8. Long-term Debt and Capital Lease Obligations

Long-term Debt

On July 30, 2010, the Company entered into a Credit Facility Agreement (“Credit Agreement”) with the Royal Bank of Canada and issued a $95 million five-year term loan and a $15 million revolving credit facility to finance the acquisition of Register.com LP. The term loan and the revolving credit facility both bear variable interest rates of 1-month LIBOR plus 4.5 percent with the rate resetting at each month end. The term loan and the revolving credit facility mature on July 30, 2015. During 2011, the Company made principal payments of $12.7 million; $4.5 million was a required principal payment on the term loan and the remaining $8.2 million paid down the revolving credit facility. The Company has approximately $12.0 million of available borrowing capacity at June 30, 2011 under the revolving credit facility.

In conjunction with the term loan and revolving credit facility, the Company incurred approximately $5.3 million of financing related fees that have been recorded as an asset that will be amortized to interest expense over the life of the related long-term debt using the interest method. As of June 30, 2011, the Company has approximately $4.1 million of unamortized financing fees remaining.

On July 30, 2010, the Company issued a $5 million note payable to the sellers of Register.com LP. The note payable bears interest at a rate of 5 percent with interest payments made on a quarterly basis and matures on July 30, 2015.

As of June 30, 2011, total principal payments due for all long-term debt during the next five years are as follows (in thousands):

2011(remainder of year)	$	5,006
2012		11,125
2013		11,125
2014		20,025
2015		42,994
Total		90,275
Less current portion		(10,569	)
Total long-term debt	$	79,706

Debt Covenants

In addition to scheduled principal payments above, the Credit Agreement requires the Company to pay an additional principal amount equal to fifty percent of any excess cash flow, as defined in the Credit Agreement, for such year. The required percentage of excess cash flow shall be reduced to thirty-three percent if the Consolidated Leverage Ratio is reduced to 1.5 to 1. The Consolidated Leverage Ratio is defined as consolidated debt divided by Covenant EBITDA (see below). For the year ended December 31, 2011 only, the required excess cash flow payment shall be reduced by $7.5 million. Excess cash flow payments are due within ninety-five days of each year end, commencing with the year ended December 31, 2011.

The Credit Agreement also requires that the Company maintain a Consolidated Fixed Charge Coverage Ratio which is defined as Covenant EBITDA divided by consolidated fixed charges. Consolidated fixed charges include consolidated interest expense and scheduled debt payments made in a given period.

For purposes of determining the Consolidated Leverage Ratio and the Consolidated Fixed Charge Coverage Ratio, consolidated covenant EBITDA is defined in the Credit Agreement for the three months ended September 30, 2010 as $10.2 million. The combined entity that includes Register.com LP did not exist until the acquisition on July 30, 2010; therefore these amounts were stated in the Credit Agreement so that the debt covenants can be calculated based on a trailing 12-month basis.

Covenant EBITDA is defined as consolidated net income before:

·	Income tax expense

·	Interest expense, amortization or write-off of debt issuance costs

·	Depreciation and amortization expense

·	Extraordinary gains or losses

·	Non-cash gains on the sales of assets outside of the ordinary course of business

·	Non-cash income

·	Cash restructuring, integration, transition, severance, facilities discontinuation or transaction costs for any period prior to December 31, 2011 up to $6 million and, subsequent to December 31, 2011, an aggregate amount not to exceed $5 million

·	Adjustments to revenue or expense resulting from a fair market value adjustment to deferred revenue or prepaid expenses in purchase accounting

·	Other non-cash expenses, excluding any accrual for a future cash expenditure

·	Acquisition expenses incurred prior to December 31, 2010 and audit or valuation services expense which constitute acquisition expenses incurred prior to December 31, 2011

·	Marketing program expenditures in any period to the extent that such expenditures exceed the projected marketing program expenditures as reflected in the financing projection model up to $3 million per year

The covenants as of June 30, 2011, are calculated on a trailing 12-month basis:

		Ratio at	Favorable /
Covenant Description	Covenant Requirement	June 30, 2011	(Unfavorable)
Consolidated Leverage Ratio	Not to exceed 3.25 to 1	2.36 to 1	0.89
Consolidated Fixed Charge Coverage Ratio	Minimum of 2.00 to 1	2.98 to 1	0.98

In addition to the financial covenants listed above, the term loan and credit facility include customary covenants that limit the incurrence of debt, the disposition of assets, and making of certain payments. Substantially all of the Company’s tangible and intangible assets collateralize the long-term debt as required by the Credit Agreement.

Capital Lease Obligations

The Company acquired various capital lease obligations as part of the Solid Cactus acquisition in April 2009, which consisted of non-cancelable lease agreements of computers and equipment that continue through 2013. The required minimum payments on these capital leases as of June 30, 2011 are (in thousands):

2011(remainder of year)	$	33
2012		59
2013		25
Total		117
Less interest		(8	)
		109
Less current portion		(58	)
Total obligations under capital leases, long term	$	51