<PAGE> 1
REGISTRATION NO. 333-59889
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 9, 1998
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PARK 'N VIEW, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 4899 65-0612435
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
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11711 N.W. 39TH STREET
CORAL SPRINGS, FLORIDA 33065
(954) 745-7800
(Address, including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
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STEPHEN L. CONKLING
PRESIDENT AND CHIEF OPERATING OFFICER
PARK 'N VIEW, INC., 11711 N.W. 39TH STREET, CORAL SPRINGS, FLORIDA 33065
(954) 745-7800
(Name, Address, including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
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COPIES TO:
ELIZABETH G. WREN, ESQ.
JAMES M. O'CONNELL, ESQ.
KILPATRICK STOCKTON LLP
3500 ONE FIRST UNION CENTER, CHARLOTTE, NORTH CAROLINA 28202
(704) 338-5123
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 9, 1998
PROSPECTUS
PARK 'N VIEW, INC.
OFFER TO EXCHANGE
SERIES B 13% SENIOR NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
SERIES A 13% SENIOR NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.
Park 'N View, Inc., a Delaware corporation (the "Company"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying letter of transmittal (the "Letter of Transmittal" and such
offer, the "Exchange Offer"), to exchange Series B 13% Senior Notes due 2008 of
the Company (the "New Notes"), which have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to a Registration
Statement of which this Prospectus forms a part, for an equal principal amount
of outstanding Series A 13% Senior Notes due 2008 of the Company (the "Old
Notes"), of which $75,000,000 aggregate principal amount is outstanding as of
the date hereof. The New Notes and the Old Notes are collectively referred to
herein as the "Notes."
Any and all Old Notes that are validly tendered and not withdrawn on or
prior to 5:00 P.M., New York City time, on the date the Exchange Offer expires,
which will be , 1998 (30 calendar days following the commencement of
the Exchange Offer) unless the Exchange Offer is extended (such date, including
as extended, the "Expiration Date"), will be accepted for exchange. Tenders of
Old Notes may be withdrawn at any time prior to 5:00 P.M., New York City time on
the Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. However, the Exchange
Offer is subject to certain customary conditions, which may be waived by the
Company, and to the terms of the Registration Rights Agreement, dated as of May
27, 1998, by and among the Company and Donaldson, Lufkin & Jenrette Securities
Corporation (the "Initial Purchaser") (the "Registration Statement"). Old Notes
may only be tendered in integral multiples of $1,000. See "The Exchange Offer."
The New Notes will be entitled to the benefits of the Indenture that
governs the Old Notes and that will govern the New Notes by and between the
Company and State Street Bank and Trust Company (as trustee), dated as of May
27, 1998 (the "Indenture"). The form and terms of the New Notes are the same in
all material respects as the form and terms of the Old Notes, except that the
New Notes have been registered under the Securities Act and therefore will not
bear legends restricting the transfer thereof. See "The Exchange Offer" and
"Description of the New Notes."
The New Notes will be represented by permanent global notes (the "Global
Notes") in fully registered form and will be deposited with, or on behalf of,
The Depository Trust Company ("DTC") and registered in the name of a nominee of
DTC. Beneficial interests in the Global Notes will be shown on, and transfers
thereof will be effected through, records maintained by DTC and its
participants.
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission"), as set forth in no-action letters issued to third
parties, including Exxon Capital Holdings Corporation, SEC No-Action Letter
(available May 13, 1988), Morgan Stanley & Co. Incorporated, SEC No-Action
Letter (available June 5, 1991) and Shearman & Sterling, SEC No-Action Letter
(available July 2, 1993) (collectively, the "Exchange Offer No-Action Letters"),
the Company believes that the New Notes issued pursuant to the Exchange Offer
may be offered for resale, resold or otherwise transferred by each holder (other
than a broker-dealer who acquires such New Notes directly from the Company for
resale pursuant to Rule 144A under the Securities Act or any other available
exemption under the Securities Act and other than any holder that is an
"affiliate" (as defined in Rule 405 under the Securities Act) of the Company)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and such holder is not engaged in, and does
(continued on next page)
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FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PARTICIPANTS IN THE EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF
THIS PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 3
(cover page continued)
not intend to engage in, a distribution of such New Notes and has no arrangement
with any person to participate in a distribution of such New Notes. By tendering
Old Notes in exchange for New Notes, each holder, other than a broker-dealer,
will represent to the Company that: (i) it is not an affiliate (as defined in
Rule 405 under the Securities Act) of the Company; (ii) it is not a
broker-dealer tendering Old Notes acquired for its own account directly from the
Company; (iii) any New Notes to be received by it will be acquired in the
ordinary course of its business; and (iv) it is not engaged in, and does not
intend to engage in, a distribution of such New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. If a holder of Old
Notes is engaged in or intends to engage in a distribution of New Notes or has
any arrangement or understanding with respect to the distribution of New Notes
to be acquired pursuant to the Exchange Offer, such holder may not rely on the
applicable interpretations of the staff of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer (a "Participating Broker-Dealer") must acknowledge that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities. Pursuant to the
Registration Rights Agreement, the Company has agreed that it will make this
Prospectus available to any Participating Broker-Dealer for a period of time not
to exceed one year after the date on which the Exchange Offer is consummated for
use in connection with any such resale. See "Plan of Distribution."
The Company will not receive any proceeds from this offering. The Company
has agreed to pay the expenses of the Exchange Offer. No underwriter is being
utilized in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES AND BLUE SKY LAWS OF SUCH JURISDICTION.
The Old Notes have been designated as eligible for trading in the Private
Offerings, Resale and Trading through Automated Linkages ("PORTAL") market.
Prior to the Exchange Offer, there has been no public market for the New Notes.
If such a market were to develop, the New Notes could trade at prices that may
be higher or lower than their principal amount. The Company does not intend to
apply for listing of the New Notes on any securities exchange or for quotation
of the New Notes on The Nasdaq Stock Market's National Market or otherwise. The
Initial Purchaser has previously made a market in the Old Notes, and the Company
has been advised that the Initial Purchaser currently intends to make a market
in the New Notes, as permitted by applicable laws and regulations, after
consummation of the Exchange Offer. The Initial Purchaser is not obligated,
however, to make a market in the Old Notes or the New Notes and any such market
making activity may be discontinued at any time without notice at the sole
discretion of the Initial Purchaser. There can be no assurance as to the
liquidity of the public market for the New Notes or that any active public
market for the New Notes will develop or continue. If an active public market
does not develop or continue, the market price and liquidity of the New Notes
may be adversely affected. See "Risk Factors -- Lack of Public Market for the
New Notes."
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act with respect to the
Securities being offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto, to
which reference is hereby made. The Registration Statement and the exhibits
thereto may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and will also be available for inspection and
copying at the regional offices of the Commission located at 7 World Trade
Center, New York, New York 10048 and at Northwestern Atrium Center, 500 West
Madison Street (Suite 1400), Chicago, Illinois 60661. Copies of such material
may also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
also maintains a web site that contains reports, proxy statements and other
information regarding registrants, including the Company, that file such
information electronically with the Commission. The address of the Commission's
web site is http://www.sec.gov.
As a result of the filing of the Registration Statement with the
Commission, the Company will become subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will be required to file periodic reports and other
information with the Commission. Pursuant to the Indenture, the Company has
agreed to file with the Commission, to the extent permitted, and provide to the
holders of the Notes, reports, information and documents which are required to
be delivered pursuant to Sections 13 and 15(d) of the Exchange Act so long as
the Notes are outstanding, whether or not the Company is subject to the
informational requirements of the Exchange Act.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements under the
captions "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere, including statements regarding, among other items, the
Company's anticipated strategies, installation of the integrated
telecommunications and entertainment network originated and operated by the
Company (the "PNV Network" or "Network") at a significant number of additional
sites, expansion of the functionality and capacity of the PNV Network,
additional telecommunications and other services to be offered through the PNV
Network, cost savings, expenditures and cash requirements. Such forward-looking
statements involve known and unknown risks, uncertainties and other important
factors that could cause the actual results, performance or achievements of the
Company to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
risks, uncertainties and other factors include, among others: general economic
and business conditions and industry trends; uncertainties inherent in proposed
business strategies and development plans; future financial performance,
including availability, terms and deployment of capital; inability to increase
subscription sales or realize expected cost savings; market demand for the
Company's current and planned telecommunications and entertainment services and
products; technological developments; competitive developments in the
telecommunications, cable and long-haul trucking industry; the ability of
vendors to deliver required equipment; availability of qualified personnel;
changes in, or the failure or inability to comply with, government regulation,
including, without limitation, regulations of the Federal Communications
Commission, and adverse outcomes from regulatory proceedings; changes in the
nature of key contractual relationships with truckstops and/or fleet trucking
companies; market acceptance of the pricing of the Company's services and
products; and other factors referenced in this Prospectus. See "Risk Factors."
These forward-looking statements speak only as of the date of this Prospectus.
The Company expressly disclaims any obligation or undertaking to disseminate any
updates or revisions to any forward-looking statement contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.
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Certain market data used throughout this Prospectus were obtained from
industry and government sources. The Company has not independently verified this
market data.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Capitalized terms used and not otherwise defined
in this summary have the meanings given to them elsewhere in this Prospectus. As
used in this Prospectus unless otherwise indicated, references to the Company's
fiscal year means the fiscal year ended June 30.
THE COMPANY
The Company originated and operates the PNV Network, the only currently
integrated telecommunications and entertainment network currently capable of
providing voice, data and cable television services to long-haul truck drivers
in the convenience and privacy of their trucks while parked at truckstops. The
Company markets and sells subscriptions to its Network to fleet trucking
companies and individual long-haul truck drivers. Based on independent market
research by Fletcher Spaght, Inc., which was commissioned by the Company to
conduct the research, and industry data, the Company believes that there are
between 800,000 and 1,000,000 long-haul truck drivers in the United States.
During June 1998, the Company had over 25,000 active subscribers, an increase of
over 166% from the approximately 9,400 subscribers it had in July 1997. The
Company was formed in September 1995 and, as of June 30, 1998, had installed the
PNV Network in 118 truckstops located in 38 states across the United States.
The Company believes that both long-haul drivers and fleet trucking
companies have a need for a more comprehensive, cost-effective and easily
accessible voice and data communications and entertainment solution than
currently available alternatives. The Company believes that this market need
combined with the absence of an effective current solution provides the Company
with the opportunity to become the leading provider of integrated
telecommunications and entertainment services to the long-haul trucking
industry. The Company plans to realize this opportunity by (i) increasing the
number of locations served by its Network to a "critical mass" of truckstops
(which the Company believes to be between 200 and 250 strategically located
truckstops), and then to continue the build-out of the Network to approximately
650 sites in total, and (ii) significantly enhancing the functionality and
capacity of its Network to create a broadband, cost competitive private
telecommunications network for the long-haul trucking industry.
The telecommunications services currently provided include: (i) local and
long distance calling, in-coming calls, voice mail services and driver location;
(ii) data connectivity; (iii) access to the Internet; and (iv) other
telecommunications services, including wake up calls and the ability to offer
call waiting and call conferencing. The cable television service offers 18 cable
viewing channels, including premium and local programming, a Pay-Per-View
channel and a dedicated advertising channel.
The long-haul trucking industry's operational characteristics require
significant reliance on telecommunications. Based on industry data, Company
research and data from the Company's switch, the Company believes that long-haul
fleet trucking companies and drivers spend over $2.4 billion annually on long
distance services (not including data, Internet and messaging). According to
data generated from the Company's switch and Company research, the average
long-haul truck driver that logs on to the Network uses approximately 1,200
minutes of long distance a month, spending approximately $250 per month.
While on the road, drivers use full service truckstops for fueling, eating,
showering, parking for rest periods (which are required by federal law),
overnight stays and for layovers between hauls. These truckstops are the primary
location at which drivers conduct their business while on the road. Currently,
voice, data communication, Internet connectivity and entertainment options for
the individual long-haul truck drivers and for the fleet trucking companies
trying to communicate with their drivers at these truckstops are limited,
relatively expensive and inaccessible.
There are over 2,100 truckstops in the United States located on the
interstate highway system, of which the Company believes approximately 1,100 are
full service truckstops that provide more services than just fuel. The Company
has entered into long-term contracts pursuant to which eight of the ten largest
full service truckstop chains and associations in the United States, including
TA Operating Corporation, Petro Stopping
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Centers, Inc., Pilot Corporation, and Professional Transportation Partners, LLC,
have granted the Company the exclusive right to provide telecommunications and
entertainment services to drivers in their cabs at their truckstops. Of the
approximately 751 full-service truckstops under contract as of June 30, 1998,
approximately 413 are covered by contracts directly with the truckstop owner and
approximately 338 are covered by contracts with associations which require the
Company to enter into a contract directly with the truckstop owner to install
the PNV Network. The Company also believes that these approximately 751
full-service truckstops are among the most heavily trafficked and are located
along the busiest truck routes in the United States. The Company believes that
the truckstop owners are highly incentivized to support the success of the
Company as: (i) the contracts contain provisions for revenue and profit sharing
with the Company; (ii) the PNV Network is a means for competitive
differentiation; and (iii) the PNV Network is an amenity that many long-haul
truck drivers have been requesting.
The Company markets to fleet trucking companies through a direct sales
force and plans to focus a significant portion of its marketing efforts on large
and medium size fleet trucking companies. The Company recently signed contracts
with five fleet trucking companies that have purchased monthly subscriptions for
an aggregate of approximately 2,329 drivers for periods ranging from one to
three years, subject to certain earlier termination rights.
Since its formation in September 1995, the Company has received
approximately $112.4 million in financing through the issuance of three classes
of preferred stock, common stock and certain debt, in addition to the net
proceeds of the sale by the Company of the Old Notes on May 27, 1998 to the
Initial Purchaser pursuant to a purchase agreement dated May 20, 1998 (the
"Purchase Agreement"), together with certain warrants (the "Warrants") to
purchase shares of the Company's common stock, par value $.001 per share
("Common Stock"), in the form of units (the "Units") (such sale, the "Unit
Offering"). The Company believes, based on its current estimates, that the net
proceeds of the Unit Offering, together with existing cash and cash generated by
operations, will be sufficient to finance the continued installation of the PNV
Network and the expansion of services offered through the PNV Network through
the first half of 2000. The actual amount and timing of the Company's future
capital requirements may differ materially from the Company's estimates as a
result of, among other things, the demand for the Company's telecommunications
and cable television services and regulatory, technological and competitive
developments in the telecommunications, cable and long-haul trucking industries.
The Company also expects that it will require additional financing (or require
financing sooner than anticipated) if the Company's development plans or
projections change or prove to be inaccurate or the Company accelerates or
delays the expansion of either the installation of the PNV Network or the
services offered through the PNV Network. Sources of additional financing may
include commercial bank borrowings, equipment leasing or private or public sale
of equity or debt securities. There can be no assurance that such financing will
be available on terms acceptable to the Company or at all. See "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company has experienced a net loss and negative cash flow from
operations since it was incorporated and, as of June 30, 1998, had a common
stockholders' deficit of $20.3 million and total long-term debt of $70.6
million. The future success of the Company depends upon, among other things, its
ability to (i) satisfy its future capital requirements on terms satisfactory to
the Company, (ii) significantly increase its revenues which, in turn, depends
materially upon its ability to increase the number of subscribers to the PNV
Network, (iii) install the PNV Network at a significant number of additional
truckstops and add T-1 lines and certain additional equipment at all truckstops
at which the PNV Network is available, all on a timely and cost-effective basis,
and (iv) generate revenues from planned future services and recognize
cost-savings from planned enhancements to the PNV Network. See "Risk Factors."
The Company was incorporated in Delaware in September 1995. The Company's
principal executive offices are located at 11711 NW 39th Street, Coral Springs,
Florida 33065 and its telephone number is (954) 745-7800.
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RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific risk
factors set forth under the caption "Risk Factors," beginning on page 10, for a
discussion of certain risks involved with an investment in the New Notes
including, without limitation, those risks associated with the Company's (i)
limited history of operations, (ii) history of losses and negative cash flow,
(iii) future significant capital requirements, (iv) ability to significantly
increase revenues and (v) substantial leverage and ability to service its
indebtedness (including the Notes).
THE OLD NOTES OFFERING
Old Notes.................. The Old Notes were sold by the Company on May 27,
1998 to the Initial Purchaser pursuant to the
Purchase Agreement together with the Warrants in
the form of the Units. The Initial Purchaser
subsequently resold the Units to qualified
institutional buyers pursuant to Rule 144A under
the Securities Act.
Registration Rights
Agreement.................. Pursuant to the Purchase Agreement, the Company and
the Initial Purchaser entered into a Registration
Rights Agreement dated May 27, 1998 (the
"Registration Rights Agreement"), providing for,
among other things, the Exchange Offer.
SUMMARY OF THE EXCHANGE OFFER
The Exchange Offer......... The New Notes are being offered in exchange for an
equal principal amount of Old Notes. As of the date
hereof, $75,000,000 aggregate principal amount of
Old Notes is outstanding. Old Notes may be tendered
only in integral multiples of $1,000.
Resale of New Notes........ Based on interpretations by the staff of the
Commission, as set forth in no-action letters
issued to third parties, including the Exchange
Offer No-Action Letters, the Company believes that
the New Notes issued pursuant to the Exchange Offer
may be offered for resale, resold or otherwise
transferred by each holder thereof (other than a
broker-dealer who acquires such New Notes directly
from the Company for resale pursuant to Rule 144A
under the Securities Act or any other available
exemption under the Securities Act and other than
any holder that is an "affiliate" (as defined under
Rule 405 of the Securities Act) of the Company)
without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in
the ordinary course of such holder's business and
such holder is not engaged in, and does not intend
to engage in, a distribution of such New Notes and
has no arrangement with any person to participate
in a distribution of such New Notes. By tendering
the Old Notes in exchange for New Notes, each
holder, other than a broker-dealer, will represent
to the Company that: (i) it is not an affiliate (as
defined in Rule 405 under the Securities Act) of
the Company; (ii) it is not a broker-dealer
tendering Old Notes acquired for its own account
directly from the Company; (iii) any New Notes to
be received by it were acquired in the ordinary
course of its business; and (iv) it is not engaged
in, and does not intend to engage in, a
distribution of such New Notes and has no
arrangement or understanding to participate in a
distribution of the New Notes. If a holder of Old
Notes is engaged in or intends to engage in a
distribution of the New Notes or has any
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<PAGE> 8
arrangement or understanding with respect to the
distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such holder may not
rely on the applicable interpretations of the staff
of the Commission and must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any
secondary resale transaction. Each Participating
Broker-Dealer that receives New Notes for its own
account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of such New Notes. The
Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer
in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer as a
result of market-making activities or other trading
activities. The Company has agreed that it will
make this Prospectus available to any Participating
Broker-Dealer for a period of time not to exceed
one year after the date on which the Exchange Offer
is consummated for use in connection with any such
resale. See "Plan of Distribution." To comply with
the securities laws of certain jurisdictions, it
may be necessary to qualify for sale or register
the New Notes prior to offering or selling such New
Notes. The Company has agreed, pursuant to the
Registration Rights Agreement and subject to
certain specified limitations therein, to register
or qualify the New Notes for offer or sale under
the securities or "blue sky" laws of such
jurisdictions as may be necessary to permit
consummation of the Exchange Offer.
Consequences of Failure to
Exchange Old Notes....... Upon consummation of the Exchange Offer, subject to
certain exceptions, holders of Old Notes who do not
exchange their Old Notes for New Notes in the
Exchange Offer will no longer be entitled to
registration rights and will not be able to offer
or sell their Old Notes unless such Old Notes are
subsequently registered under the Securities Act
(which, subject to certain limited exceptions, the
Company will have no obligation to do), except
pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable
state securities laws. See "Risk
Factors -- Consequences of Failure to Exchange" and
"The Exchange Offer -- Terms of the Exchange
Offer."
Expiration Date............ 5:00 p.m., New York City time, on ,
1998 (30 calendar days following the commencement
of the Exchange Offer), unless the Exchange Offer
is extended, in which case the term "Expiration
Date" means the latest date and time to which the
Exchange Offer is extended.
Conditions to the Exchange
Offer.................... The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered for exchange. However, the Exchange Offer
is subject to certain customary conditions, which
may, under certain circumstances, be waived by the
Company. See "The Exchange Offer -- Conditions."
Except for the requirements of applicable federal
and state securities laws, there are no federal or
state
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<PAGE> 9
regulatory requirements to be complied with or
obtained by the Company connection in with the
Exchange Offer.
Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, in accordance with the
instructions contained herein and therein, and mail
or otherwise deliver such Letter of Transmittal,
together with the Old Notes to be exchanged and any
other required documentation to the Exchange Agent
at the address set forth herein or effect a tender
of Old Notes pursuant to the procedures for
book-entry transfer as provided for herein. See
"The Exchange Offer -- Procedures for Tendering"
and " -- Book-Entry Transfer."
Guaranteed Delivery........ Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes and
a properly completed Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date may tender their Old Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights.......... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. To withdraw a tender of Old Notes,
a written notice of withdrawal must be received by
the Exchange Agent at its address set forth herein
under "The Exchange Offer -- Exchange Agent" prior
to 5:00 p.m., New York City time, on the Expiration
Date.
Acceptance of Old Notes and
Delivery of New Notes.... Subject to certain conditions, any and all Old
Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date will be accepted for exchange.
The New Notes issued pursuant to the Exchange Offer
will be delivered promptly following the Expiration
Date. See "The Exchange Offer -- Terms of the
Exchange Offer."
Tax Considerations......... A holder of Old Notes will not recognize any
taxable gain or loss on the exchange of Old Notes
for New Notes pursuant to the Exchange Offer. See
"Federal Income Tax Considerations."
Exchange Agent............. State Street Bank and Trust Company is serving as
exchange agent (the "Exchange Agent") in connection
with the Exchange Offer.
Fees and Expenses.......... All expenses incident to consummation of the
Exchange Offer and compliance with the Registration
Rights Agreement will be borne by the Company. See
"The Exchange Offer -- Fees and Expenses."
Use of Proceeds............ There will be no cash proceeds payable to the
Company from the issuance of the New Notes pursuant
to the Exchange Offer. See "Use of Proceeds."
SUMMARY OF TERMS OF THE NEW NOTES
The form and terms of the New Notes are identical in all material respects
to the Old Notes, except for certain transfer restrictions and registration
rights relating to the Old Notes. The Old Notes will evidence the
5
<PAGE> 10
same debt as the New Notes and both series of Notes will be entitled to the
benefits of the Indenture and treated as a single class of debt securities
thereunder. See "Description of the New Notes."
Securities Offered......... $75,000,000 principal amount of Series B 13% Senior
Notes due 2008.
Maturity Date.............. May 15, 2008.
Interest................... Interest on the New Notes will accrue at the rate
of 13% per annum and will be payable semi-annually
in arrears on May 15 and November 15 of each year,
commencing on November 15, 1998. The Company placed
$19.2 million of the net proceeds of the Unit
Offering into an escrow account (the "Escrow
Account") that was used to purchase a portfolio of
U.S. Government Obligations (the "Pledged
Securities"). The Escrow Account and the Pledged
Securities have been pledged as security for
payment of the first four scheduled interest
payments on the Notes and, under certain
circumstances, as security for repayment of
principal of the Note. See "Description of the New
Notes -- Disbursement of Funds; Escrow Account."
Mandatory Redemption....... The Company will not be required to make mandatory
redemption or sinking fund payments with respect to
the New Notes.
Optional Redemption........ The New Notes will not be redeemable prior to May
15, 2003. Thereafter, the New Notes will be
redeemable at the option of the Company, in whole
or in part, at the redemption prices set forth
herein, plus accrued and unpaid interest and all
liquidated damages then owing pursuant to the
Registration Rights Agreement (the "Liquidated
Damages"), if any, thereon to the applicable
redemption date. See "Description of the New
Notes -- Optional Redemption." Notwithstanding the
foregoing, prior to May 15, 2001, the Company, at
its option may redeem up to 35% of the then
outstanding New Notes with the net proceeds from an
underwritten public offering of Common Stock of the
Company pursuant to an effective registration
statement filed under the Securities Act that
results in $25.0 million or more of gross proceeds
to the Company (the "Initial Public Equity
Offering"), at a redemption price equal to 113% of
the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any,
thereon to the redemption date; provided that at
least 65% in aggregate principal amount of New
Notes originally issued remain outstanding
immediately after the occurrence of such
redemption.
Original Issue Discount.... A holder of Old Notes will not recognize any
taxable gain or loss on the exchange of Old Notes
for New Notes pursuant to the Exchange Offer, as
previously mentioned, and such holder's tax basis
and holding period in the New Notes will be the
same as in the Old Notes. A New Note will be issued
with original issue discount for federal income tax
purposes equal to the difference, if any, between
the stated redemption price at maturity on the New
Note (i.e., all payments thereon, other than
payments of qualified stated interest) and the fair
market value of the Old Note exchanged therefor, as
determined on the first date that a substantial
amount of New Notes are issued in exchange for Old
Notes. Original issue discount on the New Notes
will be included in gross income by a holder under
a constant yield accrual method regardless of the
holder's regular method of tax accounting, and thus
this income generally will be included in a
holder's gross income in advance of the
6
<PAGE> 11
receipt of cash payments to which the income
relates. See "Certain Federal Income Tax
Considerations."
Change of Control.......... Upon the occurrence of a Change of Control (as
defined in "Description of the New
Notes -- Repurchase at the Option of Holders"),
holders of the New Notes will have the right to
require the Company to repurchase all or any part
of such holder's Notes at an offer price in cash
equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of
purchase. If a Change of Control were to occur,
there can be no assurance that the Company would
have sufficient financial resources, or would be
able to arrange financing, to pay the repurchase
price for all Notes tendered by holders thereof.
See "Risk Factors -- Risk of Inability to
Repurchase Notes Upon a Change of Control."
Ranking.................... The New Notes will be general senior obligations of
the Company, will rank pari passu in right of
payment with all existing and future senior
indebtedness of the Company and will rank senior in
right of payment to all existing and future
subordinated indebtedness of the Company. As of
September 10, 1998, the Company had no indebtedness
ranking pari passu with the Notes.
Covenants.................. The Indenture contains covenants that, among other
things: (i) limit the incurrence by the Company and
its Subsidiaries of additional indebtedness; (ii)
limit the issuance by the Company of Disqualified
Stock (as defined); (iii) restrict the ability of
the Company and its Subsidiaries to make dividends
and other restricted payments or investments; (iv)
limit the ability of the Company and its
Subsidiaries to enter into sale-leaseback
transactions; (v) limit transactions by the Company
and its Subsidiaries with affiliates; (vi) limit
the ability of the Company and its Subsidiaries to
make asset sales; (vii) limit the ability of the
Company and its Subsidiaries to incur certain
liens; and (viii) limit the ability of the Company
to consolidate or merge with or into, or to
transfer all or substantially all of its assets to,
another person.
7
<PAGE> 12
SUMMARY FINANCIAL DATA
The summary financial data for the Predecessor for the period from January
1, 1995 to November 2, 1995, and for the Successor for the period from September
18, 1995 (Successor's date of incorporation) to June 30, 1996 and the years
ended June 30, 1997 and 1998 set forth below are derived from the audited
financial statements of the Predecessor and the Successor for such periods
included elsewhere in this Prospectus. The summary financial data set forth
below for the Predecessor for the year ended December 31, 1994 are derived from
audited financial information. These historical results are not necessarily
indicative of the results that may be expected in the future. The summary
financial data are qualified by reference to and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," the financial statements and notes thereto and other financial data
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR(1) SUCCESSOR(1)
--------------------------- -----------------------------------------------
PERIOD FROM
PERIOD FROM SEPTEMBER 18,
JANUARY 1, 1995 (DATE OF
YEAR ENDED 1995 TO INCORPORATION) YEAR ENDED YEAR ENDED
DECEMBER 31, NOVEMBER 2, TO JUNE 30, JUNE 30, JUNE 30,
1994 1995 1996 1997 1998
------------ ------------ --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $ 149,755 $ 888,397 $ 3,503,776
Cost of revenues(2)................... 436,829 2,077,689 6,598,993
Selling, general and administrative
expenses............................ $ 287,782 $ 475,891 1,576,209 5,026,580 10,413,622
----------- ----------- ----------- ------------ ------------
Loss from operations.................. (287,782) (475,891) (1,863,283) (6,215,872) (13,508,839)
Interest (expense) income and other,
net................................. (97,954) 170,852 (224,908)
----------- ----------- ----------- ------------ ------------
Net loss.............................. $ (287,782) $ (475,891) $(1,961,237) $ (6,045,020) $(13,733,747)
=========== =========== =========== ============ ============
Net loss attributable to common
stockholders........................ $(1,982,607) $ (6,962,402) $(16,526,284)
OTHER OPERATING DATA:
EBITDA (3)............................ $ (287,782) $ (475,891) $(1,778,942) $ (5,572,556) $(11,602,107)
Capital expenditures.................. 109,587 909 1,650,177 6,443,899 12,596,875
Amount that earnings were insufficient
to cover fixed charges (4).......... (1,961,237) (6,045,020) (13,733,747)
Amount that earnings were insufficient
to cover fixed charges and preferred
stock dividend requirements (4)..... (1,982,607) (6,962,402) (16,526,284)
Net cash flows used in operating
activities.......................... (254,311) (398,809) (1,452,706) (3,400,128) (9,375,071)
Net cash flows used in investing
activities.......................... (109,587) (909) (1,650,177) (6,443,899) (63,899,791)
Net cash flows provided by financing
activities.......................... 369,449 380,070 3,468,614 14,197,690 88,368,124
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR(1)
PREDECESSOR(1) ---------------------------------------------
-------------- JUNE 30,
DECEMBER 31, ---------------------------------------------
1994 1996 1997 1998
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 19,856 $ 365,731 $ 4,717,394 $ 19,810,656
Working capital........................... 6,521 (81,610) 2,813,544 66,652,141
Total assets.............................. 174,711 2,898,125 12,938,783 94,578,127
Total long-term debt...................... 216,667 3,387,934 425,430 70,604,740
Total redeemable preferred stock.......... 721,370 19,131,466 39,133,924
Partnership deficiency/common
stockholders' deficit................... (55,292) (1,969,525) (8,931,927) (20,269,763)
</TABLE>
- ---------------
(1) Park 'N View, Ltd. transferred certain of its assets, contractual rights and
liabilities to Park 'N View, Inc. in exchange for 2,318,182 shares of common
stock issued to the former partners of Park 'N View, Ltd. The net
liabilities transferred were recorded by Park 'N View, Inc. at Park 'N View,
Ltd.'s historical carrying amount of $84,446. The financial information
identified herein as for the Predecessor is for Park 'N View, Ltd. as of and
for the year ended December 31, 1994 and the period from January 1, 1995 to
8
<PAGE> 13
November 2, 1995, the date the net liabilities were transferred to Park 'N
View, Inc. The financial information identified herein as for the Successor
is for Park 'N View, Inc. as of June 30, 1996, 1997 and 1998 and for the
period from September 18, 1995 (date of incorporation) to June 30, 1996 and
for the years ended June 30, 1997 and 1998.
(2) Includes service depreciation of $84,000, $643,000 and $1,907,000 for the
period from September 18, 1995 (date of incorporation) to June 30, 1996 and
the years ended June 30, 1997 and 1998, respectively. Service depreciation
consists of amortization of capitalized costs of the PNV Network.
(3) EBITDA is earnings (loss) from operations before interest, taxes, and
service depreciation. EBITDA is a measure of a company's performance
commonly used in the telecommunications industry, but should not be
construed as an alternative to net income (loss) determined in accordance
with generally accepted accounting principles ("GAAP") as an indicator of
operating performance or as an alternative to cash from operating activities
determined in accordance with GAAP as a measure of liquidity. EBITDA is an
earnings calculation that is used by certain investors and in particular
debt holders as one measure of an ability to service debt, pay taxes and
provide for working capital and capital expenditure requirements. However,
it does not reflect cash generated because it does not include changes in
working capital or capital expenditures. It also is not an accounting
measure that is in conformity with GAAP because it does not include
interest, taxes, depreciation and amortization which are significant
components in understanding and assessing the Company's financial
performance. The trend in EBITDA must be evaluated by taking into
consideration the trend in interest, taxes, depreciation and amortization
expenses. If these expenses are considered, a trend in EBITDA may reflect
the Company's utilization of financial debt and fixed asset resources. Also,
management believes that in a capital intensive business that is highly
leveraged, the earnings coverage for interest is important to debt holders
and investors in the Company as an indicator of whether there may be a
potential default to the debt holders because of the inability to cover
interest and principal. The Company's computation of EBITDA may not be
comparable to similarly titled measures reported by other companies.
(4) In calculating the ratio of earnings to fixed charges and the ratio of
earnings to fixed charges and preferred stock dividend requirements,
"earnings" consist of net loss and fixed charges. Fixed charges consist of
interest expense, including such portion of rental expense that is
attributed to interest.
9
<PAGE> 14
RISK FACTORS
Prospective investors should carefully consider the following factors in
evaluating the Company and its business in addition to other information
contained in this Prospectus prior to tendering their Old Notes in the Exchange
Offer.
LIMITED HISTORY OF OPERATIONS
The Company was incorporated in September 1995. Accordingly, prospective
investors have limited financial information about the Company upon which to
base an evaluation of the Company's performance and an investment in the New
Notes. Given the Company's limited operating history, there is no assurance that
it will be able to generate sufficient cash flow to service its debt obligations
(including the Notes) or to achieve its objectives.
HISTORY OF LOSSES, NEGATIVE CASH FLOW AND NEGATIVE GROSS MARGIN
The Company has experienced a net loss and negative cash flow from
operations in each quarter since it was incorporated. As of June 30, 1998, the
Company had a common stockholders' deficit of $20.3 million. The Company expects
to incur a significant net loss and negative cash flow from operations in the
fiscal year ending June 30, 1999. There can be no assurance that the Company
will ever be profitable. From September 1995 to date, the Company's cost of
revenues has been substantially higher than its revenues, leading to a negative
gross margin. There can be no assurance that the Company will generate
significant revenue in the future, and even if it does so, that the Company's
revenues will ever exceed its cost of revenues. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company expects that it will have significant capital requirements in
the future to fund the continued expansion of its business and for working
capital purposes, and there can be no assurance that such capital requirements
will be available on terms satisfactory to the Company, if at all. The Company's
capital requirements will depend on numerous factors, including the growth of
the Company's revenues, if any, and the rate of such growth. The Company expects
that the net proceeds of the Offering, together with existing cash and
anticipated cash generated from operations, will be sufficient to fund its
planned expansion and operations at least through the first half of 2000.
Thereafter, if the Company's cash flow from operations is not sufficient to
provide funds for working capital and capital expenditures and if equity or debt
or other financing is not available, the Company expects that it may experience
insufficient liquidity which could have a material adverse effect on the
Company's financial condition and results of operations. There can be no
assurance that additional financing will be available when needed, if at all,
or, if available, on terms acceptable to the Company. If adequate funds are not
available on acceptable terms, the Company will be required to delay or limit
any further expansion of its business. Any inability to fund its future capital
requirements would have a material adverse effect on the Company's business,
financial condition and operating results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
ABILITY TO SUSTAIN AND INCREASE SUBSCRIPTION SALES; RETENTION
The future success of the Company depends upon its ability to significantly
increase its revenues which, in turn, depends materially upon its ability to
increase the number of subscribers to the PNV Network. During June 1998, the
Company had approximately 25,000 active subscribers of whom approximately 17,100
had subscribed on a monthly basis (including subscription sales at the Company's
vending machines at truckstops, pursuant to a monthly subscription program
referred to as the "Power Plan Program" and pursuant to the Company's contracts
with fleet trucking companies) and 8,100 were daily subscribers. To date, the
Company's average revenue per subscriber has been lower than expected which the
Company believes is due primarily to a larger number of daily subscribers as
compared to monthly subscribers. Market research and the Company's experience
indicate that, in order to provide a benefit to truck drivers sufficient to
justify the monthly
10
<PAGE> 15
subscription fee, the PNV Network must be available nationally at a minimum
threshold number of sites so that truck drivers can rely on access to the PNV
Network as they travel their routes. The Company believes that this number of
sites ranges between 200 and 250, depending on site location, size and other
factors. As of June 30, 1998, the PNV Network was installed and operating at 118
truckstops.
Even if truck drivers initially subscribe to the PNV Network, there can be
no assurance that they will renew their subscriptions. Of those subscribers who
purchased a subscription in April 1998 Company data indicates that approximately
70% renewed their subscriptions at least once between such subscription and July
1998. In October 1997, the Company implemented the Power Plan Program, which was
designed to increase monthly subscription renewals. See "Business -- Marketing."
Pursuant to this program, a subscriber's monthly subscription is automatically
renewed and the monthly fee is automatically drafted from or charged to the
subscriber's checking account or credit card until the subscriber cancels the
subscription. As of June 30, 1998, the Company had 9,500 monthly subscribers
pursuant to the Power Plan Program, however, there can be no assurance that the
number of such subscribers will continue to grow. There are many factors that
could cause a subscriber not to renew a subscription, including dissatisfaction
with the PNV Network and the services offered or with the number and location of
the truckstops at which the PNV Network is available.
The Company's ability to increase subscriptions to the PNV Network depends
significantly upon its ability to increase sales to fleets. See
"Business -- Marketing." As of June 30, 1998, the Company has entered into
contracts with five fleet trucking companies for a minimum of 2,329
subscriptions for terms ranging from one to three years, subject to certain
earlier termination rights by the fleet trucking companies. There can be no
assurance, however, that the fleets having earlier termination rights will not
terminate their contracts prior to the expiration of their stated terms,
existing contracts will be renewed or the Company will be able to increase its
subscription sales to fleets.
The ability of the Company to attract and retain subscribers will also
depend in part on the ability of such subscribers to access a stall at a
truckstop served by the PNV Network and, with regard to the use of the Company's
telephone services, to access one of the local telephone lines maintained by the
Company in connection with the telephone service offered. Subscribers may on
occasion be unable to utilize the PNV Network due to a lack of open stalls at
some of the busier truckstops. In addition, users of the PNV Network's telephone
service at a particular truckstop cannot exceed the number of local lines
available. The Company presently maintains an average of 12 local telephone
lines at each truckstop served by the PNV Network. In connection with the
proposed enhancements to the PNV Network to increase its capacity and
functionality to allow the Company to offer additional telecommunications
services, the Company intends, among other things, to install and maintain a T-1
line, and to reduce the number of local lines, at each truckstop. See
"Business -- Network and Technology." Although this installation will increase
the number of users that may access the PNV Network's telecommunications
services simultaneously, this number will still be limited. In addition, truck
drivers may find that the truckstops served by the PNV Network are not
conveniently located. If truck drivers find that the truckstops served by the
PNV Network are not conveniently located, it is unlikely that they will purchase
or renew subscriptions. The Company's inability to attract and retain
subscribers and to significantly increase revenues from sales of subscriptions,
including subscription sales to fleets, for any reason, would have a material
adverse effect on the Company's business, financial condition and results of
operations, including its ability to make payments on the Notes.
SUBSTANTIAL LEVERAGE; POSSIBLE INABILITY TO SERVICE INDEBTEDNESS
As a result of the Unit Offering, the Company is highly leveraged. At June
30, 1998, the Company had total long-term debt of $70.6 million and a common
stockholders' deficit of $20.3 million. The Company's earnings were insufficient
to cover its fixed charges and preferred stock dividend requirements by
approximately $7.0 and $16.5 million for fiscal 1997 and 1998, respectively. See
"Capitalization" and "Selected Financial Data." The Company will be permitted to
incur additional indebtedness in the future under the Indenture, subject to the
restrictions set forth therein. See " -- Restrictive Covenants" and "Description
of the New Notes -- Certain Covenants -- Incurrence of Indebtedness and Issuance
of Disqualified Stock."
11
<PAGE> 16
The Company's ability to make scheduled payments of principal of, or to pay
interest or Liquidated Damages, if any, on its indebtedness (including the
Notes) will depend on the Company's future performance which, to a certain
extent is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond its control. Based upon the current
level of operations and anticipated revenue growth, management believes that the
net proceeds of the Offering, together with existing cash and anticipated cash
generated by operations, will be adequate to meet the Company's future liquidity
needs at least through the first half of 2000. There can be no assurance that
the Company's business will generate sufficient cash flow from operations and
that anticipated revenue growth will be realized in an amount sufficient to
enable the Company to service its indebtedness, including the Notes, or to
continue the installation of the PNV Network and the payment of the costs
associated with the provision of telecommunications and entertainment services
and its operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The degree to which the Company is leveraged could have important
consequences to the holders of the Notes and the Company's future prospects,
including the following: (i) limiting the ability of the Company to obtain any
necessary financing in the future for working capital, capital expenditures,
debt service requirements or other purposes; (ii) the Company's vulnerability to
the effects of general economic downturns or to delays or increases in the costs
of installing the PNV Network or planned subsequent improvements thereto or
providing planned telecommunications services in addition to those currently
provided may be increased; (iii) limiting the flexibility of the Company in
planning for, or reacting to, changes in its business; (iv) leveraging the
Company more highly than some of its potential competitors, which may place it
at a competitive disadvantage; (v) increasing its vulnerability in the event of
a downturn in its business or the economy generally; and (vi) requiring that a
substantial portion of the Company's cash flow from operations be dedicated to
the payment of principal and interest on the Notes and not be available for
other purposes.
There can be no assurance that the Company will be able to meet its
obligations under the Notes. The Company expects to generate significant
negative cash flow over the next several years. If the Company does not
ultimately generate sufficient cash flow to meet its debt service and capital
requirements, the Company may need to examine alternative strategies that may
include actions such as reducing or delaying capital expenditures, restructuring
or refinancing its indebtedness, the sale of assets or seeking additional
equity, debt or other financing. There can be no assurance that any of these
strategies could be effected on satisfactory terms, if at all. In addition,
there can be no assurance that the Company will be able to effect any such
refinancing on commercially reasonable terms or at all.
EXPANSION OF PNV NETWORK INSTALLATION
The Company's ability to achieve its objectives will depend in large part
on the timely and cost-effective installation of the PNV Network at a
significant number of additional truckstops and the addition of T-1 lines and
certain additional equipment at all the truckstops at which the PNV Network is
available. The success of the Company in installing the PNV Network will depend
on, among other things, timely performance by the third parties of their
contractual obligations. The Company intends to increase its truckstop
installation rate to approximately 15 to 20 per month by the first quarter of
1999. During August 1998, the Company installed the PNV Network at approximately
14 truckstops. There can be no assurance that the Company will be able to
achieve its build-out rate after the consummation of the Offering as planned and
any failure to do so could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company is presently utilizing the services of four contractors, three
of which the Company believes operate on a national basis and one of which the
Company believes operates on a regional basis. To date, the installation of the
PNV Network at truckstops by outside contractors has been completed
substantially on the Company's schedule and within its budget, and the
installation services performed by such contractors have been satisfactory to
the Company. Although management believes that there are a number of contractors
that could perform the required installation services or that the Company could
employ sufficient persons to perform such services, there can be no assurance
that it will be able to obtain the services of outside contractors that can
install the PNV Network on a timely basis and at a cost acceptable to the
Company.
12
<PAGE> 17
In connection with planned enhancements to the PNV Network, the Company
intends to install T-1 lines, in addition to local telephone lines, at each
truckstop served by the PNV Network. The Company has recently entered into
contracts with AT&T for the lease of T-1 lines. See "Business -- Products and
Services -- Future Products and Services." Any delay in the installation of the
T-1 lines or adverse weather or other complications could significantly delay
the Company's planned increase in the number of truckstops served by the PNV
Network. Such delay or an increase in the cost associated with the installation
of the PNV Network could adversely affect the Company's planned build-out of the
PNV Network which in turn could adversely affect the Company's ability to create
substantial demand for its services and increase subscription sales and, as a
result, the Company's business, financial condition and results of operations,
including its ability to make payments on the Notes.
MINIMUM REQUIREMENTS CONTRACTS
The Company has recently entered into contracts with AT&T for the lease of
T-1 lines and the purchase of long distance and other telephone services. These
contracts require the Company to pay a specified minimum dollar amount of lease
payments and to purchase a specified minimum dollar amount of long distance
telephone services, each of which amounts is subject to certain discounts based
on the T-1 lines leased and the telephone services purchased. See
"Business -- Products and Services -- Future Products and Services." The
Company's ability to achieve its objectives depends in significant part on its
ability to obtain these discounts. Any failure to obtain the available discounts
with regard to its T-1 line lease payments and its long distance telephone
service rates could have a material adverse effect on the Company's business,
financial condition and results of operations, including its ability to make
payments on the Notes.
FUTURE REVENUE STREAMS; COST SAVINGS
The Company's ability to achieve its objectives depends significantly on
its ability to generate revenues from planned future services and recognize
cost-savings from planned enhancements to the PNV Network. See
"Business -- Future Products and Services." The PNV Network as currently
designed does not have the capacity to provide certain of these planned future
services and the capacity of the proposed PNV Network architecture to provide
such services is untested and the market for such services is undetermined. Any
inability of the Company to generate revenue from such planned future services
or realize anticipated cost-savings could have a material adverse effect on the
Company's business, financial condition and results of operations, including its
ability to make payments on the Notes.
POTENTIAL UNAVAILABILITY OF EQUIPMENT
The Company purchases its satellite equipment, head-end equipment,
telephone and cable switching equipment, computer hardware and cable programming
from outside suppliers. The Company has no purchase agreements with any such
supplier other than its cable programming supplier, Echostar Communications
Corporation ("Echostar"). The Company presently purchases its satellite
equipment and computer hardware from a sole supplier and management believes
that limited alternative sources for such items exist. The Company believes that
its relationships with the suppliers of these items are good. However, if the
Company were required to purchase telephone switching alternative equipment from
another source, it would require reprogramming of certain of the Company's
software or if the Company were required to purchase any alternative equipment
from another source, it would require that the Company modify and redesign the
PNV Network in certain respects which, in each case, could result in service
delays and expense to the Company. In addition, the Company purchases the cable
programming offered through the PNV Network from Echostar. Although management
believes that limited alternative sources for cable programming exist, utilizing
an alternative source could require retrofitting certain equipment at each
truckstop site and could result in an interruption in the Company's ability to
offer cable television services through the PNV Network for a limited period of
time. Any failure of the Company to obtain any of the foregoing equipment,
particularly its cable and telephone switching equipment, or cable programming,
could have a material adverse effect on the Company's ability to expand its
business in a timely fashion and, as a result, on its results of operations and
financial condition, including its ability to make payments on the Notes.
13
<PAGE> 18
DEPENDENCE ON CONTRACTUAL RELATIONSHIPS WITH TRUCKSTOPS
All of the Company's current revenues are generated from its operation of
the PNV Network at truckstops. The Company expects that the provision of
telecommunications and entertainment services, including planned future
services, through the PNV Network will continue to be the sole source of the
Company's revenues for the foreseeable future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview" and
"Business -- Network Buildout; Truckstop Relationships and Contracts" for a
discussion of the Company's contractual relationships with truckstop owners and
associations. The Company is dependent on its ability to continue to install the
PNV Network for its future expansion.
The Company has contracted with truckstop chains and independent truckstop
owners located throughout the United States. See "Business -- Network Buildout;
Truckstop Relationships and Contracts." While most independent truckstop owners
who own a single truckstop execute a standard contract, the contracts executed
by truckstop chains that operate multiple truckstops vary significantly. The
contracts generally provide that the truckstop chains and independent truckstop
owners may terminate the contract, and the Company's exclusive rights under the
contract, if the Company fails in any material respect to perform any of its
obligations under the contract and fails to remedy the breach within 30 days
after the Company receives notice of the breach. For example, if the Company
fails to install the PNV Network in accordance with the build-out schedule in
certain of its contracts, truckstop owners owning over one-third of the
Company's proposed truckstop locations may terminate the exclusivity provisions
contained in such contracts. Any failure by the Company to meet its contractual
obligations that results in the termination of contracts, including the loss of
the Company's exclusive rights under such contracts, would have a material
adverse effect on the Company's financial condition and results of operations,
including its ability to make payments on the Notes.
In addition, as of June 30, 1998, the Company had contracts to install the
PNV Network at approximately 338 truckstops through trucking associations whose
members consist of smaller truckstop chains generally having fewer than 10
truckstops. These associations act as purchasing agents for their members. The
Company entered into contracts with these associations as an efficient manner in
which to gain access to and establish a relationship with numerous small to
medium size truckstops. These associations do not have authority to legally bind
their members. Therefore, while each association has granted the Company the
exclusive right to provide cable television and telephone services to its
members, this contractual right is not binding on each member. Prior to
installation of the PNV Network at an association member's truckstop, the
Company enters into a contract with the association member granting the Company
the exclusive right to install the PNV Network at the member's truckstops.
Accordingly, there can be no assurance that the Company's contracts with
truckstop associations will result in the Company installing the PNV Network at
additional truckstop locations. See "Business -- Network Buildout; Truckstop
Relationships and Contracts."
MANAGEMENT OF GROWTH
The Company has expanded its operations significantly over the past 12
months, placing significant demands on its financial, marketing and sales,
administrative and operational personnel and systems. The Company has also
experienced rapid growth in its management and staff, including the addition of
three executive officers during the last 12 months. As of June 30, 1998, the
number of the Company's full-time employees had increased to 174 from 74 as of
June 30, 1997. In addition, the Company expects to add approximately 100 persons
to its sales force over the next 12 months. The growth in the size and scope of
the Company's business activities have placed, and are expected to continue to
place, a strain on the Company's management and operations. In connection with
its planned expansion of the PNV Network locations and services, management has
been and in the future will be required to recruit, organize, train and manage
additional personnel to perform, among other things (i) the planning and
engineering activity associated with the installation of the PNV Network at each
truckstop, (ii) the assembly at the Company's headquarters of the electronics
and other equipment comprising the PNV Network and the loading of such equipment
for delivery to each site, (iii) the inspection of each site upon completion of
the installation, (iv) the training of the truckstop employees and (v) the
marketing and promotion of the PNV Network at each site. The Company's success
in managing the expansion of its business will depend to a large extent on the
Company's
14
<PAGE> 19
ability to hire, train and supervise such additional personnel. There can be no
assurance that the Company will be able to attract, train, supervise and retain
an adequate number of such personnel. The failure of the Company to effectively
manage the growth in its business and to develop the additional personnel,
systems, resources, procedures and controls necessary to support that growth in
a timely manner would have a material adverse effect on the Company's business,
financial condition and results of operations, including its ability to make
payments on the Notes.
COMPETITION
In the voice and data communication and entertainment arenas, the Company
competes with various elements of other providers' offerings based on ease of
access, functionality and cost. These industries are highly competitive, and the
Company expects to face strong competition from existing and potential
competitors. The Company's competitors comprise a broad range of companies
engaged in telecommunications and entertainment, including but not limited to,
public pay telephone operators, cellular telephone companies, long distance
telephone companies, cable operators, direct broadcast satellite companies, as
well as companies developing new technologies. Certain of these competitors and
potential competitors are well established companies and have significantly
greater financial, marketing and programming resources than the Company.
The Company's telecommunication services compete with cellular telephones,
pay telephones and providers of long distance cards and prepaid cards. Cellular
service is widely available and, although it is currently more expensive than
the PNV Network, it is becoming more affordable. The Company believes that
drivers currently use pay telephones located at truckstops for a significant
number of the calls they make and there can be no assurance that the Company
will successfully attract customers who predominately use these pay telephones.
The Company understands that one company, HighwayMaster, resells cellular
telephone service to provide both voice and data communication to the truck cab.
The Company's long distance services compete with providers of long distance
cards and pre-paid cards such as AT&T and MCI and with providers of toll free
(800 and 888) numbers that fleets or even individuals use to call fleet
headquarters or home. Qualcomm's OmniTRACS service, another competitor, is used
primarily for mobile vehicle location and two-way text messaging and it
addresses the trucking fleets' need for real-time mobile text communication.
Based on publicly available data, the OmniTRACS service has an installed base of
approximately 210,000 units in 32 countries worldwide, of which the Company
believes that over 150,000 units are installed in the United States which would
compete with certain of the Company's services. In addition, the Company
believes that there is a company that has begun installing Internet/e-mail
kiosks in truckstops. There can be no assurance that the Company will be able to
effectively compete against these or future telecommunications competitors, many
of which have large customer bases and significantly more resources than the
Company.
With respect to entertainment, the Company's competition currently consists
of entertainment alternatives located outside the truck cab and primarily in the
truckstop. Community television and game rooms inside the truckstop are the most
readily available entertainment alternatives for long-haul truck drivers. The
Company believes that a small number of professional truck drivers have
purchased direct broadcast satellite dishes to receive television programming in
their cab. Cable providers to such users as residential apartment buildings
could seek to compete by offering programming to truckstops. There can be no
assurance that the Company will be able to compete successfully against the
providers of cable and digital satellite programming services, most of which
will have access to greater resources and provide more programming than the PNV
Network. See "Business -- Competition."
SUBSTANTIAL RELIANCE ON KEY PERSONNEL
The success of the Company is dependent to a significant extent on the
personal efforts and abilities of its senior management. The Company has no
employment agreement with any members of its senior management. The Company
believes that the loss of services of any member of its senior management could
have a material adverse effect on the Company. The Company maintains key man
term life insurance on the life of Mr. Williams, the Chief Executive Officer, in
the amount of $1.0 million, payable to the Company. There can
15
<PAGE> 20
be no assurance that the Company will be able to retain its senior management or
that it will be able to attract or retain other skilled personnel in the future.
REGULATORY MATTERS
The FCC and relevant state regulatory authorities ("PSC's") have the
authority to regulate interstate and intrastate telephone rates, respectively,
ownership of transmission facilities and the terms and conditions under which
certain of the Company's telephone service offerings are provided. Federal and
state regulations and regulatory trends have had, and in the future are likely
to have, both positive and negative effects on the Company and its ability to
compete. There can be no assurance that changes in current or future Federal or
State regulations or future judicial changes would not have a material adverse
effect on the Company's business, financial condition or results of operations.
Interstate telecommunications carriers are subject to a number of other
federal regulatory obligations and reporting requirements, including obligations
to contribute to universal service and other subsidy funds, to permit resale of
their services by other carriers, and to take certain steps to protect
consumers. While the Company does not believe the burdens imposed by federal
regulations will be onerous, failure to comply with applicable regulations could
result in fines or other penalties, including loss of authority to provide
interstate service.
