Vonage 2012 Annual Report Download - page 76

F-23 VONAGE ANNUAL REPORT 2012
of loans, and at a rate equal to the rate applicable to base rate loans
plus 2%, in the case of all other amounts.
December 2010 Financing
On December 14, 2010, we entered into 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 America
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 principal 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 discount 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,
2012.
In accordance with FASB ASC 470 “Debt Modification 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 modification, we carried forward
$1,072 of unamortized discount, 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 connection with the
2010 Credit Facility. The accumulated amortization as of December 31,
2011 was $7,072, including acceleration of $6,081. 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 designated to cover our 2011 annual
excess cash flow mandatory 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, representing 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.
November 2008 Financing
On October 19, 2008, we entered into definitive agreements
(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 accumulated 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 amortization for
the year ended December 31, 2010 was $4,006.
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 accumulated 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. The amortization for the year ended December
31, 2010 was $601.
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 specified 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 quarter.
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 Documentation, 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 interest. A loss on
extinguishment of $4,034, representing acceleration 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 holders 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
VONAGE HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)