Vonage 2011 Annual Report Download - page 76

VONAGE HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
taxpayers. During 2003 and 2004, we submitted an appli-
cation to the New Jersey Economic Development Author-
ity, or EDA, to participate in the program and the
application was approved. The EDA then issued a certifi-
cate certifying our eligibility to participate in the program.
The program requires that a purchaser pay at least 75%
of the amount of the surrendered tax benefit. In tax years
2009, 2010, and 2011, we sold approximately, $0, $2,194,
and $0, respectively, of our New Jersey State net operat-
ing loss carry forwards for a recognized benefit of approx-
imately $0 in 2009, $168 in 2010, and $0 in 2011,
respectively. Collectively, all transactions represent
approximately 85% of the surrendered tax benefit each
year and have been recognized in the year received.
Note 6. Long-Term Debt and Revolving Credit Facility
A schedule of long-term debt at December 31, 2011 and 2010 is as follows:
December 31,
2011
December 31,
2010
3.25-3.75% 2011 Credit Facility — due 2014 $42,500 $ —
9.75% 2010 Credit Facility, net of discount — 173,004
$42,500 $173,004
At December 31, 2011, future payments under long-term debt obligations over each of the next five years and there-
after are as follows:
2011 Credit Facility
2012 28,333
2013 28,333
2014 14,167
Minimum future payments of principal 70,833
Current portion 28,333
Long-term portion $42,500
December 2010 Financing
On December 14, 2010, we entered into a credit
agreement (the “2010 Credit Facility”) consisting of a
$200,000 senior secured term loan. The co-borrowers
under the 2010 Credit Facility were us and Vonage Amer-
ica Inc., our wholly owned subsidiary. Obligations under
the 2010 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. An affiliate of the
chairman of our board of directors and one of our princi-
pal stockholders was a lender under the 2010 Credit
Facility.
Use of Proceeds
We used the net proceeds of the 2010 Credit Facility
of $194,000 ($200,000 principal amount less original dis-
count of $6,000), plus $102,090 of cash on hand, to
(i) exercise our existing right to retire debt under our prior
senior secured first lien credit facility, for 100% of the
contractual make-whole price, (ii) retire debt under our
prior senior secured second lien credit facility at a more
than 25% discount to the contractual make-whole price,
and (iii) cause the conversion of all then outstanding third
lien convertible notes into 8,276 shares of our common
stock We also incurred $11,444 of fees in connection with
the 2010 Credit Facility and repayment of our prior 2008
financing. We agreed to make an additional cash payment
to the holders of our prior senior secured second lien
credit facility in an aggregate amount of $9,000 if we
engaged in Qualifying Discussions (as defined in the
Master Agreement) prior to June 30, 2011 that result in a
merger or acquisition transaction (as defined in the Master
Agreement) that is consummated prior to June 30, 2012.
No such discussions occurred prior to June 30, 2011.
In accordance with FASB ASC 470 “Debt Mod-
ification and Extinguishment”, substantially all of the
repayment of the Prior Financing was treated as an
extinguishment of notes resulting in a loss on early
extinguishment of notes of $26,531. For the portion of the
repayment of the Prior Financing treated as a debt mod-
ification, we carried forward $1,072 of unamortized dis-
count, which will be amortized to interest expense over
the life of the debt using the effective interest method in
addition to the $6,000 of original issue discount in con-
nection with the 2010 Credit Facility. The accumulated
amortization as of December 31, 2011 and December 31,
2010 was $7,072 and $76, respectively, including accel-
eration of $6,081 and $0, respectively. The amortization
for 2011 was $915.
Repayments
In 2011, we made repayments of the entire $200,000
under the 2010 Credit Facility, with $20,000 designated to
cover our 2011 mandatory amortization, $50,000 des-
ignated to cover our 2011 annual excess cash flow man-
datory repayment, if any, and $130,000 designated to
cover the outstanding principal balance under the 2010
Credit Facility at the time of the 2011 Credit Facility
financing. A loss on extinguishment of $11,806, represent-
ing a $1,000 prepayment fee to holders of the 2010 Credit
Facility, professional fees of $54, and acceleration of
unamortized debt discount and debt related costs of
$6,081 and $4,671, respectively, was recorded in 2011 as
a result of the repayments.
F-20 VONAGE ANNUAL REPORT 2011