The intrastate operations of the Company may be subject to various state
laws and regulations. Most states require the Company to apply for certification
to provide long distance telecommunications services, operator services, pay
phones or competitive local exchange services, or to register or be found exempt
from regulation, before commencing intrastate services. Most states also require
the Company to file and maintain detailed tariffs listing their rates for
intrastate service. Many states also impose various reporting requirements
and/or require prior approval for transfers of control of certified carriers,
assignment of carrier assets, including customer bases, carrier stock offerings,
incurrence by carriers of significant debt obligations and acquisitions of
telecommunications operations. Other regulatory requirements may mandate that
the Company permit resale of its services by other companies, make payments to
intrastate universal service and similar funds, and take certain steps to
protect consumers. Certificates of authority can generally be conditioned,
modified, canceled, terminated and revoked by state regulatory authorities for
failure to comply with state law and/or rules, regulations and policies of the
state regulatory authorities. Fines and other penalties also may be imposed for
such violations. Any delay by the Company in complying with these state laws and
regulations would limit the Company's ability to provide telecommunications
services to the long-haul trucking industry. In addition, if the Company were
not to be in compliance with relevant state laws and regulations, the
appropriate state regulatory body may force the Company to suspend offering its
telecommunications services in such state. Such an event could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Although the Company has not determined whether its current and anticipated
telephone service offerings are subject to regulation by all state and federal
regulatory authorities, the Company is currently in the process of obtaining
authority, pursuant to regulation, certification, tariffs, notifications, or on
an unregulated basis, to provide intrastate interexchange service in the 48
contiguous states and Hawaii. The interpretation and enforcement of such laws
and regulations in relation to the Company's current and future service offering
may vary, and there can be no assurance that the Company will be in compliance
with all such laws and regulations at any one point in time.
Various state and federal regulatory factors may have an impact on the
Company's ability to service customers. Many of the rights and obligations
created by statute and regulation are subject to ongoing regulatory
implementation proceedings and review by the courts, and are subject to change.
Changes to some regulations could benefit the Company, while other changes could
make it more difficult for the Company to compete.
Cable television companies are subject to extensive governmental
regulation. The Company does not believe that it is subject to such regulations.
However, in the event the Company is required to comply with such regulations,
the expense, potential delay and management distraction potentially resulting
from the
16
<PAGE> 21
compliance process could have a material adverse effect on the Company's results
of operations and financial condition. See "Business -- Regulatory Matters."
TRUCKING INDUSTRY; TARGET MARKET
The Company's business is dependent upon the trucking industry in general
and upon long-haul trucking activity in particular. In turn, the trucking
industry is dependent on economic factors, such as the level of domestic
economic activity and interest rates, as well as operating factors such as fuel
prices and fuel taxes over which the Company has no control and which could
contribute to a decline in truck travel. The long-haul trucking business is also
a mature industry that has grown slowly in recent years and has, in the past,
been susceptible to recessionary downturns.
The current target market for the PNV Network is comprised primarily of the
long-haul truck drivers in the United States (including Canadian drivers
crossing the U.S.-Canadian border to deliver and/or pick up loads) that spend
material amounts of time in truckstops. There is no consensus as to the number
of long-haul truck drivers that comprise the Company's target market, and there
can be no assurance that the Company's estimate of the size of its target market
is accurate. Although a number of sources, including government agencies, trade
associations, industry publications and the Company's own independently retained
market research consulting firm have published estimates based on one or more of
the following: freight taxes, diesel fuel usage, number of trucks, number of
truck drivers, commercial drivers licenses or other data relating to the
trucking industry, these estimates vary widely. Accordingly, there can be no
assurance that the Company's estimate of its target market is not materially
inaccurate, which could increase the penetration level that the Company must
achieve in order to successfully implement its business plan.
RAPID TECHNOLOGICAL CHANGES
The telecommunications and cable industries are subject to rapid and
significant changes in technology. While the Company believes that for the
foreseeable future these changes will neither materially affect the continued
use of the Company's technology or the current or planned design, functionality
or capacity of the PNV Network or the telecommunications and cable services
offered nor materially hinder the Company's ability to acquire necessary
technologies, the effect of technological changes on the business of the Company
cannot be predicted. Thus, there can be no assurance that technological
developments will not have a material adverse effect on the Company.
PROPRIETARY RIGHTS
The Company believes that recognition of its products and services is an
important competitive factor in its industry. Accordingly, it promotes (or
intends to promote) the following in connection with its marketing activities
and holds or has filed an application for a United States trademark registration
for the following: "PARK 'N VIEW," "INCAB PNV," "PNV USA," "YOUR CAB. YOUR
CABLE. YOUR CALL.," "PARK 'N VIEW" (with design), "DEN" (with design), and
"WHERE SMART DRIVERS STAY CONNECTED."
The Company also regards the software developed by the Company (the "PNV
Software") as proprietary and attempts to protect it as a trade secret. The
Company holds no patents or copyrights on its software technology. If the
Company decides to seek either a copyright or a patent for the PNV Software,
there can be no assurance that the Company will be able to obtain such a
copyright or a patent. The intellectual property protections employed by the
Company, however, may not afford complete protection and there can be no
assurance that third parties will not independently develop such know-how or
obtain access to its know-how, ideas, concepts and documentation.
IMPACT OF YEAR 2000 ISSUE
A potential problem exists for all companies that rely on computers as the
year 2000 approaches. The "Year 2000" problem is the result of the past practice
in the computer industry of using two digits rather than four to identify the
applicable year. This practice will result in incorrect results when computers
perform
17
<PAGE> 22
arithmetic operations, comparisons or data field sorting involving years later
than 1999. The Company is in the process of conducting a review of its computer
systems to identify the systems that could be affected by the "Year 2000" issue
and is developing a plan to address the issue. The Company will utilize both
internal and, if needed, external resources to reprogram or replace and test all
of its software for Year 2000 compliance and the Company expects to complete the
project during the second half of 1999. The Company has a preliminary estimate
of $300,000 as the maximum cost of evaluating, testing, reprogramming, and
modifying its software. This estimate is based on the belief that no major
problems will be encountered in becoming Year 2000 compliant. Based on its
preliminary internal review, the Company believes that the PNV Software is Year
2000 compliant. However, the Company plans to do more extensive testing of its
PNV Software during the next year which may require the use of independent
consultants to assist in the Company's evaluation to assure a correct assessment
of cost and risk. In addition, the Company relies on third party vendors which
must also become Year 2000 compliant. The Company has a significant reliance on
outside vendors such as telephone companies, satellite system providers,
electrical providers and the wide area network supplier. These services are
critical in the Company's ability to generate revenue. The ability of third
parties with whom the Company transacts business to adequately address their
2000 issue is outside the Company's control. The Company is planning to create a
comprehensive list of all internal and external software to assure that a full
review of such software is completed. However, if any necessary modifications to
the PNV Software are not completed in a timely manner or if the Company's
vendors are not Year 2000 compliant, the Year 2000 problem could have a material
adverse impact on the operations of the Company. The Company has not made any
progress in assessing its non-information technology systems. These types of
systems are more difficult to assess and repair than information technology
systems and the Company may have to replace the non-information technology
systems that cannot be repaired. The Company will begin reviewing its non-
information technology systems in second half of 1999. The Company presently has
no basis on which to estimate the costs of assessing and repairing or replacing
its non-information technology systems or to determine whether such costs will
have a material adverse effect on the Company's operations or financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000."
RISK OF INABILITY TO REPURCHASE NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Company to repurchase all or any portion of such
holder's Notes. If a Change of Control were to occur, there can be no assurance
that the Company would have sufficient financial resources, or would be able to
arrange financing, to pay the repurchase price for all Notes tendered by holders
thereof. Further, the provisions of the Indenture may not afford holders of
Notes protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving the Company that may
adversely affect holders of Notes, if such transaction does not result in a
Change of Control. Any future credit agreements or other agreements relating to
other indebtedness to which the Company becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when the Company is prohibited from repurchasing Notes, the Company could seek
the consent of its lenders to repurchase Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such
consent or repay such borrowing, the Company would remain prohibited from
repurchasing Notes. In such case, the Company's failure to repurchase tendered
Notes would constitute an Event of Default under the Indenture, which would, in
turn, constitute a further default under certain of the Company's existing debt
agreements and may constitute a default under the terms of other indebtedness
that the Company may enter into from time to time. See "Description of the
Notes -- Repurchase at the Option of Holders -- Change of Control."
RESTRICTIVE COVENANTS
The Indenture contains a number of covenants that limit the discretion of
the Company's management with respect to certain business matters. These
covenants, among other things, restrict the ability of the Company to incur
additional indebtedness, pay dividends and make other distributions, prepay
subordinated indebtedness, make investments and other distributions, enter into
sale and leaseback transactions, create
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<PAGE> 23
liens, sell assets, and engage in certain transactions with affiliates. A
failure to comply with the covenants and restrictions contained in the
Indenture, or other agreements relating to any subsequent financing, could
result in an event of default under such agreements which could permit
acceleration of the related debt and acceleration of debt under other debt
agreements that may contain cross-acceleration or cross-default provisions. See
"Description of the Notes."
LACK OF PUBLIC MARKET FOR THE NEW NOTES
The Old Notes have been designated as eligible for trading in the PORTAL
market. Prior to this Exchange Offer, there has been no public market for the
New Notes. If such a market were to develop, the New Notes could trade at prices
that may be higher or lower than their principal amount. The Company does not
intend to apply for listing of the New Notes on any securities exchange or for
quotation of the New Notes on The Nasdaq Stock Market's National Market or
otherwise. The Initial Purchaser has previously made a market in the Old Notes,
and the Company has been advised that the Initial Purchaser currently intends to
make a market in the New Notes, as permitted by applicable laws and regulations,
after consummation of the Exchange Offer. The Initial Purchaser is not
obligated, however, to make a market in the Old Notes or the New Notes and any
such market making activity may be discontinued at any time without notice at
the sole discretion of the Initial Purchaser. There can be no assurance as to
the liquidity of the public market for the New Notes or that any active public
market for the New Notes will develop or continue. If an active public market
does not develop or continue, the market price and liquidity of the New Notes
may be adversely affected.
ORIGINAL ISSUE DISCOUNT
The New Notes will be issued with original issue discount equal to the
difference, if any, between their stated redemption price at maturity and their
issue price. Original issue discount will be included in gross income by a
holder under an economic accrual method generally in advance of the receipt of
cash attributable to this income. See "Federal Income Tax Considerations" for a
more detailed discussion of the U.S. federal income tax considerations relevant
to holders of New Notes.
CONTROL BY EXISTING STOCKHOLDERS AND MANAGEMENT
As of June 15, 1998, (i) the beneficial owners of 5% or more of the
outstanding shares of Common Stock beneficially owned an aggregate of
approximately 80.0% of the outstanding shares of Common Stock and (ii) the
Company's directors and officers (including members of the Board of Directors
designated by the holders of the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock) beneficially owned an
aggregate of approximately 50.7% of the outstanding shares of Common Stock. See
"Principal Stockholders." Accordingly, all such stockholders acting together
effectively could control the Company and certain of such stockholders acting
together could exert substantial influence with regard to matters requiring
stockholder approval. In addition, the Company and substantially all of the
stockholders of the Company are parties to an agreement that provides for the
designation of all the Company's directors and restricts the Company's ability
to increase the number of directors. See "Description of Capital Stock
- -- Certain Appointments to the Board of Directors." The Company's Certificates
of Designations creating the Series A Preferred Stock, the Series B Preferred
Stock and the Series C Preferred Stock also include certain provisions that
restrict the Company's ability to enter into certain transactions or take
certain actions without the approval of the holders of two-thirds of the
outstanding shares of each of the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock. See "Description of Capital
Stock." This concentration of ownership and the terms of such agreements and
Certificates of Designations may have the effect of delaying or preventing a
change in control of the Company.
The holders of the Series B Preferred Stock, voting together as a class,
are entitled to elect one director of the Company prior to the occurrence of
certain events. Furthermore, the holders of the Series C Preferred Stock, voting
together as a class, are entitled to elect one director of the Company prior to
the occurrence of certain events. Under certain circumstances, the holders of a
majority of the shares of Common Stock issued upon conversion of the Series B
Preferred Stock and the holders of a majority of the shares of Common Stock
19
<PAGE> 24
issued upon conversion of the Series C Preferred Stock each have the right to
nominate a person for election as a director of the Company. See "Description of
Capital Stock -- Preferred Stock." In the event of the conversion of all of the
Series B Preferred Stock and the Series C Preferred Stock, the holders of the
Common Stock issued upon conversion of the Series B Preferred Stock and the
Series C Preferred Stock would control approximately 49.3% of the issued and
outstanding shares of the Common Stock and could, with the other holders of a
relatively small number of shares of Common Stock or due to absences at meetings
by the holders of a relatively small number of shares of Common Stock, elect a
majority of the Company's Board of Directors. Accordingly, all such stockholders
acting together effectively could control the Company and certain of such
stockholders acting together could exert substantial influence with regard to
the election of directors.
Adjustment of the conversion price of the Series B Preferred Stock or the
Series C Preferred Stock could result in the issuance of a greater number of
shares of Common Stock upon such conversion than would result upon a conversion
of the Series B Preferred Stock or the Series C Preferred Stock at the
conversion price that may be in effect from time to time. In the event of such
an adjustment and subsequent conversion, then the holders of Common Stock could
be diluted. See "Description of Capital Stock -- Preferred Stock."
ANTI-TAKEOVER PROVISIONS
The Company's Bylaws and the Delaware General Corporation Law (the "DGCL")
contain certain provisions that may have the effect of discouraging, delaying or
making more difficult a change in control of the Company or preventing the
removal of incumbent directors. In addition, the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock are redeemable upon
certain changes in control. The existence of these provisions may have a
negative impact on the price of the Common Stock and may discourage third-party
bidders from making a bid for the Company or may reduce any premiums paid to
stockholders for their Common Stock. Furthermore, the Company is subject to
Section 203 of the DGCL, which could have the effect of delaying or preventing a
change in control of the Company. See "Description of Capital Stock -- Certain
Provisions of the Certificate of Designations, Bylaws and Delaware Law."
BANKRUPTCY RISKS RELATED TO ESCROW ACCOUNT
The right of the Trustee under the Indenture and the escrow agreement,
dated as of May 27, 1998, among the Company, the Trustee and State Street Bank
and Trust Company, as Escrow Agent (the "Escrow Agreement") to foreclose upon
and sell Pledged Securities upon the occurrence of an Event of Default (as
defined in "Description of the New Notes -- Certain Covenants -- Events of
Default and Remedies") on the Notes is likely to be significantly impaired by
applicable bankruptcy law if a bankruptcy or reorganization case were to be
commenced by or against the Company or one or more of its subsidiaries. Under
applicable bankruptcy law, secured creditors such as the holders of the Notes
are prohibited from foreclosing upon or disposing of a debtor's property without
prior bankruptcy court approval. See "Description of the Notes -- Disbursement
of Funds; Escrow Account."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Old Notes could be adversely affected.
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<PAGE> 25
USE OF PROCEEDS
There will be no cash proceeds payable to the Company from the issuance of
the New Notes pursuant to the Exchange Offer. The net proceeds to the Company
from the Unit Offering were approximately $71.5 million. The Company placed
$19.2 million of such net proceeds in the Escrow Account that was used to
purchase a portfolio of U.S. Government Obligations (the "Pledged Securities").
The Escrow Account and the Pledged Securities were pledged as security for
payment of the first four scheduled interest payments on the Notes through May
15, 2000 and, under certain circumstances, as security for repayment of
principal of the Notes. See "Description of the New Notes -- Disbursement of
Funds; Escrow Account." The Company intends to use the remainder of the net
proceeds from the Unit Offering of approximately $52.3 million principally in
connection with the installation of the PNV Network at additional truckstops,
the addition of certain equipment to the PNV Network, marketing and sales
efforts, working capital and other general corporate purposes, including
possible acquisitions of companies engaged in similar or complementary
businesses. The Company has no present agreements, arrangements or commitments
and has not engaged in any negotiations or evaluations with respect to any such
transaction. Pending application of the net proceeds as described above, the
Company intends to invest the net proceeds in short-term, investment grade,
interest-bearing securities.
CAPITALIZATION
The following table sets forth the cash, cash equivalents and short-term
and restricted investments and capitalization of the Company as of June 30,
1998. The following table should be read in conjunction with the financial
statements and notes thereto of the Company included elsewhere herein.
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
<S> <C>
Cash, cash equivalents and short term and restricted
investments(1)............................................ $ 71,113,572
============
Long-term debt:
13% Senior Notes due 2008................................. $ 70,419,566
Other long-term debt, less current portion................ 185,174
------------
Total long-term debt, excluding current portion... 70,604,740
------------
Series A Redeemable Preferred Stock (including accrued
dividends of $542,538), par value $.01 per share; 627,630
shares authorized; 388,075 shares issued and
outstanding............................................... 4,301,345
Series B Redeemable 7% Cumulative Convertible Preferred
Stock (including accrued dividends of $1,712,083), par
value $.01 per share; 1,372,370 shares authorized, issued
and outstanding........................................... 16,316,432
Series C Redeemable 7% Cumulative Convertible Preferred
Stock (including accrued dividends of $1,115,631), par
value $.01 per share; 3,750,000 shares authorized;
2,328,543 shares issued and outstanding................... 18,516,147
Common Stockholders' Deficit:
Common stock, par value $.001 per share; 12,000,000 shares
authorized; 4,318,182 shares issued and outstanding.... 4,318
Additional paid-in capital................................ 1,465,923
Accumulated deficit....................................... (21,740,004)
------------
Total common stockholders' deficit.......................... (20,269,763)
------------
Total capitalization.............................. $ 89,468,901
============
</TABLE>
- ---------------
(1) Includes the aggregate principal amount of the Pledged Securities of
approximately $19.3 million. See "Description of the Notes."
21
<PAGE> 26
SELECTED FINANCIAL DATA
The selected financial data for the Predecessor for the period from January
1, 1995 to November 2, 1995, and for the Successor for the period from September
18, 1995 (Successor's date of incorporation) to June 30, 1996 and the years
ended June 30, 1997 and 1998 set forth below are derived from the audited
financial statements of the Predecessor and the Successor for such periods
included elsewhere in this Prospectus. The selected financial data set forth
below for the Predecessor for the period from November 19, 1993 (date of
inception) to December 31, 1993 and the year ended December 31, 1994 are derived
from audited financial information. These historical results are not necessarily
indicative of the results that may be expected in the future. The selected
financial data are qualified by reference to and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," the financial statements and notes thereto and other financial data
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR(1) SUCCESSOR(1)
--------------------------------------------- ---------------------------------------------
PERIOD FROM PERIOD PERIOD FROM
NOVEMBER 19, FROM SEPTEMBER 18,
1993(DATE OF JANUARY 1, 1995(DATE OF
INCEPTION) TO YEAR ENDED 1995 TO INCORPORATION) YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, NOVEMBER 2, TO JUNE 30, JUNE 30, JUNE 30,
1993 1994 1995 1996 1997 1998
------------- ------------ ------------ -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 149,755 $ 888,397 $ 3,503,776
Cost of revenues(2)........... 436,829 2,077,689 6,598,993
----------- ----------- ------------
Gross margin.................. (287,074) (1,189,292) (3,095,217)
Selling, general and
administrative expenses..... $ 7,792 $ 287,782 $ 475,891 1,576,209 4,431,889 10,378,471
Write-down of equipment....... 594,691 35,151
-------- --------- --------- ----------- ----------- ------------
Loss from operations.......... (7,792) (287,782) (475,891) (1,863,283) (6,215,872) (13,508,839)
Interest expense.............. 103,079 157,416 1,030,594
Interest income and other..... (5,125) (328,268) (805,686)
-------- --------- --------- ----------- ----------- ------------
Net loss...................... $ (7,792) $(287,782) $(475,891) $(1,961,237) $(6,045,020) $(13,733,747)
======== ========= ========= =========== =========== ============
Net loss attributable to
common stockholders......... $(1,982,607) $(6,962,402) $(16,526,284)
OTHER OPERATING DATA:
EBITDA(3)..................... $ (7,792) $(287,782) $(475,891) $(1,778,942) $(5,572,556) $(11,602,107)
Capital expenditures.......... 65,404 109,587 909 1,650,177 6,443,899 12,596,875
Amount that earnings were
insufficient to cover fixed
charges(4).................. (1,961,237) (6,045,020) (13,733,747)
Amount that earnings were
insufficient to cover fixed
charges and preferred stock
dividend requirements(4).... (1,982,607) (6,962,402) (16,526,284)
Net cash flows used in
operating activities........ (7,792) (254,311) (389,809) (1,452,706) (3,400,128) (9,375,071)
Net cash flows used in
investing activities........ (65,404) (109,587) (909) (1,650,177) (6,443,899) (63,899,791)
Net cash flows provided by
financing activities........ 87,500 369,449 380,070 3,468,614 14,197,690 88,368,124
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR(1) SUCCESSOR(1)
------------------------------ ------------------------------------------
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------ ------------------------------------------
1993 1994 1996 1997 1998
------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $14,304 $ 19,856 $ 365,731 $ 4,717,394 $ 19,810,656
Working capital......................... 14,304 6,521 (81,610) 2,813,544 66,652,141
Total assets............................ 79,708 174,711 2,898,125 12,938,783 94,578,127
Total long-term debt.................... 87,500 216,667 3,387,934 425,430 70,604,740
Total redeemable preferred stock........ -- -- 721,370 19,131,466 39,133,924
Partnership deficiency/common
stockholders' deficit................. (7,792) (55,292) (1,969,525) (8,931,927) (20,269,763)
</TABLE>
22
<PAGE> 27
- ---------------
(1) Park 'N View, Ltd. transferred certain of its assets, contractual rights and
liabilities to Park 'N View, Inc. in exchange for 2,318,182 shares of common
stock issued to the former partners of Park 'N View, Ltd. The net
liabilities transferred were recorded by Park 'N View, Inc. at Park 'N View,
Ltd.'s historical carrying amount of $84,446. The financial information
identified herein as for the Predecessor is for Park 'N View, Ltd. as of
December 31, 1993 and 1994 and for period from November 19, 1993 (date of
inception) to December 31, 1993, the year ended December 31, 1994 and the
period from January 1, 1995 to November 2, 1995, the date the net
liabilities were transferred to Park 'N View, Inc. The financial information
identified herein as for the Successor is for Park 'N View, Inc. as of June
30, 1996, 1997 and 1998 and for the period from September 18, 1995 (date of
incorporation) to June 30, 1996 and for the years ended June 30, 1997 and
1998.
(2) Includes service depreciation of $84,000, $643,000, and $1,907,000 for the
period from September 18, 1995 (date of incorporation) to June 30, 1996 and
the years ended June 30, 1997 and 1998, respectively. Service depreciation
consists of amortization of capitalized costs of the PNV Network.
(3) EBITDA is earnings (loss) from operations before interest, taxes, and
service depreciation. EBITDA is a measure of a company's performance
commonly used in the telecommunications industry, but should not be
construed as an alternative to net income (loss) determined in accordance
with GAAP as an indicator of operating performance or as an alternative to
cash from operating activities determined in accordance with GAAP as a
measure of liquidity. EBITDA is an earnings calculation that is used by
certain investors and in particular debt holders as one measure of an
ability to service debt, pay taxes and provide for working capital and
capital expenditure requirements. However, it does not reflect cash
generated because it does not include changes in working capital or capital
expenditures. It also is not an accounting measure that is in conformity
with GAAP because it does not include interest, taxes, depreciation and
amortization which are significant components in understanding and assessing
the Company's financial performance. The trend in EBITDA must be evaluated
by taking into consideration the trend in interest, taxes, depreciation, and
amortization expenses. If these expenses are considered, a trend in EBITDA
may reflect the Company's utilization of financial debt and fixed asset
resources. Also, management believes that in a capital intensive business
that is highly leveraged, the earnings coverage for interest is important to
debt holders and investors in the Company as an indicator of whether there
may be a potential default to the debt holders because of the inability to
cover interest and principal. The Company's computation of EBITDA may not be
comparable to similarly titled measures reported by other companies.
(4) In calculating the ratio of earnings to fixed charges and the ratio of
earnings to fixed charges and preferred stock dividend requirements,
"earnings" consist of net loss and fixed charges. Fixed charges consist of
interest expense, including such portion of rental expense that is
attributed to interest.
23
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations should be read in conjunction with the financial statements and other
financial information included elsewhere in this Prospectus. The following
discussion includes certain forward-looking statements. For a discussion of
important factors, including, but not limited to the fact that there can be no
assurance that the Company's results of operations will not be adversely
affected by one or more of these factors, that the Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise, and other factors
that could cause actual results to differ materially from the forward-looking
statements, see "Risk Factors."
OVERVIEW
Background. From November 1993 to November 1995, Park 'N View, Ltd.
developed the PNV Network and installed and operated the PNV Network at one
truckstop as a field test. There were no revenues or significant selling
expenses generated by Park 'N View, Ltd. during this period. Following the
formation of the Company in September 1995, and the transfer to the Company of
the business and net liabilities of Park 'N View, Ltd., the Company began the
build-out of the PNV Network utilizing principally proceeds from sales of its
securities. See "Certain Transactions." As of June 30, 1998, the PNV Network was
available at 118 full-service truckstops. During June 1998, the Company had over
25,000 subscribers (including approximately 2,329 drivers sponsored by five
fleets under contracts with the Company), an increase of over 166% from the
9,400 subscribers the Company had in July 1997. The telecommunications and
entertainment services currently offered by the Company through the PNV Network
consist principally of local and long-distance telephone access, incoming calls,
voice messaging and driver location, data, Internet connectivity, cable
television and a Pay-Per-View channel. See "Business -- Products and Services."
Because a substantial number of the Company's subscriptions have
historically been sold through its vending machines and due to the limited
availability of the PNV Network, subscriptions do not follow the typical pattern
exhibited by a mature subscriber-based business with recurring and automatically
renewing subscriptions. During June 1998, the Company had approximately 17,055
monthly subscribers and approximately 8,100 daily subscribers; during June 1997,
the Company had approximately 6,466 monthly subscribers and approximately 2,934
daily subscribers and during June 1996, the Company had approximately 1,548
monthly subscribers and no daily subscribers. Of the Company's monthly
subscribers, during June 1998, 9,500 were under the Company's Power Plan Program
and 2,685 were fleet trucking company subscriptions. During June 1997 and 1996,
all the Company's monthly subscriptions were purchased at vending machines at
truckstops at which the PNV Network was available. The Company implemented the
Power Plan Program in October 1997. Prior to such implementation, subscriptions
could only be purchased at vending machines at truckstops at which the PNV
Network was available. Currently, all purchases of daily subscriptions are
limited to vending machines at such truckstops.
Components of Revenues
To date, the Company's service revenues have been generated principally
from sales of new member, monthly and daily subscriptions to the PNV Network, as
well as daily access subscription to a Pay-Per-View channel and, to a lesser
extent, sales of long distance telephone time to long haul truck drivers. The
Company's equipment sales have been generated from the sale of extender kits to
truckstops. Advertising sales represent the sale of advertising time to outside
vendors on the PNV Network. Other revenue encompasses nonrecurring events such
as miscellaneous sale of inventory to outside individuals. The Company markets
the PNV Network to both long-haul fleet trucking companies who sponsor their
drivers and to the individual long-haul truck drivers. Subscribers first
purchase a membership card and starter kit for $10 (which fee is waived for
fleet and Power Plan subscribers). Subscribers then sign-up for $30 per month or
purchase a monthly or daily card for $30 or $5, respectively, from vending
machines at the truckstop. Fleets purchase a guaranteed minimum number of $30
monthly subscriptions for a period of one year or more. Monthly subscribers
currently receive 60 minutes of free long distance telephone time. The Company's
sales to truck drivers at the
24
<PAGE> 29
Company's vending machines are cash transactions completed at the point of sale.
Under the Power Plan Program, a subscriber's monthly subscription is
automatically renewed and the monthly fee is automatically drafted from or
charged to the subscriber's checking account or credit card. In connection with
initially subscribing under the Power Plan Program, a subscriber receives a
two-month subscription for $30, paid in advance. See "Business -- Marketing."
Power Plan subscribers may cancel their subscriptions at any time. The Company
currently has one Pay-Per-View channel, The Playboy Channel (which as of June
30, 1998 was available at approximately 52% of the truckstops as permitted by
the truckstop owner) for which it charges $5 for daily access. As of June 30,
1998, the Company has experienced a 16% penetration rate for this service.
The Company currently sells extender kits (containing coaxial and telephone
cable, a telephone adapter and a cable connector) at a price of $9.99 directly
to the truckstop for sale to the truck driver. All sales are final with no price
protection or right of return.
In January 1998, the Company ran a promotional test of the resale of long
distance minutes to a select group of subscribers that was very successful. The
Company now offers all Power Plan subscribers the ability to purchase additional
long distance minutes from the convenience of their truck cab. The Company plans
to roll-out the opportunity for all subscribers to purchase long distance
minutes by the end of 1998.
By December 1998, the Company plans to deploy a $20 value card at selected
truckstops. This card, which will be available for purchase in vending machines
located at such truckstops will serve as an additional method of payment for
both long distance minutes and Pay-Per-View programming.
In the future, the Company anticipates that sales of subscriptions to the
PNV Network, resale of long distance minutes, and Pay-Per-View purchases will
generate the majority of the Company's revenues. To a lesser extent, the Company
anticipates that providing Internet Service Provider (ISP) services and selling
advertising on its dedicated cable advertising channel will become sources of
revenue for the Company.
The Company plans to offer the following products and services, among
others:
ISP Service -- Expansion of the PNV Network to include the T-1 lines and
frame relay network will enable the Company to become an
ISP. The Company intends to charge subscribers to the ISP
service a competitive monthly access fee.
Advertising -- The current PNV Network allows the Company the ability to
carry dedicated advertising and programming channels on a
contract basis.
The Company generally recognizes service revenue in the period earned.
Prepaid service revenues are recorded as deferred revenue until earned. Fees
received relating to Power Plan Program and monthly subscription sales are
recorded as revenue ratably over the subscription period.
Cost of Revenues
Current Network. The Company's fixed operating expenses currently consist
principally of amortization of capitalized costs of the PNV Network (service
depreciation), cable programming (which is purchased by the Company on a per
parking stall basis) and leased POTS lines at truckstops (the Company presently
maintains an average of 12 POTS lines at each truckstop).
The Company's variable operating expenses consist principally of long
distance telephone service, revenue and profit sharing commissions paid to
certain truckstop owners which have entered into long-term contracts with the
Company and the starter kit equipment. Variable telephone service costs, until
the Company recently began to resell long distance minutes, were comprised of
the cost of providing 60 free minutes of long distance together with a monthly
subscription.
Pursuant to the terms of the contracts with the truckstop owners'
commission expenses are comprised of commissions payable in an amount equal to
(a) 35% of revenues after deducting promotions and sales tax of approximately
$8.60 from sales from on-site vending machines for the first five years and 40%
for the second five years, and (b) with regard to a Power Plan subscription, 35%
of revenue after deducting promotions and sales tax of approximately $8.60 for
the first month of service and 10% of revenues thereafter. The contracts
25
<PAGE> 30
further provide that the Company will pay an additional commission to truckstop
owners equal to 10% of its revenues from subscription sales to fleets pro rata
based on the number of their stalls.
The direct costs, such as video editing and film time, associated with
advertising services available through the PNV Network are amortized throughout
the period the service is provided.
Equipment sales cost are comprised of component and labor costs of building
extension and starter kits. Extension kits are expensed when sold to the truck
stop. Starter kits are expensed when new members subscribe to the network.
Future Network. The Company has recently entered into contracts with AT&T
for the lease of T-1 lines and the purchase of long distance and other telephone
services. Under these contracts, for the periods specified therein, the Company
is required to pay a specified minimum dollar amount of lease payments and to
purchase a specified minimum dollar amount of long distance telephone services,
each of which amounts is subject to certain discounts based on the T-1 lines
leased and the telephone services purchased. See "Business -- Products and
Services -- Future Products and Services" and "Risk Factors -- Expansion of the
PNV Network Installation and Services; Future Revenue Streams; Minimum
Requirements Contracts; Cost-Savings." The Company believes that the addition of
the T-1 lines to the PNV Network will reduce the Company's telephone backbone
cost and reduce its per minute long distance costs. The Company believes that
fixed costs related to these Network enhancements will increase but variable
costs will decrease.
Selling Expenses
The Company markets to fleet trucking companies through a direct sales
force and intends to increase this sales force. Selling expenses have therefore
consisted principally of salaries, benefits, travel and marketing expenses. In
addition, the Company sells subscriptions at truckstops through its vending
machines and has marketed subscriptions through point-of-sale merchandising
materials and in addition, at larger sites, through field sales representatives.
The Company expects to add approximately 100 persons to its sales force over the
next 12 months.
General and Administrative Expenses
The Company has significantly increased the size of its management team and
the number of its full-time employees has increased to 174 as of June 30, 1998
from 74 as of June 30, 1997, all of which resulted in a significant increase in
general and administrative expenses. The Company expects that general and
administrative expenses will increase substantially as it expands its marketing
and sales programs, operations and administrative staff to accommodate the
growth in new sites and memberships. Such expenses will be incurred in advance
of anticipated related revenues.
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1998 COMPARED TO THE YEAR ENDED JUNE 30, 1997
Revenues. The Company's net revenues increased 294% to $3,504,000 for the
year ended June 30, 1998 from $888,000 for the year ended June 30, 1997. The
amount of service revenue increased 342% to $3,334,000 for the year ended June
30, 1998 from $755,000 for the year ended June 30, 1997. Equipment sales
increased 87% to $97,000 for the year ended June 30, 1998 from $52,000 for the
year ended June 30, 1997. The increase in service revenues and equipment sales
was primarily due to additional subscription membership to the PNV Network.
Other revenues increased 24% to $73,000 for the year ended June 30, 1998 from
$59,000 for the year ended June 30, 1997 reflecting an increase in sales of
surplus cable equipment. For the year ended June 30, 1998, the Company did not
have any advertising revenue as compared to $23,000 for the year ended June 30,
1997. The Company is in the process of promoting the PNV Network to various
potential advertisers (i.e. trucking fleets, insurance companies, etc.).
Cost of Revenues. Cost of revenues, excluding service depreciation,
increased 227% to $4,692,000 for the year ended June 30, 1998 from $1,434,000
for the year ended June 30, 1997 principally due to increased sales volume. Cost
of revenues includes commissions payable to truckstops, cable programming,
leased
26
<PAGE> 31
telephone lines, equipment and freight. As the Company increases the number of
truckstops at which it installs the PNV Network per month, and the aggregate
number of truckstop stalls, the Company believes that cost of revenues will
increase significantly.
Selling Expenses. Total selling expenses increased 281% to $5,200,000 for
the year ended June 30, 1998 from $1,365,000 for the year ended June 30, 1997.
The increase was primarily attributable to an increase in salaries, travel, and
marketing expenses. Salaries increased 318% to $2,816,000 for the year ended
June 30, 1998 from $674,000 for the year ended June 30, 1997. Travel expenses
increased 360% to $1,077,000 for the year ended June 30, 1998 from $234,000 for
the year ended June 30, 1997. Marketing expenses increased 205% to $1,105,000
for the year ended June 30, 1998 from $362,000 for the year ended June 30, 1997.
The increase in salaries, travel and marketing expenses reflects additional
sales personnel and marketing efforts for new sites.
General and Administrative Expenses. Total general and administrative
expenses increased 69% to $5,178,000 for the year ended June 30, 1998 from
$3,067,000 for the year ended June 30, 1997. The increase was primarily
attributable to an increase in salaries, travel, professional fees and rent.
Salaries increased 71% to $2,295,000 for the year ended June 30, 1998 from
$1,344,000 for the year ended June 30, 1997. Travel expenses increased 21% to
$438,000 for the year ended June 30, 1998 from $363,000 for the year ended June
30, 1997. The increase was due to additional administrative personnel to support
additional sites. Professional fees increased 161% to $360,000 for the year
ended June 30, 1998 from $138,000 for the year ended June 30, 1997 primarily due
to the Company's need for accounting and legal assistance. Building rent
increased 168% to $356,000 for the year ended June 30, 1998 from $133,000 for
the year ended June 30, 1997 due to the increase in office and warehouse space.
Service Depreciation. Service depreciation increased 197% to $1,907,000
for the year ended June 30, 1998 from $643,000 for the year ended June 30, 1997
resulting primarily from the Company's increased build-out of the Network.
Interest Income (Expense) and Other-Net. Interest income (expense) and
other-net decreased $396,000 to $(225,000) for the year ended June 30, 1998 from
$171,000 for the year ended June 30, 1997, reflecting an increase in interest
income of $477,000 from investment of cash in short-term investments and an
increase in interest expense of $873,000. The increase in interest expense is
primarily related to interest on the Notes. See Note 5 to the financial
statements.
Net Loss. The Company's net loss increased 127% to $13,734,000 for the
year ended June 30, 1998 from $6,045,000 for the year ended June 30, 1997
primarily as a result of the foregoing factors.
YEAR ENDED JUNE 30, 1997 COMPARED TO PERIOD FROM SEPTEMBER 18, 1995 (DATE OF
INCORPORATION) TO JUNE 30, 1996
Revenues. The Company's net revenues increased $738,000 to $888,000 for
the year ended June 30, 1997 from $150,000 for the period from September 18,
1995 to June 30, 1996 (the "fiscal 1996 period"). Service revenue increased
$687,000 to $755,000 for the year ended June 30, 1997 from $68,000 for the
fiscal 1996 period. Equipment sales decreased in the amount of $25,000 for the
year ended June 30, 1997 to $52,000 from $77,000 for the fiscal 1996 period.
Advertising revenue increased $19,000 for the year ended June 30, 1997 to
$23,000 from $4,000 for the fiscal 1996 period. Other revenues increased $58,700
for the year ended June 30, 1997 to $59,000 from $300 for the fiscal 1996
period. The increase in service revenue reflects additional subscription
membership to the PNV Network and the decrease in equipment sales is the result
of the Company discontinuing the selling of telephone kits to the truckstop. The
increase in advertising revenue was principally due to a contract for
advertising on the PNV Network. The increase in other revenues was due to the
sale of surplus cable equipment.
Cost of Revenues. Cost of revenues, excluding service depreciation,
increased $1,082,000 to $1,434,000 for the year ended June 30, 1997 from
$352,000 for the fiscal 1996 period principally due to increased subscription
sales volume.
27
<PAGE> 32
Selling Expenses. Total selling expenses increased $868,000 to $1,365,000
for the year ended June 30, 1997 from $497,000 for the fiscal 1996 period.
Salaries increased $535,000 for the year ended June 30, 1997 to $674,000 from
$139,000 for the fiscal 1996 period. Travel expenses increased $63,000 for the
year ended June 30, 1997 to $234,000 from $171,000 for the fiscal 1996 period.
Marketing expenses increased $175,000 for the year ended June 30, 1997 to
$362,000 from $187,000 for the fiscal 1996 period. The increase in salaries,
travel and marketing expenses was primarily due to additional sales personnel
and marketing efforts to support the new sites built during the year.
General and Administrative Expenses. Total general and administrative
expenses increased $1,988,000 to $3,067,000 for the year ended June 30, 1997
from $1,079,000 for the fiscal 1996 period. Salaries increased $896,000 for the
year ended June 30, 1997 to $1,344,000 from $448,000 for the fiscal 1996 period.
Travel expenses increased $294,000 for the year ended June 30, 1997 to $363,000
from $69,000 for the fiscal 1996 period. The increase reflects the addition of
administrative personnel to support sites built throughout the year.
Service Depreciation. Service depreciation increased $559,000 to $643,000
for the year ended June 30, 1997 from $84,000 for the fiscal 1996 period
resulting primarily from the Company's increased build-out of the Network.
Interest Income (Expense) and Other-Net. Interest income (expense) and
other-net increased $269,000 to $171,000 for the year ended June 30, 1997 from
($98,000) for the fiscal 1996 period reflecting an increase in interest income
of $297,000 from investment of cash in short-term investments and a gain on a
sale of fixed assets of $26,000, which was partially offset by an increase in
interest expense of $54,000. The principal amount of the related debt
securities, together with interest accrued thereon, was converted by the holders
thereof into shares of Series A Preferred Stock. See "Certain Transactions" and
Note 5 to the financial statements.
Net Loss. The Company's net loss increased $4,084,000 to $6,045,000 for
the year ended June 30, 1997 from $1,961,000 for the fiscal 1996 period
primarily as a result of the foregoing factors.
LIQUIDITY AND CAPITAL RESOURCES
Since the Company's incorporation in September 1995, the Company has
satisfied its cash requirements through the proceeds of issuances of three
classes of preferred stock, Common Stock, certain debt securities and the Units
(an aggregate of $112.4 million) and cash generated from operations.
From November 1995 to November 1996, in connection with the capitalization
of the Company, certain investment limited partnerships managed by Patricof &
Co. Ventures, Inc. (the "Patricof Managed Funds") invested $3.8 million in the
Company, purchasing shares of the Company's Series A Preferred Stock, par value
$.01 per share ("Series A Preferred Stock") and the Company's common stock, par
value $.001 per share (the "Common Stock") as well as debt securities of the
Company. In November 1996, a group of investors comprised of the Patricof
Managed Funds and certain partners in such funds made an additional $15.0
million investment in the Company, purchasing shares of the Company's Series B
7% Cumulative Convertible Preferred Stock, par value $.01 per share (the "Series
B Preferred Stock"). In August 1997, a group of investors, including the
Patricof Managed Funds, invested $18.6 million in the Company, purchasing shares
of the Company's Series C 7% Cumulative Convertible Preferred Stock, par value
$.01 per share (the "Series C Preferred Stock"). See Notes 1 and 6 to the
financial statements.
On May 27, 1998, the Company sold 75,000 Units, consisting of an aggregate
$75,000,000 of its 13% Senior Notes due 2008 and 75,000 Warrants, for net
proceeds after commissions, but before offering expenses, of $72,375,000. See
"Use of Proceeds."
The Indenture does not contain any financial ratios or tests that the
Company is required to satisfy.
Net cash used in operating activities was $9,375,000 and $3,400,000 for the
years ended June 30, 1998 and 1997, respectively, and $1,453,000 for the fiscal
1996 period. The $5,975,000 increase in net cash used in operating activities
for the year ended June 30, 1998 as compared to the year ended June 30, 1997
resulted primarily from increased marketing and additional staff to support the
larger number of sites and subscribers.
28
<PAGE> 33
The $1,947,000 increase in net cash used in operating activities for the year
ended June 30, 1997 as compared to the fiscal 1996 period resulted principally
from additional administrative needs to support the Company's build-out
schedule.
Net cash used in investing activities was $63,900,000 and $6,444,000 and
for the years ended June 30, 1998 and 1997, respectively, and $1,650,000 for the
fiscal 1996 period. The $57,456,000 increase in net cash used in investing
activities for the year ended June 30, 1998 as compared to the year ended June
30, 1997 resulted primarily from the additional buildout of the PNV Network and
the purchase of short-term investment securities. The $4,794,000 increase in net
cash used in investing activities for the year ended June 30, 1997 as compared
to the fiscal 1996 period resulted principally from the additional build-out of
the PNV Network.
Net cash provided by financing activities was $88,368,000 and $14,198,000
for the year ended June 30, 1998 and 1997, respectively, and $3,469,000 for the
fiscal 1996 period. The $74,170,000 increase in net cash provided by financing
activities for the year ended June 30, 1998 as compared to the year ended June
30, 1997 resulted primarily from the issuance of Series C Preferred Stock and
the Unit Offering. The $10,729,000 increase in net cash provided by financing
activities for the year ended June 30, 1997 as compared to the fiscal 1996
period resulted principally from the issuance of the Series B Preferred Stock.
See "Certain Transactions" and Note 6 to the financial statements.
The Company installed the PNV Network at approximately 89 truckstops during
the year ended June 30, 1998 at total capital expenditures of $12,597,000 or an
average capital expenditure per site of $141,000. It is anticipated that the
average capital expenditure per site will continue to be approximately $141,000.
The Company anticipates increasing the number of truckstops at which the PNV
Network is available by up to 150 by June 30, 1999, which at an average cost of
$141,000 would result in aggregate capital expenditures of up to $21,150,000. In
addition, component inventory has increased to $3,574,000 as of June 30, 1998
and it is anticipated that such amount will increase further in the near term to
support the increased number of monthly installations of the PNV Network.
Component inventory is temporarily staged at the Company's warehouse until all
equipment for a site is received, certain assembly operations are complete and
the site is ready to accept the equipment for installation. The period of time
that the component inventory is staged at the Company's warehouse is
approximately 45 days and the construction period at the site is approximately
30 days. Accordingly the time period between the date of acquisition of the
component inventory and the completion date for the installation at the site is
approximately 75 days. The level of component inventory at any point of time
will be dependent upon the anticipated number of truckstops at which the PNV
Network will be installed during the next 75 days. An increase in component
inventory will adversely affect liquidity by the amount of such increase.
The Company's capital commitments consist primarily of capital leases and
noncancellable operating leases for office space, furnishings, equipment and T-1
lines. In addition, the Company recently entered into a contract for the
purchase of long distance and other telephone services that contains minimum
purchase requirements for a two-year period. Pursuant to the contract for the
lease of T-1 lines, the Company is required to lease approximately (i) 200 T-1
lines having minimum payments, before available discounts, of $5.1 million
during the first year following the start-up period, and (ii) 300 T-1 lines
having minimum payments, before available discounts, of $7.7 million during the
second and third years following the start-up period. The start-up period ends
in February 1999 or such earlier date as to which the Company gives AT&T notice.
In addition, the Company's contract with AT&T for long distance and other
telephone services requires the Company for a term of two years to purchase each
month, at minimum, services having an undiscounted price of $40,000 based upon
standard AT&T rates. Discounts are available under each contract. The Company
may terminate the contracts with AT&T at any time, but, upon termination, the
Company generally would become obligated to pay to AT&T the remaining aggregate
undiscounted required minimum amounts under each contract. See
"Business -- Product and Services -- Future Products and Services" and "Risk
Factors -- Minimum Requirements Contracts." At June 30, 1998, the Company's
minimum commitments under capital leases and noncancellable operating leases
with terms in excess of one year, which do not include commitments under
contracts relating to the lease of T-1 lines and the purchase of long distance
and other telephone services, totaled $632,913, $422,639, $316,541, $188,637 and
$28,962 for the five years ending
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<PAGE> 34
June 30, 1999 through 2003, respectively. See Note 4 to the financial
statements. In addition, the Company currently plans to lease certain routing
and switching equipment at each truckstop at which the PNV Network is available
estimated at an aggregate expenditure of $3.8 million ($15,000 per site) through
June 1999. Such installation, together with the installation of the T-1 lines,
will substantially complete the Company's planned enhancements to the PNV
Network. See "Business -- Network and Technology."
The Company expects that it will have significant capital requirements in
the future to fund the continued expansion of its business and for working
capital purposes, and there can be no assurance that such capital requirements
will be available on terms satisfactory to the Company, if at all. The Company's
capital requirements will depend on numerous factors, including the growth of
the Company's revenues, if any, and the rate of such growth. The Company expects
that existing cash and anticipated cash generated by operations, will be
sufficient to fund its planned expansion and operations to at least the first
half of 2000. Thereafter, if the Company's cash flow from operations is not
sufficient to provide funds for working capital and capital expenditures and if
equity, debt or other financing is not available, the Company expects that it
may experience insufficient liquidity which could have a material adverse effect
on the Company's financial condition and results of operations. There can be no
assurance that additional financing will be available when needed, if at all,
or, if available, on terms acceptable to the Company. If adequate funds are not
available on acceptable terms, the Company will be required to delay or limit
any further expansion of its business. Any inability to fund its future capital
requirements could have a material adverse effect on the Company's business,
financial condition and operating results. See "Risk Factors -- Future Capital
Requirements; Uncertainty of Additional Funding."
YEAR 2000
A potential problem exists for all companies that rely on computers as the
year 2000 approaches. The "Year 2000" problem is the result of the past practice
in the computer industry of using two digits rather than four to identify the
applicable year. This practice could result in incorrect results when computers
perform arithmetic operations, comparisons or data field sorting involving years
later than 1999. The Company is in the process of conducting a review of its
computer systems to identify the systems that could be affected by the "Year
2000" issue and is developing a plan to address the issue. The Company will
utilize both internal and, if needed, external resources to reprogram or replace
and test all of its software for Year 2000 compliance, and the Company expects
to complete the project during the second half of 1999. The Company has a
preliminary estimate of $300,000 as the maximum cost of evaluating, testing,
reprogramming, and modifying its software. This estimate is based on the belief
that no major problems will be encountered in becoming Year 2000 compliant.
Based on its preliminary internal review, the Company believes that the
Company-developed software is Year 2000 compliant. However, the Company plans to
do more extensive testing of its PNV Software during the next year which may
require the use of independent consultants to assist in the Company's evaluation
to assure a correct assessment of cost and risk. In addition, the Company relies
on third party vendors which must also become Year 2000 compliant. The Company
has a significant reliance on outside vendors such as telephone companies,
satellite system providers, electrical providers and the wide area network
supplier. These services are critical in the Company's ability to generate
revenue. The ability of third parties with whom the Company transacts business
to adequately address their 2000 issue is outside of the Company's control. The
Company is planning to create a comprehensive list of all internal and external
software programs to assure that a full review of such software is completed.
However, if any necessary modifications to the PNV Software are not completed in
a timely manner or if the Company's vendors are not Year 2000 compliant, the
Year 2000 problem may have a material adverse impact on the operations of the
Company. The Company has not made any progress in assessing its non-information
technology systems. These types of systems are more difficult to assess and
repair than information technology systems and the Company may have to replace
the non-information technology systems that cannot be repaired. The Company will
begin reviewing its non-information technology systems in second half of 1999.
The Company presently has no basis on which to estimate the costs of assessing
and repairing or replacing its non-information technology systems or to
determine whether such costs will have a material adverse effect on the
Company's operations or financial condition.
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<PAGE> 35
BUSINESS
OVERVIEW
The Company originated and operates the only currently integrated
telecommunications and entertainment network (the "PNV Network" or "Network")
currently capable of providing voice, data and cable television services to
long-haul truck drivers in the convenience and privacy of their trucks while
parked at truckstops. The Company markets and sells subscriptions to its Network
to fleet trucking companies and individual long-haul truck drivers. Based on
independent market research commissioned by the Company and industry data, the
Company believes that there are between 800,000 and 1,000,000 long-haul truck
drivers in the United States. During June 1998, the Company had over 25,000
active subscribers, an increase of over 166% from the approximately 9,400
subscribers it had in July 1997. The Company was formed in September 1995 and,
as of June 30, 1998, had installed the PNV Network in 118 truckstops located in
38 states across the United States.
The Company believes that both long-haul drivers and fleet trucking
companies have a need for a more comprehensive, cost-effective and easily
accessible voice and data communications and entertainment solution than
currently available alternatives. The Company believes that this market need
combined with the absence of an effective current solution provides the Company
with the opportunity to become the leading provider of integrated
telecommunications and entertainment services to the long-haul trucking
industry. The Company plans to realize this opportunity by (i) increasing the
number of locations served by its Network to a "critical mass" of truckstops
(which the Company believes to be between 200 and 250 strategically located
truckstops), and then to continue the build-out of the Network to approximately
650 sites in total, and (ii) significantly enhancing the functionality and
capacity of its Network to create a broadband, cost competitive private
telecommunications network for the long-haul trucking industry.
The PNV Network provides a full range of high quality, cost-effective
telecommunications and cable television services over land-based lines. Users
connect to the Network by attaching standard telephone and coaxial television
cables (which the Company provides to each new subscriber) to outlets, called
"Bollards," installed in the ground at each parking stall at a truckstop. The
telecommunications services currently provided include: (i) local and long
distance calling, in-coming calls, voice mail services and driver location; (ii)
data connectivity; (iii) access to the Internet; and (iv) other
telecommunications services, including wake up calls and the ability to offer
call waiting and call conferencing. The cable television service offers 18 cable
viewing channels, including premium and local programming, a Pay-Per-View
channel and a dedicated advertising channel.
The long-haul trucking industry's operational characteristics require
significant reliance on telecommunications. Based on industry data, Company
research and data from the Company's switch, the Company believes that long-haul
fleet trucking companies and drivers spend over $2.4 billion annually on long
distance services (not including data, Internet and messaging). The Company
believes that the level of telephone usage at truckstops is second only to that
of airports. According to data generated from the Company's switch and Company
research, the average long-haul truck driver that logs on to the Network uses
approximately 1,200 minutes of long distance a month, spending approximately
$250 per month. The Company believes that this level of usage is a result of:
(i) the long periods most drivers spend on the road each month, 21 days or more;
(ii) the operational need for drivers to be in regular contact with their
dispatchers and customers concerning load pick-up, deliveries and routes; and
(iii) the drivers' personal communication needs. Drivers and fleet trucking
companies must also regularly exchange data pertaining to proof of delivery,
employee pay information, load availability and permits. The Company believes
that the Internet will increasingly become the preferred method for transmitting
and receiving this type of data.
While on the road, drivers use full service truckstops for fueling, eating,
showering, parking for rest periods (which are required by federal law),
overnight stays and for layovers between hauls. These truckstops are the primary
location at which drivers conduct their business while on the road. Currently,
voice, data communication, Internet connectivity and entertainment options for
the individual long-haul truck drivers and
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<PAGE> 36
for the fleet trucking companies trying to communicate with their drivers at
these truckstops are limited, relatively expensive and inaccessible.
There are over 2,100 truckstops in the United States located on the
interstate highway system, of which the Company believes approximately 1,100 are
full service truckstops that provide more services than just fuel. The Company
has entered into long-term contracts pursuant to which eight of the ten largest
full service truckstop chains and associations in the United States, including
TA Operating Corporation, Petro Stopping Centers, Inc., Pilot Corporation, and
Professional Transportation Partners, LLC, have granted the Company the
exclusive right to provide telecommunications and entertainment services to
drivers in their cabs at their truckstops. Of the approximately 751 full-service
truckstops under contract as of June 30, 1998, approximately 413 are covered by
contracts directly with the truckstop owner and approximately 338 are covered by
contracts with associations which require the Company to enter into a contract
directly with the truckstop owner to install the PNV Network. The Company also
believes that these approximately 751 full-service truckstops are among the most
heavily trafficked and are located along the busiest truck routes in the United
States. The Company believes that the truckstop owners are highly incentivized
to support the success of the Company as: (i) the contracts contain provisions
for revenue and profit sharing with the Company; (ii) the PNV Network is a means
for competitive differentiation; and (iii) the PNV Network is an amenity that
many long-haul truck drivers have been requesting.
The Company believes that its most significant competitive advantages over
competing telecommunications and entertainment providers include:
- Only provider and first to market. The Company is currently the only
provider with the capability to deliver integrated telecommunications,
access to the Internet and cable entertainment services in the privacy
and convenience of the truck cab.
- Significant barriers to entry. As of June 30, 1998, the Company has
entered into long-term contracts to provide telecommunications and
entertainment services to long-haul drivers at approximately 751 of the
approximately 1,100 full service truckstops across the country. These
contracts are generally for terms of ten years and the Company believes
that they pose a significant barrier to entry to other current or
potential competitive telecommunications and entertainment providers.
- Compelling value to drivers, fleets and truckstops. The Company believes
that the PNV Network represents a compelling value to long-haul drivers,
long-haul fleet trucking companies and truckstops. For drivers, the PNV
Network currently provides cost-effective telephone and cable television
access in the privacy and convenience of their cab. For fleets, the PNV
Network currently provides high levels of accessibility to their drivers
with cost efficiency and, once enhanced, will offer a cost competitive
high capacity voice and data network designed to address their unique
geographic and access needs. For truckstops, the PNV Network provides a
means for competitive differentiation and generating additional revenue.
