Vonage 2012 Annual Report Download - page 77

F-24 VONAGE ANNUAL REPORT 2012
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 holders 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 bifurcated 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.
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 adjustments (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. As of December
31, 2010, all of the outstanding $18,000 principal amount of Convertible
Notes were converted into 62,069 shares of our common stock. In
connection with note conversions during the year ended December 31,
2010, $2,258 was paid for accrued interest.
In accordance with guidance codified in FASB ASC 815,
which was effective January 1, 2009, we determined that the Convertible
Notes contained an embedded derivative that required separate
valuation from the Convertible Notes because an anti-dilution
adjustment would have been triggered upon the issuance of common
stock by us below the conversion price of the Convertible Notes. As
explained below, we recognized this embedded derivative as a liability
in our consolidated balance sheet at its fair value each period and
recognized any change in the fair value in our statement of operations
in the period of change. The fair value of the embedded derivative was
determined using the Monte Carlo simulation model. The key inputs in
the model were maturity date, risk-free interest rate, current share price
and historical volatility of our common stock.
In accordance with FASB ASC 815, we determined the fair
value of the conversion feature and recorded applicable amounts as
follows:
Issuance. The fair value of the conversion feature at issuance
was $39,990 which, upon the adoption of FASB ASC 815, was recorded
as a liability with a corresponding reduction in additional-paid-in capital
of $37,884, which was the premium originally recorded at issuance. The
remaining $2,106 was recorded as a discount to be amortized to interest
expense over the life of the debt using the effective interest method.
Accumulated amortization of the discount was $2,106 as of December
31, 2010, including a $515 acceleration of unamortized discount on
notes related to the conversion of Convertible Notes for the year ended
December 31, 2010. Amortization for the year ended December 31,
2010 was $50.
December 31, 2008. The fair value of the conversion feature
at December 31, 2008 was $32,720. The $7,270 difference between
the fair value of the conversion feature at December 31, 2008 and the
issuance date, together with the$47 amortization of the discount for the
period ended December 31, 2008, were recorded as an adjustment to
the opening balance of retained earnings that was recognized as a
cumulative effect of a change in accounting principle as of January 1,
2009 in accordance with FASB ASC 815.
Conversion of Convertible Notes in 2009. At the time of
conversions of $12,305 principal amount of Convertible Notes, which
were converted into 42,431 shares of our common stock, we determined
that the aggregate fair value of the conversion feature of those
Convertible Notes was $57,050, which was an increase of $34,682 in
the fair value of the conversion feature from December 31, 2008. The
changes in fair value were recorded as an expense within other income
(expense) for the year ended December 31, 2009. The aggregate fair
value of the common stock issued by us in the conversion was $62,370
at the time of conversion, which was recorded as common stock and
additional paid-in capital. In addition, in connection with the
extinguishment of the converted Convertible Notes, we recorded a gain
on extinguishment of $4,041, which represented the difference in the
carrying value of those Convertible Notes including the fair value of the
conversion feature, which was reduced by the discount of $1,271 and
debt related costs of $1,673 associated with those Convertible Notes,
and the fair value of the common stock issued at the time of conversion.
Conversion of Convertible Notes in 2010. At the time of
conversions of the remaining $5,695 principal amount of Convertible
Notes (including $2,400 principal amount of Convertible Notes, which
were held by certain affiliates or associates of the Company's directors),
which converted into 19,638 shares of our common stock, we
determined that the aggregate fair value of the conversion feature of
those Convertible Notes was $32,358, which was an increase in value
of $7,308 from the fair value of the conversion feature as of December
31, 2009. This change in fair value was recorded as income within other
income (expense), net for the year ended December 31, 2010. The
aggregate fair value of the common stock issued by us in the conversion
was $35,404 at the time of conversion, which was recorded as common
stock and additional paid-in capital. In addition, in connection with the
extinguishment of the converted Convertible Notes, we recorded a loss
on extinguishment of $786 for the year ended December 31, 2010, which
represented the difference in the carrying value of those Convertible
Notes including and the fair value of the conversion feature, which 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 fair value of the common stock issued at the time of
conversion and the payment made to note holders of $2,237 to induce
conversion.
VONAGE HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)