Vonage 2010 Annual Report Download - page 44

C
redit Facility Term
s
T
he followin
g
description summarizes the material terms of
t
he
C
redit Facility
.
T
he loans under the Credit Facility mature in December 2015
.
T
he loans under the Credit Facility were issued at an ori
g
inal
i
ssuance discount of $6,000. Princi
p
al amounts under the Credi
t
Facility are repayable in quarterly installments o
f
approximatel
y
$
5,000
p
er
q
uarter, with the balance due in December 2015
.
A
mounts under the
C
redit Facilit
y
, at our option, will bear
i
nterest at
:
>
the
g
reater of 1.75% or LIBOR plus, in either case, an appli
-
c
able mar
g
in equal to 8.00
%
, payable on the last day o
f
eac
h
r
elevant interest period or, i
f
the interest period is lon
g
er than
three months, each day that is three months a
f
ter the
f
irst da
y
of
the interest
p
eriod, or
>
the base rate determined by reference to the highest of
(
a
)
th
e
f
ederal funds effective rate from time to time plus 0.50%,
(
b
)
the prime rate of Bank of America, N.A., and
(
c
)
the LIB
O
R
r
ate applicable to one month interest periods plus 1.00%,
p
lus an applicable margin equal to 7.00%, payable on the las
t
b
usiness da
y
of each March, June,
S
eptember, an
d
D
ecember and the maturit
y
date of the
C
redit Facilit
y.
We may prepay the
C
redit Facility at our option at any tim
e
without premium or penalty and, i
f
prepaid within the
f
irst year
with proceeds o
f
indebtedness, a prepayment
f
ee o
f
1.00
%
o
f
the
amount repaid. The Credit Facility is subject to mandatory
p
repayments in amounts equal to
:
>
100
%
o
f
the net cash proceeds
f
rom an
y
non-ordinar
y
cours
e
s
ale or other disposition o
f
our propert
y
and assets
f
or
c
onsideration in excess o
f
a certain amount, subject to cus
-
tomar
y
re
i
nvestment prov
i
s
i
ons an
d
certa
i
not
h
er except
i
ons
;
>
100% of the net cash proceeds from issuance or incurrenc
e
o
f additional debt of us or an
y
of our subsidiaries other tha
n
c
erta
i
n
p
erm
i
tte
di
n
d
e
b
te
d
ness; an
d
>
75%
(
with a ste
p
down to 50% based u
p
on achievement of
a
total levera
g
e ratio of 1.00:1.00) of our annual excess cash
f
l
o
w
.
S
ubject to certain restrictions and exceptions, the
C
redi
t
F
ac
ili
t
y
perm
i
ts us to o
b
ta
i
n one or more
i
ncrementa
l
term
l
oan
and
/
or revolving credit facilities in an aggregate principal amoun
t
of up to
$
40,000 pursuant to documentation reasonabl
y
sat-
i
sfactory to the administrative agent, without the consent of th
e
existing lenders under the
C
redit Facility.
T
he Credit Facility includes customary representations and
warranties and a
ff
irmative covenants o
f
the borrowers. In addition
,
t
he Credit Facility contains customary ne
g
ative covenants, includ
-
i
n
g
, amon
g
other thin
g
s, restrictions on the borrowers’ and the
g
uarantors’ ability to consolidate or mer
g
e, create liens, incu
r
additional indebtedness, dis
p
ose o
f
assets, consummate ac
q
uis
-
i
tions, make investments, and pay dividends and other dis
-
t
ributions. We must also comply with the
f
ollowin
gf
inancia
l
co
v
e
n
a
nt
s:
>
a
consolidated leverage ratio o
f
no greater than: 2.25 to 1.00
a
s of the end of each fiscal quarter ending on or prior t
o
S
eptember 30, 2011; 2.00 to 1.00 as of the end of each fisca
l
q
uarter ending on or prior to
S
eptember 30, 2012; 1.75 t
o
1.00 as of the end of each fiscal quarter endin
g
on or prior t
o
S
e
p
tember 30, 2013; 1.50 to 1.00 as of the end of each fisca
l
q
uarter endin
g
on or prior to
S
eptember 30, 2014; and 1.2
5
to 1.00 as of the end of each fiscal
q
uarter thereafter
;
>
a
consolidated interest coverage ratio of no less than: 3.00 t
o
1.00 as of the end of each fiscal quarter ending on or prior t
o
June 30
,
2013 and 3.50 to 1.00 as of the end of each fisca
l
q
uarter thereafter; and
>
maximum capital expenditures not to exceed $55,000 durin
g
a
ny
f
iscal year, provided that the unused amount o
f
an
y
p
ermitted capital expenditures in any
f
iscal year may be car-
r
ied
f
orward to the next
f
ollowin
gf
iscal year.