- Broadband and cost competitive network. The Company has developed the
PNV Network so that it is flexible and upgradable. This foundation will
allow the Company to expand the functionality and capacity of the PNV
Network to provide a broadband, cost competitive voice, data, Internet
and cable television platform. This network will allow the Company to
become, in effect, a private full-service telecommunications network for
the long-haul trucking industry.
The Company provides its telecommunication and entertainment services on a
subscriber basis. Subscribers first pay a $10 membership fee for which they
receive a membership card and a starter kit. The starter kit contains a
telephone, 25 feet of telephone cord, 25 feet of coaxial cable, an owner's
manual, location guide and driver referral cards. They can then sign up for an
on-going subscription deducted automatically from their credit card or checking
account for $30 per month, or purchase a monthly or daily usage card for $30 or
$5, respectively, from vending machines located at each truckstop. Each
subscription plan has various benefits associated with it. Extender kits are
available and sold separately at a price of $9.99 to the truckstop for resale to
the truck drivers at a suggested retail price of $19.99. An extender kit
contains fifty feet of coaxial
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<PAGE> 37
cable, fifty feet of telephone cable, a telephone adapter and a cable connector.
See "Business -- Products and Services."
The Company markets to fleet trucking companies through a direct sales
force and plans to focus a significant portion of its marketing efforts on large
and medium size fleet trucking companies. The Company strives to negotiate
contracts with fleet trucking companies that contain minimum term and number of
subscriber commitments. Fleet trucking companies are billed for their entire
subscriber group on a monthly basis. The Company recently signed contracts with
five fleet trucking companies that have purchased monthly subscriptions for an
aggregate of approximately 2,329 drivers for periods ranging from one to three
years, subject to certain earlier termination rights. The Company also plans to
pursue co-marketing arrangements with certain strategic partners to market the
PNV Network to fleet trucking companies. These partners may include truckstop
chains, other communications services providers, or other providers of services
to the long-haul trucking industry which can help facilitate the marketing and
sales process. The Company markets subscriptions to the PNV Network to
individual truck drivers through field sales representatives working principally
at the larger truckstops and signage, brochures, vending machines and other
merchandising materials posted and distributed at each truckstop. The Company is
developing incentives to encourage sales to truck drivers by truckstop employees
and is also considering additional marketing strategies, promotional products
and contests.
The architecture of the current PNV Network uses existing proven technology
which includes a PC-based communications server installed at each truckstop
location which is connected by a WAN to the Host Server. The Company plans to
enhance the current capabilities and functionality of the PNV Network by
replacing the POTS lines currently used with T-1 lines which, with certain
additional equipment, will allow for dedicated long distance and a frame relay
network. This will reduce the Company's cost of providing long distance, provide
greater bandwidth for voice and data transmission and result in a design that
continues to be flexible and upgradable. The Company also plans to become an ISP
and develop voice over IP capability. The Company believes that it will be able
to offer highly competitive long distance rates available to large fleet
trucking companies by installing T-1 lines between truckstops and fleet
operation centers. To allow greater access to the PNV Network, the Company plans
to install member-only telephones, which may include both wired and 900 MHz
wireless, inside selected truckstops.
INDUSTRY OVERVIEW
Based on independent market research commissioned by the Company and
industry data, the Company believes that there are between 800,000 and 1,000,000
long-haul truck drivers in the United States. The Company believes that there
are over 19,000 trucking fleets in the United States that operate a total of
approximately 630,000 long-haul trucks. There are approximately 50 fleets that
operate over 1,000 trucks, more than 850 fleets that operate between 100 to
1,000 trucks, and approximately 18,400 fleets that operate fewer than 100
trucks. In addition, there are approximately 140,000 independent long-haul truck
drivers that are not affiliated with any fleet. The Company believes that there
are an additional 30,000 trucks associated with private fleets and 40,000
Canadian-based long-haul drivers who primarily service the United States which
fall within its target market. The trucking industry has been stable over the
last several years and has experienced an increase in intercity ton-miles every
year from 1985 through 1995 and a compounded annual average growth rate of
approximately 4% over this 10-year period.
There are over 2,100 truckstops in the United States along the interstate
highway system, of which the Company believes that approximately 1,100 are
full-service truckstops that provide more than just fuel. A large number of
truckstops are affiliated with or owned by chains that maintain centralized
control over operations. Full service truckstops, generally located on major
interstate highways, offer a full range of services for drivers and fleets
including fueling facilities, certified scales, repair facilities, restaurants,
community television and game rooms, public telephones and showers. These
truckstops are the primary location at which long-haul truck drivers stop to
fuel, eat, shower, park for their rest periods, overnight stays and for layovers
between hauls. This is due to the range of services that these truckstops offer,
their location and the obvious limitations that a large truck has in stopping at
other venues such as regular gas stations, fast food restaurants,
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<PAGE> 38
malls and motels. As such, truckstops are the primary location at which drivers
conduct business with fleets and customers, communicate with family and friends,
and seek entertainment.
Industry data, Company research and data collected from the Company's
telephone switch indicates that the long-haul trucking industry is
telecommunications intensive. The Company believes that long-haul drivers and
fleet trucking companies spend over $2.4 billion on long distance services (not
including data, Internet and messaging) annually. According to data generated
from the Company's switch and Company research, long-haul drivers that log on to
the Network on average use approximately 1,200 minutes of long distance a month
and have monthly expenditures of approximately $250 for long distance telephone
usage.
The high degree of telecommunications usage by long-haul trucking fleets
and drivers is a result of several operational characteristics of the industry.
The nature of the routes and operations of long-haul trucking require that
drivers be on the road for long periods of time. Company research and industry
data indicates that most long-haul truck drivers spend at least 21 days a month
on the road and earn an average of approximately $35,000 per year. Long-haul
trucking requires frequent communication between drivers, fleets and customers.
Long-haul drivers must stay in regular contact with customers and fleet
dispatchers to coordinate load pickup, delivery, and routes. At the same time,
drivers and fleets must exchange administrative paperwork, such as proof of
delivery, permits and employee payroll information (for which they currently use
regular or express mail services). Truck drivers also use telephones for
personal communications purposes to stay in touch with family and friends.
A significant issue facing the long-haul trucking industry is employee
turnover. The Company believes that many fleet trucking companies attempt to
reduce high driver turnover costs (approximately $3,000 per driver) and to
mitigate the high levels of driver turnover which are prevalent in the industry
by seeking ways to improve the quality of life for long-haul truck drivers on
the road.
Voice communication options available to fleets and drivers are either
cellular telephones or pay telephones inside the truckstop. Cellular telephones
are currently particularly costly since these drivers are away from home and
typically incur roaming charges. Pay telephones inside the truckstop are
inconvenient, lack privacy and are not capable of handling data transmission or
Internet connectivity services. Also, drivers generally cannot receive incoming
calls at these pay telephones, making it very difficult to make contact with
their dispatchers or customers. The options available to fleets for data
communications and Internet access also are limited. While other companies
provide mobile text-messaging using satellite and cellular telephone networks,
these services are limited in capability, costly and do not allow the
transmission of large amounts of data such as bills of lading, proof of
delivery, and pay check stubs. Drivers currently send these documents back to
their fleets by regular or express mail services. Express mail services are
expensive and regular mail services are slow. Facsimile services at truckstops
are not universally available and are costly. The ability to fax or
electronically transmit bills of lading and delivery information directly to and
from the truck allows fleets to reduce their billing cycle. At the same time,
the Company's research indicates that fleets have great difficulty providing
drivers with timely payroll information which frequently results in numerous
telephone communications between drivers and fleets. The Company believes that
this can be avoided if the detailed pay information is provided directly to the
driver in his cab through the Internet or other data network. As a result of
these and other factors, the Company believes that, increasingly, the Internet
will develop into a major data communications pipeline for fleets and their
drivers.
Drivers' options for entertainment while on the road are generally limited
to community television and video game rooms at truckstops. These facilities are
typically crowded, afford drivers little programming choice or privacy, and are
uncomfortable. Drivers can purchase satellite television systems for their cabs,
however, such systems have relatively high up front costs and monthly
subscription fees.
BUSINESS STRATEGY
The Company's objective is to become the leading provider of telephony,
data, Internet and entertainment services to the long-haul trucking industry.
The Company believes that the current lack of accessible and cost effective
telecommunications and entertainment options for fleets and drivers is a
significant opportunity and that the Company is well positioned to take
advantage of this opportunity.
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The Company plans to achieve its objective by:
- Continuing the build-out of the PNV Network from 118 sites as of June 30,
1998 to a total of approximately 650 truckstop sites (see "-- Network
Build-Out; Truckstop Relationships and Contracts");
- Expanding its current products and services offering (see "-- Products
and Services -- Future Products and Services");
- Enhancing the PNV Network by increasing its capacity and functionality
(see "-- Network and Technology -- Proposed Enhanced PNV Network Design);
and
- Expanding its marketing and sales program to further penetrate the fleet
and individual driver segments as the number of sites at which the PNV
Network is available increases and in connection with the Company's
expansion of its products and services and enhancement of the capacity
and functionality of the PNV Network (see "-- Marketing").
PRODUCTS AND SERVICES
Current Products and Services
The Company is currently providing drivers and fleet trucking companies
with the following services over the PNV Network:
<TABLE>
<CAPTION>
TELEPHONE ACCESS INTERNET ACCESS AND DATA CABLE TELEVISION
<S> <C> <C>
- - Full landline quality and - Full landline quality and - Full access and cable
capability from inside the capability from inside the quality reception from inside
truck cab. truck cab. the truck cab.
- - Full local and long distance - Ability to use the telephone - 18 channels of programming.
calling. system to connect to the - Pay-Per-View channel
- - Ability to purchase Internet and to available for an incremental
incremental long distance transmit/receive data $5.00 per day at certain
minutes. through a regular modem. locations.
- - Ability to receive calls. - Availability of dedicated
- - Location service to find advertising channels.
members logged on to the - The Driver entertainment
Network. Network.
- - Voicemail.
- - Wake-up calls.
</TABLE>
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<PAGE> 40
The following table sets forth certain information regarding prices and
services currently associated with each type of subscription offered by the
Company:
<TABLE>
<CAPTION>
"POWER PLAN"
SUBSCRIPTION
(PAID FOR BY THE
FLEET SPONSORED SUBSCRIPTION INDIVIDUAL DRIVER) MONTHLY USAGE CARD DAILY USAGE CARD
<S> <C> <C> <C>
- On-going subscription at - On-going - 30 days of usage - 24 hours of usage
$30 per month. subscription at $30 from time of first from time of first
per month. activation at $30 activation at $5
- $10 initial membership fee per month. per day.
waived. - $10 initial
membership fee - $10 initial - $10 initial
- Local and long distance waived. membership fee. membership fee.
access.
- Local and long - Local and long - Local and long
- 60 minutes of long distance access. distance access. distance access.
distance included per
month with subscription. - 60 minutes of long - 60 minutes of long - Purchased with cash
distance included distance included at a vending
- One to three year per month with per month with machine at the
contracts with minimum subscription. subscription. truckstop.
commitments.
- Second month of - Purchased with cash - Unlimited daily
- Billed to the fleet each service is free. at a vending access to cable
month. machine at the television services
- Charged every month truckstop. during the 24 hours
- Unlimited monthly access to a credit card or following initial
to cable television checking account - Unlimited monthly activation.
services. provided by the access to cable
subscriber. television services
during the month
- Unlimited monthly following initial
access to cable activation.
television
services.
</TABLE>
As part of a subscription, the user obtains a membership card and kit that
includes a telephone, 25 foot coaxial and telephone cable and an owner's manual
for a $10 fee (the fee is waived for fleet and Power Plan members). A subscriber
accesses the PNV Network by plugging the coaxial and telephone cable into the
Bollard at the parking stall at a truckstop. The subscriber then dials * and
logs on to the PNV Network. A computerized voice response prompts the subscriber
to enter the subscriber's membership number. If the subscriber is a daily or
monthly user, the computer prompts the user to enter the subscriber's daily or
monthly card number. If the subscriber is in good standing, service is
activated.
The Company's services currently consist of the following local and
long-distance telephone, voice messaging and cable television services:
Telephone services. Telephone service includes long distance, incoming
calls and free outside access (0+, 800 and local calls), as well as amenities
such as computerized wake-up calls. In January 1998, the Company successfully
started reselling incremental long distance minutes, beyond the free 60 minutes
per month included in the monthly subscription, to a select group of
subscribers. The promotional tests were successful. As of February 1998, Power
Plan members could purchase long distance telephone time by charging directly to
their existing accounts. By September 1998, the Company expects that all
subscribers will be able to charge the purchase of long distance time to credit
cards. By the end of 1998, the Company plans to deploy a $20 "value card" to
serve as an additional method of payment for both long distance and other
Network services, such as the Pay-Per-View channel. The value card will be
available at the vending machine located at each truckstop. The Company is also
pursuing a payment plan that will allow fleet drivers to purchase long distance
minutes for personal use through payroll deductions.
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<PAGE> 41
Voice Messaging and Location Services. Voice messaging and location
determination services are provided on a no-fee basis to subscribers. These
services are keyed to the subscriber's membership number utilizing the driver
location service. If a subscriber is logged on to the PNV Network anywhere in
the country, a third party can telephone the subscriber directly. The driver
location service also is useful to fleet trucking companies in tracking their
drivers. If a subscriber is not logged onto the PNV Network or is unavailable,
the third party can leave a voice message. Drivers can access the voice mail
system and retrieve their messages from any telephone by calling into the PNV
Network.
Data Communications and Internet Access. Basic data communications and
access to the Internet are available through the use of modems. For access to
the Internet, subscribers must have an existing ISP. Subscribers can access the
ISP by calling either a local number (if their ISP has a local number available
at the location where the subscriber is) or by calling a long distance number.
Cable Television. The basic cable television service features 18 channels,
including HBO1, HBO2, HBO3, ESPN, ESPN2, The Weather Channel, Discovery, A&E,
TNN, TNT, CNN Headline News, ABC, CBS, NBC and Fox. The Company also offers The
Playboy Channel (which as of March 31, 1998 was available at approximately 40%
of the truckstops as permitted by the truckstop owners) as a premium Pay-
Per-View service for an additional charge of $5.00 per day. As of March 31,
1998, the Company had experienced a 19% penetration rate for this service.
The Driver's Entertainment Network (DEN). The PNV Network has excess
capacity over which dedicated channels can be created so that advertisers and
others can broadcast information. In December 1997, the Company launched the
Driver's Entertainment Network (DEN), its music-based channel. The current
programming format consists of a two hour video loop. The Company plans to
gradually expand programming content to include informational programming and
other programming targeted at professional drivers. The Company intends to
market the DEN to advertisers such as automotive products manufacturers and
fleet trucking companies wishing to use the medium for driver recruitment or
education, and other companies doing business in the trucking industry. To date
the revenues generated by the Company through sales of advertising on the DEN
have been insignificant. However, the Company believes that the DEN offers
advertisers a highly efficient medium for penetrating an otherwise difficult to
reach market segment.
Future Products and Services
The Company plans to substantially complete the expansion of its voice and
data communication services by the second half of 1999 by increasing the network
functionality and capacity through the installation of T-1 lines and switching
and routing equipment throughout the PNV Network. Expansion of the functionality
of the PNV Network will allow the Company to offer drivers and fleet trucking
companies voice and data communications and Internet access at competitive
rates. See "Risk Factors -- Expansion of PNV Network Installation and Services;
Future Revenue Streams; Minimum Requirements Contracts; Cost-Savings."
Creation of High Capacity, Low Cost Voice and Data Network. The Company
plans to create a high capacity, low cost voice and data network which will be
established in two steps. First, the Company plans to install T-1 lines at each
truckstop which will provide for more voice and data transmission capacity
compared to the current POTS and allow for dedicated long distance and frame
relay services. Use of T-1 lines will allow the Company to (i) bypass the local
exchange carrier ("LEC") and associated LEC access charges and (ii) obtain
favorable pricing from long distance carriers, essentially creating a private
network. Secondly, the Company plans to offer this private network to major
fleet trucking companies. The Company anticipates that it will be able to
connect truckstop and certain fleet terminal locations through a frame relay
link that will allow the Company to transmit voice over IP. This will allow the
Company to offer major fleet trucking companies highly effective and competitive
pricing for voice and data communications with their drivers.
Internet Access as Internet Service Provider. Expansion of the PNV Network
to include T-1 lines and frame relay will allow the Company to become an ISP.
With the increased use of the Internet for all types of commerce, the Company
believes that Internet access will become a major data communication pipeline
for fleet trucking companies and drivers and, as a result, plans to become an
ISP. As such, providing reliable low
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<PAGE> 42
cost access from inside the truck will be a valuable service to the fleet
trucking companies and drivers. The Company plans to make this service available
for a monthly fee.
T-1 Line Leases, Long Distance Services and Internet Access Contracts. The
Company recently entered into contracts with AT&T to lease T-1 lines and related
frame relay services and to purchase long distance, local and related voice
telephone services. The Company also recently entered into a contract with AT&T
pursuant to which it may purchase Internet access services in the future.
Pursuant to the contract for the lease of T-1 lines, the Company is
required to lease for a three-year term beginning after the start-up period,
approximately (i) 200 T-1 lines having minimum payments, before available
discounts, of $5.1 million during the first year following the start-up period
and (ii) 300 T-1 lines having minimum payments, before available discounts, of
$7.7 million during the second and third years following the start-up period.
The start-up period ends in February 1999 or such earlier date as to which the
Company gives AT&T notice. Lease payments by the Company for T-1 lines during
the start-up period will not be counted in determining satisfaction of the
required minimum dollar amounts. Discounts are available to the Company if it
satisfies the foregoing undiscounted minimum requirements. Discounts are also
available for lease payments during the start-up period. If the Company is not
able to satisfy its minimum requirements under the contract due to lower than
expected use of T-1 lines or otherwise, then the Company is obligated to pay
AT&T the difference between the minimum requirement for the applicable period
and the lease payments related to the T-1 lines actually leased by the Company
for the applicable period, both before available discounts. AT&T has waived the
installation fee for each T-1 line, but, upon disconnection of a T-1 line, the
Company must pay such fee for any T-1 line not in service for a period of at
least 18 months. See "Risk Factors -- Expansion of PNV Network Installation and
Services; Future Revenue Streams; Minimum Requirements Contracts; Cost-Savings."
The Company may terminate the contract for the lease of T-1 lines at any
time. Upon any such termination prior to the third anniversary of the completion
of the start-up period, the Company must pay to AT&T 35% of the remaining
aggregate undiscounted required minimum lease payments. However, in the event of
a business downturn beyond the Company's control, a restructuring of the PNV
Network that results in the use of other AT&T services, or certain limited
circumstances that significantly reduce the volume of telecommunications
services required by the Company and that will make the Company unable to meet
its commitment under the contract, AT&T has agreed to cooperate with the Company
to develop a mutually agreeable alternative that will satisfy the needs of the
Company and AT&T and will comply with all applicable legal and regulatory
requirements.
Pursuant to the contract for long distance and other telephone services,
the Company will purchase long distance, local (in those states where available)
and voice telephone services, including incoming toll-free 800 lines, from AT&T
for a two year term. While the total amount payable pursuant to the contract
will vary with usage, the contract requires the Company to purchase each month,
at minimum, services having an undiscounted price of $40,000 based upon standard
AT&T rates. The Company has negotiated discounts off the standard AT&T rates
based upon certain usage levels. While the Company may terminate this contract
for any reason, the Company is obligated to pay to AT&T upon termination the
remaining aggregate undiscounted required minimum amount. See "Risk
Factors -- Expansion of PNV Network Installation and Services; Future Revenue
Streams; Minimum Requirements Contracts; Cost-Savings."
Pursuant to the Internet access services contract, for a term of three
years the Company may purchase certain standard AT&T Internet access services.
No services will be provided, and the Company will have no obligation to make
payments to AT&T, unless and until the Company submits a purchase order, agreed
to by AT&T, for particular services.
NETWORK BUILD-OUT; TRUCKSTOP RELATIONSHIPS AND CONTRACTS
The Company intends to continue to install the PNV Network from 118 sites
as of June 30, 1998 to a total of approximately 650 full-service truckstop
sites. Approximately half of these locations will have an average of 100 to 150
parking stalls per truckstop and approximately half will have fewer than 100
parking stalls. In order to achieve contractual milestones, the Company will
initially focus its build program on the
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<PAGE> 43
larger truckstops. The Company believes that its ability to significantly
increase subscription sales to drivers and fleet trucking companies is dependent
on the availability of the PNV Network at a critical mass of truckstops so that
drivers can access the PNV Network at least seven or more times during a month.
The Company currently believes that it will achieve "critical mass," once it has
installed the PNV Network at approximately 100 to 150 additional truckstops
(making the PNV Network available at between approximately 200 and 250 sites).
At such time, the Company believes that the number of subscribers that will
purchase monthly subscriptions, renewal rates and sales to fleet trucking
companies will increase substantially. The Company believes that installations
at the next 100 to 150 additional sites will be complete by June 1999. The
Company believes that the installation of the PNV Network at approximately 650
full-service sites will not be complete until after 2001. Such installation will
be subject to, among other things, the Company's ability to satisfy significant
capital requirements associated with such installation. See "Risk Factors --
Expansion of PNV Network Installation and Services" and "-- Future Capital
Requirements; Uncertainty of Additional Financing."
There are over 2,100 truckstops in the United States located on the
interstate highway system of which the Company believes there are approximately
1,100 full service truckstops (providing more services than just fuel). The
Company currently has long-term contracts to install the PNV Network at
approximately 751 of such truckstops. The Company has entered into these
long-term contracts pursuant to which eight of the 10 largest full-service
truckstop chains and associations in the United States, including TA Operating
Corporation, Petro Stopping Centers, Inc., Pilot Corporation, and Professional
Transportation Partners, LLC, as well as with several other associations
representing independent truckstops have agreed to permit the Company to offer
its services to their members on an exclusive basis. The Company's contracts to
install the PNV Network at approximately 338 truckstops are with associations
whose members consist of smaller truckstop chains generally having fewer than 10
truckstops. These associations act as purchasing agents for their members. The
Company entered into contracts with these associations as an efficient manner in
which to gain access to and establish a relationship with numerous small to
medium size truckstops. These associations do not have authority to legally bind
their members. Therefore, while each association has granted the Company the
exclusive right to provide cable television and telephone services to its
members, this contractual right is not binding on each member. Prior to
installation of the PNV Network at an association member's truckstop, the
Company enters into a contract with the association member granting the Company
the exclusive right to install the PNV Network at the member's truckstops.
The Company has contracted with truckstop chains, independent truckstop
owners and associations of truckstop owners. While most independent truckstop
owners who own a single truckstop execute a standard contract, the contracts
executed by truckstop chains that operate multiple truckstops vary
significantly. The Company offers a standard contract to the truckstop owners
and associations generally consisting of a term ranging from five to ten years
with an automatic five year renewal. Pursuant to the terms of the standard
contract, the Company is granted the exclusive right to provide
telecommunications and entertainment services to all of the owners' truckstops
for a mutually agreed period of time which, if the Company achieves its
contractual build-out milestones, generally extend for 10 years. Two owners of a
total of less than 15 truckstops did not grant the Company the exclusive right
to install the PNV Network at all of their truckstops. The Company pays
commissions to truckstop owners/operators based upon a percentage of its
revenues less specified costs on a negotiated basis. See "Risk
Factors -- Dependence on Contractual Relationships with Truckstops" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
A significant portion of the 21 or more days per month a driver spends on
the road is spent at truckstops as (i) there frequently are restrictions on the
roads and streets on which a long-haul truck can travel; (ii) many truckstops
have fueling agreements with fleet trucking companies that require refueling at
certain specified truckstops; and (iii) many full service truckstops provide a
variety of services to long-haul truck drivers, including showers, pay
telephones, television rooms and stalls for parking trucks. The Company believes
that the average truckstop represents a substantial capital investment. Despite
the amount of capital invested in the parking lot, the typical truckstop does
not generate any revenue from that asset (other than a limited number of
truckstops which charge for parking). At the same time, margins on fuel have
been under
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pressure, forcing truckstop operators to differentiate their truckstops from
their competitors and find other sources of revenue. The Company believes that
the PNV Network offers truckstops: (i) an amenity for long-haul truck driver
customers; (ii) a means for competitive differentiation; and (iii) the ability
to generate incremental revenue through the revenue and profit-sharing
provisions of the contracts.
The table below summarizes the Company's current contracts with truckstop
owners and operators, and truckstop associations as of June 30, 1998.
<TABLE>
<CAPTION>
TOTAL NO. OF LOCATIONS
NO. OF LOCATIONS INSTALLED
---------------- ----------------
<S> <C> <C>
TRUCKSTOP CHAINS AND OWNERS
TA Operating Corporation.................................... 121 21
Pilot Corporation........................................... 119 31
Kiel Brothers Oil Co........................................ 2 0
Petro Stopping Centers, Inc................................. 44 6
Travelports of America, Inc................................. 16 8
All American Travel Plaza's, Inc............................ 9 5
MAPCO Marketing, Inc........................................ 3 1
Sapp Brothers Truckstops, Inc............................... 7 6
Bosselman's Travel Plazas................................... 4 3
Hamburg Enterprises, Inc.................................... 5 2
Bruce's Truckstops, Inc..................................... 4 1
Highway Service Ventures, Inc............................... 4 4
Welsh Oil, Inc.............................................. 4 4
Tewel Corporation........................................... 4 1
Smithton Interstate Corporation............................. 3 0
Stony Ridge Travel Plazas................................... 2 0
Baggett's Travel Plaza...................................... 2 1
Burns Brother Travel Plaza.................................. 18 0
Additional Owners of a Single Truckstop..................... 42 24
--- ---
Subtotal.......................................... 413 118
TRUCKSTOP ASSOCIATIONS
Professional Transportation Partners, LLC................... 127 29(1)
North American Truckstop Network, Inc....................... 109 8(1)
Ambest, Inc................................................. 102 28(1)
---
Subtotal.......................................... 338 -0-
Total............................................. 751
===
</TABLE>
- ---------------
(1) Pursuant to the Company's contract with the association, the Company has
contracted directly with the specified number of truckstop owners to install
the PNV Network. Accordingly, these truckstop association locations are also
included under the appropriate truckstop chain referenced in the section of
this table entitled "Truckstop Chains and Owners."
As of June 30, 1998, the Company is in negotiations to enter into
additional exclusive contracts with several truckstop chains and independent
owners that collectively own more than 130 truckstops.
MARKETING
The Company believes that providing a cost effective, accessible
telecommunications and entertainment network that is deployed at a large number
of truckstops throughout the country will be a valuable service to long-haul
drivers and long-haul fleet trucking companies. The Company's marketing efforts
seek to communicate appropriate elements of this value proposition to each
segment of the target market and the Company's distribution strategy is designed
to reach each segment of the market efficiently. As the functionality and size
of the PNV Network grows, the Company plans to adjust its marketing and
distribution methods to emphasize
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<PAGE> 45
its strengths. While the Company believes that its primary target market
consists of 800,000 to 1,000,000 long-haul drivers, the Company has divided this
target market into two broad segments, individual drivers and fleet trucking
companies. The fleet segment is further divided into three segments based on
fleet size. The Companies marketing strategies to each segment of the target
market are as follows.
Marketing to Fleets. The Company believes that as the functionality and
size of the PNV Network expands, selling to medium and large fleet trucking
companies will increasingly become the most efficient means to add new
subscribers and to increase revenues from new services as they come on line. In
selling to fleet trucking companies, the Company plans to negotiate for
contracts of at least one year in length containing minimum subscription
commitments. The Company has successfully used this model and recently entered
into contracts with five fleet trucking companies that have committed to a
minimum of 2,329 drivers for terms ranging from one to three years, subject to
certain earlier termination rights. See "Risk Factors -- Ability to Sustain and
Increase Subscription Sales; Retention."
LARGE FLEETS (OVER 1,000 TRUCKS). Company research indicates that there
are approximately 50 fleet trucking companies in this segment that operate, in
the aggregate, 140,000 trucks. The marketing message to this segment is based on
long-term partnerships and the fact that the Company is developing a
telecommunications network designed to meet the needs of the fleet.
Specifically, improvement in driver retention by enhancing drivers' on-road
lifestyle with in-cab voice, data and cable entertainment, as well as telephone
access inside the truck cab to reach the driver efficiently and effectively, are
identified as immediate benefits to the fleet. Equal weight is given to the
future expansion and capability of the enhanced PNV Network. The potential for
building high capacity, low cost voice and data links between fleet centers and
a large number of truckstops is highlighted, as well as the fact that this
network is also a viable gateway onto the Internet from inside the truck. The
distribution method for reaching this segment involves multi-level selling and
relationship building at various organizational levels of the fleet trucking
company account. A senior-level major account representative coordinates sales
efforts. The Company currently has one such person on staff. The Company's
senior management, including the President and COO, are also actively involved
in contacting their counterparts at the target account. One of the Company's
five fleet contracts is with a large fleet.
MEDIUM SIZE FLEETS (100 TO 1,000 TRUCKS). Company research indicates that
there are approximately 892 fleet trucking companies in this segment who
operate, in the aggregate, over 212,000 trucks. The marketing message to this
segment is the same as to large fleet trucking companies and is aimed at senior
management and/or owners. Commercial sales representatives are the primary
channel for reaching this segment. The Company currently has three such
representatives on staff. The Company also may contract with independent sales
agents to sell to this segment. Company representatives are compensated with a
base salary plus commissions based on sales performance. Independent
representatives will be compensated on a commission basis. Four of the Company's
five fleet contracts are with medium size fleets.
SMALL FLEETS (UNDER 100 TRUCKS). Company research indicates that there are
over 18,000 fleet trucking companies in this segment who operate, in the
aggregate, over 280,000 trucks. This segment represents a very large but highly
fragmented sector of the target market. The marketing message to this segment is
aimed at the owner of the business. The primary distribution channel for
reaching this segment will be telemarketing and direct mail. The Company
believes that this segment is too fragmented and each individual company is too
small to warrant sales representatives salaries and travel costs. Telemarketing
leads will be generated through contact lists of targets in this segment,
working with independent telemarketers who have had prior experience selling
communication and technology services into the trucking and trade advertising
markets.
Marketing to Individual Drivers. The key marketing message to this segment
of the market is the benefits of telecommunications and cable television service
in the privacy and comfort of the truck cab at a very low cost. For
approximately $1 per day, typically significantly cheaper than the cost at home
for cable and telephone, a driver can obtain telecommunications and cable
television service while parked at a truckstop. The distribution channels for
reaching this segment are: (i) vending machines at the truckstops which dispense
daily and monthly memberships; (ii) field sales representatives at the larger
stops who sell Power Plan subscriptions; and (iii) telemarketing representatives
who sell Power Plan memberships to potential subscribers who call in to the
numbers provided on brochures and other advertising materials. The field sales
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<PAGE> 46
organization has three objectives: (i) generate Power Plan and machine sales;
(ii) maintain strong relationships with local truckstop personnel; and (iii)
ensure the PNV Network is fully operational at each truckstop.
As a result of its marketing programs to date, the Company believes that
the best method of advertising to truck drivers is at the truckstop through
point of sale merchandising, signage, brochures and similar materials. The
Company has developed extensive materials to support this program and has
successfully deployed it in the field. Call volume into the telemarketing center
has increased and was over 1,800 calls during the first quarter of 1998. The
Company is also working with truckstop operators, particularly the large
national chains, to institute standardized merchandising programs including
incentives for truckstop employees to sell Power Plan subscriptions or to direct
potential customers to telemarketing.
Field Sales Force. The field sales organization consists of Regional
Managers (RM) that oversee the Eastern and Western areas, Area Sales Managers
(ASM) and site representatives that report to the ASM at select truckstops. As
of June 30, 1998, the Company has two RMs, 12 ASMs and approximately 68 sales
representatives. Each RM has overall sales and maintenance responsibility for
approximately 50 locations. The ASM's operate as area general managers, leading
site representatives who are responsible for generating sales and helping to
maintain strong truckstop relationships, and a technical support person that
makes sure that the PNV Network is fully operational. Sales representatives are
deployed at large high traffic truckstops to directly sell Power Plan
subscriptions. They strategically set up a podium at the truckstop with
prominent Company signage and market and sell to drivers as they pass from the
lot into the truckstop. The sales representatives report to an ASM who generally
has control over eight to ten locations. The ASM has overall responsibility for
ensuring that all sites under their control are properly manned and have proper
sales and marketing material. Each ASM also has responsibility for ensuring
technical maintenance of the PNV Network at their sites. A maintenance person is
assigned to each ASM and travels with them to each site to perform routine
inspections and repairs. Sales representatives and ASMs are compensated with a
base salary plus commissions for sales. The Company plans to hire additional
RMs, ASMs and sales representatives as the size of the PNV Network grows.
Telemarketing. The Company currently uses telemarketing to sell on-going
Power Plan subscriptions. Leads for telemarketing are generated through
advertising in trade magazines, sales materials distributed at the truckstops
and through an upselling program aimed at current monthly/daily users. As part
of the upselling program, monthly/daily users are diverted to a telemarketing
representative when they log on to the network. The representative welcomes them
to the PNV Network and attempts to upsell them to Power Plan. The Company plans
to expand its telemarketing effort to small fleet trucking companies. Leads will
be generated through direct mail campaigns and trade advertising. As part of its
efforts, the Company may utilize independent agents who have had prior
experience selling communications and technology services into the trucking and
trade advertising markets.
Voice Response Unit. The Company believes that the voice response unit,
which all users interact with when they log on to the PNV Network, is a highly
effective marketing tool. When a user logs on the PNV Network, an audio message
is played that informs the user of options to purchase long distance services.
Users will hear a message every time they activate service. The Company has
complete flexibility in targeting specific messages to selected groups of users.
For example, a subset of all subscribers can be targeted for a campaign to
market a high usage long distance package and a special message can be played
only for that group. This model has already been successfully used to sell long
distance minutes to Power Plan subscribers.
Driver Referral Programs. The Company believes that word of mouth is a
major element in increasing product awareness among drivers. The Company
recently launched a driver referral program that awards 60 minutes of long
distance to existing subscribers who refer a friend or colleague who signs up
for the Power Plan. The Company plans to run various programs and contests that
reward referrals by drivers.
NETWORK AND TECHNOLOGY
Current PNV Network Design. The current architecture of the PNV Network
consists of a Site Server at each truckstop connected to the Host Server. The
Site Server controls and manages all interaction with the
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<PAGE> 47
subscriber, telephone communications, cable television activation and
communications with the Host Server. The following diagram depicts the current
architecture of the PNV Network:
CURRENT SYSTEM ARCHITECTURE
[There appears here a diagram depicting the current architecture of the PNV
Network. The diagram depicts lines drawn from an irregularly shaped box
containing the letters "PSTN": (1) to the left to an illustration labeled "Host
Server" and to a second illustration labeled "VoiceMail/Driver Tracking Server,"
each of which is contained in a rectangle labeled "Park 'N View Headquarters,"
(2) to the right to an illustration labeled "PBX" which is contained in a
rectangle labeled "Fleet Headquarters," and (3) down to an illustration labeled
"Site Server" and to a second illustration labeled "Authorization Modem," each
of which is contained in a rectangle labeled "Truckstop." In the rectangle
labeled "Truckstop," there are lines drawn to the left from the illustration
labeled "Site Server" to a rectangle labeled "66 Block," from which there is a
line drawn to the left to a rectangle labeled "PED Box." There also are lines
drawn up from the illustration labeled "Site Server" to an illustration labeled
"Authorization Model" and to the right to an illustration labeled "Video Control
Unit." The illustration labeled "Video Control Unit" also is connected by a line
to the left to a rectangle labeled "PED Box" and by a line to the right to an
illustration labeled "Modulators." The illustration labeled "Modulators" is
connected by a line to the left to a rectangle labeled "PED Box" and by a line
up to an illustration labeled "Receivers," which is in turn connected by a line
up to an illustration labeled "Digital Satellite Dish." There also are two lines
to the left from the rectangle labeled "PED Box" to a semicircular illustration
labeled "Bollard," which is connected by four lines to a rectangle labeled
"Driver Truck Cab." The rectangle labeled "Driver Truck Cab" includes the words
"Telephone," "Laptop Computer," "Fax," and "TV," each with an appropriate
illustration.]
The current architecture of the various components of the PNV Network and
related services are described below.
PC Based Communications Server. The Site Server located at each truckstop
is both the controlling computer and intelligent private branch exchange (PBX).
Using off-the-shelf telephony boards, each telephone extension and outside
telephone line is connected and controlled by the Site Server. Although the
hardware architecture utilizes off the shelf components, the real power of the
system comes from the PNV Software, which controls all aspects of user
interaction. Unlike a standard PBX, once a user picks up their telephone, all
interaction with the user is controlled by the PNV Software which is more fully
described below.
Host Server. The Host Server located in Coral Springs, Florida maintains
control of all membership information and determines individual membership
privileges. The Site Server communicates by dial-up modem to the Host Server
each time a member attempts to log on to or log off of the PNV Network. The
membership number is checked in the database and specific information about the
user such as their membership expiration date, number of long distance minutes
available and voice mail messages is downloaded to the Site Server for
subsequent interaction with and access by the user.
Proprietary Software. The PNV Software was developed in-house by the
Company and performs numerous functions including: (i) subscriber log on entry;
(ii) subscriber log on host server validation; (iii) membership information
maintenance, including membership cards and renewal card tracking; (iv) log on
information communicated to subscribers such as expiration date, stall number,
and call back number; (v) wake-up call notification; (vi) cable television
system control including activation of standard cable and activation of premium
channels; (vii) outbound call control and tracking; (viii) least cost call
routing; (ix) prepaid long distance call control and tracking including account
balance maintenance; (x) extension to extension call control and tracking; (xi)
call detail record storage and reporting; (xii) inbound call control and
tracking; (xiii) subscriber location tracking and voice mail services; (xiv)
subscriber voice messaging with broadcast capability; and (xv) stall maintenance
tracking. Unlike a standard PBX system with computer interfaces, all aspects of
the PNV Network are programmable, allowing for full upgradability and
flexibility as new capabilities are needed or made available in the future.
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<PAGE> 48
Telephone Wiring. The telephone jack in each Bollard connects by twisted
pair wiring to a pedestal box ("PED Box") that in turn is connected to the
telephone switch and Site Server inside the truckstop. The Site Server is
connected via trunk interface cards to the Public Switched Telephone Network
(PSTN) through POTS lines. These POTS lines are used to connect all local and
long distance calls. Although there is no limit on the number of extension to
extension calls within the truckstop, the number of outside calls is limited to
the number of POTS lines available at each site which currently averages 12 per
truckstop. Additional POTS lines can be added to meet telephone usage demand at
a particular truckstop.
Billable Long Distance Call Management. Unlike prepaid long distance card
companies, the Company has the advantage of having an intelligent switch
controlling each call at the place of origination and can thereby reduce their
cost per call. Prepaid calling card vendors require the user to dial an 800
number, enter their card and access numbers and then dial the number they wish
to dial. Thus, they are actually making two calls each time. An inbound call to
the calling switch and then an outbound call from the calling switch to the
applicable number. All completed calls have double costs associated with them.
If all calls are busy or not answered, the calling card company must absorb the
costs of the inbound call.
The Company believes that its long distance service uses a unique approach
by having the equivalent of a prepaid calling card switch at each site. All call
management functions including adding new minutes, deducting minutes for each
call and terminating a call when all minutes have been used are performed by the
Site Server. Since call management is performed locally at each site, the user
can simply make long distance calls by dialing 9,1 + number. The call is
originated from the truckstop directly to the applicable number as a single
call. Therefore, if there is no answer or the line is busy, the user is not
billed and the Company does not incur the cost of an incoming call. This feature
greatly reduces the cost per call for the Company as compared to other prepaid
calling card vendors.
Cable Television Wiring. The television plug-in terminal in each Bollard
is connected through a single coaxial cable to the PED Box. The PED Box is
connected through a single coaxial cable to the cable head end system inside the
truckstop.
Cable Television Head End and Wiring. The cable head end system is
comprised of a satellite dish connected to an individual receiver. Other
conventional methods of Off-Air antennas and C-Band technologies are also used
in supplying channels to the user. An encrypted control unit is used to control
which users have access to Pay-Per-View services.
Proposed Enhanced PNV Network Design. The Company plans to significantly
enhance the functionality and capacity of the PNV Network by the second half of
1999 to expand the scope of services offered and reduce operational costs. See
"Risk Factors -- Expansion of PNV Network Installation and Services" and
"-- Future Revenue Streams; Cost-Savings." In connection with these
enhancements, although the basic architecture currently in place will remain the
same, certain additional components will be added. The following diagram depicts
the proposed enhanced PNV Network:
PROPOSED SYSTEM ARCHITECTURE
[There appears here a diagram depicting the proposed architecture of the PNV
Network. In the top center of the diagram is the word "Internet" in an
irregularly shaped box connected by a line labeled "Gateway" to an irregularly
shaped box labeled "Frame Relay Network," which has three lines from it, each
going to a different rectangle labeled "IXC." Each of the three rectangles
labeled "IXC" is connected to an irregularly shaped box labeled "PSTN." The
rectangle labeled "IXC" that appears at the left is connected by a line to the
left to an illustration labeled "DSU/Router/VOIP," which appears in a rectangle
labeled "Park 'N View Headquarters." The rectangle labeled "IXC" that appears at
the right is connected by a line to the right labeled "T-1" to an illustration
labeled "DSU/Router/Modems/VOIP," which appears in a rectangle labeled "Fleet
Headquarters." The rectangle labeled "IXC" at the bottom is connected by a line
down labeled "T-1" to an illustration labeled "DSU/Router/Modems/VOIP" in a
rectangle labeled "Truckstop." In the rectangle labeled "Park 'N View
Headquarters," the illustration labeled "DSU/Router/VOIP" is connected by a line
to the left to an illustration labeled "Host Server" and by a second line to the
left to an illustration labeled "Voice Mail/Driver Tracking Server." In the
rectangle labeled "Fleet Headquarters," the illustration labeled
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<PAGE> 49
"DSU/Router/Modems/VOIP" is connected by a line to the right to an illustration
labeled "PC Based Communications Server," which is then connected by a line up
to an illustration labeled "PBX." In the rectangle labeled "Truckstop," there is
a line from the illustration labeled "DSU/Router/Modems/VOIP" down to an
illustration labeled "Site Server." There are lines drawn to the left from the
illustration labeled "Site Server" to a rectangle labeled "66 Block," from which
there is a line drawn to the left to a rectangle labeled "PED Box." There also
is a line drawn to the right from the illustration labeled "Site Server" to an
illustration labeled "Video Control Unit." The illustration labeled "Video
Control Unit" also is connected by a line to the left to a rectangle labeled
"PED Box" and by a line to the right to an illustration labeled "Modulators."
The illustration labeled "Modulators" is connected by a line to the left to a
rectangle labeled "PED Box" and by a line up to an illustration labeled
"Receivers," which is in turn connected by a line up to an illustration labeled
"Digital Satellite Dish." There also are two lines to the left from the
rectangle labeled "PED Box" to a semicircular illustration labeled "Bollard,"
which is connected by four lines to a rectangle labeled "Driver Truck Cab." The
rectangle labeled "Driver Truck Cab" includes the words "Telephone," "Laptop
Computer," "Fax," and "TV," each with an appropriate illustration.]
The planned architecture of the additional components of the enhanced PNV
Network and related services are described below.
Dedicated T-1 Access at Truckstop. The planned addition of a T-1 line at
each truckstop affords additional telecommunications capacity and reduced
operational costs. Each T-1 line offers 24 channels of long distance voice or
data capability at a fixed cost. All 24 channels can be designated as voice
channels for a flat monthly fee. Any number of the 24 channels can be designated
for data at an additional cost. The ability to designate between voice or data
channels allows flexibility as requirements change.
Dedicated Long Distance Access at Truckstops. Dedicated long-distance
service offers distinct advantages over existing switched services. First, the
cost of long distance minutes will be reduced from current rates because a
dedicated T-1 bypasses the LEC and the associated LEC access charges. In
addition, the Company believes that it will be able to obtain more favorable
pricing available from long distance carriers. This more favorable pricing is
only available when either the originating or terminating numbers have dedicated
T-1 access from the carrier. Finally, transmission of long distance calls over
the T-1 reduces the need for POTS lines and therefore reduces costs per site.
Frame Relay Network. The Company plans to connect each truckstop via frame
relay in a hub and spoke configuration and to increase the bandwidth to each
truckstop as traffic warrants. Although frame relay will be the transport
method, the Company currently expects that the network protocol will be Transmit
Control Protocol/Internet Protocol. The Company plans to replace the current
dial-up access to the Host Server with real-time transactions over the PNV
Network. This will speed up user access to the system and greatly increase
system flexibility. Additionally, the Company plans to perform site system
monitoring and remote access over the frame network, greatly enhancing site
manageability.
Dedicated Long Distance and Data Transmission to Fleets. The Company plans
to offer installation of network nodes at select large fleet locations. These
network nodes will consist of a frame relay connection to a communication server
developed by the Company. The communication server will in turn connect to the
fleet's PBX. When a driver calls their fleet from any telephone connected to the
PNV Network, the driver will simply enter a four-digit extension. The system
will route the call to the fleet PBX and it will be like any other incoming
call. Additionally, if the fleet wishes to contact a driver, the fleet can
simply call an extension that connects to the Site Server and enter the drivers
membership number. If the driver is currently logged on to the PNV Network, the
call will be routed over the frame network to the drivers personal telephone in
their cab. If they are not connected to the PNV Network at that time, the fleet
can leave a voice mail message.
Internet Access. As part of the Company's plan to become an ISP, the
Company intends to equip each truckstop with a modem bank for locally
terminating Internet access calls. This will give the Company the ability to
offer local Internet access at all truckstops. Once a user connects to a local
modem, the data will travel over the frame relay network and then to the
Internet. The Company expects that this feature will generate additional
revenues through monthly fees and reduce operational costs if the Company
succeeds in its plan to become an ISP. Since connections between the member and
the on site modems are via the local
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wiring, no POTS lines will be used. The user only ties up bandwidth on the frame
network when active. Idle users have no effect on the frame network bandwidth.
Voice Over IP. The Company intends to equip each site additionally with a
voice compression/de-compression capability allowing the transfer of point to
point voice calls over the frame relay network. The Company intends to use
industry standard voice compression allowing near toll quality voice to travel
over the network. The Company plans to initially use this system for calls
between truckstops and the Company's offices, as well as for log-on and voice
response units. Subscriber service calls will transfer over the data network and
calls to drivers from the voice mail/driver locator system will be routed
directly to the drivers telephone rather than the user having to hang up and
dial the callback number. The advantage of this type of call is that the cost of
usage is flat. The existing data network carries the call as additional traffic
on the network. If network bandwidth is unavailable at the time, such as during
peak hours, the call can be routed as a voice call over the T-1. This allows the
Company the ability to build network capacity based on normal usage patterns
instead of over-engineering capacity to handle peak times.
Access Telephones Inside Truckstop. To offer greater access to the PNV
Network, the Company intends to install telephones inside the truckstop at
certain locations that are connected to the PNV Network. Most drivers stop
several times a day, but may only be off the road an hour each time. This hour
is spent inside the truckstop at the restaurant or other areas. Therefore, to
allow members to use the PNV Network as often as possible, the Company plans to
install member-only telephones, both wired and 900 MHz wireless, throughout the
inside of the truckstop. The member would simply log on to the PNV Network via
these telephones just like the telephone in the cab. All calling features will
be available, including local calls, 800 calls, billable fleet calls, billable
personal long distance calls and inbound calls.
COMPETITION
General
The Company believes competitive entry in its target market is already
difficult and will become even more difficult as the Company: (i) enters into
additional exclusive long-term contracts with truckstop owners and operators;
(ii) builds out additional sites; and (iii) increases its market penetration and
signs additional fleets to contracts. The Company believes that deploying an
integrated voice, data, Internet and cable network designed to address the needs
of the long-haul trucking industry will be difficult to duplicate and will place
the Company in a position to become the leading provider of voice, data,
Internet and entertainment access to the long-haul trucking industry.
Telecommunications
In the voice and data communication arena, the Company competes with
various elements of other providers' offerings based on ease of access,
functionality and cost. The Company's competitive advantage with respect to each
provider varies and is outlined below.
Public pay telephones. The Company believes that drivers currently use pay
telephones located at truckstops for a significant number of the calls they
make. The Company believes that the ability to offer telephone access at a
comparable cost to pay telephones in the privacy and convenience of the truck
cab is a significant competitive advantage when compared to public pay telephone
access which is generally in an environment that lacks privacy, consistent
availability, Internet and data connectivity or a means to receive calls.
Cellular telephones. The Company believes that it can successfully compete
with cellular telephones. Cellular service is not always available in more
remote truckstop locations. Even when cellular service is available at a
truckstop, the Company's in-cab access provides comparable convenience and more
robust functionality at a much lower cost and higher sound quality. Cellular
telephones are expensive to use for drivers, particularly due to the roaming
charges that drivers usually incur when they are away from home and with higher
cost per minute charges than either pay telephones or the Company's service.
Also, cellular telephones have limited data transmission capability and are not
cost efficient for transmission of large
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volumes of data. The Company understands that one company, HighwayMaster,
resells cellular telephone service to provide both voice and data communication
to the cab. According to HighwayMaster's Annual Report on Form 10-K for the year
ended December 31, 1997, approximately 33,000 units were installed and each unit
requires an initial payment of approximately $1,995 and costs $41 per month plus
$0.53 per minute for voice and $0.48 per minute for data to operate. The Company
believes that one of the fleets with which it has a contract utilizes the
HighwayMaster service as well as the PNV Network.
Long distance service cards, pre-paid cards, and toll free numbers. The
Company's long distance services compete with providers of long distance cards
and pre-paid cards such as AT&T and MCI. The Company believes that it currently
sells long distance telephone time to individual drivers at competitive rates.
The Company also competes with providers of toll free (800 and 888) numbers that
fleets or even individuals use to call fleet headquarters or home. The Company
believes that it can successfully compete with these providers since its
dedicated long distance T-1 network will allow very competitive rates to both
fleets and drivers. The Company believes that by: (i) providing competitive
rates; (ii) allowing purchases through the voice response unit in the truck; and
(iii) providing multiple payment options, the Company can increase the amount of
long distance services sold. The Company has already successfully sold long
distance minutes to a select group of Power Plan members.
Qualcomm OmniTRACS. Qualcomm's OmniTRACS service, a satellite based
system, is used primarily for mobile vehicle location and two-way text
messaging. Based on publicly available data, the OmniTRACS service has an
installed base of approximately 210,000 units in 32 countries worldwide, of
which the Company believes that over 150,000 units are installed in the United
States. This service addresses the trucking fleets' need for real-time mobile
text communication. The Company believes that the PNV Network and OmniTRACS
service are complementary to each other. The Company believes that Qualcomm's
subscribers may find it cost efficient to also subscribe to the PNV Network to:
(i) transmit certain large amounts of data over the PNV Network rather than
transmitting all data by satellite over the Qualcomm service, (ii) have Internet
access, and (iii) have personal communication capabilities. The Company believes
that one of the fleets with which it has a contract utilizes the OmniTRACS
service as well as the PNV Network.
Internet/e-mail kiosks inside the truckstop. The Company believes that
there is a company that has begun installing Internet/e-mail kiosks in
truckstops. The Company believes that these kiosks do not pose a significant
competitive threat since they will operate in the same fashion as pay telephones
with limitations in privacy, availability, and convenience. The Company believes
that this company is in the early start-up phase of its business. The Company
believes that it can compete effectively with this service based on its
capability to provide Internet access in the privacy of the truck cab at
competitive rates. The Company believes that currently there are no other viable
options available that provide Internet connectivity from the truck cab.
Entertainment
With respect to entertainment, the Company's competition currently consists
of entertainment alternatives located outside the truck cab and primarily in the
truckstop. The Company's competitive position with respect to existing and
potential entertainment alternatives is outlined below.
Televisions and game rooms inside the truckstop. Community television and
game rooms inside the truckstop are the most readily available entertainment
alternatives for long-haul truck drivers. These rooms offer no privacy and
limited choice in programming and are typically crowded and smoke-filled. The
Company believes that it can successfully compete against this alternative by
offering full cable television programming in the privacy and comfort of the
cab.
Satellite dishes. A small number of professional truck drivers have
purchased direct broadcast satellite dishes to receive television programming in
their cab. Satellite dishes have high up-front costs (approximately $200 --
$700) and monthly usage fees of approximately $30 per month. They are awkward to
use in the long-haul trucking environment since the driver must remount and
realign the dish every time the driver parks. The Company believes that the
sensitive electronics within the equipment also may not survive long in the
high-vibration environment of a moving truck and the truck's engine is usually
running even in the parking lot, so
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the dish may vibrate which could inhibit high-quality reception. The Company
believes that it can successfully compete with satellite dishes since its
bundled services include telecommunications service in addition to cable
television programming for a comparable price and since the Company's service is
easier to use and more reliable.
Local cable television operators. The Company does not view local cable
television operators as a likely source of competition due to: (i) federal and
local regulations on uniform programming and pricing within franchise areas; and
(ii) programming agreements that commonly prohibit resale. Cable providers to
such users as residential apartment buildings could seek to compete by offering
these services to truckstops; however, the Company believes these operators are
unlikely to have the capital or experience to compete nationwide or offer the
range of services provided by the Company.
REGULATORY MATTERS
The FCC and relevant state regulatory authorities ("PSC's") have the
authority to regulate interstate and intrastate telephone rates, respectively,
ownership of transmission facilities and the terms and conditions under which
certain of the Company's telephone service offerings are provided. Federal and
state regulations and regulatory trends have had, and in the future are likely
to have, both positive and negative effects on the Company and its ability to
compete. In general, neither the FCC nor the relevant state PSC's currently
regulate the Company's domestic long distance rates or profit levels, although
either or both may do so in the future. There can be no assurance that changes
in current or future Federal or State regulations or future judicial changes
would not have a material adverse effect on the Company's business, financial
condition or results of operations.
Federal laws and FCC regulations apply to interstate telecommunications
(including international telecommunications that originate or terminate in the
United States), while particular state regulatory authorities have jurisdiction
over telecommunications originating and terminating within the state.
The FCC may regulate the Company's current telephone service offerings as a
non-dominant carrier with respect to both its international and domestic
interstate long distance services, unless the Company is deemed to be an agent
or private network operator, and not a common carrier. In the domestic, as
distinguished from the international sector, the FCC abstains from closely
regulating the services and charges of non-dominant carriers. Nevertheless, the
FCC acts upon complaints against such carriers for failure to comply with
statutory obligations or with the FCC's rules, regulations and policies. The FCC
also has the power to impose more stringent regulatory requirements on the
Company and to change its regulatory classification. In the current regulatory
atmosphere, the Company believes that the FCC is unlikely to do so with respect
to the Company's international or domestic interstate service offerings.
The Company, as a non-dominant carrier, has "blanket" authority to enter
the domestic long-distance market without prior FCC approval, but must obtain
specific authority to enter the international market. In addition, the Company
is required to file with the FCC domestic and international tariffs containing
charges and related practices, regulations and classifications. The FCC presumes
the tariffs of non-dominant carriers to be lawful. The FCC could, however,
investigate the Company's tariffs, upon its own motion or upon complaint by a
member of the public. As a result of any such investigation, the FCC could order
the company to revise its tariffs, or the FCC could prescribe revised tariffs.
