Vonage 2008 Annual Report Download - page 45

Historically, we have incurred operating losses since our
i
nception and generated negative cash flows from operations. Fo
r
t
he year ended December 31, 2008, we si
g
nificantly reduced our
l
oss
f
rom operations and
g
enerated positive operatin
g
cash
f
low
.
O
ur primary sources of funds have been proceeds from private
p
lacements of our
p
referred stock,
p
rivate
p
lacements of con
-
v
ertible notes and borrowin
g
s under credit
f
acilities, an initial pub-
l
ic o
ff
ering o
f
our common stock, operating revenues and
b
orrowin
g
s under notes payable from our principal stockholder
and Chairman, which were subsequentl
y
converted into shares o
f
our pre
f
erred stock. We have used these proceeds
f
or workin
g
capital, fundin
g
operatin
g
losses, IP liti
g
ation settlements, repay-
i
n
g
our prior convertible notes and other
g
eneral corporate pur
-
poses.
Al
t
h
ou
gh
our net
l
osses
i
n
i
t
i
a
ll
y were
d
r
i
ven pr
i
mar
il
y
by
s
tart-up costs and the cost o
f
developin
g
our technolo
g
y, more
r
ecently our net losses have been driven by investments i
n
m
arketin
g
, settlement of our IP liti
g
ation and refinancin
g
costs. I
n
addition to marketin
g
, we plan to continue to invest in researc
h
and develo
p
ment, our network in
f
rastructure and customer care.
I
n 2007, we announce
d
ap
l
an see
ki
n
g
to
b
a
l
ance
g
rowt
h
w
i
t
h
p
ro
f
itability. We intend to continue to pursue
g
rowth because w
e
b
elieve it will position us as a strong competitor in the long term
.
A
lthou
g
h we believe we will achieve profitability in the future, w
e
u
ltimatel
y
ma
y
not be success
f
ul and we ma
y
never achieve
p
ro
f
itability. We believe that cash
f
low
f
rom operations and cas
h
on hand will fund our o
p
erations for at least the next twelv
e
mo
nth
s.
November 2008 Financin
g
O
n
O
ctober 19, 2008, we entered into definitive a
g
reements
(
collectively, the “Credit Documentation”) for a financin
g
consist
-
i
ng of (i) a
$
130,300 senior secured first lien credit facility (th
e
“
First Lien Senior Facility”), (ii) a $72,000 senior secured second
l
ien credit facilit
y
(the “Second Lien Senior Facilit
y
”) and (iii) the
s
ale of
$
18
,
000 of our 20% senior secured third lien notes due
2015
(
the “
C
onvertible Notes” and, to
g
ether with the First Lie
n
Senior Facilit
y
and the Second Lien Senior Facilit
y
,th
e
“
Financing”). The funding for this transaction was completed o
n
N
ovem
b
er 3
,
2008.
The co-borrowers under the Financin
g
are Vona
g
e Holdin
g
s
C
orp. and Vonage America Inc., its wholly owned subsidiary.
O
bli
g
ations under the Financin
g
are
g
uaranteed, fully and
u
nconditionally, by our other U.S. subsidiaries (to
g
ether with th
e
b
orrowers, the “Credit Parties”), and may in the future be guaran
-
t
eed by Vona
g
e Limited, a United Kin
g
dom subsidiary of Vona
g
e
Holdin
g
s Corp.
The lenders under the First Lien Senior Facility and the Sec-
ond Lien
S
enior Facility and the purchasers of the
C
onvertible
Notes were Silver Point Finance, LLC (“Silver Point”), certain of its
a
ff
iliates, other third
p
arties and a
ff
iliates o
f
us. We used the ne
t
p
roceeds of the Financin
g
, plus cash on hand, to repurchase all o
f
our then outstandin
g
convertible notes in a tender o
ff
er that
ex
p
ired on November 3, 2008.
The followin
g
descriptions summarize the material terms o
f
t
he Financin
g
as provided in the Credit Documentation
.
