VONAGE HOLDINGS CORP (Form: 10-Q, Received: 07/31/2013 17:01:22)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2013



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From __________ to __________

Commission File Number 001-32887

VONAGE HOLDINGS CORP.

(Exact name of registrant as specified in its charter)



Delaware		11-3547680
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

23 Main Street, Holmdel, NJ		07733
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (732) 528-2600

(Former name, former address and former fiscal year, if changed since last report): Not Applicable

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check one:



Large accelerated filer	o	Accelerated filer	x

Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class	Outstanding at		July 30, 2013
Common Stock, par value $0.001		210,197,769		shares

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VONAGE HOLDINGS CORP.

INDEX



Part I. Financial Information

		Page
Item 1.	Financial Statements
	A) Consolidated Balance Sheets as of June 30, 2013 (Unaudited) and December 31, 2012	3
	B) Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2013 and 2012	4
	C) Unaudited Consolidated Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2013 and 2012	5
	D) Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012	6
	E) Unaudited Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2013	7
	F) Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4	Controls and Procedures	41

Part II. Other Information

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3.	Defaults Upon Senior Securities	42

Item 4.	Mine Safety Disclosures	42

Item 5.	Other Information	43

Item 6.	Exhibits	44

	Signature	45

Financial Information Presentation

For the financial information discussed in this Quarterly Report on Form 10-Q, other than per share and per line amounts, dollar amounts are presented in thousands, except where noted.

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Part I – Financial Information



Item 1.	Financial Statements

VONAGE HOLDINGS CORP.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)



	June 30, 2013			December 31, 2012
Assets	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	98,548		$	97,110
Accounts receivable, net of allowance of $665 and $753, respectively	23,296			20,416
Inventory, net of allowance of $231 and $268, respectively	10,299			5,470
Deferred customer acquisition costs, current	6,507			5,418
Deferred tax assets, current	15,947			15,947
Prepaid expenses and other current assets	23,700			15,487
Total current assets	178,297			159,848
Property and equipment, net	56,436			60,533
Software, net	20,609			19,560
Deferred customer acquisition costs, non-current	250			347
Debt related costs, net	1,998			772
Restricted cash	4,393			5,656
Intangible assets, net	5,494			6,681
Deferred tax assets, non-current	277,395			290,166
Other assets	2,158			3,826
Total assets	$	547,030		$	547,389
Liabilities and Stockholders’ Equity
Liabilities
Current liabilities:
Accounts payable	$	43,554		$	74,028
Accrued expenses	73,086			55,787
Deferred revenue, current portion	35,397			35,803
Current maturities of capital lease obligations	2,673			2,471
Current portion of notes payables	23,333			28,333
Total current liabilities	178,043			196,422
Notes payable, net of current portion	35,000			14,167
Deferred revenue, net of current portion	551			730
Capital lease obligations, net of current maturities	11,704			13,090
Other liabilities, net of current portion in accrued expenses	1,596			1,565
Total liabilities	226,894			225,974
Commitments and Contingencies	—			—
Stockholders’ Equity
Common stock, par value $0.001 per share; 596,950 shares authorized at June 30, 2013 and December 31, 2012; 237,226 and 230,118 shares issued at June 30, 2013 and December 31, 2012, respectively; 211,096 and 215,306 shares outstanding at June 30 30, 2013 and December 31, 2012, respectively	237			230
Additional paid-in capital	1,099,085			1,088,186
Accumulated deficit	(705,736		)	(726,230		)
Treasury stock, at cost, 26,130 shares at June 30, 2013 and 14,812 shares at December 31, 2012	(74,335		)	(43,343		)
Accumulated other comprehensive income	885			2,572
Total stockholders’ equity	320,136			321,415
Total liabilities and stockholders’ equity	$	547,030		$	547,389

The accompanying notes are an integral part of the consolidated financial statements.

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VONAGE HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012

Revenues	$	204,776		$	211,916		$	413,863		$	427,819

Operating Expenses:
Direct cost of telephony services (excluding depreciation and amortization of $3,510, $3,929, $6,962 and $7,859, respectively)	53,527			58,195			108,708			119,818
Direct cost of goods sold	9,217			9,275			18,095			19,121
Selling, general and administrative	61,481			58,396			124,391			120,231
Marketing	58,330			54,956			109,999			108,378
Depreciation and amortization	8,205			8,518			16,180			17,162
Loss from abandonment of software assets	—			25,262			—			25,262
	190,760			214,602			377,373			409,972
Income (loss) from operations	14,016			(2,686		)	36,490			17,847
Other Income (Expense):
Interest income	74			30			111			50
Interest expense	(1,732		)	(1,566		)	(3,189		)	(3,317		)
Other (expense) income, net	(17		)	(65		)	(56		)	(23		)
	(1,675		)	(1,601		)	(3,134		)	(3,290		)
Income (loss) before income tax expense	12,341			(4,287		)	33,356			14,557
Income tax (expense) benefit	(4,894		)	947			(12,862		)	(3,976		)
Net income (loss)	$	7,447		$	(3,340	)	$	20,494		$	10,581
Net income (loss) per common share:
Basic	$	0.04		$	(0.01	)	$	0.10		$	0.05
Diluted	$	0.03		$	(0.01	)	$	0.09		$	0.05
Weighted-average common shares outstanding:
Basic	212,169			226,429			213,404			226,081
Diluted	219,837			226,429			222,331			234,219

The accompanying notes are an integral part of the consolidated financial statements.

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VONAGE HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Net income (loss)	$	7,447		$	(3,340	)	$	20,494		$	10,581
Other comprehensive loss:
Foreign currency translation adjustment	(1,063		)	(741		)	(1,687		)	(145		)
Total other comprehensive loss	(1,063		)	(741		)	(1,687		)	(145		)
Comprehensive income (loss)	$	6,384		$	(4,081	)	$	18,807		$	10,436

The accompanying notes are an integral part of the consolidated financial statements.

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VONAGE HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Six Months Ended
	June 30,
	2013			2012
Cash flows from operating activities:
Net income	$	20,494		$	10,581
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization and impairment charges	14,993			15,974
Amortization of intangibles	1,187			1,188
Loss from abandonment of software assets	—			25,262
Deferred tax expense	12,469			3,175
Allowance for doubtful accounts	(100		)	953
Allowance for obsolete inventory	230			92
Amortization of debt related costs	783			689
Share-based expense	8,401			6,128
Changes in operating assets and liabilities:
Accounts receivable	(2,823		)	(2,413		)
Inventory	(5,118		)	(3,129		)
Prepaid expenses and other current assets	(8,229		)	(1,092		)
Deferred customer acquisition costs	(1,009		)	255
Other assets	1,668			(652		)
Accounts payable	(30,397		)	(8,102		)
Accrued expenses	16,490			(6,158		)
Deferred revenue	(466		)	(2,162		)
Other liabilities	31			51
Net cash provided by operating activities	28,604			40,640
Cash flows from investing activities:
Capital expenditures	(5,803		)	(3,692		)
Acquisition and development of software assets	(6,197		)	(9,647		)
Decrease in restricted cash	1,256			998
Net cash used in investing activities	(10,744		)	(12,341		)
Cash flows from financing activities:
Principal payments on capital lease obligations	(1,184		)	(1,006		)
Principal payments on notes	(11,667		)	(14,167		)
Proceeds received from issuance of notes payable	27,500			—
Debt related costs	(2,009		)	—
Common stock repurchases	(30,066		)	—
Proceeds from exercise of stock options, net of stock cancellation payment	2,505			558
Net cash used in financing activities	(14,921		)	(14,615		)
Effect of exchange rate changes on cash	(1,501		)	(165		)
Net change in cash and cash equivalents	1,438			13,519
Cash and cash equivalents, beginning of period	97,110			58,863
Cash and cash equivalents, end of period	$	98,548		$	72,382
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest	$	2,032		$	2,530
Income taxes	$	1,448		$	1,863
Non-cash financing transactions during the periods for:
Common stock repurchases	$	629		$	—

The accompanying notes are an integral part of the consolidated financial statements.

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VONAGE HOLDINGS CORP.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)



	Common Stock		Additional Paid-in Capital			Accumulated Deficit			Treasury Stock			Accumulated Other Comprehensive Income			Total
Balance at December 31, 2012	$	230	$	1,088,186		$	(726,230	)	$	(43,343	)	$	2,572		$	321,415
Stock option exercises	7		7,961												7,968
Stock option cancellation			(5,463		)										(5,463		)
Share-based expense			8,401												8,401
Share-based award activity									(941		)				(941		)
Common stock repurchases									(30,051		)				(30,051		)
Foreign currency translation adjustment												(1,687		)	(1,687		)
Net income						20,494									20,494
Balance at June 30, 2013	$	237	$	1,099,085		$	(705,736	)	$	(74,335	)	$	885		$	320,136

The accompanying notes are an integral part of the consolidated financial statements.

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VONAGE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Note 1. Basis of Presentation and Significant Accounting Policies

Nature of Operations

Vonage Holdings Corp. (“Vonage”, “Company”, “we”, “our”, “us”) is incorporated as a Delaware corporation. We are a leading provider of low-cost communications services connecting people through cloud-connected devices worldwide. Customers in the United States represented 93% of our subscriber lines for our broadband telephone replacement services at June 30, 2013 , with the balance primarily in Canada and the United Kingdom.

Unaudited Interim Financial Information

The accompanying unaudited interim consolidated financial statements and information have been prepared in accordance with accounting principles generally accepted in the United States and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these financial statements contain all normal and recurring adjustments considered necessary to present fairly the financial position, results of operations, cash flows, and statement of stockholders’ equity for the periods presented. The results for the three and six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the full year.

These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission on February 13, 2013 .

Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Vonage and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates.

On an ongoing basis, we evaluate our estimates, including the following:


•	the useful lives of property and equipment, software costs, and intangible assets;


•	assumptions used for the purpose of determining share-based compensation using the Black-Scholes option pricing model (“Model”), and various other assumptions that we believe to be reasonable; the key inputs for this Model are our stock price at valuation date, exercise price, the dividend yield, risk-free interest rate, life in years, and historical volatility of our common stock; and


•	assumptions used in determining the need for, and amount of, a valuation allowance on net deferred tax assets.

We base our estimates on historical experience, available market information, appropriate valuation methodologies, and on various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Revenue Recognition

Revenues consist of telephony services revenues and customer equipment (which enables our telephony services) and shipping revenues. The point in time at which revenues are recognized is determined in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, Revenue Recognition, and Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition .

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VONAGE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

At the time a customer signs up for our telephony services, there are the following deliverables:


•	Providing equipment, if any, to the customer that enables our telephony services; and


•	Providing telephony services.

The equipment is provided free of charge to our customers and in most instances there are no activation fees collected at sign-up. We record the fees collected for shipping the equipment to the customer, if any, as shipping and handling revenue at the time of shipment.

Telephony Services Revenue

Substantially all of our revenues are telephony services revenues, which are derived primarily from monthly subscription fees that customers are charged under our service plans. We also derive telephony services revenues from per minute fees for international calls if not covered under a plan, including applications for mobile devices and other stand-alone products, and for any calling minutes in excess of a customer’s monthly plan limits. Monthly subscription fees are automatically charged to customers’ credit cards, debit cards or electronic check payments ("ECP"), in advance and are recognized over the following month when services are provided. Revenues generated from international calls and from customers exceeding allocated call minutes under limited minute plans are recognized as services are provided, that is, as minutes are used, and are billed to a customer’s credit cards, debit cards or ECP in arrears. As a result of our multiple billing cycles each month, we estimate the amount of revenues earned from international calls and from customers exceeding allocated call minutes under limited minute plans but not billed from the end of each billing cycle to the end of each reporting period and record these amounts as accounts receivable. These estimates are based primarily upon historical minutes and have been consistent with our actual results.

We also provide rebates to customers who purchase their customer equipment from retailers and satisfy minimum service period requirements. These rebates in excess of activation fees are recorded as a reduction of revenues over the service period based upon the estimated number of customers that will ultimately earn and claim the rebates.

In the United States, we charge regulatory, compliance, E-911, and intellectual property-related fees on a monthly basis to defray costs, and to cover taxes that we are charged by the suppliers of telecommunications services. In addition, we charge customers Federal Universal Service Fund (“USF”) fees. We recognize revenue on a gross basis for USF and related fees. We record these fees as revenue when billed. All other taxes are recorded on a net basis.

Customer Equipment and Shipping Revenue

Customer equipment and shipping revenues, comprising an incidental portion of our revenue, derives from revenues from sales of customer equipment to wholesalers or directly to customers for replacement devices, or for upgrading their device at the time of customer sign-up for which we charge an additional fee. In addition, customer equipment and shipping revenues include the fees that customers are charged for shipping their customer equipment to them. Customer equipment and shipping revenues include sales to our retailers, who subsequently resell this customer equipment to customers. Revenues are reduced for payments to retailers and rebates to customers who purchased their customer equipment through these retailers, to the extent of customer equipment and shipping revenues.

Direct Cost of Telephony Services

Direct cost of telephony services consists primarily of direct costs that we pay to third parties in order to provide telephony services. These costs include access and interconnection charges that we pay to other telephone companies to terminate domestic and international phone calls on the public switched telephone network. In addition, these costs include the cost to lease phone numbers, to co-locate in other telephone companies’ facilities, to provide enhanced emergency dialing capabilities to transmit 911 calls, and to provide local number portability. These costs also include taxes that we pay on telecommunications services from our suppliers or are imposed by government agencies such as Federal USF and royalties for use of third parties’ intellectual property. These costs do not include indirect costs such as depreciation and amortization, payroll, and facilities costs. Our presentation of direct cost of telephony services may not be comparable to other similar companies.

Direct Cost of Goods Sold

Direct cost of goods sold consists primarily of costs that we incur when a customer signs up for our service. These costs include the cost of customer equipment for customers who subscribe through the direct sales channel in excess of activation fees.

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VONAGE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

In addition, these costs include the amortization of deferred customer equipment, the cost of shipping and handling for customer equipment, the installation manual that accompanies the customer equipment, and the cost of certain promotions.

Development Expenses

Costs for research, including predevelopment efforts prior to establishing technological feasibility of software expected to be marketed, are expensed as incurred. Development costs are capitalized when technological feasibility has been established and anticipated future revenues support the recoverability of the capitalized amounts. Capitalization stops when the product is available for general release to customers. Due to the short time period between achieving technological feasibility and product release and the insignificant amount of costs incurred during such periods, we have not capitalized any software development, and have expensed these costs as incurred. These costs are included in selling, general and administrative expense.

Cash and Cash Equivalents

We maintain cash with several investment grade financial institutions. Highly liquid investments, which are readily convertible into cash, with original maturities of three months or less, are recorded as cash equivalents.

Certain Risks and Concentrations

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash equivalents and accounts receivable. They are subject to fluctuations in both market value and yield based upon changes in market conditions, including interest rates, liquidity, general economic conditions, and conditions specific to the issuers. Accounts receivable are typically unsecured and are derived from revenues earned from customers primarily located in the United States. A portion of our accounts receivable represents the timing difference between when a customer’s credit card is billed and the subsequent settlement of that transaction with our credit card processors. This timing difference is generally three days for substantially all of our credit card receivables. We have never experienced any accounts receivable write-offs due to this timing difference. In addition, we collect subscription fees in advance, minimizing our accounts receivable and bad debt exposure. If a customer’s credit card, debit card or ECP is declined, we generally suspend international calling capabilities as well as their ability to incur domestic usage charges in excess of their plan minutes. If the customer’s credit card, debit card or ECP could not be successfully processed during three billing cycles (i.e., the current and two subsequent monthly billing cycles), we terminate the account. In addition, we automatically charge any per minute fees to our customers’ credit card, debit card or ECP monthly in arrears. To further mitigate our bad debt exposure, a customer’s credit card, debit card or ECP will be charged in advance of their monthly billing if their international calling or overage charges exceed a certain dollar threshold.

Inventory

Inventory consists of the cost of customer equipment and is stated at the lower of cost or market, with cost determined using the average cost method. We provide an inventory allowance for customer equipment that has been returned by customers but may not be able to be re-issued to new customers or returned to the manufacturer for credit.

Property and Equipment

Property and equipment includes acquired assets and those accounted for under capital leases and consist principally of network equipment and computer hardware, furniture, software, and leasehold improvements. In addition, the lease of our corporate headquarters has been accounted for as a capital lease and is included in property and equipment. Network equipment and computer hardware and furniture are stated at cost with depreciation provided using the straight-line method over the estimated useful lives of the related assets, which range from three to five years. Leasehold improvements are amortized over their estimated useful life of the related assets or the life of the lease, whichever is shorter. The cost of renewals and substantial improvements is capitalized while the cost of maintenance and repairs is charged to operating expenses as incurred.

Our network equipment and computer hardware, which consists of routers, gateways, and servers that enable our telephony services, is subject to technological risks and rapid market changes due to new products and services and changing customer demand. These changes may result in future adjustments to the estimated useful lives or the carrying value of these assets, or both.

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VONAGE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Software Costs

We capitalize certain costs, such as purchased software and internally developed software that we use for customer acquisition and customer care automation tools, in accordance with FASB ASC 350-40, “Internal-Use Software”. Computer software is stated at cost less accumulated amortization and the estimated useful life is two to five years.

As previously disclosed, we experienced delays and incremental costs during the course of the development and implementation of a new billing and ordering system by Amdocs Software Systems Limited and Amdocs, Inc. (collectively, "Amdocs") and the transition of customers to the system. We conducted discussions with Amdocs to resolve the issues associated with the billing and ordering system. Based on these discussions, and after our consideration of the progress made improving our overall IT infrastructure, the incremental time and costs to develop and implement the Amdocs system, as well as the expected reduction in capital expenditures, in June 2012 we and Amdocs determined that terminating the program was in the best interest of both parties. On July 30, 2012, we entered into a Settlement Agreement with Amdocs terminating the related license agreement. As a result, we wrote off our investment in the system of $25,262 , net of settlement amounts to us, in the second quarter of 2012. This charge is recorded as loss from abandonment of software assets in the statement of operations.

Intangible Assets

Intangible assets acquired in the settlement of litigation or by direct purchase are accounted for based upon the fair value of assets received.

Patents and Patent Licenses

Patent rights acquired in the settlement of litigation or by direct purchase are accounted for based upon the fair value of assets received.

Long-Lived Assets

We evaluate impairment losses on long-lived assets used in operations when events and changes in circumstances indicate that the assets might be impaired. If our review indicates that the carrying value of an asset will not be recoverable, based on a comparison of the carrying value of the asset to the undiscounted future cash flows, the impairment will be measured by comparing the carrying value of the asset to its fair value. Fair value will be determined based on quoted market values, discounted cash flows or appraisals. Impairments of long-lived assets used in operations are recorded in the statement of operations as part of depreciation expense.

Debt Related Costs

Costs incurred in raising debt are deferred and amortized as interest expense using the effective interest method over the life of the debt.

Derivatives

We do not hold or issue derivative instruments for trading purposes. However, in accordance with FASB ASC 815, “Derivatives and Hedging” (“FASB ASC 815”), we review our contractual obligations to determine whether there are terms that possess the characteristics of derivative financial instruments that must be accounted for separately from the financial instrument in which they are embedded. We would recognize these features, if any, as liabilities in our consolidated balance sheet at fair value each period and would recognize any change in the fair value in our statement of operations in the period of change. We would estimate the fair value of these liabilities using available market information and appropriate valuation methodologies.

Income Taxes

We recognize deferred tax assets and liabilities at enacted income tax rates for the temporary differences between the financial reporting bases and the tax bases of our assets and liabilities. Any effects of changes in income tax rates or tax laws are included in the provision for income taxes in the period of enactment. Our net deferred tax assets primarily consist of net operating loss carry forwards (“NOLs”). We are required to record a valuation allowance against our net deferred tax assets to the extent we conclude that it is more likely than not that taxable income generated in the future will be insufficient to utilize the future income tax benefit from our net deferred tax assets (namely, the NOLs) prior to expiration. In the fourth quarter of 2011, we concluded that it was more likely than not that taxable income in the future would be sufficient to utilize a significant portion of the future

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VONAGE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

income tax benefit from our net deferred tax assets (namely, the NOLs) prior to expiration and we released $325,601 of the valuation allowance. We periodically review this conclusion, which requires significant management judgment. In the future, if available evidence changes our conclusions, we will make an adjustment to the related valuation allowance and income tax expense at that time. The June 30, 2012 effective rate is less than the federal statutory rate due, in part, to our Canadian operations and certain discrete period items, which primarily consisted of adjustments related to stock compensation, including a non-cash deferred tax adjustment totaling $4,077 for certain stock compensation previously considered nondeductible under Section 162(m) of the Internal Revenue Code. The 2013 estimated annual effective tax rate is expected to approximate 41% , but may fluctuate due to the timing of other discrete period transactions.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution.

We have not had any unrecognized tax benefits. We recognize interest and penalties accrued related to unrecognized tax benefits as components of our income tax provision. We have not had any interest and penalties accrued related to unrecognized tax benefits.

Fair Value of Financial Instruments

Effective January 1, 2008, we adopted FASB ASC 820-10-25, “Fair Value Measurements and Disclosures” . This standard establishes a framework for measuring fair value and expands disclosure about fair value measurements. We did not elect fair value accounting for any assets and liabilities allowed by FASB ASC 825, “Financial Instruments” .

FASB ASC 820-10 defines fair value as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FASB ASC 820-10 describes the following three levels of inputs that may be used:


Level 1:	Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.


Level 2:	Observable prices that are based on inputs not quoted on active markets but corroborated by market data.


Level 3:	Unobservable inputs when there is little or no market data available, thereby requiring an entity to develop its own assumptions. The fair value hierarchy gives the lowest priority to Level 3 inputs.

Fair Value of Other Financial Instruments

The carrying amounts of our financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable, approximate fair value because of their short maturities. The carrying amounts of our capital leases approximate fair value of these obligations based upon management’s best estimates of interest rates that would be available for similar debt obligations at June 30, 2013 and December 31, 2012 . We believe the fair value of our debt at June 30, 2013 was approximately the same as its carrying amount as market conditions, including available interest rates, credit spread relative to our credit rating, and illiquidity, remain relatively unchanged from the issuance date of our debt on February 11, 2013 for a similar debt instrument.

Foreign Currency

Generally, the functional currency of our non-United States subsidiaries is the local currency. The financial statements of these subsidiaries are translated to United States dollars using month-end rates of exchange for assets and liabilities, and average rates of exchange for revenues, costs, and expenses. Translation gains and losses are deferred and recorded in accumulated other comprehensive income as a component of stockholders’ equity.

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VONAGE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Share-Based Compensation

We account for share-based compensation in accordance with FASB ASC 718, “ Compensation-Stock Compensation ”. Under the fair value recognition provisions of this pronouncement, share-based compensation cost is measured at the grant date based on the fair value of the award, reduced as appropriate based on estimated forfeitures, and is recognized as expense over the applicable vesting period of the stock award using the accelerated method. The excess tax benefit associated with stock compensation deductions have not been recorded in additional paid-in capital. When evaluating whether an excess tax benefit has been realized, share based compensation deductions are not considered realized until NOLs are no longer sufficient to offset taxable income. Such excess tax benefits will be recorded when realized.

Earnings per Share

Net income per share has been computed according to FASB ASC 260, “ Earnings per Share” , which requires a dual presentation of basic and diluted earnings per share (“EPS”). Basic EPS represents net income divided by the weighted average number of common shares outstanding during a reporting period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, including stock options and restricted stock units under our 2001 Stock Incentive Plan and 2006 Incentive Plan, were exercised or converted into common stock. The dilutive effect of outstanding stock options and restricted stock units is reflected in diluted earnings per share by application of the treasury stock method. In applying the treasury stock method for stock-based compensation arrangements, the assumed proceeds are computed as the sum of the amount the employee must pay upon exercise and the amounts of average unrecognized compensation cost attributed to future services.

The following table sets forth the computation for basic and diluted net income per share for the three and six months ended June 30, 2013 and 2012 :



	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2013		2012			2013		2012
Numerator
Numerator for basic earnings per share-net income (loss)	$	7,447	$	(3,340	)	$	20,494	$	10,581
Numerator for diluted earnings per share-net income (loss)	$	7,447	$	(3,340	)	$	20,494	$	10,581
Denominator
Basic weighted average common shares outstanding	212,169		226,429			213,404		226,081
Dilutive effect of stock options and restricted stock units	7,668		—			8,927		8,138
Diluted weighted average common shares outstanding	219,837		226,429			222,331		234,219
Basic net income (loss) per share
Basic net income (loss) per share	$	0.04	$	(0.01	)	$	0.10	$	0.05
Diluted net income (loss) per share
Diluted net income (loss) per share	$	0.03	$	(0.01	)	$	0.09	$	0.05

For the three and six months ended June 30, 2013 and 2012 , the following were excluded from the calculation of diluted earnings per common share because of their anti-dilutive effects:



	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2013	2012	2013	2012
Restricted stock units	2,171	2,899	2,357	2,356
Stock options	27,796	39,944	26,349	32,349
	29,967	42,843	28,706	34,705

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VONAGE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income and other comprehensive items. Other comprehensive items include foreign currency translation adjustments.

Reclassifications

Certain reclassifications have been made to prior years’ financial statements in order to conform to the current year’s presentation. The reclassifications had no impact on net earnings previously reported.

Note 2. Supplemental Balance Sheet Account Information

Prepaid expenses and other current assets



	June 30, 2013		December 31, 2012
Nontrade receivables	$	9,318	$	6,599
Services	8,405		6,092
Telecommunications	2,880		1,503
Insurance	1,216		389
Marketing	1,233		639
Other prepaids	648		265
Prepaid expenses and other current assets	$	23,700	$	15,487

Property and equipment, net



	June 30, 2013			December 31, 2012
Building (under capital lease)	$	25,709		$	25,709
Network equipment and computer hardware	74,308			87,145
Leasehold improvements	44,666			43,774
Furniture	811			842
Vehicles	109			97
	145,603			157,567
Less: accumulated depreciation and amortization	(89,167		)	(97,034		)
Property and equipment, net	$	56,436		$	60,533

Software, net



	June 30, 2013			December 31, 2012
Purchased	$	43,282		$	89,538
Licensed	909			909
Internally developed	36,088			36,088
	80,279			126,535
Less: accumulated amortization	(59,670		)	(71,428		)
abandonment of software assets	—			(35,547		)
Software, net	$	20,609		$	19,560

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VONAGE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Debt related costs, net



	June 30, 2013			December 31, 2012
Senior secured term loan	$	4,706		$	2,697
Less: accumulated amortization	(2,708		)	(1,925		)
Debt related costs, net	$	1,998		$	772

Restricted cash



	June 30, 2013		December 31, 2012
Letter of credit-lease deposits	$	4,302	$	5,300
Letter of credit-energy curtailment program	—		258
	4,302		5,558
Cash reserves	91		98
Restricted cash	$	4,393	$	5,656

Intangible assets, net



	June 30, 2013			December 31, 2012
Patents and patent licenses	$	18,164		$	18,164
Trademark	560			560
	18,724			18,724
Less: accumulated amortization	(13,230		)	(12,043		)
Intangible assets, net	$	5,494		$	6,681

Accrued expenses



	June 30, 2013		December 31, 2012
Compensation and related taxes and temporary labor	$	12,619	$	16,376
Marketing	23,752		10,889
Taxes and fees	16,917		9,747
Litigation and settlements	89		89
Telecommunications	9,583		9,135
Other accruals	4,373		4,412
Customer credits	2,069		2,056
Professional fees	3,234		2,200
Accrued interest	104		5
Inventory	19		572
Credit card fees	327		306
Accrued expenses	$	73,086	$	55,787

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VONAGE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Note 3. Supplemental Income Statement Account Information

Amounts included in revenues



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
USF fees	$	17,125	$	19,799	$	35,230	$	40,423
Disconnect fees	$	1,066	$	464	$	2,306	$	572
Initial activation fees	$	319	$	509	$	673	$	1,247
Customer equipment fees	$	12	$	179	$	170	$	390
Equipment recovery fees	$	26	$	18	$	55	$	55
Shipping and handling fees	$	322	$	314	$	690	$	563

Amount included in direct cost of telephony services



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
USF costs	$	17,125	$	19,799	$	35,230	$	40,423

Amount included in direct cost of goods sold



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Shipping and handling cost	$	1,436	$	1,696	$	2,844	$	3,570

Amount included in selling, general and administrative expense



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Advertising costs	$	100	$	236	$	188	$	1,660

Amount included in marketing



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Advertising costs	$	36,089	$	35,180	$	67,815	$	69,855

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VONAGE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Depreciation and amortization expense



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013			2012
Network equipment and computer hardware	$	3,339	$	3,896	$	6,647		$	7,796
Software	2,659		2,399		5,149			4,932
Capital leases	549		550		1,098			1,100
Other leasehold improvements	1,032		991		2,036			1,997
Furniture	29		31		56			74
Vehicles	3		4		8			8
Patents	594		594		1,188			1,188
	8,205		8,465		16,182			17,095
Property and equipment impairments	—		7		(2		)	12
Software impairments	—		46		—			55
Depreciation and amortization expense	$	8,205	$	8,518	$	16,180		$	17,162

Amount included in interest expense



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
Debt related costs amortization	$	395	$	327	$	783	$	689

Amount included in other income (expense), net



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Net losses resulting from foreign exchange transactions	$	(22	)	$	(63	)	$	(62	)	$	(23	)

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VONAGE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Note 4. Long-Term Debt and Revolving Credit Facility

A schedule of long-term debt at June 30, 2013 and December 31, 2012 is as follows:



	June 30, 2013		December 31, 2012
3.125-3.625% Credit Facility - due 2016	$	35,000	$	—
3.25-3.75% Credit Facility - due 2014	—		14,167

At June 30, 2013 , future payments under long-term debt obligations over each of the next five years and thereafter were as follows:



	Credit Facility
2013	$	11,667
2014	23,333
2015	23,333
Minimum future payments of principal	58,333
Less: current portion	23,333
Long-term portion	$	35,000

July 2011 Financing

On July 29, 2011, we entered into a credit agreement (the "2011 Credit Facility") consisting of an $85,000 senior secured term loan and a $35,000 revolving credit facility. The co-borrowers under the 2011 Credit Facility were our wholly owned subsidiary, Vonage America Inc., and us. Obligations under the 2011 Credit Facility were guaranteed, fully and unconditionally, by our other United States subsidiaries and were secured by substantially all of the assets of each borrower and each of the guarantors.

Use of Proceeds

We used $100,000 of the net available proceeds of the 2011 Credit Facility, plus $31,000 of cash on hand, to retire all of the debt under our prior credit facility entered into in 2010, including a $1,000 prepayment fee to holders of that credit facility. We also incurred $2,697 of fees in connection with the 2011 Credit Facility, which was amortized to interest expense over the life of the debt using the effective interest method.

2013 Financing

On February 11, 2013 we entered into Amendment No. 1 to the 2011 Credit Agreement (as further amended by Amendment No. 2 to our 2011 Credit Facility, the "2013 Credit Facility"). The 2013 Credit Facility consists of a $70,000 senior secured term loan and a $75,000 revolving credit facility. The co-borrowers under the 2013 Credit Facility are our wholly owned subsidiary, Vonage America Inc., and us. Obligations under the 2013 Credit Facility are guaranteed, fully and unconditionally, by our other United States subsidiaries and are secured by substantially all of the assets of each borrower and each of the guarantors. On July 26, 2013 we entered into Amendment No. 2 to our 2011 Credit Agreement, which amends our financial covenant related to our consolidated fixed charge coverage ratio by increasing the amount of restricted payments excluded from such calculation from $50,000 to $80,000 .

Use of Proceeds

The net proceeds received of $27,500 from the senior secured term loan and the undrawn revolving credit facility under the 2013 Credit Facility will be used for general corporate purposes. We also incurred $2,009 of fees in connection with the 2013 Credit Facility, which is amortized, along with the unamortized fees of $670 in connection with the 2011 Credit Facility, to interest expense over the life of the debt using the effective interest method.

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VONAGE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

2013 Credit Facility Terms

The following description summarizes the material terms of the 2013 Credit Facility:

The loans under the 2013 Credit Facility mature in February 2016. Principal amounts under the 2013 Credit Facility are repayable in quarterly installments of $5,833 per quarter for the senior secured term loan. The unused portion of our revolving credit facility incurs a 0.45% commitment fee.

Outstanding amounts under the 2013 Credit Facility, at our option, will bear interest at:

•

LIBOR (applicable to one-, two-, three- or six-month periods) plus an applicable margin equal to 3.125% if our consolidated leverage ratio is less than 0.75 to 1.00, 3.375% if our consolidated leverage ratio is greater than or equal to 0.75 to 1.00 and less than 1.50 to 1.00, and 3.625% if our consolidated leverage ratio is greater than or equal to 1.50 to 1.00, payable on the last day of each relevant interest period or, if the interest period is longer than 3 months, each day that is three months after the first day of the interest period, or

•

the base rate determined by reference to the highest of (a) the federal funds effective rate from time to time plus 0.50% , (b) the prime rate of JPMorgan Chase Bank, N.A., and (c) the LIBOR rate applicable to one month interest periods plus 1.00% , plus an applicable margin equal to 2.125% if our consolidated leverage ratio is less than 0.75 to 1.00, 2.275% if our consolidated leverage ratio is greater than or equal to 0.75 to 1.00 and less than 1.50 to 1.00, and 2.625% if our consolidated leverage ratio is greater than or equal to 1.50 to 1.00, payable on the last business day of each March, June, September, and December and the maturity date of the 2013 Credit Facility.

The 2013 Credit Facility provides greater flexibility to us in funding acquisitions and restricted payments, such as stock buybacks, than the 2011 Credit Facility.

We may prepay the 2013 Credit Facility at our option at any time without premium or penalty. The 2013 Credit Facility is subject to mandatory prepayments in amounts equal to:


•	100% of the net cash proceeds from any non-ordinary course sale or other disposition of our property and assets for consideration in excess of a certain amount subject to customary reinvestment provisions and certain other exceptions and


•	100% of the net cash proceeds received in connection with other non-ordinary course transactions, including insurance proceeds not otherwise applied to the relevant insurance loss.

Subject to certain restrictions and exceptions, the 2013 Credit Facility permits us to obtain one or more incremental term loans and/or revolving credit facilities in an aggregate principal amount of up to $60,000 plus an amount equal to repayments of the senior secured term loan upon providing documentation reasonably satisfactory to the administrative agent, without the consent of the existing lenders under the 2013 Credit Facility. The 2013 Credit Facility includes customary representations and warranties and affirmative covenants of the borrowers. In addition, the 2013 Credit Facility contains customary negative covenants, including, among other things, restrictions on the ability of us and our subsidiaries to consolidate or merge, create liens, incur additional indebtedness, dispose of assets, consummate acquisitions, make investments, and pay dividends and other distributions. We must also comply with the following financial covenants:


•	a consolidated leverage ratio of no greater than 2.00 to 1.00;


•	a consolidated fixed coverage charge ratio of no less than 1.75 to 1.00 subject to adjustment to exclude up to $80,000 in specified restricted payments;


•	minimum cash of $25,000 including the unused portion of the revolving credit facility or $35,000 in the event of certain specified corporate actions; and


•	maximum capital expenditures not to exceed $55,000 during any fiscal year, provided that the unused amount of any permitted capital expenditures in any fiscal year may be carried forward to the next following fiscal year; in addition, annual excess cash flow up to $8,000 increases permitted capital expenditures.

As of June 30, 2013, we were in compliance with all covenants, including financial covenants, for the 2013 Credit Facility.

The 2013 Credit Facility contains customary events of default that may permit acceleration of the debt. During the continuance of a payment default, interest will accrue at a default interest rate of 2% above the interest rate which would otherwise be applicable, in the case of loans, and at a rate equal to the rate applicable to base rate loans plus 2% , in the case of all other amounts.

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Note 5. Common Stock

Net Operating Loss Rights Agreement

On June 7, 2012, we entered into a Tax Benefits Preservation Plan ("Preservation Plan") designed to preserve stockholder value and tax assets. Our ability to use our tax attributes to offset tax on U.S. taxable income would be substantially limited if there were an "ownership change" as defined under Section 382 of the U.S. Internal Revenue Code. In general, an ownership change would occur if one or more "5-percent shareholders," as defined under Section 382, collectively increase their ownership in us by more than 50 percent over a rolling three -year period.

In connection with the adoption of the Preservation Plan, our board of directors declared a dividend of one preferred share purchase right for each outstanding share of the Company’s common stock. The preferred share purchase rights were distributed to stockholders of record as of June 18, 2012, as well as to holders of the Company's common stock issued after that date, but will only be activated if certain triggering events under the Preservation Plan occur.

Under the Preservation Plan, preferred share purchase rights will work to impose significant dilution upon any person or group which acquires beneficial ownership of 4.9% or more of the outstanding common stock, without the approval of our board of directors, from and after June 7, 2012. Stockholders that own 4.9% or more of the outstanding common stock as of the opening of business on June 7, 2012, will not trigger the preferred share purchase rights so long as they do not (i) acquire additional shares of common stock or (ii) fall under 4.9% ownership of common stock and then re-acquire shares that in the aggregate equal 4.9% or more of the common stock.