With respect to domestic long-distance services provided by the FCC has ordered
non-dominant carriers to withdraw their tariffs, but that order has been stayed
pending review by a court of appeals.
Interstate telecommunications carriers are subject to a number of other
federal regulatory obligations and reporting requirements, including obligations
to contribute to universal service and other subsidy funds, to permit resale of
their services by other carriers, and to take certain steps to protect
consumers. While the Company does not believe the burdens imposed by federal
regulations will be onerous, failure to comply with applicable regulations could
result in fines or other penalties, including loss of authority to provide
interstate service.
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The intrastate operations of the Company may be subject to various state
laws and regulations. Most states require the Company to apply for certification
to provide intrastate telecommunications services, operator services, payphones
or competitive local exchange services or to register or be found exempt from
regulation, before commencing intrastate services. Most states also require the
Company to file and maintain detailed tariffs listing their rates for intrastate
service. Many states also impose various reporting requirements and/or require
prior approval for transfers of control of certified carriers, assignment of
carrier assets, including customer bases, carrier stock offerings, incurrence by
carriers of significant debt obligations and acquisitions of telecommunications
operations. Other regulatory requirements may mandate that the Company permit
resale of its services by other companies, make payments to intrastate universal
service and similar funds, and take certain steps to protect consumers.
Certificates of authority can generally be conditioned, modified, canceled,
terminated and revoked by state regulatory authorities for failure to comply
with state law and/or rules, regulations and policies of the state regulatory
authorities. Fines and other penalties also may be imposed for such violations.
Although the Company has not determined whether its current and anticipated
telephone service offerings are subject to regulation by all state and federal
regulatory authorities, the Company is currently in the process of obtaining
authority, pursuant to regulation, certification, tariffs, notifications, or on
an unregulated basis, to provide intrastate interexchange service in the 48
contiguous states and Hawaii. The interpretation and enforcement of such laws
and regulations in relation to the Company's current and future service offering
may vary, and there can be no assurance that the Company will be in compliance
with all such laws and regulations at any one point in time. However, the
Company intends to meet any filing requirements to which it may be subject.
In the future, when the enhanced PNV Network is fully deployed, the Company
may decide that it would be advantageous to have the status of a competitive
local exchange carrier (CLEC) in some or all of the states in which it operates,
or some states may require the Company to register or seek certification as a
CLEC. Current regulation provides CLECs with certain benefits, such as the right
to interconnect with incumbent LECs (ILECs) on just, reasonable and
non-discriminatory terms, access to the unbundled network elements of ILECs at
cost-based rates, and the ability to purchase (for resale) the ILECs' retail
telecommunications services at a significant wholesale discount (determined by
the state PSCs). CLECs are also subject to certain regulatory obligations, which
differ by state, but which include the obligations to interconnect with and
permit resale of their services by other telecommunications carriers, to provide
access to their poles, ducts, conduits and rights-of-way to competing service
providers, and to provide number portability so customers may switch their LEC
without changing their telephone number.
Various state and federal regulatory factors may have an impact on the
Company's ability to attract customers. Many of the rights and obligations
created by statute and regulation are subject to ongoing regulatory
implementation proceedings and review by the courts, and are subject to change.
Changes to some regulations could benefit the Company, while other changes could
make it more difficult for the Company to compete.
Cable television companies are subject to extensive governmental
regulation. The Company does not believe that it is subject to such regulations.
However, in the event the Company is required to comply with such regulations,
the expense, potential delay and management distraction potentially resulting
from the compliance process could have a material adverse effect on the
Company's results of operations and financial condition.
PROPRIETARY RIGHTS
The Company believes that recognition of its products and services is an
important competitive factor in its industry. Accordingly, it promotes (or
intends to promote) the following in connection with its marketing activities
and holds or has filed an application for a United States trademark registration
for the following: "PARK 'N VIEW," "INCAB PNV," "PNV USA," "YOUR CAB. YOUR
CABLE. YOUR CALL,"
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"PARK 'N VIEW" (with design), "DEN" (with design), and "WHERE SMART DRIVERS STAY
CONNECTED."
The Company regards the PNV Software as proprietary and attempts to protect
it as a trade secret. The Company holds no patents or copyrights on its software
technology.
EMPLOYEES
As of June 30, 1998, the Company had 189 employees, including 15 part-time
employees, none of whom are represented by a collective bargaining agreement.
The Company considers its employee relations to be good.
PROPERTIES
The Company is headquartered in Coral Springs, Florida, where it leases an
approximately 21,000 square foot facility in which its administrative offices
and warehouse facility are located. The Company currently leases an
approximately 11,650 square foot facility in Ft. Lauderdale which previously
served as its headquarters and warehouse facilities prior to moving to Coral
Springs. The Company has sublet the Ft. Lauderdale facility.
LEGAL MATTERS
In July 1998, Lorenzo and Pat Ortiz instituted an action against a
truckstop chain, as well as a contractor utilized by the Company in connection
with the installation of the PNV Network at a truckstop owned by the chain, in
the 111th Judicial District, Webb County, Texas, seeking unspecified actual and
punitive damages allegedly resulting from an injury suffered by Mr. Ortiz at
such truckstop in connection with such installation. Although the Company is not
currently named as a party to this action, pursuant to the contract between the
Company and the truckstop chain defendant, the Company agreed, among other
things, to indemnify the truckstop chain for claims relating to the
installation, operation or repair of the PNV Network. Further, pursuant to such
contract, the Company and the truckstop chain each agreed to maintain at least
$1,000,000 of liability insurance on each truckstop at which the PNV Network is
available and the Company agreed to name the truckstop chain as an additional
insured on its insurance policy. Similar indemnification and insurance
maintenance provisions are currently included in the standard contract between
the Company and other truckstop owners/operators. The Company inadvertently
failed to timely name the truckstop chain defendant as an additional insured
with the result that the Company's commercial general liability insurance
carrier has denied coverage with respect to this action. The Company and the
truckstop chain have agreed to the Company's assumption of the defense of this
action, indemnification of the truckstop chain from any and all losses or
expenses relating to the action and provision to the truckstop chain with a
letter of credit or surety bond in the amount of $200,000 securing such
indemnity.
In addition, an action has been instituted against a truckstop chain in
Lake County, Indiana, for actual damages relating to a slip and fall incident at
a truckstop at which the PNV Network is available. Although the plaintiff in the
action initially named the Company as a defendant in the lawsuit, the plaintiff
amended its complaint to remove the Company as a defendant. Although the Company
is not currently named as a party to this action, pursuant to the contract
between the Company and the truckstop defendant, the Company agreed, among other
things, to indemnify the truckstop for claims relating to the installation,
operation or repair of the PNV Network. Further, pursuant to such contract, the
Company and the truckstop each agreed to maintain at least $1,000,000 of
liability insurance on each truckstop at which the PNV Network is available. The
Company's commercial general liability insurance carrier has agreed to provide
coverage to the Company with respect to any claim related to this lawsuit and
has agreed to indemnify the Company with respect to any such claim. The
Company's present understandings of both actions is preliminary. Based upon such
understandings, however, management does not believe that the outcome of either
such action will have a material adverse effect on the Company's financial
condition or results of operations.
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The Company has received a demand that it pay $50,000 to reimburse a
worker's compensation insurance carrier for amounts paid to one of its insured
relating to injuries allegedly related to the PNV Network. The Company is in the
preliminary stages of investigating this claim. The Company has also received
claims of 12 to 15 slip and fall incidents relating to the PNV Network. It has
advised its insurance carrier of these incidents and the carrier has denied
coverage on several of these incidents due to the Company's alleged failure to
provide timely notice of such incidents. Based on the Company's present
preliminary understanding of the worker's compensation claim, as well as the
other claims the Company has received, management does not believe that the
outcome of such claims, individually or in the aggregate, will have a material
adverse effect on the Company's financial condition or results of operations.
The Company anticipates that it will be, from time to time, subject to
claims and suits for personal injury arising in the ordinary course of its
business. The Company anticipates that such claims and suits, to the extent for
actual damages, will generally be covered by insurance. In order to minimize
insurance coverage denials due to the Company's failure to provide timely
notice, the Company has recently implemented a new procedure whereby all
incident reports received by the Company are routed to one Company employee who
is responsible for notifying the Company's insurance agent and/or legal counsel
of such incident. Such agent and/or counsel in turn notifies the insurance
carrier of such incident and is responsible for appropriate follow-up. In
addition, prior to February 1998, in order to be insured with respect to
incidents at a particular truckstop, the Company's insurance policy required the
Company to name each such site. Effective as of such date, the Company amended
its policy so that it requires the Company to name only the truckstop chain and
not, additionally, each site owned/operated by the chain at which the PNV
Network is available in order to be insured with respect to incidents at a
particular truckstop.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ---- --- --------------------------
<S> <C> <C>
Ian Williams.............................. 49 Chairman of the Board, Chief Executive Officer and
Director
Stephen L. Conkling....................... 54 President and Chief Operating Officer
R. Michael Brewer......................... 55 Vice President-Finance and Chief Financial Officer
Anthony W. Allen.......................... 37 Vice President-Operations and Secretary
Richard K. Brenner........................ 44 Vice President-Sales
Bill J. Buzbee............................ 53 Vice President-Business Development
A. Alexander Ezazi........................ 38 Vice President-Marketing
James D. Green............................ 40 Vice President-Product Development
Ralph A. Head............................. 52 Vice President-Fleet Sales
Yves Roland Maynard....................... 37 Vice President-Engineering
Robert M. Chefitz......................... 39 Director
Thomas P. Hirschfeld...................... 35 Director
Richard M. Johnston....................... 63 Director
Daniel K. O'Connell....................... 69 Director
David C. Turner........................... 48 Director
</TABLE>
IAN WILLIAMS, a founder of the Company, has served as Chairman of the Board
since August 1998 and as Chief Executive Officer and a director of the Company
since the Company's incorporation in September 1995. From September 1995 to July
1998, Mr. Williams served as the Company's President. From 1993 to 1995, Mr.
Williams served as President of Park 'N View, Ltd., the predecessor of the
Company. Prior to joining Park 'N View, Ltd., from 1991 to March 1993, Mr.
Williams served as President of Arden Technologies, Inc., a manufacturer and
distributor of wireless cable transmitters. Mr. Williams' experience at Arden as
well as other previous employment includes the design of numerous satellite
master antenna television systems, multi-channel low-power television systems,
FM rebroadcast and distribution systems and wireless television broadcast
systems and the installation of low-power television and cable systems
throughout Canada and the Arctic, as well as over thirty other countries
throughout the world. Mr. Williams is a graduate of West Gloucestershire College
of Education in the United Kingdom.
STEPHEN L. CONKLING has served as President of the Company since August
1998 and as Chief Operating Officer since December 1997. Mr. Conkling served as
Vice President-Finance of the Company from April 1996 to July 1998. Prior to
joining the Company, from January 1995 to March 1996, Mr. Conkling served as
Chief Financial Officer of Advanced Promotion Technologies, a publicly held
database marketing company that filed for Chapter 11 bankruptcy protection
within two years after Mr. Conkling left the company. From November 1993 to
January 1995, Mr. Conkling was a consultant providing strategic and financial
strategy services. From 1991 to November 1993, Mr. Conkling served as Chief
Executive Officer of Imagery, a document imaging software company. Mr. Conkling
served as Chief Financial Officer of Interactive Systems, a systems software
company, from 1984 to January 1991. Prior to 1984, he was employed for 16 years
by Xerox Corporation in various finance and marketing positions. He is a
graduate of Purdue University, where he earned a Bachelor degree in industrial
management, and the University of Southern California, where he earned a Masters
of Business Administration.
R. MICHAEL BREWER has served as Chief Financial Officer of the Company
since August 1998. Prior to joining the Company, from January 1994 to August
1998, Mr. Brewer was Vice President of Finance and Chief Financial officer for
Boca Research, Inc., a computer peripheral manufacturing company. From 1978 to
January 1994 Mr. Brewer was Vice President of Finance for the U.S. operations of
Mitel Corporation, a
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Canadian company which manufactured PBX telephone equipment and semiconductors.
Mr. Brewer is a graduate of the University of Minnesota where he earned a degree
in business administration. Mr. Brewer received his Florida CPA Certificate in
1975.
ANTHONY W. ALLEN has served as Vice President-Operations of the Company
since March 1997 and Secretary since the Company's incorporation in September
1995. From 1993 to August 1997, Mr. Allen served as Director of Marketing for
Arden Technologies, Inc., a manufacturer and distributor of wireless cable
transmitters, which from September 1995 to March 1997 contracted with the
Company to provide Mr. Allen's services to the Company. From 1990 to 1993 he
served as Director & General Manager of IMDS International Microwave
Distribution Systems, Ltd. in Barbados in which position he was responsible for
the international distribution and installation of wireless cable products. From
1988 to 1990 he served as Regional Sales Manager for Southfields Coachworks Ltd.
(located in the United Kingdom), a manufacturer of semi-trailers and heavy truck
bodywork. He is a graduate of Harper Adams in the United Kingdom, where he
earned a diploma in mechanical engineering.
RICHARD K. BRENNER has served as Vice President-Sales of the Company since
November 1997. Prior to joining the Company, Mr. Brenner was the founder and
President of Brenner Consulting Group, a consulting firm that provided marketing
consulting services to the Company, from February 1996 to October 1997. See
"Certain Transactions." From June 1995 to February 1996, Mr. Brenner served as
Vice President-World-wide Business Planning for Scott Paper Company, in which
position he was responsible for directing business planning for all Scott
brands. From January 1994 to June 1995, Mr. Brenner served as Vice President-
Marketing of Advanced Promotion Technologies, a publicly held database marketing
company that filed for Chapter 11 bankruptcy protection within two years after
Mr. Brenner left the company. Mr. Brenner was employed by Procter and Gamble
from 1986 to January 1994 in various marketing and product management positions.
Prior to joining Procter and Gamble, Mr. Brenner was employed by Leo Burnett
USA, an advertising agency, as an account supervisor. Mr. Brenner is a graduate
of the University of Maryland, where he earned a Bachelor degree in business
administration, and Northwestern University, where he earned a Masters of
Management.
BILL J. BUZBEE has served as Vice President-Business Development of the
Company since October 1997 and Vice-President-Marketing and Sales from April
1995 to October 1997. Prior to joining the Company, he served as Manager of
Fuel/Ancillary Sales for National Auto/Truckstops Corp., a truckstop operator,
from October 1993 to April 1995. From 1989 to 1993 and from 1972 to 1984, Mr.
Buzbee was employed by Truckstops of America and served in various capacities
including as general manager of truckstop facilities located in Nashville,
Tennessee; West Memphis, Arkansas; Gary, Indiana and Grovertown, Indiana. Mr.
Buzbee was employed by a Petro Stopping Center franchisee from 1984 to 1986. Mr.
Buzbee attended State Community College in Columbia, Tennessee, and David
Lipscomb University in Nashville, Tennessee.
A. ALEXANDER EZAZI has served as Vice President-Marketing of the Company
since September 1997. Prior to joining the Company, from September 1995 to April
1997, Mr. Ezazi was Director of Marketing and Sales for PrimeCo, a joint venture
formed by AirTouch Communications and Bell Atlantic, to provide personal
communications services throughout the United States. From February 1993 to
September 1995, Mr. Ezazi worked for AirTouch Cellular, a division of AirTouch
Communications, as Director of Distribution Strategy for the Corporate Marketing
Group, where he was responsible for directing various distribution initiatives.
From 1992 to February 1993, Mr. Ezazi worked as Manager of Business Development
for the Los Angeles Marketing and Sales Department of AirTouch Cellular, where
he managed the evaluation and implementation of new products and services in the
Los Angeles cellular market. Mr. Ezazi worked as a consultant for Andersen
Consulting from 1988 to 1991. Mr. Ezazi is a graduate of the University of
Pennsylvania and Columbia University, where he earned a Masters of Business
Administration.
JAMES D. GREEN has served as Vice President-Product Development of the
Company since November 1996. Prior to joining the Company, Mr. Green was
President of GreenLight Technologies, Inc., which was formed in 1994 as a
software development company specializing in frequency marketing and transaction
processing services for the truckstops and trucking companies and which
performed certain software programming consulting services for the Company. See
"Certain Transactions." From 1984 to 1994,
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<PAGE> 58
Mr. Green worked for Comdata Corporation as Senior Product Manager responsible
for all transportation card based products. Mr. Green worked as Product Manager
for Financial Institutional Services Inc. from 1982 to 1984 and as consultant
for Computer Sciences Corporation from 1980 to 1982. Mr. Green is a graduate of
The Evergreen State College in Olympia, Washington, where he earned a Bachelor
degree in business administration and computer science.
RALPH A. HEAD has served as Vice President-Fleet Sales of the Company since
January 1996. Mr. Head was President of Ralph Head & Associates, a
transportation consulting firm, from December 1994 to January 1996. Mr. Head
served as Vice President of Fleet Sales for National Auto/Truckstops from May
1993 to December 1994 and as President of Direct Bill Management, a financial
services company serving fleet trucking companies and truckstops, from January
1991 to May 1993. Mr. Head is a graduate of Auburn University, where he earned a
Bachelor degree in business administration.
YVES ROLAND MAYNARD has served as Vice President-Engineering of the Company
since September 1995 but has been employed by the Company since June 1993. Mr.
Maynard was employed by Glocom Engineering from August 1990 to June 1993, and by
Glocom Engineering Ltd./Canada from 1987 to May 1990, as Director of
Engineering, and as such was responsible for the engineering and installation of
microwave distribution systems. His experience at Glocom includes the
engineering and installation of microwave distribution systems for companies in
Canada, the United States and the Caribbean, and the design of equipment and
construction methods necessary to deliver cable television and telephone
services. From 1986 to 1987, Mr. Maynard was employed by Island Engineering BWI
as Director of Engineering. Mr. Maynard is a graduate of Red River Community
College in Winnipeg, Manitoba, where he earned a diploma in industrial
electronics.
ROBERT M. CHEFITZ has served as a director of the Company since November
1995. Mr. Chefitz has served as a Managing Director of Patricof & Co. Ventures,
Inc., a venture capital firm ("Patricof"), since 1991. Mr. Chefitz joined
Patricof in 1987 and served as Vice-President until 1991. From 1981 to 1987, Mr.
Chefitz served in various management positions with Golder, Thoma & Cressey Co.
of Chicago, Illinois. Mr. Chefitz' experience includes consulting with
management teams to consolidate fragmented industries, including communications,
security and specialty retailing. Mr. Chefitz serves as a director of Protection
One and several privately held companies in which the limited partnerships
managed by Patricof are investors. Mr. Chefitz is a graduate of Northwestern
University and Columbia University, where he earned a Bachelor degree and a
Masters of Business Administration, respectively.
THOMAS P. HIRSCHFELD has served as a director of the Company since November
1995. Mr. Hirschfeld has served as a Principal of Patricof since January 1995.
From January 1994 to January 1995, he served as Assistant to the Mayor of New
York City. From August 1986 to December 1993, Mr. Hirschfeld was employed by
Salomon Brothers as an investment banker. Mr. Hirschfeld serves as a director of
a number of privately held companies in which the limited partnerships managed
by Patricof are investors. He is a graduate of Harvard College and Balliol
College, Oxford.
RICHARD M. JOHNSTON has served as a director of the Company since August
1997. Mr. Johnston has served as Vice President-Investments and a director of
The Hillman Company, an investment holding company with diversified operations
("Hillman"), since 1970. Mr. Johnston served as Assistant to the President of
Hillman from 1965 to 1970 and Assistant to the Vice President-Investments of
Hillman from 1961 to 1965. Mr. Johnston serves as a director of Metrocall, Inc.,
a leading provider of paging and other wireless messaging services, Novoste
Corporation and several privately held companies in each of which Hillman is an
investor. Mr. Johnston is a graduate of Washington & Lee University and the
Wharton School of Finance of the University of Pennsylvania, where he earned a
Masters of Business Administration.
DANIEL K. O'CONNELL has served as a director of the Company since November
1995. Mr. O'Connell has been a private investor since April 1991. Mr. O'Connell
was employed by Ryder System, Inc., an international transportation services
company, from 1964 to April 1991 and served in various capacities including
Executive Vice President from 1974 to 1991, Financial Vice President from 1970
to 1974, General Counsel from 1968 to 1970 and attorney from 1964 to 1968. He is
a director of American Retirement Corporation in Nashville, Tennessee, which
develops, owns and manages assisted living, continuing care and congregate
living
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<PAGE> 59
retirement communities throughout the United States, and of Fortress-FAE
Corporation in Boston, Massachusetts, which transports and stores art objects
and other high-value personal property. He also serves as a director of
Fiduciary Trust International of the South located in Miami, Florida, a
subsidiary of Fiduciary Trust Company International, headquartered in New York.
Mr. O'Connell is a graduate of Southern Illinois University of Carbondale,
Illinois, and Georgetown University Law Center. Mr. O'Connell's son is a partner
in the law firm of Kilpatrick Stockton LLP, which provides legal services to the
Company.
DAVID C. TURNER has served as a director of the Company since November
1996. Mr. Turner has worked as Senior Investment Analyst with the Michigan
Retirement System since 1985 and in this capacity shares in the management of a
$3.0 billion alternative investment portfolio. From 1978 to 1985, Mr. Turner
held several policy advisory and management positions in the Michigan Department
of Commerce with responsibilities for developing business and financial
legislation, implementing large-scale industrial development projects, serving
as a small business loan officer and overseeing the State of Michigan's
Technology Transfer Program between university research departments and the
private sector. Mr. Turner is a graduate of the State University of New York.
COMPOSITION OF THE BOARD OF DIRECTORS; EXECUTIVE OFFICERS
The Company's Bylaws provide that the number of members of the Company's
Board of Directors shall consist of between one and seven and that the Board has
the power to determine the number of directors (when not determined by the
stockholders) and to fill vacancies on the Board. The number of directors is
presently fixed at seven. The Company presently has six directors and one
vacancy on the Board of Directors. The Board of Directors, the holders of the
Series B Preferred Stock and the holders of the Series C Preferred Stock intend
to fill the existing vacancy with a person who is not an employee of the Company
as soon as practicable. All directors are elected annually to serve until the
next annual stockholders' meeting following their election and until their
successors are elected and qualified.
The Board of Directors has established a Compensation Committee and an
Audit Committee. The members of the Compensation Committee are Robert M.
Chefitz, David C. Turner and Ian Williams and the members of the Audit Committee
are Daniel K. O'Connell, Thomas P. Hirschfeld and Richard M. Johnston. The
Compensation Committee is responsible for reviewing the performance of all
executive officers and determining all compensation for such officers. The Audit
Committee is responsible for recommending to the Board of Directors the
appointment of independent auditors, reviewing with the auditors the plans and
results of the audit engagement, approving professional services provided by the
auditors, reviewing the independence of the independent public accountants,
considering the range of audit and non-audit fees and reviewing the adequacy of
the Company's internal accounting controls. The Board of Directors may from time
to time establish such other committees as circumstances warrant. Such
committees will have such authority and responsibility as is delegated by the
Board of Directors.
Pursuant to an Amended and Restated Securityholders' Agreement and Exchange
Agreement, dated as of November 13, 1996 (as amended pursuant to an amendment,
dated as of August 22, 1997, the "Securityholders' Agreement"), (i) the
Company's Board of Directors shall consist of not more than seven members, (ii)
as long as the Series A Preferred Stock has not been redeemed and paid in full,
the holders of the Series A Preferred Stock have the right to designate two
directors, (iii) the holders of the Series B Preferred Stock have the right to
designate one director, (iv) the holders of the Series C Preferred Stock have
the right to designate one director, (v) certain holders of the Common Stock
have the right to designate two directors, and (vi) the Board of Directors, the
holders of the Series B Preferred Stock and the holders of the Series C
Preferred Stock will mutually agree upon the remaining director.
Of the Company's current directors, Mr. Chefitz and Mr. Hirschfeld are the
designees of the holders of the Series A Preferred Stock, Mr. Turner is the
designee of the holders of the Series B Preferred Stock, Mr. Johnston is the
designee of the holders of the Series C Preferred Stock, and Mr. Williams and
Mr. O'Connell are the designees of the holders of the Common Stock.
Pursuant to the respective Certificates of Designations for the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock,
the holders of the Series A Preferred Stock, voting as a
55
<PAGE> 60
separate class, are entitled to elect two directors and, prior to the
consummation of a registered common stock offering that is a Qualifying Offering
(as defined in the applicable Certificate of Designations), the holders of the
Series B Preferred Stock and Series C Preferred Stock, each voting as a separate
class are each entitled to elect one director of the Company. Subsequent to the
consummation of a Qualifying Offering, but only for so long as at least 66 2/3%
of the Common Stock issuable upon conversion of the Series B Preferred Stock or
the Series C Preferred Stock, as the case may be, is held of record by the
original purchasers of such stock, the holders of a majority of the Common Stock
issuable upon conversion of the Series B Preferred Stock and the Series C
Preferred Stock shall each be entitled to nominate one person for election as a
director of the Company, which nominees the Company will include in management's
slate of nominees for election as directors of the Company. Whenever (i)
dividends declared on the Series B Preferred Stock or the Series C Preferred
Stock are in arrears in an amount equivalent to the aggregate dividends required
to be paid on such stock for any two quarterly periods, (ii) the Company fails
to satisfy its redemption obligations, (iii) the Company otherwise fails to
perform certain obligations under the Certificates of Designations authorizing
such stock or (iv) certain other events of default occur, the holders of the
Series C Preferred Stock, together with the holders of the Series B Preferred
Stock, have the exclusive right to elect a majority of the Board of Directors.
The Company currently pays no compensation to directors for serving in such
capacity.
The Company's executive officers are elected annually by the Board of
Directors to serve until their successors are elected and qualify. The Company
is not a party to an employment agreement with any of its executive officers.
There are no family relationships among any of the directors and executive
officers of the Company, except that Mr. Allen, Vice President-Operations of the
Company, is the brother-in-law of Mr. Williams, President and Chief Executive
Officer of the Company.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION
The Delaware General Corporation Law (the "DGCL") permits a corporation to
include in its certificate of incorporation a provision eliminating or limiting
a director's personal liability to the corporation or its stockholders for
monetary damages for breaches of fiduciary duty. However, the DGCL expressly
provides that the liability of a director may not be eliminated or limited for
(i) breaches of his or her duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) the unlawful
purchase or redemption of stock or unlawful payment of dividends, or (iv) any
transaction from which the director derived an improper personal benefit. The
DGCL further provides that no such provision shall eliminate or limit the
liability of a director for any act or omission occurring prior to the date when
such provision becomes effective. The Company's Certificate of Incorporation
contains a provision eliminating director liability to the extent permitted by
the DGCL.
Generally, the DGCL permits a corporation to indemnify certain persons made
a party to any action, suit or proceeding by reason of the fact that such person
is or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or enterprise provided that such person acted in
good faith and in a manner that person reasonably believed to be in or not
opposed to the best interests of the corporation. To the extent that person has
been successful in any such matter, that person shall be indemnified against
expenses actually and reasonably incurred by that person. In the case of an
action by or in the right of the corporation, no indemnification may be made in
respect of any matter as to which that person was adjudged liable to the
corporation unless and only to the extent that the Delaware Court of Chancery or
the court to which the action was brought determines that despite the
adjudication of liability that person is fairly and reasonably entitled to
indemnity for proper expenses. The Company's Bylaws provide that each director
and officer shall be indemnified by the Company to the fullest extent allowed by
Delaware law.
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<PAGE> 61
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth certain information regarding the annual
compensation for the fiscal year ended June 30, 1998, with respect to the
Company's Chief Executive Officer and the Company's four other highest paid
executive officers (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(1)
- --------------------------- --------- -----------
<S> <C> <C>
Ian Williams................................................ 157,500 --
Chairman of the Board, Chief Executive Officer and
Director
Stephen L. Conkling......................................... 132,501 --
President and Chief Operating Officer
James D. Green.............................................. 127,500 --
Vice President-Product Development
A. Alexander Ezazi(2)....................................... 87,083 27,500
Vice President-Marketing
Richard Brenner(2).......................................... 73,333 27,500
Vice President-Sales
</TABLE>
- ---------------
(1) Represents guaranteed cash bonuses paid for fiscal 1997.
(2) Mr. Ezazi's employment by the Company commenced in September 1997 and Mr.
Brenner's employment by the Company commenced in November 1997.
Stock Options
The following table summarizes the number and value of unexercised options
held by Named Executive Officers as of June 30, 1998. No Named Executive
Officers exercised any options during the year ended June 30, 1998.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AS OF JUNE 30, 1998(#) AS OF JUNE 30, 1998($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen L. Conkling.............................. 27,151 40,727 222,640 333,960
12,000 18,000 74,400 111,600
James D. Green................................... 15,151 22,727 120,452 180,678
</TABLE>
- ---------------
(1) There was no public trading market for the Common Stock as of June 30, 1998.
These values have been calculated based on a fair market value of $9.20 per
share on June 30, 1998 less the per share exercise price. Such value was
determined by the Board of Directors based on the value of the Warrants
agreed upon by the Company and the initial investors in the Units in the
Unit Offering. See Note 5 to the financial statements.
EMPLOYMENT ARRANGEMENTS
The Company does not have employment agreements with any of its executive
officers. In connection with its acquisition in November 1996 of certain
software from a software development company of which Mr. Green, an executive
officer of the Company, owned 50%, the Company agreed to pay Mr. Green an annual
salary of $100,000 as long as he is employed by the Company. See "Certain
Transactions." The
57
<PAGE> 62
Company's executive officers are not entitled to any payments in connection with
a termination of employment or a change in control of the Company. Pursuant to
the Company's Stock Option Plan, the exercisability of options granted under
such plan is accelerated in the event of certain changes in control of the
Company.
BONUS PLAN
In February 1998, the Board of Directors adopted the Company's Compensation
Plan (the "Compensation Plan") to provide cash and/or stock awards to certain
key employees of the Company, including all of the Company's executive officers.
Pursuant to the Compensation Plan, such employees are each eligible for bonuses
based on a percentage of their annual base salary, which percentage may be up to
61% depending upon the employee's position with the Company (the "Potential
Bonus"). The Potential Bonus for any employee is then subdivided into two
components consisting of: (i) 40% for participants other than executive
officers, and 60% for executive officers, of the Potential Bonus for the
Company's achievement of certain goals for the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") during the applicable
period (the "Company Component"), and (ii) 40% for executive officers, and 60%
for participants other than executive officers, of the Potential Bonus for the
employee's achievement of certain functional and personal goals for the
applicable period (the "Personal Component"). The Company's Board of Directors
establishes the Company's goals for EBITDA, as well as each employee's
functional and personal goals, prior to the commencement of the applicable
period.
The percentage of the Company Component and the Personal Component that the
employee actually may receive is determined based upon the percentage of the
Company's goal for EBITDA that the Company achieves during the applicable period
and the percentage of the employee's achievement of his or her functional and
personal goals for the applicable period as determined by the Board of
Directors. The allocation of the bonus between cash and/or stock awards shall be
determined by the Board of Directors.
STOCK OPTION PLAN
Under the Park 'N View, Inc. Stock Option Plan (the "Stock Option Plan"),
options to purchase up to 800,000 shares of Common Stock may be granted to
employees, directors, consultants and independent contractors of the Company.
The Stock Option Plan is presently administered by the Board of Directors. Each
option granted under the Stock Option Plan must be exercised within a period
fixed by the Board of Directors which, subject to certain limitations, may not
exceed ten years from the date of grant of the option. The Company may grant
incentive stock options (intended to qualify under Section 422 of the Internal
Revenue Code of 1986) or nonqualified stock options. The exercise price of
incentive stock options under the Stock Option Plan may not be less than 100% of
the fair market value of the Common Stock on the date of grant. Options granted
under the Stock Option Plan become exercisable at such time or times as the
Board of Directors shall determine. Of the options outstanding under the Stock
Option Plan as of March 31, 1998, options to purchase an aggregate of 219,390
shares of Common Stock were granted in August 1996 having an exercise price of
$1.00, options to purchase an aggregate of 32,500 shares of Common Stock were
granted in November 1996 having an exercise price of $1.00 per share, options to
purchase an aggregate of 75,756 shares of Common Stock were granted in December
1996 having an exercise price of $1.25 per share, options to purchase an
aggregate of 7,200 shares of Common Stock were granted in March 1997 having an
exercise price of $1.50 per share, and options to purchase an aggregate of
75,000 shares of Common Stock were granted in June 1997 having an exercise price
of $3.00 per share. All of such outstanding options become exercisable in five
annual increments of 20% each commencing on the date of grant so long as
employment with the Company continues. The exercise price of outstanding options
to date has been the deemed fair market value of the Common Stock on the date of
grant. No options have been granted to any director of the Company.
The Company plans to grant options to purchase an aggregate of 259,000
shares of Common Stock to certain of its executive officers. The Company
currently expects that such options to purchase 152,000 shares of Common Stock
will have an exercise price equal to the fair market value of the Common Stock
on the date of grant as determined by the Board of Directors and that such
options to purchase 107,000 shares of Common Stock will have an exercise price
substantially below such value.
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<PAGE> 63
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Decisions concerning the compensation of the Company's executive officers
for the year ended June 30, 1998 were made by the Company's Compensation
Committee of which Mr. Williams, President and Chief Executive Officer of the
Company, is a member.
CERTAIN TRANSACTIONS
In November 1995, the Company, which was organized by Patricof, Ian
Williams and the then-partners of Park 'N View, Ltd. (Sam Hashman, Monte
Nathanson and Nelgo Investments, of which Daniel O'Connell is a general
partner), acquired the business and assets, and assumed the liabilities, of Park
'N View, Ltd. In connection with such purchase, the Company issued approximately
2.3 million shares of Common Stock to Park 'N View, Ltd. Park 'N View, Ltd.
subsequently distributed such shares to its partners. The amount of the net
liabilities assumed by the Company was $84,446, including a promissory note of
Park 'N View, Ltd., to Sam Hashman in the principal amount of $150,000, which
was subsequently paid in full by the Company. In addition, over a 12-month
period commencing in November 1995, the Patricof Managed Funds invested $3.8
million in the Company in exchange for which the Company issued to the Patricof
Managed Funds an aggregate of 2.0 million shares of Common Stock, 70,010 shares
of Series A Preferred Stock and $3.0 million aggregate principal amount of the
Company's 8% Subordinated Notes. During the fall of 1996, the Company issued to
the Patricof Managed Funds an additional $1.5 million aggregate principal amount
of the Company's 8% Subordinated Notes and warrants to purchase 239,250 shares
of Common Stock. In connection with the sale of the Series A Preferred Stock,
the Company entered into certain agreements with certain holders of the capital
stock of the Company. Pursuant to these agreements, certain holders of Common
Stock and Series A Preferred Stock obtained rights of first refusal with respect
to proposed sales of stock by the Company or by certain holders of shares of
Common Stock of the Company. The holders of the Company's outstanding shares of
Common Stock and Series A Preferred Stock also have certain co-sale rights. See
"Description of Capital Stock."
Park 'N View, Ltd., issued to Sam Hashman, its promissory note in the
principal amount of approximately $150,000. This note was issued in connection
with development of the PNV Network. This note was assumed by the Company in
November 1995 and paid (in three installments during 1995 and 1996) from the net
proceeds of the sale of the Series A Preferred Stock to the Patricof Managed
Funds.
In November 1996, in connection with the sale of the Series B Preferred
Stock, (i) the Patricof Managed Funds (a) converted $3.0 million aggregate
principal amount of the Company's 8% Subordinated Notes plus $180,000 in
interest accrued thereon into 318,065 shares of the Series A Preferred Stock,
(b) converted $1.5 million aggregate principal amount of such notes, and
warrants to purchase 239,250 shares of Common Stock, into 137,237 shares of the
Series B Preferred Stock and (c) purchased 45,746 shares of Series B Preferred
Stock for $500,000, (ii) the State of Michigan Retirement System purchased
731,930 shares of the Series B Preferred Stock for $8.0 million and (iii)
Benefit Capital Management Corporation purchased 274,474 shares of the Series B
Preferred Stock for $3.0 million. In connection with the sale of the Series B
Preferred Stock, the Company entered into certain agreements with certain
holders of the capital stock of the Company. Pursuant to these agreements, the
Company granted certain registration rights to certain holders of shares of
Common Stock and to holders of the shares of Common Stock issuable upon the
conversion of the Series B Preferred Stock and any additional shares of Common
Stock acquired as a result of a stock dividend, stock split, or other
distribution in respect of the Series B Preferred Stock. See "Description of
Capital Stock -- Registration Rights." Certain holders of Common Stock and
Series B Preferred Stock also obtained rights of first refusal with respect to
proposed sales of stock by the Company or by certain holders of shares of Common
Stock pursuant to these agreements. The holders of the Company's outstanding
shares of Common Stock, and Series B Preferred Stock also have certain co-sale
rights pursuant to these agreements. See "Description of Capital Stock."
From November 1995 to November 1996, GreenLight Technologies, Inc.
("Greenlight"), of which 50% was owned by James Green and the remaining 50% was
owned by Lewis Tatham, who is also an employee of the Company, provided certain
software programming consulting services to the Company relating to the
59
<PAGE> 64
PNV Software pursuant to a software development agreement. Pursuant to the
provisions of this agreement, during this period, the Company paid Greenlight an
aggregate of approximately $49,800 in fees. In November 1996, pursuant to a
technology transfer agreement, Greenlight, Mr. Green and Mr. Tatham transferred
and assigned to the Company certain software relating to the PNV Software
developed by them, including rights in software developed pursuant to the
software development agreement, in consideration of the Company's payment to
each individual of a $100,000 annual salary as long as he is employed by the
Company and the grant to each of them of an option to purchase 37,878 shares of
Common Stock having an exercise price of $1.25 per share and becoming
exercisable in five annual cumulative increments of 20% each commencing on the
date of grant as long as employment continues.
In August 1997, the Company issued an aggregate of 2,328,543 shares of
Series C Preferred Stock for $18.6 million, of which (i) Henry L. Hillman, Elsie
Hilliard Hillman and C.G. Grefenstette, Trustees, purchased 812,500 shares of
Series C Preferred Stock for $6.5 million, (ii) the Patricof Managed Funds
purchased 125,000 shares of Series C Preferred Stock for $1.0 million, (iii)
Benefit Capital Management Corporation purchased 125,000 shares of Series C
Preferred Stock for $1.0 million and (iv) the State of Michigan Retirement
System purchased 125,000 shares of Series C Preferred Stock for $1.0 million. In
connection with the sale of the Series C Preferred Stock, the Company entered
into certain amendments to the agreements with certain holders of the capital
stock of the Company that the Company had entered into in connection with the
sale of the Series A Preferred Stock and the Series B Preferred Stock. Pursuant
to these amendments, the Company granted certain registration rights to holders
of the shares of Common Stock issuable upon the conversion of the Series C
Preferred Stock and any additional shares of Common Stock acquired as a result
of a stock dividend, stock split, or other distribution in respect of the Series
C Preferred Stock. See "Description of Capital Stock -- Registration Rights."
These amendments also provided holders of Series C Preferred Stock rights of
first refusal with respect to proposed sales of stock by the Company or by
certain holders of shares of Common Stock. The holders of the Series C Preferred
Stock also have certain co-sale rights pursuant to these amendments. See
"Description of Capital Stock."
Prior to his employment by the Company, Richard Brenner provided certain
marketing consulting services to the Company, from December 1996 to October
1997. During this period, the Company paid Mr. Brenner an aggregate of
approximately $52,000 in fees.
Since December 1995, Mr. Williams has personally guaranteed the Company's
obligations of $480,000 under lease agreements for construction equipment and
telephone switches to which the Company is a party. In May 1997, the Company
loaned $59,000 to Mr. Buzbee in connection with his relocation from the
Company's Nashville, Tennessee office to its headquarters in Ft. Lauderdale,
Florida. This loan was evidenced by Mr. Buzbee's promissory note payable to the
Company, bearing interest at the prime rate announced by The Wall Street Journal
on the date of such note. This note was satisfied in August 1997.
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<PAGE> 65
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of June 15, 1998, certain information
regarding the beneficial ownership of the Common Stock by (i) each person that
is a member of the Board of Directors of the Company, (ii) each person or entity
known by the Company to be the beneficial owner of 5% or more of the outstanding
Common Stock of the Company and (iii) all executive officers and directors of
the Company as a group. The persons and entities named in the table have sole
voting and investment power with respect to all shares shown as beneficially
owned by them, except as indicated in the footnotes below.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF SHARES
NAME OWNED OUTSTANDING
- ---- ------------ -----------------
<S> <C> <C>
Ian Williams(1)............................................. 441,953 5.19%
Daniel K. O'Connell(2)...................................... 270,810 3.18
Robert M. Chefitz(3)........................................ 2,372,919 27.85
Thomas P. Hirschfeld(4)..................................... 2,372,919 27.85
David C. Turner(5).......................................... 1,140,918 13.39
Richard M. Johnston(6)...................................... 12,500 *
Sam Hashman(7).............................................. 1,011,560 11.87
Patricof & Co. Ventures, Inc., as Manager(8)................ 2,372,919 27.85
MPN Partners, Ltd.(9)....................................... 540,856 6.35
State of Michigan Retirement System(10)..................... 1,140,918 13.39
Benefit Capital Management Corporation(11).................. 500,000 5.87
Henry L. Hillman, Elsie Hilliard Hillman and C.G.
Grefenstette, Trustees(12)................................ 812,500 9.53
All directors and officers as group (14 persons)(13)........ 4,411,866 50.74
</TABLE>
- ---------------
* Less than 1%
(1) Includes 22,950 shares of Common Stock beneficially owned by PNV General
Partner, Inc., of which Mr. Williams, Mr. Hashman and Monte Nathanson, the
general partner of MPN Partners, Ltd., each owns one-third of such shares.
(2) Represents an aggregate of 270,810 shares of Common Stock beneficially
owned by Nelgo Investments, a partnership of which Mr. O'Connell is a
general partner. Mr. O'Connell owns 15% of Nelgo Investments.
(3) Represents an aggregate of 2,372,919 shares of Common Stock presently
issuable upon conversion of outstanding shares of Series B Preferred Stock
and Series C Preferred Stock beneficially owned by the Patricof Managed
Funds. Mr. Chefitz, a director of the Company, is a Managing Director of
Patricof, and a general partner in the limited partnerships which Patricof
& Co. Ventures, Inc. manages. Mr. Chefitz does not exercise sole or shared
voting or investment power with respect to such shares and disclaims
beneficial ownership of such shares.
(4) Represents an aggregate of 2,372,919 shares of Common Stock presently
issuable upon conversion of outstanding shares of Series B Preferred Stock
and Series C Preferred Stock beneficially owned by the Patricof Managed
Funds. Mr. Hirschfeld, a director of the Company, is a Principal of
Patricof. Mr. Hirschfeld does not exercise sole or shared voting or
investment power with respect to such shares and disclaims beneficial
ownership of such shares.
(5) Represents an aggregate of 1,140,918 shares presently issuable upon
conversion of outstanding shares of Series B Preferred Stock and Series C
Preferred Stock beneficially owned by the State of Michigan Retirement
System. Mr. Turner, a director of the Company, is a Senior Investment
Analyst with the State of Michigan Retirement System. Mr. Turner does not
exercise sole or shared voting or investment power with respect to such
shares and disclaims beneficial ownership of such shares.
(6) Represents shares of Common Stock presently issuable upon conversion of
outstanding shares of Series C Preferred Stock beneficially owned by
Richard M. Johnston Trust #2, for which Mr. Johnston is the sole trustee
and beneficiary. Does not include 1,250,000 shares beneficially owned by
affiliates and related parties of The Hillman Company. Mr. Johnston is Vice
President-Investments and a director of
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The Hillman Company. Mr. Johnston does not exercise sole or shared voting
or investment power with respect to such shares and disclaims beneficial
ownership of such shares.
(7) Includes 22,950 shares of Common Stock beneficially owned by PNV General
Partner, Inc., of which Mr. Williams, Mr. Hashman and Monte Nathanson, the
general partner of MPN Partners, Ltd., each owns one-third of such shares.
(8) Consists of shares of Common Stock and shares of Common Stock presently
issuable upon conversion of outstanding shares of Series B Preferred Stock
and Series C Preferred Stock owned of record as follows: (i) an aggregate
of 1,755,193 shares held by APA Excelsior IV, L.P., (ii) an aggregate of
309,513 shares held by APA Excelsior IV/Offshore, L.P. and (iii) an
aggregate of 308,213 shares held by The P/A Fund, L.P. Patricof & Co.
Ventures, Inc., directly or indirectly, controls, and has sole voting or
investment power with regard to shares held by, such limited partnerships.
(9) MPN Partners, Ltd. is a limited partnership of which Monte Nathanson, a
founder of the Company, is the general partner. Includes 22,950 shares of
Common Stock beneficially owned by PNV General Partner, Inc., of which Mr.
Williams, Mr. Hashman and Mr. Nathanson each own one-third.
(10) Consists of shares of Common Stock presently issuable upon conversion of
outstanding shares of Series B Preferred Stock and Series C Preferred
Stock. Does not include shares held by APA Excelsior IV, L.P., a limited
partnership of which the State of Michigan Retirement System is a limited
partner.
(11) Consists of shares of Common Stock presently issuable upon conversion of
outstanding shares of Series B Preferred Stock and Series C Preferred Stock
owned of record by Benefit Capital Management Corporation as Investment
Manager for The Prudential Insurance Company of America Separate Account
No. VCA-GA-5298 ("Benefit"). Benefit has voting power as to the shares of
Common Stock issuable upon conversion of the Series B Preferred Stock and
Series C Preferred Stock held by Benefit. Benefit is a wholly owned
subsidiary of Union Carbide Corporation, a New York Corporation ("UCC").
Benefit manages the assets of UCC's retirement program plan for employees
of UCC and its participating subsidiaries (the "Plan"). In connection with
the purchase of certain annuities by the Plan, Prudential has established a
separate insurance account with respect to the Plan. Prudential disclaims
beneficial ownership of the shares.
(12) Consists of shares of Common Stock presently issuable upon conversion of
outstanding shares of Series C Preferred Stock owned of record as follows:
(i) 187,500 shares held by a trust for the benefit of Henry L. Hillman (the
"HLH Trust"), and (ii) 625,000 shares owned by Juliet Challenger, Inc., an
indirect, wholly-owned subsidiary of The Hillman Company ("THC"). THC is
controlled by the HLH Trust. The Trustees of the HLH Trust are Henry L.
Hillman, Elsie Hilliard Hillman and C. G. Grefenstette (the "HLH
Trustees"). The HLH Trustees share voting and investment power with respect
to the shares held of record by the HLH Trust and the assets of THC. Does
not include an aggregate of 250,000 shares held by four trusts for the
benefit of members of the Hillman family, as to which shares the HLH
Trustees (other than Mr. Grefenstette, who is one of the trustees of such
family trusts) disclaim beneficial ownership. Also does not include 187,500
shared held by Venhill Limited Partnership, as to which shares the HLH
Trustees disclaim beneficial ownership. Howard B. Hillman, the general
partner of Venhill Limited Partnership, is a step-brother of Henry L.
Hillman.
(13) Includes an aggregate of 172,786 shares of Common Stock subject to options
that are presently exercisable or become exercisable by November 30, 1998.
The addresses of the persons named in the foregoing table who beneficially
own 5% or more of the outstanding Common Stock (including shares of Common Stock
currently issuable upon the conversion of the outstanding Series B Preferred
Stock and the Series C Preferred Stock) are as follows: (i) Ian Williams and Sam
Hashman, c/o Park 'N View, Inc., 11711 NW 39th Street, Coral Springs, Florida
33065, (ii) Robert M. Chefitz, Thomas P. Hirschfeld and the Patricof Managed
Funds, c/o Patricof & Co. Ventures, Inc., 445 Park Avenue, New York, New York
10022, (iii) MPN Partners, Ltd., 17058 White Haven Drive, Boca Raton, Florida
33496, (iv) David C. Turner and State of Michigan Retirement System, 430 West
Allegan Street, Lansing, Michigan 48922, (v) Benefit Capital Management
Corporation, 39 Old Ridgebury Road, Danbury, Connecticut 06817, and (vi) Henry
L. Hillman, Elsie Hilliard Hillman and C.G. Grefenstette, Trustees, 2000 Grant
Building, Pittsburgh, Pennsylvania 15219.
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DESCRIPTION OF CAPITAL STOCK
The following summary of the terms and provisions of the Company's capital
stock does not purport to be complete and is qualified in its entirety by
reference to the actual terms and conditions of the capital stock contained in
the Company's Certificate of Incorporation, as amended, and the respective
Certificates of Designation, each as amended, of the Series A Preferred Stock,
the Series B Preferred Stock and the Series C Preferred Stock. The following
summary reflects the Company's Certificate of Incorporation, as amended, the
respective Certificates of Designation, each as amended, of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock,
and certain agreements entered into in connection with the Company's sale of the
Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock.
The Company's Certificate of Incorporation authorizes 12,000,000 shares of
common stock, par value $.001 per share, and 5,750,000 shares of preferred
stock, par value $.01 per share. The Company has designated 627,630 shares of
the Preferred Stock as Series A Preferred Stock, 1,372,370 shares of the
Preferred Stock as Series B 7% Cumulative Convertible Preferred Stock, and
3,750,000 shares of the Preferred Stock as Series C 7% Cumulative Convertible
Preferred Stock.
As of June 15, 1998, there were issued and outstanding 4,318,182 shares of
Common Stock, 388,065 shares of Series A Preferred Stock, 1,372,370 shares of
Series B Preferred Stock, and 2,328,543 shares of Series C Preferred Stock. The
Company has not issued any other shares of the Company's capital stock.
Immediately prior to the consummation of this Offering, options to acquire
409,846 shares of the Company's Common Stock will be outstanding. In addition,
the Company has reserved (i) 390,154 shares of Common Stock for issuance upon
the exercise of stock options available for future grants under the Stock Option
Plan; (ii) 1,875,000 shares of Common Stock for issuance upon conversion of the
issued and outstanding Series B Preferred Stock; (iii) 2,328,543 shares of the
Common Stock for issuance upon conversion of the issued and outstanding Series C
Preferred Stock; and (iv) an aggregate of 785,774 shares of Common Stock subject
to outstanding warrants consisting of: (A) 280,399 having an exercise price of
$8.00 per share, including presently exercisable warrants to purchase 100,399
shares of Common Stock granted to BT Alex. Brown Incorporated in connection with
the offer and sale of the Series C Preferred Stock, and (B) 505,375 having an
exercise price of $0.01 per share granted to the Initial Purchaser in connection
with the Unit Offering (and subsequently resold by the Initial Purchaser in the
form of the Units to qualified institutional buyers pursuant to Rule 144A under
the Securities Act).
COMMON STOCK
All shares of Common Stock now outstanding are fully paid and
non-assessable. The holders of Common Stock: (i) subject to preferences that may
be applicable to the Preferred Stock, have equal and ratable rights to dividends
from funds legally available for distribution, when, as and if declared by the
Board of Directors of the Company; (ii) are entitled to share ratably in all of
the assets of the Company available for distribution to holders of Common Stock
upon liquidation, dissolution or winding up of the affairs of the Company; (iii)
do not have subscription or conversion rights (there are no redemption or
sinking fund provisions applicable to the Common Stock); and (iv) are entitled
to one vote for each share of Common Stock held on all matters as to which
holders of Common Stock shall be entitled to vote. In any election of directors,
no holder of shares of Common Stock will be entitled to cumulate his or her
votes by giving one candidate more than one vote per share. The rights and
preferences of holders of Common Stock are subject to the rights of the
Preferred Stock currently issued and outstanding or issued and outstanding in
the future. In addition, each outstanding series of the Company's Preferred
Stock contains certain dividend rights, liquidation preferences, redemption and
voting rights.
PREFERRED STOCK
All shares of Preferred Stock now outstanding are fully paid and
non-assessable.
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Series A Preferred Stock
The Series A Preferred Stock has the following rights and preferences:
Dividends. Commencing on November 2, 1996, the holders of shares of
Series A Preferred Stock are entitled to receive, when and as declared by
the Board of Directors of the Company out of funds legally available
therefor, cumulative dividends payable quarterly in cash or in kind at the
Company's option at a rate of 7% per annum, computed on the basis of $10.00
per share (the "Series A Stock Value"), before any dividends are set apart
for or paid on the Common Stock. Such dividends will accrue until paid,
whether or not declared by the Board of Directors and whether or not there
are funds legally available. Dividends paid in cash on the shares of Series
A Preferred Stock (or Series B Preferred Stock or Series C Preferred Stock,
which shall rank pari passu with the Series A Preferred Stock) in an amount
less than the total amount of such dividends shall be allocated pro rata so
that the total value of dividends paid on the Preferred Stock shall in all
cases bear to each other the same ratio that the total value of accrued and
unpaid dividends on the Series A Preferred Stock, the Series B Preferred
Stock and the Series C Preferred Stock bear to each other.
Without the written consent of the holders of two-thirds of the
outstanding shares of Series A Preferred Stock, the Company shall not
declare or make any cash distribution with respect to any shares of capital
stock of the Company unless all dividends on the shares of Series A
Preferred Stock shall have been paid or declared and set aside for payment.
Liquidation Preference. In the event of any liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary, the holders
of shares of Series A Preferred Stock are entitled, before any amount is
payable to the holders of the Common Stock, to receive the Series A Stock
Value plus an amount equal to all unpaid dividends accrued to the date of
payment. In the event of such a liquidation, dissolution or winding up of
the Company, the Series A Preferred Stock will rank pari passu with the
Series B Preferred Stock and the Series C Preferred Stock. If, upon any
such liquidation, dissolution or winding up of the Company, the assets of
the Company, or proceeds thereof, distributed among the holders of Series A
Preferred Stock shall be insufficient to pay in full the aggregate
preferential amounts on all of the then outstanding shares of Series A
Preferred Stock, then such assets or proceeds will be distributed among
such holders of the Series A Preferred Stock equally and ratably in
proportion to the full liquidation preference to which each such holder is
entitled.
Redemption Rights. On the date six months after the payment of the
Notes in full in cash (the "Mandatory Redemption Date") the Company shall
redeem all of the shares of Series A Preferred Stock outstanding for $10.00
per share plus an amount equal to all accrued and unpaid dividends to the
date of redemption (the "Series A Redemption Price"), payable in cash.
Except as described below, upon the consummation of a Series A Qualifying
Offering (as defined in the immediately succeeding paragraph), the Company
shall redeem each share of Series A Preferred Stock, payable in cash, at
the Series A Redemption Price. Moreover, except as described below, upon a
Change of Control (as defined in the immediately succeeding paragraph),
each holder of shares of Series A Preferred Stock may elect to require the
Company to redeem all of such holder's shares of Series A Preferred Stock,
payable in cash, at the Series A Redemption Price. If, on a respective
redemption date, the funds of the Company legally available for redemption
of the Series A Preferred Stock (or Series B Preferred Stock or Series C
Preferred Stock, which shall rank pari passu with the Series A Preferred
Stock) are insufficient to redeem the total number of shares of Preferred
Stock to be redeemed on such date, the Company will use the funds legally
available therefor to redeem the maximum number of shares of Preferred
Stock ratably among the holders of such shares to be redeemed based upon
their holdings of Preferred Stock. In addition, the Company has the option
to redeem shares of Series A Preferred Stock at any time for an amount
equal to the Series A Stock Value plus all accrued dividends due thereon as
of the date of redemption. The Company may not redeem, under any
circumstances, any shares of Series A Preferred Stock until the Company
pays the Notes in full in cash; if the Company has not paid the Notes in
full in cash on any redemption date, the Company will redeem the shares of
Series A Preferred Stock only after payment of the Notes in full in cash.
