Vonage 2008 Annual Report Download - page 85

V
O
NA
G
EH
O
LDIN
GS CO
RP
.
N
O
TE
S
T
OCO
N
SO
LIDATED FINAN
C
IAL
S
TATEMENT
S
—
(C
ontinued
)
(
In thousands, except per share amounts
)
Vendor
C
ommitment
s
We have engaged several vendors to assist with local
num
b
er porta
bili
ty, w
hi
c
h
a
ll
ows customers to
k
eep t
h
e
i
r
existin
g
phone number when switchin
g
to our service. W
e
have committed to pay these vendors a minimum of
$
3,480
in 2009 and 2010, and $1,200 in 2011
.
W
e
h
ave engage
d
a ven
d
or to ass
i
st w
i
t
hi
n
b
oun
d
sales inquiries. We have committed to pa
y
this vendo
r
$
10,200 in 2009 and $8,500 in 2010
.
W
e
h
ave comm
i
tte
d
to
p
urc
h
ase commun
i
cat
i
on
devices
f
rom several vendors. We have committed to these
vendors $14,373 in 2009 and $5,134 in 2010
.
W
e
h
ave en
g
a
g
e
d
a cre
di
t car
d
processor to proces
s
our billings. We have committed to pay this vendor a mini
-
mum of $3,700 each year throu
g
h 2012
.
W
e
h
ave en
g
a
g
e
d
a ven
d
or to prov
id
e
b
roa
db
an
di
nter
-
net access service to our customers. We have committe
d
t
opa
y
this vendor
$
650 in 2009,
$
1,917 in 2010 and
$
1,867
i
n 2011.
W
e are attempt
i
n
g
to rene
g
ot
i
ate t
hi
s contract w
i
t
h
t
he vendor. We have engaged a vendor that enables a
customers call to connect to the public switched telephone
network. We have committed to pay this vendor $60,000 i
n
2009
.
Li
t
i
gat
i
o
n
S
tate Attorney
G
eneral Proceedings.
I
n 2008,
V
onag
e
learned that a
g
roup of twenty-ei
g
ht states’ attorney
g
en-
erals had be
g
un an investi
g
ation into certain o
f
our busi
-
ness
p
ractices. We have received document re
q
uests from
t
wenty-two of the participatin
g
states. The requests see
k
in
f
ormation that Vona
g
e previously produced to th
e
Wisconsin Attorney
G
eneral as part of an investigation
commenced in November 2007, which consisted of, amon
g
other thin
g
s, sales and retention marketin
g
scriptin
g
, adver-
t
ising disclosures, and in
f
ormation related to our mone
y
b
ac
kg
uarantee.
Th
e most recent requests a
l
so see
k
,
amon
g
other thin
g
s, in
f
ormation related to marketin
g
and
billing practices, as well as early termination
f
ees. To date,
none of the attorney
g
enerals have filed a complaint a
g
ains
t
us or taken other
f
ormal action. We are unable to predict
whether a
f
ormal action will be
f
iled against us. We intend
t
o fully cooperate in the investi
g
ation
.
I
P
O
Litigation. During June and July 2006, Vonage
,
several o
f
our o
ff
icers and directors, and the
f
irms wh
o
served as the underwriters in our IP
O
were named a
s
defendants in several
p
ur
p
orted class action lawsuits aris
-
in
g
out of our IPO. On January 9, 2007, the Judicial Panel
on Multidistrict Liti
g
ation transferred all complaints to th
e
D
istrict of New Jersey.
O
n
S
eptember 7, 2007, the
C
ourt
appointed Z
y
ssman Group as the lead plaintiff, and the la
w
firm of Zwerlin
g
,
S
chachter and Zwerlin
g
, LLP as lead
counsel.
O
n November 19, 2007, the
p
laintiffs filed th
e
Amended Complaint, which
g
enerally alle
g
es: (i) defendant
s
ma
d
em
i
sstatements re
g
ar
di
n
g
su
b
scr
ib
er
li
ne
g
rowt
h
an
d
average monthly churn rate;
(
ii
)
defendants failed to dis-
close problems with
f
acsimile transmissions and a pendin
g
fax liti
g
ation case;
(
iii
)
defendants failed to disclose all pat
-
e
nt infringement claims and issues; and (iv) that the
Directed Share Pro
g
ram suffered from various infirmities
.