The Preservation Plan was set to expire no later than the close of business June 7, 2013, unless extended by our board of directors. On April 4, 2013, after consultation with our advisors, our board of directors determined to extend the Preservation Plan through June 7, 2015, subject to ratification of the extension by stockholders at the Vonage 2013 annual meeting of stockholders. On June 6, 2013, at the Vonage 2013 annual meeting of stockholders, stockholders ratified the extension of the Preservation Plan through June 7, 2015.

Common Stock Repurchases

On July 25, 2012, our board of directors authorized a program to repurchase up to $50,000 of Vonage common stock (the " $50,000 repurchase program") through December 31, 2013. The specific timing and amount of repurchases would vary based on available capital resources and other financial and operational performance, market conditions, securities law limitations, and other factors. The repurchases would be made using our cash resources.

We repurchased the following shares of common stock with cash resources under the $50,000 repurchase program during the three and six months ended June 30, 2013 :



	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2013		2013
Shares of common stock repurchased	—		2,189
Value of common stock repurchased	$	—	$	5,374

On February 7, 2013, our board of directors discontinued the remainder of our existing $50,000 repurchase program effective at the close of business on February 12, 2013 with $16,682 of availability remaining, and authorized a new program to repurchase up to $100,000 of Vonage common stock (the " $100,000 repurchase program") by December 31, 2014. The specific timing and amount of repurchases will vary based on available capital resources and other financial and operational performance, market conditions, securities law limitations, and other factors. The repurchases will be made using our cash resources. The $100,000 repurchase program may be suspended or discontinued at any time without prior notice.

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We repurchased the following shares of common stock with cash resources under the $100,000 repurchase program during the three and six months ended June 30, 2013 *:



	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2013		2013
Shares of common stock repurchased	4,756		8,795
Value of common stock repurchased	$	13,451	$	24,458

* including 220 shares, or $625 , of common stock repurchases settled in July 2013; excluding commission of $4 .

As of June 30, 2013 , approximately $75,542 remained of our $100,000 repurchase program. The repurchase program expires on December 31, 2014 but may be suspended or discontinued at any time without notice.

In any period under either repurchase program, cash used in financing activities related to common stock repurchases may differ from the comparable change in stockholders' equity, reflecting timing differences between the recognition of share repurchase transactions and their settlement for cash.

Stock Option Cancellation

As part of our strategy to build shareholder value and to facilitate our goal of reducing the number of shares of common stock outstanding, on February 19, 2013, we entered into an agreement with our Chief Executive Officer to cancel a total of 4,500 of his vested stock options for $5,463 . The payment reflects a discount, in favor of the Company, from the closing price of the common stock on the New York Stock Exchange on February 19, 2013.

Note 6. Commitments and Contingencies

Litigation

IP Matters

Bear Creek Technologies, Inc. On February 22, 2011, Bear Creek Technologies, Inc. (“Bear Creek”) filed a lawsuit against Vonage Holdings Corp., Vonage America, Inc., and Vonage Marketing LLC in the United States District Court for the Eastern District of Virginia (Norfolk Division) alleging that Vonage's products and services are covered by United States Patent No. 7,889,722, entitled “System for Interconnecting Standard Telephony Communications Equipment to Internet Protocol Networks” (the “722 Patent”). The suit also named numerous other defendants, including Verizon Communications, Inc., Comcast Corporation, Time-Warner Cable, Inc., AT&T, Inc., and T-Mobile USA Inc. On August 17, 2011, the Court dismissed Bear Creek's case against the Vonage entities, as well as all the other defendants, except for one defendant. Later, on August 17, 2011, Bear Creek re-filed its complaint concerning the '722 Patent in the United States District Court for the District of Delaware against the same Vonage entities. In its Delaware complaint, Bear Creek alleges that Vonage is infringing one or more claims of the '722 Patent. In addition, Bear Creek alleges that Vonage is contributing to and inducing infringement of one or more claims of the '722 Patent. On September 28, 2011, Vonage filed a motion to dismiss Bear Creek's claims for induced, contributory, and willful infringement, which was denied on September 27, 2012. On January 25, 2012, Bear Creek filed a motion with the United States Judicial Panel on Multidistrict Litigation seeking to transfer and consolidate its litigation against Vonage with thirteen separate actions Bear Creek filed in the U.S. District Courts for Delaware and the Eastern District of Virginia. On May 2, 2012, the Multidistrict Litigation Panel granted Bear Creek's motion and ordered the coordination or consolidation for pretrial proceedings of all fourteen actions in the U.S. District Court for the District of Delaware. On October 11, 2012, Vonage filed an answer to Bear Creek's complaint, including counterclaims of non-infringement and invalidity of the '722 patent. On November 5, 2012, Bear Creek filed an answer to Vonage's counterclaims. On March 1, 2013, several defendants including Vonage moved the Court to stay the case pending resolution of the reexamination of the '722 patent requested by Cisco Systems, Inc. (“Cisco”) as described below; the motion was granted on July 17, 2013, and the case is now stayed pending the resolution of the reexamination.

On March 8, 2012, a third-party requested the United States Patent and Trademark Office ("USPTO") to reexamine the validity of the asserted '722 Patent. The USPTO granted the request on April 26, 2012, and subsequently issued an initial Office Action rejecting all of the '722 Patent claims. After reconsideration based on statements made by the patentee, the USPTO on September 19, 2012, reversed its initial rejection, and confirmed all claims as patentable over the references cited in the reexamination request. A second request for reexamination of the '722 Patent was filed on September 12, 2012, by Cisco, challenging the validity of the '722 Patent. Cisco's request was granted by the USPTO on November 28, 2012. On March 26, 2013, the USPTO issued an Office Action rejecting all claims of the '722 patent as invalid. Bear Creek responded to the Office Action on May 28,

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VONAGE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

2013, requesting withdrawal of the USPTO's rejection. Cisco responded to Bear Creek's submission on June 26, 2013. A third request for reexamination of the '722 Patent was filed on September 14, 2012, and the USPTO denied this request on December 6, 2012.

OpinionLab, Inc. On July 18, 2012, OpinionLab, Inc. (“OpinionLab”) filed a lawsuit against IPerceptions, Inc. and IPerceptions US, Inc. (collectively, “IPerceptions”) in the United States District Court for the District of Northern Illinois (Eastern Division) alleging claims of patent infringement, breach of contract, misappropriation of trade secrets, and tortious interference with business expectancy. On August 16, 2012, OpinionLab filed an amended complaint, adding Vonage Marketing LLC and Vonage Holdings Corp. as defendants, and alleging that Vonage's products and services are covered by United States Patent Nos. 6,421,724, 6,606,581, 6,928,392, 7,085,820, 7,370,285, 8,024,668, and 8,041,805. OpinionLab alleged direct, indirect and willful infringement by Vonage. IPerceptions, the supplier to Vonage of the accused product in this lawsuit, has agreed to fully defend and indemnify Vonage in this lawsuit. On September 11, 2012, IPerceptions and Vonage each moved to dismiss OpinionLab's indirect and willful patent infringement claims. The motions were denied on November 8, 2012. Vonage answered the complaint on December 7, 2012. On July 11, 2013, the Court issued an order setting the case schedule.

RPost Holdings, Inc. On August 24, 2012, RPost Holdings, Inc., RPost Communications Limited, and RMail Limited (collectively, “RPost”) filed a lawsuit against StrongMail Systems, Inc. (“StrongMail”) in the United States District Court for the Eastern District of Texas (Marshall Division) alleging that StrongMail's products and services, including its electronic mail marketing services, are covered by United States Patent Nos. 8,224,913, 8,209,389, 8,161,104, 7,966,372, and 6,182,219. On January 16, 2013, StrongMail moved the Court to transfer the venue of the lawsuit to the Northern District of California. That motion is now fully-briefed and pending before the Court. On February 11, 2013, RPost filed an amended complaint, adding 27 new defendants, including Vonage America Inc. RPost's amended complaint alleges willful infringement of the RPost patents by Vonage and each of the other new defendants because they are customers of StrongMail. RPost first served Vonage with the lawsuit on March 8, 2013. StrongMail has agreed to fully defend and indemnify Vonage in this lawsuit. Vonage answered the complaint on May 7, 2013.

From time to time, in addition to those identified above, we are subject to legal proceedings, claims, investigations, and proceedings in the ordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, commercial, employment, and other matters. From time to time we receive letters or other communications from third parties inviting us to obtain patent licenses that might be relevant to our business or alleging that our services infringe upon third party patents or other intellectual property. In accordance with generally accepted accounting principles, we make a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss or range of loss can be reasonably estimated. These provisions, if any, are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Litigation is inherently unpredictable. We believe that we have valid defenses with respect to the legal matters pending against us and are vigorously defending these matters. Given the uncertainty surrounding litigation and our inability to assess the likelihood of a favorable or unfavorable outcome in the above noted matters and our inability to reasonably estimate the amount of loss or range of loss, it is possible that the resolution of one or more of these matters could have a material adverse effect on our consolidated financial position, cash flows or results of operations.

Regulation

Telephony services are subject to a broad spectrum of state and federal regulations. Because of the uncertainty over whether Voice over Internet Protocol (“VoIP”) should be treated as a telecommunications or information service, we have been involved in a substantial amount of state and federal regulatory activity. Implementation and interpretation of the existing laws and regulations is ongoing and is subject to litigation by various federal and state agencies and courts. Due to the uncertainty over the regulatory classification of VoIP service, there can be no assurance that we will not be subject to new regulations or existing regulations under new interpretations, and that such change would not introduce material additional costs to our business.

Federal - Net Neutrality

Clear and enforceable net neutrality rules would make it more difficult for broadband Internet service providers to block or discriminate against Vonage service. Also explicitly applying net neutrality rules to wireless broadband Internet service could create greater opportunities for VoIP applications that run on wireless broadband Internet service. In October 2009, the FCC proposed the adoption of enforceable net neutrality rules for both wired and wireless broadband Internet service providers. The proposed rules would prohibit wired and wireless broadband Internet service providers from blocking or hindering lawful content, applications, or services and from unreasonably discriminating when transmitting lawful network traffic. In addition, broadband Internet service providers would have to publicly disclose certain information about their network management practices. In

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VONAGE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

December 2010, the FCC adopted enforceable net neutrality rules based on its October 2009 proposal. All of the proposed rules in the October 2009 proposal applied to wired broadband Internet providers. The FCC applied some but not all of the proposed rules to wireless broadband service. Wireless broadband Internet services providers are prohibited from blocking or hindering voice or video applications that compete with the broadband Internet service provider's voice or video services. Wireless providers are also subject to transparency requirements, but they are not subject to the prohibition on unreasonable discrimination that applies to wired broadband Internet services providers. Final rules were filed in the Federal Register in September 2011. Shortly thereafter, a number of parties filed appeals of the rules in various federal circuit courts; some alleging that the FCC lacks authority to apply net neutrality rules to broadband service providers and some alleging that the rules did not go far enough. The D.C. Circuit Court of Appeals was selected by lottery to decide the appeals and the appeals alleging that the rules did not go far enough were dropped. The appeals alleging that the FCC lacks authority to apply the rules are pending.

Federal - Intercarrier Compensation

On February 9, 2011, the FCC released a Notice of Proposed Rulemaking on reforming universal service and the intercarrier compensation (“ICC”) system that governs payments between telecommunications carriers primarily for terminating traffic. In particular, the FCC indicated that it has never determined the ICC obligations for VoIP service and sought comment on a number of proposals for how VoIP should be treated in the ICC system. The FCC's adoption of an ICC proposal will impact Vonage's costs for telecommunications services. On October 27, 2011, the FCC adopted an order reforming universal service and ICC. The FCC order provides that VoIP originated calls will be subject to interstate access charges for long distance calls and reciprocal compensation for local calls that terminate to the public switched telephone network (“PSTN”). It also subjected PSTN originated traffic directed to VoIP subscribers to similar ICC obligations. The termination charges for all traffic, including VoIP originated traffic, will transition over several years to a bill and keep arrangement (i.e., no termination charges). Numerous parties filed appeals of the FCC order in multiple federal circuit courts of appeal. The 10th Circuit Court of Appeals was selected by lottery to decide the appeals. The appeals are pending.

Federal - Universal Service Contribution Reform

On April 30, 2012, the FCC released a Further Notice of Proposed Rulemaking on reforming federal universal service fund (“USF”) contributions. Currently USF contributions are assessed on the interstate and international revenue of traditional telephone carriers and interconnected VoIP providers like Vonage. The level of USF assessments on these providers has been going up over time because of decreases in the revenue subject to assessment due to substitution of non-assessable services such as non-interconnected VoIP services. If the FCC does reform USF contributions, it is likely that Vonage's contribution burden will decline.

Federal - Rural Call Completion Issues

On February 7, 2013, the FCC released a Notice of Proposed Rulemaking on rural call completion issues. The Notice of Proposed Rulemaking proposes new detailed reporting requirements to gauge rural call completion performance. Rural carriers have argued that VoIP provider call completion performance to rural areas is generally poor. We could be subject to an FCC enforcement action in the future in the event the FCC took the position that our rural call completion performance is inadequate.

Federal - Numbering Rights

On April 18, 2013, the FCC issued a Notice of Proposed Rulemaking (NPRM) that proposes to modify FCC rules to allow VoIP providers to directly access telephone numbers. In addition, the FCC granted a waiver from its existing rules to allow Vonage to conduct a trial of direct access to telephone numbers. The trial will allow the FCC to obtain real-world data on direct access to telephone numbers by VoIP providers to inform consideration of the NPRM. Direct access to telephone numbers would facilitate IP to IP interconnection, which may allow VoIP providers to provide higher quality, lower cost services, promote the deployment of innovative new voice services, and experience reductions in the cost of telephony services. Vonage is currently conducting a trial of direct access to telephone numbers in the Atlanta, Boston, and Phoenix markets.

Pakistan Termination Rate Increase

On October 1, 2012, Pakistani carriers formed the International Clearing House (ICH). This cartel subsequently took action to increase the cost to terminate international calls to Pakistan by approximately 500 percent. As a result of the implementation of higher termination costs, Vonage was forced to remove Pakistan from unlimited calling in its Vonage World plan. Vonage filed a petition at the FCC, shortly after the ICH rates became effective, seeking an order prohibiting U.S. carriers from paying the new higher ICH rates. On March 5, 2013, the FCC issued an order that prohibits U.S. carriers from paying more than the prevailing termination rate prior to the implementation of the ICH rates. In addition to the Vonage challenge in the U.S., a Pakistani carrier challenged the ICH action under Pakistani competition law. After the trial court found that the ICH violated Pakistani competition

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VONAGE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

law, the Supreme Court of Pakistan overturned the trial court decision and remanded the case to the Competition Commission of Pakistan (CCP). On April 30, 2013, the CCP issued an order that holds that the ICH violates Pakistani competition law. On May 9, 2013, the Sindh High Court temporarily suspended the CCP order while the court considers constitutional challenges to the order made by several Pakistani carriers. Despite favorable action by both U.S. and Pakistani authorities, it is currently unclear if or how long it will take for international termination rates in Pakistan to return to a more competitive level.

State Telecommunications Regulation

In general, the focus of interconnected VoIP telecommunications regulation is at the federal level. On November 12, 2004, the FCC issued a declaratory ruling providing that our service is subject to federal regulation and preempted the Minnesota Public Utilities Commission from imposing certain of its regulations on us. The FCC's decision was based on its conclusion that our service is interstate in nature and cannot be separated into interstate and intrastate components. On March 21, 2007, the United States Court of Appeals for the 8th Circuit affirmed the FCC's declaratory ruling preempting state regulation of our service. The 8th Circuit found that it is impossible for us to separate our interstate traffic from our intrastate traffic because of the nomadic nature of the service. As a result, the 8th Circuit held that it was reasonable for the FCC to preempt state regulation of our service. The 8th Circuit was clear, however, that the preemptive effect of the FCC's declaratory ruling may be reexamined if technological advances allow for the separation of interstate and intrastate components of the nomadic VoIP service. Therefore, the preemption of state authority over our service under this ruling generally hinges on the inability to separate the interstate and intrastate components of the service.While this ruling does not exempt us from all state oversight of our service, it effectively prevents state telecommunications regulators from imposing certain burdensome and inconsistent market entry requirements and certain other state utility rules and regulations on our service. State regulators continue to probe the limits of federal preemption in their attempts to apply state telecommunications regulation to interconnected VoIP service. On July 16, 2009, the Nebraska Public Service Commission and the Kansas Corporation Commission filed a petition with the FCC seeking a declaratory ruling or, alternatively, adoption of a rule declaring that state authorities may apply universal service funding requirements to nomadic VoIP providers. We participated in the FCC proceedings on the petition. On November 5, 2010, the FCC issued a declaratory ruling that allowed states to assess state USF on nomadic VoIP providers on a going forward basis provided that the states comply with certain conditions to ensure that imposing state USF does not conflict with federal law or policy. We expect that state public utility commissions and state legislators will continue their attempts to apply state telecommunications regulations to nomadic VoIP service.

Stand-by Letters of Credit

We had stand-by letters of credit totaling $4,302 and $5,558 , as of June 30, 2013 and December 31, 2012 , respectively.

End-User Commitments

We are obligated to provide telephone services to our registered end-users. The costs related to the potential utilization of minutes sold are expensed as incurred. Our obligation to provide this service is dependent on the proper functioning of systems controlled by third-party service providers. We do not have a contractual service relationship with some of these providers.

Vendor Commitments

We have committed to purchase international carrier services from a vendor. We have committed to pay this vendor approximately $39,000 in 2013, $78,000 in 2014 and 2015, and $39,000 in 2016, respectively.

We have committed to purchase energy supply from a vendor. We have committed to pay this vendor approximately $600 in 2013, $1,100 in 2014, and $500 in 2015, respectively.

State and Municipal Taxes

In accordance with generally accepted accounting principles, we make a provision for a liability for taxes when it is both probable that a liability has been incurred and the amount of the liability or range of liability can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. For a period of time, we did not collect or remit state or municipal taxes (such as sales, excise, utility, use, and ad valorem taxes), fees or surcharges (“Taxes”) on the charges to our customers for our services, except that we historically complied with the New Jersey sales tax. We have received inquiries or demands from a number of state and municipal taxing and 911 agencies seeking payment of Taxes that are applied to or collected from customers of providers of traditional public switched telephone network services. Although we have consistently maintained that these Taxes do not apply to our service for a variety of reasons depending on the statute or rule that establishes such obligations,

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VONAGE HOLDINGS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

we are now collecting and remitting sales taxes in certain of those states including a number of states that have changed their statutes to expressly include VoIP. In addition, many states address how VoIP providers should contribute to support public safety agencies, and in those states we remit fees to the appropriate state agencies. We could also be contacted by state or municipal taxing and 911 agencies regarding Taxes that do explicitly apply to VoIP and these agencies could seek retroactive payment of Taxes. As such, we have a reserve of $2,122 as of June 30, 2013 as our best estimate of the potential tax exposure for any retroactive assessment. We believe the maximum estimated exposure for retroactive assessments is approximately $5,000 as of June 30, 2013 .

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this Form 10-Q and our audited financial statements included in our Annual Report on Form 10-K. This discussion contains forward-looking statements. These forward-looking statements are based on information available at the time the statements are made and/or management’s belief as of that time with respect to future events and involve risks and uncertainties that could cause actual results and outcomes to be materially different. Important factors that could cause such differences include but are not limited to: the competition we face; our ability to adapt to rapid changes in the market for voice and messaging services; our ability to retain customers and attract new customers; our ability to establish and expand strategic alliances; governmental regulation and related actions and taxes in our international operations; increased market and competitive risks, including currency restrictions, in our international operations; risks related to the acquisition or integration of future businesses or joint ventures; our ability to obtain or maintain relevant intellectual property licenses; intellectual property and other litigation that have been and may be brought against us; failure to protect our trademarks and internally developed software; security breaches and other compromises of information security; our dependence on third party facilities, equipment, systems and services; system disruptions or flaws in our technology and systems; uncertainties relating to regulation of VoIP services; liability under anti-corruption laws; results of regulatory inquiries into our business practices; fraudulent use of our name or services; our ability to maintain data security; our dependence upon key personnel; our dependence on our customers' existing broadband connections; differences between our service and traditional phone services, including our 911 service; restrictions in our debt agreements that may limit our operating flexibility; our ability to obtain additional financing if required; any reinstatement of holdbacks by our vendors; our history of net losses and ability to achieve consistent profitability in the future; the Company's available capital resources and other financial and operational performance which may cause the Company not to make common stock repurchases as currently anticipated or to commence or suspend such repurchases from time to time without prior notice; and other factors that are set forth in the “Risk Factors” in our Annual Report on Form 10-K, in our Quarterly Reports on Form 10-Q and in our Current Reports on Form 8-K. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, and therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to the date this Form 10-Q is filed with the Securities and Exchange Commission.

Financial Information Presentation

For the financial information discussed in this Quarterly Report on Form 10-Q, other than per share and per line amounts, dollar amounts are presented in thousands, except where noted. All trademarks are the property of their owners.

Overview

We are a leading provider of communications services connecting people through cloud-connected devices worldwide. We rely heavily on our network, which is a flexible, scalable Session Initiation Protocol (SIP) based Voice over Internet Protocol, or VoIP, network. This platform enables a user via a single “identity,” either a number or user name, to access and utilize services and features regardless of how they are connected to the Internet, including over 3G, 4G, Cable, or DSL broadband networks. This technology enables us to offer our customers attractively priced voice and messaging services and other features around the world on a variety of devices.

Over the past years, we have fundamentally transformed our company - strategically, operationally and financially. Strategically, we shifted our primary focus to serving rapidly growing but under-served ethnic segments in the United States with international calling needs. We improved our value proposition by being the first to deliver flat-rate, unlimited calling primarily from the United States to over 60 countries with the launch of our Vonage World service, and we were the first to provide easy-to-use, enhanced features, like voice-to-text translation and mobile Extension services, at no extra cost. These strategic shifts have resulted in new customers with a higher average lifetime value and a better churn profile than those in the past.

Our focus on operations during this period has resulted in a significantly improved cost structure. We have implemented operational efficiencies throughout our business and have reduced domestic and international termination costs per minute, and customer care costs. Importantly, we have enabled structural cost reductions while significantly improving network call quality and customer service performance. Improvements in the overall customer experience have contributed to lower churn, which was 2.4% at June 30, 2013 .

Through debt refinancings in December 2010, July 2011, and February 2013, we have fundamentally improved our balance sheet, reducing annual interest expense from $49 million in 2010 to $6 million in 2012 and reducing interest rates from as high as 20% in 2009 to less than 4% today.

In part as a result of our operational and financial stability, on February 7, 2013, Vonage's Board of Directors discontinued the remainder of our then existing $50,000 share repurchase program effective at the close of business on February 12, 2013 with

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$16,682 remaining, and authorized a new program to repurchase up to $100,000 of the Company's outstanding shares by December 31, 2014. We believe our repurchase program reflects our balanced approach to capital allocation as we invest for growth through our growth priorities and deliver value to shareholders without compromising our ongoing operational needs.

Having achieved operational and financial stability, we are focused on driving revenue through three major growth priorities: first, continued penetration of our core North American markets, where we will continue to provide value in international long distance and target under-served ethnic segments, and where we have entered the low-end domestic market with our flanker brand, BasicTalk, a low-priced home phone service offering unlimited calling throughout the United States; second, international expansion outside of North America through strategic partnerships; and third, mobile services, which we view as a strategic enabler of the Company's entire product offering.

We had approximately 2.3 million subscriber lines for broadband telephone replacement services as of June 30, 2013 . We bill customers in the United States, Canada, and the United Kingdom. Customers in the United States represented 93% of our subscriber lines at June 30, 2013 .

Trends and Key Operating Data

A number of trends have a significant effect on our results of operations and are important to an understanding of our financial statements.

Competitive landscape. We face intense competition from traditional telephone companies, wireless companies, cable companies, and alternative communication providers. Most traditional wireline and wireless telephone service providers and cable companies are substantially larger and better capitalized than we are and have the advantage of a large existing customer base. In addition, because our competitors provide other services, they often choose to offer VoIP services or other voice services as part of a bundle that includes other products, such as video, high speed Internet access, and wireless telephone service, which we do not offer. In addition, such competitors may in the future require new customers or existing customers making changes to their service to purchase voice services when purchasing high speed Internet access. Further, as wireless providers offer more minutes at lower prices, better coverage, and companion landline alternative services, their services have become more attractive to households as a replacement for wireline service. We also compete against alternative communication providers, such as magicJack, Skype, and Google Voice. Some of these service providers have chosen to sacrifice telephony revenue in order to gain market share and have offered their services at low prices or for free. As we continue to introduce applications that integrate different forms of voice and messaging services over multiple devices, we are facing competition from emerging competitors focused on similar integration, as well as from alternative voice communication providers. In addition, our competitors have partnered and may in the future partner with other competitors to offer products and services, leveraging their collective competitive positions. We also are subject to the risk of future disruptive technologies. In connection with our increasing emphasis on the international long distance market in the United States, we face competition from low-cost international calling cards and VoIP providers in addition to traditional telephone companies, cable companies, and wireless companies.

Broadband adoption. The number of United States households with broadband Internet access has grown significantly. On March 16, 2010, the Federal Communications Commission (“FCC”) released its National Broadband Plan, which seeks, through supporting broadband deployment and programs, to encourage broadband adoption for the approximately 100 million United States residents who do not have broadband at home. We expect the trend of greater broadband adoption to continue. We benefit from this trend because our service requires a broadband Internet connection and our potential addressable market increases as broadband adoption increases.

Regulation. Our business has developed in a relatively lightly regulated environment. The United States and other countries, however, are examining how VoIP services should be regulated. The November 2010 order by the FCC in response to a request by Kansas and Nebraska that permits states to impose state universal service fund obligations on VoIP service, discussed in Note 6 to our financial statements, is an example of efforts by regulators to determine how VoIP service fits into the telecommunications regulatory landscape. In addition to regulatory matters that directly address VoIP, a number of other regulatory initiatives could impact our business. One such regulatory initiative is net neutrality. In December 2010, the FCC adopted a revised set of net neutrality rules for broadband Internet service providers. These rules make it more difficult for broadband Internet service providers to block or discriminate against Vonage service. Several broadband Internet service providers have filed appeals of the FCC's new rules at the D.C. Circuit Court of Appeals alleging that the FCC lacks authority to apply its rules to broadband Internet service providers. In addition, on October 27, 2011, the FCC adopted an order reforming universal service and intercarrier compensation. The FCC order provides that VoIP originated calls will be subject to interstate access charges for long distance calls and reciprocal compensation for local calls that terminate to the public switched telephone network (“PSTN”). The termination charges for all traffic, including VoIP originated traffic, will transition over several years to a bill and keep arrangement (i.e., no termination charges). We believe that the order will positively impact our costs over time. Numerous parties filed appeals of the FCC order that are pending. On April 18, 2013, the FCC issued a Notice of Proposed Rulemaking (NPRM) that proposes to modify FCC rules to allow VoIP providers to directly access telephone numbers. In addition, the FCC granted a waiver from its existing rules

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to allow Vonage to conduct a trial of direct access to telephone numbers. The trial will allow the FCC to obtain real-world data on direct access to telephone numbers by VoIP providers to inform consideration of the NPRM. Direct access to telephone numbers would facilitate IP to IP interconnection, which may allow VoIP providers to provide higher quality, lower cost services, promote the deployment of innovative new voice services, and experience reductions in the cost of telephony services. Vonage is currently conducting a trial of direct access to telephone numbers in the Atlanta, Boston, and Phoenix markets.

The table below includes key operating data that our management uses to measure the growth and operating performance of our business:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Gross subscriber line additions	155,412			163,349			303,415			328,803
Change in net subscriber lines	2,541			(64		)	(9,859		)	(18,803		)
Subscriber lines (at period end)	2,349,957			2,356,084			2,349,957			2,356,084
Average monthly customer churn	2.4		%	2.5		%	2.5		%	2.7		%
Average monthly operating revenues per line	$	29.06		$	29.98		$	29.29		$	30.14
Average monthly direct cost of telephony services per line	$	7.60		$	8.23		$	7.69		$	8.44
Marketing costs per gross subscriber line addition	$	375		$	336		$	363		$	330
Employees (excluding temporary help) (at period end)	946			988			946			988

Gross subscriber line additions. Gross subscriber line additions for a particular period are calculated by taking the net subscriber line additions during that particular period and adding to that the number of subscriber lines that terminated during that period. This number does not include subscriber lines both added and terminated during the period, where termination occurred within the first 30 days after activation. The number does include, however, subscriber lines added during the period that are terminated within 30 days of activation but after the end of the period.

Net subscriber line additions. Net subscriber line additions for a particular period reflect the number of subscriber lines at the end of the period, less the number of subscriber lines at the beginning of the period.

Subscriber lines. Our subscriber lines include, as of a particular date, all paid subscriber lines from which a customer can make an outbound telephone call on that date. Our subscriber lines include fax lines including fax lines bundled with subscriber lines in our small office home office calling plans and soft phones but do not include our virtual phone numbers or toll free numbers, which only allow inbound telephone calls to customers. Subscriber lines decreased from 2,356,084 as of June 30, 2012 to 2,349,957 as of June 30, 2013 . For the three months ended June 30, 2013 , we added 155,412 subscriber lines. We believe that the decrease in our subscriber lines from the prior year was primarily due to increasing competition, particularly from cable companies and alternative voice communication providers.

Average monthly customer churn. Average monthly customer churn for a particular period is calculated by dividing the number of customers that terminated during that period by the simple average number of customers during the period, and dividing the result by the number of months in the period. The simple average number of customers during the period is the number of customers on the first day of the period, plus the number of customers on the last day of the period, divided by two. Terminations, as used in the calculation of churn statistics, do not include customers terminated during the period if termination occurred within the first 30 days after activation. Our average monthly customer churn decreased from 2.5% for the three months ended June 30, 2012 and the three months ended March 31, 2013 to 2.4% for the three months ended June 30, 2013 . Our average monthly customer churn decreased from 2.7% for the six months ended June 30, 2012 to 2.5% for the six months ended June 30, 2013 . The decline is the result of improvements in overall customer satisfaction, as well as changes in retention processes and the impact of service agreements, which were put in place in February 2012.We monitor churn on a daily basis and use it as an indicator of the level of customer satisfaction. Other companies may calculate churn differently, and their churn data may not be directly comparable to ours. Customers who have been with us for a year or more tend to have a lower churn rate than customers who have not. In addition, our customers who are international callers generally churn at a lower rate than customers who are domestic callers. Our churn will fluctuate over time due to economic conditions, competitive pressures, marketplace perception of our services, and our ability to provide high quality customer care and network quality and add future innovative products and services.

Average monthly revenues per line. Average monthly revenues per line for a particular period is calculated by dividing our revenues for that period by the simple average number of subscriber lines for the period, and dividing the result by the number of months in the period. The simple average number of subscriber lines for the period is the number of subscriber lines on the first day of the period, plus the number of subscriber lines on the last day of the period, divided by two. Our average monthly revenues

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per line decreased slightly to $29.06 for the three months ended June 30, 2013 compared to $29.98 for the three months ended June 30, 2012 due primarily to rate plan mix and lower USF fees. The continued expansion of lower priced plan offerings including BasicTalk to meet customer segment needs may cause downward pressure on average monthly revenues per line, offset by any selected pricing actions.

Average monthly direct cost of telephony services per line. Average monthly direct cost of telephony services per line for a particular period is calculated by dividing our direct cost of telephony services for that period by the simple average number of subscriber lines for the period, and dividing the result by the number of months in the period. We use the average monthly direct cost of telephony services per line to evaluate how effective we are at managing our costs of providing service. Our average monthly direct cost of telephony services per line decreased to $7.60 for the three months ended June 30, 2013 compared to $8.23 for the three months ended June 30, 2012 , due primarily to the decrease in domestic and international termination costs due to a lower customer base and more favorable rates negotiated with our service providers, the decrease in our network costs and in our E-911 costs, and the decrease in regulatory fees. Direct cost of telephony services both overall and on a per line basis is expected to experience upward pressure from increased international calling by our base of Vonage World customers offset by implementation of intelligent call routing and peering relationships, and improved pricing from various carriers.

Marketing cost per gross subscriber line addition. Marketing cost per gross subscriber line addition is calculated by dividing our marketing expense for a particular period by the number of gross subscriber line additions during the period. Marketing expense does not include the cost of certain customer acquisition activities, such as rebates and promotions, which are accounted for as an offset to revenues, or customer equipment subsidies, which are accounted for as direct cost of goods sold. As a result, it does not represent the full cost to us of obtaining a new customer. Our marketing cost per gross subscriber line addition was higher at $375 for the three months ended June 30, 2013 compared to $336 for the three months ended June 30, 2012 as a result of our investment for the nationwide launch of BasicTalk including a portion of costs that were fixed and not variable with subscriber line additions.

Employees . Employees represent the number of personnel that are on our payroll and exclude temporary or outsourced labor.

Revenues

Revenues consists of telephony services revenue and customer equipment and shipping revenue. Substantially all of our revenues are telephony services revenue. In the United States, we offer domestic and international rate plans to meet the needs of our customers, including a variety of residential plans, mobile plans, and small office and home office calling plans. The “Vonage World” plan, now available in the United States and Canada, offers unlimited calling across the United States and Puerto Rico, unlimited international calling to over 60 countries including India, Mexico, and China, subject to certain restrictions, and free voicemail to text messages with Vonage Visual Voicemail. Each of our unlimited plans other than Vonage World offers unlimited domestic calling in the United States as well as unlimited calling to Puerto Rico, Canada, and selected European countries, subject to certain restrictions. Each of our basic plans offers a limited number of domestic calling minutes per month. We offer similar plans in Canada and the United Kingdom. Under our basic plans, we charge on a per minute basis when the number of domestic calling minutes included in the plan is exceeded for a particular month. International calls (except for calls to Puerto Rico, Canada and certain European countries under our unlimited plans and a variety of countries under international calling plans and Vonage World) are charged on a per minute basis. These per minute fees are not included in our monthly subscription fees.

In addition to our landline telephony business, we are leveraging our technology to offer services and applications for mobile and other connected devices to address large existing markets. We introduced our first mobile offering in late 2009 and in early 2012 we introduced Vonage Mobile, our all-in-one mobile application that now provides free voice and video calling and messaging between users who have the application, as well as traditional paid international calling to any other phone. This mobile application works over WiFi, 3G and 4G and in more than 90 countries worldwide. The application consolidates the best features of our prior applications, while adding important functionality, value and ease of use including direct payment through iTunes.

We derive substantially all of our telephony services revenue from monthly subscription fees that we charge our customers under our service plans. We also offer residential fax service, virtual phone numbers, toll free numbers and other services, and charge an additional monthly fee for each service. One business fax line is included with each of our two small office and home office plans, but we charge monthly fees for additional business fax lines. We automatically charge these fees to our customers’ credit cards, debit cards, or electronic check payments (“ECP”), monthly in advance. We also automatically charge the per minute fees not included in our monthly subscription fees to our customers’ credit cards, debit cards or ECP monthly in arrears unless they exceed a certain dollar threshold, in which case they are charged immediately.

By collecting monthly subscription fees in advance and certain other charges immediately after they are incurred, we are able to reduce the amount of accounts receivable that we have outstanding, thus allowing us to have lower working capital requirements. Collecting in this manner also helps us mitigate bad debt losses, which are recorded as a reduction to revenue. If a customer’s credit card, debit card or ECP is declined, we generally suspend international calling capabilities as well as the customer’s

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ability to incur domestic usage charges in excess of their plan minutes. Historically, in most cases, we are able to correct the problem with the customer within the current monthly billing cycle. If the customer’s credit card, debit card or ECP could not be successfully processed during three billing cycles (i.e., the current and two subsequent monthly billing cycles), we terminate the account.

In the United States, we charge regulatory, compliance, E-911, and intellectual property-related recovery fees on a monthly basis to defray costs, and to cover taxes that we are charged by the suppliers of telecommunications services. In addition, we recognize revenue on a gross basis for contributions to the Federal Universal Service Fund (“USF”) and related fees. All other taxes are recorded on a net basis.

In addition, historically, we charged a disconnect fee for customers who terminated their service plan within the first twelve months of service. Disconnect fees are recorded as revenue and are recognized at the time the customer terminates service. Beginning in September 2010, we eliminated the disconnect fee for new customers. In February of 2012 we re-introduced service agreements as an option for new customers.

Telephony services revenue is offset by the cost of certain customer acquisition activities, such as rebates and promotions.

Customer equipment and shipping revenues, comprising an incidental portion of our revenue, derives from revenue from sales of customer equipment to our wholesalers or directly to customers and retailers. In addition, customer equipment and shipping revenue includes the fees, when collected, that we charge our customers for shipping any equipment to them.

