Vonage 2008 Annual Report Download - page 20

If we re
q
uire additional ca
p
ital, we ma
y
not be able to
obtain additional financin
g
on favorable terms or at all.
W
e may need to pursue additional financing to respond t
o
n
ew compet
i
t
i
ve pressures, pa
y
extraor
di
nar
y
expenses suc
h
a
s
l
iti
g
ation settlements or jud
g
ments or respond to opportunities t
o
develop or acquire complementary businesses or technologies
.
Because of our si
g
nificant losses to date and our limited tan
g
ibl
e
assets, we do not
f
it traditional credit lendin
g
criteria, which, i
n
p
articular, could make it di
ff
icult
f
or us to obtain loans or t
o
access t
h
eca
pi
ta
l
mar
k
ets.
I
na
ddi
t
i
on, t
h
e cre
di
t
d
ocumentat
i
o
n
f
or our recent
f
inancin
g
contains a
ff
irmative and ne
g
ative cove
-
n
ants that a
ff
ect, and in many respects may signi
f
icantly limit o
r
p
rohibit, amon
g
other thin
g
s, our and certain of our subsidiaries
’
abilit
y
to incur, prepa
y
,re
f
inance or modi
fy
indebtedness an
d
create liens
.
We are and in the
f
uture may be subject to damaging and
di
srupt
i
ve
i
nte
ll
ectua
l
property
li
t
i
gat
i
on t
h
at cou
ld
materially and adversely a
ff
ect our business, results o
f
o
p
erations and financial condition, as well as the con-
tinued viabilit
y
of our com
p
an
y.
W
e have received notice that certain patents of a third part
y
m
a
y
be relevant to our business and we are named as a defend-
ant in a suit that relates to patent infrin
g
ement. See “Item 3.
–
Legal Proceedings – IP Matters.” In addition, we have been sub
-
ject to other infrin
g
ement claims in the past, includin
g
suits tha
t
we settled for a total of
$
243,825 with Verizon, Sprint, AT&T
,
Nortel Networks and others, and, given the rapid technologica
l
chan
g
e in our industry and our continual development of ne
w
p
roducts and services, we may be subject to in
f
rin
g
ement claim
s
i
n the
f
uture. We may be unaware o
ff
iled patent applications and
i
ssue
d
patents t
h
at cou
ld i
nc
l
u
d
ec
l
a
i
ms cover
i
n
g
our pro
d
ucts
a
n
dse
rvi
ces.
Parties making claims o
f
in
f
ringement may be able to obtai
n
i
njunctive or other equitable relief that could effectively block our
a
bili
t
y
to prov
id
e our serv
i
ces an
d
cou
ld
cause us to pa
y
su
b-
s
tantial royalties, licensing
f
ees or damages. The de
f
ense o
f
any
l
awsuit could divert management’s efforts and attention from th
e
or
di
nary
b
us
i
ness operat
i
ons an
d
resu
l
t
i
nt
i
me-consum
i
n
g
an
d
expensive litigation, regardless o
f
the merits o
f
such claims. These
ou
t
comes may
:
>
r
esult in the loss of a substantial number of existin
g
custom-
ers or prohibit the acquisition o
f
new customers;
>
lead to an event o
f
de
f
ault under the terms o
f
our Financin
g
d
ocuments, w
hi
c
h
cou
ld p
erm
i
tt
h
e
l
en
d
ers an
d
note
h
o
ld
ers
t
o
d
ec
l
are
d
ue an
d
pa
y
a
bl
e
i
mme
di
ate
ly
a
ll
amounts
d
ue
u
nder the Financing agreements, including principal, accrue
d
interest, a “make-whole”
p
remium and, in the case of th
e
C
onvertible Notes, liquidated dama
g
es and take action t
o
f
oreclose upon the collateral securing the indebtedness
;
>
cause us to acce
l
erate expen
di
tures to preserve ex
i
t
i
n
g
r
evenues;
>
cause existing or new vendors to require prepayments o
r
letters of credit
;
>
cause our cre
di
t car
d
processors to
d
eman
d
a
ddi
t
i
ona
l
r
eserves or letters o
f
credit or make holdbacks
;
>
r
esult in substantial employee layoffs
;
>
m
ateriall
y
and adversel
y
affect our brand in the market place
and cause a substantial loss o
f
goodwill;
>
c
ause our stock price to decline si
g
ni
f
icantly or otherwis
e
c
ause us to
f
ail to meet the continued listing requirements o
f
the NY
S
E, which could distract management and result in th
e
d
elistin
g
of our common stock from the exchan
g
e
;
>
materially and adversely affect our liquidity, including our abil
-
i
ty to pay
d
e
b
ts an
d
ot
h
er o
blig
at
i
ons as t
h
ey
b
ecome
d
ue
;
a
nd
>
l
ea
d
to our
b
an
k
ruptc
y
or
li
qu
id
at
i
on
.
