Classmates.com 2004 Annual Report Download - page 54

Provisions of our term loan restrict our business operations and may restrict our access to additional funding in the future.
We have a term loan with a group of financial institutions secured by substantially all of our assets. The terms of the term loan contain
customary events of default and covenants that limit us from taking certain actions without obtaining the consent of the lenders. In addition, our
term loan agreement requires us to achieve certain financial ratios. These restrictions and covenants limit our ability to respond to changing
business and economic conditions, and we may be prevented from engaging in transactions that might otherwise be considered beneficial to us,
including strategic acquisitions. Covenants in our term loan agreement also restrict our ability to incur indebtedness, repurchase our common
stock, distribute dividends and provide financing to our foreign subsidiaries.
A breach of our term loan agreement, including our inability to comply with the required financial ratios, could result in a default under our
term loan. In the event of any default under our term loan, the lenders would be entitled to accelerate the repayment of amounts outstanding, plus
accrued and unpaid interest. Moreover, these lenders would have the option to proceed to foreclose against the assets securing our obligations. In
the event of a foreclosure on all or substantially all of our assets, we may not be able to continue to operate as a going concern.
Our access business is dependent on a small number of telecommunications carriers. Our inability to maintain agreements at attractive
rates with these carriers may negatively impact our business.
Our access business substantially depends on the capacity, affordability, reliability and security of our telecommunications networks. Only
a small number of telecommunications providers offer the network and data services we require, and the majority of our telecommunications
services is currently purchased from Level 3 Communications and a significant portion is currently purchased from MCI and Pac-West.
Furthermore, in the past, several vendors have ceased operations or ceased offering the services we require, causing us to switch vendors.
Vendors may experience significant financial difficulties and be unable to perform satisfactorily or to continue to offer their services. MCI,
Level 3 Communications and Pac-West have a significant amount of debt obligations. The loss of vendors has resulted, and may in the future
result, in increased costs, decreased service quality and the loss of users. In particular, the failure of Level 3 Communications, MCI or Pac-West
to continue to provide the scope, quality and pricing of services currently provided could materially and adversely affect our business and results
of operations. Some of our telecommunications services are provided pursuant to short-term agreements that the providers can terminate or elect
not to renew. In addition, each of our telecommunications carriers provides network access to some of our competitors and could choose to grant
those competitors preferential network access or pricing. Certain of our telecommunications providers compete with us in the market to provide
consumer Internet access. As a result, any or all of our current telecommunications service providers could discontinue providing us with service
at rates acceptable to us, or at all, which could materially and adversely affect our business, financial position, results of operations and cash
flows.
Market rates for telecommunications services used in our business have declined significantly in recent years. We do not anticipate that
such rates will continue to decline at the same rate in the future, if at all. General market forces, the failure of providers, regulatory issues and
other factors could result in increased rates. Any increase in market rates would increase the cost of providing our services and, if significant,
could have a material adverse effect on our business, financial position, results of operations and cash flows.
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