Operating Expenses

Operating expenses consist of direct cost of telephony services, direct cost of goods sold, selling, general and administrative expense, marketing expense, and depreciation and amortization.

Direct cost of telephony services. Direct cost of telephony services primarily consists of fees that we pay to third parties on an ongoing basis in order to provide our services. These fees include:

•

Access charges that we pay to other telephone companies to terminate domestic and international calls on the public switched telephone network. These costs represented approximately 51% and 48% of our total direct cost of telephony services for the three months ended June 30, 2013 and 2012 , respectively, with a portion of these payments ultimately being made to incumbent telephone companies. When a Vonage subscriber calls another Vonage subscriber, we do not pay an access charge.


•	The cost of leasing Internet transit services from multiple Internet service providers. This Internet connectivity is used to carry VoIP session initiation signaling and packetized audio media between our subscribers and our regional data centers.


•	The cost of leasing from other telephone companies the telephone numbers that we provide to our customers. We lease these telephone numbers on a monthly basis.


•	The cost of co-locating our regional data connection point equipment in third-party facilities owned by other telephone companies, Internet service providers or collocation facility providers.

•

The cost of providing local number portability, which allows customers to move their existing telephone numbers from another provider to our service. Only regulated telecommunications providers have access to the centralized number databases that facilitate this process. Because we are not a regulated telecommunications provider, we must pay other telecommunications providers to process our local number portability requests.


•	The cost of complying with FCC regulations regarding VoIP emergency services, which require us to provide enhanced emergency dialing capabilities to transmit 911 calls for our customers.


•	Taxes that we pay on our purchase of telecommunications services from our suppliers or imposed by government agencies such as Federal USF and related fees.

Direct cost of goods sold. Direct cost of goods sold primarily consists of costs that we incur when a customer first subscribes to our service. These costs include:


•	The cost of the equipment that we provide to customers who subscribe to our service through our direct sales channel in excess of activation fees when an activation fee is collected. The remaining cost of customer equipment is deferred up to the activation fee collected and amortized over the estimated average customer life.


•	The cost of the equipment that we sell directly to retailers.

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•	The cost of shipping and handling for customer equipment, together with the installation manual, that we ship to customers.


•	The cost of certain products or services that we give customers as promotions.

Selling, general and administrative expense. Selling, general and administrative expense includes:


•	Compensation and benefit costs for all employees, which is the largest component of selling, general and administrative expense and includes customer care, research and development, network engineering and operations, sales and marketing, executive, legal, finance, and human resources personnel.


•	Share-based expense related to share-based awards to employees, directors, and consultants.


•	Outsourced labor related to customer care, kiosk and events sales teams, and retail support activities.


•	Product awareness advertising.


•	Transaction fees paid to credit card, debit card, and ECP companies and other third party billers such as iTunes, which may include a per transaction charge in addition to a percent of billings charge.


•	Rent and related expenses.


•	Professional fees for legal, accounting, tax, public relations, lobbying, and development activities.


•	Litigation settlements.

Marketing expense. Marketing expense includes:


•	Advertising costs, which comprise a majority of our marketing expense and include online, television, direct mail, alternative media, promotions, sponsorships, and inbound and outbound telemarketing.


•	Creative and production costs.


•	The costs to serve and track our online advertising.


•	Certain amounts we pay to retailers for activation commissions.


•	The cost associated with our customer referral program.

Depreciation and amortization expenses. Depreciation and amortization expenses include:


•	Depreciation of our network equipment, furniture and fixtures, and employee computer equipment.


•	Amortization of leasehold improvements and purchased and developed software.


•	Amortization of intangible assets (patents and trademarks).


•	Loss on disposal or impairment of property and equipment.

Loss from abandonment of software assets. Loss from abandonment of software assets include:


•	Impairment of investment in software assets.

Other Income (Expense)

Other Income (Expense) includes:


•	Interest income on cash and cash equivalents.


•	Interest expense on notes payable, patent litigation judgments and settlements and capital leases.


•	Amortization of debt related costs.


•	Realized and unrealized gains (losses) on foreign currency.

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Results of Operations

The following table sets forth, as a percentage of consolidated operating revenues, our consolidated statement of operations for the periods indicated:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012

Revenues	100	%	100	%	100	%	100	%

Operating Expenses:
Direct cost of telephony services (excluding depreciation and amortization)	26		27		26		28
Direct cost of goods sold	5		4		4		5
Selling, general and administrative	30		28		30		28
Marketing	28		26		27		25
Depreciation and amortization	4		4		4		4
Loss from abandonment of software assets	—		12		—		6
	93		101		91		96
Income (loss) from operations	7		(1	)	9		4
Other Income (Expense):
Interest income	—		—		—		—
Interest expense	(1	)	(1	)	(1	)	(1	)
Other income (expense), net	—		—		—		—
	(1	)	(1	)	(1	)	(1	)
Income before income tax expense (benefit)	6		(2	)	8		3
Income tax (expense) benefit	(2	)	—		(3	)	(1	)
Net income (loss)	4	%	(2	)%	5	%	2	%

Summary of Results for the Three and Six Months Ended June 30, 2013 and June 30, 2012

Revenues, Direct Cost of Telephony Services and Direct Cost of Good Sold



(in thousands, except percentages)	Three Months Ended									Six Months Ended
	June 30,									June 30,
	2013		2012		Dollar Change			Percent Change		2013		2012		Dollar Change			Percent Change
Revenues	$	204,776	$	211,916	$	(7,140	)	(3	)%	$	413,863	$	427,819	$	(13,956	)	(3	)%
Direct cost of telephony services(1)	53,527		58,195		(4,668		)	(8	)%	108,708		119,818		(11,110		)	(9	)%
Direct cost of goods sold	9,217		9,275		(58		)	(1	)%	18,095		19,121		(1,026		)	(5	)%
	142,032		144,446		(2,414		)	(2	)%	287,060		288,880		(1,820		)	(1	)%


(1)	Excludes depreciation and amortization of $3,510 , $3,929 , $6,962 , and $7,859 , respectively.

Revenues. For the three months ended June 30, 2013 , revenues decreased by $7,140 , or 3% , compared to the three months ended June 30, 2012 . This was primarily driven by a decrease of $7,190 in monthly subscription fees resulting from a decreased number of subscription lines, which reduced from 2,356,084 at June 30, 2012 to 2,349,957 at June 30, 2013 , and retention activities. There was an increase in credits issued to subscribers of $1,481. These revenue decreases were offset by an increase in fees that we charged for disconnecting our service of $602 and an increase in our regulatory fee revenue of $1,688, which includes a decrease of $2,674 in USF fees offset by an increase in regulatory recovery fees and E-911 fees of $4,362.

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For the six months ended June 30, 2013 , revenues decreased by $13,956 , or 3% , compared to the six months ended June 30, 2012 . This was primarily driven by a decrease of $14,542 in monthly subscription fees resulting from a decreased number of subscription lines, which reduced from 2,356,084 at June 30, 2012 to 2,349,957 at June 30, 2013 , and retention activities. There was also a decrease in activation fees of $725 and a decrease in other revenue of $748 due to lower rates from our revenue sharing partners. There was an increase in credits issued to subscribers of $2,229 and a decrease in additional features revenue of $542. These decreases were offset by an increase in fees that we charged for disconnecting our service of $1,734 due to reinstatement of contracts for new customers beginning in February 2012, and an increase in our regulatory fee revenue of $3,438, which includes a decrease of $5,193 in USF fees offset by an increase in regulatory recovery fees and E-911 fees of $8,631.

Direct cost of telephony services. For the three months ended June 30, 2013 compared to the three months ended June 30, 2012 , the decrease in direct cost of telephony services of $4,668 , or 8% , was primarily driven by a decrease in domestic termination costs of $429 due to improved termination rates, which are costs that we pay other phone companies for terminating phone calls, and fewer minutes of use and a decrease in our network costs of $986, which includes costs for co-locating in other carriers’ facilities, leasing phone numbers, routing calls on the Internet, E-911 costs, and transferring calls to and from the Internet to the public switched telephone network. There was also a decrease in international usage of $563 driven by improved termination rates, and a decrease of USF and related fees imposed by government agencies of $2,674.

For the six months ended June 30, 2013 compared to the six months ended June 30, 2012 , the decrease in direct cost of telephony services of $11,110 , or 9% , was primarily driven by a decrease in domestic termination costs of $757 due to improved termination rates, which are costs that we pay other phone companies for terminating phone calls, and fewer minutes of use and a decrease in our network costs of $2,886, which includes costs for co-locating in other carriers’ facilities, leasing phone numbers, routing calls on the Internet, E-911 costs, and transferring calls to and from the Internet to the public switched telephone network. There was also a decrease in other costs of $447, a decrease in international usage of $1,826 driven by improved termination rates, and a decrease of USF and related fees imposed by government agencies of $5,193.

Direct cost of goods sold. For the three months ended June 30, 2013 compared to the three months ended June 30, 2012 , the decrease in direct cost of goods sold of $58 , or 1% , was primarily due to a decrease in waived activation fees for new customers of $1,120 due to lower direct customer adds offset by an increase in customer equipment costs of $1,403 from additional customers from our retail expansion.

For the six months ended June 30, 2013 compared to the six months ended June 30, 2012 , the decrease in direct cost of goods sold of $1,026 , or 5% , was primarily due to a decrease in amortization costs on deferred customer equipment of $428, a decrease in waived activation fees for new customers of $2,621 due to lower direct customer adds, and a decrease in shipping costs of $603. These decreases were offset by an increase in customer equipment costs of $2,628 from additional customers from our retail expansion.

Selling, General and Administrative



(in thousands, except percentages)	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2013		2012		Dollar Change		Percent Change		2013		2012		Dollar Change		Percent Change
Selling, general and administrative	$	61,481	$	58,396	$	3,085	5	%	$	124,391	$	120,231	$	4,160	3	%

Selling, general and administrative. For the three months ended June 30, 2013 compared to the three months ended June 30, 2012 , selling expense increased by $4,015 including $1,561 due to the expansion of the number of community sales teams and $2,589 due to an increase in the number of retail stores with assisted selling and the nationwide BasicTalk launch. For the three months ended June 30, 2013 compared to the three months ended June 30, 2012 , general and administrative expense decreased by $930 due mainly to resolution of an insurance claim for prior period legal fees and settlement expenses of $2,300, lower Customer Care costs of $2,185, and a decrease in other expense of $820. These decreases were offset by higher share based cost of $915 and an increase in compensation and employee related expense of $3,106.

For the six months ended June 30, 2013 compared to the six months ended June 30, 2012 , selling expense increased by $4,300 including $2,003 due to the expansion of the number of community sales teams and $4,128 due to an increase in the number of retail stores with assisted selling and the nationwide BasicTalk launch, offset by a decrease of $1,851 related to product awareness advertising of our mobile offering launched in February 2012. For the six months ended June 30, 2013 compared to the six months ended June 30, 2012 , general and administrative expense decreased by $140 due mainly to resolution of an insurance claim for prior period legal fees and settlement expenses of $2,300, lower Customer Care costs of $4,443, a decrease in telecommunications expenses of $876, and a decrease in facility expense of $548. There was also a decrease in other expense of $889. These decreases

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were offset by an increase in professional fees of $1,801, an increase in compensation and employee related expense of $4,377, and higher share based cost of $2,273.

Marketing



(in thousands, except percentages)	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2013		2012		Dollar Change		Percent Change		2013		2012		Dollar Change		Percent Change
Marketing	$	58,330	$	54,956	$	3,374	6	%	$	109,999	$	108,378	$	1,621	1	%

Marketing. For the three months ended June 30, 2013 compared to the three months ended June 30, 2012 , marketing expense increased by $3,374 , or 6% , as a result of our investment for the nationwide launch of BasicTalk including a portion of costs that were fixed and not variable with subscriber line additions.

For the six months ended June 30, 2013 compared to the six months ended June 30, 2012 , marketing expense increased slightly by $1,621 , or 1% , as a result of our investment for the nationwide launch of BasicTalk including a portion of costs that were fixed and not variable with subscriber line additions.

We expect to make incremental investment in the nationwide launch of BasicTalk above second quarter levels in order to continue to build awareness, drive traffic, and provide merchandise support.

Depreciation and Amortization



(in thousands, except percentages)	Three Months Ended									Six Months Ended
	June 30,									June 30,
	2013		2012		Dollar Change			Percent Change		2013		2012		Dollar Change			Percent Change
Depreciation and amortization	$	8,205	$	8,518	$	(313	)	(4	)%	$	16,180	$	17,162	$	(982	)	(6	)%

Depreciation and amortization. The decrease in depreciation and amortization of $313 , or 4% , for the three months ended June 30, 2013 compared to the three months ended June 30, 2012 , was primarily due to lower depreciation of network equipment, computer hardware, and furniture of $517, offset by an increase in software amortization of $260.

The decrease in depreciation and amortization of $982 , or 6% , for the six months ended June 30, 2013 compared to the six months ended June 30, 2012 , was primarily due to lower depreciation of network equipment, computer hardware, and furniture of $1,127, offset by an increase in software amortization of $216.

Loss from abandonment of software assets



(in thousands, except percentages)	Three Months Ended									Six Months Ended
	June 30,									June 30,
	2013		2012		Dollar Change			Percent Change		2013		2012		Dollar Change			Percent Change
Loss from abandonment of software assets	$	—	$	25,262	$	(25,262	)	(100	)%	$	—	$	25,262	$	(25,262	)	(100	)%

Loss from abandonment of software assets. The loss from abandonment of software assets of $25,262 for the three and six months ended June 30, 2012 was due to the write-off of our investment in the Amdocs billing and ordering system that experienced development issues, net of settlement amounts to the Company, during the second quarter of 2012.

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Other Income (Expense)



(in thousands, except percentages)	Three Months Ended											Six Months Ended
	June 30,											June 30,
	2013			2012			Dollar Change			Percent Change		2013			2012			Dollar Change			Percent Change
Interest income	$	74		$	30		$	44		147	%	$	111		$	50		$	61		122	%
Interest expense	(1,732		)	(1,566		)	(166		)	(11	)%	(3,189		)	(3,317		)	128			4	%
Other income (expense), net	(17		)	(65		)	48			74	%	(56		)	(23		)	(33		)	(143	)%
	$	(1,675	)	$	(1,601	)	$	(74	)			$	(3,134	)	$	(3,290	)	$	156

Interest expense. For the three months ended June 30, 2013 compared to the three months ended June 30, 2012 , the increase in interest expense of $166 , or 11% , was due mainly to an increase in interest expense related to tax audits of $222, offset by a decrease in interest expense driven by our credit facility entered into in connection with our refinancing in February 2013 and the final payoff of a settlement agreement in August 2012.

For the six months ended June 30, 2013 compared to the six months ended June 30, 2012 , the decrease in interest expense of $128 , or 4% , was due to a decrease of $136 driven by our credit facility entered into in connection with our refinancing in February 2013 and a decrease of $207 due to the payoff of a settlement agreement in August 2012, offset by an increase in interest expense related tax audits of $222.

Provision for Income Taxes



(in thousands, except percentages)	Three Months Ended											Six Months Ended
	June 30,											June 30,
	2013			2012			Dollar Change			Percent Change		2013			2012			Dollar Change			Percent Change
Income tax (expense) benefit	$	(4,894	)	$	947		$	(5,841	)	(617	)%	$	(12,862	)	$	(3,976	)	$	(8,886	)	(223	)%
Effective tax rate	39.7		%	22.1		%						38.6		%	27.3		%

We recognize income tax expense equal to our pre-tax income multiplied by our effective income tax rate, an expense that had not been recognized prior to the reduction of the valuation allowance in the fourth quarter of 2011. In addition, adjustments are recorded for discrete period items related to stock compensation and changes to our state effective tax rate.

The provision also includes the federal alternative minimum tax and state and local income taxes.

The effective tax rate is calculated by dividing the income tax expense by income before income tax expense. The effective rate for the six months ended June 30, 2012 was less than the federal statutory rate due, in part, to our Canadian operations and certain discrete period items, which primarily consisted of adjustments related to stock compensation, including a non-cash deferred tax adjustment totaling $4,077 for certain stock compensation previously considered nondeductible under Section 162(m) of the Internal Revenue Code. The 2013 estimated annual effective tax rate is expected to approximate 41% , but may fluctuate each quarter due to the timing of other discrete period transactions.

Net Income (Loss)



(in thousands, except percentages)	Three Months Ended									Six Months Ended
	June 30,									June 30,
	2013		2012			Dollar Change		Percent Change		2013		2012		Dollar Change		Percent Change
Net income (loss)	$	7,447	$	(3,340	)	$	10,787	323	%	$	20,494	$	10,581	$	9,913	94	%

Net income (loss). Based on the explanations described above, our net income of $7,447 for the three months ended June 30, 2013 increased by $10,787 , or 323% , from net loss of $3,340 for the three months ended June 30, 2012 .

Based on the explanations described above, our net income of $20,494 for the six months ended June 30, 2013 increased by $9,913 , or 94% , from net income of $10,581 for the six months ended June 30, 2012 .

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Liquidity and Capital Resources

Overview

The following table sets forth a summary of our cash flows for the periods indicated:



	Six Months Ended
	June 30,
	2013			2012
	(in thousands)
Net cash provided by operating activities	$	28,604		$	40,640
Net cash used in investing activities	(10,744		)	(12,341		)
Net cash used in financing activities	(14,921		)	(14,615		)

For the six months ended June 30, 2013 , we generated income from operations. We expect to continue to balance efforts to grow our customer base while consistently achieving operating profitability. To grow our customer base, we continue to make investments in marketing, application development as we seek to launch new services, network quality and expansion, and customer care. Although we believe we will achieve consistent profitability in the future, we ultimately may not be successful and we may not achieve consistent profitability. We believe that cash flow from operations and cash on hand will fund our operations for at least the next twelve months.

2013 Financing

On February 11, 2013 we entered into Amendment No. 1 to our July 2011 Credit Agreement (as further amended by Amendment No. 2 to our 2011 Credit Facility, the "2013 Credit Facility"). The 2013 Credit Facility consists of a $70,000 senior secured term loan and a $75,000 revolving credit facility. The co-borrowers under the 2013 Credit Facility are our wholly owned subsidiary, Vonage America Inc., and us. Obligations under the 2013 Credit Facility are guaranteed, fully and unconditionally, by our other United States subsidiaries and are secured by substantially all of the assets of each borrower and each of the guarantors. On July 26, 2013 we entered into Amendment No. 2 to our 2011 Credit Agreement, which amends our financial covenant related to our consolidated fixed charge coverage ratio by increasing the amount of restricted payments excluded from such calculation from $50,000 to $80,000 .

Use of Proceeds

2013 Credit Facility Terms

The following description summarizes the material terms of the 2013 Credit Facility:

Outstanding amounts under the 2013 Credit Facility, at our option, will bear interest at:

•

LIBOR (applicable to one-, two-, three- or six-month periods) plus an applicable margin equal to 3.125% if our consolidated leverage ratio is less than 0.75 to 1.00, 3.375% if our consolidated leverage ratio is greater than or equal to 0.75 to 1.00 and less than 1.50 to 1.00, and 3.625% if our consolidated leverage ratio is greater than or equal to 1.50 to 1.00, payable on the last day of each relevant interest period or, if the interest period is longer than three months, each day that is three months after the first day of the interest period, or

•

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The 2013 Credit Facility provides greater flexibility to us in funding acquisitions and restricted payments, such as stock buybacks, than the 2011 Credit Facility.

We may prepay the 2013 Credit Facility at our option at any time without premium or penalty. The 2013 Credit Facility is subject to mandatory prepayments in amounts equal to:


•	100% of the net cash proceeds from any non-ordinary course sale or other disposition of our property and assets for consideration in excess of a certain amount subject to customary reinvestment provisions and certain other exceptions and


•	100% of the net cash proceeds received in connection with other non-ordinary course transactions, including insurance proceeds not otherwise applied to the relevant insurance loss.


•	a consolidated leverage ratio of no greater than 2.00 to 1.00;


•	a consolidated fixed coverage charge ratio of no less than 1.75 to 1.00 subject to adjustment to exclude up to $80,000 in specified restricted payments;


•	minimum cash of $25,000 including the unused portion of the revolving credit facility or $35,000 in the event of certain specified corporate actions; and


•	maximum capital expenditures not to exceed $55,000 during any fiscal year, provided that the unused amount of any permitted capital expenditures in any fiscal year may be carried forward to the next following fiscal year; in addition, annual excess cash flow up to $8,000 increases permitted capital expenditures.

As of June 30, 2013 , we were in compliance with all covenants, including financial covenants, for the 2013 Credit Facility.

State and Local Sales Taxes

We also have contingent liabilities for state and local sales taxes. As of June 30, 2013 , we had a reserve of $2,122 . If our ultimate liability exceeds this amount, it could affect our liquidity unfavorably. However, we do not believe it will significantly impair our liquidity.

Capital Expenditures

For the six months ended June 30, 2013 , capital expenditures were primarily for the implementation of software solutions and purchase of network equipment as we continue to expand our network. Our capital expenditures for the six months ended June 30, 2013 were $12,000 , of which $6,197 was for software acquisition and development. The majority of these expenditures are comprised of investments in information technology and systems infrastructure, including an electronic data warehouse, online customer service, and customer management platforms. For 2013, we believe our capital and software expenditures will be no greater than $30,000.

Common Stock Repurchases

On July 25, 2012, our board of directors approved a plan to buy back up to $50,000 of Vonage common stock through December 31, 2013. The specific timing and amount of repurchases would vary based on available capital resources and other financial and operational performance, market conditions, securities law limitations, and other factors. The repurchases would be made using our cash resources. The repurchase program was subject to suspension or discontinuation at any time without prior notice. For the period from January 1, 2013 to February 12, 2013, we repurchased $5,374, or 2,189 shares of Vonage common stock under the $50,000 repurchase program.

On February 7, 2013, Vonage's Board of Directors discontinued the remainder of our existing $50,000 repurchase program effective at the close of business on February 12, 2013 with $16,682 remaining, and authorized a new program to repurchase up to $100,000 of the Company's outstanding shares by December 31, 2014. The specific timing and amount of repurchases would

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vary based on available capital resources and other financial and operational performance, market conditions, securities law limitations, and other factors. The repurchases will be made using our cash resources. The repurchase program may be suspended or discontinued at any time without prior notice. For the three months ended June 30, 2013 , we repurchased $13,451 , or 4,756 shares of Vonage common stock under the $100,000 repurchase program. For the six months ended June 30, 2013 , we repurchased $24,458 , or 8,795 shares of Vonage common stock under the $100,000 repurchase program.

Stock Option Cancellation

As part of our strategy to build shareholder value and to facilitate our goal of reducing the number of shares of common stock outstanding, on February 19, 2013, we entered into an agreement with our Chief Executive Officer to cancel a total of 4,500 of his vested stock options for $5,463. The payment reflects a discount, in favor of the Company, from the closing price of the common stock on the New York Stock Exchange on February 19, 2013.

Operating Activities

Cash provided by operating activities decreased to $28,604 for the six months ended June 30, 2013 compared to $40,640 for the six months ended June 30, 2012 , primarily due to planned investments in our growth priorities, lower revenues and changes in working capital.

Changes in working capital requirements include changes in accounts receivable, inventory, prepaid and other assets, accounts payable, accrued and other liabilities, and deferred revenue and costs. Cash used for working capital requirements increased by $6,451 during the six months ended June 30, 2013 compared to the prior year period primarily due to timing of payments.

Investing Activities

Cash used in investing activities for the six months ended June 30, 2013 of $10,744 was attributable to capital expenditures of $5,803 and development of software assets of $6,197 , offset by a decrease in restricted cash of $1,256 due primarily to the return of part of the security deposit of $1,000 on our leased office property in Holmdel, New Jersey and the release of our letter of credit from our energy purchase plan of $256.

Cash used in investing activities for the six months ended June 30, 2012 of $12,341 was attributable to capital expenditures of $3,692 and development of software assets of $9,647, offset by a decrease in restricted cash of $998 due primarily to the return of part of the security deposit on our leased office property in Holmdel, New Jersey.

Financing Activities

Cash used in financing activities for the six months ended June 30, 2013 of $14,921 was primarily attributable to $11,667 in 2013 Credit Facility principal payments, $1,184 in capital lease payments, $30,066 in common stock repurchases, and $2,009 in 2013 Credit Facility debt related costs, partially offset by $27,500 in net proceeds received from our 2013 Credit Facility, and $7,968 in proceeds received from the exercise of stock options offset by $5,463 in proceeds paid in connection with the stock option cancellation.

Cash used in financing activities for the six months ended June 30, 2012 of $14,615 was primarily attributable to $14,167 in 2011 Credit Facility principal payments and $1,006 in capital lease payments, offset by $558 in proceeds received from the exercise of stock options.

Summary of Critical Accounting Policies and Estimates

Our significant accounting policies are summarized in Note 1 to our consolidated financial statements. The following describes our critical accounting policies and estimates:

Use of Estimates

On an ongoing basis, we evaluate our estimates, including the following:


•	the useful lives of property and equipment, software costs, and intangible assets;

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•	assumptions used for the purpose of determining share-based compensation using the Black-Scholes option pricing model (“Model”), and various other assumptions that we believed to be reasonable. The key inputs for this Model are our stock price at valuation date, exercise price, the dividend yield, risk-free interest rate, life in years, and historical volatility of our common stock; and


•	assumptions used in determining the need for, and amount of, a valuation allowance on net deferred tax assets.

Revenue Recognition

The point in time at which revenues are recognized is determined in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition, and Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition.

At the time a customer signs up for our telephony services, there are the following deliverables:


•	Providing equipment, if any, to the customer that enables our telephony services and


•	Providing telephony services.

The equipment is provided free of charge to our customers and in most instances there are no fees collected at sign-up. We record the fees collected for shipping the equipment to the customer, if any, as shipping and handling revenue at the time of shipment.

A further description of our revenues is as follows:

Substantially all of our operating revenues are telephony services revenues, which are derived primarily from monthly subscription fees that customers are charged under our service plans. We also derive telephony services revenues from per minute fees for international calls if not covered under a plan, including applications for mobile devices and other stand-alone products, and for any calling minutes in excess of a customer's monthly plan limits. Monthly subscription fees are automatically charged to customers' credit cards, debit cards or electronic check payments, or ECP, in advance and are recognized over the following month when services are provided. Revenues generated from international calls and from customers exceeding allocated call minutes under limited minute plans are recognized as services are provided, that is, as minutes are used, and are billed to a customer's credit cards, debit cards or ECP in arrears. As a result of our multiple billing cycles each month, we estimate the amount of revenues earned from international calls and from customers exceeding allocated call minutes under limited minute plans but not billed from the end of each billing cycle to the end of each reporting period and record these amounts as accounts receivable. These estimates are based primarily upon historical minutes and have been consistent with our actual results.

Customer equipment and shipping revenues, comprising an incidental portion of our revenue, include sales to our retailers, who subsequently resell this customer equipment to customers. Revenues were reduced for payments to retailers and rebates to customers, who purchased their customer equipment through these retailers, to the extent of customer equipment and shipping revenues.

Inventory

Inventory consists of the cost of customer equipment and is stated at the lower of cost or market, with cost determined using the average cost method. We provide an inventory allowance for customer equipment that has been returned by customers but may not be able to be reissued to new customers or returned to the manufacturer for credit.

Income Taxes

We recognize deferred tax assets and liabilities at enacted income tax rates for the temporary differences between the financial reporting bases and the tax bases of our assets and liabilities. Any effects of changes in income tax rates or tax laws are included in the provision for income taxes in the period of enactment. Our net deferred tax assets primarily consist of net operating loss carry forwards (“NOLs”). We are required to record a valuation allowance against our net deferred tax assets if we conclude that it is more likely than not that taxable income generated in the future will be insufficient to utilize the future income tax benefit

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from our net deferred tax assets (namely, the NOLs) prior to expiration. We periodically review this conclusion, which requires significant management judgment. If we are able to conclude in a future period that a future income tax benefit from our net deferred tax assets has a greater than 50 percent likelihood of being realized, we are required in that period to reduce the related valuation allowance with a corresponding decrease in income tax expense. This will result in a non-cash benefit to our net income in the period of the determination. In the future, if available evidence changes our conclusion that it is more likely than not that we will utilize our net deferred tax assets prior to their expiration, we will make an adjustment to the related valuation allowance and income tax expense at that time. In the fourth quarter of 2011, we released $325,601 of valuation allowance. In subsequent periods, we would expect to recognize income tax expense equal to our pre-tax income multiplied by our effective income tax rate, an expense that was not recognized prior to the reduction of the valuation allowance.

Net Operating Loss Carry Forwards

As of December 31, 2012, we had NOLs for United States federal and state tax purposes of $744,139 and $290,196, respectively, expiring at various times from years ending 2013 through 2030. In addition, we had NOLs for Canadian tax purposes of $25,476 expiring through 2028. We also had NOLs for United Kingdom tax purposes of $37,765 with no expiration date.

Under Section 382 of the Internal Revenue Code, if we undergo an “ownership change” (generally defined as a greater than 50% change (by value) in our equity ownership over a three-year period), our ability to use our pre-change of control NOLs and other pre-change tax attributes against our post-change income may be limited. The Section 382 limitation is applied annually so as to limit the use of our pre-change NOLs to an amount that generally equals the value of our stock immediately before the ownership change multiplied by a designated federal long-term tax-exempt rate. At December 31, 2012, there were no limitations on the use of our NOLs.

Net Operating Loss Rights Agreement

On June 7, 2012, we entered into a Tax Benefits Preservation Plan ("Preservation Plan") designed to preserve stockholder value and tax assets. In connection with the adoption of the Preservation Plan, our board of directors declared a dividend of one preferred share purchase right for each outstanding share of the Company’s common stock. The preferred share purchase rights were distributed to stockholders of record as of June 18, 2012, as well as to holders of the Company's common stock issued after that date, but will only be activated if certain triggering events under the Preservation Plan occur.

Under the Preservation Plan, preferred share purchase rights will work to impose significant dilution upon any person or group which acquires beneficial ownership of 4.9% or more of the outstanding common stock, without the approval of our board of directors, from and after June 7, 2012. Stockholders that own 4.9% or more of the outstanding common stock as of the opening of business on June 7, 2012 will not trigger the preferred share purchase rights so long as they do not (i) acquire additional shares of common stock or (ii) fall under 4.9% ownership of common stock and then re-acquire shares that in the aggregate equal 4.9% or more of the common stock.

The Preservation Plan was set to expire no later than the close of business June 7, 2013, unless extended by our board of directors. On April 4, 2013, after consultation with our advisors, our board of directors determined to extend the Preservation Plan through June 7, 2015, subject to ratification of the extension by stockholders at our 2013 annual meeting of stockholders. On June 6, 2013, at our 2013 annual meeting of stockholders, stockholders ratified the extension of the Preservation Plan through June 7, 2015.

Share-Based Compensation

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.



Item 3.	Quantitative and Qualitative Disclosures about Market Risk

We are exposed to financial market risks, including changes in currency exchange rates and interest rates.

Foreign Exchange Risk

We sell our products and services in the United States, Canada, and the United Kingdom. Changes in currency exchange rates affect the valuation in our financial statements of the assets and liabilities of these operations. We also have a portion of our

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sales denominated in Euros, the Canadian dollar, and the British Pound, which are also affected by changes in currency exchange rates. Our financial results could be affected by changes in foreign currency exchange rates, although foreign exchange risks have not been material to our financial position or results of operations to date.

Interest Rate and Debt Risk

Our exposure to market risk for changes in interest rates primarily relates to our long-term debt.

On February 11, 2013, we entered into Amendment No. 1 to the 2011 Credit Agreement. We are exposed to interest rate risk since amounts payable under the 2013 Credit Facility, at our option, bear interest at:

•

LIBOR (applicable to one-, two-, three- or six-month periods) plus an applicable margin equal to 3.125% if our consolidated leverage ratio is less than 0.75 to 1.00, 3.375% if our consolidated leverage ratio is greater than or equal to 0.75 to 1.00 and less than 1.50 to 1.00, and 3.625% if our consolidated leverage ratio is greater than or equal to 1.50 to 1.00, payable on the last day of each relevant interest period or, if the interest period is longer than three months, each day that is three months after the first day of the interest period, or

•

the base rate determined by reference to the highest of (a) the federal funds effective rate from time to time plus 0.50%, (b) the prime rate of JPMorgan Chase Bank, N.A., and (c) the LIBOR rate applicable to one month interest periods plus 1.00%, plus an applicable margin equal to 2.125% if our consolidated leverage ratio is less than 0.75 to 1.00, 2.275% if our consolidated leverage ratio is greater than or equal to 0.75 to 1.00 and less than 1.50 to 1.00, and 2.625% if our consolidated leverage ratio is greater than or equal to 1.50 to 1.00, payable on the last business day of each March, June, September, and December and the maturity date of the 2013 Credit Facility.

If the interest rate on our variable rate debt changed by 1%, our annual debt service payment would change by approximately $600 .



Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Based on the evaluation of our disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) required by Securities Exchange Act Rules 13a-15(b) or 15d-15(b), our Chief Executive Officer and our Chief Financial Officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.

Changes in Internal Controls. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting .

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Part II—Other Information



Item 1.	Legal Proceedings

We are subject to a number of lawsuits, government investigations and claims arising out of the conduct of our business. See a discussion of our litigation matters in Note 6 of Notes to our Consolidated Financial Statements, which is incorporated herein by reference.



Item 1A.	Risk Factors

There have been no material changes from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 .



Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Item 2(a) and (b) are not applicable.



Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	(d) Approximate Dollar Value of Shares that May Yet be Purchased under the Plans or Program
April 1, 2013 - April 30, 2013	2,018	$	2.90	2,018	$	83,135
May 1, 2013 - May 31, 2013 (1)	1,358	$	2.76	1,358	$	79,391
June 1, 2013 - June 31, 2013 (2)	1,380	$	2.79	1,380	$	75,542
	4,756			4,756

(1) including 90 shares, or $246 , of common stock repurchases settled in June 2013; excluding commission of 2 .

(2) including 220 shares, or $625 , of common stock repurchases settled in July 2013; excluding commission of 4 .

On February 7, 2013, Vonage's Board of Directors discontinued the remainder of the $50,000 repurchase program, which was announced on July 25, 2012, effective at the close of business on February 12, 2013, with $16,682 remaining, and authorized a new program to repurchase up to $100,000 of the Company's outstanding shares. The $100,000 repurchase program expires on December 31, 2014 but may be suspended or discontinued at any time without notice. The specific timing and amount of repurchases will vary based on available capital resources and other financial and operational performance, market conditions, securities law limitations, and other factors. The repurchases will be made using our cash resources. In any period, cash used in financing activities related to common stock repurchases may differ from the comparable change in stockholders' equity, reflecting timing differences between the recognition of share repurchase transactions and their settlement for cash.

During the three months ended June 30, 2013 , we repurchased 4,756 shares of Vonage Holdings Corp. common stock for $13,452 using cash resources pursuant to the $100,000 repurchase program. The repurchases occurred in the open market and pursuant to a trading plan under Rule 10b5-1 of the Securities Exchange Act of 1934. As of June 30, 2013 , approximately $ 75,542 remained of our $100,000 repurchase program.



Item 3.	Defaults Upon Senior Securities

None.



Item 4.	Mine Safety Disclosures

None.

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Item 5.	Other Information

Amendment to Credit Facility

On July 26, 2013 we entered into Amendment No. 2 ("Amendment No. 2") to our 2011 Credit Agreement (as so amended, our "2013 Credit Facility"), by and among (i) the Company, (ii) Vonage America Inc., a Delaware corporation (together with the Company, the “Borrowers”), (iii) Novega Venture Partners, Inc., Vonage Applications Inc., Vonage International Inc., Vonage Marketing LLC, Vonage Network LLC, Vonage Worldwide Inc. and DSP LLC, (iv) KeyBank National Association, (v) Silicon Valley Bank, (vi) RBS Citizens, N.A., and (vii) JPMorgan Chase Bank, N.A.

Amendment No. 2 amends our financial covenant related to our consolidated fixed charge coverage ratio by increasing the amount of restricted payments excluded from such calculation from $50,000 to $80,000, providing increased flexibility in funding restricted payments, including stock repurchases. Amendment No. 2 also contains additional immaterial clarifications and updates.

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Item 6.	Exhibits



10.1			Employment Agreement dated as of April 25, 2013 by and between Vonage Holdings Corp. and David T. Pearson (1)*

10.2			Route Management Services Addendum (the “Addendum”), by and between Vonage America Inc., a wholly-owned subsidiary of Vonage Holdings Corp., and Tata Communications (America) Inc., effective as of July 1, 2013. (1)†

10.3			Vonage Holdings Corp. 2006 Incentive Plan (Amended and Restated through June 6, 2013). (2)*

31.1			Certification of the Company’s Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)

31.2			Certification of the Company’s Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)

32.1			Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)

101			The following financial statements from Vonage Holdings Corp.’s Quarterly Report on Form 10-Q for the three months ended June 30, 2013, filed with the Securities and Exchange Commission on July 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; (v) the Consolidated Statements of Stockholders’ Deficit; and (vi) the Notes to Consolidated Financial Statements.

