Vonage 2008 Annual Report Download - page 46

Third Lien
C
onvertible Notes
The Convertible Notes will mature in October 2015. Subjec
t
t
o conversion, repayment or repurchase of the Convertible Notes
,
amounts under the
C
onvertible Notes bear interest at 20% tha
t
accrues and compounds quarterl
y
until October 30, 2011 at which
t
ime such accrued interest may be paid in cash. Any accrue
d
i
nterest not
p
a
id i
n cas
h
on suc
hd
ate w
ill
cont
i
nue to
b
ear
i
nter-
est at 20
%
that accrues and compounds quarterl
y
and is pa
y
abl
e
i
n cash on the maturity date of the Convertible Notes. After
O
ctober 30, 2011,
p
rinci
p
al on
C
onvertible Notes will bear interes
t
at 20
%
pa
y
able quarterl
y
in arrears in cash. However, i
f
the Firs
t
Lien Senior Facilit
y
has not been refinanced in full b
y
October 31,
2011, then until such refinancing occurs, the cash interest will b
e
capped at 14
%
with the balance o
f
6
%
accruin
g
and compound
-
i
ng interest quarterly at 20
%
, to be paid in cash on the maturity
date of the
C
onvertible Notes
.
Subject to specific limitations and the ri
g
ht of holders t
o
convert prior to such time, we may cause the automatic con-
v
ersion of the
C
onvertible Notes into common stock on or afte
r
t
he third anniversar
y
of the issue date. The amount of Convertible
Notes that will be subject to our automatic conversion right will
depend on our stock price:
(
i
)
if a 30-day volume-wei
g
hted aver-
a
g
e price of our common stock is
g
reater than $3.00 per share
,
t
hen not less than
$
12,000
p
rinci
p
al amount of the Convertibl
e
Notes must remain outstandin
g
after the conversion,
(
ii
)
if
a
3
0-day volume-wei
g
hted avera
g
e price o
f
our common stock i
s
greater than
$
4.50 per share, then not less than
$
6,000 principa
l
amount of the
C
onvertible Notes must remain outstanding afte
r
t
he conversion and (iii) if a 30-day volume-wei
g
hted avera
g
e pric
e
of our common stock is greater than
$
6.00 per share, then w
e
m
ay cause the mandatory conversion of up to all of the then
-
outstandin
g
Convertible Notes.
Subject to customary anti-dilution adjustments (including
t
ri
gg
ers upon the issuance of common stock below the market
p
rice of the common stock or the conversion price of the Con-
v
ertible Notes
)
, the Convertible Notes will be convertible int
o
s
hares of our common stock at a rate e
q
ual to 3,448.2759 share
s
f
or each $1,000 principal amount of Convertible Notes, or approx
-
i
mately
$
0.29 per share. A permanent increase in the conversio
n
r
ate, resultin
g
in the issuance of additional shares, may occur if
a
f
undamental chan
g
e occurs
.
The issuance and sale of the Convertible Notes was not regis-
t
ered under the
S
ecurities Act of 1933, and the
C
onvertible Note
s
m
ay not be offered or sold in the United States absent re
g
istratio
n
or an applicable exemption
f
rom registration requirements. Unde
r
are
g
istration ri
g
hts a
g
reement, we filed a shelf re
g
istration state-
m
ent with the Securities and Exchan
g
e Commission coverin
g
r
esale o
f
the shares o
f
common stock issuable u
p
on conversio
n
of the
C
onvertible Notes and any shares of common stock held b
y
Silver Point and its affiliates that was declared effective o
n
December 19
,
2008
.
S
ecurit
y
A
mounts
b
orrowe
d
un
d
er t
h
e
Fi
nanc
i
ng are secure
db
ysu
b-
s
tantiall
y
all of the assets of the
C
redit Parties. The collateral
s
ecures the First Lien Senior Facilit
y
on a first lien basis, th
e
S
econd Lien
S
enior Facility on a second lien basis and th
e
C
onvertible Notes on a third lien basis, subject to an intercredito
r
agreemen
t.
