Earthlink 2010 Annual Report Download - page 118

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Table of Contents
EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
restricted subsidiary. The guarantees are the subsidiary guarantors' general senior obligations and rank equally in right of payment with all of the
subsidiary guarantors' existing and future senior indebtedness.
The indenture governing the ITC^DeltaCom Notes contains covenants that, among other things, limit ITC^DeltaCom's ability, and the
ability of ITC^DeltaCom's restricted subsidiaries, to incur additional indebtedness, create liens, pay dividends on, redeem or repurchase
ITC^DeltaCom's capital stock, make investments or repay subordinated indebtedness, engage in sale-
leaseback transactions, enter into
transactions with affiliates, sell assets, create restrictions on dividends and other payments to ITC^DeltaCom from its subsidiaries, issue or sell
stock of subsidiaries, and engage in mergers and consolidations. All of the covenants are subject to a number of important qualifications and
exceptions under the indenture.
As of December 31, 2010, the fair value of the ITC^DeltaCom Notes was approximately $352.6 million, based on quoted market prices.
EarthLink Convertible Senior Notes due November 15, 2026
In November 2006, EarthLink issued $258.8 million aggregate principal amount of Convertible Senior Notes due November 15, 2026 (the
"EarthLink Notes") in a registered offering. The Company received net proceeds of $251.6 million after transaction fees of $7.2 million. The
EarthLink Notes bear interest at 3.25% per year on the principal amount of the EarthLink Notes until November 15, 2011, and 3.50% interest per
year on the principal amount of the EarthLink Notes thereafter, payable semi
-
annually in May and November of each year. The EarthLink Notes
rank as senior unsecured obligations of the Company.
The EarthLink Notes are payable with cash and, if applicable, are convertible into shares of the Company's common stock. The initial
conversion rate was 109.6491 shares per $1,000 principal amount of EarthLink Notes (which represented an initial conversion price of
approximately $9.12 per share). As a result of the Company's cash dividend payments, the conversion rate has been adjusted and was 121.9549
shares per $1,000 principal amount of EarthLink Notes as of December 31, 2010 (which represents a conversion price of approximately $8.20
per share), subject to further adjustment. Upon conversion, a holder will receive cash up to the principal amount of the EarthLink Notes and, at
the Company's option, cash, or shares of the Company's common stock or a combination of cash and shares of common stock for the remainder,
if any, of the conversion obligation. The conversion obligation is based on the sum of the "daily settlement amounts" for the 20 consecutive
trading days that begin on, and include, the second trading day after the day the EarthLink Notes are surrendered for conversion. The EarthLink
Notes will be convertible only in the following circumstances: (1) during any calendar quarter after the calendar quarter ending December 31,
2006 (and only during such calendar quarter), if the closing sale price of the Company's common stock for each of 20 or more trading days in a
period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the
conversion price in effect on the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days
immediately after any five consecutive trading day period in which the average trading price per $1,000 principal amount of EarthLink Notes
was equal to or less than 98% of the average conversion value of the EarthLink Notes during the note measurement period; (3) upon the
occurrence of specified corporate transactions, including the payment of dividends in certain circumstances; (4) if the Company has called the
EarthLink Notes for redemption; and (5) at any time from, and including, October 15, 2011 to, and including, November 15, 2011 and at any
time on or after November 15, 2024. The Company has the option to redeem the EarthLink Notes, in whole or in part, for cash, on or after
November 15, 2011, provided that the Company has made at least ten semi
-
annual interest payments. In addition, the holders may require the
Company to purchase all or a portion of their EarthLink Notes on each of November 15, 2011, November 15, 2016 and November 15, 2021.
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