* Management contract or compensatory plan or arrangement.

† Portions of this Exhibit have been omitted and filed separately with the Securities and Exchange Commission as part of an order or application for confidential treatment pursuant to the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended.

(1) Filed herewith.

(2) Incorporated by reference to Vonage Holding Corp.’s Current Report on Form 8-K (File No. 001-32887) filed on June 6, 2013.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		VONAGE HOLDINGS CORP.

Dated:	July 31, 2013	By:	/s/ David T. Pearson
			David T. Pearson Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer and Duly Authorized Officer)

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EXHIBIT INDEX



10.1			Employment Agreement dated as of April 25, 2013 by and between Vonage Holdings Corp. and David T. Pearson (1)*

10.2			Route Management Services Addendum (the “Addendum”), by and between Vonage America Inc., a wholly-owned subsidiary of Vonage Holdings Corp., and Tata Communications (America) Inc., effective as of July 1, 2013. (1)†

10.3			Vonage Holdings Corp. 2006 Incentive Plan (Amended and Restated through June 6, 2013). (2)*

31.1			Certification of the Company’s Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)

31.2			Certification of the Company’s Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(1)

32.1			Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(1)

101			The following financial statements from Vonage Holdings Corp.’s Quarterly Report on Form 10-Q for the three months ended June 30, 2013, filed with the Securities and Exchange Commission on July 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; (v) the Consolidated Statements of Stockholders’ Deficit; and (vi) the Notes to Consolidated Financial Statements.

* Management contract or compensatory plan or arrangement.

(1) Filed herewith.

(2) Incorporated by reference to Vonage Holding Corp.’s Current Report on Form 8-K (File No. 001-32887) filed on June 6, 2013.

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“ Agreement ”), is entered into this April 25, 2013, by and between VONAGE HOLDINGS CORP., a Delaware corporation (the “ Company ”), and David T. Pearson (the “ Executive ”).

NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the parties hereto agree as follows:


1.	Employment and Duties .

(a) General . The Executive shall serve as Chief Financial Officer and Treasurer of the Company, reporting to the Chief Executive Officer (the “ CEO ”) of the Company and, as requested by the Board of Directors of the Company (the “ Board ”), to the Board. The Executive shall have the duties, responsibilities, and authority customarily held by the chief financial officer and treasurer of a public corporation. The Executive shall also perform such other duties (which may be increased or decreased at the discretion of the CEO from time to time) as the CEO or Board may from time to time require, which shall be consistent with the general level and type of duties and responsibilities customarily associated with the positions of chief financial officer and treasurer (“ Other Duties ”). Other Duties may include, without limitation, investor relations, strategic planning and corporate development, and facilities. The Executive’s principal place of employment shall be the principal offices of the Company, currently located in the Holmdel, New Jersey area; provided , however , that the Executive understands and agrees that he shall be required to travel from time to time for business reasons.

(b) Exclusive Services . For so long as the Executive is employed by the Company, the Executive shall devote his full-time working time to his duties hereunder, shall conform to and use his good faith efforts to comply with the lawful and good faith directions and instructions given to him by the CEO and, upon its request, the Board, and shall use his good faith efforts to promote and serve the interests of the Company. Further, the Executive shall not, directly or indirectly, render services to any other person or organization without the consent of the Company or otherwise engage in activities that would interfere with the faithful performance of his duties hereunder. Notwithstanding the foregoing, the Executive may (i) serve on corporate boards, with the prior consent of the CEO, the Chairman of the Board and the Lead Independent Director of the Board, (ii) serve on civic or charitable boards or engage in charitable activities without remuneration therefor, and (iii) manage his personal investments, and serve as an executor, trustee, or in a similar fiduciary capacity in connection therewith, provided that such activities do not, individually or in the aggregate, conflict materially with the performance of the Executive’s duties under this Agreement.

2. Employment “At-Will” . The Executive’s employment shall commence on May 1, 2013 (the “ Effective Date ”) and the period from the Effective Date through the date of the Executive’s termination of employment, as provided herein, shall be the “ Term .” Continuation of the Executive’s employment with the Company throughout the Term shall be deemed an employment “at will” and the Executive’s employment may be terminated “at will” by either Executive or the Company.

3. Compensation and Other Benefits . Subject to the provisions of this Agreement, the Company shall pay and provide the following compensation and other benefits to the Executive during the Term as compensation for services rendered hereunder:

(a) Base Salary . The Company shall pay to the Executive an annual base salary (the “ Base Salary ”) of not less than Four Hundred Seventy-Five Thousand Dollars ($475,000), payable in substantially equal installments at such intervals as may be determined by the Company in accordance with its regular payroll practices for similarly situated employees, but in no event less

frequently than biweekly in arrears. The Base Salary shall be reviewed for increase by the Compensation Committee of the Board in good faith, based upon the Executive’s performance, not less often than annually. The Base Salary may be increased, but not decreased below its then current level, from time to time by the Board, and as so increased shall thereafter be the “ Base Salary .”

(b) Sign-On Option Grant and Future Option Grant Opportunities . In connection with the Executive’s commencement of employment, the Executive shall be awarded, on May 3, 2013 (the “ Grant Date ”), a one-time sign-on nonqualified stock option grant to purchase Two Million (2,000,000) shares of the Company’s common stock (the number of shares and exercise price being subject to adjustment based on stock splits, reverse stock splits, other adjustments, or recapitalizations between the date hereof and the Grant Date) (the “ Sign-On Options ”) at a price per share equal to the closing price of the Company’s common stock on the Grant Date. The Sign-On Options shall be issued pursuant to the terms and conditions of the Vonage Holdings Corp. 2006 Incentive Plan, as amended or restated from time to time (the “ 2006 Incentive Plan ”), and the Executive’s individual stock option agreement (the “ Stock Option Agreement ”), in form substantially similar to that attached hereto as Exhibit A . Notwithstanding anything to the contrary in the 2006 Incentive Plan or any stock option agreement thereunder, the following provisions of this Section 3(b) shall govern the terms of the Sign-On Options (and, solely to the extent specifically provided in this Section 3(b), all other outstanding options issued by the Company to the Executive). The Sign-On Options shall vest and become exercisable as to 1/4 ^th of the shares on each of the first, second, third and fourth anniversaries of the Grant Date (each, an “ Option Vesting Date ”), subject to the Executive’s continued employment on the applicable Option Vesting Date; provided , however , that all outstanding Sign-On Options shall become fully vested and exercisable if, after a Change of Control, Executive’s employment is terminated without Cause by the Company, for Good Reason by the Executive, or due to the Executive’s death or “disability” (in each case, as defined below) on or prior to the first anniversary thereof. For purposes of this Agreement, “ Change of Control ” shall have the meaning set forth in the 2006 Incentive Plan; provided , however , that the acquisition of additional securities of the Company by any Person (as defined in the 2006 Incentive Plan) that, together with its Affiliates (as defined in the 2006 Incentive Plan), currently is the Beneficial Owner (as defined in the 2006 Incentive Plan) of twenty percent (20%) or more of the combined voting power of the Company’s outstanding securities shall not constitute a Change of Control. Upon a termination of the Executive’s employment without Cause by the Company or by the Executive for Good Reason (other than on or prior to the first anniversary of a Change of Control), an additional amount of the outstanding Sign-On Options granted by the Company to the Executive shall become vested and immediately exercisable as of the date of such termination in accordance with the provisions of the immediately following sentence. For each outstanding Sign-On Option, such additional amount shall be equal to the number of Sign-On Options that would have vested on the next Option Vesting Date immediately following the date of termination, multiplied by a fraction where (1) the numerator is the number of full and fractional months that had elapsed between the Option Vesting Date immediately prior to such termination and such termination date plus the number of full and fractional months remaining in the calendar quarter that includes such termination date, and (2) the denominator is twelve (12). Notwithstanding the foregoing, in no event shall the number of Sign-On Options vesting pursuant to the foregoing sentence exceed the number of Sign-On Options that would have vested on the next Option Vesting Date immediately following the date of termination. Upon a termination of the Executive’s employment by the Company without Cause or by the Executive for Good Reason, all outstanding options granted by the Company to the Executive (whether part of the Sign-On Options or not) shall (to the extent vested) remain exercisable for at least 180 days after the termination, or until the end of the term of the option, if earlier. Upon a termination of the Executive’s employment by the Executive without Good Reason, all vested outstanding options granted by the Company to the Executive shall remain exercisable for at least 60 days after termination, or until the end of the term of the option, if earlier. The Executive shall be considered for future option grants based on individual and Company performance (and established in conjunction with the Company’s regular equity review cycle).

(c) Annual Cash Bonus . The Executive shall be eligible to receive an annual, discretionary cash bonus (the “ Annual Bonus ”) with a Target Bonus Opportunity (“ TBO ”) of up to 100% of the Executive’s then current Base Salary for the applicable year. Subject to Sections 4(b) and 4(c) below, for calendar year 2013, the Annual Bonus for which the Executive is eligible shall be equal to the greater of (i) $475,000 and (ii) the Annual Bonus the Executive otherwise would be eligible to receive in respect of 2013, prorated for the number of full months worked from the Effective Date through December 31, 2013. Annual Bonus payouts are not guaranteed and are granted in the Company’s sole discretion based on individual and Company performance. The Company performance targets applicable to the Executive’s Annual Bonus shall be in accordance with the Company’s annual bonus program as applicable to senior executives of the Company, as in effect from time to time. Annual Bonus payouts, if any, are generally paid in February or March of the calendar year following the calendar year in which such payout is earned, subject to the Executive’s continued employment on such payment date, except as otherwise provided in Section 4.

(d) Employee Benefit Plans .

(i) The Executive shall be entitled to participate in all employee health and welfare plans, programs and arrangements of the Company, in accordance with their respective terms, as may be amended from time to time, on a basis no less favorable than that made available to other senior executives of the Company; provided , however , that, to the extent it does so for the CEO, the Company will pay the full cost of the following insurance benefits for the Executive and his spouse and dependents: medical, dental, vision, basic life, accidental death and dismemberment, and core long term disability. The Executive shall be eligible to participate in the Vonage medical and dental plans and the 401(k) Retirement Plan commencing on the first day of the month following the Effective Date.

(ii) The Company shall reimburse the Executive for all reasonable out-of-pocket expenses actually incurred or paid by the Executive for the continuation of the Executive’s current medical and dental benefits for the Executive and his spouse and dependents (and excluding all other benefits, including, without limitation, vision benefits) during the waiting period described in Section 3(d)(i) above, in the amount of 100% of such costs up to a maximum of $4,000.

(e) Expenses . The Company shall reimburse the Executive for reasonable travel and other business-related expenses incurred by the Executive in the fulfillment of his duties hereunder upon presentation of written documentation thereof, in accordance with the applicable expense reimbursement policies and procedures of the Company as in effect from time to time.

(f) Vacation . The Executive shall be entitled to 20 days paid time off in accordance with the Company’s vacation policy (but which shall not be prorated for 2013) during each fiscal year of the Term, which may be carried over to the next fiscal year of the Term to the extent otherwise permitted under the Company’s vacation policy.

(g) Legal Fees . Upon presentation of appropriate documentation, the Company shall pay the Executive’s reasonable counsel fees incurred in connection with the negotiation and documentation of this Agreement, up to a maximum of $15,000.

(h) Other Benefits and Perquisites . The Executive shall be entitled to such other benefits and perquisites as may be available generally to other senior executives of the Company.


4.	Termination of Employment .

(a) Termination for Cause; Resignation without Good Reason .

(i) If the Company terminates the Executive’s employment for Cause, or if the Executive resigns from his employment hereunder other than for Good Reason, the Executive shall only be entitled to payment of any unpaid Base Salary through and including the date of termination or resignation, any unpaid expense reimbursement , any accrued but unused vacation, and any other amounts or benefits required to be paid under this Agreement through the date of termination or resignation, including but not limited to those under Sections 3(e), 3(g), and 3(h) hereof (in each case only to the extent earned or accrued prior to such date of termination or resignation , or provided by law or under any plan, program, policy or practice of the Company (the “ Other Accrued Compensation and Benefits ”). The Executive shall have no further right under this Agreement to receive any other compensation or benefits after such termination or resignation of employment.

(ii) For purposes of this Agreement, “ Cause ” shall mean: (A) any act or omission that constitutes a material breach by the Executive of his obligations under this Agreement; (B) the willful and continued failure or refusal of the Executive (not as a consequence of illness, accident or other incapacity) to perform the duties reasonably required of him hereunder; (C) the Executive’s conviction of, or plea of nolo contendere to, (x) any felony or (y) another willful crime involving dishonesty or moral turpitude or which reflects negatively upon the Company and/or its subsidiaries or affiliates (collectively, the “ Company Group ”) in a material manner or otherwise materially impairs or impedes the operations of the Company Group; (D) the Executive’s engaging in any willful misconduct, gross negligence or act of dishonesty with regard to the Company Group or his material duties, which conduct is injurious to the Company Group; (E) the Executive’s material breach of either a material written policy of the Company Group or, to the extent the Executive is aware of such rules or has been informed by the Company’s counsel, the relevant rules of any governmental or regulatory body applicable to the Company Group; or (F) the Executive’s refusal to follow the lawful directions of the Board; provided, however, that no event or condition described in clauses (A), (B), (E) or (F) shall constitute Cause unless (i) the Company first gives the Executive written notice of its intention to terminate his employment for Cause and the grounds for such termination, and (ii) such grounds for termination (if susceptible to correction) are not corrected by the Executive within thirty (30) days of his receipt of such notice (or, in the event that such grounds cannot be corrected within such thirty (30) day period, the Executive has not taken all reasonable steps within such thirty (30) day period to correct such grounds as promptly as practicable thereafter).

(iii) For purposes of this Agreement, “ Good Reason ” shall mean the occurrence of any of the following events without the Executive’s prior written consent: (A) a failure by the Company to timely pay material compensation due and payable to the Executive in connection with his employment; (B) a material diminution in the Executive’s Base Salary or TBO; (C) a material diminution of the authority, duties or responsibilities of the Executive from those set forth in this Agreement (excluding the Other Duties), including without limitation, ceasing to be the Chief Financial Officer and Treasurer of the Company (or its ultimate parent following a Change of Control); (D) the Company requiring the Executive to be based at any office or location more than fifty (50) miles from the Holmdel, New Jersey area; or (E) a material breach by the Company of its obligations under this Agreement; provided, however, that no event or condition described in clauses (A) through (E) shall constitute Good Reason unless (x) the Executive gives the Company within sixty (60) days of the occurrence of the Good Reason event, written notice of his intention to terminate his employment for Good Reason and the grounds for such termination, and (y) such grounds for termination (if susceptible to correction) are not corrected by the Company within thirty (30) days of its receipt of such notice (or, in the event that such grounds cannot be corrected within such thirty (30) day period, the Company has not taken all reasonable steps within such thirty (30) day period to correct such grounds as promptly as practicable thereafter). Such termination for Good Reason by the Executive must occur within 120 days of the occurrence of the Good Reason event.

(b) Termination without Cause; Resignation for Good Reason.

(i) If the Executive’s employment is terminated by the Company without Cause or the Executive resigns for Good Reason, the Company shall pay the Executive, subject to Section 4(e) below: (A) severance pay equal to twelve (12) months of the Executive’s then-current Base Salary and an amount equal to the Executive’s full TBO for the year of termination payable by the Company in installments during its regular payroll cycle over the twelve (12) month period following the Executive’s termination of employment, provided that the first payment shall be made on the sixtieth (60 ^th ) day after the Executive’s termination of employment, and such first payment shall include payment of any amounts that would otherwise be due prior thereto, (B) a pro rata portion of the Executive’s Annual Bonus for the year of termination, if and to the extent that the Company achieves its performance metrics for such year, payable when bonuses are normally paid to other senior executives of the Company, but in no event later than March 15th of the year following the year to which such bonus relates, and (C) the Other Accrued Compensation and Benefits. The Executive shall have no further rights under this Agreement to receive any other compensation or benefits after such termination or resignation of employment.

(ii) If, following a termination of employment without Cause or a resignation for Good Reason, the Executive materially breaches a provision of Section 5, Section 6 or Section 7 hereof, the Executive shall not be eligible, as of the date of such material breach, for the payments and benefits described in Sections 4(b)(i)(A) or (B) and any and all obligations and agreements of the Company with respect to such payments shall thereupon cease.

(c) Termination Due to Death or Disability . The Executive’s employment with the Company shall terminate automatically on the Executive’s death. In the event of the Executive’s disability, the Company shall be entitled to terminate his employment. In the event of termination of the Executive’s employment by reason of the Executive’s death or disability, the Company shall pay to the Executive (or his estate, as applicable), subject to Section 4(e) below, (i) a pro rata portion of the Executive’s Annual Bonus for the year of termination, if and to the extent that the Company achieves its performance metrics for such year, payable when bonuses are normally paid to other senior executives of the Company, but in no event later than March 15th of the year following the year to which such bonus relates, and (ii) the Other Accrued Compensation and Benefits. For purposes of this Agreement, “ disability ” means that the Executive has been unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment for 180 days in any one (1) year period. Notwithstanding the foregoing, in the event that as a result of absence because of mental or physical incapacity the Executive incurs a “separation from service” within the meaning of such term under Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”) and the regulations and guidance issued thereunder (“ Section 409A ”), the Executive shall on such date automatically be terminated from employment as a disability termination.

(d) Release and Waiver . The Company shall not be required to make the payments and provide the benefits provided for under Sections 4(b)(i)(A) or (B) or, in the case of a disability termination, Section 4(c)(i), unless the Executive (or, if applicable in the case of a disability termination, the person having legal power of attorney over his affairs) executes and delivers to the Company a Separation Agreement and General Release in substantially the form attached hereto as Exhibit B (the “ Release ”), and such Release has become effective and irrevocable in its entirety within sixty (60) days of the Executive’s termination of employment.

(e) Payments Subject to Section 409A .

(i) The intent of the parties is that payments and benefits under this Agreement comply with Section 409A (except to the extent exempt as short-term deferrals or otherwise) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith. If the Executive notifies the Company (with specificity as to the reason therefor)

that the Executive believes that any provision of this Agreement (or of any award of compensation, including equity compensation or benefits) would cause the Executive to incur any additional tax or interest under Section 409A or the Company independently makes such determination, the Company shall, after consulting with the Executive, reform such provision to attempt to comply with Section 409A through good faith modifications to the minimum extent reasonably appropriate to conform with Section 409A. To the extent that any provision hereof is modified in order to comply with Section 409A, such modification shall be made in good faith and shall, to the maximum extent reasonably possible, maintain the original intent and economic benefit to the Executive and the Company of the applicable provision without violating the provisions of Section 409A. If the Executive notifies the Company (with specificity as to the reason therefor) that the Executive believes that any of the Company’s plans, programs or payroll practices would cause the Executive to incur any additional tax or interest under Section 409A, the Company shall in good faith discuss with the Executive any proposed modifications to such plans, programs or payroll practices that are reasonably necessary to comply with Section 409A. Nothing contained herein shall constitute any representation or warranty by the Company regarding compliance with Section 409A and, notwithstanding anything else to the contrary herein, the members of the Company Group, and each of their respective employees or representatives, shall have no liability to the Executive with respect to the assessment of any additional income tax, interest or penalties under Section 409A.

(ii) A termination of employment shall not be deemed to have occurred for purposes of this Agreement providing for the payment of any amounts or benefits that are considered “nonqualified deferred compensation” under Section 409A upon or following a termination of employment, unless such termination is also a “separation from service” from the Company within the meaning of Section 409A and the payment thereof prior to a “separation from service” from the Company would violate Section 409A. As permitted by Treasury Regulation 1.409A-1(h)(1)(ii), 49% shall be substituted in lieu of 20% for the average level of bona fide services performed during the immediately preceding thirty-six (36) month period in order to constitute a “separation from service”. For purposes of any provision of this Agreement relating to any such payments or benefits, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.” Solely for purposes of this Section 4(e)(ii), “ Company ” shall include all persons with whom the Company would be considered a single employer under Sections 414(b) and 414(c) of the Code.

(iii) For purposes of Section 409A, the Executive’s right to receive any installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies a payment period with reference to a number of days ( e.g. , “payment shall be made within thirty (30) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of the Company.

(iv) If, as of the date of the “separation from service” of the Executive from the Company, the Executive is a “specified employee” (within the meaning of that term under Section 409A(a)(2)(B)), then with regard to any payment or the provision of any benefit that is specified herein as subject to this Section or is otherwise considered “nonqualified deferred compensation” under Section 409A (whether under this Agreement, any other plan, program, payroll practice or any equity grant) and is payable upon the Executive’s separation from service, such payment or benefit shall not be made or provided until the date which is the earlier of (A) the expiration of the six (6)-month-and-one-day period measured from the date of such “separation from service” of the Executive, and (B) the date of the Executive’s death (the “ Delay Period ”) and this Agreement and each such plan, program, payroll practice or equity grant shall hereby be deemed amended accordingly. Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Section (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum with interest at the prime rate as published in the Wall Street Journal on the first business day of the Delay Period ( provided that any payment measured by a change in value that continues during

the Delay Period shall not be credited with interest for the Delay Period), and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.

(v) All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A. All expenses or other reimbursements paid pursuant hereto that are taxable income to the Executive shall in no event be paid later than the end of the calendar year next following the calendar year in which the Executive incurs such expense or pays such related tax. With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Section 409A, the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided that the foregoing clause shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect and such payments shall be made on or before the last day of the Executive’s taxable year following the taxable year in which the expense occurred.

(f) Notice of Termination . Any termination of employment by the Company or the Executive shall be communicated by a written “ Notice of Termination ” to the other party hereto given in accordance with Section 21 of this Agreement.

(i) By Company . In the event of a termination by the Company for Cause, the Notice of Termination shall (A) indicate the specific termination provision in this Agreement relied upon, (B) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (C) indicate the date on which such termination is effective (subject to applicable correction periods). The failure by the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause shall not waive any right of the Company hereunder or preclude the Company from asserting such fact or circumstance in enforcing the Company’s rights hereunder to the extent that such fact or circumstance is on the same asserted basis within the definition for the termination. In the event of a termination by the Company without Cause, the Notice of Termination shall specify the date of termination, which date shall not be more than thirty (30) days after the giving of such notice.

(ii) By Executive . In the event of a resignation by the Executive for Good Reason, the Notice of Termination shall (A) indicate the specific termination provision in this Agreement relied upon, (B) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (C) specify the date of termination, which date shall not be more than thirty (30) days after the giving of such notice. In the event of a resignation by the Executive other than for Good Reason, the Notice of Termination shall specify the date of termination, which date shall not be less than thirty (30) days after the giving of such notice. The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive’s rights hereunder to the extent that such fact or circumstance is on the same asserted basis within the definition for the termination. In the event of a termination by the Executive without Good Reason, the Notice of Termination shall specify the date of termination, which date shall not be more than thirty (30) days after the giving of such notice.

(g) Resignation from Directorships and Officerships . The termination of the Executive’s employment for any reason shall constitute the Executive’s resignation from (i) any director, officer, or employee position the Executive has with members of the Company Group, and (ii) all fiduciary positions (including as a trustee) the Executive holds with respect to any employee benefit plans or trusts established by any members of the Company Group. The Executive agrees that this Agreement shall serve as written notice of resignation in this circumstance.


5.	Confidentiality .

(a) Confidential Information . The Executive has entered into and is subject to the Company’s Employee Confidentiality and Innovations Agreement substantially in the form attached hereto as Exhibit C .

(b) Exclusive Property . The Executive confirms that all Confidential Information (as defined in the Employee Confidentiality and Innovations Agreement) is and shall remain the exclusive property of the Company Group. All business records, papers and documents kept or made by the Executive relating to the business of the Company Group shall be and remain the property of the Company Group. Upon the request and at the expense of the Company Group, the Executive shall promptly make all disclosures, execute all instruments and papers, and perform all acts reasonably necessary to vest and confirm in the Company Group, fully and completely, all rights created or contemplated by this Section 5(b). Notwithstanding the foregoing, the Executive shall maintain ownership and use of his rolodex and other address books.

6. Noncompetition . The Executive has entered into and is subject to the Company’s Non-Compete Agreement substantially in the form attached hereto as Exhibit D .

7. Non-Solicitation and Non-Hire . The Executive has agreed and now confirms that for a period commencing on the Effective Date and ending twelve (12) months following the Executive’s termination of employment with the Company (the “ Restricted Period ”), other than in the good faith performance of his duties to the Company as Chief Financial Officer and Treasurer of the Company, the Executive shall not, directly or indirectly: (a) interfere with or attempt to interfere with the relationship between any person who is, or was during the then-most recent twelve (12) month period, an employee, officer, representative or agent of any member of the Company Group, or solicit or induce or attempt to solicit or induce any of them to leave the employ of any member of the Company Group or violate the terms of their respective contracts, or any employment arrangements, with any such entities; or (b) hire, recruit or attempt to hire any person who was employed by any member of the Company Group at any time during the then-most recent twelve (12) month period; provided , that this clause (b) shall not apply to the recruitment or hiring of any individual whose employment with any member of the Company Group has been terminated for a period of six (6) months or longer; or (c) induce or attempt to induce any customer, client, supplier, licensee or other business relation of any member of the Company Group to cease doing business with any member of the Company Group, or in any way interfere with the relationship between any member of the Company Group and any customer, client, supplier, licensee or other business relation of any member of the Company Group. Nothing in this Section 7 shall be violated by the Executive serving upon request as a reference, so long as he does not have a business relationship with the person to whom the reference is being given, and nothing in this Section 7 shall be violated by the Executive engaging in general advertising that is not specifically targeted at the persons referred to in clauses (a), (b) and (c) that have a relationship with a member of the Company Group. As used herein, the term “ indirectly ” shall include, without limitation, the Executive’s authorizing the use of the Executive’s name by any competitor of any member of the Company Group to induce or interfere with any employee or business relationship of any member of the Company Group.

8. Certain Remedies .

(a) Injunctive Relief . Without intending to limit the remedies available to either party hereto, including, but not limited to, those set forth in Section 11 hereof, each of the parties hereto agrees that a breach of any of the covenants contained in Sections 5, 6, or 7 of this Agreement may result in material and irreparable injury to the other party for which there is no adequate remedy at law, that it shall not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, any non-breaching party shall be entitled to seek a temporary restraining order or a preliminary or permanent injunction, or both, without bond or other security, restraining the breaching party from engaging in activities prohibited by the covenants contained in Sections 5, 6 or 7 of this Agreement or such other relief as may be required specifically to enforce any of the covenants contained in this Agreement. Such injunctive relief in any court shall be available to the non-breaching party in lieu of, or prior to or pending determination in, any arbitration proceeding.

(b) Extension of Restricted Period . In addition to the remedies the Company may seek and obtain pursuant to Section 11 hereof, the Restricted Period may, in the court’s discretion, be extended by any and all periods during which the Executive shall be found by a court possessing personal jurisdiction over him to have been in violation of the covenants contained in Sections 5 through 7 of this Agreement.

9. Defense of Claims . The Executive agrees that, during the Term, and for a period of six (6) months after termination of the Executive’s employment, upon request from the Company, the Executive shall cooperate with the Company in connection with any matters the Executive worked on during his employment with the Company and any related transitional matters. In addition, the Executive agrees to cooperate with any member of the Company Group in the defense of any claims or actions that are made and/or may be made by or against any member of the Company Group, except if the Executive’s reasonable interests are adverse to the Company Group in such claim or action. The Company agrees to promptly reimburse the Executive for all of the Executive’s reasonable travel and other direct expenses incurred, or to be reasonably incurred, to comply with the Executive’s obligations under this Section 9.

10. Source of Payments . All payments provided under this Agreement, other than payments made pursuant to a plan which provides otherwise, shall be paid in cash from the general funds of the Company, and no special or separate fund shall be established, and no other segregation of assets shall be made, to assure payment. The Executive shall have no right, title or interest whatsoever in or to any investments which the Company may make to aid the Company in meeting its obligations hereunder. To the extent that any person acquires a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company.

11. Arbitration . Any dispute or controversy arising under or in connection with this Agreement or otherwise in connection with the Executive’s employment by the Company that cannot be mutually resolved by the parties to this Agreement and their respective advisors and representatives shall be settled exclusively by arbitration in New Jersey in accordance with the rules of the American Arbitration Association before one arbitrator of exemplary qualifications and stature, who shall be selected jointly by an individual to be designated by the Company and an individual to be selected by the Executive, or if such two individuals cannot promptly agree on the selection of the arbitrator, who shall be selected by the American Arbitration Association. The award of the arbitrator with respect to such dispute or controversy shall be in writing with sufficient explanation to allow for such meaningful judicial review as is permitted by law, and that such decision shall be enforceable in any court of competent jurisdiction and shall be binding on the parties hereto. The remedies available in arbitration shall be identical to those allowed at law. The arbitrator shall be entitled to award to the prevailing party in any arbitration or judicial action under this Agreement reasonable attorneys’ fees and any costs of the arbitration payable by such party, consistent with applicable law; provided , that no such award shall be made against the Executive unless the arbitrator finds the Executive’s positions in such arbitration or dispute to have been frivolous or in bad faith.

12. Nonassignability; Binding Agreement .

(a) By the Executive . This Agreement and any and all of the Executive’s rights, duties, obligations or interests hereunder shall not be assignable or delegable by the Executive.

(b) By the Company . This Agreement and any and all of the Company’s rights, duties, obligations or interests hereunder shall not be assignable by the Company, except as incident to a reorganization, merger or consolidation, or transfer of all or substantially all of the Company’s assets and then only if the Company’s obligations hereunder are assumed by the assignee.

(c) Binding Effect . This Agreement shall be binding upon, and inure to the benefit of, the parties hereto, any successors to or permitted assigns of the Company, and the Executive’s heirs and the personal representatives of the Executive’s estate.

13. Withholding . Any payments made or benefits provided to the Executive under this Agreement shall be reduced by any applicable withholding taxes or other amounts required to be withheld by law or contract.

14. Certain Payments .

(a) Modified Cutback . If any payment, benefit or distribution of any type to or for the benefit of the Executive, whether paid or payable, provided or to be provided, or distributed or distributable pursuant to the terms of this Agreement or otherwise (collectively, the “ Parachute Payments ”) would subject the Executive to the excise tax imposed under Section 4999 of the Code (the “ Excise Tax ”), the Parachute Payments shall be reduced so that the maximum amount of the Parachute Payments (after reduction) shall be one dollar ($1.00) less than the amount which would cause the Parachute Payments to be subject to the Excise Tax; provided, that the Parachute Payments shall only be reduced to the extent the after-tax value of amounts received by the Executive after application of the above reduction would exceed the after-tax value of the amounts received without application of such reduction. For this purpose, the after-tax value of an amount shall be determined taking into account all Federal, state, and local income, employment and excise taxes applicable to such amount. If a reduction in the Parachute Payments is required hereunder, the Company shall reduce or eliminate the Parachute Payments by first reducing or eliminating any cash severance benefits (with the payments to be made furthest in the future being reduced first), then by reducing or eliminating any accelerated vesting of stock options or similar awards, then by reducing or eliminating any accelerated vesting of restricted stock or similar awards, then by reducing or eliminating any other remaining Parachute Payments; provided, that no such reduction or elimination shall apply to any non-qualified deferred compensation amounts (within the meaning of Section 409A) to the extent such reduction or elimination would accelerate or defer the timing of such payment in manner that does not comply with Section 409A.

(b) Determinations . An initial determination as to whether (i) any of the Parachute Payments received by the Executive in connection with the occurrence of a change in the ownership or control of the Company or in the ownership of a substantial portion of the assets of the Company shall be subject to the Excise Tax, and (ii) the amount of any reduction, if any, that may be required pursuant to subsection (a) above, shall be made by an independent accounting firm selected by the Company and reasonably acceptable to Executive (the “ Accounting Firm ”) prior to the consummation of such change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company. The Executive shall be furnished with notice of all determinations made as to the Excise Tax potentially payable with respect to the Executive’s Parachute Payments, together with the related calculations of the Accounting Firm, promptly after such determinations and calculations have been received by the Company.

15. Amendment; Waiver . This Agreement may not be modified, amended or waived in any manner, except by an instrument in writing signed by both parties hereto. The waiver by either party of compliance with any provision of this Agreement by the other party shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by such party of a provision of this Agreement.

16. Governing Law . All matters affecting this Agreement, including the validity thereof, are to be governed by, and interpreted and construed in accordance with, the laws of the State of New Jersey applicable to contracts executed in and to be performed in that State.

17. Survival of Certain Provisions . The rights and obligations set forth in Section 3(b), Sections 4 through 11, and 14 hereof shall survive any termination or expiration of this Agreement.

18. Entire Agreement; Supersedes Previous Agreements . This Agreement, together with the (i) Employee Confidentiality and Innovations Agreement, (ii) Non-Compete Agreement, (iii) 2006 Incentive Plan, (iv) Stock Option Agreement, and (v) the Indemnification Agreement, dated as of April 25, 2013, between the Company and the Executive, each as amended from time to time, contains the entire agreement and understanding of the parties hereto with respect to the matters covered herein and supersedes all prior or contemporaneous negotiations, commitments, agreements and writings with respect to the subject matter hereof, including, without limitation, the cover letter and employment agreement term sheet dated as of March 12, 2013. All such other negotiations, commitments, agreements and writings shall have no further force or effect, and the parties to any such other negotiation, commitment, agreement or writing shall have no further rights or obligations thereunder.

19. Counterparts. This Agreement may be executed by either of the parties hereto in counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.

20. Headings . The headings of sections herein are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement.

21. Notices . All notices or communications hereunder shall be in writing, addressed as follows:

To the Company:

23 Main Street
Holmdel, N.J. 07733
Attention: Chief Legal Officer

To the Executive:

David T. Pearson
at the last address on record with the Company;

with copy to:

David E. Rubinsky
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017

Email: drubinsky@stblaw.com
Fax: (212) 455-2502

All such notices shall be conclusively deemed to be received and shall be effective (i) if sent by hand delivery, upon receipt, or (ii) if sent by electronic mail or facsimile, upon confirmation of receipt by the sender of such transmission, or (iii) if sent by courier or certified or registered U.S. mail, upon receipt.

22. Severability . In the event that any court having jurisdiction shall determine that any restrictive covenant or other provision contained in this Agreement shall be unreasonable or unenforceable in any respect, then such covenant or other provision shall be deemed limited to the extent that such other court deems it reasonable or enforceable, and as so limited shall remain in full force and effect. In the event that such court shall deem any such covenant or other provision wholly unenforceable, the remaining covenants and other provisions of this Agreement shall nevertheless remain in full force and effect.

[Remainder of page intentionally left blank.]

IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its officer pursuant to the authority of its Board, and the Executive has executed this Agreement, as of the day and year first written above.

VONAGE HOLDINGS CORP.

By ___/s/ Marc P. Lefar ____________
Name: Marc P. Lefar
Title: Chief Executive Officer

ACCEPTED AND AGREED:

__/s/ David T. Pearson
David T. Pearson

Date: April 25, 2013

[SIGNATURE PAGE TO PEARSON EMPLOYMENT AGREEMENT]

Exhibit A

Stock Option Agreement

VONAGE HOLDINGS CORP.

2006 INCENTIVE PLAN

NONQUALIFIED STOCK OPTION AGREEMENT

“ Participant ”: David T. Pearson

“ Date of Award ”: May 3, 2013

This Agreement (the “ Agreement ”), effective as of the Date of Award set forth above, represents the grant of Nonqualified Stock Options by Vonage Holdings Corp., a Delaware corporation (the ” Company ”), to the Participant named above, pursuant to the provisions of the Vonage Holdings Corp. 2006 Incentive Plan, as amended or restated from time to time, (the ” Plan ”). Capitalized terms have the meanings ascribed to them under the Plan, unless specifically set forth herein.

The parties hereto agree as follows:



	1.	Grant of Options

The Company hereby grants to the Participant Nonqualified Stock Options to purchase Shares in the manner and subject to the terms and conditions of the Plan and this Agreement as follows:

(a) Number of Shares Covered by the Options : 2,000,000.

(b) “ Option Price ”: $ [ ] per Share.

(c) “Option Term ”: The Options have been granted for a period of ten years, ending on the tenth anniversary of the Date of Award.



	2.	Vesting of Options

(a) Except as otherwise provided in this Section 2, the Options shall vest and become exercisable as to 1/4 ^th of the Shares on each of the first, second, third and fourth anniversaries of the Date of the Award (each, a “ Vesting Date ”), subject to the Participant’s continued employment with the Company on the applicable Vesting Date, except as otherwise provided for herein.