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A "Change of Control" means: (i) the merger or consolidation of the
Company with or into another person or any person shall consolidate with or
merge into the Company; (ii) the transfer of all or substantially all of
the Company's assets; (iii) a reorganization, share exchange or
reclassification; or (iv) an acquisition or purchase such that any person
beneficially owns more than 50% of the Company's Common Stock or more than
50% of the Company's voting stock as a result of the acquisition or
purchase. A "Series A Qualifying Offering" means: (i) the Company shall
have consummated a firm commitment underwritten public offering of its
Common Stock by a nationally recognized investment banking firm pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, resulting in gross proceeds to the Company of at least
$20,000,000; (ii) the Company's Common Stock is quoted or listed by The
Nasdaq National Market, the New York Stock Exchange or the American Stock
Exchange; and (iii) the price of the Company's Common Stock in the offering
is at least equal to 200% of the Series A Redemption Price or would
represent a compound annual rate of return of 35% based upon the initial
issuance price of the Series A Preferred Stock.
Voting. Unless otherwise provided by law or except as indicated
below, holders of the Series A Preferred Stock have no voting rights with
respect to the election of directors of the Company or otherwise. Upon the
failure of the Company to redeem the Series A Preferred Stock on the
Mandatory Redemption Date, the holders of the Series A Preferred Stock
shall be entitled to one vote for each share of Series A Preferred Stock
and shall be entitled to vote as a separate class only in respect of any
merger, consolidation, sale of assets or creation of any class or series
(other than the Series B Preferred Stock or Series C Preferred Stock) equal
to or superior to the Series A Preferred Stock. The holders of at least
two-thirds of the Series A Preferred Stock as a class have the right to
elect two directors of the Company.
Without the authorizing vote or consent of the holders of two-thirds
of the outstanding shares of Series A Preferred Stock, voting as a class,
the Company shall not: (i) amend, waive or repeal any provisions of (or add
any provision to) the Certificate of Designations authorizing the Series A
Preferred Stock, the Company's Certificate of Incorporation or any
certificates of designations with respect to the Company's preferred stock;
(ii) amend, waive or repeal any provisions of (or add any provision to) the
Company's Bylaws; (iii) authorize, create, issue or sell any stock having
preferential rights in the distribution of earnings or assets of the
Company prior to or on a parity with those of the outstanding Series A
Preferred Stock other than the Series B Preferred Stock or Series C
Preferred Stock; (iv) except under certain circumstances, issue any shares
of Series A Preferred Stock; (v) enter into any agreements that restrict
the Company's obligation to pay dividends on or redeem the shares of Series
A Preferred Stock; or (vi) dissolve the Company.
Other than the rights described above, the holders of the Series A
Preferred Stock have no preemptive, subscription, sinking fund or
conversion rights.
Series B Preferred Stock
The Series B Preferred Stock has the following rights and preferences:
Dividends. Commencing on January 31, 1997, the holders of shares of
Series B Preferred Stock are entitled to receive, when and as declared by
the Board of Directors of the Company out of funds legally available
therefor, cumulative dividends payable in cash or to accrue quarterly at a
rate of $0.7651 (7%) per share per annum ($0.9837 (9%) per share per annum
upon an Event of Default), before any dividends are set apart for or paid
on the Common Stock. Dividends paid in cash on the shares of Series B
Preferred Stock (or Series A Preferred Stock or Series C Preferred Stock,
which shall rank pari passu with the Series B Preferred Stock) in an amount
less than the total amount of such dividends shall be allocated pro rata so
that the total value of dividends paid on the Preferred Stock shall in all
cases bear to each other the same ratio that the total value of accrued and
unpaid dividends on the Series A Preferred Stock, the Series B Preferred
Stock and the Series C Preferred Stock bear to each other. An "Event of
Default" shall mean: (i) any failure by the Company to pay a cash dividend
on the payment date, such failure lasting for two (2) consecutive quarterly
periods; (ii) failure by the Company to satisfy its redemption obligations,
such failure lasting five (5) days beyond the redemption date; (iii)
failure by the
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Company to comply with its obligations upon liquidation, dissolution or
winding up of the Company and conversion of shares of Series B Preferred
Stock; and regarding anti-dilution adjustments, certain notice provisions
and voting and preemptive rights; (iv) a representation or warranty is
untrue in the Securities Purchase Agreement; (v) failure to comply with
covenants in the Securities Purchase Agreement; (vi) default by the Company
in the performance or observance of any obligation or condition with
respect to the indebtedness of the Company; or (vii) if the Company shall
become insolvent or bankrupt.
Without the written consent of the holders of two-thirds of the
outstanding shares of Series B Preferred Stock, the Company shall not
declare or make any cash distribution with respect to any other shares of
capital stock of the Company unless all dividends on the shares of Series B
Preferred Stock shall have been paid or declared and set aside for payment.
Liquidation Preference. In the event of any liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary, the holders
of Series B Preferred Stock are entitled, before any amount is payable to
the holders of the Common Stock or any other class or series of stock
ranking junior to the Series B Preferred Stock, to receive $10.93 per share
plus an amount equal to all accrued and unpaid dividends to the date of
payment. In the event of such a liquidation, dissolution or winding up of
the Company, the Series B Preferred Stock will shall rank pari passu with
the Series A Preferred Stock and the Series C Preferred Stock. If, upon any
such liquidation, dissolution or winding up of the Company, the assets of
the Company, or proceeds thereof, distributed among the holders of Series B
Preferred Stock shall be insufficient to pay in full the aggregate
preferential amounts on all of the then outstanding shares of Series B
Preferred Stock, then such assets or proceeds will be distributed among
such holders of Preferred Stock equally and ratably in proportion to the
full respective liquidation preference to which each such holder is
entitled.
Conversion. Each holder of Series B Preferred Stock has the right to
convert such holder's shares of Series B Preferred Stock into shares of
Common Stock at any time. Each share of Series B Preferred Stock is
initially convertible into one share of Common Stock. The number of shares
of Common Stock into which a share of Series B Preferred Stock is
convertible will be equal to the ratio of $10.93, divided by the conversion
price, which initially will be $8.00. Under the antidilution provisions,
the conversion price of the Series B Preferred Stock will be subject to
adjustment in the event of (i) any subdivision or combination of the
Company's outstanding Common Stock; (ii) a dividend to holders of Common
Stock payable in Common Stock; or (iii) the issuance of additional shares
of Common Stock or warrants or rights to purchase Common Stock or
securities convertible into Common Stock in certain circumstances. The
conversion price of Series B Preferred Stock also will be adjusted on a
"weighted average" basis upon the Company's issuance of additional shares
of Common Stock or warrants or rights to purchase Common Stock or
securities convertible into Common Stock for a consideration per share
which is less than the greater of the Fair Market Price in effect
immediately prior to such issue or the conversion price in effect
immediately prior to such issue. The "Fair Market Price" means the average
closing bid price of the Common Stock as reported by The Nasdaq National
Market (or the last sale price if traded on an exchange) for a period of
thirty (30) consecutive trading days ending on the third day prior to the
date of determination or (if the Common Stock is not quoted on The Nasdaq
National Market or listed on an exchange) the fair market value determined
by two-thirds of the Corporation's Board of Directors, or (if the Board of
Directors cannot reach agreement), as determined by a qualified independent
investment banking firm of national reputation appointed by the vote of
two-thirds of the Board of Directors. The conversion price of the Series B
Preferred Stock will not be adjusted for issuances of Common Stock upon the
conversion of the Series B Preferred Stock, up to 800,000 shares of Common
Stock issuable upon the exercise of options issued to officers, directors
and employees of the Company, up to 186,750 shares of Common Stock issuable
upon exercise of the warrant granted to BT Alex. Brown Incorporated in
connection with the offer and sale of the Series C Preferred Stock, or up
to 505,375 shares of Common Stock issuable upon exercise of warrants
granted to certain lenders and guarantors or purchasers of loans to the
Company under certain circumstances.
In the event of (i) any consolidation, merger or similar business
combination of the Company, (ii) a capital reorganization of the Company or
(iii) a reclassification of the Common Stock, and the holders of
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the Series B Preferred Stock have elected not to require redemption of
their shares, the Series B Preferred Stock then outstanding will thereafter
be convertible, at the option of the holder, into the kind and number of
shares of Common Stock or other securities or property (including cash) to
which the holders thereof would have been entitled if such holders had
converted such shares of Series B Preferred Stock into Common Stock
immediately prior to the effective date of such merger, consolidation,
disposition, reorganization or reclassification.
Each share of Series B Preferred Stock automatically will convert into
fully paid and nonassessable shares of Common Stock at the conversion rate,
upon the occurrence of a Series B Qualifying Offering. A "Series B
Qualifying Offering" means (i) the Corporation shall have consummated a
firm commitment underwritten public offering of its Common Stock by a
nationally recognized investment banking firm pursuant to an effective
registration under the Securities Act covering the offering and sale of
both primary and secondary shares of Common Stock which results in gross
proceeds of at least $20,000,000, (ii) the Common Stock is quoted or listed
on either The Nasdaq National Market, the New York Stock Exchange or the
American Stock Exchange, (iii) the price at which the Common Stock is sold
in such offering is at least equal to an amount which (a) is 200% of the
then effective conversion price of the Series B Preferred Stock or (b)
would represent, on an as converted basis, a compound annual rate of return
of 35% based upon the original issuance price of the Series B Preferred
Stock.
Redemption Rights. On the date six months after the payment of the
Notes in full in cash, the Company shall redeem all of the shares of Series
B Preferred Stock outstanding for $10.93 per share plus an amount equal to
all accrued and unpaid dividends to the date of redemption (the "Series B
Redemption Price"), payable in cash. Except as described below, upon a
Change of Control ("-- Preferred Stock -- Series A Preferred Stock"), the
Company shall redeem each share of Series B Preferred Stock, payable in
cash, at the Series B Redemption Price. If on a respective redemption date,
the funds of the Company legally available for redemption of the Series B
Preferred Stock (or Series A Preferred Stock or Series C Preferred Stock,
which shall rank pari passu with the Series B Preferred Stock) are
insufficient to redeem the total number of shares of Preferred Stock to be
redeemed on such date, the Company will use the funds legally available
therefor to redeem the maximum number of shares of Preferred Stock ratably
among the holders of such shares to be redeemed based upon their holdings
of Preferred Stock. The Company may not redeem, under any circumstances,
any shares of Series B Preferred Stock until the Company pays the Notes in
full in cash; if the Company has not paid the Notes in full in cash on any
redemption date, the Company will redeem the shares of Series B Preferred
Stock only after payment of the Notes in full in cash.
Voting. Holders of shares of Series B Preferred Stock shall be
entitled to the number of votes equal to the number of full shares of
Common Stock into which such shares of Series B Preferred Stock is then
convertible. Unless otherwise required by law or except as described below,
the Series B Preferred Stock and the Common Stock shall vote together on
each matter submitted to stockholders, and not by class or series.
Prior to the consummation of a Series B Qualifying Offering, the
holders of the Series B Preferred Stock, voting together as a class, shall
be entitled to elect one director of the Company. Subsequent to a Series B
Qualifying Offering and only so long as at least 66 2/3% of the Common
Stock issuable upon the conversion of the Series B Preferred Stock is held
of record by the original purchasers of such stock, the holders of a
majority of the shares of Common Stock issuable upon conversion of the
Series B Preferred Stock shall be entitled to nominate one person for
election as a director of the Company and the Company will include such
person in management's slate of nominees for election as directors. Upon
the occurrence of an Event of Default, the holders of the Series B
Preferred Stock, together with the holders of the Series C Preferred Stock,
have the exclusive right to elect a majority of the Board of Directors.
Without the authorizing vote or consent of the holders of two-thirds
of the outstanding shares of Series B Preferred Stock, voting as a class,
the Company shall not: (i) amend, waive or repeal any provisions of (or add
any provision to) the Certificate of Designations authorizing the Series B
Preferred Stock, the Company's Certificate of Incorporation or any
certificates of designations with respect to the
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Company's preferred stock; (ii) amend, waive or repeal any provisions of
(or add any provision to) the Company's Bylaws; (iii) authorize, create,
issue or sell any stock having preferential rights in the distribution of
earnings or assets of the Company prior to or on a parity with those of the
outstanding Series B Preferred Stock other than shares of Series A
Preferred Stock or Series C Preferred Stock; (iv) except under certain
circumstances, issue any shares of Series B Preferred Stock; (v) enter into
any agreements that restrict the Company's obligation to pay dividends on
or redeem the Series B Preferred Stock; or (vi) dissolve the Company.
Without the authorizing vote of the holders of ninety percent (90%) of
the outstanding Series B Preferred Stock, voting as a class, the Company
shall not amend the Company's Certificate of Incorporation or the
Certificate of Designations creating the Series B Preferred Stock to change
(i) the dividend rate, (ii) redemption provisions, (iii) anti-dilution
provisions, (iv) the place or currency of payments with respect to the
Series B Preferred Stock, (v) the right to institute suit for payment, (vi)
conversion rights, or (vii) voting rights to adversely affect the
foregoing.
Preemptive Rights. Except pursuant to a Series B Qualifying Offering,
a stock option plan approved by the Company's Board of Directors, as a form
of consideration in a merger or acquisition in which the Company is the
surviving entity, or where the aggregate gross proceeds are less than
$500,000 in any single transaction in which the sale price per share is not
less than the then-applicable conversion price of the Series B Preferred
Stock, or $1,500,000 in all of such transactions, the Company shall not
issue or sell any shares of Common Stock, Preferred Stock or other
securities convertible into or exchangeable for shares of Common Stock,
unless prior to such issuance or sale, in the same proportion as the number
of shares of Common Stock issuable upon conversion of the Series B
Preferred Stock bears to the total number of fully-diluted shares of Common
Stock outstanding, the holders of the Series B Preferred Stock shall have
been given the opportunity to purchase such securities on the same terms as
such securities are proposed to be sold. The holders of two-thirds of the
Series B Preferred Stock may waive the preemptive rights afforded to the
holders of Series B Preferred Stock.
Series C Preferred Stock
The Series C Preferred Stock has the following rights and preferences:
Dividends. Commencing on August 31, 1997, the holders of Series C
Preferred Stock will be entitled to receive, when and as declared by the
Board of Directors of the Company out of funds legally available therefor,
cumulative dividends payable in cash or to accrue quarterly at a rate of
$0.56 (7%) per share per annum ($0.72 (9%) upon an Event of Default) before
any dividends are set apart for or paid on the Common Stock or on any prior
series of Preferred Stock. Dividends paid in cash on the shares of Series C
Preferred Stock (or Series A Preferred Stock or Series B Preferred Stock,
which shall rank pari passu with the Series C Preferred Stock) in an amount
less than the total amount of such dividends shall be allocated pro rata so
that the total value of dividends paid on the Preferred Stock shall in all
cases bear to each other the same ratio that the total value of accrued and
unpaid dividends on the Series A Preferred Stock, the Series B Preferred
Stock and the Series C Preferred Stock bear to each other.
Without the written consent of the holders of two-thirds of the
outstanding shares of Series C Preferred Stock, the Company shall not
declare or make any cash distribution with respect to any other shares of
capital stock of the Company unless all dividends on the shares of Series C
Preferred Stock shall have been paid or declared and set aside for payment.
Liquidation Preference. In the event of any liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary, the holders
of Series C Preferred Stock are entitled, before any amount is payable to
the holders of the Common Stock or any other class or series of stock
ranking junior to the Series C Preferred Stock, to receive $8.00 per share
plus an amount equal to all accrued and unpaid dividends to the date of
payment. In the event of such a liquidation, dissolution or winding up of
the Company, the Series C Preferred Stock will shall rank pari passu with
the Series A Preferred Stock and the Series B Preferred Stock. If, upon any
such liquidation, dissolution or winding up of the Company, the assets of
the Company, or proceeds thereof, distributed among the holders of Series C
Preferred
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Stock shall be insufficient to pay in full the aggregate preferential
amounts on all of the then outstanding shares of Series C Preferred Stock,
then such assets or proceeds will be distributed among such holders of
Preferred Stock equally and ratably in proportion to the full respective
liquidation preference to which each such holder is entitled.
Conversion. Each holder of Series C Preferred Stock has the right to
convert such holder's shares of Series C Preferred Stock into shares of
Common Stock at any time. Each share of Series C Preferred Stock is
initially convertible into one share of Common Stock. The number of shares
of Common Stock into which a share of Series C Preferred Stock is
convertible will be equal to the ratio of the original purchase price of
$8.00, divided by the conversion price, which initially will be $8.00.
Under the antidilution provisions, the conversion price of the Series C
Preferred Stock will be subject to adjustment in the event of (i) any
subdivision or combination of the Company's outstanding Common Stock; (ii)
a dividend to holders of Common Stock payable in Common Stock; or (iii) the
issuance of additional shares of Common Stock or warrants or rights to
purchase Common Stock or securities convertible into Common Stock in
certain circumstances. The conversion price of Series C Preferred Stock
also will be adjusted on a "weighted average" basis upon the Company's
issuance of additional shares of Common Stock or warrants or rights to
purchase Common Stock or securities convertible into Common Stock for a
consideration per share which is less than the greater of the Fair Market
Price in effect immediately prior to such issue or the conversion price in
effect immediately prior to such issue. The "Fair Market Price" means (i)
prior to the first anniversary of the initial issuance of the Series C
Preferred Stock, $8.00; and (ii) after the first anniversary of the initial
issuance of the Series C Preferred Stock, the average closing bid price of
the Common Stock as reported by The Nasdaq National Market (or the last
sale price if traded on an exchange) for a period of thirty (30)
consecutive trading days ending on the third day prior to the date of
determination or (if the Common Stock is not quoted on The Nasdaq National
Market or listed on an exchange) the fair market value determined by
two-thirds of the Corporation's Board of Directors, or (if the Board of
Directors cannot reach agreement), as determined by a qualified independent
investment banking firm of national reputation appointed by the vote of
two-thirds of the Board of Directors. The conversion price of the Series C
Preferred Stock will not be adjusted for issuances of Common Stock upon the
conversion of the Series C Preferred Stock, up to 800,000 shares of Common
Stock issuable upon the exercise of options issued to officers, directors
and employees of the Company, up to 186,750 shares of Common Stock issuable
upon exercise of the warrant granted to BT Alex. Brown in connection with
the offer and sale of the Series C Preferred Stock, or up to 505,375 shares
of Common Stock issuable upon exercise of warrants granted to certain
lenders and guarantors or purchasers of loans to the Company under certain
circumstances.
The conversion price of the Series C Preferred Stock also will be
adjusted if the Company reports earnings before interest, taxes,
depreciation, and amortization, as determined in accordance with generally
accepted accounting principles ("EBITDA") for the fiscal year ending June
30, 2000 (the "Period"), of less than $27,614,500. If the Company reports
EBITDA for the Period of less than or equal to $16,568,700, then the
conversion price of the Series C Preferred Stock will be reduced to equal
$5.00. If the Company reports EBITDA for the Period of less than
$27,614,500, but more than $16,568,700, then the conversion price of the
Series C Preferred Stock will be reduced to equal: (i) the then-current
conversion price, less (ii) the product of (A) a fraction, the numerator of
which will be $27,614,500, minus the EBITDA reported by the Company for the
Period, and the denominator of which will be $27,614,500, minus
$16,568,700, multiplied by (B) the then-current conversion price minus
$5.00. However, the adjustments of the conversion price of the Series C
Preferred Stock based on the EBITDA for the Period will not result in a
reduction of the conversion price to less than $5.00.
In addition to the foregoing, if, on or before December 31, 2000, the
Company sells all or substantially all of its assets, merges or
consolidates with any other business entity where the Company is not the
surviving Company, or completes a public offering of the Company's Common
Stock pursuant to an effective registration under the Securities Act of
1933, as amended, then (i) the adjustments based on the EBITDA reported for
the Period, as described in the preceding paragraph, will terminate
immediately and be of no effect, and (ii) if necessary to cause the holders
of the Series C Preferred Stock to
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obtain an internal rate of return of 35%, calculated as if each such holder
purchased such shares of Series C Preferred Stock at the purchase price per
paid by such holder on the date such holder purchased such shares, the
then-current conversion price will be reduced concurrently with any such
transaction to an amount that results in the holders of the Series C
Preferred Stock obtaining such an internal rate of return.
In the event of (i) any consolidation, merger or similar business
combination of the Company, (ii) a capital reorganization of the Company or
(iii) a reclassification of the Common Stock, and the holders of the Series
C Preferred Stock have elected not to require redemption of their shares,
the Series C Preferred Stock then outstanding will thereafter be
convertible, at the option of the holder, into the kind and number of
shares of Common Stock or other securities or property (including cash) to
which the holders thereof would have been entitled if such holders had
converted such shares of Series C Preferred Stock into Common Stock
immediately prior to the effective date of such merger, consolidation,
disposition, reorganization or reclassification.
Each share of Series C Preferred Stock will automatically convert into
fully paid and nonassessable shares of Common Stock at the conversion rate,
upon the occurrence of a Series C Qualifying Offering. A "Series C
Qualifying Offering" means (i) the Corporation shall have consummated a
firm commitment underwritten public offering of its Common Stock by a
nationally recognized investment banking firm pursuant to an effective
registration under the Securities Act covering the offering and sale of
both primary and secondary shares of Common Stock which results in gross
proceeds of at least $20,000,000, (ii) the Common Stock is quoted or listed
on either The Nasdaq National Market, the New York Stock Exchange or the
American Stock Exchange, (iii) the price at which the Common Stock is sold
in such offering is at least equal to an amount which (a) is 200% of the
then effective conversion price of the Series C Preferred Stock or (b)
would represent, on an as converted basis, a compound annual rate of return
of 35% based upon the original issuance price of the Series C Preferred
Stock.
Redemption Rights. On the date six months after the payment of the
Notes in full in cash, the Company shall redeem all of the Shares of Series
C Preferred Stock outstanding for $8.00 per share plus an amount equal to
all unpaid dividends accrued to the date of redemption (the "Series C
Redemption Price"), payable in cash. Except as described below, upon a
Change of Control (as defined above), the Company shall redeem each share
of Series C Preferred Stock, payable in cash, at the Series C Redemption
Price. If on a respective redemption date, the funds of the Company legally
available for redemption of the Series C Preferred Stock (or Series A
Preferred Stock or Series B Preferred Stock, which shall rank pari passu
with the Series C Preferred Stock) are insufficient to redeem the total
number of shares of Preferred Stock to be redeemed on such date, the
Company will use the funds legally available therefor to redeem the maximum
number of shares of Preferred Stock ratably among the holders of such
shares to be redeemed based upon their holdings of Preferred Stock. The
Company may not redeem, under any circumstances, any shares of Series C
Preferred Stock until the Company pays the Notes in full in cash; if the
Company has not paid the Notes in full in cash on any redemption date, the
Company will redeem the shares of Series C Preferred Stock only after
payment of the Notes in full in cash.
Voting. Holders of shares of Series C Preferred Stock shall be
entitled to the number of votes equal to the number of full shares of
Common Stock into which such share of Series C Preferred Stock is then
convertible. Unless otherwise required by law or except as described below,
the Series C Preferred Stock and the Common Stock shall vote together on
each matter submitted to stockholders, and not by class or series.
Prior to the consummation of a Series C Qualifying Offering, the
holders of the Series C Preferred Stock, voting together as a class, shall
be entitled to elect one director of the Company. Subsequent to a Series C
Qualifying Offering and only so long as at least 66 2/3% of the Common
Stock issuable upon the conversion of the Series C Preferred Stock is held
of record by the original purchasers of such stock, the holders of a
majority of the Common Stock issuable upon conversion of the Series C
Preferred Stock shall be entitled to nominate one person for election as a
director of the Company and the Company will
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include such person in management's slate of nominees for election as
directors. Upon the occurrence of an Event of Default, the holders of the
Series C Preferred Stock, together with the holders of the Series B
Preferred Stock, have the exclusive right to elect a majority of the Board
of Directors.
Without the authorizing vote or consent of the holders of two-thirds
of the outstanding shares of Series C Preferred Stock, voting as a class,
the Company shall not: (i) amend, waive or repeal any provisions of (or add
any provision to) the Certificate of Designations authorizing the Series C
Preferred Stock, the Company's Certificate of Incorporation or any
certificates of designations with respect to the Company's preferred stock;
(ii) amend, waive or repeal any provisions of (or add any provision to) the
Company's Bylaws; (iii) authorize, create, issue or sell any stock having
preferential rights in the distribution of earnings or assets of the
Company prior to or on a parity with those of the outstanding Series C
Preferred Stock; (iv) except under certain circumstances, issue any
additional shares of Series C Preferred Stock; (v) enter into any
agreements that restrict the Company's obligation to pay dividends on or
redeem the shares of Series C Preferred Stock; or (vi) dissolve the
Company.
Without the authorizing vote of the holders of ninety percent (90%) of
the outstanding Series C Preferred Stock, voting as a class, the Company
shall not amend the Company's Certificate of Incorporation or the
Certificate of Designations creating the Series C Preferred Stock to change
(i) the dividend rate, (ii) redemption provisions, (iii) anti-dilution
provisions, (iv) the place or currency of payments with respect to the
Series C Preferred Stock, (v) the right to institute suit for payment, (vi)
conversion rights, or (vii) voting rights to adversely affect the
foregoing.
Preemptive Rights. Except pursuant to a Series C Qualifying Offering,
a stock option plan approved by the Company's Board of Directors, as a form
of consideration in a merger or acquisition in which the Company is the
surviving entity, or where the aggregate gross proceeds are less than
$500,000 in any single transaction in which the sale price per share is not
less than the then-applicable conversion price of the Series C Preferred
Stock, or $1,500,000 in all of such transactions, the Company shall not
issue or sell any shares of Common Stock, Preferred Stock or other
securities convertible into or exchangeable for shares of Common Stock,
unless prior to such issuance or sale, in the same proportion as the number
of shares of Common Stock issuable upon conversion of the Series C
Preferred Stock bears to the total number of fully-diluted shares of Common
Stock outstanding, the holders of the Series C Preferred Stock shall have
been given the opportunity to purchase such securities on the same terms as
such securities are proposed to be sold. The holders of two-thirds of the
Series C Preferred Stock may waive the preemptive rights afforded to the
holders of Series C Preferred Stock.
RIGHTS OF FIRST REFUSAL AND CO-SALE
Rights of First Refusal. Certain holders of Preferred Stock and Common
Stock have rights of first refusal with respect to proposed sales of stock by
the Company or by certain holders of shares of the Common Stock.
Pursuant to rights of first refusal, if the Company proposes to sell any
shares of Common Stock, Preferred Stock or other securities convertible into or
exchangeable for shares of Common Stock, other than any issuance or sale (i)
pursuant to a Series B Qualifying Offering or Series C Qualifying Offering, (ii)
pursuant to a stock option plan approved by the Board of Directors, (iii) as a
form of consideration in connection with a merger or acquisition where the
Company is the surviving entity or (iv) where the aggregate gross proceeds are
less than $500,000 in any single transaction (provided that the sale price per
share is not less than the then-applicable conversion price of the Series B
Preferred Stock or Series C Preferred Stock, and provided further that the
aggregate gross proceeds of all such transactions shall not exceed $1,500,000
(the "Subject Shares"), then the Company must first offer to sell the Subject
Shares to the holders of Common Stock and Series B Preferred Stock and Series C
Preferred Stock upon the same terms and conditions as the proposed sale. If such
holders do not purchase all of such Subject Shares to which they are entitled,
then the other holders of Common Stock, Series B Preferred Stock and Series C
Preferred Stock shall have the right to purchase their pro rata portion of the
subject shares which such holders did not elect to purchase. If such holders of
Common Stock, Series B Preferred Stock and Series C Preferred Stock do not
collectively elect to
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purchase all of the Subject Shares, the Company may proceed to sell or assign
the Subject Shares not purchased by such holders to the proposed transferee on
the same terms offered the holders within three months after the 30 day period
in which the holders of Common Stock, Series B Preferred Stock and Series C
Preferred Stock could have elected to purchase the Subject Shares.
Pursuant to rights of first refusal, if certain holders of Common Stock
propose to sell any or all of such holder's Common Stock, other than any sale in
the event of a public offering, merger, consolidation or exchange of securities
of the Company approved by the stockholders of the Company, then the holder of
Common Stock must first offer to sell such shares of Common Stock to the other
holders of the Company's Common Stock and the holders of the Series A Preferred
Stock upon the same terms and conditions as the proposed sale. If such holders
of Common Stock and Series A Preferred Stock do not individually or collectively
elect to purchase all of such shares of Common Stock, then the selling holder of
Common Stock must notify the other holders of the Company's Common Stock and the
holders of the Series A Preferred Stock of the number of shares of Common Stock
that remain to be sold to the prospective purchaser. Each holder of the
Company's Common Stock then will have, for a period of twenty days after the
date of such notice, the pro rata right (in proportion to their respective
ownership percentages of Common Stock) to purchase the remaining shares. The
holders of Series B Preferred Stock and Series C Preferred Stock do not have
rights equivalent to the rights of first refusal described in this paragraph.
Rights of Co-Sale. The current holders of the Company's outstanding shares
of Common Stock have certain co-sale rights. As noted above, pursuant to rights
of first refusal, if a holder of Common Stock proposes to sell any or all of
such holder's Common Stock, other than any sale in the event of a public
offering, merger, consolidation or exchange of securities of the Company
approved by the stockholders of the Company, then the holder of Common Stock
must first offer to sell such shares of Common Stock to the other holders of the
Company's Common Stock and the holders of the Series A Preferred Stock upon the
same terms and conditions as the proposed sale. If such holders of Common Stock
and Series A Preferred Stock do not individually or collectively elect to
purchase all of such shares of Common Stock, then the selling holder of Common
Stock must notify the other holders of the Company's Common Stock and the
holders of the Series A Preferred Stock of the number of shares of Common Stock
that remain to be sold to the prospective purchaser. Each holder of the
Company's Common Stock then will have, for a period of twenty days after the
date of such notice, the pro rata right (in proportion to their respective
ownership percentages of Common Stock) to sell, instead of the holder of Common
Stock, shares of Common Stock to the proposed purchaser on the same terms and
conditions as the proposed seller of Common Stock. The holders of Series B
Preferred Stock and Series C Preferred Stock do not have rights equivalent to
the rights of co-sale described in this paragraph.
The holders of the Company's outstanding shares of Series B Preferred and
Series C Preferred Stock have certain co-sale rights. If a current holder of
shares of the Company's outstanding Common Stock proposes to sell shares of
Common Stock (other than shares of Common Stock issuable upon the conversion of
Series B Preferred Stock or Series C Preferred Stock), the holders of Series B
Preferred Stock and Series C Preferred Stock will have the pro rata right (in
proportion to their respective ownership percentages of the Company's total
outstanding shares on an as-converted to Common Stock basis) to sell, instead of
the holder of Common Stock, shares of Common Stock (issuable upon conversion of
their Series B Preferred Stock or Series C Preferred Stock) to the proposed
purchaser on the same terms and conditions as the Common Stock holder's proposed
sale. The co-sale rights terminate upon a Series B Qualifying Offering or a
Series C Qualifying Offering, the consolidation, merger or capital
reorganization of the Company, the sale, lease or transfer by the Company of all
or substantially all of its assets, or a reclassification of the Company's
outstanding shares of Common Stock, the date on which those who purchased the
Series B Preferred Stock pursuant to the Stock Purchase Agreement dated as of
November 13, 1996, or their affiliates, cease to own of record 50% or more of
the Series B Preferred Stock (or shares of Common Stock into which such Series B
Preferred Stock may have been converted) purchased pursuant to such agreement,
or the date on which those who purchased the Series C Preferred Stock pursuant
to the Stock Purchase Agreement dated as of August 22, 1997, or their
affiliates, cease to own of record 50% or more of the Series C Preferred Stock
(or
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shares of Common Stock into which such Series C Preferred Stock may have been
converted) purchased pursuant to such agreement.
WARRANTS
In addition to the Warrants, the Company has granted warrants to purchase
an aggregate of 785,774 shares of Common Stock, as follows: (i) 280,399 having
an exercise price of $8.00 per share, including presently exercisable warrants
to purchase 100,399 shares of Common Stock granted to BT Alex. Brown
Incorporated in connection with the offer and sale of the Series C Preferred
Stock, and (ii) 505,375 having an exercise price of $0.01 per share granted to
the Initial Purchaser in connection with the Unit Offering (and subsequently
resold by the Initial Purchaser in the form of the Units to qualified
institutional buyers pursuant to Rule 144A under the Securities Act). The
exercise price and the number of shares of the Common Stock for which the
warrants may be exercised are subject to adjustment in the event of any
subdivision or combination of the Company's outstanding Common Stock, a dividend
to holders of Common Stock payable in Common Stock or the issuance of additional
shares of Common Stock in certain circumstances.
CERTAIN PROVISIONS OF THE CERTIFICATES OF DESIGNATIONS, BYLAWS AND DELAWARE LAW
The Company's Bylaws contain certain provisions that may have the effect of
rendering more difficult certain possible takeover proposals to acquire control
of the Company and of making removal of management of the Company more
difficult. Pursuant to the Company's Bylaws, only a director may call a special
meeting of the stockholders of the Company. In addition, the Certificates of
Designations creating the Series A Preferred Stock, the Series B Preferred
Stock, and the Series C Preferred Stock each provide for the immediate
redemption of the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock upon a Change of Control (as discussed above). However,
in the event of such a Change of Control prior to the payment in full in cash of
the Notes, the Company may not redeem any shares of Series A Preferred Stock,
Services B Preferred Stock or Series C Preferred Stock until the Notes are paid
in full in cash. In such event, the Company must redeem the shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
immediately after payment of the Notes in full in cash.
REGISTRATION RIGHTS
The Company has granted certain registration rights to the holders of
shares of Common Stock held by the Patricof Managed Funds and to holders of the
shares of Common Stock issuable upon conversion of the Series B Preferred Stock,
the Series C Preferred Stock and the exercise of the warrants granted to BT
Alex. Brown Incorporated, and any additional shares of Common Stock acquired as
a result of a stock dividend, stock split or other distribution in respect of
the Series B Preferred Stock or the Series C Preferred Stock (all such shares,
together, the "Registrable Securities").
At any time and from time to time after January 1, 1999, holders of
Registrable Securities will be entitled to demand that the Company on three
occasions register the resale of Registrable Securities under the Securities Act
(a "Demand Registration"). Such demand must be made by the holders of the lesser
of at least 25% of the Registrable Securities or of Registrable Securities
having a minimum aggregate offering price of $7,500,000 (the "Minimum Offering
Price"). An offering pursuant to any Demand Registration may be in the form of
an underwritten offering. In addition to the foregoing demand rights, if the
resale of the Registrable Securities may be registered on Form S-3, the holders
of Registrable Securities are entitled to require the Company to so register the
Registrable Securities once per year without regard to the Minimum Offering
Price or the aggregate number of such registrations.
In addition, the Company is required to give notice to holders of the
Registrable Securities of its filing of a registration statement (other than on
Form S-4 or Form S-8) for its own account or the account of another stockholder
of the Company and to offer such holders the opportunity to include Registrable
Securities on such registration statement subject to the compliance by any such
holder with certain notice conditions (a "Piggyback Registration"). In the event
the offering pursuant to such registration statement is an underwritten
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one, the Company will use its reasonable best efforts to cause the managing
underwriter to permit the Registrable Securities to be included.
The Company shall be responsible for all expenses in connection with all of
the foregoing registrations, other than underwriting discounts and commissions,
except under certain limited circumstances.
If, in an underwritten offering pursuant to a Demand Registration, the
managing underwriter requires cutbacks of the number of shares of Common Stock
to be included in the offering, the number of shares to be offered for the
account of the Company or any other person (other than the holders of
Registrable Securities) participating in such offering will be reduced or
limited pro rata in proportion to the respective number of shares requested to
be registered. If, in an underwritten offering pursuant to a Piggyback
Registration, the managing underwriter requires cutbacks of the number of shares
of Common Stock to be included in the offering, cutbacks shall be made in the
following order (i) shares of Common Stock to be offered by holders of Common
Stock other than the holders of Registrable Securities, to the extent necessary
to reduce the total number of shares as recommended by the managing underwriter
and (ii) if further reduction is necessary, shares held by the holders of
Registrable Securities shall be reduced on a pro rata basis in proportion to the
relative number of Registrable Securities of the holders of Registrable
Securities participating in such offering. If an offering pursuant to a Demand
Registration is not an underwritten offering, neither the Company nor any
stockholder of the Company (other than the holders of Registrable Securities)
shall be permitted to include securities in such offering without the consent of
the holders of Registrable Securities being offered pursuant to such Demand
Registration.
All holders of Registrable Securities agree not to make any sale of
Registrable Shares within a period of up to 180 days prior to or following the
effective date of a registration statement of the Company filed under the
Securities Act, except for Common Stock included in the registration and unless
otherwise permitted by the Company or such underwriter.
In addition to the registration rights granted to the holders of
Registrable Securities, the Company also has granted certain registration rights
to the holder of a warrant to purchase up to 180,000 shares of the Company's
Common Stock. The Company is required to give notice to the holder of the
warrant of the Company's filing of a registration statement (other than on Form
S-4 or Form S-8) for its own account or the account of another stockholder of
the Company and to offer to the holder of the warrant the opportunity to include
on such registration statement shares of the Company's Common Stock issuable
upon exercise of the warrant, subject to the compliance by the holder of the
warrant with certain conditions, including the exercise of the warrant by the
holder of the warrant for at least the number of shares of the Company's Common
Stock being registered. In the event the offering pursuant to such registration
statement is an underwritten one and the managing underwriter requires cutbacks
of the number of shares of Common Stock to be included in the offering, then the
number of shares of Common Stock to be included in the offering by the holder of
the warrant will be reduced pro rata based on the number of shares of Common
Stock which each selling stockholder (other than the holders of the Registrable
Securities) has requested to include in the registration statement. The
registration rights granted to the holder of the warrant are subordinate to the
registration rights granted to the holders of the Registrable Securities.
CERTAIN APPOINTMENTS TO THE BOARD OF DIRECTORS
Pursuant to an Amended and Restated Securityholders' Agreement and Exchange
Agreement, dated as of November 13, 1996 (as amended pursuant to an amendment,
dated as of August 22, 1997, the "Amended Securityholders' Agreement") (i) the
Company's Board of Directors shall consist of not more than seven members, (ii)
as long as the Series A Preferred Stock has not been redeemed and paid in full,
the holders of the Series A Preferred Stock have the right to designate two
directors, (iv) the holders of the Series B Preferred Stock have the right to
designate one director, (iii) the holders of the Series C Preferred Stock have
the right to designate one director, (v) certain holders of the Common Stock
have the right to designate two directors, and (vi) the Board of Directors and
the holders of the Series B Preferred Stock and Series C Preferred Stock will
mutually agree upon the remaining director.
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THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Registration Rights Agreement, a copy of which is available as
set forth under "Description of the New Notes -- Additional Information."
TERMS OF THE EXCHANGE OFFER
In connection with the issuance of the Old Notes pursuant to the Purchase
Agreement, the Company and the Initial Purchaser entered into the Registration
Rights Agreement. Under the Registration Rights Agreement, the Company is
required to file within 60 days after May 27, 1998 (the date the Registration
Rights Agreement was entered into (the "Closing Date")) a registration statement
(the "Exchange Offer Registration Statement") for a registered exchange offer
with respect to an issue of new notes identical in all material respects to the
Old Notes except that the new notes shall contain no restrictive legend thereon.
Under the Registration Rights Agreement, the Company is required to (i) cause
the Exchange Offer Registration Statement to be filed with the Commission no
later than 60 days after the Closing Date, (ii) use its best efforts to cause
such Exchange Offer Registration Statement to become effective within 120 days
after the Closing Date, (iii) use its best efforts to keep the Exchange Offer
open for at least 20 business days (or longer if required by applicable law),
(iv) use its best efforts to consummate the Exchange Offer on or prior to the
30th business day following the date on which the Exchange Offer Registration
Statement is declared effective by the Commission and (v) cause the Exchange
Offer to comply with all applicable federal and state securities laws. The
Exchange Offer being made hereby, if commenced and consummated within the time
periods described in this paragraph, will satisfy those requirements under the
Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, all Old Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date will be
accepted for exchange. New Notes will be issued in exchange for an equal
principal amount of outstanding Old Notes accepted in the Exchange Offer. Old
Notes may be tendered only in integral multiples of $1,000 of principal amount.
This Prospectus, together with the Letter of Transmittal, is being sent to all
registered holders as of , 1998. There will be no fixed record date
for determining registered holders of Old Notes entitled to participate in the
Exchange Offer. The Exchange Offer is not conditioned upon any minimum principal
amount of Old Notes being tendered in exchange. However, the obligation to
accept Old Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth herein under "-- Conditions."
Old Notes shall be deemed to have been accepted as validly tendered when,
as and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders of Old
Notes for the purposes of receiving the New Notes and delivering New Notes to
such holders.
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties, including the Exchange Offer
No-Action Letters, the Company believes that the New Notes issued pursuant to
the Exchange Offer may be offered for resale, resold or otherwise transferred by
each holder thereof (other than a broker-dealer who acquires such New Notes
directly from the Company for resale pursuant to Rule 144A under the Securities
Act or any other available exemption under the Securities Act and other than any
holder that is an "affiliate" (as defined in Rule 405 under the Securities Act)
of the Company) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business and such holder is not engaged in,
and does not intend to engage in, a distribution of such New Notes and has no
arrangement with any person to participate in a distribution of such New Notes.
By tendering the Old Notes in exchange for New Notes, each holder, other than a
broker-dealer, will represent to the Company that, among other things (i) it is
not an affiliate (as defined in Rule 405 under the Securities Act) of the
Company; (ii) it is not a broker-dealer tendering Old Notes acquired for its own
account directly from the Company; (iii) any New Notes to be received by it will
be acquired in the ordinary course of its business; and (iv) it is not engaged
in, and does not intend to engage in, a distribution of such New Notes and has
no arrangement or understanding
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<PAGE> 80
to participate in a distribution of the New Notes. If a holder of Old Notes is
engaged in or intends to engage in a distribution of the New Notes or has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such holder may not rely on the
applicable interpretations of the staff of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Each Participating
Broker-Dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a Participating Broker-Dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with resales
of New Notes received in exchange for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities. The Company has agreed that it will make
this Prospectus available to any Participating Broker-Dealer for a period of
time not to exceed one year after the date on which the Exchange Offer is
consummated for use in connection with any such resale. See "Plan of
Distribution."
In the event that (i) any changes in law or the applicable interpretations
of the staff of the Commission do not permit the Company to effect the Exchange
Offer, or (ii) if any holder of Old Notes shall notify the Company within 10
business days following the consummation of the Exchange Offer that (A) such
holder was prohibited by law or Commission policy from participating in the
Exchange Offer or (B) such holder may not resell the New Notes acquired by it in
the Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such holder or (C) such holder is a
broker-dealer and holds Old Notes acquired directly from the Company or one of
its affiliates, then the Company shall (x) cause to be filed a shelf
registration statement pursuant to Rule 415 under the Act (the "Shelf
Registration Statement") on or prior to 30 days after the date on which the
Company determines that it is not required to file the Exchange Offer
Registration Statement pursuant to clause (i) above or 90 days after the date on
which the Company receives the notice specified in clause (ii) above and shall
(y) use its best efforts to cause such Shelf Registration Statement to become
effective within 90 days after the date on which the Company becomes obligated
to file such Shelf Registration Statement. If, after the Company has filed an
Exchange Offer Registration Statement, the Company is required to file and make
effective a Shelf Registration Statement solely because the Exchange Offer shall
not be permitted under applicable federal law, then the filing of the Exchange
Offer Registration Statement shall be deemed to satisfy the requirements of
clause (x) above. Such an event shall have no effect on the requirements of
clause (y) above. The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective, supplemented and amended, subject
to the exceptions provided for in the Registration Rights Agreement, to the
extent necessary to ensure that it is available for sales of Transfer Restricted
Securities by the holders thereof for a period of at least two years following
the date on which such Shelf Registration Statement first becomes effective
under the Securities Act. The term "Transfer Restricted Securities" means each
Note, until the earliest to occur of (a) the date on which such Note is
exchanged in the Exchange Offer and entitled to be resold to the public by the
holder thereof without complying with the prospectus delivery requirements of
the Act, (b) the date on which such Note has been disposed of in accordance with
a Shelf Registration Statement, (c) the date on which such Note is disposed of
by a broker-dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the prospectus
contained therein) or (d) the date on which such Note is distributed to the
public pursuant to Rule 144 under the Act, or is eligible for sale under Rule
144(k).
If (i) the Exchange Offer Registration Statement or the Shelf Registration
Statement is not filed with the Commission on or prior to the date specified in
the Registration Rights Agreement, (ii) any such Registration Statement has not
been declared effective by the Commission on or prior to the date specified for
such effectiveness in the Registration Rights Agreement, (iii) the Exchange
Offer has not been consummated on or prior to the date specified in the
Registration Rights Agreement or (iv) any Registration Statement required by the
Registration Rights Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself declared
effective
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<PAGE> 81
immediately, other than as provided in the Registration Rights Agreement (each
such event referred to in clauses (i) through (iv), a "Registration Default"),
then the Company has agreed to pay Liquidated Damages to each holder of Transfer
Restricted Securities. With respect to the first 90-day period immediately
following the occurrence of such Registration Default the Liquidated Damages
shall equal $.05 per week per $1,000 principal amount of Transfer Restricted
Securities held by such holder for each week or portion thereof that the
Registration Default continues. The amount of the Liquidated Damages shall
increase by an additional $.05 per week per $1,000 in principal amount of
Transfer Restricted Securities with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $.25 per week per $1,000 principal amount of Transfer
Restricted Securities. Notwithstanding anything to the contrary set forth
herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (i) above, (2)
upon the effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement) to again be
declared effective or made usable in the case of (iv) above, the Liquidated
Damages payable with respect to the Transfer Restricted Securities a result of
such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued Liquidated Damages shall be paid to the holder of the global
note representing the Old Notes by wire transfer of immediately available funds
or by federal funds check and to holders of certificated securities by mailing
checks to their registered addresses on each May 15 and November 15. All
obligations of the Company set forth in the preceding paragraph that are
outstanding with respect to any Transfer Restricted Security at the time such
security ceases to be a Transfer Restricted Security shall survive until such
time as all such obligations with respect to such security shall have been
satisfied in full.
Upon consummation of the Exchange Offer, subject to certain exceptions,
holders of Old Notes who do not exchange their Old Notes for New Notes in the
Exchange Offer will no longer be entitled to registration rights and will not be
able to offer or sell their Old Notes, unless such Old Notes are subsequently
registered under the Securities Act (which, subject to certain limited
exceptions, the Company will have no obligation to do), except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. See "Risk Factors -- Consequences of Failure
to Exchange."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The term "Expiration Date" shall mean , 1998 (30 calendar days
following the commencement of the Exchange Offer), unless the Exchange Offer is
extended, if and as required by applicable law, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will notify the
holders of the Old Notes by means of a press release or other public
announcement prior to 9:00 A.M., New York City time, on the next business day
after the previously scheduled Expiration Date.
The Company reserves the right (i) to delay acceptance of any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not permit
acceptance of Old Notes not previously accepted if any of the conditions set
forth herein under " -- Conditions" shall have occurred and shall not have been
waived by the Company, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner deemed by it to be advantageous to the holders of the Old
Notes. Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
Exchange Agent. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the Old
Notes of such amendment.
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<PAGE> 82
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, have the signatures thereon guaranteed if required by the
Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal,
together with any other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on or prior to the Expiration Date. In addition,
either (i) certificates for such Old Notes must be received by the Exchange
Agent along with the Letter of Transmittal, (ii) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such
procedure is available, into the Exchange Agent's account at DTC (the
"Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (iii) the holder must comply with the guaranteed delivery
procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS OF THE NOTES. IF
SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD
NOTES SHOULD BE SENT TO THE COMPANY. Delivery of all documents must be made to
the Exchange Agent at its address set forth below. Holders of Notes may also
request their respective brokers, dealers, commercial banks, trust companies or
nominees to effect such tender for such holders.
The tender by a holder of Old Notes will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such owner's
name or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution") unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered holder who has
not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by bond powers and a proxy which authorizes such person
to tender the Old Notes on behalf of the registered holder, in each case as the
name of the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
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<PAGE> 83
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Old Notes will be determined by the
Company in its sole discretion, which determination will be final and binding.
The Company reserves the absolute right to reject any and all Old Notes not
properly tendered or any Old Notes which, if accepted, would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the absolute
right to waive any irregularities or conditions of tender as to particular Old
Notes. The Company's interpretation of the terms and conditions of the Exchange
Offer (including the instructions in the Letter of Transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or irregularities
with respect to tenders of Old Notes, nor shall any of them incur any liability
for failure to give such notification. Tenders of Old Notes will not be deemed
to have been made until such irregularities have been cured or waived. Any Old
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned without cost to such holder by the Exchange Agent to the tendering
holders of Old Notes, unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its reasonable discretion,
subject to the provisions of the Indenture, to (i) purchase or make offers for
any Old Notes that remain outstanding subsequent to the Expiration Date or, as
set forth under " -- Conditions", (ii) to terminate the Exchange Offer in
accordance with the terms of the Registration Rights Agreement and (iii) to the
extent permitted by applicable law, purchase Old Notes in the open market, in
privately negotiated transactions or otherwise. The terms of any such purchases
or offers could differ from the terms of the Exchange Offer.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
all Old Notes properly tendered will be accepted, promptly after the Expiration
Date, and the New Notes will be issued promptly after acceptance of the Old
Notes. See "-- Conditions" below. For purposes of the Exchange Offer, Old Notes
shall be deemed to have been accepted as validly tendered for exchange when, as
and if the Company has given oral or written notice thereof to the Exchange
Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or nonexchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in the case of Old
Notes tendered by book-entry transfer procedures described below, such
nonexchanged Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal with any required
signature guarantees and any other required documents must, in any case, be
transmitted to and received by the Exchange Agent at one of the addresses set
forth below under "-- Exchange Agent" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.
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<PAGE> 84
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes,
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedures for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal and Notice of Guaranteed Delivery, substantially
in the form provided by the Company (by mail or hand delivery), setting forth
the name and address of the holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the Letter
of Transmittal will be deposited by the Eligible Institution with the Exchange
Agent and (iii) the certificates for all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
all other documents required by the Letter of Transmittal are received by the
Exchange Agent within three NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent prior to
5:00 p.m., New York City time on the Expiration Date at one of the addresses set
forth below under "-- Exchange Agent." Any such notice of withdrawal must
specify the name of the person having tendered the Old Notes to be withdrawn,
identify the Old Notes to be withdrawn (including the principal amount of such
Old Notes) and (where certificates for Old Notes have been transmitted) specify
the name in which such Old Notes are registered, if different from that of the
withdrawing holder. If certificates for Old Notes have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the procedure
for book-entry transfer described above, any notice of withdrawal must specify
the name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "-- Procedures for Tendering" and "-- Book-Entry
Transfer" above at any time on or prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Old Notes will not be
required to be accepted for exchange, nor will New Notes be issued in exchange
for any Old Notes, and the Company may terminate or amend the Exchange Offer as
provided herein prior to the Expiration Date, if because of any change in law,
or applicable interpretations thereof by the Commission, the Company determines
that they are not permitted to effect the Exchange Offer. The Company has no
obligation to, and will not knowingly, permit acceptance of tenders of Old Notes
from affiliates (within the meaning of Rule 405 under the Securities Act) of the
Company or from any other holder or holders who are not eligible to participate
in the Exchange Offer under
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<PAGE> 85
applicable law or interpretations thereof by the Commission, or if the New Notes
to be received by such holder or holders of Old Notes in the Exchange Offer,
upon receipt, will not be tradable by such holder without restriction under the
Securities Act and the Exchange Act and without material restrictions under the
"blue sky" or securities laws of substantially all of the states of the United
States.
EXCHANGE AGENT
State Street Bank & Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight or Hand Delivery:
Corporate Trust Department Corporate Trust Department
P.O. Box 778 Two International Place, 4th Floor
Boston, Massachusetts 02102-0078 Boston, Massachusetts 02110
Attention: Kellie Mullen Attention: Kellie Mullen
</TABLE>
By Facsimile:
Corporate Trust Department
(617) 664-5290
Attention: Kellie Mullen
For information call:
(617) 664-5587
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of the Company.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of the Prospectus and related documents to the beneficial
owners of the Old Notes, and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company, including fees and expenses of the Exchange Agent and
Trustee and accounting, legal, printing and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
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DESCRIPTION OF THE NEW NOTES
The Old Notes were issued, and the New Notes will be, issued pursuant to
the Indenture which is dated as of May 27, 1998 and is between the Company and
State Street Bank and Trust Company, as trustee (the "Trustee"). The terms of
the New Notes will include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust
Indenture Act"). The New Notes will be subject to all such terms, and
prospective holders of New Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of the material
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein of
certain terms used below. Copies of the proposed form of Indenture, Registration
Rights Agreement and the Escrow Agreement are available as set forth below under
"-- Additional Information." The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions." For
purposes of this summary, the term "Company" refers only to Park 'N View, Inc.
GENERAL
The New Notes will be general senior obligations of the Company and will
rank pari passu in right of payment with all current and future unsecured senior
indebtedness of the Company. In addition, a portion of the net proceeds from the
Offering were used to purchase the Pledged Securities in an amount sufficient to
provide for payment in full when due of the first four scheduled interest
payments on the Notes. The Pledged Securities were pledged as security for
repayment of principal and interest on the Notes under the Escrow Agreement. See
"-- Disbursement of Funds; Escrow Account." As of March 31, 1998, on a pro forma
basis after giving effect to the Unit Offering and the application of the net
proceeds therefrom, the Company would have had approximately $70.5 million of
long-term debt outstanding.
As of the date of the Indenture, the Company had no Subsidiaries. The
Indenture requires that if the Company or any of its Subsidiaries shall acquire
or create another Subsidiary after the date of the Indenture, then such newly
acquired or created Subsidiary shall become a Guarantor and execute a
supplemental indenture in accordance with the terms of the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The New Notes will be limited in aggregate principal amount of $75.0
million and will mature on May 15, 2008. Interest on the New Notes will accrue
at the rate of 13% per annum, and will be payable semi-annually on May 15 and
November 15 of each year commencing November 15, 1998, to holders of record on
the immediately preceding May 1 and November 1, respectively. Interest on the
Notes will accrue from the most recent date of which interest has been paid, or
if no interest has been paid, from the date of original issuance. Interest will
be computed on the basis of a 360-day year comprised of 30-day months.
