Vonage said the Verizon patent suit could force the VOIP provider into bankruptcy.
Vonage made that statement in its annual report filed with the Securities and Exchange Commission. While the Verizon patent suit was expected to be a risk factor for Vonage bankruptcy goes a little beyond the standard boilerplate fare.
An adverse ruling--Vonage says it'll appeal Verizon's lawsuit as long as it can (probably two years or so)--would set off a chain reaction that doesn't bode well for the company or its customers. If Verizon were to win its lawsuit it could:
- "result in the loss of a substantial number of existing customers or prohibit the acquisition of new customers;
- lead to an event of default under the terms of our convertible notes, which could accelerate the payment of approximately $253.6 million of principal and interest under our notes;
- cause us to accelerate expenditures to preserve existing revenues;
- cause existing or new vendors to require prepayments or letters of credit;
- cause us to lose access to key distribution channels;
- result in substantial employee layoffs or risk the permanent loss of highly-valued employees;
- materially and adversely affect our brand in the market place and cause a substantial loss of goodwill;
- cause our stock price to decline significantly or otherwise cause us to fail to meet the continued listing requirements of the New York Stock Exchange, which could result in the delisting of our common stock from the Exchange;
- materially and adversely affect our liquidity, including our ability to pay debts and other obligations as they become due; and
- lead to the bankruptcy or liquidation of the company."
That's quite a mouthful. Now some folks would say these risk factors lay out scenarios that rarely come to fruition. Wrong. You'd be surprised how many times these risk factors turn out to be prophetic. Vonage better hope that Sprint is interested in the company. After that SEC filing, the price tag for Vonage probably just fell.