(b) To the extent not previously vested in accordance with this Section 2, in the event the Participant’s employment is terminated without Cause by the Company, for Good Reason by the Participant, or due to the Participant’s death or disability, in each case, on or prior to the first (1st) anniversary of a Change of Control (which, for purposes of this Agreement, shall have the meaning set forth in Section 3(b) (or any successor section thereto) of that certain Employment Agreement, dated as of April 25, 2013, by and between the Company and the Participant, as such agreement may be amended from time to time (the “Employment Agreement” )), the Options will fully vest and become exercisable upon such termination of employment.

(c) To the extent not previously vested in accordance with this Section 2, in the event of a termination of the Participant’s employment without “Cause” by the Company or by the Participant for “Good Reason” (other than on or prior to the first (1st) anniversary of a Change of Control), (i) an additional amount of the then outstanding Options granted by the Company to the Participant pursuant to this Agreement shall become vested and immediately exercisable as of the date of such

US_ACTIVE:\44218152\7\79143.0003

termination in accordance with the provisions of the immediately following sentence and (ii) remain exercisable until they terminate in accordance with Section 4 below. For each outstanding Option, such additional amount shall be equal to the number of Options that would have vested on the next Vesting Date immediately following the date of termination, multiplied by a fraction where (1) the numerator is the number of full and fractional months that had elapsed between the Vesting Date immediately prior to such termination and such termination date plus the number of full and fractional months remaining in the calendar quarter that includes such termination date, and (2) the denominator is 12. Notwithstanding the foregoing, in no event shall the number of Options vesting pursuant to this Section 2(c) exceed the number of Options that would have vested on the next Vesting Date immediately following the date of termination.

(d) To the extent not previously vested in accordance with this Section 2, in the event of the Participant’s death (other than on or prior to the first (1st) anniversary of a Change of Control), the Options will (i) vest and become exercisable as of the date thereof as to one-half the number of unvested Shares covered thereby and (ii) remain exercisable until they terminate in accordance with Section 4 below.

(e) To the extent not previously vested in accordance with this Section 2, in the event of the Participant’s disability (other than on or prior to the first (1st) anniversary of a Change of Control), the Options will (i) vest and become exercisable as of the date thereof as to one-half the number of unvested Shares covered thereby and (ii) remain exercisable until they terminate in accordance with Section 4 below.

(f) Notwithstanding anything to the contrary herein, if the Participant’s employment with the Company is terminated by the Company with Cause, the Options will terminate immediately and be of no force or effect.

(g) To the extent vested in accordance with this Section 2, the Options will remain exercisable until they terminate in accordance with Section 4 below.

(i) For purposes of this Section 2, the terms “ Cause ,” “ Good Reason ” and “ disability ” shall have the respective meanings ascribed to them in the Employment Agreement.



	3.	Exercise of Options

The Options may be exercised by any means specified in Section 7(d) of the Plan, as well as by a broker cashless exercise procedure, all of which the Committee hereby approves.



	4.	Termination of Options

To the extent vested in accordance with Section 2 above, the Options will terminate, and be of no force or effect, upon the earliest of:

(a) the date of termination of the Participant’s employment if such termination of employment is for Cause,

(b) 180 days following termination of Participant’s employment by the Company without Cause or by the Participant for Good Reason,

(c) 60 days following termination of Participant’s employment due to the Participant’s resignation without Good Reason, and

(d) the expiration of the Option Term.

US_ACTIVE:\44218152\7\79143.0003



	5.	Rights as Stockholder

The Participant shall have no rights as a stockholder of the Company with respect to the Shares covered by the Options until such time as the Option Price has been paid and the Shares have been issued and delivered to the Participant.



	6.	Transferability

Unless permitted by the Committee in accordance with the terms of the Plan, the Options may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution, and, during the Participant’s lifetime, may be exercised only by the Participant or in the event of the Participant’s legal incapacity, the Participant’s legal guardian or representative.



	7.	Miscellaneous

(a) This Agreement and the rights of the Participant hereunder are subject to the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. If there is any inconsistency between the terms of this Agreement and the terms of the Plan, the Plan’s terms shall completely supersede and replace the conflicting terms of this Agreement.

(b) This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required or, the Committee determines are advisable. The Participant agrees to take all steps the Company determines are necessary to comply with all applicable provisions of federal and state securities law in exercising his rights under this Agreement. The Committee shall have the right to impose such restrictions on any Shares acquired pursuant to the exercise of the Option as it deems necessary or advisable under applicable federal securities laws, the rules and regulations of any stock exchange or market upon which Shares are then listed or traded, and/or any blue sky or state securities laws applicable to Shares. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon the Participant.

(c) The Options are intended not to provide for a “deferral of compensation” within the meaning of Section 409A of the Code. Notwithstanding the forgoing or any provision of the Plan or this Agreement, if any provision of this Agreement or the Plan contravenes Section 409A of the Code or could cause the Participant to incur any tax, interest or penalties under Section 409A of the Code, the Committee may, in its sole discretion and without the Participant’s consent, modify such provision in order to comply with the requirements of Section 409A of the Code or to satisfy the conditions of any exception therefrom, or otherwise to avoid the imposition of the additional income tax and interest under Section 409A of the Code, while maintaining, to the maximum extent practicable, the original intent and economic benefit to the Participant, without materially increasing the cost to the Company, of the applicable provision.

(d) Delivery of the Shares underlying the Options upon exercise will be subject to the Participant satisfying all applicable federal, state, local and foreign taxes. The Company shall have authority to deduct or withhold from all amounts payable to the Participant in connection with the Options, or require the Participant to remit to the Company, an amount sufficient to satisfy any applicable taxes required by law. The Participant shall have the right to cover the minimum statutory withholding by directing the Company to withhold Shares that would otherwise be received by him, by utilization of a cashless broker transaction or by any other means permitted by Section 18 of the Plan.

US_ACTIVE:\44218152\7\79143.0003

(e) To the extent not preempted by federal law, this Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

[ SIGNATURE PAGE FOLLOWS ]

US_ACTIVE:\44218152\7\79143.0003

IN WITNESS WHEREOF, the Company and the Participant have executed this Agreement as of the Date of Award.

VONAGE HOLDINGS CORP.

By:________________________________

Name:

Title:

PARTICIPANT

___________________________________

Name: David T. Pearson

Title: Chief Financial Officer and Treasurer

Exhibit B

Separation Agreement and General Release

CONFIDENTIAL SEPARATION AGREEMENT AND GENERAL RELEASE

This CONFIDENTIAL SEPARATION AGREEMENT and GENERAL RELEASE (hereinafter referred to as this “Agreement”) is made and entered into by and between David T. Pearson (“Executive”) and Vonage Holdings Corp. (defined herein to include its affiliates, subsidiaries, predecessors and successors and hereinafter referred to as “Vonage” or “the Company”), effective as of [ ] (the “Effective Date”). Executive and Vonage are hereafter referred to as the “Parties.”

WHEREAS, Executive was employed by Vonage as its Chief Financial Officer and Treasurer;

WHEREAS, Executive and Vonage entered into an Employment Agreement, dated as of April 25, 2013 (the “Employment Agreement”);

WHEREAS, [description of nature of termination];

WHEREAS, Vonage and Executive have read this Agreement and have had the opportunity to review it with their respective legal counsel; and

WHEREAS, Vonage and Executive desire to resolve any and all issues and claims between them, including without limitation Executive’s employment and his separation therefrom, as well as any and all issues and claims arising from or relating to the Employment Agreement, and to reach an amicable accord and settlement concerning their future relationship.

NOW, THEREFORE, in consideration of the premises and mutual promises herein contained, it is agreed as follows:

1. Separation and Post-Employment Benefits . Executive ceased performing duties for Vonage on [ ] (the “Termination Date”), and Executive’s services on any and all boards of directors, boards of trustees and executive and/or management committees of Vonage of which he was a member ended on such date. The terms of Executive’s separation from Vonage are now being agreed to, as described herein.

2. Salary . Executive agrees that Vonage has no obligation to make, and will not make, any additional salary payments to Executive that have not already been paid, except for any and all earned, accrued or owed amounts, but not yet paid, to which Executive is entitled up to and including the Termination Date, including any unpaid expense reimbursement , any accrued but unused vacation and any other amounts or benefits required to be paid under the Employment Agreement or provided by law or under any plan, program, policy or practice of Vonage and not including the payments or benefits described in Paragraph 5 below (“Other Accrued Compensation and Benefits”), payable in a lump sum within five (5) days after the revocation period described in Paragraph 18(d) below. Any further entitlement that Executive may have to compensation or benefits, such as the payments and benefits described in Paragraph 5 below, shall be governed by the terms of this Agreement.

3. Non-Admission . It is specifically understood and agreed that this Agreement does not constitute and is not to be construed as an admission or evidence of (a) any violation by Vonage or Executive, of any federal, state or municipal law, statute or regulation, or principle of common law or equity, (b) the commission by Executive or Vonage of any other actionable wrong, or (c) any wrongdoing of any kind whatsoever on the part of Executive or Vonage, and shall not be offered, argued or used for that purpose.

4. General Release .

(a) In exchange for the consideration provided in this Agreement, and as a material inducement for both Parties entering into this Agreement, Executive for himself, his heirs, executors, administrators, trustees, legal representatives, successors and assigns (hereinafter collectively referred to for purposes of this Paragraph 4 as “Executive”) hereby irrevocably and unconditionally waives, releases and forever discharges Vonage and its past, present and future affiliates and related entities, parent and subsidiary corporations, divisions, shareholders, predecessors, future officers, directors, trustees, fiduciaries, administrators, executives, agents, representatives, successors and assigns (hereinafter collectively referred to for purposes of this Paragraph 4 as “Vonage”) for any and all waivable claims, charges, demands, sums of money, actions, rights, promises, agreements, causes of action, obligations and liabilities of any kind or nature whatsoever, at law or in equity, whether known or unknown, existing or contingent, suspected or unsuspected, apparent or concealed, foreign or domestic (hereinafter collectively referred to as “claims”) which he has now or in the future may claim to have against Vonage based upon or arising out of any facts, acts, conduct, omissions, transactions, occurrences, contracts, claims, events, causes, matters or things of any conceivable kind or character existing or occurring or claimed to exist or to have occurred prior to the Effective Date in any way whatsoever relating to or arising out of Executive’s employment with Vonage or the termination thereof. Such claims include, but are not limited to, claims arising under the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq .; Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq .; the Americans with Disabilities Act of 1990, 42 U.S.C. § 12101 et seq .; the Family and Medical Leave Act of 1993, 29 U.S.C. § 2601 et seq .; the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq .; the Equal Pay Act of 1963, 29 U.S.C. § 206(d); Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, 18 U.S.C. § 1681 et seq .; the Fair Credit Reporting Act, 15 U.S.C. §1681 et seq .; any other federal, state or local statutory laws relating to employment, discrimination in employment, termination of employment, wages, benefits or otherwise, including, but not limited to, the New Jersey Law Against Discrimination, the Conscientious Employee Protection Act, the New Jersey Wage Payment Law, the New Jersey Family Leave Act, all as amended; the common law of the State of New Jersey; any claim under any local ordinance, including, but not limited to, any ordinance addressing fair employment practices; any claims for employment or reemployment by the Company; any common law claims, including but not limited to actions in tort, defamation and breach of contract; any claim or damage arising out of Executive’s employment with or separation from Vonage (including a claim for retaliation) under any common law theory or any federal, state or local statute or ordinance not expressly referenced above; and any and all claims for counsel fees and costs.

(b) To the fullest extent permitted by law, and subject to the provisions of Paragraphs 4(d) and 4(e) below, Executive represents and affirms that he has not filed or caused to be filed on his behalf any claim for relief against Vonage or any releasee and, to the best of his knowledge and belief, no outstanding claims for relief have been filed or asserted against Vonage or any releasee on his behalf.

(c) In waiving and releasing any and all waivable claims whether or not now known, Executive understands that this means that, if he later discovers facts different from or in addition to those facts currently known by him, or believed by him to be true, the waivers and releases of this Agreement will remain effective in all respects — despite such different or additional facts and his later discovery of such facts, even if he would not have agreed to this Agreement if he had prior knowledge of such facts.

(d) Nothing in this Paragraph, or elsewhere in this Agreement, prevents or prohibits Executive from filing a claim with a government agency, such as the U.S. Equal Employment Opportunity Commission, that is responsible for enforcing a law on behalf of the government. However, Executive understands that, because Executive is waiving and releasing, among other things, any and all claims for monetary damages and any other form of personal relief (per Paragraph 4(a) above), Executive may only seek and receive non-monetary forms of relief through any such claim.

(e) Nothing in this Paragraph, or elsewhere in this Agreement, is intended as, or shall be deemed or operate as, a release by Executive of his rights under the Parties’ Indemnification Agreement,

dated as of April 25, 2013, as amended from time to time (the “Indemnification Agreement”), or any other rights to indemnification relating to his performance of services as an officer of Vonage, including but not limited to those rights to indemnification set forth in Vonage’s Certificate of Incorporation as in effect on the date hereof (the “Certificate of Incorporation”). Notwithstanding the foregoing, the provisions of this Paragraph 4(e) are intended as recitals only and are not intended to provide Executive with any additional contractual rights beyond those contained in the Indemnification Agreement or the Certificate of Incorporation. Furthermore, nothing herein shall affect Executive’s rights to Other Accrued Compensation and Benefits in accordance with the terms of this Agreement or as provided in Section 6 hereof.

5. Consideration and Post-Employment Benefits .

(a) Vonage, for and in consideration of the undertakings of Executive set forth herein and pursuant to Paragraph 4(b)(i) of the Employment Agreement, and intending to be legally bound, and provided that Executive does not revoke this Agreement pursuant to Paragraph 18(d) below, agrees that Vonage will pay or provide the following to Executive, subject to Section 4(d) of the Employment Agreement: (1) severance pay equal to twelve (12) months of the Executive’s Base Salary (as defined in Paragraph 3(a) of the Employment Agreement) and an amount equal to the Executive’s full TBO (as defined in Paragraph 3(c) of the Employment Agreement) for the year of termination, each payable by the Company in installments during its regular payroll cycle over the twelve (12) month period following the Executive’s termination of employment, provided that the first payment shall be made on the sixtieth (60th) day after the Executive’s termination of employment, and such first payment shall include payment of any amounts that would otherwise be due prior thereto, and (2) a pro rata portion of the Executive’s Annual Bonus (as defined in Paragraph 3(c) of the Employment Agreement) for the year of termination, if and to the extent that the Company achieves its performance metrics for such year, payable when bonuses are normally paid to other senior executives of the Company, but in no event later than March 15th of the year following the year to which such bonus relates. All payments are subject to applicable tax withholding. Executive shall be solely responsible for all taxes on the payments under this Agreement.

(b) Notwithstanding anything to the contrary herein, if Executive materially breaches provisions of Vonage’s Employee Confidentiality and Innovations Agreement, dated as of April 25, 2013 (the “Confidentiality Agreement”), Vonage’s Non-Compete Agreement, dated as of April 25, 2013 (the “Non-Compete Agreement”), or Section 7 of the Employment Agreement, Executive shall not be eligible, as of the date of such material breach, for the payments and benefits described in Paragraph 5(a) above, and any and all obligations and agreements of Vonage with respect to such payments shall thereupon cease (and Vonage shall be entitled to recoup any and all such payments and benefits previously paid or awarded to Executive).

(c) In accordance with the provisions of Section 3(b) of the Employment Agreement, the Vonage Holdings Corp. 2006 Incentive Plan, as amended or restated from time to time (the “2006 Incentive Plan”) and the Executive’s individual stock option agreement (the “Stock Option Agreement”), the Parties agree that the equity described in those agreements shall vest and become exercisable in accordance with Section 3(b) of the Employment Agreement (the “Vested Equity”). Other than the Vested Equity, all equity awarded by Vonage to Executive has terminated and is of no further force or effect.

6. Prior Agreements . This Agreement supersedes all prior agreements entered into by Vonage and Executive, except for the following: (1) Section 3(b), Sections 4 through 11 and Section 14 of the Employment Agreement, which terms survive the termination of the Employment Agreement pursuant to Section 17 thereof, (2) the Non-Compete Agreement, (3) the Confidentiality Agreement, (4) the Stock Option Agreements, and (5) the Indemnification Agreement. [List other appropriate agreements between Vonage and Executive.]

7. Resignation from Directorships and Officerships . Pursuant to Paragraph 4(g) of the Employment Agreement, Executive affirms that the termination of Executive’s employment by the

Executive or the Company for any reasons shall constitute the Executive’s resignation from (i) any director, officer or employee position the Executive has with the Company, and (ii) all fiduciary positions (including as a trustee) the Executive holds with respect to any employee benefit plans or trusts established by the Company.

8. Confidentiality of Agreement . Executive agrees to keep secret and strictly confidential the terms of this Agreement (except to the extent this Agreement is publicly filed) and further represents and warrants that he will not disclose, make known, discuss or relay any information concerning this Agreement, or any of the discussions leading up to this Agreement, to anyone (other than members of his immediate family, accountants or attorneys who have first agreed to keep said information confidential and to not disclose it to others), and that he has not done so. The foregoing shall not prohibit or restrict such disclosure as required by law or in connection with Vonage’s filings with the Securities and Exchange Commission or any other governmental or regulatory body or as may be necessary for the prosecution or defense of claims relating to the performance or enforcement of this Agreement or prohibit or restrict Executive (or Executive’s attorney) or Vonage from responding to any such inquiry about this settlement or its underlying facts and circumstances by the Securities and Exchange Commission, the New York Stock Exchange, any other self-regulatory organization, or in response to a duly served and effective subpoena or discovery request in the course of any litigation. Prior to making any disclosure other than to his immediate family, accountants or attorneys, Executive shall provide Vonage with as much notice as practicable that he has been requested or compelled to make disclosure and shall cooperate with Vonage to maintain the confidentiality of this Agreement to the fullest extent possible.

9. Return of Property and Documents . Executive represents and warrants that he has returned, or will immediately return, to Vonage all Vonage property (including, without limitation, any and all computers, BlackBerries, cell phones, identification cards, card key passes, corporate credit cards, corporate phone cards, files, memoranda, keys and software) in Executive’s possession and that he has not, and will not, retain any duplicates or reproductions of such items. Executive further represents and warrants that he has delivered to Vonage all copies of any Confidential Information (as defined in the Confidentiality Agreement) in his possession or control and has destroyed all copies of any analyses, compilations, studies or other documents in his possession that contain any Confidential Information. Notwithstanding the foregoing, Executive shall maintain ownership and use of his rolodex and other address books, and Vonage agrees to cooperate with Executive in the transfer to Executive of cell phone and BlackBerry numbers used by Executive if such numbers are registered in Vonage’s name.

10. Notices . All notices, requests, demands and other communications hereunder to Vonage shall be in writing and shall be delivered, either by hand, by facsimile, by overnight courier or by certified mail, return receipt requested, duly addressed as indicated below or to such changed address as Vonage may subsequently designate:

Vonage Holdings Corp.

23 Main Street

Holmdel, New Jersey 07733

Attention: Office of Chief Legal Officer

Any such notice, request, demand or other communication to Vonage delivered in the manner specified above shall be deemed duly given only upon receipt by Vonage.

All notices, requests, demands and other communications hereunder to Executive shall be in writing and shall be delivered, either by hand, by facsimile, by overnight courier, or by certified mail, return receipt requested, duly addressed as indicated below or to such changed address as Executive may subsequently designate:

David T. Pearson

at the last address on record with Vonage

Any such notice, request, demand or other communication to Executive delivered in the manner specified above shall be deemed duly given only upon receipt by Executive.

11. Severability . If, at any time after the Effective Date, any provision of this Agreement shall be held by any court of competent jurisdiction or arbitrator to be illegal, void or unenforceable, such provision shall be of no force and effect. The illegality or unenforceability of such provision, however, shall have no effect upon, and shall not impair the enforceability of, any other provision of this Agreement, provided , however , that upon finding that Paragraph 4(a) is illegal and/or unenforceable, Vonage shall be released from any obligation to make any payment pursuant to Paragraph 5 of this Agreement, and Executive shall repay to Vonage any and all amounts already received pursuant to Paragraph 5.

12. Choice of Law; Arbitration . The terms of this Agreement and all rights and obligations of the Parties, including its enforcement, shall be interpreted and governed by the laws of the State of New Jersey, without regard to conflicts of law principles. Pursuant to Section 11 of the Employment Agreement, which is incorporated by operation thereof and reference herein, any disputes arising out of this Agreement and which are mandatorily arbitrable shall be settled exclusively by arbitration before the American Arbitration Association at a location in New Jersey.

13. Injunctive Relief . Notwithstanding the limited agreement to arbitrate set forth in Paragraph 12 of this Agreement, any claim alleging breach of Paragraph 8 of this Agreement, alleging breach of Sections 5, 6 or 7 of the Employment Agreement, or alleging breach of the Confidentiality Agreement or Non-Compete Agreement may be brought in any federal or state court of competent jurisdiction in the State of New Jersey, where the parties consent to jurisdiction and agree not to argue that it is an inconvenient forum for resolution of the claim. In accordance with Section 8 of the Employment Agreement and this Paragraph 13 of the Agreement, a material breach of Section 5, 6 or 7 of the Employment Agreement, of Paragraph 8 of this Agreement, or of the Confidentiality Agreement or Non-Compete Agreement shall be considered to be irreparable harm, where no adequate remedy at law would be available in respect thereof. The Parties agree that neither Party will have any obligation to post a bond to obtain said injunctive relief.

14. Modification of Agreement . No provision of this Agreement may be modified, altered, waived or discharged unless such modification, alteration, waiver or discharge is agreed to in writing and signed by the Parties hereto. No waiver by either Party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other Party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

15. Withholding . Vonage may withhold from amounts payable or benefits provided under this Agreement any and all federal, state and local taxes that are required to be withheld and reported by any applicable laws and regulations. Vonage may also withhold and report any amounts necessary pursuant to the benefit plans, policies or arrangements of Vonage or otherwise, in accordance with any applicable Vonage policies, laws and/or regulations.

16. Entire Agreement; Headings . Other than as set forth in Paragraph 6 hereof, this Agreement sets forth the entire agreement between the Parties hereto and any and all prior and contemporaneous agreements, discussions or understandings between the Parties pertaining to the subject matter hereof, including relating to severance payments or compensation, have been and are merged into and superseded by this Agreement. The headings of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.

17. Counterparts . This Agreement may be executed in several counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument.

18. EXECUTIVE ACKNOWLEDGES AND WARRANTS THAT:

(a) he has read the terms of this Agreement and that he understands its terms and effects, including the fact that he has agreed to release and forever discharge Vonage or any releasee from any legal action arising out of his employment relationship with Vonage, the terms and conditions of that employment relationship, and the termination of that employment relationship;

(b) he has signed this Agreement voluntarily and knowingly in exchange for the consideration described and referenced herein, which he acknowledges as adequate and satisfactory to him;

(c) he has been informed that he has the right to consider this Agreement for a period of twenty-one (21) days from receipt prior to entering into this Agreement and he has signed on the date indicated below after concluding that this Agreement is satisfactory;

(d) he has been informed that he has the right to revoke this Agreement for a period of seven (7) days following his execution of this Agreement by giving written notice to Vonage to the attention of Office of Chief Legal Officer, Vonage Holdings Corp., 23 Main Street, Holmdel, New Jersey 07733. This Agreement shall not be effective or enforceable until Executive’s right to revoke this Agreement has lapsed;

(e) he has been and is hereby advised in writing by Vonage to consult with an attorney prior to signing this Agreement and he has consulted with his attorney and fully discussed and reviewed the terms of this Agreement with his attorney;

(f) neither Vonage, nor any of its agents, representatives or attorneys have made any representations to Executive concerning the terms or effects of this Agreement other than those contained and referenced herein; and

(g) this Agreement shall be governed, interpreted and enforced by and under the laws of the State of New Jersey, without regard to choice of law principles.




		VONAGE HOLDINGS CORP.

By:		By:
	David T. Pearson

Dated:		Dated:

Exhibit C

Employee Confidentiality and Innovations Agreement

Exhibit D

Non-Compete Agreement

NON-COMPETE AGREEMENT

AGREEMENT , dated this 25the day of April, 2013, by and between Vonage Holdings Corp. and its subsidiaries, a Delaware corporation with principal executive offices at 23 Main Street, Holmdel, New Jersey 07733 (“Vonage”), and David T. Pearson (“Employee”).

In consideration of Employee’s employment with Vonage or continued employment with Vonage, as the case may be, Employee agrees to be bound by the terms of this Non-Compete Agreement (“Agreement”) as follows:

Restriction on Competition . During the period of Employee’s employment with Vonage and for a period of twelve (12) months thereafter, Employee will not provide services to the portion of any entity that sells and markets residential/home broadband connectivity or broadband voice service (a “Competitive Entity”) as an employee thereof or as a direct individual consultant thereto (or through an entity specifically formed for the purpose of evading the limitations hereof) anywhere within the “Territory,” that term meaning within the United States, Canada, and Brazil, in those States and provinces (or States and provinces contiguous thereto) in which Vonage conducts or is substantially prepared to conduct its business on the date of Employee’s employment termination. Nothing contained in this Section 1 shall be deemed to prohibit Employee from acquiring or holding, solely for investment, publicly traded securities of a Competitive Entity, provided such securities do not, in the aggregate, constitute more than five percent (5%) of any class or series of outstanding securities of such Competitive Entity.

Specific Remedies . If Employee commits a breach of any of the provisions of Section 1, Vonage shall have the right to have such provisions specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach will cause irreparable injury to Vonage and that money damages will not provide an adequate remedy.

Independence,

Severability and Non-Exclusivity . The right enumerated in Section 2 shall be in addition to and not in lieu of any other rights and remedies available to Vonage at law or in equity. If any of the covenants contained in Section 1 (“Covenants”) or any part of any of them, is found by a court of competent jurisdiction to be invalid or unenforceable, this shall not affect the remainder, or rights or remedies under this Agreement, which shall be given full effect without regard to the invalid portions. The parties intend to and do hereby confer jurisdiction on courts located within the geographical scope of the Covenants. If any of the Covenants is held to be invalid or unenforceable because of the duration or geographical area, the parties agree that the court making such determination shall have the power to reduce the duration and/or area and, in its reduced form, such Covenant shall then be enforceable. No such holding of invalidity or unenforceability in one jurisdiction shall bar or in any way affect Vonage’s right to the relief provided in Section 2 or otherwise in the courts of any other jurisdiction within the geographical scope of the Covenants.

Successors; Binding Agreement . This Agreement and all obligations of Employee hereunder shall inure to the benefit of, and be enforceable by, Vonage and Vonage’s successors in interest.

Entire Agreement . This Agreement constitutes the entire understanding between the parties hereto relating to its subject matter hereof, and supersedes all prior negotiations, discussions, preliminary agreements and agreements relating to that subject matter.

Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey (without giving effect to conflicts of law provisions).

IN WITNESS WHEREOF , the parties hereto have executed this Agreement on the day and year set forth above.



Vonage Holdings Corp. By:	AGREED AND ACCEPTED: Employee Signature
Name:
Title:	Date

VONAGE-TATA CONFIDENTIAL

THIS ADDENDUM #7 (this “ Addendum #7 ” ) is made and entered into on May 10, 2013, and to become effective as of the 1st day of July, 2013 (“ Effective Date ”), by and between Tata Communications (America) Inc. (formerly known as Teleglobe America and successor-in-interest to ITXC Corporation), a Delaware corporation whose principal place of business is at 2355 Dulles Corner Boulevard, Suite 700, Herndon, VA 21071 USA (“ Carrier ”) and Vonage Network LLC , a Delaware limited liability company whose principal place of business is located at 23 Main Street, Holmdel, NJ 07733 USA (“ Company ”). Carrier and Company are sometimes hereinafter referred to collectively as the “Parties” and individually as a “Party.” Unless otherwise defined, capitalized terms used in this Addendum #7 shall have the same meaning as in the Agreement.

WHEREAS, Company and Carrier are parties to that certain ITXC.NET Services Agreement effective as of May 9, 2003 (inclusive of that certain WWeXCHANGE Origination Services Addendum), as amended to date (the " Agreement "); and

WHEREAS, which the Parties desire to effect the assignment of the Agreement from Vonage Network LLC to Vonage America Inc., and further amend the terms of the Agreement as set forth and described herein.

NOW, THEREFORE, in consideration of the terms and conditions herein, the Parties agree as follows:

Assignment : Vonage Network LLC hereby irrevocably (a) assigns to Vonage America Inc. all of its rights under the Agreement, and (b) delegates to Vonage America Inc. all of its obligations under the Agreement. Vonage America Inc. unconditionally accepts all of Vonage Network LLC’s rights and obligations in, to and under the Agreement, and assumes and agrees to be bound by, fulfill, perform and discharge all of the liabilities, obligations, duties and covenants of Vonage Network LLC under or arising out of the Agreement from and after the Effective Date. For purposes of the Agreement, “Company” will hereinafter be deemed to refer to Vonage America Inc.

Integration : The Parties agree that upon the Effective Date of this Addendum #7, the terms of the “Route Management Services Addendum” attached hereto as Exhibit A will supersede and replace the 2013 Addendum and all related schedules in its entirety. The terms of the Exhibit A are hereby expressly incorporated into and made a material part of this Addendum #7 and the Agreement by reference. In the event of any conflict or inconsistency between this Addendum #7 (including its Exhibit A ) and the rest of the Agreement, the terms of this Addendum #7 (including its Exhibit A ) shall govern. Except as expressly amended hereby, all of the terms and conditions of the Agreement are hereby ratified and confirmed, and shall remain in full force and effect.

Counterparts : This Addendum #7 may be executed in multiple counterparts, each of which shall be deemed to be an original, but all of which counterparts collectively shall constitute one and the same instrument. This Addendum #7 may be executed by facsimile, and the facsimile execution pages will be binding upon the executing Party to the same extent as the original executed pages. The executing Party shall provide originals of the facsimile execution pages for insertion into the Agreement in place of the facsimile pages.

[signature page follows]

IN WITNESS WHEREOF, the Parties have duly executed this Addendum #7 by each Party’s duly authorized representatives effective as of the day and year first written above.

By: Tata Communications (America), Inc. By: Vonage Network LLC (as assignor)

________________________________ _________________________________

Authorized Signature Authorized Signature

Michel Guyot, President, Global Voice Solutions

Name and Title Name and Title

May 10, 2013 _________________________________

Date Date

By: Vonage America Inc.

_________________________________ Authorized Signature

_________________________________ Name and Title

_________________________________

Date

ROUTE MANAGEMENT SERVICES ADDENDUM

(Exhibit A to Addendum #7)

This Route Management Services Addendum is entered into by and between Tata Communications (America) Inc. (“Carrier”) and Vonage America Inc. (“Company”) (each a “Party” and jointly, the “Parties”), is made effective as of July 1, 2013 (“Route Management Effective Date”) and is attached as Exhibit A to Addendum #7 (and together with the body of Addendum #7, to be collectively referred to as the “Addendum”) and made a part of that certain ITXC.NET SERVICES AGREEMENT by and between Tata Communications (America) Inc. and Vonage Network LLC and dated May 9, 2003, as amended (the "Agreement"). All capitalized terms used herein but not specifically defined shall have the meanings assigned to them in the Agreement.

In consideration of the covenants and promises herein contained and as set forth in the Agreement, the Parties hereby agree as follows:


1.	DEFINITIONS: For purposes of this Addendum, the following definitions shall apply, unless capitalized terms are defined elsewhere in this Addendum:

Affiliate means any entity that directly or indirectly controls, is controlled by or is under common control with a Party. For purposes of the foregoing, “control” shall mean the ownership of more than fifty percent (50%) of the (i) voting power to elect the directors of the said entity, or (ii) ownership interest in the said entity. A “Company Affiliate” is an Affiliate of Company. A “Carrier Affiliate” is an Affiliate of Carrier.


b)	Baseline Exchange Rate means the INR – USD exchange rate published by Reuters as of 4pm (IST) on the Route Management Effective Date, and is subject to change solely as set forth in Section 4 below.


c)	Billing Period has the meaning set forth in Section 7.1.


d)	Business Day means a day other than a weekend day or national holiday.


e)	Carrier Rate Amendment means the form of written notification from Carrier to Company establishing Termination Services rates, and as may be provided from time-to-time to formalize rate changes consistent with the timing and procedures set forth herein. For clarification purposes, each Carrier Rate Amendment will restate all rates along with the modified rates.


f)	Change of Control has the meaning set forth in Section 10.


g)	Company Group Affiliate means any (i) Company Affiliate (other than a Company Wholly-Owned Affiliate), (ii) Company Strategic Partner, or (iii) Company Non-Wholly-Owned Affiliate.


h)	Company Wholly-Owned Affiliate means Vonage Holdings Corp., or any entity which is wholly owned, directly or indirectly, by Vonage Holdings Corp.


i)	Company Non-Wholly-Owned Affiliate means any entity which is a Company Affiliate partially owned by a Third Party other than a Company Wholly-Owned Affiliate.


j)	Company Strategic Partner means a joint venture, private label and other strategic relationships of Company or Company Affiliates with Third Parties, and includes, without limitation, Company’s Affiliated joint venture in Brazil (“Vonage Brazil”) and Globe Telecom Inc./GTI Corporation.

Excluded Traffic means any traffic (i) generated by Non-Wholly-Owned Affiliates, or under agreements between Wholly-Owned Affiliates and Strategic Partners; provided that Company shall not route any of its Route Management Services traffic to any Non-Wholly-Owned Affiliates or Strategic Partners for purposes of circumventing its Traffic Volume Commitment, (ii) acquired as part of any merger, acquisition or similar form of transaction involving Company and a Third Party (unless Company specifically requests, in its discretion, that such traffic be included in the Traffic Volume Commitment under this Addendum), (iii) re-routed pursuant to Sections 4.1(d)(ii), 4.1(d)(iii), 4.2(b), 4.2(d) and 6.4(b)(iv), or (iv) re-routed as otherwise permitted under the terms of Schedule A.


l)	Force Majeure Event is any cause beyond a Party's reasonable control resulting in such Party’s inability to timely perform its contractual obligations, including, without limitation, acts of war, acts of God, earthquake, hurricanes, flood, fire or other similar casualty, embargo, riot, terrorism, sabotage, strikes, governmental acts or interventions, insurrections,

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Portions herein identified by ∗ have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended. A complete copy of this document has been filed separately with the Securities and Exchange Commission.

epidemics, quarantines, failure of power, cable cuts, condemnation, failure of the Internet or other reason of a like nature not resulting from the actions or inactions of a Party; provided, however that any failure or non-performance of any of Carrier’s interconnected telecommunications providers or suppliers shall not be deemed to constitute a Force Majeure Event except to the extent such Third Party providers or suppliers are themselves impacted by a Force Majeure Event.


m)	India Rural means the following Destinations: Agra, Ambala, Andhra Pradesh, Bhopal, Coimbatore, Cuttak, Gujarat, Guwahati, Haryana, Jaipur, Karnataka, Kerala, Lucknow, Ludhinana, Magalore, Maharashtra, Mysore, Nagpur, Patna, Pune, Punjab, Raipur, Rajkot, Fixed Other and Tamil Nadu.


n)	SLA means the service level agreements described in Schedule A.


o)	Payment Period has the meaning set forth in Section 7.1.


p)	Person means any individual, corporation, firm, limited liability company, general or limited partnership, trust, estate, joint venture, Governmental Entity or any other entity or organization.


q)	Quality for purposes of Company’s rights pursuant to Section 4.1(d)(ii), 4.1(d)(iii) and Section 4.2(b) ∗ , respectively, means that such Third Party carrier’s service level agreement commitments are substantially equivalent to or exceeding the ∗ metrics set forth in Annex B to Schedule A in all material respects.


r)	Route Management Service has the meaning set forth in Section 2.


s)	Route Management Term has the meaning set forth in Section 9.


t)	ROW has the meaning set forth in Section 4.3.


u)	ROW Pricing has the meaning set forth in Section 4.3(b).


v)	ROW Pricing Exceptions has the meaning set forth in Section 4.3(d).


w)	Termination Services has the meaning set forth in Section 3.


x)	Third Party means any Person other than a Party or a Party’s Affiliate.


y)	Traffic Volume Commitment means, collectively, the India Commitment (as defined in Section 4.1(a)), the Canada Commitment (as defined in Section 4.2(a)) and the ROW Commitment (as defined in Section 4.3(a)), as is subject to modification and Company’s rights to route away traffic as set forth in this Addendum.


z)	∗


aa)	Year 1 shall mean twelve (12) months after the Route Management Effective Date.


ab)	Year 2 shall mean twelve (12) months after Year 1.


ac)	Year 3 shall mean twelve (12) months after Year 2.


ad)	Year 4 shall mean twelve (12) months after Year 3.


ae)	Year 5 shall mean twelve (12) months after Year 4


2.	ROUTE MANAGEMENT SERVICE: Company will use Carrier as its preferred supplier to provide Termination Services utilizing the strategic pricing model to the destinations set forth in Section 4 below, in accordance with and subject to the terms and conditions of this Addendum (“Route Management Services”).

