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Vonage's CEO Steps Down

Reeling from a federal judge's order that it stop enrolling new customers, Vonage Holdings announced that CEO Michael Snyder resigned and that it planned to lay off 10% of employees as part of cutting expenses by $140 million this year.

The Holmdel, N.J.-based Internet telephone company named founder and chairman Jeffrey A. Citron as its interim CEO, and said it would initiate a search for a new CEO immediately. Snyder, who was previously president of ADT Security Services, was Vonage's chief executive for about 14 months.

Vonage also announced plans to reduce marketing expenses by 26%, or $110 million, to about $310 million for 2007. The company said it expects to save $30 million through the remainder of the year, through consolidation of operations and elimination of about 180 jobs, or 10% of its 1,800-member workforce.

The turmoil came amid Vonage's legal fight with Verizon Communications, which sued the voice-over-Internet-Protocol company for patent infringement. A federal jury in March found Vonage guilty of infringing three Verizon patents and ordered Vonage to pay $58 million in damages plus 5.5% of future revenues.

The judge in the case subsequently issued an injunction that blocks Vonage from signing up new customers but allows it to service existing ones. Vonage is appealing the ruling.

At this point, the worst-case scenario for Vonage hasn't happened. That would be if the U.S. Court of Appeals for the Federal Circuit in Washington, D.C., affirms the lower court's ruling and enforces a full injunction — barring it from using Verizon's patents altogether. Vonage has said it is developing a contingency plan, in the event it loses in court, that would allow it to maintain service without using the Verizon patents.

Last week, Vonage announced preliminary financial results for the quarter ended March 31. The company estimated quarterly revenue at $195 million, compared with $119 million for the same period in 2006, and said it added 332,000 subscribers in the first quarter but lost about 166,000.

In a Securities and Exchange Commission filing, Vonage said it anticipates incurring a restructuring charge of approximately $5 million for the second quarter of 2007 for onetime employee-termination benefits.

Vonage shares closed at $3.20 each in NASDAQ trading last Thursday. The company went public last May at an initial price of $17 per share.