Vonage 2010 Annual Report Download - page 77

V
O
NA
G
EH
O
LDIN
GS CO
RP
.
N
OTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(
In thousands, except per share amounts
)
C
onversion of
C
onvertible Notes in 2010.
A
tt
h
et
i
m
e
of conversions of the remaining
$
5,695 principal amoun
t
of Convertible Notes (includin
g$
2,400 principal amount o
f
C
onvertible Notes, which were held by certain affiliates o
r
associates of the
C
ompany’s directors
)
, which converted
i
nto 19,638 shares of our common stock, we determine
d
t
hat the a
gg
re
g
ate fair value of the conversion feature o
f
t
hose Convertible Notes was
$
32,358, which was a
n
i
ncrease in value of
$
7,308 from the fair value of the con-
v
ersion
f
eature as o
f
December 31, 2009. This chan
g
ein
fa
ir v
a
l
ue
w
as
r
eco
r
ded as
in
co
m
e
within
o
th
e
rin
co
m
e
(expense), net for the year ended December 31, 2010. The
a
gg
re
g
ate
f
air value o
f
the common stock issued by us i
n
t
he conversion was $35,404 at the time of conversion
,
whi
c
hw
as
r
eco
r
ded as co
mm
o
n
s
t
oc
k
a
n
d add
iti
o
n
al
p
aid-in ca
p
ital. In addition, in connection with th
e
extin
g
uishment of the converted Convertible Notes, w
e
r
ecorded a loss on extin
g
uishment of $786 for the year
ended December 31, 2010, which re
p
resented the di
ff
er-
ence in the carryin
g
value of those Convertible Note
s
i
ncludin
g
the
f
air value o
f
the conversion
f
eature, whic
h
was reduced by the discount of $515 and debt related
costs of $683 for the year ended December 31, 2010
,
associated with those Convertible Notes, and the fai
r
va
l
ue of
th
eco
mm
o
n
s
t
oc
ki
ssued a
tth
e
tim
eofco
n
-
v
ersion and the pa
y
ment made to note holders of $2,23
7
t
o
i
n
d
uce convers
i
on.
N
O
TE 7.
Fa
ir V
a
l
ue of
Fi
nanc
i
a
lI
nstruments
Effective Januar
y
1, 2008, we adopted FA
S
BA
SC
820
-
10
-
2
5
,
“F
a
i
r
V
a
l
ue
M
easurements an
dDi
sc
l
osure
s
.
”
This standard establishes a framework for measuring fai
r
value and expands disclosure about fair value measure
-
m
ents. We did not elect fair value accounting for any
assets and liabilities allowed b
y
FA
S
BA
SC
825,
“Fi
nanc
i
a
l
I
nstruments
”
.
F
A
S
BA
SC
820-10 defines fair value as the amoun
t
that would be received for an asset or paid to transfer a
liabilit
y(
i.e., an exit price
)
in the principal or most
a
dvantageous market for the asset or liability in an orderly
transact
i
on
b
etween mar
k
et part
i
c
i
pants on t
h
e
measurement date. FA
S
BA
SC
820-10 also establishes
a
f
air value hierarch
y
that requires an entit
y
to maximize the
use of observable inputs and minimize the use o
f
unobservable inputs when measuring fair value. FA
S
B
ASC
820-10 describes the followin
g
three levels of inputs
that may be used:
>
L
evel 1:
Q
uoted
p
rices
(
unad
j
usted
)
in active markets
th
a
t
a
r
e access
i
b
l
ea
tth
e
m
easu
r
e
m
e
nt
da
t
efo
ri
de
nti-
c
al assets and liabilities. The
f
air value hierarchy
g
ive
s
the hi
g
hest priority to Level 1 inputs
.
>
L
evel 2: Observable
p
rices that are based on in
p
uts not
q
uoted on active markets but corroborated by mar-
k
e
t
da
t
a
.
>
L
evel 3: Unobservable in
p
uts when there is little or n
o
market data available, thereby requirin
g
an entity t
o
d
evelop its own assumptions. The
f
air value hierarch
y
g
ives the lowest priority to Level 3 inputs
.
L
eve
l
1
L
eve
l2 L
eve
l3 T
ota
l
Li
a
bili
t
i
es
:
S
tock warrant — 2010
$
–
$
897
$
–
$
897
S
tock warrant — 2009 – 553 – 55
3
E
m
b
e
dd
e
d
convers
i
on opt
i
on — 2010 – — –
–
E
m
b
e
dd
e
d
convers
i
on opt
i
on — 2009 – — 25,050 25,050
All
C
onvertible Notes were converted as of December 31, 2010. The following tables set forth the inputs as o
f
December 31, 2009 and a summary of chan
g
es in the fair value of our embedded conversion option for the year ende
d
December 31
,
2010 and December 31
,
2009
:
D
ecember 31
,
2
009
M
aturit
y
dat
e
O
ctober 31, 201
5
R
i
s
k-fr
ee
int
e
r
es
tr
a
t
e
2
.95
%
P
ri
ce o
f
co
mm
o
n
s
t
oc
k
$
1.40
Volatilit
y
109.3
%
F
-
22
VO
NA
G
E ANN
U
AL REP
O
RT 2010