VOICE TERMINATION SERVICE : Throughout the Route Management Term, Carrier shall provide Company with termination of international telecommunications traffic (IDDD type) which Company has delivered to one of Carrier’s interconnection locations, gateways or network domains for termination to those international destinations listed in the applicable Carrier Rate Amendment under the service tiers described in Section 3(a) and Section 3(b) below (collectively “Termination Services”). Carrier agrees to

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provide the Termination Services on a 365/24/7 basis in accordance with, and subject to the SLAs set forth and attached to this Addendum as Schedule A hereto. Both Parties shall have dedicated IP interconnects between one another to support the traffic provided under this Agreement. Carrier is required to interconnect with Company at ∗ points of public or private interconnection sites via SIP. Carrier acknowledges and agrees that it is required under this Addendum to support the following CODECs g711, g729, and T.38 fax. Carrier acknowledges that a significant majority of Company’s calls, regardless of destination, may be delivered to Carrier using CODEC g711, and Carrier shall at all times remain technically prepared to manage Company’s Termination Services traffic routed via such CODECs. Except to the extent otherwise expressly set forth in Schedule A, Carrier agrees that it will at all times maintain sufficient capacity to support all of Company’s international telecommunications traffic to the extent committed by Company hereunder:

VTS Prime Service: VTS Prime Service provides high-quality voice termination services consistently to any destination in the world including MSRN (Mobile Service Roaming Number) ranges and receives the highest priority to Carrier’s supply capacity per destination. All India and Canadian traffic will be serviced under the VTS Prime Service. ROW traffic will be serviced at the service tier (i.e., VTS Prime or VTS Preferred), as selected from time to time by Company for any given destination. Additional VTS Prime Service features include:


▪	Calling Line Identification (“CLI” or “CLID”) (CLI Delivery) Carrier assures CLI delivery for the named destinations in the Carrier Rate Amendment to be a minimum of ∗ , subject to Company presenting CLI in the appropriate ITU format as provided to Company and updated from time to time.


▪	Controlled Routing Policy: In order to avoid deterioration of services, Carrier will endeavor to use Direct Routing for all destinations. If Direct Routing is not available, Carrier will use the next best available options, Routing Through Incumbent or Routing Through Third Party (each, as defined below).


▪	Direct Routing: “Direct Routing” is a form of routing whereby Carrier offers direct termination (no intermediary network) to all the mobile and fixed telecommunication companies/operators covered by the destination during the correspondent period offered.


▪	Routing Through Incumbent: “Routing through Incumbent” is a form of routing whereby Carrier offers terminating traffic through the Incumbent operator of the relevant destination to all the operators covered by the destination during the correspondent period offered.


▪	Routing Through Third Party: “Routing Through Third Party” is a form of routing whereby Carrier offers to terminate traffic through third party carriers (not the “Incumbents”) to all the mobile and fixed telecommunication companies/operators covered by the destinations during the relevant period for which the service is offered.

VTS Preferred Service: VTS Preferred Service provides high-quality termination service which endeavors to use but does not guarantee, Direct Routing, Routing Through Incumbent and CLI delivery, in combination with more extensive Routing Through Third Party to most, but not all, dial code ranges within any destination. VTS Preferred receives the second highest priority to Carrier’s supply capacity per destination. ROW traffic will be serviced at the service tier (i.e., VTS Prime or VTS Preferred), as selected from time to time by Company for any given destination.


4.	PRICING AND TRAFFIC COMMITMENT: The following pricing will be effective for the Route Management Term:


4.1.	India Destination: For the India destination, all Route Management Services will be provided utilizing VTS Prime Service, and the following pricing and terms shall be applicable during the Route Management Term, and are not subject to change during the Route Management Term other than as provided under Section 4.1(d) or Section 4.1(e) of this Addendum:


a)	∗


b)	∗


c)	India Rural Pricing: The India Rural pricing model shall be a base rate of ∗ .

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d)	India Pricing Adjustment ( including India Rural): Carrier may modify the India destination(s) Pricing in accordance with the following, ∗ :

Carrier shall compare the USD-INR exchange rate as reported by Reuters as of 4pm (IST) on the last business day of each Quarter to the “Baseline Exchange Rate”, and in the event the then applicable USD-INR exchange rate has fluctuated by more than ∗ (increase or decrease) from the then current Baseline Exchange Rate: (A) Carrier shall modify the aforementioned India pricing upon providing seven (7) days’ prior written notice (which shall be provided via email to the following address: ratechange@vonage.com), such pricing to become effective at 11:59:59pm (IST) on the seventh (7 ^th ) day following the date of the notice; however, any decreases shall be effective upon receipt of notice (email notification to suffice), and (B) that resulting exchange rate shall become the new Baseline Exchange Rate on a going forward basis until the next time that the Baseline Exchange Rate is adjusted according to the foregoing mechanism. If the then applicable USD-INR exchange rate fluctuates less than ∗ (increase or decrease) from the then current Baseline Exchange Rate, the Baseline Exchange Rate shall remain unchanged; and/or

ii.

regulatory changes made by TRAI, Department of Telecom, the Ministry of Finance or any other Indian regulatory agency having jurisdiction over the Termination Services for India destinations (a “Regulatory Change”) which directly result in an increase to Carrier’s direct IDDD traffic termination costs underlying Company’s rates to India destination(s) (excluding any overhead, administrative, capex and internal costs of doing/growing business) of ∗ from Carrier’s analogous costs underlying the prior applicable discounted rate to Company for the affected India destination(s). In such case, such rate increase shall be on a penny-to-penny (or fraction thereof) basis without any mark-up and added incrementally to the discounted rate. Carrier shall endeavor to provide prompt notice of such change upon receipt of such notice from the applicable regulatory agency, and will give Company regular updates as to Carrier’s efforts (if any) to mitigate the impacts of such change. Carrier may not apply any increase under this subsection (ii) without having provided at least seven (7) days prior written notice (email notification to suffice) of such increase, together with sufficient background information, data and detail to enable Company to fully understand the basis for such increase.

iii.

If the Carrier’s direct IDDD traffic termination costs underlying Company’s rates to India destination(s) (excluding any overhead, administrative, capex and internal costs of doing/growing business) decreases as a result of a Regulatory Change and the decrease is not reflected in the rate to Company then Company will have the option to re-route its respective India traffic away from Carrier as set forth below. Where Company exercises this option, it will be required to demonstrate to

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Carrier that it has received a bona fide offer (or offers in the aggregate) from a reputable carrier (or multiple carriers if Company elects to use more than one reputable carrier to satisfy the coverage criteria) capable of providing similar Quality for ∗ of India Commitment traffic, at a weighted average cost per minute per destination (“Competitive Rate”) lower than Carrier’s India then-current discounted rate. Notwithstanding anything to the contrary herein, Carrier shall have a right to match the Competitive Rate within ∗ Business Days after Company’s presentation of the Competitive Rate, along with a certification as to the carrier(s) term commitment (if any) and associated Quality parameters to Company. If during the notice

period Carrier confirms in writing that it will match the Competitive Rate, Company’s obligations remain unchanged without a right to route away the India traffic. If Carrier does not confirm its agreement to (or ultimately does not) match the Competitive Rate, Company shall have the immediate right to re-route up to ∗ of its India Commitment traffic until such time as Carrier reduces its rate to the Competitive Rate, after which Company will route the uncommitted portion of the re-routed India Commitment traffic back to Carrier within ∗ business days, and have up to the expiration of each individual commitment with an alternate carrier to which Company is subject, but in no case later than ∗ days following the expiration of the ∗ business day period and Carrier’s failure to confirm its agreement to match the Competitive Rate in order to route such re-routed India Commitment traffic back to Carrier. Where such re-routed India Commitment traffic is routed back to Carrier following confirmation of its agreement to match the Competitive Rate, all such India Commitment traffic will be subject to Competitive Rate, and all of the other terms and conditions as existed prior to the time of the re-routing. During the period of time in which Company routes any India Commitment traffic away from Carrier as set forth above, the following Carrier obligations shall not apply: (A) the SLA’s in respect of India Commitment traffic, (B) the base rate and any discounted rate hereunder for India Commitment traffic (i.e., the applicable rate for any such traffic that Company does not route away would be as identified in the then current Carrier Rate Amendment), ∗ . For the avoidance of doubt, Company’s remaining obligations under this Addendum with respect to Canada and ROW shall remain unaffected, despite any action (or inaction) to re-route in accordance with the above. and/or


iv.	∗

In the case where Carrier becomes aware of such an event occurring or reasonably likely to occur, Carrier will use commercially reasonable efforts to mitigate against the impact of such factors as long as the condition continues to exist. To the extent immitigable, Carrier shall have the right to modify the India destination(s) pricing upon thirty (30) days’ prior written notice (so long as such circumstances continue to exist at the end of the 30 day notice period) together with sufficient background information, data and detail to enable Company to fully understand the basis for such increase, and such increase shall be limited to reflect the actual penny-to-penny (or fraction thereof) increase without any mark-up in Carrier’s Indian licensed telecommunications access provider’s charges imposed on Carrier for the termination of Company’s India destination IDDD traffic.

If the discounted rate increases for any India destinations (including India Rural destinations), Company will have the option to re-route its respective India traffic away from Carrier as set forth below. Where Company exercises this option, it will be required to demonstrate to Carrier that it has received a bona fide offer (or offers in the aggregate) from a reputable carrier (or multiple carriers if Company elects to use more than one reputable carrier to satisfy the coverage criteria) capable of providing similar Quality for ∗ of India Commitment traffic, at a weighted average cost per minute per destination (“Competitive Rate”) lower than Carrier’s increased India discounted rate. Notwithstanding anything to the contrary herein, Carrier shall have a right to match the Competitive Rate within five (5) Business Days after Company’s presentation of the Competitive Rate, along with a certification as to the carrier(s) term commitment (if any) and associated Quality parameters to Carrier. If during the notice period Carrier confirms in writing that it will match the Competitive Rate, Company’s obligations remain unchanged without a right to route away the India traffic. If Carrier does not confirm its agreement to (or ultimately does not) match the Competitive Rate, Company shall have the immediate right to re-route up to ∗ of its India Commitment traffic until such time as Carrier reduces its rate to the Competitive Rate, after which Company will route the uncommitted portion of the re-routed India Commitment traffic back to Carrier within three (3) business days, and have up to the expiration of each individual commitment with an alternate carrier to which Company is subject, but in no case later than ∗ following the expiration of the ∗ period and Carrier’s failure to confirm its agreement to match the Competitive Rate in order to route such re-routed India Commitment traffic back to Carrier. Where such re-routed India Commitment traffic is routed back to Carrier following confirmation of its agreement to match the Competitive Rate, all such India Commitment traffic will be subject to Competitive Rate, and all of the other terms and conditions as existed prior to the time of the re-routing. During the period of time in which Company routes any India Commitment traffic away from Carrier as set forth above, the following Carrier obligations shall not apply: (A) the SLA’s in respect of India Commitment traffic, (B) the base rate and any discounted rate hereunder for India Commitment traffic (i.e., the applicable rate for any such traffic that Company does not route away would be as identified in the then current Carrier Rate

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Amendment), ∗ . For the avoidance of doubt, Company’s remaining obligations under this Addendum with respect to Canada and ROW shall remain unaffected, despite any action (or inaction) to re-route in accordance with the above.

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Notwithstanding Company’s route away rights above, should Company not route away any portion of the India Commitment traffic and the reason(s) for any increase under this subsection (d)(iii) abate or cease in a manner as to reduce Carrier’s costs, or any other development(s) occur to reduce Carrier’s cost, in terminating Company’s IDDD traffic, Carrier is obligated to promptly apply such reductions to Company’s pricing until Company’s pricing is restored to the original discounted rates in Section 4.1(b), as adjusted pursuant to Sections 4.1(d)(i) and/or (ii) above. For the avoidance of doubt, Carrier is not obligated to pass on cost decreases that would reduce pricing below the original discounted rates in Section 4.1(b), as adjusted pursuant to Sections 4.1(d)(i) and/or (ii) above.


e)	∗


4.2.	Canada Destination : For the Canada destinations, all Route Management Services will be provided utilizing VTS Prime Service, and the following pricing and terms shall be applicable during the Route Management Term and are not subject to change during the Route Management Term other than as provided under Section 4.2(b) of this Addendum:


a)	Canada Commitment: Company shall commit to send ∗ of its Canada destinations traffic (excluding any Excluded Traffic, and IDDD traffic to “Canada High Cost Codes” which are defined as these specific destinations: Canada Directory Assistance, Canada Northwestel and Canada Other) to Carrier (“Canada Commitment”) .


b)	Canada Pricing: ∗ .


c)	∗


d)	∗

4.3.

Rest of World Destinations : For all other destinations (excluding India, Canada, U.S. and Philippines Globe traffic associated with Company’s strategic alliance with Globe/GTI) (“ROW”), the following pricing and terms shall be applicable during the Route Management Term and are not subject to change during the Route Management Term other than as provided under Section 4.3(c) of this Addendum:


a)	Rest of World Commitment: Company shall commit to send the lesser of: (i) ∗ of ROW destinations traffic per applicable Quarter; or (ii) ∗ of its ROW destinations traffic per applicable Quarter to Carrier, excluding Excluded Traffic (“ROW Commitment”).

b) Rest of World Pricing: ∗ :

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c) ∗

d) ∗


5.	COMPANY REPRESENTATIONS: Company represents and warrants that there is currently (i) no India destination traffic generated or originated by a Company Group Affiliate, and (ii) there is currently no India destination traffic generated or originated by a Company Wholly Owned Affiliates on a wholesale basis. Company further represents and warrants that during the Route Management Term:

Neither Company, nor any Company Group Affiliate, and nor any Company Wholly-Owned Affiliate shall resell any Termination Service to destinations provided under this Addendum on a wholesale basis without Carrier’s prior written consent. For the avoidance of doubt, Company is permitted to resell Termination Services to destinations provided under this Addendum to Company Wholly-Owned Affiliates provided that the traffic is retail (i.e., offered by the Company Wholly Owned Affiliate directly to an end user and not a carrier) only;


b)	Company shall not directly or indirectly route India Commitment Traffic to or through a Company Group Affiliate or Wholly-Owned Affiliate, unless ultimately destined to Carrier for termination pursuant to this Addendum, without Carrier’s prior written consent, unless otherwise expressly permitted in this Addendum;


c)	The India rates may be made available to a Company Wholly-Owned Affiliate (subject to its compliance with Section 5(a) and (b) above), but shall not be made available either directly or indirectly to a Company Group Affiliate without Carrier’s prior written consent; and

Carrier hereby provides its consent under (c) above with respect to the joint venture formed by a Company Wholly-Owned Affiliate and Datora Telecommunicaes (and its parent Affiliate) to provide telecommunications services in Brazil on a non-wholesale basis (the “Brazilian JV”). For the avoidance of doubt, the Brazilian JV is prohibited from reselling or transferring rates under this Addendum on a wholesale basis.


6.	BENCHMARKING:


6.1.	Benchmarking Definitions: The following definitions shall be applicable for Benchmarking:


a)	“ Benchmark Country ” means an individual or group of available international dialing code(s) that Carrier assigns for Termination Service, which would include either country code only or country code + city code or country code + mobile range or country code + special service code (excluding Canada and India), as established pursuant to Sections 6.2(a) and updated pursuant to Section 6.5.


b)	“ Benchmark Destination ” means a subset of a Benchmark Country in which the assigned individual or group of international dialing codes for Termination Service are defined by a particular type/network (i.e., fixed, mobile, special service).


c)	“ Benchmark Exercise ” means the independent third party’s or, the Carrier’s if requested by Company, analysis and summary report on the competitiveness of Route Management Services pricing under this Addendum, as set forth herein.

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d)	“ Benchmark Index Rate ” means the benchmarking rate for any Benchmark Destination calculated using the rates of the Peer Supplier List, eliminating the highest rate and lowest rate and averaging the remaining rates at the Benchmark Destination (break-out) level.


e)	“ Benchmark Performance Rate ” means the rate established at the Route Management Effective Date, by calculating as follows:


i.	The total weighted average cost of Benchmark Traffic to the Benchmark Destination, calculated using Carrier’s rates to Company at the Route Management Effective Date, divided by


ii.	The total weighted average cost of Benchmark Traffic to the Benchmark Destination calculated using the Benchmark Index Rate at the Route Management Effective Date.


f)	“ Benchmark Period ” means the previous, full calendar month prior to a Benchmarking Exercise.


g)	“ Benchmark Index Cost ” shall be calculated by multiplying the appropriate Benchmark Destination-specific Benchmark Index Rate for that particular Benchmark Period by the appropriate Benchmark Traffic volumes.


h)	“ Benchmark Traffic ” means Company’s actual traffic volumes to the Benchmark Destinations in the month of June 2013 (and as updated in connection with the Annual Benchmark Exercise pursuant to Section 6.5)


6.2.	Benchmarking Principles and Procedures : Benchmarking will be conducted for the VTS Prime and VTS Preferred service categories using an independent third party to be selected by Company at Company’s cost or, if requested by Company by utilizing Carrier’s internal tool at no cost, based on the following principles and procedures:

The pricing levied by Carrier will be compared to the rates then-currently loaded into Carrier’s least-cost routing engine and available for use by Carrier to route Termination Service traffic under the VTS Prime and VTS Preferred service tiers, as provided by the ∗ global Tier-1 suppliers identified in Schedule B (the “ Peer Supplier List ”) for a minimum of the twenty (20) Benchmark Countries as provided by Company to Carrier, plus up to ∗ additional Benchmark Countries as may be identified by Company in its discretion, based on any countries to which Company previously, currently or is forecasted to deliver IDDD traffic. Company reserves the right to revise the list of Benchmark Countries in its discretion at the time of each Annual Benchmark Exercise.


6.3.	Calculation of Benchmark Index Cost and Benchmark Target:


a)	The rates used to calculate the Benchmark Index Rates shall be the rates then-currently loaded into Carrier’s least-cost routing engine and available for use by Carrier to route Termination Service traffic under the VTS Prime and VTS Preferred service tiers, as provided by the Peer Supplier List, as applicable to the Benchmark Period.


b)	Benchmark Destinations shall be excluded from the Benchmark Exercise where there are less than five (5) Peer Suppliers that provide rates to Carrier.


c)	Volumes of traffic provided to Benchmark Destinations during Force Majeure Events shall be excluded from the above calculations.


d)	A Benchmark Performance Rate will be established initially upon the Route Management Effective Date in accordance with the Benchmark Exercise described herein.


6.4.	Carrier Performance Review:

At Company’s request, but no more than once every ∗ (and not earlier than ∗ following the contract Route Management Effective Date), Carrier’s pricing will be reviewed in connection with the Benchmark Exercise, subject to the following:

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a)	If the result of a Benchmark Exercise is equal to or less than ∗ of the then-current established Benchmark Performance Rate, no further action shall be required by either Party.


b)	If result of a Benchmark Exercise is greater than ∗ of the then-current established aggregate benchmark:


i.	The Parties will identify the Benchmark Destination(s) which caused the result to exceed 105%;


ii.	Carrier will have ∗ to “cure” the situation, and bring the Benchmark Performance Rate back to or less than ∗ of the established Benchmark Performance Rate;


iii.	Another Benchmark Exercise will be carried out (at Carrier’s cost) and completed by the ∗ following the expiration of the ∗ cure period; and

iv.

If the results of the new benchmark are still in excess of ∗ of the then-current established Benchmark Performance Rate, Company will have the right to re-route the Benchmark Destination(s) identified in subsection (i) above and the ROW Commitment for the upcoming Quarter will be reduced by the amount of traffic sent to such Benchmark Destination(s) until such time as Carrier can demonstrate via a subsequent Benchmark Exercise (at Carrier’s cost) that its cost base has returned to within ∗ of the Benchmark Performance Rate established at the Route Management Effective Date, at which time, Company will have fourteen (14) days to reroute the traffic back to Carrier.

6.5

In addition to the Benchmark Exercise above, and occurring on or about each anniversary of the Route Management Effective Date, Carrier shall conduct an additional Benchmark Exercise using Company CDR’s provided by Company as applicable to the Benchmark Period immediately preceding the Benchmark Exercise (the “Annual Benchmark Exercise”). The aggregate benchmark is thereafter revised and re-established to reflect the Benchmark Index Cost as a result of this Annual Benchmark Exercise, based on actual call values and Company’s revised list of Benchmark Countries.

BILLING/PAYMENT TERMS: Carrier acknowledges that the current deposit of ∗ held by Carrier for Company shall be applied towards the first Invoice under this Addendum. The Company’s credit limit as of the Route Management Effective Date shall be ∗ USD. Starting on the Route Management Effective Date and for the Route Management Term, Company shall provide and maintain a prepayment amount (“Prepayment”) to Carrier. The Prepayment will be invoiced at the beginning of every month by Carrier and payable on reception by Company. The Prepayment for each month will be equal to the difference between the previous month’s aggregated Invoice amount and the Company’s Credit Limit. The Parties may mutually agree to use a different method to establish the Prepayment should other estimates be more accurate.

It is understood that (A) the Prepayment will be applied against Invoices set forth below which are applicable to the traffic month the Prepayment is subject to as soon as they are issued on a first in and first out basis, and (B) Company shall continue to pay Invoices as set forth below. After the end of the month, a true-up statement will be issued by Carrier and any adjustments will be applicable on the next payment that becomes due. Carrier shall submit an invoice to Company after the end of the applicable Billing Period (as defined in Section 7.1) which shall include total charges for the applicable Billing Period (“Invoice”). Company shall pay the Invoice amount (less any amounts disputed in good faith pursuant to Section 7.2) to Carrier (1) in US dollars, (2) by wire transfer or such other method as the Parties may mutually agree, and (3) within the applicable Payment Period (as defined in Section 7.1). In no event shall Carrier be liable for the fraudulent or illegal use of the Services by any customers or end-users of Company, or for any amounts that Company is unable to collect from its customers, end users or others.


7.1.	Payment Period . 15 day cycle /15 day net payment due via wire for all non-disputed amounts. The billing intervals shall be fifteen (15) days (“Billing Period”) with fifteen (15) days net payment due from date of invoice receipt (“Payment Period”).

7.2.

Invoice Disputes . If a portion of an invoice is paid and subsequently disputed by Company subject to the dispute resolution terms of the Agreement, Carrier shall investigate and the parties shall in good faith resolve such dispute within thirty (30) days of notification from Company. If the Parties agree that Company has overpaid for Route Management Services, Carrier shall credit such overpayment against any other amounts owed by Company to Carrier. Any credits shall be made within thirty (30) days by Carrier against Carrier’s invoices. In the event that there are no billable services after Company’s notification against which to issue a credit, Carrier shall issue a cash refund. Unresolved disputes will follow the dispute

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resolution process set out in the Agreement. The Parties further acknowledge and agree that no suspension of services or performance obligations shall be permitted pending dispute resolution of disputed amounts, provided undisputed payment obligations are satisfied.

7.3.

Back-Billing . Carrier may not invoice services provided to Company more than one hundred twenty (120) calendar days after the end of the month in which Route Management Services were provided or initially raise a claim for payment of a previously issued invoice more than six (6) months after the invoice date (either, a “Late Claim”). Company is not obligated to pay Late Claims and Carrier waives all rights and remedies related to Late Claims, but excluding any tax obligations for services provided. Carrier will use good faith efforts to issue separate invoice for any and all arrears billing with proper dates and time periods of incurred usage expense.


7.4.	Billing Increments . Termination Services shall be billed in one (1) second increments with a one (1) second minimum, except for Mexico which shall be billed in sixty (60) second increments with a sixty (60) second minimum. Any process for the rounding of charges shall be equally applied by the Parties.

Applicable Time Zone: __ EST X _ GMT __ Other (Please specify): _________ (Spain and UK indicate local switch time)

CREDIT LIMIT AND DEPOSIT: Carrier may increase the Credit Limit at any time upon notice to Company. If the financial condition or payment history of the Company (or any surviving entity as a result of a Change of Control event) materially deteriorates after the Effective Date, as evidenced by a material downgrade in its credit rating or debt securities, a bond or loan covenant default, a history of repeated, consecutive, uncured, delinquent payments (not otherwise disputed herein) or other similarly material and demonstrable criteria that makes such condition or payment history unacceptable to the Carrier in its reasonable business judgment, the Carrier may decrease the Credit Limit, or require commercially reasonable alternate arrangements (e.g. LOCs, deposits or prepayments), solely to the extent necessary to mitigate its legitimate credit risk and exposure upon no less than ∗ prior written notice to Company. If at any time Carrier determines that the sum (the Accrued Liability) of (i) total invoiced amounts which remain unpaid and undisputed, plus (ii) the unbilled but accrued usage of Company, has exceeded the then current Credit Limit, Carrier shall have the right to demand by written notice that Company make an immediate payment to Carrier by telegraphic transfer (or such other method as agreed by the parties) of such amount required to reduce its aggregate Accrued Liability to less than the Credit Limit. Upon written notice to Company, the demanded amount shall become immediately due and payable and Company shall pay such amount within three (3) business days of Company’s receipt of such notice. If Company fails to remit such payment when due, Carrier shall have the right without further notice to temporarily suspend the Route Management Services until such amounts are received by Carrier.

ROUTE MANAGEMENT TERM: Notwithstanding anything contained in the Agreement to the contrary, the Route Management Service and the obligations under this Addendum shall commence on Route Management Effective Date and shall remain in force for an initial five (5) year term (the “Route Management Term”). Notwithstanding the foregoing, each Party shall have the right to terminate this Addendum by providing six (6) months’ notice prior to the commencement of Year 4 of the Route Management Term. Upon such notification of termination, the Parties shall immediately enter into good faith negotiations with the goal of reaching an agreement within thirty (30) days of receipt of such termination notice. For the avoidance of doubt, the termination for convenience rights under Section 3.2 of the Agreement shall not apply to this Addendum.

10.

ASSIGNMENT AND CHANGE OF CONTROL : The Agreement (including this Addendum) may not be assigned without the express written consent of the other Party, which consent shall not be unreasonably withheld; provided however, that a Change of Control of a Party, or any deemed assignment (whether or not by operation of law) of the Agreement (including this Addendum) resulting from a “Change of Control” of a Party, shall not require the consent of, or compliance with any precondition of the other Party. In addition, either Party may assign this Agreement to an Affiliate of such Party without the need for consent, but with at least ten (10) days prior written notice of such assignment. For purposes of this Agreement, “Change of Control” means (i) a merger involving a Party in which such Party is not the surviving entity; (ii) a merger involving a Party in which the Party is the surviving entity but in which securities possessing greater than fifty percent (50%) of the total combined voting power of a Party’s outstanding voting securities are transferred to other Persons; (iii) a sale or disposition of all or substantially all of a Party’s property, assets or business or merger into or consolidation with any other Person (other than to a Party’s Affiliate); or (iv) a sale, assignment or other transfer of a Party’s securities possessing greater than 50% of the total combined voting power of such Party’s outstanding voting securities at the time of such transfer. Any attempted or purported assignment not permitted hereunder shall be void.


11.	LOCAL LOOP CHARGES: Company shall be responsible for all local loop charges that Carrier is required to pay to any third party service provider that are incurred on behalf of Company and the local loop charges shall survive reduction, suspension and/or termination of services.

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Ver. 12.2 (Custom April 2013)

12.

FORECAST ESTIMATES: At least fifteen (15) days prior to the start of each Quarter, Company shall provide to Carrier a written non-binding forecast estimate of traffic volumes for that Quarter, including without limitation, endeavoring to identify any anticipated traffic volume spike periods (the “Forecast Estimate”). If Carrier receives a Forecast Estimate for any destination(s) which are materially greater than prior Forecast Estimates and the capacity for which is reasonably unplanned for such material increase (“Over-Flow Traffic”), then Carrier shall notify Company promptly (within five (5) Business Days) if it cannot adequately provide the necessary capacity to satisfy the Over-Flow Traffic and confirm the maximum capacity it has for such destination(s) traffic. Company has the option to route away the portion of the Over-Flow Traffic exceeding Carrier’s capacity. Company acknowledges that if it does not route away such Over-Flow Traffic, Carrier is relieved from any liability associated with not performing to the minimum SLAs with respect to such destination traffic. For the avoidance of doubt, Company’s ROW commitment will not be reduced due to Carrier’s inability to provide termination for volumes in excess of ∗ of previous volumes sent by Company to Carrier to any particular destination.

13.

TERMINATION: For avoidance of doubt, there is no right of termination for convenience by either party (except for the termination right in Section 9 of this Addendum) notwithstanding any termination for convenience rights under Section 3.2 of the Agreement, nor by Carrier for a material change in financial condition of Company that poses a material financial risk to Carrier notwithstanding the termination rights set forth under Section 3.3(c) of the Agreement; but this Addendum is subject to all other termination rights, including for cause, as set forth in this Addendum and the Agreement; provided that any termination under Section 3.3(a)(ii) of the Agreement must be based on an uncured breach of a material obligation under this Addendum. Company may terminate this Addendum in whole or in part due to Carrier’s SLA failures as set forth in Schedule A . Any expiration or termination of the Addendum is not considered a termination or expiration of the Agreement. Should Carrier terminate this Addendum in accordance with Suspension/Reduction/Termination provisions of the Agreement (except for Section 3.2 or Section 3.3(c) of the Agreement which are not available under this Addendum), or should Company terminate this Addendum for any reason (except for Section 3.2 or Section 3.3(c) of the Agreement which are not available under this Addendum) other than a material breach solely attributable to Carrier which breach has not been cured within thirty (30) days, then Company shall be fully liable to pay to Carrier any termination charges that Carrier is required to pay to any Third Party telecommunications service provider, if any, for terminating their facilities that were incurred on behalf of Company.

IF A DEPOSIT IS THEN WITHHELD BY CARRIER : With respect to this Addendum only, notwithstanding Section 3.3 of the Agreement, neither the Agreement nor this Addendum may be terminated by Carrier due to non-payment unless such charges are undisputed and are, in the aggregate, in excess of the Company’s unapplied unused deposit held by Carrier (if a deposit is then held by Carrier), and remain unpaid for at least five (5) business days after receipt of written notice (which notice must be delivered in accordance with the notice provisions and refer to the right to terminate if payment is not timely met within the five (5) business day period.) Any termination of this Addendum or the Agreement due to Section 3.3(b), (d) or (e) of the Agreement will have the effect of terminating the Parties’ remaining executory obligations under this Addendum, including the remainder of any unmet minimum commitments and pricing commitments, without affecting payment obligations of invoices for services rendered, or any other rights and remedies under the Agreement (independent of the Addendum) regarding the specific basis for the termination.


14.	OFFICER CERTIFICATION: Each Party, upon written request of the other Party and no more often than twice per year, will provide to the other Party within thirty (30) days thereafter a senior corporate officer’s (designated as a corporate officer by such Party’s by-laws) certificate confirming its compliance with the terms of this Addendum in all material respects.


15.	AUDIT RIGHTS: Each Party shall have an annual audit right to the extent reasonably necessary to permit a Party or an auditor appointed by a Party to:

a) For Company: Verify Carrier’s compliance with the terms of this Addendum.

b) For Carrier: Verify Company’s compliance with the terms of this Addendum.

All such audits shall be conducted: (i) no more than once per year during the Route Management Term; (ii) with no less than sixty (60) days prior written notice; (iii) at the cost of the auditing Party; (iv) provided any appointed auditor does not have material conflict of interest with the audited Party; (v) subject to the auditor complying with the audited Party’s reasonable confidentiality and security requirements; and (vi) provided that: (A) it shall be solely for the purposes of verification of compliance with the terms

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Ver. 12.2 (Custom April 2013)

of this Addendum; and (B) the audit requests access to books and records related solely to the transactions between the Parties that are the subject of this Addendum. Any such audit shall be conducted with a minimum of disruption to the other Party’s normal business operations. In the event an audit results in a determination of noncompliance with the terms of this Addendum by a Party, that Party shall pay (or reimburse the other Party for, as applicable) for the reasonable out of pocket costs for that audit.


16.	PRESS RELEASE: The Parties agree that Carrier may wish to prepare and issue a press release related to this Addendum for issuance on May 14, 2013. In such a case, Carrier will provide a copy of its proposed form of press release on or before May 9, 2013 and may not issue the press release without Company’s prior written consent, not to be unreasonably withheld.


17.	NEW MSA . The Parties agree to negotiate in good faith to conclude prior to the Effective Date a new MSA to replace the current MSA, using the Company’s form of MSA attached hereto as Schedule C as a starting point for negotiations.


18.	∗


19.	∗

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Ver. 12.2 (Custom April 2013)

20. NOTICE: All notices, requests or other communications hereunder shall be in writing, addressed to the Parties at the address indicated herein. Notices mailed by registered or certified mail shall be deemed to have been received by the addressee on the fifth (5 ^th ) business day following the mailing or sending thereof. Notices sent by facsimile shall be deemed to have been received when the delivery confirmation is received.. A Party may update and amend its notices contact information upon prior written notice.

21. Notice Information:



Legal Notices To Carrier : Tata Communications Attention : Legal Department 35 Tai Seng Street, TCX Building #06-01, Singapore 534103 Facsimile: +65 6634 8572 Email:	Legal Notices To Company : Vonage America Inc. 23 Main Street Holmdel NJ 07733 Attn: Chief Legal Officer

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Invoices To Company: Electronic Invoices: Company shall be sent electronic invoices only: No Yes , please send to the following email address: accountspayable@vonage.com	Carrier Authorized Rate Notification Sender: Pricing related information, code changes and/or rate notifications shall only be deemed valid if sent to Company from: The following email addresses only: Email #1: pricing@tatacommunications.com Email #2: ___________________________________ and/or Tata Communications Pricing Manager Rate Change Notices To Company Shall Be Sent To : Rate Change Method For Rates Sent to Company (“Company Rate Change Method”) (Select only one): Email: ___ratechange@vonage.com Courtesy Rate Change Copy To: _____________________ Company Rate Change Amendment Format: Standard (Only Changes) Special (Full A-Z listing) Customer Batching Manual Batching Batching Schedule:______________________________________ Show LATA (US) Show LATA (Canada) Show Service Levels Show Code By Line Show Country City Codes Together


22.	NO MODIFICATION; CONFLICT: Except as modified and amended hereby, the Agreement remains unmodified and in full force and effect and each Party hereby reaffirms all representations, warranties and covenants contained therein. In the event of a conflict between the terms of this Addendum and the Agreement, terms of this Addendum shall control.


23.	ENTIRE AGREEMENT: This Addendum embodies the entire agreement and understanding of the Parties with respect to the supplementing and amending of the Agreement with regard to the matters described herein. There are no restrictions, promises, representations, warranties, covenants or undertakings with respect thereto, other than those expressly set forth or referred to herein.

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Ver. 12.2 (Custom April 2013)

IN WITNESS WHEREOF , the Parties have executed this Route Management Services Addendum to the Agreement as of the date last written below.



By: Tata Communications (America) Inc. (“ Carrier ”) Authorized Signature Michel Guyot Name President, Global Voice Solutions Title May 10, 2013 Date	By: Vonage America Inc. (“ Company ”) Authorized Signature Name Title Date

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Ver. 12.2 (Custom April 2013)

Schedule A: Service Level Assurance

In order for Company to fulfill its obligations under the Addendum, Carrier must maintain standards of quality in all aspects related to the provision of Termination Services (“ SLAs ” or “ Service Levels ”). To that purpose, Carrier agrees to the standards set forth in this Schedule A (including its Annexes), measured daily and SLA performance shall be calculated on a weekly basis.

1. INTRODUCTION AND PURPOSE:


1.1	This Schedule describes what Service Levels are provided for the Addendum.


1.2	This Schedule includes Annexes A through E, which set out the specific Service Levels that shall apply.


1.3	Service Levels are comprised of: Service Levels relating to Termination Services (‘ Termination Service Levels ’); and those relating to fault handling (‘ Fault Handling Service Levels ’).

2. MEASUREMENT OF SERVICE LEVELS:


2.1	Measurement Period


2.1.1	During the Route Management Term, Carrier shall use industry standard measurement tools to accurately measure, monitor and report the Service Levels, as more specifically set out in Paragraph 3 of this Schedule.


2.1.2	Carrier shall endeavor to meet or exceed the Service Levels, as set forth in this Schedule.

3. SERVICE METRICS FOR CARRIER TERMINATION SERVICES

This section sets out the metrics which shall be used as the basis for setting Service Levels.

3.1 Metrics relating to Carrier Termination Services: Termination Services in relation to specific Service Levels and destinations will be managed and performance reported against the following metrics listed below (‘ Performance Services Metric ’). The definitions of the Performance Service Metric are set out at Annex A to this Schedule and the manner in which Performance Service Levels are set against the Performance Service Metric in relation to specific Service Levels and destinations is set out in the table to be agreed between the Parties in the form set out at Annex B to this Schedule (‘ Destination Service Levels Table ’). Subject to the applicable Service Levels and destinations, the Performance Services Metric may include:


•	∗

The Parties will use reasonable endeavors over the Route Management Term to work towards improving the tools for enhancing Service Level performance.