W
e are current
l
ysu
bj
ect to secur
i
t
i
es c
l
ass act
i
on
li
t
i
-
g
ations, the unfavorable outcome of which mi
g
ht have
a
m
aterial adverse effect on our financial condition
,
results
of
o
p
erations and cash
f
lows.
A number o
fp
utative class action lawsuits have been
f
ile
d
ag
ainst us, certain of our officers and directors, and the lead
underwriters o
f
our initial public o
ff
erin
g
, alle
g
in
g
, amon
g
othe
r
things, securities laws violations. On January 9, 2007, the Judicia
l
Panel on Multidistrict Liti
g
ation transferred all complaints to th
e
District of New Jerse
y
. On November 19, 2007, the plaintiffs file
d
a
consolidated Amended Complaint, which generally alleges:
(
i
)
we made misstatements re
g
ardin
g
subscriber line
g
rowth and
a
vera
g
e monthly churn rate; (ii) we failed to disclose problems
w
ith
f
acsimile transmissions and a pending
f
ax litigation case
;
(
iii
)
we failed to disclose all patent infrin
g
ement claims and issues
;
a
nd (iv) that the Directed Share Pro
g
ram suffered from various
i
nfirmities. On Januar
y
18, 2008, we filed our motions to dismis
s
the Amended
C
omplaint. Briefing on the matter was completed by
April 2, 2008 and the Court heard oral ar
g
ument on October 10,
2008. The Court has not
y
et ruled on the motion. We canno
t
d
etermine the outcome or resolution of these claims or the timing
f
or their resolution. In addition to the expense and burden
i
ncurred in de
f
ending this litigation and any damages that we ma
y
s
uffer, our management’s efforts and attention may be diverte
d
from the ordinar
y
business operations in order to address thes
e
c
laims. I
f
the
f
inal resolution o
f
this litigation is un
f
avorable to us,
o
ur financial condition, results of operations and cash flows ma
y
b
e materially adversely affected if our existin
g
insurance covera
g
e
i
s unavailable or inadequate to resolve the matter
.
W
e may incur signi
f
icant costs and harm to our reputation
f
rom lawsuits and regulatory inquiries related to our busi
-
n
ess
p
ractices, which ma
y
also divert the attention of our
m
ana
g
ement from other aspects of our business.
W
e
h
ave
b
een name
di
n severa
lp
ur
p
orte
d
c
l
ass act
i
ons
i
n
C
alifornia, New Jersey, and Washin
g
ton alle
g
in
g
a wide variety of
d
e
f
iciencies with respect to our business practices, marketin
g
d
isclosures, e-mail marketing and quality issues for both phone
a
nd fax service. We have also been subject to periodic re
g
ulator
y
i
nquiries regarding our business practices, including an ongoing
i
nvestigation by a group of 28 states’ attorney generals into cer-
tain of our business practices for which we have received 2
2
d
ocument requests. Class action litigation and regulatory inquiries
o
f these types are often expensive and time consuming and thei
r
o
utcome ma
yb
e uncerta
i
n
.
Any such claims or re
g
ulatory inquiries, whether success
f
ul
o
r not, could require us to devote signi
f
icant amounts o
f
monetar
y
o
rh
u
m
a
nr
esou
r
ces
t
ode
f
e
n
dou
r
se
lv
es a
n
d cou
l
d
h
a
rm
our
reputation. We may need to spend si
g
ni
f
icant amounts on ou
r
l
egal de
f
ense, senior management may be required to divert thei
r
a
ttention from other
p
ortions of our business, new
p
roduct
12
VO
NA
G
E ANN
U
AL REP
O
RT 2008