First Lien
S
enior Facilit
y
The loans under the First Lien
S
enior Facility will mature i
n
O
ctober 2013 and were issued at an ori
g
inal issuance discount o
f
$
7,167. Principal amounts under the First Lien Senior Facilit
y
are
repayable in quarterly installments of approximately
$
326 for each
q
uarter endin
g
December 31, 2008 throu
g
h
S
eptember 30, 201
1
a
nd approximately
$
3,258 for each quarter endin
g
December 31,
2011 through
S
eptember 30, 2013, with the balance due in
O
ctober 2013
.
Amounts under the First Lien Senior Facilit
y
, at our option
,
b
ear
i
nterest at
:
>
the
g
reater of 4.00% and LIBOR plus, in either case, 12.00%
,
p
ayable on the last day o
f
each relevant interest period or, i
f
t
h
e
i
nterest per
i
o
di
s
l
on
g
er t
h
an t
h
ree mont
h
s, eac
hd
ay t
h
at
i
s three months a
f
ter the
f
irst da
y
o
f
the interest period and
the last da
y
o
f
such interest period, o
r
>the
g
reater of 6.75% and the hi
g
her of
(
i
)
the rate quoted in
T
he Wall Street Journal, Mone
y
Rates Section as the Prime
Rate as in effect from time to time and
(
ii
)
the federal fund
s
e
ffective rate from time to time
p
lus 0.50%
p
lus, in either
c
ase, 11.00
%
,pa
y
able on the last da
y
o
f
each month in
arrears.
C
ertain events could tri
gg
er prepayment obli
g
ations unde
r
the First Lien Senior Facilit
y
. If we have more than
$
75,000 of
s
pecified unrestricted cash in any quarter after January 1, 2009,
w
e may
b
eo
blig
ate
d
to prepay w
i
t
h
out prem
i
um certa
i
n amounts.
T
o the extent we obtain proceeds from asset sales, insurance/
c
ondemnation recoveries or extraordinary receipts, certain
p
repayments may
b
e requ
i
re
d
t
h
at w
ill b
esu
bj
ect to a prem
i
u
m
of
8
%
in
y
ear 1, 7
%
in
y
ear 2, 6
%
in
y
ear 3, 5
%
in
y
ear 4 and 3
%
i
n the first 9 months of year 5 and no premium thereafter. In addi-
t
i
on, any vo
l
untary prepayments or any man
d
atory prepayment
s
that ma
y
be required
f
rom proceeds o
f
debt and equit
y
issuance
s
w
ill be subject to a make-whole during the
f
irst three years, and
thereafter a premium of 5% in year 4 and 3% in the first 9 month
s
o
f
y
ear 5, with the First Lien Senior Facilit
y
callable at par
therea
f
ter
.
S
econd Lien
S
enior Facility
T
he loans under the
S
econd Lien
S
enior Facility will mature in
O
ctober 2015. Princi
p
al amounts under the
S
econd Lien
S
enio
r
Facilit
y
will be repa
y
able in quarterl
y
installments of
$
1,800
c
ommencing the later of:
(
i
)
the last day of the fiscal quarter after
p
ayment-in-full of amounts under the First Lien
S
enior Facility and
(ii) December 31, 2012, with the balance due in October 2015.
Amounts under the
S
econd Lien
S
enior Facility bear interest a
t
20% payable quarterly in arrears and payable in kind, or PIK,
b
e
g
innin
g
December 31, 2008 until the third anniversary o
f
th
e
eff
ective date and therea
f
ter 20
%
payable quarterly in arrears in
c
ash. If the First Lien
S
enior Facility has not been refinanced in ful
l
by
the third anniversar
y
o
f
the e
ff
ective date, then until suc
h
re
f
inancing has occurred 70
%
o
f
the interest due will be payabl
e
i
n cas
h
w
i
t
h
t
h
e
b
a
l
ance paya
bl
e
i
n
PIK.
After pa
y
ment-in-full of amounts under the First Lien Senio
r
Facility or in the event mandatory payments are waived by lenders
under the First Lien
S
enior Facility, the
S
econd Lien
S
enior Facility
w
ill be subject to prepayment obli
g
ations and premiums con
-
s
istent with those for the First Lien
S
enior Facility. Voluntary
p
repayments for the
S
econd Lien
S
enior Facility may be made at
a
n
y
time subject to a make-whole
.
3
7