Earthlink 2006 Annual Report Download - page 30

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limit our ability to secure additional financing to implement our strategic initiatives;
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increase our vulnerability to general adverse economic and industry conditions;
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limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
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place us at a disadvantage compared to our competitors that may have proportionately less debt; and
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restrict us from making strategic acquisitions, introducing new technologies or otherwise exploiting business opportunities.
We may be unable to repurchase the Notes for cash when required by the holders, including following a fundamental change, or to pay the
cash portion of the conversion value upon conversion of any Notes by the holders.
Holders of the Notes have the right to require us to repurchase the Notes on November 15, 2011, November 15, 2016 and November 15,
2021 or upon the occurrence of a fundamental change prior to maturity. Moreover, upon conversion of the Notes, we are required to settle a
portion of the conversion value in cash. Any debt agreements that we may enter into in the future may contain similar repurchase and cash
settlement provisions. We may not have sufficient funds to make the required cash payment upon conversion or to purchase or repurchase the
Notes in cash at such time or the ability to arrange necessary financing on acceptable terms. In addition, our ability to pay cash upon conversion
or to purchase or repurchase the Notes in cash may be limited by law or the terms of agreements relating to our debt outstanding at the time.
However, if we fail to repurchase or purchase the Notes or pay cash upon conversion as required by the indenture for the Notes, it would
constitute an event of default under the indenture, which, in turn, would constitute an event of default under our other debt agreements, if any.
In addition, the requirement to pay the fundamental change repurchase price, including the related make whole premium, may discourage a
change in control of our company.
The convertible notes hedge and warrant transactions may affect the value of our common stock.
In November 2006, in connection with the offering of our Notes, we entered into convertible note hedge transactions and warrant
transactions with affiliates of UBS Investment Bank and Banc of America Securities LLC. These transactions are expected to offset the
potential dilution upon conversion of the Notes. In connection with hedging these transactions, such affiliates of UBS Investment Bank and
Banc of America Securities LLC:
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entered into various over-the-counter derivative transactions with respect to our common stock, and may purchase our common stock;
and
• may enter into, or may unwind, various over-the-counter derivatives and/or purchase or sell our common stock in secondary market
transactions.
The affiliates of UBS Investment Bank and Banc of America Securities LLC party to these transactions are likely to modify their hedge
positions from time to time prior to conversion or maturity of the Notes or termination of the transactions by purchasing and selling shares of
our common stock, other of our securities, or other instruments they may wish to use in connection with such hedging. In addition, we intend to
exercise options we hold under the convertible note hedge transactions whenever Notes are converted. In order to unwind their hedge position
with respect to those exercised options, the affiliates of UBS Investment Bank and Banc of America Securities LLC party to these transactions
expect to sell shares of our common stock in secondary market transactions or unwind various over-the-counter derivative transactions with
respect to our common stock during the conversion reference period for the converted Notes.
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