Commencing October 1, 2009, all specified unrestricted cas
h
a
bove
$
30,000, sub
j
ect to certain ad
j
ustments, will be swe
p
t int
o
a
concentration account
(
the “
C
oncentration Account”
)
, and unti
l
the balance in the Concentration Account is at least equal t
o
$
30,000, we may not access or make any withdrawals from th
e
C
oncentration Account. Thereafter, with limited exce
p
tions, we
w
ill have the ri
g
ht to withdraw funds from the Concentratio
n
Account in excess of
$
30
,
000.
O
ther Terms and
C
onditions of the Financin
g
T
he
C
redit Documentation includes customary representa-
tions and warranties of the
C
redit Parties. In addition,
C
redit
Documentation
f
or the Financing contains a
ff
irmative and neg-
a
tive covenants that affect, and in many respects may sig-
nificantly limit or prohibit, amon
g
other thin
g
s, the
C
redit Parties
’
a
bilit
y
to incur, prepa
y
,re
f
inance or modi
fy
indebtedness; ente
r
i
nto acqu
i
s
i
t
i
ons,
i
nvestments, sa
l
es, mergers, conso
lid
at
i
ons
,
l
iquidations and dissolutions; invest in forei
g
n subsidiaries
,
repurchase and redeem stock; modi
f
y material contracts; engag
e
i
n transactions with affiliates and 5% stockholders; change lines
o
f business; and make marketin
g
expenditures under contracts
w
ith a duration in excess of one
y
ear that exceed (i)
$
95,000 until
December 31, 2009 and
(
ii
)
for each
q
uarter thereafter, an amoun
t
e
qual to 20% of consolidated pre-marketin
g
operatin
g
income fo
r
the
f
our quarters immediately preceding such quarter. Boar
d
a
pproval must be obtained for any long-term commitment or ser
-
i
es of related lon
g
-term commitments that would result in
agg
re
g
ate marketin
g
expenditures by any of the Credit Parties of
more than
$
25,000 during the term of the Financing. In addition,
w
e must comply with certain financial covenants, which include a
total levera
g
e ratio, senior lien levera
g
e ratios, minimum con-
s
olidated adjusted EBITDA, a fixed charge coverage ratio, max-
i
mum conso
lid
ate
d
ca
pi
ta
l
ex
p
en
di
tures, m
i
n
i
mum conso
lid
ate
d
l
iquidity and minimum consolidated pre-marketin
g
operatin
g
i
ncome. As o
f
December 31, 2008, we were in com
p
liance with all
c
ovenants, includin
g
financial covenants, under the
C
redit Doc
-
u
m
e
nt
a
ti
o
n
.
T
he
C
redit Documentation contains events of default that
ma
y
permit acceleration of the debt under the Credit Doc-
umentation and a de
f
ault interest rate o
f
3
%
above the interes
t
rate which would otherwise be a
pp
licable. If an event of defaul
t
has occurred, and the debt under the Financin
g
becomes due and
p
ayable as a result, such payment will be subject to a make
-
w
hole
(
or the prepayment premium, if applicable to the First Lien
S
enior Facilit
y
in
y
ears 4 and 5) and, in the case of the Convertibl
e
Notes, liquidated damages payable in the
f
orm o
f
shares o
f
c
ommon stock for any loss of the option to convert in whole or in
p
art. Conversion ri
g
hts will continue to exist while the Convertibl
e
Notes are outstanding notwithstanding acceleration or maturity,
i
ncludin
g
as a result of a voluntary or involuntary bankruptcy
.
S
ilver Point is entitled to customary board observation rights
s
o long as it beneficially owns at least $4,000 of Convertibl
e
Notes or the equivalent number o
f
shares o
f
common stock o
f
th
e
Compan
y
based on the applicable conversion rate for the Con-
v
ertible Notes then in effect. The written a
pp
roval of
S
ilver Point
,
a
sa
d
m
i
n
i
strat
i
ve a
g
ent, w
hi
c
h
may not
b
e unreasona
bl
yw
i
t
hh
e
ld,
i
s required for the Company to complete certain legal settlements.
38
VO
NA
G
E ANN
U
AL REP
O
RT 2008