Principal, premium, if any, and interest and Liquidated Damages, if any, on the
New Notes will be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the option of the
Company, payment of interest and Liquidated Damages, if any, may be made by
check mailed to the holders of the Notes at their respective addresses set forth
in the register of holders of the Notes; provided that all payments of
principal, premium, interest and Liquidated Damages, if any, with respect to New
Notes the holders of which have given wire transfer instructions to the Company
will be required to be made by wire transfer of immediately available funds to
the accounts specified by the holders thereof. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose. The New Notes will be issued in
denominations of $1,000 and integral multiples thereof.
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<PAGE> 87
OPTIONAL REDEMPTION
The New Notes will not be redeemable at the Company's option prior to May
15, 2003. Thereafter, the New Notes will be subject to redemption at any time at
the option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on May 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003........................................................ 106.500%
2004........................................................ 104.333%
2005........................................................ 102.167%
2006 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, any time after the issue date of the Old
Notes and prior to May 15, 2001, the Company, at its option, may redeem up to
35% of the then outstanding New Notes with the net proceeds of an Initial Public
Equity Offering of the Company at a redemption price of 113.0% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, to the date of redemption; provided that at least 65% in aggregate
principal amount of Notes originally issued remain outstanding immediately after
the occurrence of such redemption (excluding Notes held by the Company, its
subsidiaries and its Affiliates); and provided, further, that such redemption
shall occur within 60 days of the date of the closing of such Initial Public
Equity Offering.
MANDATORY REDEMPTION
Except as set forth under "-- Repurchase at the Option of Holders -- Change
of Control," and "-- Asset Sales," the Company is not required to make mandatory
redemption payments or sinking fund payments with respect to the New Notes.
SELECTION AND NOTICE
If less than all of the New Notes are to be redeemed at any time, selection
of New Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
New Notes are listed, or, if the New Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no New Notes of $1,000 or less shall be redeemed in part. Notices
of redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of New Notes to be redeemed at
its registered address. Notices of redemption may not be conditional. If any New
Note is to be redeemed in part only, the notice of redemption that relates to
such New Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original New Note. New Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest ceases to accrue on
New Notes or portions of them called for redemption.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of New Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within ten days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
New Notes on the date specified in such
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notice, which date shall be no earlier than 30 days and no later than 60 days
from the date such notice is mailed (the "Change of Control Payment Date"),
pursuant to the procedures required by the Indenture and described in such
notice. Any New Note not tendered will continue to accrue interest. The Company
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the New Notes as
a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all New Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the New Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of New Notes or portions thereof being purchased
by the Company. The Paying Agent will promptly mail to each Holder of New Notes
so tendered the Change of Control Payment for such New Notes, and the Trustee
will promptly authenticate and mail (or cause to be transferred by book entry)
to each Holder a New Note equal in principal amount to any unpurchased portion
of the New Notes surrendered, if any; provided that each such New Note will be
in a principal amount of $1,000 or an integral multiple thereof. The Company
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the New Notes to require that the Company
repurchase or redeem the New Notes in the event of a takeover, recapitalization
or similar transaction. Finally, the Company's ability to pay cash to the
Holders of New Notes upon a repurchase may be limited by the Company's then
existing financial resources. See "Risk Factors -- Risk of Inability to
Repurchase Notes Upon a Change of Control."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all New Notes validly tendered and not withdrawn under such Change of
Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, transfer, conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act); (ii) the adoption of a plan relating to the liquidation or dissolution of
the Company; (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person", other than the Principals and their Related Parties, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act, except that in calculating the beneficial ownership of any
particular "person," such "person" shall be deemed to have beneficial ownership
of all securities that such person has the right to acquire, whether such right
is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition), directly or indirectly, of more than 40% of the Voting
Stock of the Company (measured by voting power rather than number of shares); or
(iv) the first day on which a majority of the members of the Board of Directors
of the Company are not Continuing Directors.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of New Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain. If
the Trustee, the Holders of at least 25% in principal amount of the then
outstanding Notes, the Holders of a majority in principal amount of the then
outstanding Notes or, under certain limited circumstances, a Holder of Notes,
notifies the Company of an Event of Default based on such
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a sale, lease, transfer, conveyance or other disposition of less than all of the
Company's assets, the Company could dispute the occurrence of such an Event of
Default and, in such event, such persons could sue the Company to resolve among
other things, the uncertainty regarding the phrase "substantially all." See
"Description of New Notes -- Certain Covenants -- Events of Default and
Remedies."
"Continuing Director" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Principals" means Patricof & Co. Ventures, Inc. and its affiliated
entities, State of Michigan Retirement System, Henry L. Hillman, Elsie Hilliard
Hillman and C. G. Grefenstette and their affiliated entities, Sam Hashman, MPN
Holdings, Inc. and Ian Williams.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 70% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding a 70% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the Fair Market Value (as determined in accordance with
the third paragraph of this covenant) of the assets or Equity Interests issued
or sold or otherwise disposed of and (ii) at least 85% of the consideration
therefor received by the Company or such Subsidiary is in the form of cash;
provided that the amount of (x) any liabilities (as shown on the Company's or
such Subsidiary's most recent balance sheet), of the Company or any Subsidiary
(other than contingent liabilities and liabilities that are by their terms
subordinated to the New Notes or any guarantee thereof) that are assumed by the
transferee of any such assets pursuant to a customary novation agreement that
releases the Company or such Subsidiary from further liability and (y) any
securities, notes or other obligations received by the Company or any such
Subsidiary from such transferee that are contemporaneously (subject to ordinary
settlement periods) converted by the Company or such Subsidiary into cash (to
the extent of the cash received), shall be deemed to be cash for purposes of
this provision.
Within 180 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds to (a) to repay Indebtedness under a
Credit Facility, (b) acquire all or substantially all of (1) the assets of, or a
majority of the Voting Stock of, a Person engaged in a Telecommunications or
Entertainment Business or (2) the assets of a line of business of a Person
engaged in the Telecommunications or Entertainment Business; provided that such
assets relate to the Telecommunications or Entertainment Business; or (c) to
make a capital expenditure or otherwise acquire other long-term assets that are
used or useful in a Permitted Business. Pending the final application of any
such Net Proceeds, the Company may temporarily reduce revolving credit
borrowings or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company will be required to make an offer to
all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase, in accordance with the procedures set forth in the Indenture. To
the extent that any Excess Proceeds remain after consummation of an Asset Sale
Offer, the Company may use such Excess Proceeds for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal amount of New Notes
tendered into such Asset Sale Offer surrendered by Holders thereof exceeds the
amount of Excess Proceeds,
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the Trustee shall select the New Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
The determination of the Fair Market Value of any Asset Sale shall be based
upon: (i) an Officer's Certificate delivered to the Trustee if such Fair Market
Value is less than or equal to $500,000; (ii) the resolution of a majority of
the disinterested members of the Board of Directors whose resolution with
respect thereto shall be delivered to the Trustee, if such Fair Market Value is
greater than $500,000 but less than $5.0 million; and (iii) an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing, if such Fair Market Value is equal to or exceeds $5.0
million. Not later than the date of making any Asset Sale, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Asset Sale is
permitted and setting forth the basis upon which the calculations required by
this covenant were computed, together with any other documents required by the
Indenture.
DISBURSEMENT OF FUNDS; ESCROW ACCOUNT
The New Notes are collateralized pursuant to the Escrow Agreement by a
pledge of the Escrow Account (as defined in the Escrow Agreement), which
initially contained $19.2 million of the net proceeds from the Unit Offering
(the "Escrow Collateral"), representing funds that, together with the proceeds
from the investment thereof, will be sufficient to pay interest on the New Notes
for the first four scheduled interest payments on the New Notes (but will not be
in an amount sufficient to pay any Liquidated Damages that may arise under the
Registration Rights Agreement).
The Company entered into the Escrow Agreement providing for the grant by
the Company to the Trustee, for the benefit of the Holders, of a security
interest in the Escrow Collateral. All such security interests collateralize the
payment and performance when due of all obligations of the Company under the
Indenture and Notes, as provided in the Escrow Agreement. The Liens created by
the Escrow Agreement are the first priority security interests in the Escrow
Collateral. The ability of Holders to realize upon any such funds or securities
may be subject to certain bankruptcy law limitations in the event of the
bankruptcy of the Company.
Pursuant to the Escrow Agreement, funds may be disbursed from the Escrow
Account only to pay interest on the Notes (or, if a portion of the Notes has
been retired by the Company, funds representing the lesser of (i) the excess of
the amount sufficient to pay interest through and including May 15, 2000, on the
Notes not so retired and (ii) the interest payments which have not previously
been made on such retired Notes for each Interest Payment Date through and
including the Interest Payment Date). The ability of holders to realize upon any
such funds or securities may be subject to certain bankruptcy limitations in the
event of a bankruptcy of the Company.
Pending such disbursements, all funds contained in the Escrow Account will
be invested in the Pledged Securities. Interest earned on the Pledged Securities
will be placed in the Escrow Account. Upon the acceleration of the maturity of
the Notes, the Escrow Agreement will provide for foreclosure by the Trustee upon
the net proceeds of the Escrow Account. Under the terms of the Indenture, the
proceeds of the Escrow Account shall be applied, first, to amounts owing to the
Trustee in respect of fees and expenses of the Trustee and second, to all
obligations under the New Notes and the Indenture. Under the Escrow Agreement,
assuming that the Company makes the first four scheduled interest payments on
the Notes in a timely manner with funds or Pledged Securities held in the Escrow
Account, the balance of the Pledged Securities in the Escrow Account will be
released to the Company on no later than May 15, 2001.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend
or make any other payment or distribution on account of the Company's or any of
its Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Company or any of
its Subsidiaries) or to the direct
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or indirect holders of the Company's or any of its Subsidiaries' Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or to
the Company or a Subsidiary of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value (including, without limitation, in connection with
any merger or consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company or other Affiliate of
the Company (other than any such Equity Interests owned by the Company or any
Wholly Owned Subsidiary of the Company); (iii) make any payment on or with
respect to, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated to the New Notes (other than Notes),
except a payment of interest or principal at Stated Maturity and reasonable fees
and expenses incurred in connection therewith; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the two most recent fiscal quarters ending
immediately prior to the date of such Restricted Payment for which
financial statements are available, have been permitted to incur at least
$1.00 of additional Indebtedness (other than Permitted Debt) pursuant to
the Debt to Cash Flow Ratio test set forth in the first paragraph of the
covenant described below under the caption " -- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Disqualified
Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries after
the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii) and (iv) of the next succeeding paragraph), is less
than the sum, without duplication, of (i) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period) from
the beginning of the first fiscal quarter commencing after the date of the
Indenture to the end of the Company's most recently ended fiscal quarter
for which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is
a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net
cash proceeds received by the Company since the date of the Indenture as a
contribution to its common equity capital or from the issue or sale of
Equity Interests of the Company (other than Disqualified Stock) or from the
issue or sale of Disqualified Stock or debt securities of the Company that
have been converted into such Equity Interests (other than Equity Interests
(or Disqualified Stock or convertible debt securities) sold to a Subsidiary
of the Company), plus (iii) to the extent that any Restricted Investment
that was made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition,
if any) and (B) the initial amount of such Restricted Investment.
So long as no Default has occurred and is continuing or would be caused
thereby, the foregoing provisions will not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any pari passu or subordinated Indebtedness or Equity Interests
of the Company in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company) of,
other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (c) (ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of pari passu or
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a
Subsidiary of the Company to the holders of its common Equity Interests on a pro
rata basis; (v) Investments by the Company or any of its Subsidiaries in any
Permitted Joint Venture; provided that the aggregate Fair Market Value of all
such Investments does not exceed $5.0 million at any one time outstanding (with
the Fair Market Value of each
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Investment being measured at the time made and without giving effect to
subsequent changes in value); (vi) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company or
any Subsidiary of the Company held by any employee or any member of the
Company's (or any of its Subsidiaries') management pursuant to any management or
employee equity subscription or purchase agreement or stock option agreement in
effect as of the date of the Indenture; provided that the aggregate price paid
for all such repurchased, redeemed, acquired or retired Equity Interests shall
not exceed $500,000 in any twelve-month period; and (vii) additional Investments
having an aggregate Fair Market Value, taken together with all other Investments
made pursuant to this clause (vii) that are at the time outstanding, not
exceeding $2.0 million (with the Fair Market Value of each Investment being
measured at the time made and without giving effect to subsequent changes in
value).
Except to the extent specifically provided to the contrary herein, the
amount of all Restricted Payments (other than cash) shall be the Fair Market
Value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. The Fair Market Value of any
assets or securities that are required to be valued by this covenant shall be
based upon: (i) an Officer's Certificate delivered to the Trustee if such Fair
Market Value is less than or equal to $500,000; (ii) the resolution of a
majority of the disinterested members of the Board of Directors whose resolution
with respect thereto shall be delivered to the Trustee, if such Fair Market
Value is greater than $500,000 but less than $5.0 million; and (iii) an opinion
or appraisal issued by an accounting, appraisal or investment banking firm of
national standing, if such Fair Market Value is equal to or exceeds $5.0
million. Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed,
together with any other documents required by the Indenture.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly, or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock if the Company's Debt to Cash Flow
Ratio at the time of incurrence of such Indebtedness or the issuance of such
Disqualified Stock, after giving pro forma effect to such incurrence or issuance
as of such date and to the use of proceeds therefrom as if the same had occurred
at the beginning of the most recently ended two full fiscal quarter period of
the Company for which internal financial statements are available, would have
been no greater than 5 to 1.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt") so long as no Default shall have occurred and be continuing or
would be caused thereby:
(i) the incurrence by the Company of no more than $10.0 million in
connection with a Credit Facility at any one time outstanding; provided
that the amount of Indebtedness permitted to be incurred pursuant to this
clause (i) shall be reduced by the amount of all Net Proceeds of Asset
Sales applied to repay Indebtedness under a Credit Facility pursuant to the
covenant described above under the caption "-- Asset Sales";
(ii) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes and the Exchange Notes;
(iv) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money or similar obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or
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improvement of property, plant or equipment used in the Permitted Business
of the Company or such Subsidiary, in an aggregate principal amount not to
exceed $10.0 million at any time outstanding;
(v) the incurrence by the Company or any of its Subsidiaries of
Indebtedness in connection with the acquisition of assets or a new
Subsidiary; provided that such Indebtedness was incurred by the prior owner
of such assets or such Subsidiary prior to such acquisition by the Company
or one of its Subsidiaries and was not incurred in connection with, or in
contemplation of, such acquisition by the Company or one of its
Subsidiaries; and provided further that the principal amount (or accreted
value, as applicable) of such Indebtedness, together with any other
outstanding Indebtedness incurred pursuant to this clause (v) and any
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any Indebtedness incurred pursuant to this clause (v), does not exceed $5.0
million;
(vi) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the Indenture to be
incurred under the first paragraph hereof or clauses (i), (ii), (v) or (x)
of this paragraph;
(vii) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Wholly Owned Subsidiaries; provided, however, that (i) if the Company is
the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Notes and (ii)(A) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Subsidiary thereof and (B) any sale or
other transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Subsidiary thereof shall be deemed, in each case,
to constitute an incurrence of such Indebtedness by the Company or such
Subsidiary, as the case may be, that was not permitted by this clause
(vii);
(viii) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of this Indenture to be outstanding;
(ix) the guarantee by the Company or any of its Subsidiary of
Indebtedness of the Company or a Subsidiary of the Company that was
permitted to be incurred by another provision of this covenant; and
(x) the incurrence by the Company or any of its Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (x), not to exceed $5.0
million.
The Indenture also provides that the Company will not incur any
Indebtedness (including Permitted Debt) that is contractually subordinated in
right of payment to any other Indebtedness of the Company unless such
Indebtedness is also contractually subordinated in right of payment to the Notes
on substantially identical terms; provided, however, that no Indebtedness of the
Company shall be deemed to be contractually subordinated in right of payment to
any other Indebtedness of the Company solely by virtue of being unsecured.
For purposes of determining compliance with this covenant, in the event
that an item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (x) above as of
the date of incurrence thereof, or is entitled to be incurred pursuant to the
first paragraph of this covenant as of the date of incurrence thereof, the
Company shall, in its sole discretion, classify such item of Indebtedness on the
date of its incurrence in any manner that complies with this covenant and may
treat revolving credit Indebtedness incurred in accordance with the first
paragraph of this covenant, as being incurred in its entire committed (whether
or not at the time drawn) amount at the date on which the initial borrowing
thereunder is made. Accrual of interest, accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends on
Disqualified Stock in the form of additional shares of the same class of
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Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an
issuance of Disqualified Stock for purposes of this covenant.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien of any kind on any asset now owned or hereafter acquired,
except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries. However, the foregoing restrictions will not apply to
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the Indenture and
the New Notes, (c) applicable law, (d) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Subsidiaries as
in effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (e) customary non-assignment provisions in leases entered into in
the ordinary course of business and consistent with past practices, (f) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (g) any agreement for the sale or other disposition of a
Subsidiary that restricts distributions by that Subsidiary pending its sale or
other disposition, (h) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those contained in
the agreements governing the Indebtedness being refinanced, (i) Liens securing
Indebtedness otherwise permitted to be incurred pursuant to the provisions of
the covenant described above under the caption "-- Liens" that limit the right
of the Company or any of its Subsidiaries to dispose of the assets subject to
such Lien, (j) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business and (k) restrictions on cash or
other deposits or net worth imposed by customers under contracts entered into in
the ordinary course of business.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not, directly or indirectly,
consolidate or merge with or into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, convey or otherwise dispose of all or
substantially all of its properties or assets, in one or more related
transactions, to another Person unless (i) the Company is the surviving
corporation or the Person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment, transfer,
conveyance or other disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia; (ii) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to which such
sale, assignment, transfer, conveyance or other disposition shall have been made
assumes all the obligations of the Company under the Registration Rights
Agreement, the Notes and the Indenture pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Subsidiary of the
Company, the Company or the Person formed by or surviving any such consolidation
or merger (if other than
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the Company), or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made (A) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated Net
Worth of the Company immediately preceding the transaction and (B) will,
immediately after such transaction after giving pro forma effect thereto and any
related financing transactions as if the same had occurred at the beginning of
the applicable two-quarter period on an annualized basis, be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Debt to Cash Flow test
set forth in the first paragraph of the covenant described above under the
caption "-- Incurrence of Indebtedness and Issuance of Disqualified Stock." The
Indenture will also provide that the Company may not, directly or indirectly,
lease all or substantially all of its properties or assets, in one or more
related transactions, to any other Person. The provisions of this covenant will
not be applicable to a sale, assignment, transfer, conveyance or other
disposition of assets between or among the Company and its Wholly Owned
Subsidiaries.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Subsidiary than those that would have been obtained
in a comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $1.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5.0
million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing. Notwithstanding the foregoing, the
following items shall not be deemed to be Affiliate Transactions: (i) any
employment agreement entered into by the Company or any of its Subsidiaries in
the ordinary course of business and consistent with the past practice of the
Company or such Subsidiary, (ii) transactions between or among the Company
and/or its Subsidiaries, (iii) payment of reasonable directors fees to Persons
who are not otherwise Affiliates of the Company, (iv) any sale or other issuance
of Equity Interests (other than Disqualified Stock) of the Company, and (v)
Restricted Payments that are permitted by the provisions of the Indenture
described above under the caption "-- Restricted Payments."
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, enter into any Sale and Leaseback Transaction; provided
that the Company or any of its Subsidiaries may enter into a Sale and Leaseback
Transaction if (i) the Company or such Subsidiary, as applicable, could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to either (1) the Debt to Cash Flow
test set forth in the first paragraph of the covenant described above under the
caption "-- Incurrence of Indebtedness and Issuance of Disqualified Stock" or
(2) clause (iv) of the second paragraph of the covenant described above under
the caption "-- Incurrence of Indebtedness and Issuance of Disqualified Stock"
and (b) incurred a Lien to secure such Indebtedness pursuant to the covenant
described above under the caption "-- Liens," (ii) the gross cash proceeds of
such sale and leaseback transaction are at least equal to the Fair Market Value
of the property that is the subject of such sale and leaseback transaction and
(iii) the transfer of assets in such sale and leaseback transaction is permitted
by, and the Company applies the proceeds of such transaction in compliance with,
the covenant described above under the caption "-- Asset Sales."
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Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Subsidiary of the Company to, transfer, convey, sell, lease or otherwise
dispose of any Equity Interests in any Wholly Owned Subsidiary of the Company to
any Person (other than the Company or a Wholly Owned Subsidiary of the Company),
unless (a) such transfer, conveyance, sale, lease or other disposition is of all
the Equity Interests in such Wholly Owned Subsidiary and (b) the cash Net
Proceeds from such transfer, conveyance, sale, lease or other disposition are
applied in accordance with the covenant described above under the caption
" -- Asset Sales," and (ii) will not permit any Wholly Owned Subsidiary of the
Company to issue any of its Equity Interests (other than, if necessary, shares
of its Capital Stock constituting directors' qualifying shares) to any Person
other than to the Company or a Wholly Owned Subsidiary of the Company; provided
that the provisions of this covenant shall not apply to Investments by the
Company in Subsidiaries that are made in accordance with clause (iv) of the
covenant entitled " -- Restricted Payments."
Limitations on Issuances of Guarantees of Indebtedness by Subsidiaries
The Indenture provides that the Company will not permit any Subsidiary,
directly or indirectly, to Guarantee or pledge any assets to secure the payment
of any other Indebtedness of the Company ("Guaranteed Debt") unless each such
Subsidiary simultaneously executes and delivers a supplemental indenture to the
Indenture providing for the Guarantee of the payment of the New Notes by such
Subsidiary, which Guarantee shall be (i) if the New Notes or the Guarantee of
such Subsidiary is subordinated in right of payment to the Guaranteed Debt, the
Guarantee under the supplemental indenture shall be subordinated to such
Subsidiary's guarantee with respect to the Guaranteed Debt substantially to the
same extent as the New Notes or the Guarantee are subordinated to the Guaranteed
Debt under the Indenture; or (ii) if the Guaranteed Debt is by its express terms
subordinated in right of payment to the New Notes or the Guarantee of such
Subsidiary, any such guarantee of such Subsidiary with respect to the Guaranteed
Debt shall be subordinated in right of payment to such Subsidiary's Guarantee
with respect to the New Notes substantially to the same extent as the Guaranteed
Debt is subordinated to the Notes or the Guarantee of such Subsidiary.
Notwithstanding the foregoing, any such Guarantee by a Subsidiary of the Notes
shall provide by its terms that it shall be automatically and unconditionally
released and discharged upon any sale, exchange or transfer, to any Person not
an Affiliate of the Company, of all of the Company's stock in, or all or
substantially all the assets of, such Subsidiary, which sale, exchange or
transfer is made in compliance with the applicable provisions of the Indenture.
The form of such Guarantee will be attached as an exhibit to the Indenture.
Business Activities
The Company will not, and will not permit any Subsidiary to, engage in any
business other than Permitted Businesses, except to such extent as would not be
material to the Company and its Subsidiaries taken as a whole.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any New Notes for or as
an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the New Notes unless such consideration is
offered to be paid or agreed to be paid to all Holders of the New Notes that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
Limitation on Status as Investment Company
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, conduct its business in a fashion that would cause the
Company to be required to register as an "investment company" (as that term is
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act")), or otherwise become subject to regulation under the Investment
Company Act. For purposes of
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establishing the Company's compliance with this provision, any exemption which
is or would become available under Section 3 (c) (1) or Section 3 (c) (7) of the
Investment Company Act will be disregarded.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any New Notes are outstanding, the
Company will furnish to the Holders of New Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports, in each case within the
time periods specified in the Commission's rules and regulations. In addition,
following the consummation of the exchange offer contemplated by the
Registration Rights Agreement, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability within the
time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company has agreed that, for so long as any New Notes remain outstanding, it
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the New Notes, other than as provided in
clause (ii); (ii) default in payment pursuant to the Escrow Agreement or a
default in payment when due of the principal of or premium, if any, on the New
Notes; (iii) failure by the Company or any of its Subsidiaries to comply with
the provisions described under the captions "-- Change of Control," "-- Asset
Sales," "-- Restricted Payments" or "-- Incurrence of Indebtedness and Issuance
of Disqualified Stock"; (iv) failure by the Company or any of its Subsidiaries
for 60 days after notice to comply with any of its other agreements in the
Indenture or the New Notes; (v) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (a) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the date of such
default (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $3.0 million or more; (vi) failure
by the Company or any of its Subsidiaries to pay final judgments aggregating in
excess of $3.0 million, which judgments are not paid, discharged or stayed for a
period of 60 days; and (viii) certain events of bankruptcy or insolvency with
respect to the Company or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding New Notes
may declare all the New Notes to be due and payable immediately. Notwithstanding
the foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding New Notes will become due and payable
without further action or notice. Holders of the New Notes may not enforce the
Indenture or the New Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding New Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the New Notes notice of any
continuing Default or
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Event of Default (except a Default or Event of Default relating to the payment
of principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the New Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the New Notes. If an Event of Default occurs prior to
May 15, 2003 by reason of any willful action (or inaction) taken (or not taken)
by or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the New Notes prior to May 15, 2003, then the premium specified in
the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the New Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the New Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the New Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
New Notes, the Indenture or the Escrow Agreement or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
New Notes by accepting a New Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the New Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding New Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding New Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such New Notes when such payments are due from the
trust referred to below, (ii) the Company's obligations with respect to the New
Notes concerning issuing temporary New Notes, registration of New Notes,
mutilated, destroyed, lost or stolen New Notes and the maintenance of an office
or agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the New Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the New
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the New Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and Liquidated Damages on
the outstanding New Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the New Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company
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shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding New Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding New Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to such deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of New Notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the New Notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the New Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, New Notes), and any existing default
or compliance with any provision of the Indenture or the New Notes may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding New Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, New
Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any New Notes held by a non-consenting Holder): (i) reduce the
principal amount of New Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any New Note or alter the provisions with respect to the redemption of the
New Notes (other than provisions relating to the covenants described above under
the caption "-- Repurchase at the Option of Holders"), (iii) reduce the rate of
or change the time for payment of interest on any New Note, (iv) waive a Default
or Event of Default in the payment of principal of or premium, if any, or
interest on the New Notes (except a rescission of acceleration of the New Notes
by the Holders of at least a majority in aggregate principal amount of the New
Notes and a waiver of the payment default that resulted from such acceleration),
(v) make any New Note payable in money other than that stated in the New Notes,
(vi) make any change in the provisions of the Indenture relating to waivers of
past Defaults or the rights of Holders of New Notes to receive payments of
principal of or premium, if any, or interest on the New Notes, (vii) waive a
redemption payment with respect to any New Note (other than a payment required
by one of the covenants described above under the caption "-- Repurchase at the
Option of Holders") or (viii) make any change in the foregoing amendment and
waiver provisions.
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Notwithstanding the foregoing, without the consent of any Holder of New
Notes, the Company and the Trustee may amend or supplement the Indenture or the
New Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated New Notes in addition to or in place of certificated New Notes,
to provide for the assumption of the Company's obligations to Holders of New
Notes in the case of a merger or consolidation or sale of all or substantially
all of the Company's assets, to make any change that would provide any
additional rights or benefits to the Holders of New Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, or to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding New
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of New Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture,
Registration Rights Agreement and the Escrow Agreement without charge by writing
to Park 'N View, Inc., 11711 NW 39th Street, Coral Springs, Florida 33065,
Attention: Steve Conkling.
TRANSFER AND EXCHANGE
A holder may transfer or exchange New Notes in accordance with the
Indenture. The Company, the Registrar and the Trustee may require a holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Company may require a holder to pay any taxes and fees required by law
or permitted by the Indenture.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any capitalized terms used herein for which no definition
is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
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ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 5% or more of the Voting Stock of a Person shall be
deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory or services in the ordinary course of
business consistent with past practices (provided that the sale, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "-- Change of Control" and/or the
provisions described above under the caption "-- Merger, Consolidation or Sale
of Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by the Company or any of its Subsidiaries of Equity Interests of
any of the Company's Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a Fair Market Value in excess of $1.0 million or (b) for net proceeds in
excess of $1.0 million. Notwithstanding the foregoing, the following items shall
not be deemed to be Asset Sales: (i) a transfer of assets by the Company to a
Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to the Company or to
another Wholly Owned Subsidiary, (ii) an issuance of Equity Interests by a
Wholly Owned Subsidiary to the Company or to another Wholly Owned Subsidiary,
(iii) Permitted Revenue Sharing Agreements and (iv) a Restricted Payment that is
permitted by the covenant described above under the caption "-- Restricted
Payments."
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and demand deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500 million and a Thompson Bank Watch Rating
of "B" or better, (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above, (v) commercial paper having the highest rating
obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation
and in each case maturing within six months after the date of acquisition and
(vi) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (i) -- (v) of this definition.
"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or non-voting) of such Person's common shares.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale, to the extent such losses were deducted in computing such
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Consolidated Net Income, plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was deducted in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses (excluding any such non-cash expense to the extent that
it represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income, minus (v) non-cash items increasing such
Consolidated Net Income for such period (other than items that were accrued in
the ordinary course of business), in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the foregoing, the provision
for taxes on the income or profits of, and the depreciation and amortization and
other non-cash expenses of, a Subsidiary of the Company shall be added to
Consolidated Net Income to compute Consolidated Cash Flow of the Company only to
the extent that a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Indebtedness" means, with respect to any Person as of any
date of determination, the aggregate amount of Indebtedness and the liquidation
preference of the Disqualified Stock of such Person and its Subsidiaries
outstanding as of such date of determination, determined on a consolidated basis
in accordance with GAAP.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all
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unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Credit Facility" means one or more credit agreements, loan agreements or
similar agreements providing for working capital advances, term loans, letter of
credit facilities or similar advances, loans or facilities to the Company, which
may, pursuant to the terms of the Indenture, be guaranteed by the Subsidiaries,
with a bank or syndicate of banks or other financial institutions, as such may
be amended, renewed, extended, supplemented, refinanced and replaced or refunded
from time to time.
"Debt to Cash Flow Ratio" means, as of any date of determination, the ratio
of (a) the Consolidated Indebtedness of the Company as of such date to (b) two
times the Consolidated Cash Flow of the Company for the two most recent full
fiscal quarters ending immediately prior to such date for which internal
financial statements are available, determined on a pro forma basis after giving
effect to all acquisitions or dispositions of assets made by the Company and its
Subsidiaries from the beginning of such two-quarter period on an annualized
basis through and including such date of determination (including any related
financing transactions) as if such acquisitions and dispositions had occurred at
the beginning of such two-quarter period. In addition, for purposes of making
the computation referred to above, (i) acquisitions that have been made by the
Company or any of its Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the two-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
two-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the Holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature; provided, however, that any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with the covenant described above
under the caption "-- Certain Covenants -- Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means up to $400,000 in aggregate principal amount
of Indebtedness of the Company and its Subsidiaries in existence on the date of
the Indenture, until such amounts are repaid.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an informed
and willing seller under no compulsion to sell and informed and willing buyer
under no compulsion to buy; provided that in each case in which the Fair Market
Value of an item is determined to be greater than $500,000, such determination
shall be evidenced by a resolution of a majority of the disinterested members of
the Board of Directors; and provided, further, that in each case in which the
Fair Market Value of an item is determined to be greater than $5.0 million, such
determination shall be evidenced by the written opinion of nationally recognized
appraisal, accounting or investment banking firm.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other
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entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Guarantor" means a Subsidiary that executes and delivers a Guarantee of
the Notes.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, notes or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
by a Lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person) and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person. The amount of any
Indebtedness outstanding as of any date shall be (i) the accreted value thereof,
in the case of any Indebtedness issued with original issue discount, and (ii)
the principal amount thereof, together with any interest thereon that is more
than 30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding (i) commission, travel and similar
advances to officers and employees (ii) accounts receivable arising in respect
of services rendered to unaffiliated third parties, in each case, made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities, together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP. If the Company or any Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the Fair Market Value of the Equity Interests of such Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of the covenant described above under the caption "-- Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary gain (but not loss), together with any related provision
for taxes on such extraordinary gain (but not loss).
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"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and investment
banking fees, and sales commissions) and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Indebtedness under a Credit Facility) secured by a Lien on the asset
or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means the provision of: (a) the following services or
products (i) voice, enhance data, data, internet, video, wire or wireless and
other telecommunications related services, (ii) local, dedicated access, closed
circuit, or satellite delivered network, cable or wired or wireless television
or similar or related television services or (iii) other services including, but
not limited to, (A) load matching, home shopping and games; (B) payment
processing, transmissions and card processing transmissions, (C) facsimile
transmissions and load matching, (D) advertising to: (b) the following customer
base: fleet trucking companies, truckstops, individual truck drivers, others in
or related to the long-haul trucking industry, and others interested in
purchasing the products and services described in this Prospectus, and all
products and services ancillary, similar or related thereto.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Subsidiary of the Company in a Person,
if as a result of such Investment (i) such Person becomes a Wholly Owned
Subsidiary of the Company or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary of
the Company; (d) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption "-- Repurchase at the Option
of Holders -- Asset Sales"; and (e) any acquisition of assets solely in exchange
for the issuance of Equity Interests (other than Disqualified Stock) of the
Company.
"Permitted Joint Venture" means any Person engaged in a Telecommunications
or Entertainment Business.
"Permitted Liens" means (i) Liens securing Indebtedness and other
Obligations under a Credit Facility that were permitted by the terms of the
Indenture to be incurred; (ii) Liens in favor of the Company or any of its
Subsidiaries; (iii) Liens on property of a Person existing at the time such
Person is merged with or into or consolidated with the Company or any Subsidiary
of the Company; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the Company;
(iv) Liens on property existing at the time of acquisition thereof by the
Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens to secure
the performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (iv) of the second paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Disqualified Stock"
provided that such Liens cover the assets permitted to be acquired with
Indebtedness; (vii) Liens to secure Permitted Refinancing Indebtedness, provided
that such Liens only cover the same assets that were covered under the
Indebtedness being refinanced; (viii) Liens existing on the date of the
Indenture; (ix) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; and (x) Liens incurred in
the ordinary course of business of the Company or any Subsidiary of the Company
with respect to obligations that do not exceed $5.0 million at any
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one time outstanding and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or such Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries (other than intercompany
Indebtedness); provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable), plus accrued interest
on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Permitted Revenue Sharing Agreements" means (i) all agreements that the
Company has entered into as of the date of the Indenture with truckstop
locations and/or truckstop chains to provide the PNV Network and (ii) any
agreements or arrangements that the Company enters into after the date of the
Indenture to provide services through the PNV Network which are entered into in
the ordinary course of business consistent with past practice or are approved by
the Board of Directors; provided that if such agreements or arrangements provide
for more than 50% of the gross income or net revenues, gross profits, operating
cash flow, operating income, earnings before interest, taxes, depreciation and
amortization ("EBITDA") or similar measure of financial performance to be paid
to any entity other than the Company or its Subsidiaries, the Board of Directors
shall be required to approve such contract.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or transferred
by such Person or a Subsidiary of such Person and is thereafter leased back from
the purchaser or transferee thereof by such Person or one of its Subsidiaries.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
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"Telecommunications or Entertainment Business" means the provision of: (i)
voice, enhanced data, data, internet, wireless and other telecommunications
related services, (ii) local, dedicated access, closed circuit or satellite
delivered network, cable or wireless television or similar or related television
services or (iii) other services including but not limited to (A) local
matching, home shopping and games for the drivers, (B) payment processing
transmissions and card processing transmissions and load matching for fleets or
(C) advertising for fleets, local and/or regional businesses.
"U.S. Government Obligations" means (x) securities that are (i) direct
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (ii) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which in either case, are not callable or redeemable at the
option of the Company thereof, and (y) depository receipts issued by a bank (as
defined in Section 3(a)(2) of the Securities Act) as custodian with respect to
any U.S. Government Obligation which is specified in clause (x) above and held
by such bank for the account of the holder of such depository receipt, or with
respect to any specific payment of principal or interest on any U.S. Government
Obligation which is so specified and held, provided that (except as required by
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal or interest of the U.S. Government Obligation evidenced by such
depository receipt.
"Voting Stock" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or at the times that such class of Capital Stock has
voting power by reason of the happening of any contingency) to vote in the
election of members of the Board of Directors or comparable body of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
---------------------
The Indenture provides that, for purposes of the definition of "Change of
Control," the definition of "Asset Sales" and for purposes of the provisions
under the covenant entitled "Merger, Consolidation, or Sale of Assets," any
grant of a security interest by the Company that is otherwise permitted by the
Indenture (as opposed to any transfer as a result of the exercise of remedies
under any instrument or document creating such interest) will not be deemed to
be a sale, lease, transfer or other disposition of an asset.
BOOK-ENTRY; DELIVERY AND FORM
The Old Notes were offered and sold to qualified institutional buyers in
reliance on Rule 144A. The New Notes will be issued in registered, global form
in minimum denominations of $1,000 and integral multiples of $1,000 in excess
thereof. The Global Notes will be deposited upon issuance with the Trustee as
custodian for DTC in New York, New York, and registered in the name of DTC or
its nominee, in each case for credit to an account of a direct or indirect
participant in DTC as described below.
Except as set forth below, Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in Global Notes may not be
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exchanged for Notes in certificated form except in the circumstances described
below. See "-- Exchange of Book-Entry Securities for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar with respect
to the New Notes. The New Notes may be presented for registration of transfer
and exchange at the offices of the Registrar.
Depository Procedures
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of DTC and are subject to changes by them from time to
time. The Company takes no responsibility for these operations and procedures
and urges investors to contact the system or their participants directly to
discuss these matters.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established
by it, (i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the principal
amount of Global Notes and (ii) ownership of such interests in the Global Notes
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to Participants) or by the
Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the Global Notes).
Investors in the Global Notes may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through
organizations which are Participants in such system. All interests in a Global
Note may be subject to the procedures and requirements of DTC. The laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on behalf
of Indirect Participants and certain banks, the ability of a person having
beneficial interests in a Global Note to pledge such interests to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of such interests, may be affected by the lack of a physical certificate
evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on the New Notes registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered Holder
under the Indenture and the Warrant Agreement. Under the terms of the Indenture,
the Company and the Trustee or Warrant Agent, as the case may be, will treat the
persons in whose names the New Notes are registered as the owners thereof for
the purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither the Company, the Trustee nor any agent of the
Company, or the Trustee has or will have any responsibility or liability for (i)
any aspect of DTC's records or any Participant's or Indirect Participant's
records relating to or payments made on account of beneficial ownership
interests in the Global Notes, or for maintaining, supervising or reviewing any
of DTC's records or any Participant's or Indirect Participant's records relating
to the beneficial ownership interests in the Global Notes
104
<PAGE> 109
or (ii) any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants. DTC has advised the Company that its
current practice, upon receipt of any payment in respect of securities such as
the New Notes (including principal and interest), is to credit the accounts of
the relevant Participants with the payment on the payment date, in amounts
proportionate to their respective holdings in the principal amount of beneficial
interests in the relevant security as shown on the records of DTC unless DTC has
reason to believe it will not receive payment on such payment date. Payments by
the Participants and the Indirect Participants to the beneficial owners of
Securities will be governed by standing instructions and customary practices and
will be the responsibility of the Participants or the Indirect Participants and
will not be the responsibility of DTC, the Trustee or the Company. Neither the
Company nor the Trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the Securities, and the
Company and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee for all purposes.
Interests in the Global Notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will therefore settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its Participants. See "-- Same Day
Settlement and Payment."
Subject to the transfer restrictions set forth under "Notice to Investors,"
transfers between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same day funds.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of New Notes only at the direction of one or more Participants
to whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the Securities as
to which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the New Notes, DTC reserves the
right to exchange the Global Notes for legended Notes in certificated form, and
to distribute such Notes to its Participants.
Neither the Company nor the Trustee nor any of their respective agents will
have any responsibility for the performance by DTC or their respective
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
Exchange of Book-Entry Notes for Certificated Notes
A Global Note is exchangeable for definitive Notes in registered
certificated form ("Certificated Securities") if (i) DTC (x) notifies the
Company that it is unwilling or unable to continue as depositary for the Global
Securities and the Company thereupon fails to appoint a successor depositary or
(y) has ceased to be a clearing agency registered under the Exchange Act, (ii)
the Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of the certificated Notes, (iii) there shall have occurred
and be continuing a Default or Event of Default with respect to the New Notes or
(iv) otherwise as provided in the Indenture. In addition, beneficial interests
in a Global Note may be exchanged for certificated Notes upon request but only
upon prior written notice given to the Trustee by or on behalf of DTC in
accordance with the Indenture. In all cases, certificated Notes delivered in
exchange for any Global Notes or beneficial interests therein will be registered
in the names, and issued in any approved denominations, requested by or on
behalf of the depositary (in accordance with its customary procedures) and will
bear the applicable restrictive legend referred to in "Notice to Investors,"
unless the Company determines otherwise in compliance with applicable law.
Exchange of Certificated Notes for Book-Entry Notes
Notes issued in certificated form may not be exchanged for beneficial
interests in any Global Notes unless the transferor first delivers to the
Trustee a written certificate (in the form provided in the Indenture) to the
effect that such transfer will comply with the appropriate transfer restrictions
applicable to such Notes.
105
<PAGE> 110
Same Day Settlement and Payment
The Indenture will require that payments in respect of the Notes
represented by the Global Notes (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Note Holder. With
respect to Notes in certificated form, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof, or, if no such account is specified, by mailing a check to each such
Holder's registered address. The New Notes represented by the Global Notes are
expected to trade in the Depositary's Same-Day Funds Settlement System, and any
permitted secondary market trading activity in such Notes will, therefore, be
required by the Depositary to be settled in immediately available funds. The
Company expects that secondary trading in any Certificated Notes will also be
settled in immediately available funds.
106
<PAGE> 111
FEDERAL INCOME TAX CONSIDERATIONS
The following discusses the material U.S. federal income tax considerations
relating to the exchange of Old Notes for New Notes, and the ownership and
disposition of New Notes, by holders who exchange Old Notes for New Notes
pursuant to the Exchange Offer. The discussion deals only with Notes that are
held as capital assets within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"), and does not address all of the
tax consequences that may be relevant to a holder of Notes in light of the
holder's particular circumstances. In addition, the discussion does not address
the federal income tax consequences to holders subject to special treatment
under the U.S. federal income tax laws, such as holders who are not U.S. Holders
(as defined below), brokers or dealers in securities or currencies, certain
securities traders, tax-exempt entities, banks, thrifts, insurance companies,
persons that hold the Notes as a position in a "straddle" or as part of a
"synthetic security," a "hedging" or "conversion" transaction or other
integrated instrument, persons that have a "functional currency" other than the
U.S. dollar, and certain U.S. expatriates. Further, the discussion does not
address any U.S. federal alternative minimum tax consequences, or any state,
local or foreign tax consequences relating to the exchange of Old Notes for New
Notes, or the ownership or disposition of New Notes.
This discussion is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions. All of the
foregoing are subject to change, possibly on a retroactive basis, and any such
change could alter the tax considerations discussed herein.
Holders considering the exchange of Old Notes for New Notes should consult
their tax advisors concerning the application of U.S. federal income tax laws,
as well as the laws of any state, local, or foreign taxing jurisdiction, to
their particular situations.
The following discussion applies only to holders of New Notes who are "U.S.
Holders." For purposes of this discussion, "U.S. Holder" generally means (i) a
citizen or resident of the United States, (ii) a corporation or partnership
created or organized in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is includible in its
gross income for U.S. federal income tax purposes without regard to its source
or (iv) a trust if a court within the United States is able to exercise primary
supervision over its administration and one or more U.S. persons have the
authority to control all substantial decisions of the trust.
EXCHANGE OF NOTES
A holder of Old Notes will not recognize any taxable gain or loss on the
exchange of Old Notes for New Notes pursuant to the Exchange Offer, and such
holder's tax basis and holding period in the New Notes will be the same as in
the Old Notes.
THE NEW NOTES
Payments of Interest
Stated interest paid or accrued on the New Notes will constitute qualified
stated interest and will be taxable to a U.S. Holder as ordinary income in
accordance with the holder's method of accounting for U.S. federal income tax
purposes. Alternatively, a U.S. Holder may elect to include stated interest on
the New Notes (as well as original issue discount ("OID") and, if any, market
discount, de minimis market discount and unstated interest on the Notes, as
adjusted by any amortizable bond premium or acquisition premium) in gross income
on a constant yield basis. The mechanics and implications of such an election
are complex and, as a result, U.S. Holders should consult their tax advisors
regarding the advisability of making such an election.
Original Issue Discount
A New Note will have OID for U.S. federal income tax purposes equal to the
difference, if any, between the stated redemption price at maturity on the New
Note and its issue price, as discussed in more detail below. U.S. Holders of New
Notes issued with OID will be subject to special rules relating to the accrual
of income
107
<PAGE> 112
for tax purposes. U.S. Holders of New Notes generally must include OID in gross
income for U.S. federal income tax purposes on an annual basis under a constant
yield accrual method regardless of their regular method of tax accounting. As a
result, U.S. Holders generally will include OID in income in advance of the
receipt of cash attributable to such income. However, U.S. Holders of New Notes
generally will not be required to include separately in income cash payments
received on such Notes, even if denominated as interest, to the extent such
payments constitute payments of previously accrued OID.
The New Notes will be treated as issued with OID equal to the excess of a
New Note's "stated redemption price at maturity" over its "issue price." The
stated redemption price at maturity of a New Note is the total of all payments
on the Note that are not payments of "qualified stated interest." A qualified
stated interest payment is a payment of stated interest unconditionally payable,
in cash or property (other than debt instruments of the Company), at least
annually at a single fixed rate during the entire term of the New Note that
appropriately takes into account the length of intervals between payments.
Stated interest on the New Notes will be treated as qualified stated interest.
The issue price of a New Note will be the fair market value of the Old Note
exchanged therefor, as determined on the first date that a substantial amount of
New Notes are issued in exchange for Old Notes.
The amount of OID includible in income by a U.S. Holder of a New Note is
the sum of the "daily portions" of OID with respect to the New Note for each day
during the taxable year or portion thereof in which such U.S. Holder holds such
Note ("accrued OID"). A daily portion is determined by allocating to each day in
any "accrual period" a pro-rata portion of the OID that accrued in such period.
The "accrual period" of a New Note may be of any length and may vary in length
over the term of the New Note, provided that each accrual period is no longer
than one year and each scheduled payment of principal or interest occurs either
on the first or last day of an accrual period. The amount of OID that accrues
with respect to any accrual period is the excess of (i) the product of the New
Note's adjusted issue price at the beginning of such accrual period and its
yield to maturity, determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of such period, over (ii)
the amount of qualified stated interest allocable to such accrual period. The
"adjusted issue price" of a New Note at the start of any accrual period is equal
to its issue price, increased by the accrued OID for each prior accrual period
and reduced by any prior payments made on such Note (other than payments of
qualified stated interest).
If the Company is required to pay Liquidated Damages with respect to Old
Notes or New Notes exchanged for Old Notes, as described under "Exchange
Offer -- Terms of the Exchange Offer," such payment would result in ordinary
income to a U.S. Holder. Although not free from doubt, the Company believes the
likelihood that Liquidated Damages will be paid is "remote" for purposes of
applicable Treasury Regulations, and intends to treat any such payments as
additional interest payable on the New Notes, which should be taxable to a U.S.
Holder at the time such interest accrues or is received in accordance with the
U.S. Holder's regular method of accounting. If such treatment is not respected,
in the event of a payment of Liquidated Damages the New Notes may be treated as
reissued for OID purposes, which may affect the calculation of OID and the
timing of income inclusion for a U.S. Holder.
Impact of Applicable High Yield Discount Obligation Rules
If the "yield to maturity" on the New Notes equals or exceeds the sum of 5%
and the appropriate "applicable federal rate" in effect for the month in which
the New Notes are issued and the Notes have "significant" OID, the New Notes
will be considered "applicable high yield discount obligations" ("AHYDOS"). A
debt instrument has "significant" OID if the aggregate amount of unpaid interest
(including OID) as of the close of any accrual period ending after the date five
years after the date of issue exceeds the product of the issue price of such
instrument and its yield to maturity.
If the New Notes are AHYDOS, the Company will not be permitted to deduct
for U.S. federal income tax purposes OID accrued on the New Notes until such
time as the Company actually pays such OID in cash or in property other than
stock or debt of the Company (or persons related to the Company). Moreover, to
the extent that the yield to maturity of the New Notes exceeds the sum of 6% and
the appropriate applicable federal rate, such excess (the "Dividend-Equivalent
Interest") will not be deductible at any time by the
108
<PAGE> 113
Company for U.S. federal income tax purposes (regardless of whether the Company
actually pays such Dividend-Equivalent Interest in cash or in other property).
Such Dividend-Equivalent Interest would be treated as a dividend to the extent
it is deemed to have been paid out of the Company's current or accumulated
earnings and profits. Accordingly, a U.S. Holder that is domestic corporation
may be entitled to a dividends received deduction with respect to any
Dividend-Equivalent Interest received by such corporate U.S. Holder with respect
to the New Note.
Sale or Redemption
Upon the disposition of a New Note by sale, exchange or redemption, a U.S.
Holder generally will recognize gain or loss equal to the difference between (i)
the amount realized on the disposition (other than amounts attributable to
accrued and unpaid interest, which will be taxed as ordinary interest income)
and (ii) the U.S. Holder's tax basis in the Note. A U.S. Holder's tax basis in a
New Note generally will equal the tax basis in its Old Note exchanged therefor,
increased by OID previously included (or currently includible) in such holder's
gross income to the date of disposition of the New Note, and reduced by any
payments other than payments of qualified stated interest made on such New Note.
When a New Note is sold, disposed of or redeemed between interest payment dates,
the portion of the amount realized on the disposition that is attributable to
interest accrued to the date of sale must be reported as interest income by a
cash method U.S. Holder, and an accrual method U.S. Holder that has not included
the interest in income as it accrued.
Assuming a New Note is held as a capital asset, gain or loss on the sale,
exchange or other disposition on the Note generally will constitute capital gain
or loss and will be long-term capital gain or loss if the U.S. Holder has held
the New Note for longer than one year. U.S. Holders should contact their tax
advisors for more information regarding the particular capital gain tax rates
applicable to their sale or disposition of New Notes at any given time.
Under the market discount rules of the Code, an exchanging U.S. Holder
(other than a U.S. Holder who has made the election described below) that
purchased an Old Note at a "market discount" (in general, defined as the amount
by which the revised issue price of the Old Note on the U.S. Holder's date of
purchase exceeded the holder's purchase price therefor) will be required to
treat any gain recognized on the sale, exchange or redemption of the New Note as
ordinary income to the extent of the market discount that accrued during the
holding period of the New Note. Alternatively, a U.S. Holder who has elected to
include market discount in gross income as ordinary income as such discount
accrues on its market discount obligations will not be subject to this gain
recognition rule. U.S. Holders should consult their tax advisors as to the
effect, if any, of the market discount rules to their particular situations.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to "reportable
payments" that are made to certain noncorporate U.S. Holders, including payments
of principal and interest on a New Note, and payment of the proceeds of sale
with respect to a New Note. Backup withholding at a rate of 31% may apply to
such payments if the holder (i) fails to furnish or certify its correct taxpayer
identification number to the payor in the manner required, (ii) is notified by
the IRS that it has failed to report payments of interest and dividends properly
or (iii) under certain circumstances, fails to certify under penalty of perjury
that it has furnished a correct taxpayer identification number and that it has
not been notified by the IRS that it is subject to backup withholding for
failure to report interest and dividend payments. Certain holders (including,
among others, all corporations) are not subject to the backup withholding and
information reporting requirements. U.S. Holders should consult their tax
advisors regarding their potential qualification for exemption from backup
withholding and the procedure for obtaining such an exemption, if applicable.
The amount of any backup withholding from a payment to a U.S. Holder will be
allowed as a credit against such U.S. Holder's U.S. federal income tax
liability, and may entitle such U.S. Holder to a refund, provided that the
required information is furnished to the IRS.
The Company will report to U.S. Holders of New Notes and to the IRS the
amount of any "reportable payments" for each calendar year and the amount of tax
withheld, if any, with respect to such payments.
109
<PAGE> 114
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such New
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that they will make this Prospectus available to any Participating Broker-Dealer
for a period of time not to exceed one year after the date on which the Exchange
Offer is consummated for use in connection with any such resale. In addition,
until such date, all broker-dealers effecting transactions in the New Notes may
be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Starting on the Expiration Date, the Company will promptly send additional
copies of this Prospectus and any amendment or supplement to this Prospectus to
any broker-dealer that requests such documents in the Letter of Transmittal. The
Company has agreed to pay all expenses incident to the Exchange Offer (including
the expenses of one counsel for the holders of the Old Notes) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the Old Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the New Notes offered
hereby will be passed upon for the Company by Kilpatrick Stockton LLP, Raleigh,
North Carolina. As of June 30, 1998, James M. O'Connell, a partner in the law
firm of Kilpatrick Stockton LLP is a general partner of Nelgo Investments, a
general partnership that owns 270,810 shares of the Common Stock. Mr. O'Connell
owns 17.0% of Nelgo Investments. Mr. O'Connell is the son of Daniel K.
O'Connell, a director of the Company.
EXPERTS
The financial statements of the Company as of June 30, 1997 and 1998 and
for the period from September 18, 1995 (date of incorporation) to June 30, 1996
and the years ended June 30, 1997 and 1998; and of Park 'N View, Ltd. for the
period from January 1, 1995 to November 2, 1995, included in this Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein, and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
110
<PAGE> 115
PARK 'N VIEW, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of June 30, 1997 and 1998................. F-3
Statements of Operations for the Predecessor for the period
from January 1, 1995 to November 2, 1995 and for the
Successor for the period from September 18, 1995 (Date of
Incorporation) to June 30, 1996 and for the years ended
June 30, 1997 and 1998.................................... F-4
Statements of Changes in Partnership Capital for the
Predecessor for the period from January 1, 1995 to
November 2, 1995 and Statements of Changes in Common
Stockholders' Deficit for the Successor for the period
from September 18, 1995 (Date of Incorporation) to June
30, 1996 and for the years ended June 30, 1997 and 1998... F-5
Statements of Cash Flows for the Predecessor for the period
from January 1, 1995 to November 2, 1995 and for the
Successor for the period from September 18, 1995 (Date of
Incorporation) to June 30, 1996 and the years ended June
30, 1997 and 1998......................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 116
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Park 'N View, Inc.:
We have audited the accompanying balance sheets of Park 'N View, Inc. (the
"Company") as of June 30, 1997 and 1998, and the related statements of
operations, changes in partnership capital and common stockholders' deficit, and
cash flows of Park 'N View, Ltd. (the "Predecessor") for the period from January
1, 1995 to November 2, 1995, and of the Company for the period from September
18, 1995 (date of incorporation) to June 30, 1996 and the years ended June 30,
1997 and 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 1997 and 1998,
and the results of operations and cash flows of the Predecessor for the period
from January 1, 1995 to November 2, 1995, and of the Company for the period from
September 18, 1995 (date of incorporation) to June 30, 1996 and for the years
ended June 30, 1997 and 1998, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
September 11, 1998
F-2
<PAGE> 117
PARK 'N VIEW, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 4,717,394 $19,810,656
Short-term investments.................................... 32,039,916
Restricted investments (Note 5)........................... 9,750,000
Accounts receivable, net of allowance for doubtful
accounts of $5,400 at June 30, 1997 and 1998............ 11,526 184,180
Inventory................................................. 259,825 362,738
Prepaid expenses and other................................ 138,613 100,877
----------- -----------
Total current assets............................... 5,127,358 62,248,367
Property and Equipment, Net (Note 3)........................ 7,650,753 18,448,601
Restricted Investments (Note 5)............................. 9,513,000
Deferred Financing Costs.................................... 143,869 3,744,366
Other Assets................................................ 16,803 623,793
----------- -----------
Total.............................................. $12,938,783 $94,578,127
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable.......................................... $ 1,116,464 $ 2,067,113
Accrued expenses.......................................... 866,759 2,471,719
Deferred revenue.......................................... 31,929 205,853
Current portion of capital lease obligations (Note 4)..... 265,032 330,814
Current portion of long-term debt (Note 5)................ 33,630 33,727
----------- -----------
Total current liabilities.......................... 2,313,814 5,109,226
----------- -----------
Obligations Under Capital Leases (Note 4)................... 366,566 185,174
----------- -----------
Long-Term Debt (Note 5)..................................... 58,864 70,419,566
----------- -----------
Commitments and Contingencies
Series A Redeemable Preferred Stock and Accrued
Dividends -- Par value $.01 per share; 627,630 shares
authorized; 388,075 shares issued and outstanding ($10.00
per share liquidation preference, including accrued
dividends of $212,252 and $542,538 as of June 30, 1997 and
1998, respectively). (Note 6)............................. 3,931,320 4,301,345
----------- -----------
Series B Redeemable Convertible Preferred Stock and Accrued
Dividends -- Par value $.01 per share; 1,372,370 shares
authorized, issued and outstanding ($10.93 per share
liquidation preference, including accrued dividends of
$662,068 and $1,712,083 as of June 30, 1997 and 1998).
