Vonage 2011 Annual Report Download - page 78

VONAGE HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
November 2008 Financing
On October 19, 2008, we entered into definitive agree-
ments (collectively, the “Credit Documentation”) for a
financing consisting of (i) a $130,300 senior secured first
lien credit facility (the “First Lien Senior Facility”), (ii) a
$72,000 senior secured second lien credit facility (the
“Second Lien Senior Facility”), and (iii) the sale of $18,000
of our third lien convertible notes (the “Convertible Notes”).
The funding for this transaction was completed on
November 3, 2008.
For the First Lien Senior Facility, an aggregate value of
$105,322, or a discount of $24,978, was recorded. This
discount was amortized to interest expense over the life of
the debt using the effective interest method. The accumu-
lated amortization was $24,798 at December 31, 2010,
including the acceleration of unamortized discount on notes
related to the prepayment and repayment of the First Lien
Senior Facility of $14,539 at December 31, 2010. The amor-
tization for the year ended December 31, 2010 and 2009
was $ 4,006 and $4,596, respectively.
For the Second Lien Senior Facility, an aggregate value
of $67,273, or a discount of $4,727, was recorded. This
discount was amortized to interest expense over the life of
the debt using the effective interest method. The accumu-
lated amortization was $4,727 at December 31, 2010,
including the acceleration of unamortized discount on notes
related to the prepayment and repayment of the Second
Lien Senior Facility of $3,360 at December 31, 2010. The
amortization for the year ended December 31, 2010 and
2009 was $601 and $650, respectively.
For the Convertible Notes, an aggregate value of
$55,884 or a premium of $37,884 was recorded. Given the
magnitude of the premium, this amount was recorded as
additional-paid-in capital as prescribed in FASB ASC
470-20-25 “Debt with Conversions and Other Options-
Recognition”.
Consolidated Excess Cash Flow Prepayments
Beginning March 31, 2010, because it was the first
quarter during which we had more than $75,000 of speci-
fied unrestricted cash in any quarter, we offered to prepay
without premium 50% of the Consolidated Excess Cash
Flow (as defined in the Credit Documentation) each quar-
ter.
First Lien Senior Facility Prepayments
Consolidated Excess Cash Flow — March 31, 2010. On
April 22, 2010, we offered to prepay $24,032 of loans under
the First Lien Senior Facility. While certain holders of loans
under the First Lien Senior Facility waived their right to receive
the prepayment as permitted under the Credit Doc-
umentation, the $24,032 offered was paid on April 27, 2010 to
holders that did not waive the prepayment including certain
affiliates or associates of the Company’s directors. Of this
amount, $23,187 was applied to the outstanding principal
balance, and $845 was applied to accrued but unpaid inter-
est. A loss on extinguishment of $4,034, representing accel-
eration of unamortized debt discount, debt related costs, and
administrative agent fees of $3,312, $662 and $60,
respectively, was recorded in the three-month period ended
June 30, 2010 as a result of the prepayment.
Consolidated Excess Cash Flow — June 30, 2010. On
July 16, 2010, we offered to prepay $40,776 of loans under
the First Lien Senior Facility. While certain holders of loans
under the First Lien Senior Facility waived their right to
receive the prepayment as permitted under the Credit
Documentation, $4,655 was paid on July 21, 2010 to hold-
ers that did not waive the prepayment, who were affiliates
or associates of the Company’s directors. Of this amount,
$4,499 was applied to the outstanding principal balance
and $156 was applied to accrued but unpaid interest. A
loss on extinguishment of $731, representing acceleration
of unamortized debt discount, debt related costs, and
administrative agent fees of $605, $120 and $6,
respectively, was recorded in the three-month period ended
September 30, 2010 as a result of the prepayment.
Consolidated Excess Cash Flow — September 30,
2010. On November 15, 2010, we offered to prepay loans
under the First Lien Senior Facility and the Second Lien
Senior Facility in an aggregate amount of $11,084. The
holders of the First Lien Senior Facility and Second Lien
Senior Facility waived their right to prepayment.
Second Lien Senior Facility Prepayments
Consolidated Excess Cash Flow — June 30, 2010. On
July 16, 2010, concurrent with the prepayment offer under
the First Lien Senior Facility, we offered to prepay $40,776
of loans under the Second Lien Senior Facility less $4,655
required to prepay amounts under the First Lien Senior
Facility prepayment offer. While certain holders of loans
under the Second Lien Senior Facility waived their right to
receive the prepayment as permitted under the Credit
Documentation, $13,281 was paid on July 21, 2010 to hold-
ers that did not waive the prepayment, who were affiliates or
associates of the Company’s directors. Of this amount
$13,128 was applied to the outstanding principal balance of
which $3,668 represents payment of PIK interest, which was
recorded as a component of cash flows from financing
activities, and $153 was applied to accrued but unpaid
interest. A loss on extinguishment of $813, representing
acceleration of unamortized debt discount, debt related
costs, and administrative agent fees of $472, $325 and $16,
respectively, was recorded in the three-month period ended
September 30, 2010 as a result of the prepayment.
Other Prepayments under First Lien Senior Facility and
Second Lien Senior Facility
The First Lien Senior Facility and Second Lien Senior
Facility included make-whole premiums that were bifur-
cated from the underlying debt instrument and valued as a
separate financial instrument because the economic and
risk characteristics of the make-whole premiums meet the
criteria for separate accounting as set forth in FASB
ASC 815. The First Lien Senior Facility and Second Lien
Senior Facility make-whole premiums were paid on
December 14, 2010 and a nominal fair value as of
December 31, 2009.
Third Lien Convertible Notes
Subject to conversion, repayment or repurchase of the
Convertible Notes, the Convertible Notes were to mature in
October 2015. Subject to customary anti-dilution adjust-
ments (including triggers upon the issuance of common
stock below the market price of the common stock or the
conversion price of the Convertible Notes), the Convertible
Notes were convertible into shares of our common stock at
a rate equal to 3,448.2759 shares for each $1,000 principal
amount of Convertible Notes, or approximately $0.29 per
share. During the three months ended, December 31, 2010
we received additional Notices of Conversion from the
remaining note holders indicating their desire to convert
their Convertible Notes. In the aggregate in 2010 and 2009,
$18,000 principal amount of Convertible Notes were con-
verted into 62,069 shares of our common stock. As of
December 31, 2010, there were $0 principal amount of
Convertible Notes outstanding.
F-22 VONAGE ANNUAL REPORT 2011