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3.2 Peak Periods: The Parties acknowledge that the aforementioned Performance Services Metric may be impacted periodically by in-country market circumstances such as government-recognized national holidays (“National Holidays”). National Holiday - related impacts shall be considered as Force Majeure Events and such instances shall not be held contributory to the above measurements.

3.2.1 Notwithstanding the foregoing, Carrier and Company shall work together in good faith to develop a capacity plan (“Capacity Plan”) no less than thirty (30) days prior to National Holidays in major destinations to ensure sufficient capacity is available to accommodate for peak traffic during such events. In the event the Parties agree on a Capacity Plan, the applicable Performance Service Metric shall still apply during that National Holiday. In the event the Parties do not agree on a Capacity Plan, and the traffic during the National Holiday cannot be accommodated by Carrier, Company may route away the affected traffic (in which case, the applicable India Commitment and Canada Commitment, respectively, would not apply).

3.3 Fault Handling Metrics: Carrier will provide Company with access to a fully trained fault management team. The specific Fault Handling Service Level definitions are defined below and the specific Service Category to which each metric applies is set out at the Destination Service Levels Table.

3.4 Response Time: The time between Company informing Carrier’s designated contact either by means of telephone, e-mail or via Carrier’s customer portal that in Company’s opinion a Fault (as defined in Section 3.6 below) has occurred and the confirmation from Carrier that the Fault is acknowledged.

3.5 Resolution Time: The time between Company informing Carrier’s designated contact either by means of telephone, e-mail or via Carrier’s customer portal that in Company’ opinion a Fault has occurred and the time at which Company receives by e-mail or via the Carrier customer portal notification that the Fault has been resolved. If Company identifies that the Fault still persists after the closing of a trouble ticket, the Fault shall be considered not closed and the resolution time shall restart from that point of notification from Company. Subject to the Fault Reporting Procedures as set forth in Annex D, Carrier will inform Company by e-mail, telephone or via the Carrier customer portal of the status in resolving any Fault upon request by Company.

3.5.1 Testing Period: From the time Carrier notifies Company that the validated issue is resolved, Company agrees to test and provide ticket fault resolution or feedback within twenty-four (24) hours. If ticket is closed then Company will re-route traffic as promptly as possible under the circumstances. If Company perceives the issue still exists, Company will provide proof (e.g. call samples, data to support, etc.) of the existence of the issue.

3.5.2 Carrier will endeavor to proactively notify Company of network issues it becomes aware of.

3.6 Fault Definitions: When reporting Faults to Carrier, Company will employ standard definitions of the severity of the Fault. Priority definitions are defined below. Company reserves the right to contact Carrier and increase the Priority based on the impact to its customers. The Fault Handling Metrics for the newly-assigned Priority will commence upon such notice.

a) Priority 1 Faults: Priority 1 Faults are a “Material Service Failure” which means any one or more of the following (provided that at all times a Fault in respect of a single telephone number shall not constitute a Material Service Failure):


(i)	Total outage of Carrier’s Termination Services network ∗ NER;


(ii)	Complete loss of Voice Termination Service access to any destination listed on the Carrier Rate Amendment;


(iii)	Severe destination impairment on the Termination Service to any destination on the Carrier Rate Amendment for that service, to include:


•	For traffic routed on Prime Service Level: Performance Service Metrics falling below key performance targets as set out in the Destination Services Levels Table: ∗ of target for a rolling 7 day period;

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•	For traffic routed on Preferred Service Level: Performance Service Metrics falling below key performance targets as set out in the Destination Services Levels Table: ∗ of target for a rolling 7 day period;


•	Multiple Faults to the same destination on the Termination Service listed in Carrier Rate Amendment twice within 24 hours; or


•	Company opens ticket which is voice impairment related, is customer impacting (Company to provide a screen shot from internal dashboard to show data on customer impact), Company routes specific destination traffic away, and issue is validated to be a Carrier issue.

b) Priority 2 Faults: Means any instance when the following measures in respect of any Termination Service destination fails to be met, either:

i) For traffic routed on Prime Service Level: Performance Service Metrics falling below key performance targets as set out in the Destination Services Levels Table: ∗ of target for a rolling 7 day period; or

ii) For traffic routed on Preferred Service Level: Performance Service Metrics falling below key performance targets as set out in the Destination Services Levels Table: ∗ of target for a rolling 7 day period.

c) Priority 3 Faults: Means any instance when the following measures in respect of any Carrier Prime Service Destination fails to be met, either:

iii) Any other Fault not otherwise specified in this Section 3.6(c) to this Schedule A; or

iv) Company opens ticket which is voice impairment related, may or may not be customer impacting, Company does not route away traffic and issue is validated to be a Carrier issue

4. SERVICE LEVEL EXCLUSIONS: Notwithstanding anything stated to the contrary herein, Carrier shall be relieved from any failure to achieve a Performance Service Metric to the extent that the cause of an Incident and / or fault is determined to have occurred as a result of one or more of the following conditions:


(a)	Any Faults not reported by Company to Carrier as Qualified Trouble Tickets;

(b)

Force Majeure Events: Neither Carrier nor Company shall be held responsible for any unforeseen Faults as arising from Force Majeure Events as defined in the Addendum. Carrier is responsible for informing Company immediately of all such issues and events and using all commercially reasonable efforts to provide an alternative solution. In such an event, if the Company is required to route away traffic, Company will be relieved of its Traffic Volume Commitment for the affected period by an amount equal to the daily average amount of traffic to affected destination over the seven (7) days prior to when the Force Majeure Events first occurred multiplied by the number of days Company was required to route away and Company may route such traffic to Third Party telecommunications suppliers at its discretion; provided, however, that Carrier will notify Company of route availability upon elimination of the Force Majeure Event at which time Company will begin a testing period of seven (7) days. Once testing is complete to Company’s reasonable satisfaction, Company will route traffic back to Carrier within the following seven (7) day period. If the Company continues to route traffic to Carrier during the Force Majeure Event, the amount of traffic Company sent to Carrier for termination will be deducted from the amount of traffic for which it requested relief;

(c)

Scheduled Work Outages. If Company is properly notified in accordance with Annex E – Company CRQ Process (via email to Company’s designated NOC contact to suffice) of a “planned outage”, the parties agree that any Trouble Tickets that results from such a planned outage shall not be considered as a Faults, to the extent that such planned outages are limited to three (3) occurrences per Quarter and are in each case completed within an agreed-upon maintenance window. In any event, Company will be relieved of the Traffic Volume Commitment for the entire duration of each planned outage (e.g., whether or not properly notified) by an amount equal to the daily average amount of traffic to affected destination over the seven (7) days prior to when the planned outage first occurred, multiplied by the number of days (and fractions thereof) of the planned outage;


(d)	For traffic sent by Company to Carrier during Peak Periods to the extent excluded under Section 3.2 of this Schedule;


(e)	Degradation of performance on the affected destination for the period in question is found to be the result of originating customer behavior which affects the successful delivery of the call;


(f)	In the event actual ROW traffic sent by Company to Carrier is in excess of the Company's non-binding forecast by more than ∗ to a particular destination, Carrier shall be relieved of the SLA with respect to the excess traffic to the extent that such failure arises from the excess traffic;

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(g)	Maintenance actions requested by or attributed to Company;


(h)	Applications, equipment or facilities provided by Company, its contractors or end-users;


(i)	Acts or omissions of Company, its contractors or end-users; or


(j)	Where in respect of a particular destination, the Performance Service Metric would have been met if there had been no invalid or unassigned numbers sent by Company.

5. SERVICE LEVEL REPORTING

5.1 Fault Handling Reporting: Carrier will use commercially reasonable efforts to provide an accurate SLA and quality performance reporting to Company by the first and third Monday of every calendar month and failure to timely provide such a report shall not be deemed to be a material breach of this Addendum, unless such failure occurs more than four (4) times within any calendar quarter, which will be subject to cure. These statistics will address, at minimum, daily measurements, and SLA performance shall be calculated on a weekly basis.

IN WITNESS WHEREOF , the Parties have executed this Schedule A to the Addendum as of the date last written below.



By : Tata Communications (America) Inc. (“ Carrier ”) Authorized Signature Michel Guyot, President, Global Voice Solutions Name and Title May 10, 2013 Date Date	By : Vonage America Inc. (“ Company ”) Authorized Signature Name and Title Date

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ANNEX A

Definitions of Service Metrics

Network Efficiency Ratio

Network Effectiveness Ratio is described in ITU E.411. NER is designed to express the ability of networks to deliver calls to the far-end terminal for Termination Services. NER expresses the relationship between the number of seizures and the sum of the number of seizures resulting in either an answer signal, or a user busy, or a ring no answer, or, in the case of ISDN, a terminal rejection/unavailability.

Seizure

A call that is accepted for delivery by the receiving network from the originating network for Termination Services. Once seized, a call is now the responsibility of the receiving network to complete.

Answer to Seizure Ratio (ASR)

ASR: As described in ITU E.411-E437, Answer Seizure Ratio (ASR) gives the relationship between the number of seizures that result in an answer signal and the total number of seizures for Termination Services. This is a direct measure of the effectiveness of the service being offered onward from the point of measurement and is expressed as a percentage as follows:

ASR = (Seizures resulting in answer signal/Total seizures) X 100

Answer Bid Ratio (ABR)

ABR: As described in ITU E.425, Answer Bids Ratio gives the relationship between the number of bids that result in an answer signal and the total number of bids for Termination Services. This is a direct measure of the effectiveness of the service being offered and is expressed as a percentage.

ABR - (Bids resulting in answer signal/Total Bids) X 100

Bid

Bid: As described in ITU E.410 Annex 10, a bid is an attempt to obtain a circuit in a circuit group or to a destination. A bid may be successful or unsuccessful in seizing a circuit in that circuit group or to that destination.

Average Length Of Conversation (ALOC)

ALOC: As described in ITU E.437, ALOC is the Average Length Of Conversation for completed calls using the Termination Services. A statistically significant difference in ALOC between two routes may be considered as an indication of some irregularity warranting further investigation.

Number of Repeat Faults

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Number of repeat faults is used to describe the number of incidents reported by Company to Carrier as Faults that following Carrier communication of the incident being cleared and Company’s acceptance of the Fault being cleared are subsequently reported again as Faults of the same nature within a period of ∗ hours of the initial or subsequent clear message from Carrier to Company.

Number of Priority 1 incidents per month

The number of Priority 1 incidents per month is used to describe the number of Priority 1 Faults that Company reports to Carrier and that Carrier subsequently communicates a clear cause other than “Fault not found”.

Valid Call Attempts

Is used to describe a call request from a Company network to a Carrier network including a valid called party number. Attempts where the called party number is wrong or not in the correct format are excluded form the number of Valid Call Attempts.

Mean Time To Repair

The Mean Time To Repair is used to describe average time between Company opening Qualified Trouble Tickets by the mechanisms specified through the Fault Reporting Process as set forth in Annex C of this Schedule and Carrier communicating the clearance of those Tickets. In any case that a fault is subsequently found not to be cleared the Mean Time To Repair will be from the start of the original fault to the eventual close of the same fault.

Qualified Trouble Tickets

Qualified Trouble Tickets is used to describe those tickets that are opened as per the Fault Reporting Process as set forth in Annex D to this Schedule and which relate to Faults meeting the definitions of Fault Definitions as set forth in Section 3 of this Schedule.

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ANNEX B

SERVICE LEVELS

The following targets will apply to any destination where for each Service tier Company makes no fewer than 300 Valid Call Attempts on a daily average basis to the applicable Destination. If a Peak Period occurs during the month, then for the destination or metric excluded for that period, the number of Valid Call Attempts on a daily average will be reduced pro rata by the duration of the Peak Period in days as a proportion of the total days in the month.

Fault Handling Metrics – Prime Service Level



	Priority 1	Priority 2	Priority 3
Response Time	∗	∗	∗
Periodical Status	Upon request	Upon request	Upon request
Resolution Time	∗	∗	∗

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Fault Handling Metrics – Preferred Service Level



	Priority 1	Priority 2	Priority 3
Response Time	∗	∗	∗
Periodical Status	Upon request	Upon request	Upon request
Resolution Time	∗	∗	∗

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Target Mean Time to Repair

The Target Mean Time To Repair shall be the Resolution Time for each category of Fault Priority for Qualified Trouble Tickets. The Mean Time To Repair performance will be:

The sum of actual Resolution Time to repair Faults

The total number of Faults

Destination Specific Targets

[SEE DESTINATION SERVICE LEVELS TABLES ATTACHED]

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		PRIME				PREF.
	Desination	SL	ASR	ALOC	NER	SL	ASR	ALOC	NER
	*	*	*	*	*	*	*	*	*


*	Portions herein identified by * have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended. A complete copy of this document has been filed separately with the Securities and Exchange Commission.

Mar 2013

Annex C:

SLA Failure Remedies

For clarification purposes, the following shall apply to Priority 1 and 2 Faults that are initiated by Company upon its detection of an issue, but excluding any Trouble Tickets that arise due to any Service Level Exclusions (as defined in Section 4 above)):



Chronic Events
	Priority 1 Faults	Priority 2 Faults
Chronic Issue	∗ Priority 1 Faults to the same destination for any rolling ∗ day period. OR For India destinations (excluding India Rural) and Canada destinations (excluding the Canada High Cost Codes), only: Greater than ∗ Faults in a ∗ day period where Carrier did NOT meet the MTTR requirement in Annex B.	* Priority 2 Faults to the same destination during any rolling ∗ day period.
Chronic Condition	∗ Chronic Issues during any rolling ∗ day period to the same destination or ∗ complete failure across Carrier’s Termination Services network. OR For India destinations (excluding India Rural) and Canada destinations (excluding the Canada High Cost Codes), only: Greater than ∗ Faults in a ∗ day period where Carrier did NOT meet the MTTR requirement in Annex B.	* Chronic Issues during any rolling ∗ day period to the same destinations.

Should Company experience Chronic Events (defined as per table above), it may have the right to route away Termination Services traffic for the affected destination (at the DNIS level). Accordingly, in the event of a Chronic Event, Company may elect to be relieved of its Traffic Volume Commitment for the affected destination (at the DNIS level) without penalty during the Event. In the event Company is unable to fulfill the Traffic Volume Commitments as the result of any one or more Chronic Event(s), Company shall be relieved of any shortfall penalty or other remedy associated with the affected traffic to the affected destination(s) (at the DNIS level), and Company may route such traffic to Third Party telecommunications suppliers at its discretion as a direct result of such Chronic Event(s).

Relief from the Traffic Volume Commitment will be equal to the daily average amount of traffic over the ∗ days prior to when the first Chronic Event occurred, multiplied by the number of days of the Event. Company shall be relieved from its Traffic Volume Commitment obligations for the affected destination (at the DNIS level) from the time when the Event first occurred. Should Company elect any relief from its Traffic Volume Commitment to an affected destination (at the DNIS level), Carrier shall not be relieved of its pricing, capacity or SLA obligations. Upon notice from Carrier, Company will begin a testing period of ∗ days. Once testing is complete to Company’s reasonable satisfaction, Company will route traffic back to Carrier within the following ∗ day period.

Solely with respect to India destinations, in the event Chronic Condition(s) occur ∗ or more times in any rolling ∗ month period during the Route Management Services Term, Company shall have a right to terminate the Addendum in whole or in part upon no less thirty (30) days written notice to Carrier, provided such notice is sent within ∗ days of the completion of the second such Chronic Condition(s) giving rise to this termination right.


c.	Solely with respect to Canada, in the event of ∗ Chronic Condition(s), Company will be relieved of its Canadian Commitment to Carrier. In such instance, the affected destination will no longer be subject to SLA’s under this Schedule.

In addition to and without limiting Company’s rights and remedies under the foregoing, in the event of ∗ Chronic Condition(s) affecting a ROW destination (at the DNIS level), the ROW Commitment will be reduced by the daily average amount of traffic over the ∗ days prior to when the first Chronic Condition occurred for the remaining term of the Addendum and route such traffic to Third Party telecommunications suppliers at its discretion. In such instances, the affected destination will no longer be subject to SLA’s under this Schedule.


e.	For the ∗ Commitment only, if a Company shortfall of Traffic Volume Commitment minutes can be traced back to a Carrier caused by Priority 1 Faults where minute relief was not granted, then Company will not be in violation of any shortfall obligations.

ANNEX D

Global Voice Solutions

Fault Reporting

Complete Reference Guide

Our Commitment:

Provide the Highest Level of Customer Service and Satisfaction

Revision March 2013

How to report a fault

- By phone : +1-514-868-7875 // UIFN +800-9333-3999

- By e-mail: customer.service@tatacommunications.com

- Through the customer portal: https://customerzone.tatacommunications.com

Basic Information Required

- Your name, company name, telephone number (mandatory)

- Outage or impairment status (preferable)

- Your fault reference numbers, both from Tata Communications system and from your

internal system if any (optional)

- Your fault priority (optional)

Service-related Information Requirement – Voice Services


•	Fault category


•	Fast busy, RNA, Call drop, CLI, echo, noise etc…


•	Fault severity for Vonage mapped to TATA fault severity


•	P1 – P3


•	Called number


•	Calling number


•	Date and time in GMT


•	Please report faults based on LCR break out vs. destination break out


•	We often times get 1 email with several LCR break outs for Brazil


•	CDR (full cdr if possible showing the full detail of the call)


•	When was fault reported to Vonage (was there a lag in time of fault and time reported)


•	At time of reported fault was there issue (green, yellow or red) within their impairment tool (packetloss, jitter and latency)


•	Were any other faults for LCR destination reported during same time?


•	What investigation steps were taken at Vonage – Include all of below


•	Did you check customer equipment


•	Was there IP issue with customer – Can you verify?


•	RTP issues if any


•	Traces of the call that had reported fault


•	Reproduce fault (about half of tickets opened a month are closed due to not being able to reproduce)

Service-related Information Requirement – Access Services (Toll-free/LNS)

- Type of origination phone used (i.e. mobile, hotel, landline, office, etc.)

- Has phone number worked previously from this specific phone?

- Phone number of phone used to place failed call

Resolution Procedures

As Tata Communications is an international telecommunications and data carrier,

Mar 2013

the service outage or service deficiency may be related to a particular link with a foreign carrier or localised within the territory of a foreign administration. In that case, the GNMC will coordinate the testing and repair work with the foreign carrier or administration. Throughout this process the TSC-W will follow the progress of this work, keeping

the customer advised of the fault resolution process and ensuring rapid fault resolution.

Either upon receipt of a called-in fault report or from automatic fault detection, network operations personnel investigate to determine the source of the fault and attempt to resolve it. If this is not feasible, maintenance personnel are dispatched on a worldwide basis

to the source of the problem.

Mar 2013

Incident Criteria

Event Classification Incident Criteria Voice



Severity 3	Single Number Problem Single Area Problem No Ring Back Tone (RBT)
Severity 2 Voice quality issues e.g., Echo, One Way (Median priority) Speech and Cross Talk. Low ASR to a destination Mobile Station Roaming Number (MSRN) coverage
Severity 1 0% destination Answer Seizure Ratio (ASR) (Highest priority) Call Line Identification (CLI) Failure Fax Issues Dual-Tone Multi-Frequency (DTMF) Issues False Answer Supervision (FAS)
Crisis event Loss of Switching, Signalling and Routing Platform

2. Repair Time and Escalation

Tata Communications maintains aggressive goals for Mean Time To Repair (MTTR).

If the MTTR threshold is in jeopardy and/or if the customer feels it is necessary, the customer may begin escalating the trouble within Tata Communications.

The following escalation guidelines apply to customer service interruptions:


-	Escalation should be made at the given intervals until the trouble is isolated and a repair plan is implemented.


-	Escalation can vary after the isolation of the fault depending on repair activity underway and is not necessarily limited to set intervals.


-	Escalation will be based on fault duration, not length of time at the fix agency (even if the fix agency just received the ticket). The escalation clock starts when the ticket is opened.

Mar 2013

Escalation List for Global Customer Service - Contact matrix to be used during trouble ticket life cycle. Please ensure you have reached the first level of escalation before moving to the next level.

Contact Phone E-mail

1st Level: Shift Lead TSC-W

+1-514-868-7875

UFIN +800-9333-3999

GCSC.Escalations@tatacommunications.com

2nd Level:

Parag Rodrigues

Manager-Global

Voice Solutions, TSC-W

3rd Level:

Piyush Handique

Head, TSC-W

+91-20-6614-3217 (O)

+91-84-4627-5275 (M)

+91-20-6614-3207 (O)

+91-80-9708-0706 (M)

parag.rodrigues@tatacommunications.com

Piyush.handique@tatacommunications.com

4th Level: Vijay Agarwal, VP. Technical Support Center Operations

+91-22-6659-1671 (O)

+91-92-2329-9170 (M)

vijay.agarwal@tatacommunications.com

3. Fault Ticket Closure

Once the reported issued has been cleared by our technical staff, you will be contacted to ensure you are satisfied with our findings. We will provide you with at least twenty-four (24) hours to validate these findings and let us know if further support is required.

4. Customer Portal

Mar 2013

If you are a first-time user, you will need a user ID and password, please contact your customer service representative either by phone (+1-514-868-7875 // UIFN +800-9333-3999) or by e-mail (cust omer.service@tatacommunications.com ) to gain access to the portal. Please note that passwords are case sensitive.

Customer portal will allow you to:


-	Open new tickets using “Create New Ticket” in menu and fill in information mentioned in Section 1 of this document: Reporting a Fault – Ticket number to be provided upon creation of a ticket.

- Get status on an open ticket – Enter number in box “Trouble number here” to view

existing ticket. Entries are shown in reverse chronological order.

- View closed tickets (not older than 90 days)

Mar 2013

5. Organisations

Technical Support Centre Wholesale (TSC-W): The TSC-W serves as the primary customer entry point for all service-related faults. Acting as the customer advocate within Tata Communications the TSC-W owns overall customer satisfaction, notification communications and management of internal escalations 24 hours a day, 7 days a week. The TSC-W is staffed by customer service professionals specialised in the Telecommunications industry. Working with Tata Communications’ Network Management Centres, the TSC-W will track all faults until their resolution.

Global Network Management Centre (Voice): Within Tata Communications’ state-of- the-art GNMC there exists a team dedicated exclusively to the network management, network surveillance, and fault resolution for Tata Communications’ Voice traffic. This team consists of graduate-level telecommunication technologists and engineers working on a

24x7 schedule. Tata Communications’ engineers, technicians and support staff continuously

monitor network operations and capacity to ensure stated service levels are achieved.

Mar 2013

Technical Service Centre - Wholesale (TSC-W) Contact and Escalation Numbers

UIFN Number* +800-9333-3999

Direct: +1-514-868-7875 Fax: +1-514-868-8996

Email: customer.service@tatacommunications.com

Country Specific Toll-free Numbers



Country	Number	Country	Number
Argentina	0800 222 0069	Japan	00 531 162 214
Bahrain	800 00932	Mexico	001 800 514 0346
Brazil	0800 891 6953	Norway	800 13447
Canada	1 800 567 1950	Philippines	1 800 1110 1451
Chile	800 201 790	Poland	00800 1114 497
China	10 800 1400 064	Portugal	800 819 512
Colombia	01 800 919 0178	Russia	810800 2161 1012
Denmark	808 80408	Spain	900 981 576
France	0800 910 517	Sweden	0207 98512
Germany	0800 1812 364	Switzerland	0800 838 811
Greece	00800 161 2203 0179	Thailand	001 800 1562 200 592
Hong Kong (1)	800 930 578	Turkey	00800 142 030 326
Hong Kong (2)	800 965 063	United Kingdom	0800 895 256
Indonesia (1)	001 803 0172 566	U.S.A.	1888 933 3399
Indonesia (2)	007 803 0172 566	Venezuela	0800 1003 081
Italy	800 872 018

Note: UIFN Toll-free access is currently available in Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Japan, Malaysia, New Zealand, Norway, Singapore, South Korea, Sweden, Switzerland, Taiwan, The Netherlands, and the U.K. Refer to your account representative for availability of this service in your area.

Mar 2013

Mar 2013

Annex E:

Vonage CRQ Process

This document provides change notification guideline for external vendors and carriers when work is scheduled to be done that has the potential to disrupt provided services. Vonage requests that any work that has potential to disrupt provided service is reported to use using the below guidelines.

Revision Date : 10/25/2012

Responsible Group: Vonage Change Management

Maintenance Types

Normal Request

• Description - Planned maintenance that has the ability to or will impact service provided to Vonage.

• Minimum notification - 2 weeks advance notice

• Notification is to be sent to ChangeManagement@vonage.com via email

• Preferred Maintenance Window: 12AM – 6AM ET

• Description of the work to be done.

• Circuits or Service that is being affected by the maintenance.

Emergency Request

• Description - Change needs to be done immediately and cannot wait.

• Notification: As much as possible

• Sent to: ChangeManagement@vonage.com and NOC-Team@vonage.com

• Description of the work to be done.

• Circuits or Service that is being affected by the maintenance.

Notification Requirements

1. The Notification is to be sent to Vonage via email to ChangeManagement@vonage.com.

2. Subject Guidelines

When filing an RFM please use the following subject conventions.

Subject: CATEGORY | SUB CATEGORY | Title of maintenance

Example Subject: MAINTENANCE | CIRCUIT GROOMING | Grooming circuits in New York

3. The following information is to be included in the notification email advisement.

a. VENDOR/CARRIER internal reference number

b. Maintenance Type – (See Above)

c. Start and end date & time of the maintenance

d. Reason for maintenance

e. Location of maintenance

f. Service(s) Impacted

g. Circuit / Application impacted, the duration of impact and description of impact.

h. Contact information for VENDOR who can provide more information about the maintenance.

i. Additional Notes

In the event that escalation is needed on Vonage’s end for any maintenance related work please follow the below escalation path.

Mar 2013



Change Management Escalation Contacts Level	Contact	Title	Contact Info
1	NOC-Team	Vonage NOC	e: NOC-Team@vonage.com p: (877) 662-2001
2	Michael Lill John Howard	Change Manager Change Manager	e: Michael.Lill@vonage.com p: (848) 219-7315 e: John.Howard@vonage.com p: (732) 786-1476
3	Michael Mayernik	Director of Operations	e: Michael.Mayernik@vonage.com p: (732) 337-3803

Mar 2013

Vonage - Confidential and Proprietary

DISCUSSION PURPOSES ONLY

SCHEDULE C

Proposed Form of MSA

MASTER SERVICES AGREEMENT

This Master Services Agreement for the provision of voice termination services is made and entered into as of this ___ day of May, 2013 (the “Effective Date”) by and between Vonage America Inc., a company formed under the laws of the State of Delaware with its principal office at 23 Main Street, Holmdel, NJ 07733 (“Vonage”) and Tata Communications (America) Inc. (“Carrier”), a company incorporated under the laws of the State of Delaware with its principal office located at 2355 Dulles Corner Boulevard, Suite 700, Herndon, VA 20171. Vonage and Carrier are referred to collectively as “Parties,” and individually as a “Party.”

RECITALS

WHEREAS, Carrier is in the business of providing certain voice call termination services described in more detail in Schedule 1 attached hereto (the “Services”), and intends to provide such Services in accordance with the rates, terms and conditions set forth in Route Management Services Addenda entered into by the Parties, , including the attached service schedule(s) and exhibit(s) thereto (collectively, the “Agreement”);

WHEREAS, Vonage desires to purchase from Carrier and Carrier desires to sell to Vonage, such Services in accordance with and subject to the rates, terms and conditions set forth in this Agreement;

NOW THEREFORE, in consideration of the terms and conditions herein and other good and valuable consideration, Vonage and Carrier, intending to be legally bound, agree as follows:

AGREEMENT

1. SCOPE .

1.1 Commencing on the Effective Date, and at all times during the Term of the Agreement, Carrier will provide the Services to Vonage in accordance with the rates, terms and conditions of this Agreement.

1.2 Other services may be agreed to between Vonage and Carrier from time to time and documented herein or in an additional service schedule(s) which will be incorporated into and form part of this Agreement. Upon incorporation of any additional service schedule(s) into this Agreement, any such other services to be provided thereunder shall constitute “Services” to be provided by Carrier.

2. TERM .

2.1 This Agreement shall come into effect on the Effective Date and shall continue in full force and effect for a period of five (5) years (the “Term”), unless terminated earlier or extended as set forth in this Agreement.

\\NORTHVA - 034887/000005 - 570563 v1

Confidential and Proprietary

DISCUSSION PURPOSES ONLY

2.2 Either Party may terminate this Agreement if the other Party is in breach of a material obligation under this Agreement and fails to remedy the same within thirty (30) days after receipt of written notice from the non-breaching Party notifying the other Party of the breach and requiring that the breach be remedied.

2.3 Either Party may terminate this Agreement upon giving the other Party written notice in the event: (i) such Party makes an assignment or takes any other action for the benefit of creditors; (ii) such other Party becomes bankrupt or insolvent; (iii) such other Party takes the benefit of any law, rule or regulation relating to bankruptcy or insolvency; (iv) such other Party appoints a receiver or trustee in bankruptcy or other officer with similar powers; or (v) upon any proceeding in bankruptcy, receivership or liquidation being instituted against the other Party and continuing for thirty (30) days without being dismissed.

2.4 Subject to the terms of the then current Route Management Services Addendum, , either Party may terminate this Agreement at any time upon or after the fifth (5th) anniversary of the Effective Date with not less than sixty (60) days’ prior written notice, with respect to any or all markets for International Call Termination Services.

2.5 The expiration or earlier termination of this Agreement shall not affect any rights or obligations of the Parties that have accrued prior to the date of such expiration or termination.

3. OBLIGATIONS OF THE PARTIES .

3.1 Obligations of the Carrier :

(a) Carrier has sole responsibility for installation, testing, operation of and costs associated with facilities, services, local access and equipment on its side of the Meet-Me-Location (as defined in Schedules 1 and 2), and any other facilities, services, local access and equipment specifically provided by Carrier in connection with the provision of Services hereunder.

(b) Carrier shall, on a twenty-four (24) hours per day, seven (7) days per week basis, maintain overall network quality, and provide and operate the Services to meet or exceed the service level metrics related to the Services as may be set forth in an exhibit hereto, and if a service level metric does not apply with respect to a particular Carrier obligation or if none are included, such obligation will performed in a manner consistent with the standards satisfied by well-managed operations performing services that are reasonably comparable.

(c) Carrier shall implement and maintain all commercially reasonable safeguards to prevent the disclosure of end-user information and unauthorized access to the Services. Further Carrier will ensure that security controls and procedures no less stringent than as required under Section 5.3 are in place to prevent such access, including without limitation the initiation of fraudulent calls by, and the unauthorized release of customer information to, third parties. In the event that Carrier detects any such activity, Carrier shall promptly notify Vonage and take immediate corrective action.

(d) Carrier will rate calls received from Vonage for termination based on the NPA-NXX of the Calling Party Number (CPN) and the NPA-NXX of the Called Party Number. The Carrier will rate calls where the NPA-NXX of the CPN is not available or otherwise not valid based on the Billing Telephone Number (BTN).

3.2 Obligations of Vonage:

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(a) Vonage has sole responsibility for installation, testing, operation of and costs associated with facilities, services, local access and equipment on its side of the Meet-Me-Location, and any other facilities, services, local access and equipment specifically provided by Vonage in connection with the provision of its retail VoIP services.

(b) Vonage shall make payments to Carrier in accordance with the payment obligations set forth in Section 4.

(c) Vonage shall work cooperatively and in good faith with Carrier to remedy any unauthorized disclosure of end user information or access to the Services described in Section 3.1(c).

(d) Vonage will not remove or alter any NPA-NXX information associated with calls delivered to the Carrier for termination.

4. BILLING AND PAYMENT .

4.1 Invoicing . Carrier will invoice Vonage on a monthly basis in arrears for all traffic that Vonage elects to send to Carrier for termination using the Services pursuant to this Agreement. Carrier will send such monthly invoice to Vonage by e-mail to Accountspayable@vonage.com or mail the original monthly invoice (Attn: Accounts Payable) on or before the last working day of the month following the month to which it relates. The monthly invoice shall include, at a minimum, the following information for Services purchased under this Agreement: (a) the number of completed and attempted calls by destination country, or by destination city where city level rating applies; (b) the applicable per minute rates per destination; (c) the “Billable Time” (as defined in Schedule 1 ) by destination country, or by destination city where city level rating applies; (d) a list of all destination NPAs; and (e) a separated itemization of all total Taxes and Taxes per destination. All monthly invoices shall be represented in U.S. dollars. Carrier shall make available to Vonage as part of the monthly invoice CDR data for all call transactions included in the invoice. Such CDR data shall be provide via CD or made available via an FTP server for a period of twenty four (24) months following said invoice. Vonage may dispute any invoice, and shall notify vendor in writing with a detailed explanation for the dispute. Carrier will investigate the dispute and attempt to resolve the dispute within (15) business days. In the event of any dispute, the Party with answer supervision hardware evidencing the shorter billable period prevails.

4.2 Payment . Unless otherwise set forth in an applicable service schedule, subject to Vonage’s right to withhold amounts disputed in good faith, all other undisputed Net Settlement Amounts (as defined in Section 4.3) shall be payable by check or wire in U.S. dollars within ____________days following the date of Vonage’s receipt of the invoice (the “Billing Period”). Carrier may not invoice Services provided to Vonage more than one hundred twenty (120) days from the end of the month in which Services to which such amounts relate are rendered, or initially raise a claim for payment of a previously issued invoice more than six (6) months after the invoice date (either, a “Late Claim”). Any permitted back-billing must be submitted on a separate invoice. Vonage is not obligated to pay Late Claims and Carrier waives all rights and remedies to Late Claims, but excluded any tax obligations for Services provided.

4.3 Reconciliation . Where traffic and/or amounts are intended to be exchanged between both Parties, a net settlement of invoices shall occur, such that the undisputed balance due from one Party shall be offset by the balance due from the other Party (the “Net Settlement Procedure”). The Net Settlement

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Procedure shall result in a net amount due from the debtor Party to the creditor Party (the “Net Settlement Amount”).

4.4 Taxes . Aside from the taxes, fees, duties, costs, charges, surcharges, assessments, or other taxes or similar liabilities (collectively “Taxes”) set forth in Exhibit 1-B , no other Taxes shall be invoiced to or payable by Vonage. Such Taxes may be invoiced by Carrier and paid by Vonage in accordance with the invoicing and payment provisions set forth herein. The foregoing notwithstanding, to the extent Vonage presents a valid exemption certificate, Customer shall be exempt from such Taxes to which the certificate relates. Carrier shall, when reasonably requested by Vonage and at Vonage’s sole expense, assist and cooperate with Vonage in challenging the validity of any such taxes that Vonage is required to pay under the terms of this Agreement. Vonage and Carrier shall reasonably cooperate with each other to minimize Vonage’s liability to the extent legally permissible.

5. REPRESENTATIONS AND WARRANTIES .

5.1 Compliance with Specifications and Applicable Laws . Carrier represents and covenants that the Services offered or provided to Vonage are, and after the Effective Date shall be, in strict conformance with (i) the specifications set forth in Schedule 1 , including all exhibits and addenda thereto, including, without limitation, any applicable service level agreements and related remedies; and (ii) applicable laws and regulations.

5.2 Work Standards . Carrier represents and covenants that it shall deliver the Services with promptness and diligence, and in a workmanlike manner, each in accordance with the practices and high professional standards used in well-managed operations performing services similar to the Services. Carrier represents and covenants that it shall use adequate numbers of qualified individuals with suitable training, education, experience, and skill to provide the Services.

5.3 Data Security . Carrier represents and warrants that it has data security policies and procedures, and adheres to such policies and procedures, as to ensure it will comply at all times during the Term with Vonage’s Information Security Policy, as may be updated and modified from time-to-time, the current version of which is attached hereto as Exhibit 1-D.

5.4 Full Power . Each Party represents, warrants and covenants that: (i) it has the requisite power and authority to enter into the Agreement and to carry out the obligations and transactions contemplated by the Agreement; (ii) the execution, delivery and performance of the Agreement and the consummation of the transactions contemplated by the Agreement have been duly authorized by the requisite action on the part of such Party; and (iii) this Agreement constitutes a legal, valid and binding obligation enforceable against such Party in accordance with its terms, subject to bankruptcy, insolvency, creditors’ rights and general equitable principles and its execution, delivery and performance of this Agreement shall not conflict with or result in the breach of, or constitute a default under any contract, loan agreement, indenture, lease, indefeasible right of use agreement or other agreement binding on or affecting such Party or any of its properties.

