Vonage 2010 Annual Report Download - page 24

taxa
bl
e
i
ncome.
I
n genera
l
,ac
h
ange
i
n owners
hi
p occurs w
h
en
,
as of any testin
g
date, there has been a cumulative chan
g
einth
e
s
tock ownership of the corporation held b
y
5% stockholders o
f
more than 50 percenta
g
e points over an applicable three-yea
r
p
eriod. For these purposes, a 5% stockholder is
g
enerally an
y
p
erson or
g
roup of persons that at any time durin
g
an applicable
three-year period has owned 5
%
or more o
f
our outstandin
g
common stock. In addition,
p
ersons who own less than 5
%
o
f
th
e
outstandin
g
common stock are
g
rouped to
g
ether as one or more
“public
g
roup” 5% stockholders. Under Section 382, stoc
k
ownershi
p
would be determined under com
p
lex attribution rules
and
g
enerally includes shares held directly, indirectly (thou
gh
intervenin
g
entities), and constructively (by certain related parties
and certain unrelated parties actin
g
as a
g
roup)
.
The market price o
f
our common stock has been and ma
y
continue to be volatile, and
p
urchasers of our commo
n
stoc
k
cou
ld i
ncur su
b
stant
i
a
ll
osses.
S
ecurities markets experience si
g
nificant price and volum
e
fluctuations. This market volatility, as well as
g
eneral economic
conditions, could cause the market
p
rice of our common stock t
o
fluctuate substantially. The tradin
g
price of our common stock ha
s
b
een, and is likely to continue to be, volatile. Many factors that ar
e
b
eyond our control may si
g
ni
f
icantly a
ff
ect the market price o
f
our
s
h
a
r
es
.Th
ese fac
t
o
r
s
in
c
l
ude
:
>
c
han
g
es in our earnin
g
s or variations in operatin
g
results
;
>
a
n
y
short
f
all in revenue or increase in losses
f
rom levels
e
xpecte
dby
secur
i
t
i
es ana
ly
sts
;
>
jud
g
ments in our liti
g
ation;
>
c
han
g
es in re
g
ulatory policies or tax law;
>
o
perating performance of companies comparable to us
;
>
g
eneral economic trends and other external
f
actors; an
d
>
mar
k
et con
di
t
i
ons an
d
compet
i
t
i
ve pressures t
h
at prevent u
s
f
rom executing on our
f
uture growth initiatives
.
I
f
an
y
o
f
these
f
actors causes the price o
f
our common stoc
k
t
o
f
all, investors ma
y
not be able to sell their common stock at o
r
a
b
ove t
h
e
i
r respect
i
ve purc
h
ase pr
i
ces.
O
ur certificate of incorporation and bylaws, the agree-
ments
g
overnin
g
our indebtedness and the terms of cer-
ta
i
n sett
l
ement agreements to w
hi
c
h
we are a part
y
contain provisions that could delay or discoura
g
e a take-
over attem
p
t, which could
p
revent the com
p
letion of
a
transact
i
on
i
nw
hi
c
h
our stoc
kh
o
ld
ers cou
ld
rece
i
ve a
substantial
p
remium over the then-current market
p
rice
f
or their shares
.
C
ertain
p
rovisions of our restated certificate of incor
p
oratio
n
and our second amended and restated bylaws may make it mor
e
di
ff
icult
f
or, or have the e
ff
ect o
f
discoura
g
in
g
, a third party
f
rom
acquirin
g
control o
f
us or chan
g
in
g
our board o
f
directors an
d
mana
g
ement. These provisions:
>
p
ermit our board o
f
directors to issue additional shares o
f
c
ommon stock and
p
re
f
erred stock and to establish th
e
number of shares, series desi
g
nation, votin
g
powers (if any),
p
re
f
erences, other special ri
g
hts, quali
f
ications, limitations o
r
r
estrictions o
f
an
y
series o
f
pre
f
erred stock
;
>
limit the ability o
f
stockholders to amend our restated certi
f
i-
c
ate o
f
incor
p
oration and second amended and restate
d
b
ylaws, includin
g
supermajority requirements
;
>
a
llow onl
y
our board of directors,
C
hairman of the board o
f
d
irectors or
C
hief Executive
O
fficer to call special meetings o
f
o
ur stoc
kh
o
ld
ers
;
>
e
liminate the ability of stockholders to act by written consent
;
>
r
e
q
uire advance notice
f
or stockholder
p
ro
p
osals and director
nominations;
>
limit the removal of directors and the filling of director vacan
-
ci
es
;
an
d
>
e
stablish a classi
f
ied board o
f
directors with sta
gg
ered three
-
year terms.
I
n addition, a chan
g
eo
f
control would constitute an event o
f
default under our Credit Facility. Upon the occurrence of an even
t
o
f
de
f
ault, the lenders could elect to declare due and payabl
e
i
mmediately all amounts due under the Credit Facility, includin
g
principal and accrued interest, and may take action to
f
oreclos
e
u
pon the collateral securin
g
the indebtedness
.
U
nder our Credit Facility, a “chan
g
e of control” would result
f
rom the occurrence o
f
, amon
g
other thin
g
s, the acquisition by
any person or group (other than Mr. Citron and his majority-
controlled affiliates) of 35% or more of the voting and/or
economic interest o
f
our outstanding common stock on a
f
ully
-
dil
ute
db
as
i
s.
We encourage you to read the agreement in
f
ull, including the
definition of “change of control” therein. The
C
redit Facility has
been previously filed with the
S
ecurities and Exchange
C
ommis
-
sion as Exhibit 10.1 to a Form 8-K filed b
y
us on December 14,
2010.
Further
,
we were named as a defendant in several suits tha
t
related to patent infringement and entered into agreements t
o
settle certain of the suits in 2007.
C
ertain terms of those agree
-
m
ents,
i
nc
l
u
di
ng
li
censes an
d
covenants not to sue, w
ill be
restricted upon a change of control, which may discourage certai
n
potential purchasers from acquiring us.
S
uch provisions could have the effect of depriving stock-
h
olders of an opportunit
y
to sell their shares at a premium over
prevailin
g
market prices. Any delay or prevention of, or si
g
nificant
payments required to be made upon, a chan
g
e of control trans-
action or chan
g
es in our board of directors or mana
g
ement coul
d
deter
p
otential ac
q
uirors or
p
revent the com
p
letion of a trans
-
action in which our stockholders could receive a substantial
p
re-
m
ium over the then-current market
p
rice for their shares
.
17