreed to provide us with (a) a term loan in the aggregate principal amount of $100 million (the “Term
Loan”) and (b) a revolving credit facility of up to a maximum of $5 million in borrowings outstanding at any time (the “Credit
Facility”). We borrowed the full amount of the Term Loan, or $100 million, as of the closing date, but did not borrow any amount
under the Credit Facility as of the Closing Date. All outstanding loans under the Cerberus Financing Agreement will become due
and payable on the earlier of February 26, 2021 and the date that is 30 days prior to the scheduled maturity date of our outstanding
2.00% convertible senior notes due 2020, which is June 15, 2020. Prior to the maturity of the Credit Facility, any amounts
borrowed under the Credit Facility may be repaid and, subject to the terms and conditions of the Cerberus Financing Agreement,
reborrowed in whole or in part without penalty.
Concurrently with the entry into the Cerberus Financing Agreement, we terminated the KeyBank Credit Agreement and repaid all
outstanding borrowings under such agreement. There were no penalties paid by us in connection with this termination. In
addition to repaying borrowings under the KeyBank Credit Agreement, the Term Loan proceeds will be used to fund the
Company’s restructuring program announced in February 2016 and to provide ongoing liquidity, including to fund operations.
Financial terms and prepayments. Interest accrues on outstanding borrowings under the Term Loan and the Credit Facility at a
rate of either the LIBOR Rate (as defined in the Financing Agreement) plus 6.75% or a Reference Rate (as defined in the
Financing Agreement) plus 5.75%, at the option of the Company. The Term Loan is subject to a $1.25 million mandatory
principal amortization per quarter commencing in June 2016. The Company may prepay all or any portion of the Term Loan prior
to its stated maturity, subject to the payment of certain fees based on the amount repaid. The Company must pay to the lenders, on
a monthly basis, an unused line fee at a rate of 0.5% per annum on an amount equal to (1) the total lending commitments under
the Credit Facility less (2) the average daily amount of the outstanding borrowings under the Credit Facility during the
immediately preceding month. During the term of the Credit Facility, the Company is entitled to reduce the maximum amounts of
the lenders’ commitments under the Credit Facility, subject to the payment of certain fees based on the amount of any reduction.
In addition, subject to limited exceptions the Company will be required to prepay the borrowings under the Cerberus Financing
Agreement with proceeds it receives from specified events, including sales of assets, tax refunds, legal judgments and settlements,
third party indemnities insurance proceeds and condemnation awards. Each year the Company will be required to prepay the
borrowings under the Cerberus Financing Agreement in an amount equal to 50% of the excess cash flow of the Company.
Collateral and guarantees. The Company and its subsidiary, Avid Technology Worldwide, Inc. (“Avid Worldwide”), granted a
security interest on substantially all of their assets to secure the obligations of all obligors under the Term Loan and the Credit
Facility. Avid Worldwide provided a guarantee of all the Company’s obligations under the Cerberus Financing Agreement. Future
subsidiaries of the Company (other than certain foreign and immaterial subsidiaries) are also required to become a party to the
applicable security agreements and guarantee the obligations under the Cerberus Financing Agreement.