(Note 6).................................................. 15,200,146 16,316,432
----------- -----------
Series C Redeemable Convertible Preferred Stock and Accrued
Dividends -- Par value $.01 per share; 3,750,000 shares
authorized, 2,328,543 issued and outstanding ($8.00 per
share liquidation preference, including accrued dividends
of $1,115,631 as of June 30, 1998). (Note 6).............. 18,516,147
-----------
Common Stockholders' Deficit:
Common stock -- par value $.001 per share; 7,000,000 and
12,000,000 shares authorized at June 30, 1997 and 1998,
respectively; 4,318,182 shares issued and outstanding... 4,318 4,318
Additional paid-in capital................................ (929,988) 1,465,923
Accumulated deficit....................................... (8,006,257) (21,740,004)
----------- -----------
Total common stockholders' deficit................. (8,931,927) (20,269,763)
----------- -----------
Total.............................................. $12,938,783 $94,578,127
=========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 118
PARK 'N VIEW, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------ --------------------------------------------------
PERIOD FROM
SEPTEMBER 18, 1995
PERIOD FROM (DATE OF
JANUARY 1, 1995 TO INCORPORATION) TO YEAR ENDED YEAR ENDED
NOVEMBER 2, 1995 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1998
------------------ ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Service revenue................... $ 68,451 $ 755,057 $ 3,333,564
Equipment sales................... 76,953 51,909 97,489
Advertising....................... 4,050 22,500
Other............................. 301 58,931 72,723
----------- ----------- ------------
Total revenues............ 149,755 888,397 3,503,776
----------- ----------- ------------
Cost of Revenues
Service cost...................... 287,792 996,260 3,336,176
Service depreciation.............. 84,341 643,316 1,906,732
Equipment cost.................... 62,821 422,557 1,356,085
Advertising....................... 1,875 15,556
----------- ----------- ------------
Total cost of revenues.... 436,829 2,077,689 6,598,993
----------- ----------- ------------
Gross margin........................ (287,074) (1,189,292) (3,095,217)
Selling, general and administrative
expenses.......................... $ 475,891 1,576,209 4,431,889 10,378,471
Write-down of equipment............. 594,691 35,151
--------- ----------- ----------- ------------
Loss from operations................ (475,891) (1,863,283) (6,215,872) (13,508,839)
Interest expense.................... 103,079 157,416 1,030,594
Interest income and other........... (5,125) (328,268) (805,686)
--------- ----------- ----------- ------------
Net loss.................. $(475,891) (1,961,237) (6,045,020) (13,733,747)
=========
Preferred stock dividends
and amortization of
preferred stock issuance
costs................... (21,370) (917,382) (2,792,537)
----------- ----------- ------------
Net loss attributable to
common stockholders..... $(1,982,607) $(6,962,402) $(16,526,284)
=========== =========== ============
Basic loss per share...... $ (0.46) $ (1.61) $ (3.83)
=========== =========== ============
</TABLE>
See notes to financial statements.
F-4
<PAGE> 119
PARK 'N VIEW, INC.
STATEMENTS OF CHANGES IN PARTNERSHIP CAPITAL AND
COMMON STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
PARTNERSHIP
PREDECESSOR CAPITAL
- ----------- -----------
<S> <C> <C>
Balance, January 1, 1995.......................... $ (55,292)
Contributions from partners....................... 446,737
Net loss.......................................... (475,891)
---------
Balance, November 2, 1995......................... $ (84,446)
=========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN ACCUMULATED
SUCCESSOR SHARES AMOUNT CAPITAL DEFICIT TOTAL
- --------- --------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net liabilities transferred from Park
'N View, Ltd. in exchange for
shares in Park 'N View, Inc........ 2,318,182 $2,318 $ (86,764) $ (84,446)
Shares issued at initial closing..... 2,000,000 2,000 98,000 100,000
Financing costs...................... (2,472) (2,472)
Dividends accrued for Series A
preferred stock.................... (21,370) (21,370)
Net loss............................. $ (1,961,237) (1,961,237)
--------- ------ ---------- ------------ ------------
Balance, June 30, 1996............... 4,318,182 4,318 (12,606) (1,961,237) (1,969,525)
Dividends accrued for Series A
preferred stock.................... (190,882) (190,882)
Dividends accrued for Series B
preferred stock.................... (662,068) (662,068)
Amortization of preferred stock
issuance cost...................... (64,432) (64,432)
Net loss............................. (6,045,020) (6,045,020)
--------- ------ ---------- ------------ ------------
Balance, June 30, 1997............... 4,318,182 4,318 (929,988) (8,006,257) (8,931,927)
Dividends accrued for Series A
preferred stock.................... (330,286) (330,286)
Dividends accrued for Series B
preferred stock.................... (1,050,015) (1,050,015)
Dividends accrued for Series C
preferred stock.................... (1,115,631) (1,115,631)
Amortization of preferred stock
issuance cost...................... (296,605) (296,605)
Issuance of common stock warrants.... 5,188,448 5,188,448
Net loss............................. (13,733,747) (13,733,747)
--------- ------ ---------- ------------ ------------
Balance, June 30, 1998............... 4,318,182 $4,318 $1,465,923 $(21,740,004) $(20,269,763)
========= ====== ========== ============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE> 120
PARK 'N VIEW, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
--------------- --------------------------------------------------
PERIOD FROM
PERIOD FROM SEPTEMBER 18, 1995
JANUARY 1, 1995 (DATE OF
TO NOVEMBER 2, INCORPORATION) TO YEAR ENDED YEAR ENDED
1995 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1998
--------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Operating Activities:
Net loss....................................... $(475,891) $(1,961,237) $(6,045,020) $(13,733,747)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 27,966 174,360 705,418 2,117,387
Write-down of equipment...................... 594,691 35,151
Provision for losses on accounts
receivable................................. 5,411
Loss on disposal of property and equipment... 2,150
Changes in assets and liabilities:
Accounts receivable........................ (57,801) 40,864 (172,653)
Inventories................................ (141,698) (118,127) (102,912)
Prepaid expenses and other................. (5,000) (116,917) (21,696) 37,737
Other assets............................... (13,027) (3,776) (285,567)
Accounts payable........................... 54,116 399,090 717,374 950,649
Accrued expenses........................... 210,556 744,622 1,604,960
Deferred revenue........................... 48,557 (16,628) 173,924
--------- ----------- ----------- ------------
Net cash used in operating activities... (398,809) (1,452,706) (3,400,128) (9,375,071)
--------- ----------- ----------- ------------
Investing Activities:
Purchase of short-term investments........... (32,039,916)
Purchase of restricted investments........... (19,263,000)
Purchases of property and equipment.......... (909) (1,650,177) (6,443,899) (12,596,875)
--------- ----------- ----------- ------------
Net cash used in investing activities... (909) (1,650,177) (6,443,899) (63,899,791)
--------- ----------- ----------- ------------
Financing Activities:
Proceeds from issuance of long-term debt and
common stock warrants, net of offering
commission................................... 3,000,000 1,500,000 72,375,000
Proceeds from issuance of common and preferred
stock........................................ 800,000 13,500,000 18,628,344
Contributions from partners.................... 70,070
Loans from partners............................ 310,000
Payment of stock and debt issuance costs and
other........................................ (152,000) (509,560) (1,225,705)
Payment of obligation under capital lease...... (227,327) (365,412)
Deferred financing costs....................... (195,434) (143,869) (1,010,700)
Notes payable.................................. 16,048 76,446 (33,403)
--------- ----------- ----------- ------------
Net cash provided by financing
activities............................ 380,070 3,468,614 14,195,690 88,368,124
--------- ----------- ----------- ------------
Net Increase (Decrease)In Cash And Cash
Equivalents.................................... (19,648) 365,731 4,351,663 15,093,262
Cash And Cash Equivalents, Beginning Of Period... 19,856 365,731 4,717,394
--------- ----------- ----------- ------------
Cash And Cash Equivalents, End Of Period......... $ 208 $ 365,731 $ 4,717,394 $ 19,810,656
========= =========== =========== ============
Supplemental Cash Flow Information:
Interest paid.................................. $ 14,660 $ 48,987 $ 33,030
=========== =========== ============
Non-Cash Financing And Investing Activities:
Conversion of partnership loans into
partnership capital.......................... $ 376,667
=========
Historical carrying value of net liabilities
assumed at formation in exchange for Common
Stock........................................ $ (84,446)
===========
Capital lease obligations relating to
acquisition of property and equipment........ $ 472,029 $ 357,932 $ 249,801
=========== =========== ============
Exchange of promissory notes and accrued
interest for Series B Preferred Stock........ $ 1,533,000
===========
Exchange of promissory notes and accrued
interest for Series A Preferred Stock........ $ 3,180,646
===========
Issuance of common stock warrants.............. $ 538,998
============
</TABLE>
See notes to financial statements.
F-6
<PAGE> 121
PARK 'N VIEW, INC.
NOTES TO FINANCIAL STATEMENTS
1. FORMATION OF THE COMPANY AND NATURE OF BUSINESS
Park 'N View, Inc. (the "Company") was incorporated on September 18, 1995
and provides cable television and telephone service to long-haul truck drivers
at truckstops ("sites") throughout the country. As of June 30, 1998, the Company
has 118 sites in operation. The Company has contracts to provide their service
to over 600 sites. The final determination on the number of sites to be provided
with the service will be made by the Company on a site-by-site basis.
The Company commenced commercial operations as a result of the Securities
Purchase Agreement (the "Agreement") dated November 2, 1995 between the former
partners of Park 'N View, Ltd., the Company's predecessor entity, and an
investor group led by Patricof & Company ("Patricof").
Pursuant to the Agreement, Park 'N View, Ltd. transferred certain of its
assets, intangible assets, contractual rights, and certain liabilities to the
Company in exchange for 2,318,182 shares of Common Stock issued to the former
partners of Park 'N View, Ltd. These net liabilities were recorded by the
Company at the historical carrying amounts. Patricof was issued 2,000,000 shares
of Common Stock for $100,000.
Park 'N View, Ltd. was incorporated for the purpose of developing cable
television and telephone service technology for use by long-haul truck drivers
at truckstops. The accompanying financial statements identified as for the
Predecessor are for Park 'N View, Ltd. for the period from January 1, 1995 to
November 2, 1995. The accompanying financial statements identified as for the
Successor are for Park 'N View, Inc. as of June 30, 1997 and 1998 and for the
period from September 18, 1995 (date of incorporation) to June 30, 1996 and for
the years ended June 30, 1997 and 1998.
The Company has experienced net operating losses since its inception and as
of June 30, 1998 had an accumulated deficit of $21.7 million. Management
believes that the Company must significantly increase the sales of Park 'N View
service subscriptions in order to achieve profitability. Management further
believes that a significant increase in sales of subscriptions is dependent on
truck drivers' perception that the Park 'N View system is installed and
operating at a sufficient number and location of truckstops that potential uses
of the Park 'N View system justify the subscription fee. The Company's future
success will depend on achieving market acceptance in sufficient numbers and at
commercially viable subscription rates, the timely and cost-effective
installation of the Park 'N View system at a significant number of additional
truckstops, and obtaining the financing necessary to install its system in a
sufficient number of locations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follows:
Accounting Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments purchased with an original maturity of three months or less to
be cash equivalents. The Company's cash and cash equivalents are primarily
composed of bank deposits and overnight funds held by a bank.
Inventory -- Consists principally of telephones and components and is
stated at lower of cost (first-in, first-out method) or market.
Property and Equipment -- Property and equipment is stated at cost,
less accumulated depreciation. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets,
F-7
<PAGE> 122
PARK 'N VIEW, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
generally three to ten years. Expenditures for improvements that
substantially extend the capacity or useful life of an asset are
capitalized. Routine repairs and maintenance are expensed as incurred.
The Company currently expenses the costs associated with developing
internal use proprietary software. In March 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-1 ("SOP
98-1"), Accounting for the Cost of Computer Software Developed or Obtained
for Internal Use. SOP 98-1 establishes that computer software costs that
are incurred in the preliminary project stage should be expensed as
incurred. Once the application development stage criteria is met, certain
costs are required to be capitalized. SOP 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. Adoption of
SOP 98-1 is not expected to have a material impact on the Company's
financial position or results of operations.
Deferred Financing Costs -- Costs incurred in connection with
obtaining financing are being amortized based on the interest method over
the term of the related obligations. Amortization of deferred financing
costs relating to debt are amortized to interest expense and amortization
of deferred financing costs relating to preferred stock are amortized to
additional paid-in capital.
Revenue Recognition/Deferred Revenue -- Initial membership provides a
new member identification within but no access to or usage of the Company's
network and provides a starter kit. To the extent initial membership fees
exceed the direct cost of obtaining a subscriber, such amount is deferred
and recognized over the expected membership life of the customer. An
allowance for defective starter kits has been established based on past
experience. The starter kits do not have a warranty and cannot be returned
once the service is activated. Subscription fees charged by the Company
provide the customer with unlimited access to 16 channels of cable
television programming, unlimited local telephone access and 60 minutes of
long distance telephone time. Such fees are apportioned to these services
based on estimated fair value. Revenue is apportioned to the long distance
telephone time based on market rates for such service. The remaining
revenue which is not attributed to the long distance usage is apportioned
to the cable television and local telephone services which are provided
throughout the subscription period. Net revenues apportioned to the cable
television and local telephone services are recognized ratably throughout
the period the service is activated. The revenue related to the long
distance telephone time that is provided with each monthly subscription is
deferred and recognized when the service is provided. The revenue
associated with additional long distance telephone time to current members
is recognized as such telephone time is used. Revenue attributable to
unused minutes is deferred. Fees from the daily and premium programs, which
allow access for a 24 hour period, are recognized as revenue when
activated. Advertising revenue, specifically designed commercials, ads or
programming designed to run on the PNV Network, is recognized throughout
the period the service is provided. The production costs associated with
this advertising are amortized throughout the period the service is
provided. Driver referral program cost consists of one hour of long
distance telephone time and is accrued and expensed in the month the driver
is referred to the Company. Revenues from equipment sales are derived from
the sale by the Company of cable and telephone line extension kits to
truckstops for resale to truckdrivers. Net unearned revenue associated with
the Company's subscription and advertising sales are reported as deferred
revenue on the Company's balance sheet.
Income Taxes -- In conformity with the Internal Revenue Code and
applicable state and local tax statutes, taxable income or loss of the
Predecessor is required to be reported in the tax returns of the partners.
Accordingly, no provision has been made in the accompanying Predecessor
financial statements for any federal or state income taxes.
The provision for income taxes for the Company represents the amount
payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities. The Company provides for
deferred taxes under the liability method. Under such method, deferred
taxes are adjusted for tax rate changes as they occur. Deferred income tax
assets and liabilities are computed annually for
F-8
<PAGE> 123
PARK 'N VIEW, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
differences between the financial reporting and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
recorded when necessary to reduce deferred tax assets to the amount that
management believes is more likely than not to be realized.
Long-Lived Assets -- Management reviews long-lived assets for possible
impairment whenever events or circumstances indicate that the carrying
amount of an asset may not be recoverable. If there is an indication of
impairment, management prepares an estimate of future cash flows
(undiscounted and without interest charges) expected to result from the use
of the asset and its eventual disposition. If these cash flows are less
than the carrying amount of the asset, an impairment loss is recognized to
write down the asset to its estimated fair value. Assets, if any, which
management has committed to a plan to dispose, whether by sale or
abandonment, are reported at the lower of carrying amount or fair value,
less cost to sell. Preparation of estimated expected future cash flows is
inherently subjective and is based on management's best estimate of
assumptions concerning future conditions.
Financial Instruments -- The carrying amount for cash, accounts
receivable and accounts payable approximates fair value due to their
short-term maturity. Short-term investments consist of commercial paper
that is carried at amortized cost, which approximates fair value.
Restricted investments consist of US Treasury securities that are actively
traded and are carried at fair value, with unrealized gains and losses
included in earnings.
The fair value of the Company's long-term debt approximates carrying
value based on the quoted market prices for the same or similar issues or
on the current rate offered to the Company for debt of the same remaining
maturities. The Company believes that it is not practical to estimate a
fair value different from the preferred stocks' carrying value as these
securities have numerous features unique to these securities.
Basic Loss Per Share -- Basic loss per share is computed by dividing
the net loss attributable to common stockholders by the number of weighted
average common shares outstanding. The effect of potential common stock
would have been antidilutive and therefore basic loss per share for the
Company is equivalent to diluted loss per share. The weighted average
common shares outstanding was 4,318,182 for the period from September 18,
1995 to June 30, 1996 and the years ended June 30, 1997 and 1998.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per
Share. This statement supercedes Accounting Principles Board ("APB")
Opinion No. 15 and replaces primary and fully diluted earnings per share
with a dual presentation of basic and diluted earnings per share. Basic
earnings per share equals net loss attributable to common stockholders
divided by the number of weighted average common shares outstanding.
Diluted earnings per share includes potentially dilutive securities such as
stock options. The adoption by the Company of this standard had no effect
on the Company's reported net loss per share.
Reclassifications -- Certain 1996 and 1997 amounts have been
reclassified to conform with the 1998 presentation.
New Accounting Pronouncement -- In June 1997, the Financial Accounting
Standards Board issued SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information. This standard is effective for
financial statements for fiscal years beginning after December 15, 1997.
SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company
F-9
<PAGE> 124
PARK 'N VIEW, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
has not yet determined the effect, if any, that SFAS No. 131 will have on
its financial statements and notes thereto.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Site equipment and improvements............................. $5,404,620 $16,484,956
Construction equipment...................................... 127,912 150,059
Computer equipment.......................................... 231,907 352,643
Vehicles.................................................... 255,467 451,382
Furniture, fixtures and other equipment..................... 28,739 65,869
---------- -----------
Subtotal.......................................... 6,048,645 17,504,909
Less accumulated depreciation............................... 616,482 2,630,706
---------- -----------
Subtotal.......................................... 5,432,163 14,874,203
Component inventory......................................... 2,218,590 3,574,398
---------- -----------
Property and equipment, net................................. $7,650,753 $18,448,601
========== ===========
</TABLE>
Component inventory represents equipment that is awaiting installation at a
site. Upon installation the cost of the related equipment is transferred to site
equipment and improvements and depreciation commences once the site is
operational. Component inventory is temporarily staged at the Company's
warehouse until all equipment for a site is received, certain assembly
operations are complete and the site is ready to accept the equipment for
installation. The period of time that the component inventory is staged at the
Company's warehouse is approximately 45 days and the construction period at the
site is approximately 30 days. Accordingly the time period between the date of
acquisition of the component inventory and the completion date for the
installation at the site is approximately 75 days. Component inventory is
reclassified to site equipment upon completion of the site on a FIFO basis for
all components.
During the year ended June 30, 1997, the Company replaced certain telephone
switches with updated technology. At the time this equipment was taken out of
service there existed a related capital lease obligation of $538,957. The
Company is continuing to make the scheduled capital lease payments and has
written-off the idle equipment, which had a carrying value $594,691.
F-10
<PAGE> 125
PARK 'N VIEW, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LEASE COMMITMENTS
The Company leases an office site and equipment maintained at various
facilities under operating leases. Capital leases primarily consist of
construction equipment. Future minimum lease payments under capital leases and
noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30: OPERATING CAPITAL
- -------------------- ---------- --------
<S> <C> <C>
1999........................................................ $ 277,528 $355,385
2000........................................................ 268,759 153,880
2001........................................................ 272,083 44,458
2002........................................................ 188,637 --
2003........................................................ 28,962 --
---------- --------
Total............................................. $1,035,969 553,723
==========
Imputed interest on capital leases.......................... (37,735)
--------
Present value of capital leases............................. 515,988
Current portion............................................. 330,814
--------
Long-term portion........................................... $185,174
========
</TABLE>
Rent expense was $77,569, $149,401 and $355,765 for the period ended June
30, 1996 and for the years ended June 30, 1997 and 1998, respectively.
In July 1998, the Company entered into contracts with AT&T to lease T-1
lines and purchase long distance and local telephone service. The minimum lease
payments for the T-1 lines approximate $5.1 million, $7.7 million and $7.7
million per year during the first, second, and third years of the lease,
respectively. The Company's minimum purchase for the long distance and local
telephone service is $480,000 per year for a two year term.
In August 1998, the Company entered into an operating lease for a wide area
network. The annual minimum rental amount approximates $1.2 million for a three
year term.
5. NOTES PAYABLE
In May 1998, the Company issued $75 million of 13% Senior Notes (the
"Senior Notes"). The Senior Notes are general senior obligations of the Company
and will rank pari passu with all current and future unsecured senior
indebtedness of the Company. The Senior Notes have a maturity date of May 15,
2008. Interest will be paid semiannually on May 15 and November 15 to holders of
record on the immediately preceding May 1, and November 1, respectively. The
Company placed $19.2 million of the net proceeds from the Senior Notes in an
escrow account. The escrow account is pledged as security for payment of the
first four scheduled interest payments on the Senior Notes. The current and
long-term amounts in this escrow account are presented as restricted investments
in the accompanying balance sheet.
The Senior Notes are redeemable at the Company's option after May 15, 2003,
at which time the Company will pay a decreasing premium for this redemption
until maturity at May 15, 2008. At any time prior to May 15, 2001, the Company,
at its option, may redeem up to 35% of the then outstanding Senior Notes with
the net proceeds of an initial public equity offering at a redemption price of
113% of the principal amount and accrued interest. The Senior Notes are
mandatorily redeemable at the option of the holders in the event of a change in
control or an asset sale.
The Senior Notes were issued together with 75,000 detachable warrants in
the form of units. Each warrant, when exercised, will entitle the holder to
receive 6.73833 shares of Common Stock at an exercise price of $.01 per share.
The warrants will become exercisable upon the earlier of November 23, 1998, the
effective date of a registration statement related to a registered exchange
offer of the Senior Notes or the
F-11
<PAGE> 126
PARK 'N VIEW, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
occurrence of certain other events (including a change in control or default) as
specified in the related agreements and will automatically expire on May 15,
2008. The relative fair market values for the Senior Notes and warrants were
determined by the negotiations with the purchasers of the units. The agreed upon
original issue discount resulted in an allocation of $70,350,000 of the proceeds
to the Senior Notes and $4,650,000 to the warrants, their deemed fair value.
At June 30, 1997 and 1998, the Company had outstanding $92,494 and $59,092,
respectively, of notes payable relating to the purchase of vehicles. These notes
have an average interest rate of 10% and mature on various dates through March
2000.
Scheduled debt maturities are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30
- -------------------
<S> <C>
1999................................................... $ 33,727
2000................................................... 25,365
2001................................................... --
2002................................................... --
2003................................................... --
Thereafter............................................. 75,000,000
-----------
Subtotal 75,059,092
Less debt discount 4,605,799
-----------
Total $70,453,293
===========
</TABLE>
At June 30, 1996, the Company had outstanding $3,000,000 of 8% Subordinated
Promissory Notes ("Notes") due November 1, 2000, with interest payable
semiannually on June 30 and December 31. The Notes were held by Patricof. On
August 5, 1996, Patricof provided the Company with an additional $1,500,000 in
exchange for 8% Subordinated Promissory Notes due November 2, 2000 and 239,250
common stock warrants. On November 13, 1996, the Company completed a private
placement (the "1996 Offering") with certain investors of 1,372,370 shares of
Series B 7% Cumulative Convertible Preferred Stock (the "Series B Preferred")
due November 7, 2003 for a purchase price of $10.93 per share and a total
offering amount of $15,000,000. As payment for 137,237 shares of the Series B
Preferred, Patricof exchanged the $1,500,000 8% Subordinated Promissory Notes
and the 239,250 common stock warrants. In addition, the $3,000,000 in Notes and
related accrued interest of $180,646 were exchanged by Patricof for 318,065
shares of Series A Redeemable Preferred Stock (the "Series A Preferred").
6. REDEEMABLE PREFERRED STOCK
Series A Redeemable Preferred Stock -- On November 13, 1996, in connection
with the 1996 Offering, $3,000,000 in Notes and related accrued interest of
$180,646 were exchanged for 318,065 shares of Series A Preferred. In November
1995, in accordance with the Agreement, 32,210 shares of Series A Preferred were
issued at $10 per share to Patricof. In April 1996, Patricof purchased an
additional 37,800 shares of Series A Preferred at $10 per share. The Series A
Preferred provides for an annual dividend of 7%, payable in arrears quarterly in
cash or in kind. Cumulative unpaid dividends in arrears were $212,252 and
$542,538 at June 30, 1997 and 1998, respectively.
The Company is required to redeem for $10 per share all of the issued and
outstanding shares of Series A Preferred as follows: (a) six months after the
Senior Notes are paid in full, (b) upon the receipt of proceeds of an initial
public offering of not less than $20 million, net of underwriting expenses
("Qualifying Offer"), (c) in the event the Company consolidates or merges with
or into another entity, or (d) upon sale of the Company's assets. The Company
has the option to redeem shares of Series A Preferred at any time for $10 per
F-12
<PAGE> 127
PARK 'N VIEW, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
share plus all accrued dividends thereon. The Company may not redeem any shares
of Series A Preferred until the Company pays the Senior Notes in full.
Upon the failure of the Company to redeem the Series A Preferred as
required, the shareholders of the Series A Preferred shall be entitled to vote
as a separate class only in respect to any merger, consolidation, sale of assets
or creation of any class or series, other than Series B Preferred and Series C
Preferred, equal to or superior to its Series A Preferred. The shareholders of
at least 66.6% of the outstanding Series A Preferred voting as a separate class
shall be entitled to elect two members of the Board of Directors.
Series B 7% Cumulative Convertible Preferred Stock -- In connection with
the 1996 Offering, the Company authorized and issued 1,372,370 shares of Series
B Preferred, par value of $.01 for $10.93 per share and a total offering amount
of $15,000,000.
Commencing on January 31, 1997, the shareholders of the Series B Preferred
are entitled to receive dividends payable in cash at 7% per annum (9% per annum
upon an event of default). An "Event of Default" includes any of the following:
(a) failure by the Company to declare and pay a dividend on the payment due date
for two consecutive quarterly periods, (b) failure by the Company to satisfy its
redemption obligations, (c) default by the Company in the performance or
observance of any obligation or condition with respect to the indebtedness of
the Company, (d) failure to comply with covenants in the agreement, (e) failure
by the Company to comply with its obligations upon liquidation, dissolution or
winding up, or (f) insolvency. Cumulative unpaid dividends accrued were $662,068
and $1,712,083 at June 30, 1997 and 1998.
The Company is required to redeem for $10.93 per share all of the issued
and outstanding shares of Series B Preferred as follows: (a) six months after
the Senior Notes are paid in full, (b) upon receipt of a Qualifying Offer, (c)
in the event the Company consolidates or merges with or into another entity, or
(d) upon sale of the Company's assets. The Company may not redeem any shares of
Series B Preferred until the Company pays the Senior Notes in full.
The shareholders of Series B Preferred can convert their shares at any time
at the option of the holder into Common Stock at a conversion rate of one Series
B Preferred Share for 1.37 shares of Common Stock. Under antidilution
provisions, the conversion price of Series B Preferred will be adjusted upon the
Company's issuance of additional shares of Common Stock, warrants or rights to
purchase Common Stock or securities convertible into Common Stock.
Series B Preferred shareholders are entitled to the number of votes equal
to the number of full shares of Common Stock into which such shares of Series B
Preferred is then convertible. Shareholders of Series B Preferred and Common
Stock shall vote together on each matter submitted to stockholders and not by
class or series. Prior to the consummation of a Qualifying Offer, the
shareholders of the Series B Preferred, voting together as a class, shall be
entitled to elect one director. Subsequent to a Qualifying Offer and only so
long as at least 66.6% of the shares of Series B Preferred originally issued
remain outstanding, the holders of a majority of the shares of Common Stock
issuable upon conversion of the Series B Preferred shall be entitled to nominate
one director. Upon the occurrence of an event of default, the shareholders of
the Series B Preferred, together with the shareholders of Series C Preferred,
have the exclusive right to elect a majority of the Board of Directors.
Series C Redeemable Preferred Stock -- In August 1997, the Company entered
into a private placement offering (the "1997 Offering") with certain investors
to raise additional working capital through the sale of 2,328,543 shares of
Series C 7% Cumulative Convertible Preferred Stock (the "Series C Preferred")
for a purchase price of $8.00 per share and a total offering amount of
$18,628,344. Upon an Event of Default, the annual dividend rate will be 9%. The
Series C Preferred votes in conjunction with the Series B Preferred on an
as-if-converted basis. The Series C Preferred is convertible into 2,328,543
shares of Common Stock at a price of $8.00 per share. Also, as part of the 1997
Offering, the Company issued a warrant to the underwriting agent
F-13
<PAGE> 128
PARK 'N VIEW, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
for the purchase of 100,399 shares of Common Stock exercisable at $8.00 per
share at any time within five years from the date of this offering. Cumulative
unpaid dividends accrued were $1,115,631 at June 30, 1998.
The Company is required to redeem for $8.00 per share all of the issued and
outstanding shares of Series C Preferred as follows: (a) six months after the
Senior Notes are paid in full, (b) upon receipt of a Qualifying Offer, (c) in
the event the Company consolidates or merges with or into another entity, or (d)
upon sale of the Company's assets. The Company may not redeem any shares of
Series C Preferred until the Company pays the Senior Notes in full.
The shareholders of Series C Preferred can convert their shares at any time
at the option of the holder into Common Stock at an initial conversion rate of
one Series C Preferred share for one share of Common Stock. Under antidilution
provisions, the conversion price of Series C Preferred will be adjusted upon the
Company's issuance of additional shares of Common Stock, warrants or rights to
purchase Common Stock.
Series C Preferred shareholders are entitled to the number of votes equal
to the number of full shares of Common Stock into which such shares of Series C
Preferred is then convertible. Shareholders of Series C Preferred and Common
Stock shall vote together on each matter submitted to stockholders and not by
class or series. Prior to the consummation of a Qualifying Offer, the
shareholders of the Series C Preferred, voting together as a class, shall be
entitled to elect one director. Subsequent to a Qualifying Offer and only so
long as at least 66.6% of the shares of Series C Preferred originally issued
remain outstanding, the holders of a majority of the shares of Common Stock
issuable upon conversion of the Series C Preferred shall be entitled to nominate
one director. Upon the occurrence of an event of default, the shareholders of
the Series C Preferred, together with the shareholders of Series B Preferred, as
a class have the exclusive right to elect a majority of the Board of Directors.
7. RELATED PARTY TRANSACTIONS
A common stockholder of the Company is also a partner in a law firm that
provides legal services to the Company. Fees and expenses paid to the law firm
were $293,647 for the year ended June 30, 1998. Fees and expenses paid to the
law firm for the period ended June 30, 1996 and for the year ended June 30, 1997
were not significant.
Prepaid expenses and other at June 30, 1997 includes $64,000 in cash
advances to a Company executive. A promissory note was executed for $59,000 of
the advances. The advances were satisfied in August 1997.
8. STOCK OPTIONS AND WARRANTS
The Company has incentive and non-qualified stock option plans for
directors and key employees and has 800,000 shares of Common Stock reserved for
issuance under the plans. The incentive and non-qualified options become
exercisable as determined by the Board of Directors and have a term of ten
years.
F-14
<PAGE> 129
PARK 'N VIEW, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Option activity for the year ended June 30, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
AVERAGE
NUMBER EXERCISE PRICE RANGE OF
OF SHARES PER SHARE EXERCISE PRICE
--------- -------------- --------------
<S> <C> <C> <C>
Granted options:
Granted during the year ended June 30, 1997 and
outstanding at June 30, 1997................... 409,846 $1.42 $1.00-$3.00
Forfeited during the year ended June 30, 1998..... (500) 1.00 1.00
-------
Outstanding at June 30, 1998...................... 409,346 1.42 1.00-3.00
=======
Vested options:
Exercisable at June 30, 1997...................... 81,969 1.42 1.00-3.00
Vested during the year ended June 30, 1998........ 81,869 1.42 1.00-3.00
Forfeited during the year ended June 30, 1998..... (100) 1.00 1.00
-------
Exercisable at June 30, 1998...................... 163,738 1.42 1.00-3.00
=======
</TABLE>
Vesting of these options occurs as follows: 20% immediately and 20% on each
of the four anniversary dates immediately succeeding the grant.
The weighted average remaining contractual life of options outstanding is
9.5 years and 8.4 years at June 30, 1997 and 1998, respectively.
The Company accounts for stock options in accordance with APB Opinion No.
25. Compensation is recognized based on the fair value of Common Stock,
considering objective evidence such as issuances of other securities for cash.
SFAS No. 123 requires entities that account for awards for stock-based
compensation in accordance with APB Opinion No. 25 to present pro forma
disclosure as if compensation cost was measured at the date of grant based on
the fair value of the award. No options were granted during the year ended June
30, 1998. The fair value of the options granted during the year ended June 30,
1997 were estimated at the date of grant using the minimum value method with the
following weighted-average assumptions: a risk free interest rate of 6.8%, no
dividend yield and an expected life of six years. The weighted average grant
date fair value per option is approximately $.46.
The minimum value option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options vesting period. The Company's
net loss determined in accordance with SFAS No. 123 on a pro forma basis for the
years ended June 30, 1997 and 1998 would have been as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Net loss:
As reported............................................. $ (6,045,020) $(13,733,747)
Pro forma............................................... (6,082,726) (13,771,453)
Loss per share:
As reported............................................. (1.61) (3.83)
Pro forma............................................... (1.62) (3.84)
</TABLE>
F-15
<PAGE> 130
PARK 'N VIEW, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma amount may not be representative of the future effects on
reported net income that will result from the future granting of stock options,
since the pro forma compensation expense is allocated over the periods in which
options become exercisable and new option awards are granted each year.
At June 30, 1998, the Company had outstanding warrants which allow the
holders to purchase 280,399 shares of Common Stock at $8 per share and units
that include warrants which allow the holders to purchase 505,375 shares of
Common Stock at $.01 per share.
9. INCOME TAXES
No current income taxes have been provided for any periods presented as the
Company has had net operating losses since inception. The Company had
approximately $20.6 million in net operating loss carryforwards at June 30, 1998
for income tax purposes, with approximately $2 million expiring in 2011, $5.4
million expiring in 2012 and $13.2 million expiring in 2013.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss and tax credit carryforwards. The Company has not recognized any
benefit for its net deferred tax asset and has offset the net deferred tax asset
by a valuation allowance, as it is more likely than not that this asset will not
be realized prior to its expiration. The tax effects of significant items
comprising the Company's net deferred tax asset as of June 30, 1997 and 1998 are
as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................... $ 2,385,208 $ 6,876,586
Nondeductible lease accrual............................... 237,876 88,932
Bad debt reserve.......................................... 2,164 2,164
Vacation accrual.......................................... 14,536 45,981
----------- -----------
2,639,784 7,013,663
----------- -----------
Deferred tax liabilities:
Differences between book and tax basis of property........ 409 45,771
Amortization.............................................. 14,095 8,821
----------- -----------
14,504 54,592
----------- -----------
Valuation allowance......................................... (2,625,280) (6,959,070)
----------- -----------
Net deferred tax asset............................ $ -- $ --
=========== ===========
</TABLE>
10. LEGAL MATTERS
In July 1998, Lorenzo and Pat Ortiz instituted an action against a
truckstop chain, as well as a contractor utilized by the Company in connection
with the installation of the PNV Network at a truckstop owned by the chain, in
the 111th Judicial District, Webb County, Texas, seeking unspecified actual and
punitive damages allegedly resulting from an injury suffered by Mr. Ortiz at
such truckstop in connection with such installation. Although the Company is not
currently named as a party to this action, pursuant to the contract between the
Company and the truckstop chain defendant, the Company agreed, among other
things, to indemnify the truckstop chain for claims relating to the
installation, operation or repair of the PNV Network. Further, pursuant to such
contract, the Company and the truckstop chain each agreed to maintain at least
$1,000,000 of liability insurance on each truckstop at which the PNV Network is
available and the Company agreed to name the truckstop chain as an additional
insured on its insurance policy. Similar indemnification and insurance
maintenance provisions are currently included in the standard contract between
the Company and
F-16
<PAGE> 131
PARK 'N VIEW, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
other truckstop owners/operators. The Company inadvertently failed to timely
name the truckstop chain defendant as an additional insured with the result that
the Company's commercial general liability insurance carrier has denied coverage
with respect to this action. The Company and the truckstop chain have agreed to
the Company's assumption of the defense of this action, indemnification of the
truckstop chain from any and all losses or expenses relating to the action and
provision to the truckstop chain with a letter of credit or surety bond in the
amount of $200,000 securing such indemnity.
In addition, an action has been instituted against a truckstop chain in
Lake County, Indiana, for actual damages relating to a slip and fall incident at
a truckstop at which the PNV Network is available. Although the plaintiff in the
action initially named the Company as a defendant in the lawsuit, the plaintiff
amended its complaint to remove the Company as a defendant. Although the Company
is not currently named as a party to this action, pursuant to the contract
between the Company and the truckstop defendant, the Company agreed, among other
things, to indemnify the truckstop for claims relating to the installation,
operation or repair of the PNV Network. Further, pursuant to such contract, the
Company and the truckstop each agreed to maintain at least $1,000,000 of
liability insurance on each truckstop at which the PNV Network is available. The
Company's commercial general liability insurance carrier has agreed to provide
coverage to the Company with respect to any claims related to this lawsuit and
has agreed to indemnify the Company with respect to any such claim. The
Company's present understandings of both actions is preliminary. Based upon such
understandings, however, management does not believe that the outcome of either
such action will have a material adverse effect on the Company's financial
condition or results of operations.
The Company has received a demand that it pay $50,000 to reimburse a
worker's compensation insurance carrier for amounts paid to one of its insured
relating to injuries allegedly related to the PNV Network. The Company is in the
preliminary stages of investigating this claim. The Company has also received
claims of 12 to 15 slip and fall incidents relating to the PNV Network. It has
advised its insurance carrier of these incidents and the carrier has denied
coverage on several of these incidents due to the Company's alleged failure to
provide timely notice of such incidents. Based on the Company's present
preliminary understanding of the worker's compensation claim, as well as the
other claims the Company has received, management does not believe that the
outcome of such claims, individually or in the aggregate, will have a material
adverse effect on the Company's financial condition or results of operations.
F-17
<PAGE> 132
------------------------------------------------------
------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AT
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF THE DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. iii
Disclosure Regarding Forward-Looking
Statements.......................... iii
Prospectus Summary.................... 1
Risk Factors.......................... 10
Use of Proceeds....................... 21
Capitalization........................ 21
Selected Financial Data............... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 31
Management............................ 52
Certain Transactions.................. 59
Principal Stockholders................ 61
Description of Capital Stock.......... 63
The Exchange Offer.................... 75
Description of the New Notes.......... 82
Federal Income Tax Considerations..... 107
Plan of Distribution.................. 110
Legal Matters......................... 110
Experts............................... 110
Index to Financial Statements......... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
PARK 'N VIEW, INC.
OFFER TO EXCHANGE
SERIES B 13% SENIOR NOTES
DUE 2008
FOR
SERIES A 13% SENIOR NOTES
DUE 2008
---------------------
PROSPECTUS
---------------------
, 1998
------------------------------------------------------
------------------------------------------------------
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Paragraph Eleventh of the Registrant's Certificate of
Incorporation, which provides as follows:
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a
director; provided, however, that to the extent required by the provisions
of Section 102(b)(7) of the General Corporation Law of the State of
Delaware or any successor statute, or any other laws of the State of
Delaware, this provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware or (iv) for any transaction from which the director derived an
improper personal benefit. If the General Corporation Law of the State of
Delaware hereafter is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a director
of the Corporation, in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted by the
amended General Corporation Law of the State of Delaware. Any repeal or
modification of this paragraph ELEVENTH by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation
existing at the time of such repeal or modification.
Reference is made to Section 8.1 of the Registrant's Amended and
Restated Bylaws, which provides as follows:
To the extent permitted by law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that
such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment) the Corporation shall indemnify any person against any and all
judgments, fines, and amounts paid in settling or otherwise disposing of
actions or threatened actions, and expenses in connection therewith,
incurred by reason of the fact that he, his testator or intestate is or was
a director or officer of the Corporation or of any other corporation of any
type or kind, domestic or foreign, which he served in any capacity at the
request of the Corporation. To the extent permitted by law, expenses so
incurred by any such person in defending a civil or criminal action or
proceeding shall at his request be paid by the Corporation in advance of
the final disposition of such action or proceeding.
Reference also is made to Section 145 of Title 8 of the Delaware General
Corporation Law, which provides as follows:
145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.
(a) A corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that the person is
or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or
proceeding if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe the person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not,
II-1
<PAGE> 134
of itself, create a presumption that the person did not act in good
faith and in a manner which the person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe
that the person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact
that the person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by the
person in connection with the defense or settlement of such action or
suit if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent
that the court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this
section (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the present or former director, officer, employee or
agent is proper in the circumstances because the person has met the
applicable standard of conduct set forth in subsections (a) and (b) of
this section. Such determination shall be made, with respect to a person
who is a director or officer at the time of such determination, (1) by a
majority vote of the directors who are not parties to such action, suit
or proceeding, even though less than a quorum, or (2) by a committee of
such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written
opinion, or (4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation
in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that
such person is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees)
incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the
corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as
to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person
II-2
<PAGE> 135
in any such capacity or arising out of such person's status as such
whether or not the corporation would have the power to indemnify such
person against such liability under this section.
(h) For purposes of this section, references to "the corporation'
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position
under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any
employee benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer, employee
or agent of the corporation which imposes duties on, or involves
services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably
believed to be in the interest of the participants and beneficiaries of
an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of
expenses or indemnification brought under this section or under any
bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise. The Court of Chancery may summarily determine a corporation's
obligation to advance expenses (including attorneys' fees).
The Registrant currently intends to obtain liability insurance covering its
executive officers and directors against claims arising from certain acts or
decisions by them in their capacities as directors and executive officers of the
Registrant, subject to certain exclusions and deductible and maximum amounts,
which may extend to, among other things, liabilities arising under the
Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S> <C>
3.1* -- Amended and Restated Certificate of Incorporation, dated
October 30, 1995, of Park 'N View, Inc. (the "Company").
3.2* -- Certificate of Amendment of the Certificate of
Incorporation, dated November 12, 1996, of the Company.
3.3* -- Certificate of Amendment of the Certificate of
Incorporation, dated August 22, 1997, of the Company.
3.4* -- Certificate of Amendment Relating to the Series A Preferred
Stock, dated May 7, 1998, of the Company.
</TABLE>
II-3
<PAGE> 136
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S> <C>
3.5 -- Corrected Certificate of Amendment to Certificate of
Designations, Preferences and Rights of Series B 7%
Cumulative Convertible Preferred Stock, dated November 6,
1998, of the Company.
3.6* -- Certificate of Amendment to Certificate of Designations,
Preferences and Rights of Series C 7% Cumulative Convertible
Preferred Stock, dated May 7, 1998, of the Company.
3.7* -- Amended and Restated By-laws, of the Company.
4.1* -- Indenture, dated as of May 27, 1998, by and between the
Company and State Street Bank and Trust Company, as trustee.
4.2* -- A/B Exchange Registration Rights Agreement, dated as of May
27, 1998, by and between the Company and Donaldson, Lufkin &
Jenrette Securities Corporation.
4.3* -- Form of Series B 13% Senior Note due 2008 of the Company
(included as Exhibit A to the Indenture filed as Exhibit
4.1).
5.1 -- Opinion of Kilpatrick Stockton LLP.
10.1* -- Fleet Service Agreement, dated as of January 28, 1997, by
and between the Company and Trucks For You.
10.2* -- Fleet Service Agreement, dated as of February 1, 1998, by
and between the Company and Carroll Fulmer & Co., Inc.
10.3** -- Fleet Service Agreement, dated as of March 1, 1998, by and
between the Company and Contract Freighters, Inc.
10.4** -- Fleet Service Agreement, dated as of March 11, 1998, by and
between the Company and Lake City Express.
10.5* -- Fleet Service Agreement, dated as of April 1, 1998, by and
between the Company and Top Gun Transport, Inc.
10.6* -- Cable Television and Telephone Service Agreement, dated as
of August 14, 1995, by and between the Company and AMBEST.
10.7* -- Cable Television and Telephone Service Agreement, dated as
of July 11, 1996, by and between the Company and
Professional Transportation Partners, LLC.
10.8* -- Cable Television and Telephone Service Agreement, dated as
of March 18, 1997, by and between the Company and North
America Truck Stop Network.
10.9* -- Cable Television and Telephone Service Agreement, dated as
of October 28, 1995, by and between the Company and Travel
Ports of America, Inc.
10.10* -- Cable Television and Telephone Service Agreement, dated as
of February 15, 1996, by and between the Company and Pilot
Corporation.
10.11* -- Cable Television and Telephone Service Agreement, dated as
of February 7, 1997, by and between the Company and All
American Plazas, Inc.
10.12* -- Cable Television and Telephone Service Agreement, dated as
of September 12, 1997, by and between the Company and Petro
Stopping Centers, L.P.
10.13*+ -- Cable Television and Telephone Service Agreement, dated
March 12, 1998 by and between the Company and TA Operating
Corporation d/b/a Travel Centers of America.
10.14* -- Lease, dated August 11, 1997, between Unipower Corporation
and the Company.
10.15* -- Software Development Agreement, dated November 22, 1995,
between the Company and GreenLight Technologies, Inc.
10.16* -- Technology Transfer and Development Agreement, dated as of
November 4, 1996, by and among GreenLight, Inc., Jody Green,
Lewis Tatham and the Company.
</TABLE>
II-4
<PAGE> 137
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S> <C>
10.17* -- Customer Agreement, dated December 17, 1997, by and between
the Company and Echostar Satellite Corporation.
10.18* -- Compensation Plan of the Company.
10.19* -- Stock Option Plan of the Company.
10.20* -- Securities Purchase Agreement Subordinated Notes, Series A
Preferred Stock and Common Stock, dated as of November 2,
1995, by and among the Company and the Purchasers named
therein.
10.21* -- Letter Agreement, dated as of May 18, 1998, by and among the
Company and certain holders of the Company's Series A
Preferred Stock.
10.22* -- Securities Restriction Agreement, dated as of November 2,
1995, by and among the Company and the Investors named
therein.
10.23* -- Stock Purchase Agreement Series B 7% Cumulative Convertible
Preferred Stock, dated as of November 13, 1996, by and among
the Company and the Purchasers named therein.
10.24* -- Securities Restriction Agreement, dated as of November 13,
1996, by and among the Company and the Investors named
therein.
10.25* -- Amended and Restated Securityholders' Agreement and Exchange
Agreement, dated as of November 13, 1996, by and among the
Company and the Investors named therein.
10.26* -- Registration Rights Agreement, dated as of November 13,
1996, by and among the Company and the Investors named
therein.
10.27* -- Stock Purchase Agreement Series C 7% Cumulative Convertible
Preferred Stock, dated as of August 22, 1997, by and among
the Company and the Purchasers named therein.
10.28* -- Amendment to Securities Restriction Agreement, dated as of
August 22, 1997, by and among the Company and the Investors
named therein.
10.29* -- Amendment to Amended and Restated Securityholders' Agreement
and Exchange Agreement, dated as of August 22, 1997, by and
among the Company and the Investors named therein.
10.30* -- Amendment to Registration Rights Agreement, dated as of
August 22, 1997, by and among the Company and the Investors
named therein.
10.31* -- Letter Agreement, dated as of May 20, 1998, by and among the
Company and certain parties to the Registration Rights
Agreement, dated as of November 13, 1996, as amended.
10.32* -- Pledge, Escrow and Disbursement Agreement, dated as of May
27, 1998, by and between the Company and State Street Bank
and Trust Company, as trustee and escrow agent.
10.33* -- Warrant, dated as of August 22, 1997, granted to Alex. Brown
& Sons Incorporated.
10.34* -- Warrant, dated as of August 22, 1997, granted to Alex. Brown
& Sons Incorporated.
10.35*+ -- Warrant, dated March 12, 1998.
10.36*+ -- Letter Agreement, dated as of May 18, 1998, by and between
the Company and a holder of warrants to purchase shares of
the Company's Common Stock.
10.37*+ -- AT&T Custom Offer Order Form, by and between the Company and
AT&T.
10.38* -- Form of AT&T Contract Tariff Order Form, by and between the
Company and AT&T.
12.1* -- Statement Regarding Computation of Ratios.
23.1 -- Consent of Kilpatrick Stockton LLP (included in Exhibit 5.1)
23.2 -- Consent of Deloitte & Touche LLP.
23.3* -- Consent of Fletcher Spaght, Inc.
25.1* -- Statement on Form T-1 of Eligibility of Trustee.
27.1* -- Financial Data Schedule (for SEC use only).
</TABLE>
II-5
<PAGE> 138
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S> <C>
99.1* -- Form of Letter of Transmittal.
99.2* -- Form of Notice of Guaranteed Delivery.
99.3* -- Form of Letter to Registered Holders and DTC Participants.
99.4* -- Form of Letter to Client.
</TABLE>
- ---------------
* Previously filed.
+ Portions of this Exhibit are omitted and filed separately with the Securities
and Exchange Commission pursuant to a request for confidential treatment.
(b) Financial Statement Schedules. Financial statement schedules have been
omitted since the required information is not present, or not present in amounts
sufficient to require submission of the schedule, or because the information is
included in the financial statements or notes thereto.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant, pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by any such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether or not
such indemnification is against public policy as expressed in the Securities Act
of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
II-6
<PAGE> 139
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-7
<PAGE> 140
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Coral Springs, State of
Florida, on November 9, 1998.
PARK 'N VIEW, INC.
By: /s/ IAN WILLIAMS
------------------------------------
Ian Williams
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 has been signed by the following persons on the 9th day of November, 1998,
in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE POSITION
--------- --------
<C> <S>
/s/ IAN WILLIAMS Chairman of the Board, Chief Executive Officer
- ----------------------------------------------------- and Director (Principal Executive Officer)
Ian Williams
/s/ R. MICHAEL BREWER Vice President-Finance and Chief Financial
- ----------------------------------------------------- Officer (Principal Financial and Accounting
R. Michael Brewer Officer)
* Director
- -----------------------------------------------------
Robert M. Chefitz
* Director
- -----------------------------------------------------
Thomas P. Hirschfeld
* Director
- -----------------------------------------------------
Richard M. Johnston
* Director
- -----------------------------------------------------
Daniel K. O'Connell
* Director
- -----------------------------------------------------
David C. Turner
*By: /s/ IAN WILLIAMS
------------------------------------------------
Ian Williams
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 141
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S> <C>
3.1* -- Amended and Restated Certificate of Incorporation, dated
October 30, 1995, of Park 'N View, Inc. (the "Company").
3.2* -- Certificate of Amendment of the Certificate of
Incorporation, dated November 12, 1996, of the Company.
3.3* -- Certificate of Amendment of the Certificate of
Incorporation, dated August 22, 1997, of the Company.
3.4* -- Certificate of Amendment Relating to the Series A Preferred
Stock, dated May 7, 1998, of the Company.
3.5 -- Corrected Certificate of Amendment to Certificate of
Designations, Preferences and Rights of Series B 7%
Cumulative Convertible Preferred Stock, dated November 6,
1998, of the Company.
3.6* -- Certificate of Amendment to Certificate of Designations,
Preferences and Rights of Series C 7% Cumulative Convertible
Preferred Stock, dated May 7, 1998, of the Company.
3.7* -- Amended and Restated By-laws, of the Company.
4.1* -- Indenture, dated as of May 27, 1998, by and between the
Company and State Street Bank and Trust Company, as trustee.
4.2* -- A/B Exchange Registration Rights Agreement, dated as of May
27, 1998, by and between the Company and Donaldson, Lufkin &
Jenrette Securities Corporation.
4.3* -- Form of Series B 13% Senior Note due 2008 of the Company
(included as Exhibit A to the Indenture filed as Exhibit
4.1).
5.1 -- Opinion of Kilpatrick Stockton LLP.
10.1* -- Fleet Service Agreement, dated as of January 28, 1997, by
and between the Company and Trucks For You.
10.2* -- Fleet Service Agreement, dated as of February 1, 1998, by
and between the Company and Carroll Fulmer & Co., Inc.
10.3* -- Fleet Service Agreement, dated as of March 1, 1998, by and
between the Company and Contract Freighters, Inc.
10.4* -- Fleet Service Agreement, dated as of March 11, 1998, by and
between the Company and Lake City Express.
10.5* -- Fleet Service Agreement, dated as of April 1, 1998, by and
between the Company and Top Gun Transport, Inc.
10.6* -- Cable Television and Telephone Service Agreement, dated as
of August 14, 1995, by and between the Company and AMBEST.
10.7* -- Cable Television and Telephone Service Agreement, dated as
of July 11, 1996, by and between the Company and
Professional Transportation Partners, LLC.
10.8* -- Cable Television and Telephone Service Agreement, dated as
of March 18, 1997, by and between the Company and North
America Truck Stop Network.
10.9* -- Cable Television and Telephone Service Agreement, dated as
of October 28, 1995, by and between the Company and Travel
Ports of America, Inc.
10.10* -- Cable Television and Telephone Service Agreement, dated as
of February 15, 1996, by and between the Company and Pilot
Corporation.