As of December 31, 2010, we were in com
p
liance with all
covenants, includin
g
financial covenants, for the
C
redit Facility
.
T
he
C
redit Facilit
y
contains customar
y
events of default tha
t
m
a
y
permit acceleration of the debt under the
C
redit Facilit
y
.
Durin
g
the continuance of a payment or bankruptcy event o
f
default, or upon any other event of default upon request of lend-
ers holdin
g
advances representin
g
more than 50% of the
a
gg
re
g
ate principal amount of advances outstandin
g
under th
e
C
redit Facility, interest will accrue at a default interest rate of 2
%
above the interest rate that would otherwise be a
pp
licable
.
S
tate and Local
S
ales Taxe
s
We also have contin
g
ent liabilities
f
or state and local sale
s
t
axes. As of December 31, 2010, we had a reserve of $2,803. I
f
our ultimate liability exceeds this amount, it could a
ff
ect ou
r
l
iquidity un
f
avorably. However, we do not believe it would si
g-
ni
f
icantly impair our liquidity
.
C
apital expenditures
For 2010, capital expenditures were primaril
yf
or the
i
mplementation of software solutions and purchase of networ
k
equipment as we continue to expand our network.
O
ur capita
l
expenditures for the
y
ear ended 2010 were
$
40,386, of which
$
22,712 was for software acquisition and development. For 2011
,
we believe our capital expenditures will be in the
$
40,000 t
o
$
45,000 range
.
Operatin
g
Activities
C
ash provided by operatin
g
activities increased to
$
194,212
durin
g
the year ended December 31, 2010 compared to
$
38,39
6
for the year ended December 31, 2009, primarily due to chan
g
es
i
n workin
g
capital requirements, lower marketin
g
expenditures
,
and overall ti
g
hter controls on costs partially offset by hi
g
her cos
t
of telephony services attributable to increased international
minutes used in connection with our Vona
g
e World plan.
C
hanges in working capital requirements include changes i
n
accounts rece
i
va
bl
e,
i
nventor
y
, prepa
id
an
d
ot
h
er assets, ot
h
e
r
assets, accounts pa
y
a
bl
e, accrue
d
an
d
ot
h
er
li
a
bili
t
i
es, an
d
deferred revenue and costs.
C
ash provided by working capita
l
i
ncreased by
$
119,734 during the year ended December 31, 2010
compare
d
to t
h
e
y
ear en
d
e
dD
ecem
b
er 31, 2009, pr
i
mar
ily d
ue to
t
he timing of payments and absence of prepayment opportunitie
s
for discounts and the return of an
$
8,925 securit
y
deposit fro
m
our device manufacturer as a result of improvements in credit
quality. We expect changes in working capital to be neutral for ful
l
y
ear 2011 although it may fluctuate from quarter to quarter
.
C
ash provided by operatin
g
activities increased to $38,396
during the year ended December 31, 2009 compared to $3,555
f
or the
y
ear ended December 31, 2008, primaril
y
due to lower
37