5.5 Ethnical Business Practices . Each Party represents and warrants that it shall not make or offer to make any payment or gift directly or indirectly to any employee, officer or representative of any government, political party or candidate for political office under circumstances in which such payment could constitute a bribe, kickback or illegal payment under all applicable anti-bribery laws (including but not limited to the U.S Foreign Corrupt Practices Act and the Corruption of Public Officials Act of Canada). Without limiting

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the generality of the foregoing, each Party further represents and warrants that under no circumstances, shall it make, cause or authorise any third party to make or cause any bribes, kickbacks, or illegal payments for the purpose of influencing a person’s acts or decisions or in order to obtain or retain business in connection with the Services provided/received hereunder. Each Party agrees to comply with all applicable anti-bribery laws and further agrees that any failure by a Party to comply with the provisions of this clause shall constitute a material and incurable breach of this Agreement.

6. LIMITATIONS OF LIABILITY .

6.1 The Parties acknowledge that they have no control over how a foreign administration or third party carrier establishes its own rules and conditions pertaining to international telecommunications services. Other than with respect to any service level agreements set forth in an applicable service schedule(s) (including its exhibits and addenda), the Parties agree that they shall not be liable to each other for any loss or damage sustained by the other Party, its interconnecting carriers, its customers or end users due to any failure in or breakdown of the communication facilities associated with providing the Services.

6.2 NEITHER PARTY SHALL HAVE ANY LIABILITY WHATSOEVER FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE, OR SPECIAL DAMAGES SUFFERED BY THE OTHER OR BY ANY ASSIGNEE OR OTHER TRANSFEREE OF THE OTHER, EVEN IF INFORMED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES.

6.3 Each Party’s total liability to the other under this Agreement for any and all claims, demands, causes of action, liabilities, expenses, damages, losses, or liabilities (including reasonable attorneys’ fees) (collectively, “Claims”) by a Party shall not exceed in the aggregate an amount equal to twelve (12) times the aggregate amount invoiced by Carrier for Services rendered prior to the month in which the event giving rise to liability occurred. For avoidance of doubt, a “Claim” involves any Claim or series of Claims arising from the same occurrence, omission or common nucleus of facts.

6.4 Notwithstanding the foregoing, the limitations set forth in Sections 6.2 and 6.3 shall not apply with respect to:

a. amounts correctly invoiced for Services properly rendered under this Agreement; and

b. damages arising out of or related to Carrier’s breach of its most-favored nation and/or other pricing protections set forth under an applicable service schedule(s) (including its exhibits and addenda).

Each Party shall have a duty to mitigate damages for which the other Party is responsible.

7. INDEMNIFICATION .

7.1 Contract Breach and Product Liability . Each Party agrees to indemnify, defend and hold the other Party (including its affiliates, officers, directors, employees, contractors and representatives) harmless for third party Claims: (i) arising from the indemnifying Party’s material breach of any obligation, representation or warranty under this Agreement; (ii) any material violation by the indemnifying Party or its affiliates of any applicable laws in connection with the performance of its obligations under this Agreement; or (iii) relating to any physical damage to property, or personal injury or death, caused by the indemnifying Party or any of its affiliates, agents or subcontractors. In addition,

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7.2 Intellectual Property .

a. Carrier also agrees to indemnify, defend, protect and hold harmless Vonage (including its affiliates, officers, directors, employees, contractors and representatives) from and against, any and all third party claims, injuries, losses, damages, liabilities or expenses of any kind, including reasonable attorneys’ fees and costs of litigation, which third party claims arise out of or result from, directly or indirectly, in whole or in part from any third-party claim of infringement of any U.S. patent, copyright, trademark, service mark, trade secret or other intellectual property rights of a third party arising from or related to the Services.

b. If any Service becomes, or is likely to become, the subject of a Claim of infringement of intellectual property, Carrier shall, in addition to indemnifying Vonage as provided in Section 7.2(a), promptly at Carrier’s expense use best efforts to: (i) secure the right to continue using the Service; or (ii) replace or modify the Service to make it non-infringing, provided that any such replacement or modification shall not degrade the performance or quality of the affected component of the Services. In the event neither of such actions can be accomplished by Carrier, and only in such event, Vonage may at its option terminate this Agreement without liability upon notice to Carrier and shall be equitably compensated for Services paid for and not received.

7.3 Indemnification Procedure . The indemnified Party under Section 7.1 above: (i) must notify the other Party in writing promptly upon learning of any claim or suit for which indemnification may be sought, provided that failure to do so shall have no effect except to the extent that the other Party is prejudiced thereby; (ii) must provide all information and assistance as reasonably requested by, and at the expense of, the other Party in connection with the conduct of the defense and settlement thereof; and (iii) may participate in such defense or settlement with its own counsel at its sole expense, but without control or authority to defend or settle. The indemnifying party shall not take any action, which unreasonably exposes the indemnified party to a risk of damages, which would not be covered by such indemnity, and may not settle any matter without the prior written consent of the indemnified party, which shall not be unreasonably withheld.

8. CONFIDENTIALITY .

8.1 Obligations . Each Party acknowledges that Confidential Information may be disclosed to the other Party during the course of this Agreement. Each Party agrees that during the Term and for a period of three (3) years thereafter, it shall use at least the same degree of care as it employs to avoid unauthorized disclosure of its own information, but in no event less than a commercially reasonable degree of care, to prevent the duplication or disclosure of Confidential Information of the other Party, other than by or to (i) its employees or agents who must have access to such Confidential Information to perform such Party’s obligations hereunder, who shall each agree to comply with confidentiality requirements no less restrictive than those contained in this Article; and (ii) independent third-party auditors that agree in writing to comply with confidentiality requirements no less restrictive than those contained in this Article. Notwithstanding the foregoing, either Party may issue a disclosure containing Confidential Information without the consent of the other Party, to the extent such disclosure is required by law, rule, regulation or government or court order. In such event, the disclosing Party shall provide at least seven (7) days prior notice of such proposed disclosure to the other Party. Further, in the event such disclosure is required of either Party under the laws, rules or regulations of any applicable governing body, such Party shall: (a) redact mutually agreed-upon portions of this Agreement to the fullest extent permitted under applicable laws, rules and regulations; and (b) submit a request to such governing body that such portions and other provisions of this Agreement receive confidential treatment or otherwise be

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held in the strictest confidence to the fullest extent permitted under the laws, rules or regulations of the applicable governing body.

8.2 Definition . For purposes hereof, "Confidential Information" means any information, in any form, furnished or made available directly or indirectly by one Party (the "Disclosing Party") to the other (the "Receiving Party") relating to or disclosed in the course of the negotiation or performance of this Agreement, that is, or should be reasonably understood to be, confidential or proprietary to the Disclosing Party (including the terms of this Agreement; information transmitted by means of the services; Vonage usage statistics; all usage data and reports collected by Carrier and all reports provided to Vonage by Carrier; calling patterns; invoices and any supporting information provided by Carrier or Vonage with respect to such invoices; information audited pursuant to the Agreement; Vonage's Customer Information (defined below); automatic numbering identification (“ANI”) data and information; the relations of the Disclosing Party with its customers; employees and service providers; technical processes and formulas; source codes, product designs, sales, cost and other unpublished financial information; and product and business plans projections and marketing data); provided, however, that "Confidential Information" shall not include information: (i) already lawfully known to or independently developed by the receiving Party without violation of any confidentiality obligation; (ii) lawfully disclosed in published materials without violation of any confidentiality obligation; (iii) generally known to the public; or (iv) lawfully obtained from any third party without violation of any confidentiality obligation. Vonage may disclose this Agreement under a comparable non-disclosure agreement in response to a third party due diligence request supporting a financing or non-ordinary course of business corporate transaction so long as such disclosure is not to a direct competitor of Carrier, and such requestor is subject to a comparable non-disclosure agreement.

8.2 Collection, Use and Disclosure of Vonage Customer Information . Carrier shall ensure that its collection, use and disclosure of information regarding Vonage’s customers or subscribers names, email addresses, addresses, telephone numbers and other identifying or personal information provided by Vonage or otherwise obtained in connection with performance of their obligations hereunder (collectively, “Customer Information”) complies with: (i) all applicable laws and regulations; and (ii) Vonage’s standard privacy policies, provided that Carrier shall not collect, process, store, use or disclose any Customer Information except for the sole and exclusive purpose of fulfilling its obligations hereunder. All Customer Information constitutes Confidential Information for purposes of this Agreement. Without limiting the foregoing, Carrier shall not disclose Customer Information collected hereunder to any third party in a manner that identifies an individual Vonage customer or subscriber (or aggregate Vonage customers or subscribers as a discrete group) as a user of the Services provided hereunder or a Vonage product or service, or use Customer Information to market any another produce or service.

9. RESOLUTION OF DISPUTES .

9.1 Prior to the initiation of litigation or mediation, the Parties shall first use all commercially reasonable efforts to resolve their dispute informally. In particular, upon the written request of a Party referencing this Section 9, each Party shall appoint a designated senior representative who does not devote substantially all of his or her time to performance under this Agreement, whose task it will be to meet for the purpose of endeavoring to resolve such dispute. The representatives shall discuss the problem and attempt to resolve the dispute without the necessity of any formal proceeding. The specific format for the discussions shall be left to the discretion of the designated representatives. Notwithstanding the foregoing, this Section 9.1 shall not prevent a Party from instituting, and a Party is authorized to institute, litigation earlier to avoid the expiration of any applicable limitations period, or to preserve a superior

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position with respect to other creditors, or from seeking any injunctive relief to which the Party may be otherwise entitled

9.2 Litigation regarding such dispute (other than billing disputes, which shall be exclusively handled pursuant to the procedures set forth in Section 9.3) may not be commenced until the earlier of: (i) the designated representatives concluding in good faith that amicable resolution through continued negotiation of the matter does not appear likely; and (ii) thirty (30) days after the initial written request to appoint a designated representative pursuant to Section 9.1 (this period shall be deemed to run notwithstanding any claim that the process described in this Section was not followed or completed);.

9.3 In the event a billing dispute shall arise between the Parties to this Agreement which cannot be amicably resolved within thirty (30) days after the initial request to appoint a designated representative pursuant to Section 9.1, the Parties agree to participate in no less than four (4) hours of mediation in order to resolve the matter. The mediation will involve each side of the dispute sitting down with a mutually-agreed upon impartial mediator, who shall be an attorney or retired judge practicing in the area of telecommunications law, to attempt to reach a voluntary settlement. The mediation will be conducted in New York, NY and will involve no formal court procedures or rules of evidence.

9.4 Each Party agrees to continue the performance of its respective duties and obligations under the Agreement during the pendency of any dispute.

10. GOVERNING LAW . Each Party agrees to continue performing its obligations under this Agreement during any dispute. The Agreement shall be interpreted, construed and enforced in all respects in accordance with the laws of the State of New York, except for its conflicts of laws principles. Each Party irrevocably consents to the exclusive jurisdiction of the courts of the State of New York and the federal courts situated in the State of New York in connection with any action to enforce the provisions of this Agreement, to recover damages or other relief for breach or default under this Agreement or otherwise arising under or by reason of this Agreement. Notwithstanding the foregoing, any judgments entered in an action under this Agreement may be enforced in any court of competent jurisdiction.

11. FORCE MAJEURE .

11.1 Neither Party shall be liable for any default or delay in the performance of its obligations under this Agreement if and to the extent such default or delay is caused, directly or indirectly, by fire, flood, lightning, earthquake, elements of nature or acts of God, riots, civil disorders, rebellions or revolutions, or any other cause beyond the reasonable control of such Party; provided, however, that the non-performing Party is without fault in causing such default or delay, and such default or delay could not have been prevented by reasonable precautions and cannot reasonably be circumvented by the nonperforming Party through the use of alternate sources, workaround plans or other means (any such event a “Force Majeure Event”). Notwithstanding the foregoing, the failure of a Carrier supplier to perform under its arrangement with Carrier shall not constitute a Force Majeure Event for Carrier.

9.2 For any Force Majeure Event, the non-performing Party shall be excused from further performance or observance of the obligation(s) so affected for as long as such circumstances prevail and such Party continues to use its best efforts to recommence performance or observance whenever and to whatever extent possible without delay. Any Party so delayed in its performance shall immediately notify the Party to whom performance is due by telephone (to be confirmed in writing within two (2) days of the inception of such delay) and describe at a reasonable level of detail the circumstances causing such delay.

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9.3 If a Force Majeure Event substantially prevents, hinders, or delays Carrier’s performance for more than thirty (30) consecutive days, then Vonage may terminate this Agreement in its entirety without liability to Carrier as of a date specified by Vonage in a notice of termination to Carrier. Carrier shall not have the right to any additional payments from Vonage for costs or expenses incurred by Carrier as a result of any Force Majeure Event.

12. ASSIGNMENT . The Agreement shall accrue to the benefit of and be binding upon the Parties hereto and any permitted assignee, purchaser or any successor entity into which a Party has been merged or consolidated or to which a Party has sold or transferred all or substantially all of its assets. No Party may assign this Agreement without the prior consent of the other Party, whose consent shall not be unreasonably withheld; except that Vonage may assign its rights and obligations under this Agreement without the prior consent of Carrier to an affiliate or related company, or to an entity which acquires all or substantially all of the assets of Vonage, or to a successor in a merger or acquisition of Vonage upon prior notice to Carrier. Any attempted or purported assignment or transfer in contravention of the foregoing is null and void.

13. NOTICE . All notices, requests, demands, and determinations under this Agreement (other than routine operational communications or as otherwise specifically set forth herein), shall be in writing and shall be deemed duly given: (i) when delivered by hand; (ii) when successfully delivered by e-mail; (iii) one (1) business day after being given to an express, overnight courier with a reliable system for tracking delivery; (iv) when sent by confirmed facsimile with a copy delivered by another means specified in this Section; or (v) four (4) business days after the day of mailing, when mailed by U.S. mail, registered or certified mail, return receipt requested, postage prepaid, with respect to clauses (i) through (v) addressed as follows:

To Vonage :

Vonage America Inc.

23 Main Street

Holmdel NJ 07733

Attn: Vice President - Carrier Operations

Fax:

With copy to:

Vonage America Inc.

23 Main Street

Holmdel NJ 07733

Attn: Chief Legal Officer

Fax:

To Carrier :

Tata Communications (America) Inc.

2355 Dulles Corner Boulevard, Suite 700

Herndon, VA 20171

Attn: General Counsel

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14. INTELLECTUAL PROPERTY RIGHTS . Nothing in this Agreement shall confer or be deemed to confer on either Party any rights in or license to use any intellectual property right of the other Party. No Party shall be entitled to use any brand name, trade name, trademark or service marks of the other Party, without such other Party’s express prior written consent. Neither Party shall issue any press release, announcements and marketing, advertising or other promotional or publicity materials related to this Agreement or referencing the other Party or its brand name, trade name, trademarks or service marks without the express prior approval of the other Party.

15. AUDIT RIGHTS.

15.1 Carrier shall maintain complete and accurate books and records of, and supporting documentation for, all Service charges (including cost support and justification for all charges or proposed changes established on the basis of Carrier’s underlying costs) and Taxes, and all other materials, reports, filings, analysis, records, data and material information and data created, generated, collected, processed or stored by Carrier in the performance of its obligations under this Agreement (“Contract Records”). Carrier shall maintain such Contract Records in accordance with applicable laws and regulations during the Term and thereafter for (i) for financial information, the period ending seven (7) years after the expiration or termination of the Term, or (ii) for non-financial records, the period ending two (2) years after Carrier ceased performance the Services, unless such shorter period is required by applicable law or regulation.

15.2 Vonage and those of Vonage’s internal and external auditors, as Vonage may designate, shall have the right to audit any of Carrier’s Contract Records relating to the Services, as necessary for the purpose of performing audits to verify compliance with the terms of the Agreement, including to examine pricing and amounts invoiced by Carrier to Vonage, during Carrier’s normal business hours and upon reasonable advance written notice to Carrier. In the event the audit reveals any discrepancy between the actual amounts due and the amounts previously paid by Vonage, then (a) Carrier shall promptly refund to Vonage the amount of any overpayment identified by such audit, together with interest from the date of such overpayment at one and one-half percent (1.5%) per month, or the highest lawful amount, whichever is the lesser; or (b) Carrier shall invoice and Vonage shall pay any underpayment identified by such audit. The audit shall be conducted at Vonage’s expense unless a discrepancy resulting in an overpayment by Vonage of two percent (2%) or more is discovered for the period being audited, in which event Carrier shall pay, in addition to the refund, Vonage’s reasonable expenses for the portion of such audit relating to the overcharge. Any reimbursement and payment of Vonage’s expenses required from Carrier as a result of such audits shall be made within thirty (30) calendar days of Carrier’s receipt of an invoice from Vonage for such payment.

16. PUBLICITY . Neither Party shall issue any press release or make any other public announcements (in whatever form or medium) with respect to this Agreement or any SOW without the other Party’s prior written consent. The Parties shall consult with one another prior to making any announcements or governmental filings relating to the subject matter of this Agreement and will not make any disclosure without the consent of the other Party, unless such Party reasonably believes that it is required to do so by Law or pursuant to a listing agreement (or other similar agreement) with a national securities exchange or the NASDAQ National Market (in which case the disclosing Party shall use commercially reasonable efforts to give the other Party reasonable prior notice of and an opportunity to comment on such disclosure). If either Party determines that it is required by such Law or listing agreement to file or otherwise disclose this Agreement or any provisions hereof, that Party shall prior to such disclosure use commercially reasonable efforts to notify the other Party of such and use commercially reasonable efforts to obtain confidential treatment of this Agreement in its entirety or, if

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confidential treatment may not be reasonably obtained with respect to the entire Agreement, any and all provisions which the other Party may designate as sensitive or confidential in nature.

17. MISCELLANEOUS .

17.1 Non-Exclusivity . Unless and to the extent otherwise expressly set forth in an applicable service schedule (including its exhibits or any addenda thereto), this Agreement shall be non-exclusive and nothing in this Agreement shall prejudice, restrict or otherwise affect the right of either Party to enter into similar agreements with third parties.

17.2 Entire Agreement . This Agreement, along with the attached schedules and exhibits, constitute the entire agreement between Vonage and Carrier with regards to the matters dealt with herein and shall supersede any prior oral or written agreement between the parties that relates to the subject matter of this Agreement.

17.3 No Waiver . No failure on the part of either Party to exercise, and no delay in exercising any rights or remedy hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy granted hereby or by law.

17.4 Amendments . This Agreement may not be amended, modified or changed except by mutual written agreement duly executed by authorized representatives of each Party.

17.5. Electronic Delivery . The Parties agree that signatures transmitted and received via facsimile or scanned and electronically delivered shall be treated for all purposes of this Agreement as original signatures and shall be deemed valid, binding and enforceable by and against both Parties.

17.6 Third Party Rights . Nothing contained herein shall be construed as creating any agency, partnership, or other form of joint enterprise between the Parties. Neither Party is, by virtue of this Agreement, authorized as an agent, employee or legal representative of the other. Neither Party shall have any power or authority to bind or commit the other.

17.7 Severability . In the event that any provision of this Agreement conflicts with the law under which this Agreement is to be construed or if any such provision is held invalid by a court with jurisdiction over the Parties, such provision shall be deemed to be restated to reflect as nearly as possible the original intentions of the Parties in accordance with applicable law. The remainder of this Agreement shall remain in full force and effect.

17.8 Survival . Vonage’s and Carrier’s respective obligations under this Agreement which by their nature would continue beyond the termination, cancellation or expiration of this Agreement or any SOW shall survive, including Sections 6 through 17.

17.9 Other . Any conflicts among or between the documents making up this Agreement will be resolved in accordance with the following order of precedence: (a) exhibits; (b) service schedules; and (c) the terms and conditions set forth in the body of this Agreement. Unless otherwise specified in the

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Agreement, references to days shall be deemed references to calendar days. All service schedules and exhibits attached hereto are hereby incorporated by reference into the Agreement.

IN WITNESS WHEREOF, the Parties have duly executed this Agreement, by the hands of their respective duly authorized officers in that capacity.

Vonage America Inc. Tata Communications (America) Inc.

Signature:____________________________ Signature:____________________________

Name: ______________________________ Name: ______________________________

Title: _______________________________ Title: _______________________________

Date: _______________________________ Date: _______________________________

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SCHEDULE 1

INTERNATIONAL CALL TERMINATION SERVICES

This Schedule 1 is attached to and incorporated into the Voice Termination Agreement made between Vonage and Carrier.

1. Services .

1.1 Carrier will establish and provide two-way call termination services (i) for calls placed from Vonage subscribers and terminating to the international destinations specified or referenced in Exhibit 1-A to this Schedule 1, as may be supplemented or revised from time-to-time upon seven (7) days’ prior written notice from Carrier to Vonage, and (ii) for calls placed from retail subscribers of Carrier and terminating to Vonage subscribers (“International Call Termination Services”).

1.2 Each Party agrees to the following Credit Limit in connection with the International Call Termination Services to be provided under this Schedule 1: ∗ .

2. Interconnection and Traffic Exchange .

2.1 Vonage and Carrier agree to interconnect their respective networks or communications systems at a Vonage-designated location (the “Meet-Me-Location”). The Meet-Me-Location shall represent the demarcation point of responsibility for traffic and facilities between the Parties. Vonage shall be responsible for acquiring and paying for facilities to the Meet-Me-Location, whether purchased from Carrier, a third party vendor, or self-provisioned. Carrier is financially and operationally responsible for the facilities and routing of calls from the Meet-Me-Location to the called party.

2.2 Each Party shall coordinate the management of their respective system facilities on their side of the Meet-Me-Location. Each Party shall interface on a 24 x 7 basis to assist each other with the isolation and repair of any facility faults in their respective networks, and with the identification, investigation and mitigation of real time traffic flow problems to and from any International Call Termination Service destination.

3. Accounting and Method of Settlement .

3.1 Carrier will invoice Vonage the Net Settlement Amount based on the Net Settlement Procedure for International Call Termination Services based on the Billable Time recorded by the Carrier facilities, all as subject to the calculation of Billable Time recorded by Vonage’s facilities. “Billable Time” is defined as the number of seconds from when an answer supervision signal is recorded by either Party to when a disconnect signal (i.e., “Release” message (first party hangs up) and “Release Complete” message (last party hangs up)) is recorded by either Party, rounded up to the nearest second. International calls shall be billed in one (1) second minimums with one (1) second increments, except with regards to Mexico destined calls which shall be billed at sixty (60) second increments with a sixty (60) second minimum.

3.2 Carrier shall invoice Vonage for International Call Termination Services in accordance with the rates attached hereto at Exhibit 1-B . Subject to the Net Settlement Procedure, Carrier shall invoice Vonage for the product of Billable Time and the rates and Taxes set forth in Exhibit 1-B, and no other charges, taxes, surcharges, costs or assessments may apply.

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3.3 Subject to any limitation or restrictions set forth in an applicable addendum hereto, Carrier may increase such rates upon seven (7) calendar days’ written notice to Vonage. Rate decreases shall take effect upon one (1) calendar day’s written notice. Any rate increase will take effect as of and from 00:00:01 a.m. EST on the seventh (7 ^th ) full calendar day following the date of receipt of the notice. Any rate decreases will take effect as of and from 00:00:01 a.m. EST on the first (1 ^st ) full calendar day following the date of receipt of the notice. Notifications of rate increases or decreases shall be represented in U.S. dollars and provided via e-mail to:

Vonage Network Inc.

RateChange@Vonage.com

3.4 All international code changes including, without limitation, deletions, additions or modifications of any kind that may have the effect of increasing costs to Vonage, shall not become effective unless and until Vonage has received seven (7) days’ prior written notice of the same. Such notice, and the specifics of the code changes, shall be delivered to via email to the address specified in Section 3.2 and shall in all material respects resemble the format attached hereto as Exhibit 1-C .

3.5 Carrier shall maintain accurate Contract Records of all International Call Termination Services provided and all settlement charges (including cost support and justification for all charges or proposed changes established on the basis of Carrier’s underlying costs) payable for such International Call Termination Services, which records shall be maintained on-site with an off-site back-up copy for a minimum period of seven (7) years, at which time such records may be moved for permanent off-site storage.

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EXHIBIT 1-A

International Call Termination Service Destinations

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EXHIBIT 1-B

International Call Termination Service Rates

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EXHIBIT 1-C

International Rate and Code Change Notification Form

•

Carrier agrees to adhere to the following change guidelines. The entire rate change notice must be correct and comply in full with the requirements below. Incorrect or non-compliant rate and code change notification forms are subject to rejection by Vonage with written notice. If a rate/code notification does not comply with Vonage format, Vonage must notify Carrier via the carrier’s operational email address within three (3) business days. Vonage’s notification shall indicate those destinations, countries and basis for the rejection. Vonage has the right to reject/not accept the changes and not be charged for those countries at the newer rates which include destinations that are in error. Thus, upon receipt of such notification, all the then current rates provided for all destinations within such countries remain in effect until such time as carrier has issued a rate change in the acceptable format and timeframes. Vonage may choose to block (at its discretion) the carrier for countries which have destinations that are not in the correct format.


•	All rate modification notices must be emailed to Vonage at ratechange@vonage.com.


•	All emailed addendums must include an attachment in Excel format. (No free flowing emails, .html files, adobe files etc.)


•	Rates must be sent in the currency specified in your contract with Vonage


•	All destinations require both full code definition breakout and rate.


•	Corresponding effective date(s) must be listed with each destination breakout change.


•	Status of changes must be included in the rate table (Increase, Decrease, or Restatement / No Change if applicable or reasonable variant terminology thereof)


•	All rates and codes must be listed vertically. No horizontal code lists and or multiple code listings in single cells will be accepted .


•	All Country Codes must be in a separate column from the Dial codes / City codes.



e.g. Not Acceptable
Destination	Cc	Codes	Rate	Status	Effective Date
Brazil Sao Paulo Cellular	55	117, 118, 119	0.0825	Decrease	4/25/2006

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e.g. Acceptable
Destination	Cc	Codes	Rate	Status	Effective Date
Brazil Sao Paulo Cellular	55	117	0.0825	Decrease	4/25/2006
	55	118	0.0825	Decrease	4/25/2006
	55	119	0.0825	Decrease	4/25/2006


•	When applicable, Code Changes must be included, indicating the nature of the change. I.e. New, Add Code, Remove Code, Replace Code etc. or reasonable variant terminology thereof.


•	Should the code change result in a rate change, please indicate increase, decrease, or restatement as appropriate. "New" code offerings should reflect appropriate effective dates. I.e. I - Increase, D - Decrease, R – Restatement or reasonable variant terminology thereof.


•	When making any change in either code or rate to any destination breakout, all breakouts for the destination should accompany the change inclusive of their corresponding rates, codes etc regardless of whether these particular codes are being affected. (see below)

e.g. Acceptable



Destination	CC	Codes	Rate For	Status	Effective
			New Codes		Date
Afghanistan	93		Sample Rate	Unchanged
Afghanistan Cellular	93	70	Sample Rate	Unchanged
Afghanistan Cellular	93	79	Sample Rate	Add	2/4/2006
Albania	355		Sample Rate	Unchanged
Albania Cellular	355	38	Sample Rate	Remove	2/4/2006
Albania Cellular	355	68	Sample Rate	Unchanged
Albania Cellular	355	69	Sample Rate	Unchanged
Albania Tirana	355	54	Sample Rate	Unchanged
Algeria	213		Sample Rate	Unchanged

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Algeria Algiers	213	21	Sample Rate	Unchanged
Algeria Cellular	213	61	Sample Rate	Unchanged
Algeria Cellular	213	62	Sample Rate	Add	4/4/2006
Algeria Cellular Orascom	213	7	Sample Rate	New	4/4/2006
Algeria Cellular Wataniya	213	50	Sample Rate	New	4/4/2006
Algeria Cellular Wataniya	213	51	Sample Rate	New	4/4/2006
Algeria Cellular Wataniya	213	52	Sample Rate	New	4/4/2006
Algeria Cellular Wataniya	213	53	Sample Rate	New	4/4/2006
Algeria Cellular Wataniya	213	54	Sample Rate	New	4/4/2006
Algeria Cellular Wataniya	213	55	Sample Rate	New	4/4/2006

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EXHIBIT 1-D

VONAGE INFORMATION SECURITY POLICY

INTRODUCTION

In order to comply with Vonage’s network security requirements regarding protection of our customers’ voice traffic, Carrier agrees to adhere to the terms of this Information Security Policy (the “ Policy ”) which describes the rights and responsibilities of Vonage and Carrier with regard to the interconnection of data facilities between Carrier and Vonage. Capitalized terms used but not otherwise defined in this Policy have the meaning ascribed to such terms in the Voice Termination Agreement (the “ Agreement ”).

POLICY

It is the policy of Vonage to ensure the protection of its Information Resources and proprietary and confidential information in all situations and wherever they are located. “Information Resources” shall include, but are not limited to: computers, computer peripherals, computer communications networks, computer systems, applications and software, web sites, data stores, information processing systems, public telephone network elements, and their support systems. This Policy is intended to protect the confidentiality of all Vonage corporate, employee and customer information that is stored, accessed, processed or transmitted (or otherwise available for same) on the Information Resources. Carrier has specific obligations with regard to the protection of Information Resources and proprietary and confidential information. This Policy shall set forth the minimum requirement for security of voice peering partners.

GENERAL TERMS


1.	General . Carrier shall:


a.	Securing Data .


i.	Secure confidential data, including Vonage network and design information;


ii.	Avoid inappropriate disclosure of proprietary Vonage information or customer data (e.g., Carrier shall not use internet message boards to post internal confidential information); and


iii.	Bargain in good faith for the provision of additional Vonage security needs not identified in the Agreement.

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b.	Contacts . Provide Vonage, within fifteen (15) days of the Effective Date of the Agreement, an escalation list of contacts for security issues (e.g., viruses, breaches, etc) to the Vonage POC.


c.	Usernames and Passwords .

Ensure that systems used in support of services to Vonage have login procedures that are designed and implemented with a mechanism that will thwart the use of repeated login attempts to guess or otherwise determine a valid login identification and authentication combination. The process shall always cause the person or machine to reinitiate the login process after a maximum of no more than nine successive unsuccessful attempts.


ii.	Report potentially compromised usernames and passwords to the Vonage POC or the Vonage Information Security. This includes any Carrier -owned devices that are unaccounted for that may contain Vonage information (e.g., stolen or misplaced laptops, personal device assistants, etc.).


d.	Reporting Trouble . Report to Vonage Information Security, within one day of discovery, any known or suspected unauthorized access, use, misuse, disclosure, destruction, theft, vandalism, modification, or transfer of Vonage information.


2.	Vonage Data and Information .


a.	Treatment of Vonage Information and Data .


i.	Ensure the reliability and integrity of all Vonage information and information resources under its control, and the information processing activities performed with or for Vonage.


ii.	Maintain the proprietary nature and, if necessary, the proprietary marking(s), of any Vonage proprietary information.


iii.	Not use or transfer Vonage information or data for any purpose not explicitly defined and authorized in the Agreement. This shall include aggregate, trend and assimilated data.


b.	Destruction of Information .


iii.	Unless otherwise explicitly directed elsewhere in the Agreement, or as provided by law, all Vonage-owned information must be (A) destroyed in a manner that causes all personally identifiable information and all confidential data to be irrecoverable, or (B) returned to Vonage upon completion of the Services in a manner acceptable to Vonage information technology.

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Access to Information . Ensure that only persons with an approved need to know are allowed to access Vonage information, and confidential information, and only to and for the limited extent and purpose for which such persons have a need to know. This shall include controls that allow a person to access only the specific information and information resources required to perform the Services specified in the Agreement and for which that person is authorized.


3.	Personnel Requirements . For each of Carrier ’ Personnel and its Affiliates’ and Authorized Subcontractors’ Personnel who may have access to Vonage proprietary and confidential information, or a computer, computer system, or computer communications network containing such, or a computer system, application or network providing capabilities to Vonage:


a.	Perform an appropriate background check to ensure that no such person is assigned to a Vonage account if the person:


iv.	Has been convicted of a felony or misdemeanor offense related to computer security, theft, fraud or violence within the past five years; or


v.	Is currently awaiting trial for any of the above-stated offenses.


b.	Immediately advise Vonage of any information of which Carrier becomes aware that would reasonably provide notice of potential threats to the Information Resources, assets, or personnel of Vonage.

Ensure that individual access and accountability controls are in place for each of Carrier ’s employees and representatives who will access a Vonage system, application or other Information Resource including resources owned and operated by or for Carrier that may contain Vonage confidential information, or route Vonage customer’s telephone calls. Accountability/audit records shall be kept for a period of no less than ninety days.


4.	Use of and Interaction with the Vonage Global Network


a.	Connections Generally .


i.	Ensure that internet network connections are designed, implemented and maintained so as to secure and protect information, data, and system operation during the life of the Agreement. This includes, but is not limited to, non-repudiation, authentication, authorization, and monitoring issues.


ii.	Provide current and adequate patch levels to the operating system of any hosts or network elements that will provide service to Vonage.


iii.	Enable security logging on Carrier ’s hosts and gateways that provide services under the Agreement such that forensic identification of users is enabled and available for immediate review for a minimum period of ninety (90) days, with offline storage for a minimum of one year.

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b.	Security Mechanisms .


i.	Ensure that authentication mechanisms to the Carrier ’s operating systems and network components are complex and not easily overcome. There shall be no known way to bypass the authentication mechanism and obtain entry into the system. Token-based authentication devices, smart cards or biometric devices are recommended. If passwords are to be used, they must:


A.	Be at least seven (7) characters in length for users and eight characters in length for administrators and maintenance personnel;


B.	Contain both alphabetic and numeric characters;


C.	Be aged at least every ninety(90) days; and


D.	Not be reusable. A system must employ a password reuse utility that prevents a password from being reused that matches one of the last five (5) password changes used.


5.	Security Programs and Audits


a.	Internal Security Policy . Currently have, or agree to implement, an internal security policy governing the protection of its own information resources and the resources of others under its control. Such policy shall be subject to Vonage’s review and approval. A copy of Carrier ’s security policy shall be made available upon request.


b.	ISO/IEC .


i.	Currently have, or agree to implement, a robust information security program that complies with the International Organization for Standardization and the International Electrotechnical Commission (ISO/IEC) for the Code of Practice for Information Security Management (ISO/IEC 17799:2005(E) or its current standard.


c.	SAS 70/SSAE16 Assessment . Provide, as reasonably required by Vonage, an annual SAS 70 Type II or SSAE16 assessment or allow a review by Vonage of the security controls of Carrier for obligations under relevant laws (e.g. U.S. Sarbanes-Oxley Act of 2002) affecting the delivery of Services for the Agreement.


d.	Equipment Audits .

Allow Vonage designated parties to inspect, with seven (7) business days’ notice, all computer software, files and records whether resident on equipment owned, leased or controlled by Carrier and/or its Personnel and Authorized Subcontractors, data obtained from, or resulting from the use of, Vonage's information resources for the purposes of conducting a routine security assessment and audit. Vonage's routine audits/inspections include, but are not limited to, operating system security,

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Confidential and Proprietary

DISCUSSION PURPOSES ONLY

application security, database security, physical security (doors, windows, walls, and card access system), network security, and program change control.

ii.

In the event Vonage has a good faith belief that Carrier or its employees or agents may have violated terms of this Policy or applicable laws governing the security and privacy of customer information, Vonage may provide notice of such inspection on one (1) business day’s notice. Upon notification of such an inspection, the computer systems and information used to provide services under the Agreement shall be placed into an untampered state that is auditable and available for such inspection.


6.	Security Changes and Updates .

Implementation . Implement security changes, patches and upgrades in systems, applications and software in a timely manner and commensurate with the threat to Vonage data or security as directed by the manufacturer and subject to appropriate testing, but, in any event, no later than ninety (90) days from release. Security changes, patches and upgrades correcting significant or immediate security issues shall be implemented immediately, subject to appropriate testing under the circumstances, but no later than ten (10) days after their release unless a longer period is recommended by the manufacturer or agreed to by the Vonage Information Security organization.


b.	Reviews . Have an effective change management program in place that provides for management review of any changes to systems that would affect performance of services to Vonage. A Vonage POC must be included in any change management discussion that could adversely affect performanc e of such services.

- 34 -

SCHEDULE B

Peer Supplier List

Peer Supplier List:

EXHIBIT 31.1

CERTIFICATION

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Marc P. Lefar, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Vonage Holdings Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date:	July 31, 2013	/s/ Marc P. Lefar
		Marc P. Lefar
		Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David T. Pearson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Vonage Holdings Corp.;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.




Date:	July 31, 2013	/s/ David T. Pearson

		Chief Financial Officer and Treasurer

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Marc P. Lefar, certify to my knowledge pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Vonage Holdings Corp. on Form 10-Q for the quarterly period ended June 30, 2013 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Vonage Holdings Corp.




Date:	July 31, 2013	/s/ Marc P. Lefar
		Marc P. Lefar
		Chief Executive Officer

I, David T. Pearson, certify to my knowledge pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Vonage Holdings Corp. on Form 10-Q for the quarterly period ended June 30, 2013 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Vonage Holdings Corp.




Date:	July 31, 2013	/s/ David T. Pearson
		David T. Pearson
		Chief Financial Officer and Treasurer