Vonage 2009 Annual Report Download - page 90

VONAGE HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
providers, such as Vonage, to support state universal serv-
ice funding. The alternative action requested by the
Nebraska Public Service Commission and Kansas Corpo-
ration Commission, adoption of a rule, could result in a find-
ing that it is in the public interest to allow states to assess
services provided by nomadic VoIP providers, such as
Vonage, for state universal service funding on a going for-
ward basis. In addition to this effort, we expect that state
public utility commissions and state legislators will continue
their attempts to apply state telecommunications regu-
lations to nomadic VoIP service.
State and Municipal Taxes
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 histor-
ically 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, a number of states have changed their
statutes as part of the streamlined sales tax initiatives and
we are now collecting and remitting sales taxes in those
states. In addition, a few states address how VoIP providers
should contribute to support public safety agencies, and in
those states we began to remit fees to the appropriate state
agencies. We have also contacted authorities in each of the
other states to discuss how we can financially contribute to
the 911 system. We do not know how all these discussions
will be resolved, but there is a possibility that we will be
required to pay or collect and remit some or all of these
Taxes in the future. Additionally, some of these Taxes could
apply to us retroactively. As such, we have a reserve of
$4,865 at December 31, 2009 as our best estimate of the
potential tax exposure for any retroactive assessment. We
believe the maximum estimated exposure for retroactive
assessments is $18,786 as of December 31, 2009.
Employment Agreements
Chief Executive Officer
The Company is a party to an employment agreement
with Marc P. Lefar providing for his employment as Chief
Executive Officer for an initial three-year term expiring
July 29, 2011. The term will automatically renew for addi-
tional one-year periods, unless either party gives notice at
least 90 days prior to the end of the then-current term. In
the event of a change in control, the term will also be
automatically extended until the first anniversary of the
change of control if the term would otherwise be terminated
within such one-year period, subject to automatic annual
renewals as described above.
Under his employment agreement, Mr. Lefar is entitled
to receive an annual base salary of not less than $850 sub-
ject to review for increase not less than annually by the
Company’s compensation committee. Mr. Lefar also is
eligible to receive an annual discretionary performance-
based bonus in accordance with the Company’s annual
bonus program for senior executives. Mr. Lefar’s employ-
ment agreement contains a target annual bonus equal to
75% of Mr. Lefar’s annual base wages for 2009 and 100%
in 2010 and thereafter. Beginning in 2010, the target is
subject to review for increase not less than annually by our
compensation committee. Mr. Lefar is entitled to payment
for or reimbursement of his commercial air and car trans-
port between his primary residence in Atlanta, Georgia and
our principal offices. Each year during the term of the
employment agreement, Mr. Lefar is also entitled to
(i) payment of or reimbursement for amounts up to a max-
imum of $600 plus the cost of commercial air travel (i.e., the
cost of a first-class, fully refundable, direct flight booked
one week prior to travel), to be used by Mr. Lefar for private
air travel, (ii) payment of or reimbursement for the cost of
housing (i.e., furnished housing, including utilities) and
(iii) gross-up for tax purposes of any income arising from
such expense payments or reimbursements that are treated
as nondeductible taxable income.
During the term of his employment agreement, if the
Company terminates Mr. Lefar’s employment without cause
or he resigns with good reason or if Mr. Lefar receives
notice of non-renewal of his employment agreement with
the Company and, in each case, Mr. Lefar provides us with
a general release of claims, he will be entitled to a prorated
annual bonus for the year of termination, an amount equal
to two times his base salary (one year in the event of
non-renewal of Mr. Lefar’s employment agreement), pay-
ment of medical, dental and vision continuation coverage
premiums for Mr. Lefar and his dependents under COBRA
in excess of the amount he would have paid if he were an
active employee for the COBRA continuation coverage
period until he receives such coverage from another
employer and up to $50 of outplacement services. If
Mr. Lefar’s employment is terminated by reason of death or
disability, he will be entitled to a prorated annual bonus for
the year of termination and an amount equal to his base
salary for one year (reduced by the projected net amount of
any disability benefits received by Mr. Lefar under the
Company’s group disability policy). The employment
agreement provides for vesting of certain stock options
issued to Mr. Lefar under specified circumstances such as
a change of control or termination of the employment
agreement and for the extension of the exercisability of
options under certain of those circumstances.
The employment agreement provides that Mr. Lefar will
receive an additional payment to reimburse him for any
excise taxes imposed pursuant to Section 4999 of the
Internal Revenue Code, together with reimbursement for
any additional taxes incurred by reason of such payments.
Separation Agreement with Chairman and Chief Strategist
On July 29, 2008, we entered into a Confidential Sepa-
ration Agreement and General Release (the “Separation
Agreement”) with Jeffrey Citron, our Chairman, who step-
F-30 VONAGE ANNUAL REPORT 2009