10.11* -- Cable Television and Telephone Service Agreement, dated as
of February 7, 1997, by and between the Company and All
American Plazas, Inc.
10.12* -- Cable Television and Telephone Service Agreement, dated as
of September 12, 1997, by and between the Company and Petro
Stopping Centers, L.P.
</TABLE>
<PAGE> 142
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S> <C>
10.13*+ -- Cable Television and Telephone Service Agreement, dated
March 12, 1998 by and between the Company and TA Operating
Corporation d/b/a Travel Centers of America.
10.14* -- Lease, dated August 11, 1997, between Unipower Corporation
and the Company.
10.15* -- Software Development Agreement, dated November 22, 1995,
between the Company and GreenLight Technologies, Inc.
10.16* -- Technology Transfer and Development Agreement, dated as of
November 4, 1996, by and among GreenLight, Inc., Jody Green,
Lewis Tatham and the Company.
10.17* -- Customer Agreement, dated December 17, 1997, by and between
the Company and Echostar Satellite Corporation.
10.18* -- Compensation Plan of the Company.
10.19* -- Stock Option Plan of the Company.
10.20* -- Securities Purchase Agreement Subordinated Notes, Series A
Preferred Stock and Common Stock, dated as of November 2,
1995, by and among the Company and the Purchasers named
therein.
10.21* -- Letter Agreement, dated as of May 18, 1998, by and among the
Company and certain holders of the Company's Series A
Preferred Stock.
10.22* -- Securities Restriction Agreement, dated as of November 2,
1995, by and among the Company and the Investors named
therein.
10.23* -- Stock Purchase Agreement Series B 7% Cumulative Convertible
Preferred Stock, dated as of November 13, 1996, by and among
the Company and the Purchasers named therein.
10.24* -- Securities Restriction Agreement, dated as of November 13,
1996, by and among the Company and the Investors named
therein.
10.25* -- Amended and Restated Securityholders' Agreement and Exchange
Agreement, dated as of November 13, 1996, by and among the
Company and the Investors named therein.
10.26* -- Registration Rights Agreement, dated as of November 13,
1996, by and among the Company and the Investors named
therein.
10.27* -- Stock Purchase Agreement Series C 7% Cumulative Convertible
Preferred Stock, dated as of August 22, 1997, by and among
the Company and the Purchasers named therein.
10.28* -- Amendment to Securities Restriction Agreement, dated as of
August 22, 1997, by and among the Company and the Investors
named therein.
10.29* -- Amendment to Amended and Restated Securityholders' Agreement
and Exchange Agreement, dated as of August 22, 1997, by and
among the Company and the Investors named therein.
10.30* -- Amendment to Registration Rights Agreement, dated as of
August 22, 1997, by and among the Company and the Investors
named therein.
10.31* -- Letter Agreement, dated as of May 20, 1998, by and among the
Company and certain parties to the Registration Rights
Agreement, dated as of November 13, 1996, as amended.
10.32* -- Pledge, Escrow and Disbursement Agreement, dated as of May
27, 1998, by and between the Company and State Street Bank
and Trust Company, as trustee and escrow agent.
10.33* -- Warrant, dated as of August 22, 1997, granted to Alex. Brown
& Sons Incorporated.
10.34* -- Warrant, dated as of August 22, 1997, granted to Alex. Brown
& Sons Incorporated.
10.35*+ -- Warrant, dated March 12, 1998.
10.36*+ -- Letter Agreement, dated as of May 18, 1998, by and between
the Company and a holder of warrants to purchase shares of
the Company's Common Stock.
10.37*+ -- AT&T Custom Offer Order Form, by and between the Company and
AT&T.
10.38* -- Form of AT&T Contract Tariff Order Form, by and between the
Company and AT&T.
12.1* -- Statement Regarding Computation of Ratios.
</TABLE>
<PAGE> 143
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S> <C>
23.1 -- Consent of Kilpatrick Stockton LLP (included in Exhibit 5.1)
23.2 -- Consent of Deloitte & Touche LLP.
23.3* -- Consent of Fletcher Spaght, Inc.
25.1* -- Statement on Form T-1 of Eligibility of Trustee.
27.1* -- Financial Data Schedule (for SEC use only).
99.1* -- Form of Letter of Transmittal.
99.2* -- Form of Notice of Guaranteed Delivery.
99.3* -- Form of Letter to Registered Holders and DTC Participants.
99.4* -- Form of Letter to Client.
</TABLE>
- ---------------
* Previously filed.
+ Portions of this Exhibit are omitted and filed separately with the Securities
and Exchange Commission pursuant to a request for confidential treatment.
<PAGE> 1
EXHIBIT 3.5
CORRECTED CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES B 7% CUMULATIVE CONVERTIBLE
PREFERRED STOCK OF PARK 'N VIEW, INC.
Pursuant to Section 103(f) of the General Corporation Law of Delaware,
Park 'N View, Inc., a Delaware corporation (the "Corporation") does hereby
submit this Corrected Certificate of Amendment to Certificate of Designations,
Preferences and Rights of Series B 7% Cumulative Convertible Preferred Stock for
the purposes of correcting certain errors in the Certificate of Amendment to
Certificate of Designations, Preferences and Rights of Series B 7% Cumulative
Convertible Preferred Stock of the Corporation (the "Amended Certificate") filed
in the Office of the Secretary of the State of Delaware on May 7, 1998 (the
"Amended Certificate").
The inaccuracies or defects in said Amended Certificate to be corrected
are as follows:
(a) Section 5(c) of the Amended Certificate inaccurately stated the
provision for the calculation of the conversion price of the Series B 7%
Cumulative Convertible Preferred Stock of the Corporation.
The entire corrected Amended Certificate, as adopted and approved by
the Board of Directors of the Corporation on May 7, 1998 and fixing the rights,
preferences, qualifications, limitations and restrictions relating to the Series
B 7% Cumulative Convertible Preferred Stock is as follows:
1. Designation. The shares of such series of Preferred Stock shall be
designated "Series B 7% Cumulative Convertible Preferred Stock" (referred to
herein as the "Series B Stock").
2. Authorized Number. The number of shares constituting the Series B
Stock shall be 1,372,370.
3. Dividends. The holders of shares of Series B Stock shall be entitled
to receive, when and as declared by the Board of Directors of the Corporation,
out of assets legally available for such purpose, dividends at the rate of
$0.7651 (i.e., 7%) per share per annum, which shall be payable when and if
declared by the Board of Directors or shall accrue quarterly on the last day of
January, April, July and October in
<PAGE> 2
each year, commencing on January 31, 1997; provided, however, that upon an Event
of Default (as hereinafter defined) and so long as it shall continue, such
dividend rate shall be $0.9837 (i.e., 9%) per share per annum. Dividends on the
Series B Stock shall be cumulative so that if, for any dividend accrual period,
cash dividends at the rate hereinabove specified are not declared and paid or
set aside for payment, the amount of accrued but unpaid dividends shall
accumulate and shall be added to the dividends payable for subsequent dividend
accrual periods and upon any redemption or conversion of shares of Series B
Stock. If any shares of Series B Stock are issued on a date which does not
coincide with a dividend payment date, then the initial dividend accrual period
applicable to such shares shall be the period from the date of issuance thereof
through whichever of January 31, April 30, July 31, or October 31 next occurs
after the date of issuance. If the date fixed for payment of a final liquidating
distribution on any shares of Series B Stock, or the date on which any shares of
Series B Stock are redeemed or converted into Common Stock does not coincide
with a dividend payment date, then subject to the provisions hereof relating to
such payment, redemption or conversion, the final dividend accrual period
applicable to such shares shall be the period from whichever of February 1, May
1, August 1 or November 1 most recently precedes the date of such payment,
conversion or redemption through the effective date of such payment, conversion
or redemption. Dividends paid in cash on the shares of Series B Stock (or Series
A Stock or Series C Stock which shall rank pari passu with the Series B Stock)
in an amount less than the total amount of such dividends shall be allocated pro
rata so that the total value of dividends paid on the Preferred Stock shall in
all cases bear to each other the same ratio that the total value of accrued and
unpaid dividends on the Series A Stock, Series B Stock and Series C Stock bear
to each other. Without the written consent of the holders of at least 66 2/3% of
the then outstanding Series B Stock, the Corporation shall not declare or pay
any cash dividend on, or redeem or repurchase or make any other cash
distribution in respect of any other equity Securities (as defined herein) of
the Corporation unless at the time of such declaration, payment or distribution
all dividends on the Series B Stock accrued for all past dividend accrual
periods shall have been paid and the full dividends thereon for the current
dividend period shall be paid or declared and set aside for payment.
4. Liquidation.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the
shares of Series B Stock shall be entitled, before any distribution or
payment is made upon any Common Stock or any other class or series of
stock ranking junior to the Series B Stock as to distribution of assets
upon liquidation (other than the Series A Stock and the Series C Stock
of the Corporation which shall rank pari passu with the Series B
Stock), to be paid an amount equal to $10.93 per share (as adjusted for
Recapitalization Events (as hereinafter defined)) plus all accrued and
unpaid dividends to such date (collectively, the "Liquidation
Payments"). If
2
<PAGE> 3
upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the assets to be distributed among
the holders of Series B Stock shall be insufficient to permit payment
in full to the holders of Series B Stock of the Liquidation Payments,
then the entire assets of the Corporation shall be distributed ratably
among such holders and the holders of any class of preferred stock
ranking on a parity with the Series B Stock in proportion to the full
respective distributive amounts to which they are entitled.
(b) Upon any liquidation, dissolution or winding up of the
Corporation, after the holders of Series B Stock shall have been paid
in full the Liquidation Payments, the remaining assets of the
Corporation may be distributed ratably per share in order of preference
to the holders of Common Stock and any other class or series of stock
ranking junior to the Series B Stock as to distribution of assets upon
liquidation.
(c) Written notice of a liquidation, dissolution or winding
up, stating a payment date, the amount of the Liquidation Payments and
the place where said Liquidation Payments shall be payable, shall be
given by mail, postage prepaid, not less than 30 days prior to the
payment date stated therein, to each holder of record of Series B Stock
at its post office address as shown by the records of the Corporation.
5. Conversion.
The holders of the Series B Stock shall have the following
conversion rights:
(a) Optional Conversion. Each share of Series B Stock shall be
convertible at any time, at the option of the holder of record thereof,
into fully paid and nonassessable shares of Common Stock at the
"conversion rate" (as defined in paragraph (c) below) then in effect
upon surrender to the Corporation or its transfer agent of the
certificate or certificates representing the Series B Stock to be
converted, as provided below, or if the holder notifies the Corporation
or its transfer agent that such certificate or certificates have been
lost, stolen or destroyed, upon the execution and delivery of an
agreement satisfactory to the Corporation to indemnify the Corporation
from any losses incurred by it in connection therewith.
(b) Conversion on Qualifying Offering. Upon the consummation
of a Qualifying Offering (as defined below), upon not less than ten
(10) days prior written notice by the Corporation of the anticipated
consummation of such offering, each share of Series B Stock shall be
converted into fully paid and nonassessable shares of Common Stock at
the conversion rate. A "Qualifying
3
<PAGE> 4
Offering" means (i) the Corporation shall have consummated a firm
commitment underwritten public offering of its Common Stock by a
nationally recognized investment banking firm pursuant to an effective
registration under the Securities Act of 1933, as amended, covering the
offering and sale of both primary and secondary shares of Common Stock
which results in gross proceeds of at least $20,000,000, (ii) the
Common Stock is quoted or listed by either The Nasdaq Stock Market
(National Market) ("Nasdaq"), the New York Stock Exchange or the
American Stock Exchange, and (iii) the price at which the Common Stock
is sold in such offering is at least equal to an amount which (x) is
200% of the then effective conversion price or (y) would represent, on
an as converted basis, a compound annual rate of return of 35% based
upon the original issuance price of the Series B Stock. Upon the
achievement of (i), (ii) and (iii) above and the giving of the
mandatory conversion notice by the Corporation, the outstanding shares
of Series B Stock to be converted shall be converted automatically
without any further action by the holders of such shares and whether or
not the certificates representing such shares are surrendered to the
Corporation or its transfer agent.
(c) Basis For Conversion; Converted Shares. The basis for any
conversion under this Section 5 shall be the "conversion rate" in
effect at the time of conversion, which for the purposes hereof shall
mean the number of shares of Common Stock issuable for each share of
Series B Stock surrendered for conversion under this Section 5.
Initially, the conversion rate shall be 1.0, i.e., 1.0 share of Common
Stock for each share of Series B Stock being converted. Such conversion
rate shall be subject to adjustment as provided in Section 7 below. As
used herein, the term "conversion price" shall be an amount computed by
dividing $10.93 by the conversion rate then in effect. Initially, the
conversion price shall be $8.00 per share of Common Stock. If any
fractional interest in a share of Common Stock would be deliverable
upon conversion of Series B Stock, the Corporation shall pay in lieu of
such fractional share an amount in cash equal to the conversion price
of such fractional share (computed to the nearest one hundredth of a
share) in effect at the close of business on the date of conversion.
Any shares of Series B Stock which have been converted shall be
canceled and all dividends on converted shares shall cease to accrue
and the certificates representing shares of Series B Stock so converted
shall represent the right to receive (i) such number of shares of
Common Stock into which such shares of Series B Stock are convertible,
plus (ii) cash payable for any fractional share plus (iii) all accrued
but unpaid dividends relating to such shares through the immediately
preceding dividend payment date. Upon the conversion of shares of
Series B Stock as provided in this Section 5, the Corporation shall
promptly pay all then accrued but unpaid dividends to the holder of the
Series B Stock being converted. The Board of Directors of the
Corporation shall at all times
4
<PAGE> 5
reserve a sufficient number of authorized but unissued shares of Common
Stock to be issued in satisfaction of the conversion rights and
privileges aforesaid.
(d) Mechanics of Conversion. In the case of an optional
conversion, before any holder of Series B Stock shall be entitled to
convert the same into shares of Common Stock, it shall surrender the
certificate or certificates therefor, duly endorsed, at the office of
the Corporation or its transfer agent for the Series B Stock, and shall
give written notice to the Corporation of the election to convert the
same and shall state therein the name or names in which the certificate
of certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver
at such office to such holder of Series B Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as
aforesaid. A certificate or certificates will be issued for the
remaining shares of Series B Stock in any case in which fewer than all
of the shares of Series B Stock represented by a certificate are
converted.
(e) Issue Taxes. The Corporation shall pay all issue taxes, if
any, incurred in respect of the issue of shares of Common Stock on
conversion. If a holder of shares surrendered for conversion specifies
that the shares of Common Stock to be issued on conversion are to be
issued in a name or names other than the name or names in which such
surrendered shares stand, the Corporation shall not be required to pay
any transfer or other taxes incurred by reason of the issuance of such
shares of Common Stock to the name of another, and if the appropriate
transfer taxes shall not have been paid to the Corporation or the
transfer agent for the Series B Stock at the time of surrender of the
shares involved, the shares of Common Stock issued upon conversion
thereof may be registered in the name or names in which the surrendered
shares were registered, despite the instructions to the contrary.
6. Adjustment of Conversion Price and Conversion Rate. The number and
kind of securities issuable upon the conversion of the Series B Stock, the
conversion price and the conversion rate shall be subject to adjustment from
time to time in accordance with the following provisions:
(a) Certain Definitions. For purposes of this Certificate:
(i) The term "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued, or deemed to be
issued by the Corporation pursuant to paragraph (g) of this
Section 6, after the Original Issue Date except:
5
<PAGE> 6
(A) shares of Common Stock issuable upon
conversion of, or distributions with respect to, the
Series B Stock or the Series C Stock now or hereafter
issued by the Corporation;
(B) up to 800,000 shares of Common Stock
issuable upon the exercise of options issued to
officers, directors and employees of the Corporation
under stock option plans maintained from time to time
by the Corporation and approved by the Board of
Directors, subject to adjustment for all subdivisions
and combinations:
(C) up to 186,750 shares of Common Stock
issuable upon the exercise of the Warrant held by
Alex. Brown & Sons Incorporated; and
(D) up to 505,375 shares of Common Stock
issuable upon the exercise of warrants to be granted
to lenders in connection with loans to the
Corporation or to guarantors or purchasers of such
loans; and
(E) shares of Common Stock issued with
respect to adjustments of the conversion price
hereunder.
(ii) The term "Common Stock" shall be deemed to mean
(i) the Common Stock, $.001 par value, and (ii) the stock of
the Corporation of any class, or series within a class,
whether now or hereafter authorized, which has the right to
participate in the distribution of either earnings or assets
of the Corporation without limit as to the amount or
percentage.
(iii) The term "Convertible Securities" shall mean
any evidence of indebtedness, shares (other than Series B
Stock and Series C Stock) or other securities convertible into
or exchangeable for Common Stock.
(iv) The term "Options" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire
Common Stock or Convertible Securities.
(v) The term "Original Issue Date" shall mean the
date of the initial issuance of the Series B Stock.
(vi) The term "Fair Market Price" shall mean with
respect to a share of Common Stock (i) prior to the first
anniversary of the Original Issue Date, $10.93, and (ii)
subsequent to the first anniversary of the Original Issue
Date, the average closing bid price of the Common Stock as
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<PAGE> 7
reported by Nasdaq (or the last sale price if the Common Stock
is traded on an exchange) for a period of thirty (30)
consecutive trading days ending on the third day prior to the
date of determination, or, if the Common Stock is not listed
on Nasdaq or an exchange, the fair market value as determined
by the vote of 66 2/3% of the Corporation's Board of Directors
or if the Board of Directors cannot reach such agreement, as
determined by a qualified independent investment banker
appointed by the vote of 66 2/3% of the Corporation's Board of
Directors.
(b) Reorganization, Reclassification. In the event of a
reorganization, share exchange, or reclassification, other than a
change in par value, or from par value to no par value, or from no par
value to par value or a transaction described in subsection (c) or (d)
below, each share of Series B Stock shall, after such reorganization,
share exchange or reclassification (a "Reclassification Event"), be
convertible at the option of the holder into the kind and number of
shares of stock or other securities or other property of the
Corporation which the holder of Series B Stock would have been entitled
to receive if the holder had held the Common Stock issuable upon
conversion of his Series B Stock immediately prior to such
reorganization, share exchange, or reclassification.
(c) Consolidation, Merger. In the event of a merger or
consolidation to which the Corporation is a party each share of Series
B Stock shall, after such merger or consolidation, be convertible at
the option of the holder into the kind and number of shares of stock
and/or other securities, cash or other property which the holder of
such share of Series B Stock would have been entitled to receive if the
holder had held the Common Stock issuable upon conversion of such share
of Series B Stock immediately prior to such consolidation or merger.
(d) Subdivision or Combination of Shares. In case outstanding
shares of Common Stock shall be subdivided, the conversion price shall
be proportionately reduced as of the effective date of such
subdivision, or as of the date a record is taken of the holders of
Common Stock for the purpose of so subdividing, whichever is earlier.
In case outstanding shares of Common Stock shall be combined, the
conversion price shall be proportionately increased as of the effective
date of such combination, or as of the date a record is taken of the
holders of Common Stock for the purpose of so combining, whichever is
earlier.
(e) Stock Dividends. In case shares of Common Stock are issued
as a dividend or other distribution on the Common Stock (or such
dividend is declared), then the conversion price shall be adjusted, as
of the date a record is taken of the holders of Common Stock for the
purpose of receiving such dividend or other distribution (or if no such
record is taken, as at the earliest of the date of such declaration,
payment or other distribution), to that price
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<PAGE> 8
determined by multiplying the conversion price in effect immediately
prior to such declaration, payment or other distribution by a fraction
(i) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the declaration or payment of
such dividend or other distribution, and (ii) the denominator of which
shall be the total number of shares of Common Stock outstanding
immediately after the declaration or payment of such dividend or other
distribution. In the event that the Corporation shall declare or pay
any dividend on the Common Stock payable in any right to acquire Common
Stock for no consideration, then the Corporation shall be deemed to
have made a dividend payable in Common Stock in an amount of shares
equal to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
(f) Issuance of Additional Shares of Common Stock. If the
Corporation shall issue any Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued
pursuant to paragraph (g) below) after the Original Issue Date (other
than as provided in the foregoing subsections (b) through (e)), for no
consideration or for a consideration per share less than the greater of
(i) the Fair Market Price in effect on the date of and immediately
prior to such issue or (ii) the conversion price in effect on the date
of and immediately prior to such issue, then in such event, the
conversion price shall be reduced as follows:
(i) For issuances of Additional Shares of Common Stock on or
before 12 months after the Original Issue Date, the conversion price
shall be reduced concurrently with any such issuance as follows: the
conversion price will equal the issuance or sales price of the
Additional Shares of Common Stock.
(ii) For issuances of Additional Shares of Common Stock at any
time after 12 months after the Original Issue Date, the conversion
price shall be reduced concurrently with any such issuance to a price
equal to the quotient obtained by dividing:
(A) an amount equal to (x) the total number of shares
of Common Stock outstanding immediately prior to such issuance
or sale multiplied by the conversion price in effect
immediately prior to such issuance or sale, plus (y) the
aggregate consideration received or deemed to be received by
the Corporation upon such issuance or sale, by
(B) the total number of shares of Common Stock
outstanding immediately after such issuance or sale.
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<PAGE> 9
For purposes of the formulas expressed in paragraph 6(e) and
6(f), all shares of Common Stock issuable upon the exercise of outstanding
Options or issuable upon the conversion of the Series B Stock and the Series C
Stock or outstanding Convertible Securities (including Convertible Securities
issued upon the exercise of outstanding Options), shall be deemed outstanding
shares of Common Stock both immediately before and after such issuance or sale.
(g) Deemed Issue of Additional Shares of Common Stock. In the
event the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities
or shall fix a record date for the determination of holders of any
class of securities then entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth
in the instrument relating thereto without regard to any provisions
contained therein designed to protect against dilution) of Common Stock
issuable upon the exercise of such Options, or, in the case of
Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue of Options or
Convertible Securities or, in case such a record date shall have been
fixed, as of the close of business on such record date, provided that
in any such case in which Additional Shares of Common Stock are deemed
to be issued:
(i) no further adjustments in the conversion price
shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such
Options or the issue of Common Stock upon the conversion or
exchange of such Convertible Securities;
(ii) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise,
for any increase or decrease in the consideration payable to
the Corporation, or increase or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion
or exchange thereof, the conversion price computed upon the
original issuance of such Options or Convertible Securities
(or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, upon
any such increase or decrease becoming effective, shall be
recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange
under such Convertible Securities (provided, however, that no
such adjustment of the conversion price shall affect Common
Stock previously issued upon conversion of the Series B
Stock);
(iii) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the conversion
price computed upon the original
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<PAGE> 10
issue of such Options or Convertible Securities (or upon the
occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(A) in the case of Options or Convertible
Securities, the only Additional Shares of Common
Stock issued were the shares of Common Stock, if any,
actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible
Securities and the consideration received therefor
was the consideration actually received by the
Corporation (x) for the issue of all such Options,
whether or not exercised, plus the consideration
actually received by the Corporation upon exercise of
the Options or (y) for the issue of all such
Convertible Securities which were actually converted
or exchanged plus the additional consideration, if
any, actually received by the Corporation upon the
conversion or exchange of the Convertible Securities;
and
(B) in the case of Options for Convertible
Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued
at the time of issue of such Options, and the
consideration received by the Corporation for the
Additional Shares of Common Stock deemed to have been
then issued was the consideration actually received
by the Corporation for the issue of all such Options,
whether or not exercised, plus the consideration
deemed to have been received by the Corporation upon
the issue of the Convertible Securities with respect
to which such Options were actually exercised.
(iv) No readjustment pursuant to clause (ii) or (iii)
above shall have the effect of increasing the conversion price
to an amount which exceeds the lower of (x) the conversion
price on the original adjustment date or (y) the conversion
price that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date
and such readjustment date.
(v) In the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof,
no adjustment of the conversion price shall be made until the
expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause
(iii) above.
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(h) Determination of Consideration. For purposes of this
Section 6, the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall be computed as follows:
(i) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be the aggregate
amount of cash received by the Corporation; and
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of the
issue, as determined by the vote of 66 2/3% of the
Corporation's Board of Directors or if the Board of Directors
cannot reach such agreement, by a qualified independent public
accounting firm, other than the accounting firm then engaged
as the Corporation's independent auditors, agreed upon by the
Corporation on the one hand and the holders of 66 2/3% of the
outstanding shares of Series B Stock on the other hand.
(ii) Options and Convertible Securities. The consideration per
share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to paragraph (g) above, relating to
Options and Convertible Securities shall be determined by dividing:
(A) the total amount, if any, received or receivable
by the Corporation as consideration for the issue of such
Options or Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein designed to protect against dilution)
payable to the Corporation upon the exercise of such Options
or the conversion or exchange of such Convertible Securities,
or in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(B) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard
to any provision contained therein designed to protect against
dilution) issuable upon the exercise of such Options or
conversion or exchange of such Convertible Securities.
(i) Adjustment of Conversion Rate. Upon each adjustment of the
conversion price under the provisions of this Section 6, the conversion
rate shall be adjusted to an amount determined by dividing (x) the
conversion price in
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<PAGE> 12
effect immediately prior to the event causing such adjustment by (y)
such adjusted conversion price.
(j) Other Provisions Applicable to Adjustment Under this
Section. The following provisions will be applicable to the adjustments
in conversion price and conversion rate as provided in this Section 6:
(i) Treasury Shares. The number of shares of Common
Stock at any time outstanding shall not include any shares
thereof then directly or indirectly owned or held by or for
the account of the Corporation.
(ii) Other Action Affecting Common Stock. In case the
Corporation shall take any action affecting the outstanding
number of shares of Common Stock other than an action
described in any of the foregoing subsections 6(b) to 6(g)
hereof, inclusive, which would have an inequitable effect on
the holders of Series B Stock, the conversion price shall be
adjusted in such manner and at such time as the Board of
Directors of the Corporation on the advice of the
Corporation's independent public accountants may in good faith
determine to be equitable in the circumstances.
(iii) Minimum Adjustment. No adjustment of the
conversion price shall be made if the amount of any such
adjustment would be an amount less than one percent (1%) of
the conversion price then in effect, but any such amount shall
be carried forward and an adjustment with respect thereof
shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate an
increase or decrease of one percent (1%) or more.
(iv) Certain Adjustments. The conversion price shall
not be adjusted upward except in the event of a combination of
the outstanding shares of Common Stock into a smaller number
of shares of Common Stock or in the event of a readjustment of
the conversion price pursuant to Section 6(g)(ii) or (iii).
(k) Notices of Adjustments. Whenever the conversion rate and
conversion price is adjusted as herein provided, an officer of the
Corporation shall compute the adjusted conversion rate and conversion
price in accordance with the foregoing provisions and shall prepare a
written certificate setting forth such adjusted conversion rate and
conversion price and showing in detail the facts upon which such
adjustment is based, and such written instrument shall promptly be
delivered to the recordholders of the Series B Stock.
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<PAGE> 13
7. Redemption.
(a) Mandatory Redemption. On the date six (6) months
immediately after the payment in full and satisfaction of all of the
obligations of the Corporation to the lenders who provide financing to
the Corporation in the aggregate principal amount of Seventy-five
Million Dollars ($75,000,000.00) (referred to herein as the "Mandatory
Redemption Date") the Corporation shall redeem all the shares of Series
B Stock originally issued hereunder (or such lesser amount as shall
then be outstanding) at the "Redemption Price" per share defined in
paragraph (c) below, payable in each case in cash on the Mandatory
Redemption Date.
(b) Redemption on Change of Control. Upon a "Change of
Control" of the Corporation, each holder of the then outstanding shares
of Series B Stock may elect to have the Corporation redeem all (but not
less than all) outstanding shares of Series B Stock owned by such
holder at the "Redemption Price" per share defined in paragraph (c)
below, payable in cash on any date within 100 days of the effective
date of the Change of Control (such date being herein referred to as
the "Change of Control Redemption Date"). The election shall be made by
delivering written notice to the Corporation at least thirty (30) but
no more than sixty (60) days prior to the Change of Control Redemption
Date. The Corporation will then be required to redeem all the shares of
Series B Stock owned by such holder on the Change of Control Redemption
Date. For purposes of this Section 7, "Change of Control" means any one
or more of the following events:
(i) The Corporation shall consolidate with or merge
into any another person or any person shall consolidate with
or merge into the Corporation (other than a consolidation or
merger of the Corporation and a wholly-owned subsidiary of the
Corporation in which all shares of the Corporation's Common
Stock outstanding immediately prior to the effectiveness
thereof are changed into or exchanged for the same
consideration), in either event pursuant to a transaction in
which any of the Corporation's common stock outstanding
immediately prior to the effectiveness thereof is changed into
or exchanged for cash, securities or other property; or
(ii) the Corporation shall directly or indirectly
convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all of its assets to any
person or "group" (within the meaning of Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934 (the "1934
Act") (other than to a wholly-owned subsidiary of the
Corporation); or
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(iii) there shall be a reorganization, share
exchange, or reclassification, other than a change in par
value, or from par value to no par value, or from no par value
to par value; or
(iv) any person (other than the Corporation, any
subsidiary of the Corporation or an Existing Investor (as
defined in the Purchase Agreement (as hereinafter defined))),
including a "group" (within the meaning of Section 13(d) and
14(D)(2) of the 1934 Act) that includes such person, shall
purchase or otherwise acquire, directly or indirectly,
beneficial ownership of securities of the Corporation and, as
a result of such purchase or acquisition, such person
(together with its associates and affiliates) shall directly
or indirectly beneficially own in the aggregate (1) more than
50% of the Common Stock, or (2) securities representing more
than 50% of the combined voting power of the Corporation's
voting securities, in each case under subclause (1) or (2),
outstanding on the date immediately prior to the date of such
purchase or acquisition (or, if there be more than one, the
last such purchase or acquisition).
(c) The Redemption Price per share of Series B Stock shall
equal the sum of (x) $10.93 (as adjusted for Recapitalization Events)
plus (y) all accrued and unpaid dividends on such share of Series B
Stock to the Mandatory Redemption Date or Change of Control Redemption
Date, as the case may be.
(d) The term "Redemption Date" as used in this paragraph (d)
shall refer to whichever of the Mandatory Redemption Date or the Change
of Control Redemption Date is applicable in a particular circumstance.
On or prior to the Redemption Date, the Corporation shall deposit the
Redemption Price of all outstanding shares of Series B Stock to be
redeemed with a bank or trust corporation having aggregate capital and
surplus in excess of $100,000,000 as a trust fund for the benefit of
the holders of the shares of Series B Stock, with irrevocable
instructions and authority to the bank or trust corporation to pay the
Redemption Price for such shares to their respective holders on or
after the Redemption Date upon receipt of the certificate or
certificates of the shares of Series B Stock to be redeemed. From and
after the Redemption Date, unless there shall have been a default in
payment of the Redemption Price, all rights of the holders of shares of
Series B Stock as holders of Series B Stock (except the right to
receive the Redemption Price upon surrender of their certificate or
certificates) shall cease as to those shares of Series B Stock
redeemed, and such shares shall not thereafter be transferred on the
books of the Corporation or be deemed to be outstanding for any purpose
whatsoever. If on the Redemption Date the funds of the Corporation
legally available for redemption of shares of Series B Stock (or Series
A Stock and Series C Stock which shall rank pari passu with the Series
B Stock) are insufficient to redeem the total number of shares of
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<PAGE> 15
Preferred Stock to be redeemed on such date, the Corporation will use
those funds which are legally available therefor to redeem the maximum
possible number of shares of Preferred Stock ratably among the holders
of such shares to be redeemed based upon their holdings of Series A
Stock, Series B Stock and Series C Stock. Payments shall first be
applied against accrued and unpaid dividends and thereafter against the
remainder of the Redemption Price. The shares of Series B Stock not
redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein. At any time thereafter when additional
funds of the Corporation are legally available for the redemption of
shares of Series B Stock such funds will immediately be used to redeem
the balance of the shares of Series B Stock to be redeemed. No
dividends or other distributions shall be declared or paid on, nor
shall the Corporation redeem, purchase or acquire any shares of, the
Common Stock or any other class or series of stock of the Corporation
unless the Redemption Price of all shares elected to be redeemed shall
have been paid in full. Until the Redemption Price for a share of
Series B Stock elected to be redeemed shall have been paid in full,
such share of Series B Stock shall remain outstanding for all purposes
and entitle the holder thereof to all the rights and privileges
provided herein, including, without limitation, that dividends and
interest thereon shall continue to accrue and, if unpaid prior to the
date such shares are redeemed, shall be included as part of the
Redemption Price as provided in paragraph (c) above. Notwithstanding
anything in this Section 7 to the contrary, even if a notice of
redemption was delivered under paragraph (a) or (b) of this Section 7,
all shares of Series B Stock shall be convertible pursuant to Section 5
at all times prior to the Redemption Date.
(e) Notwithstanding any other term of this Certificate of
Designation, the Corporation shall not redeem (or have any obligation
to redeem) any shares of Series B Stock under any circumstances,
whether upon a Change of Control or otherwise, prior to the payment in
full and satisfaction of all of the obligations of the Corporation to
the lenders who provide financing to the Corporation in the aggregate
principal amount of up to $75,000,000.00. If the Corporation shall not
have paid in full or satisfied all of its obligations to such lenders
on or before any Redemption Date, upon such payment and satisfaction
the Corporation will immediately use any funds legally available
therefor to redeem the shares of Series B Stock to be redeemed.
8. Notices of Record Dates and Effective Dates. In case: (a) the
Corporation shall declare a dividend (or any other distribution) on the Common
Stock payable otherwise than in shares of Common Stock; or (b) the Corporation
shall authorize the granting to the holders of Common Stock of rights to
subscribe for or purchase any shares of capital stock of any class or any other
rights; or (c) of any reorganization, share exchange or reclassification of the
capital stock of the Corporation (other than a
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<PAGE> 16
subdivision or combination of outstanding shares of Common Stock), or of any
consolidation or merger to which the Corporation is party or of the sale, lease
or exchange of all or substantially all of the property of the Corporation; or
(d) of the voluntary or involuntary dissolution, liquidation or winding up of
the Corporation; or (e) of a Change of Control, then the Corporation shall cause
to be mailed to the recordholders of the Series B Stock at least 20 days prior
to the applicable record date or effective date hereinafter specified, a notice
stating (i) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights, or, if a record is not to be taken, the date
as of which the holders of record of Common Stock to be entitled to such
dividend, distribution or rights are to be determined or (ii) the date on which
such reclassification, reorganization, share exchange, consolidation, merger,
sale, lease, exchange, dissolution, liquidation, winding up or Change of Control
is expected to become effective, and the date as of which it is expected that
holders of record of Common Stock shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, reorganization share exchange, consolidation, liquidation,
merger, sale, lease, exchange, dissolution, liquidation, winding up or Change of
Control.
9. Voting Rights.
(a) Holders of Series B Stock shall be entitled to notice of
any stockholder's meeting. Except as otherwise required by law or
provided herein, at any annual or special meeting of the Corporation's
stockholders, or in connection with any written consent in lieu of any
such meeting, each outstanding share of Series B Stock shall be
entitled to the number of votes equal to the number of full shares of
Common Stock into which such share of Series B Stock is then
convertible. Except as otherwise required by law or provided herein,
the Series B Stock and the Common Stock shall vote together on each
matter submitted to stockholders, and not by class or series.
(b) Prior to the consummation of a Qualifying Offering by the
Corporation of its Common Stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended, the holders of
the Series B Stock, voting together as a class, shall be entitled to
elect one (1) director to the Corporation's Board of Directors.
Subsequent to such Qualifying Offering, the holders of a majority of
the Common Stock issuable upon conversion of the Series B Stock shall
be entitled to nominate one (1) director for election to the
Corporation's Board of Directors which the Corporation shall nominate
to management's slate for election; provided, however, that the right
provided for in this last sentence of subsection 9(b) shall be
effective only for so long as at least 66 2/3% of the shares of Common
Stock issuable upon conversion of the Series B
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<PAGE> 17
Stock are held of record by the original Purchasers (as defined in the
Purchase Agreement) of the Series B Stock.
Notwithstanding the foregoing, upon an Event of Default and so
long as it shall continue, the holders of the Series B Stock and the
Series C Stock, voting together as a class, shall be entitled at any
annual meeting of the stockholders or special meeting held in place
thereof, or at a special meeting of the holders of the Series B Stock
and the Series C Stock called as hereinafter provided, to elect a
majority of the Board of Directors and such right to elect a majority
of the Board of Directors shall be in lieu of the right of the holders
of Series B Stock and the Series C Stock to each elect one director.
Such right of the holders of the Series B Stock and the Series C Stock
to elect a majority of the Board of Directors may be exercised until an
Event of Default shall be cured, if curable, or waived, and when so
cured or waived, the right of the holders of the Series B Stock and the
Series C Stock to elect a majority of the Board of Directors shall
cease and the right of the holders of the Series B Stock and the
holders of the Series C Stock to each elect one director shall resume,
but subject always to the same provisions for the vesting of such
special voting rights in the case of any such future Event of Default.
At any time when such special voting rights shall have so vested in the
holders of the Series B Stock and the Series C Stock, the Secretary of
the Corporation may, and upon the written request of the holders of 10%
or more of the number of shares of the Series B Stock and the Series C
Stock then outstanding addressed to him at the principal office of the
Corporation, shall, call a special meeting of the holders of the Series
B Stock and the Series C Stock for the election of a majority of the
Board of Directors to be elected by them as provided herein, to be held
in the case of such written request as soon as practicable after
delivery of such request, and in either case to be held at the place
and upon the notice provided by law and in the by-laws for the holding
of meetings of stockholders. If at any such annual or special meeting
or adjournment thereof the holders of at least a majority of the Series
B Stock and the Series C Stock then outstanding shall be present or
represented at such meeting, the then authorized number of directors of
the Corporation shall be increased to the extent necessary to provide a
majority of new directors to be elected and the holders of the Series B
Stock and the Series C Stock shall be entitled to elect the additional
directors so provided for. The directors so elected shall serve until
the next annual meeting or until their successors shall be elected and
qualified, provided, however, that whenever the holders of the
Preferred Stock shall be divested of the special rights to elect a
majority of the Board of Directors as above provided, the term of
office of the persons so elected as directors by the holders of the
Series B Stock and the Series C Stock as a class, or elected to fill
any vacancies resulting from the death, resignation or removal of the
directors so elected by the holders of the Series B Stock and the
Series C
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Stock, shall forthwith terminate and the authorized number of directors
shall be reduced accordingly.
If during any interval between any special meeting of the
holders of the Series B Stock and the Series C Stock for the election
of directors to be elected by them as provided above and the next
ensuing annual meeting of stockholders, or between annual meetings of
stockholders for the election of directors, and while the holders of
the Series B Stock and the Series C Stock shall be entitled to elect a
majority of the Board of Directors, any of the directors who have been
elected by the holders of the Series B Stock and the Series C Stock
shall, by reason of resignation, death or removal, have departed from
the Board, the Secretary of the Corporation shall call a special
meeting of the holders of the Series B Stock and the Series C Stock and
such vacancy or vacancies shall be filled at such special meeting.
No director elected by the holders of Series B Stock as a
class, or elected by other directors to fill a vacancy resulting from
the death, resignation or removal of a director elected by such class
vote, may be removed from office by the vote or written consent of
stockholders unless such vote or written consent includes that of the
holders of a majority of the outstanding shares of Series B Stock.
(c) In addition to any other vote or consent of stockholders
provided by law or by the Corporation's Certificate of Incorporation,
the Corporation shall not, without the approval by vote or written
consent of the holders of not less than 66 2/3% of the then outstanding
shares of Series B Stock:
(i) amend, waive or repeal any provisions of, or add
any provision to, (i) this Certificate of Designation or (ii)
any provision of the Corporation's Certificate of
Incorporation or any other certificate of designation filed
with the Secretary of State of Delaware by the Corporation
with respect to its preferred stock;
(ii) amend, waive or repeal any provisions of, or add
any provision to, the Corporation's By-Laws;
(iii) authorize, create, issue or sell any shares of
Equivalent Stock or Superior Stock (other than Series A Stock
and Series C Stock); except as authorized in this Certificate
of Designation;
(iv) issue any shares of Series B Stock other than
pursuant to the Purchase Agreement or upon transfers of
outstanding shares of Series B Stock;
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(v) enter into any agreement, indenture or other
instrument which contains any provisions restricting the
Corporation's obligation to pay dividends on or make
redemptions of the Series B Stock in accordance herewith; or
(vi) dissolve the Corporation.
"Assets" shall mean an interest in any kind of property or
assets, whether real, personal or mixed, or tangible or intangible.
"Equivalent Stock" shall mean any shares of any class or
series of Stock of the Corporation having any preference or priority as to
dividends or Assets on a parity with any such preference or priority of the
Series B Stock and no preference or priority as to dividends or Assets superior
to any such preference or priority of the Series B Stock and any instrument or
Security convertible into or exchangeable for Equivalent Stock. Without limiting
the generality of the foregoing, a dividend rate, mandatory or optional sinking
fund payment amounts or schedules or optional redemption provisions, the
existence of a conversion right or the existence of a liquidation preference of
up to 100% of the original issue price plus unpaid accrued dividends plus a
premium of up to the dividend rate or up to the percentage of the equity of the
Corporation represented by such Stock, with respect to any class or series of
Stock, differing from that of the Series B Stock, shall not prevent such class
of Stock from being Equivalent Stock.
"Securities" shall mean any debt or equity securities of the
Corporation, whether now or hereafter authorized, and any instrument convertible
into or exchangeable for Securities or Security. The term "Security" shall mean
one of the Securities.
"Stock" shall include any and all shares, interests or other
equivalents (however designated) of, or participations in, corporate stock.
"Superior Stock" shall mean any shares of any class or series
of Stock of the Corporation having any preference or priority as to dividends or
Assets superior to any such preference or priority of the Series B Stock and any
instrument or security convertible into or exchangeable for Superior Stock.
(d) Notwithstanding anything else contained herein, the
affirmative vote or written consent of the holders of not less than 90%
of the then outstanding shares of Series B Stock shall be necessary to
amend, alter or repeal any of the provisions of the Corporation's
Certificate of Incorporation or the Certificate of Designation creating
this Series B Stock which would alter or change (i) the dividend rate,
(ii) redemption provisions, (iii) anti-dilution
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provisions, (iv) the place or currency of payments hereunder, (v) the
right to institute suit for the enforcement of any payment hereunder,
(vi) the conversion provisions, or (vii) provisions of this Section 9,
so as to affect any of the foregoing adversely.
10. Preemptive Rights.
(a) The Corporation shall not issue or sell any shares of
Common Stock, Preferred Stock or other securities convertible into or
exchangeable for shares of Common Stock, other than any such issuance
or sale (i) pursuant to a Qualifying Offering, (ii) pursuant to a stock
option plan approved by the Board of Directors, (iii) as a form of
consideration in connection with mergers or acquisitions where the
Corporation is the surviving entity or (iv) where the aggregate gross
proceeds are less than $500,000 in any single transaction, provided
that the sale price per share is not less than the then applicable
conversion price and, provided further, that the aggregate gross
proceeds of all such transactions shall not exceed $1,500,000 (the
securities issued in such transactions being referred to as the "Newly
Issued Securities"), unless prior to the issuance or sale of such Newly
Issued Securities each holder of Series B Stock shall have been given
the opportunity (such opportunity being herein referred to as the
"Preemptive Right") to purchase (on the same terms as such Newly Issued
Securities are proposed to be sold) the same proportion of such Newly
Issued Securities being issued or offered for sale by the Corporation
as (x) the number of shares of Common Stock (calculated solely on
account of outstanding shares of Series B Stock on an as converted
basis) held by such holder on the day preceding the date of the
Preemptive Notice (as defined herein), as the case may be, bears to (y)
the total number of shares of Common Stock (calculated on a fully
diluted basis) outstanding on that day.
(b) Prior to the issuance or sale by the Corporation of any
Newly Issued Securities, the Corporation shall give written notice
thereof (the "Preemptive Notice") to each holder of Series B Stock. The
Preemptive Notice shall specify (i) the name and address of the bona
fide investor to whom the Corporation proposes to issue or sell Newly
Issued Securities, (ii) the total amount of capital to be raised by the
Corporation pursuant to the issuance or sale of Newly Issued
Securities, (iii) the number of Securities of such Newly Issued
Securities proposed to be issued or sold, (iv) the price and other
terms of their proposed issuance or sale, (v) the number of such Newly
Issued Securities which such holder is entitled to purchase (determined
as provided in subsection (a) above), and (vi) the period during which
such holder may elect to purchase such Newly Issued Securities, which
period shall extend for at least thirty (30) days following the receipt
by such holder of the Preemptive Notice (the "Preemptive Acceptance
Period"). Each holder of Series B Stock who desires to
20
<PAGE> 21
purchase Newly Issued Securities shall notify the Corporation within
the Preemptive Acceptance Period of the number of Newly Issued
Securities he wishes to purchase, as well as the number, if any, of
additional Newly Issued Securities he would be willing to purchase in
the event that all of the Newly Issued Securities subject to the
Preemptive Right are not subscribed for by the other holders of Series
B Stock.
(c) In the event a holder of Series B Stock declines to
subscribe for all or any part of its pro rata portion of any Newly
Issued Securities which are subject to the Preemptive Right (the
"Declining Preemptive Purchaser") during the Preemptive Acceptance
Period, then the other holders of Series B Stock shall have the right
to subscribe for all (or any declined part) of the Declining Preemptive
Purchaser's pro rata portion of such Newly Issued Securities (to be
divided among the other holders of Series B Stock desiring to exercise
such right on a ratable basis).
(d) Any such Newly Issued Securities which none of the holders
elect to purchase in accordance with the provisions of this Section 10,
may be sold by the Corporation, within a period of three (3) months
after the expiration of the Preemptive Acceptance Period, to any other
person or persons at not less than the price and upon other terms and
conditions not less favorable to the Corporation than those set forth
in the Preemptive Notice.
(e) The preemptive rights afforded by this Section 10, and any
obligation for the Corporation to offer such shares of Common Stock,
Preferred Stock or other securities convertible into or exchangeable
for shares of Common Stock may be waived by a written instrument signed
by the holders of sixty-six and two-thirds percent (66 2/3 %) of the
Series B Stock.
11. Events of Default. An Event of Default shall mean any of the
following:
(i) Any failure by the Corporation to pay in cash any
dividend, if and when declared by the Board of Directors, on
the payment due dates and in the amounts provided pursuant to
Section 3 hereof, if such failure shall continue for any two
quarterly periods;
(ii) Any failure by the Corporation to satisfy its
redemption obligations pursuant to Section 7 hereof if any
such failure shall continue for a period of five days from the
appropriate redemption date;
(iii) Any failure by the Corporation to comply with
the provisions of Sections 4, 5, 6, 8, 9 or 10 hereof;
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<PAGE> 22
(iv) If any representation or warranty made by the
Corporation in the Stock Purchase Agreement dated as of
November 13, 1996 or the exhibits or schedules thereto (the
"Purchase Agreements") is or shall be untrue in any material
respect at the time it was made, if such representation or
warranty remains untrue after 10 days' written notice, with
such notice delivered by hand or by first-class, certified or
overnight mail, postage prepaid, or by telecopier, from any
holder of Series B Stock, unless waived in writing by holders
of not less than 66 2/3% of the outstanding shares of Series B
Stock;
(v) Any failure by the Corporation to comply with, or
any breach by the Corporation of, any of the covenants,
agreements or obligations of the Corporation contained in the
Purchase Agreements which continues for a period of 10 days
after written notice, with such notice delivered by hand or by
first-class, certified or overnight mail, postage prepaid, or
by telecopier, from any holder of Series B Stock, unless
waived in writing by holders of not less than 66 2/3% of the
outstanding shares of Series B Stock;
(vi) Default by the Corporation in the performance or
observance of any obligation or condition with respect to any
Indebtedness of the Corporation that is not cured or waived
within 90 days or if the effect of such default is to
accelerate the maturity of such Indebtedness or cause such
Indebtedness to be prepaid, purchased or redeemed or to permit
the holder or holders thereof, or any trustee or agent for
such holders, to cause such Indebtedness to become due and
payable prior to its expressed maturity or to cause such
Indebtedness to be prepaid, purchased or redeemed or to
realize upon any collateral or security for such Indebtedness,
unless such default shall have been waived by the appropriate
person. Indebtedness of any corporation shall mean the
principal of (and premium, if any) and unpaid interest on (i)
indebtedness which is for money borrowed from others; (ii)
indebtedness guaranteed, directly or indirectly, in any manner
by such corporation, or in effect guaranteed, directly or
indirectly, by such corporation through an agreement,
contingent or otherwise, to supply funds to or in any manner
invest in the debtor or to purchase indebtedness, or to
purchase assets or services primarily for the purpose of
enabling the debtor to make payment of the indebtedness or of
assuring the owner of the indebtedness against loss; (iii) all
indebtedness secured by any mortgage, lien, pledge, charge or
other encumbrance upon assets owned by such corporation, even
if such corporation has not in any manner become liable for
the payment of such indebtedness; (iv) all indebtedness of
such corporation created or arising under any conditional
sale, lease or other title retention
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<PAGE> 23
agreement with respect to assets acquired by such corporation
even though the rights and remedies of the seller, lessor or
lender under such agreement or lease in the event of default
are limited to repossession or sale of such assets and
provided that obligations for the payment of rent under a
lease of premises from which the business of such corporation
will be conducted shall not constitute indebtedness; and (v)
renewals, extensions and refunding of any such indebtedness;
(vii) If the Corporation shall:
(a) become insolvent or generally fail to
pay, or admit in writing its inability to pay, its
debts as they become due;
(b) apply for, consent to, or acquiesce in,
the appointment of a trustee, receiver, sequestrator
or other custodian for the Corporation or any
property thereof, or make a general assignment for
the benefit of creditors (any of which shall be
referred to herein as a "Receiver");
(c) in the absence of such application,
consent or acquiescence, permit or suffer to exist
the appointment of a Receiver, and such Receiver
shall not be discharged within 60 calendar days;
(d) commit any act of bankruptcy, permit or
suffer to exist the commencement of any bankruptcy
reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or
any dissolution, winding up or liquidation proceeding
in respect of the Corporation, and, if any such case
or proceeding is not commenced by the Corporation,
such case or proceeding shall be consented to or
acquiesced in by the Corporation, or shall result in
the entry of an order for relief and shall remain for
30 calendar days undismissed; or
(e) take any corporate or other action
authorizing, or in furtherance of, any of the
foregoing.
B. The recitals and resolutions contained herein have not been
modified, altered or amended and are presently in full force and effect.
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IN WITNESS WHEREOF, the Corporation has caused this Corrected
Certificate of Certificate of Amendment to Certificate of Designations,
Preferences and Rights of Series B 7% Cumulative Convertible Preferred Stock to
be executed on its behalf by Ian Williams, its Chief Executive Officer, and
attested by Anthony W. Allen, its Secretary, this 6th day of November, 1998,
each hereby declaring and certifying that this is the act and deed of the
Corporation and that the facts stated herein are true.
PARK 'N VIEW, INC.
By: _______________________________
Ian Williams
Chief Executive Officer
ATTEST:
- ---------------------------------
Anthony Allen
Secretary
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<PAGE> 1
Exhibit 5.1
Attorneys at Law
Suite 400
KILPATRICK STOCKTON LLP 4101 Lake Boone Trail
Raleigh, North Carolina 27607-6519
Telephone: 919.420.1700
Facsimile: 919.420.1800
November 9, 1998
Park `N View, Inc.
11711 N.W. 39th Street
Coral Springs, Florida 33065
Re: Registration Statement on Form S-4 (No. 333-59889)
Ladies and Gentlemen:
We have acted as counsel to Park `N View, Inc., a Delaware corporation
(the "Company") in connection with a Registration Statement on Form S-4 (the
"Registration Statement") filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act") relating
to the 13% Series B Senior Notes due 2008 (the "New Notes") of the Company to be
offered in exchange for all outstanding 13% Series A Senior Notes due 2008 (the
"Old Notes") of the Company. The New Notes will be issued pursuant to an
indenture (the "Indenture"), dated as of May 27, 1998, by and between the
Company and State Street Bank and Trust Company, as trustee (the "Trustee").
As such counsel, we have examined, among other things, (i) the
Registration Statement, (ii) the Indenture, and (iii) the form of the New Notes.
The New Notes and the Indenture are sometimes collectively referred to herein as
the "Securities Documents." We have examined the proceedings and other actions
taken by the Company in connection with the authorization, execution and
delivery of the Indenture and the issuance of the New Notes thereunder. We also
have made such other inquiries and examined, among other things, originals or
copies, certified or otherwise, identified to our satisfaction, of such records,
agreements, certificates, instruments and other documents as we have considered
necessary or appropriate for the purposes of this opinion.
In rendering this opinion, we have assumed:
(i) The due and valid execution and delivery of the Indenture by the
Trustee, and that the Indenture constitutes the legal, valid and binding
agreement of the Trustee; and
<PAGE> 2
KILPATRICK STOCKTON LLP
Park 'N View, Inc.
November 9, 1998
Page 2
(ii) The genuineness of all signatures, the legal capacity of all
natural persons, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
latter documents.
Based upon the foregoing and in reliance thereon, subject to the
qualifications, exceptions, assumptions and limitations herein contained, and
subject to receipt by the Company from the Commission of an order declaring the
Registration Statement effective, we are of the opinion that the New Notes, when
issued and delivered in exchange for the Old Notes in the manner described in
the Registration Statement and when executed and authenticated as specified in
the Indenture, will be legally issued and will constitute binding obligations of
the Company.
The foregoing opinion is also subject to the following additional
qualifications, exceptions, assumptions and limitations:
A. We render no opinion herein as to matters involving any laws
other than the laws of the United States of America, the State of New York, the
State of North Carolina and the General Corporation Law of the State of
Delaware. This opinion is limited to the effect of the present state of such
laws and to the facts as they presently exist. We assume no obligation to revise
or supplement this opinion in the event of changes in such laws or the
interpretations thereof or in the event of changes in such facts.
B. Our opinion set forth herein is subject to (i) the effect of any
bankruptcy, insolvency, reorganization, moratorium, arrangement or similar laws
affecting the enforcement of creditors' rights generally (including, without
limitation, the effect of statutory or other laws regarding fraudulent
transfers, conveyances and obligations or preferential transfers and
distributions) and (ii) general principles of equity, regardless of whether a
matter is considered in a proceeding in equity or at law, including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing. Without limitation, we express no opinion as to the validity, legally
binding nature or
<PAGE> 3
KILPATRICK STOCKTON LLP
Park 'N View, Inc.
November 9, 1998
Page 3
enforceability of any provision in the Securities Documents relating to
indemnification, exculpation or contribution.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus included in the Registration Statement. In
giving such consent, we do not thereby admit that we are "experts" within the
meaning of the Act or the rules and regulations of the Securities and Exchange
Commission issued thereunder with respect to any part of the Registration
Statement, including this exhibit.
Very truly yours,
/s/ Kilpatrick Stockton LLP
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-59889 of Park 'N View, Inc. on Form S-4 of our report dated September 11,
1998, appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Fort Lauderdale, Florida
November 9, 1998