O
n January 18, 2008, defendants filed their motions to
d
ismiss the Amended Complaint, and briefing on the matter
w
as completed b
y
April 2, 2008, and the Court heard ora
l
a
r
g
ument on
O
ctober 10, 2008. The
C
ourt has not yet ruled
o
n the motion. The
f
irms who served as underwriters to the
IPO, pursuant to an indemnification a
g
reement entered into
b
etween us and those firms
p
rior to the IP
O
have
d
emanded that Vonage reimburse them
f
or the costs an
d
fees incurred by them in defense of the IPO liti
g
ation. In
a
ddition, three of the firms have demanded that Vonag
e
reimburse them
f
or the costs and
f
ees incurred b
y
them i
n
response to var
i
ous re
g
u
l
atory
i
nqu
i
r
i
es
b
yt
h
e
Fi
nanc
i
a
l
Industry Re
g
ulatory Authority
(
formerly the NA
S
D
)
and the
New York Stock Exchange, among other things. Vonag
e
has declined to reimburse these three
f
irms an
yf
ees o
r
e
x
penses.
C
onsumer Class Action Litigations.
W
e have bee
n
named in several
p
ur
p
orted class actions venued in
C
al-
if
ornia, New Jersey, and Washin
g
ton alle
g
in
g
a wide variet
y
of
de
f
iciencies with respect to our business practices
,
mar
k
et
i
ng
di
sc
l
osures, ema
il
mar
k
et
i
ng an
d
qua
li
ty
i
ssues
f
or both phone and
f
ax service.
For exam
p
le, there are various class actions, on behal
f
of
both nationwide and state classes, pendin
g
in New Jer-
s
ey, Washington and California generally alleging that we
d
elayed and
/
or refused to allow consumers to cancel their
V
ona
g
e service; failed to disclose procedural impediment
s
to cancellation;
f
ailed to adequatel
y
disclose that their
3
0-
d
ay money
b
ac
k
guarantee
d
oes not g
i
ve consumers 3
0
d
a
y
stotr
y
out our serv
i
ces; suppresse
d
an
d
concea
l
e
d
t
h
e
true nature o
f
our services and disseminated
f
alse advertis
-
i
ng about the quality, nature and terms of our services
;
i
mposed an unlawful earl
y
termination fee; and invoked
unconscionable provisions of our Terms of Service to the
d
etriment of customers.
O
n May 11, 2007, plaintiffs in one
a
ct
i
on pet
i
t
i
one
d
t
h
e
J
u
di
c
i
a
lP
ane
l
on
M
u
l
t
idi
str
i
ct
Li
t
i-
g
ation (the “Panel”), seeking transfer and consolidation of
the pending actions to a single court for coordinated pre-
trial proceedin
g
s. In an
O
rder dated Au
g
ust 15, 2007, the
Panel transferred the pending actions to the United State
s
C
ourt for the District of New Jersey, captioned In re Vonag
e
Marketin
g
and
S
ales Practices Liti
g
ation, MDL No. 1862,
Master Docket No. 07-CV-3906 (USDC, D.N.J.). O
n
O
ctober 1, 2007, counsel for one group of plaintiffs moved
b
efore the
C
ourt for
C
onsolidation and A
pp
ointment o
f
Co-Lead Counsel of the actions, and requested time to file
a
n Amended
C
onsolidated
C
om
p
laint.
O
n November 6
,
2008 the
C
ourt entered an
O
rder
G
rantin
gC
onsolidatio
n
a
nd Appointment of Co-Lead Counsel, and ordered that a
c
onsolidated
C
omplaint be filed within 45 days, whic
h
C
omplaint was filed on December 19, 2008.
O
n February 6
,
2009, we filed a Motion to Compel Arbitration
.
Nebraska Public
S
ervice
C
ommission.
O
n
November 15, 2007, the Director o
f
the Nebraska Tele
-
c
ommunications Infrastructure and Public Safety Depart-
m
ent of the Nebraska Public
S
ervice
C
ommission filed a
F-2
5