<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
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)
---------------------
STEPHEN L. CONKLING
VICE PRESIDENT-FINANCE 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)
---------------------
COPIES TO:
ELIZABETH G. WREN, ESQ.
JAMES M. O'CONNELL, ESQ.
KILPATRICK STOCKTON LLP
3500 ONE FIRST UNION CENTER, CHARLOTTE, NORTH CAROLINA 28202
(704) 338-5032
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for any offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Warrants to purchase shares of Common
Stock.............................. 75,000 $61.99 $4,649,250 $1,371.53
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Common Stock, par value $.001 per
share.............................. 505,375(2) -- -- No Separate Fee
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(1) Estimated solely for the purposes of calculating the registration fee.
(2) Shares of Common Stock issuable upon exercise of outstanding Warrants.
Pursuant to Rule 416 under the Securities Act of 1933, as amended, this
Registration Statement also relates to such additional indeterminate number
of shares of Common Stock as may be issued pursuant to antidilution
provisions of the Warrants.
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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<PAGE> 2
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 JULY 24, 1998
PROSPECTUS
PARK 'N VIEW, INC.
75,000 WARRANTS TO PURCHASE COMMON STOCK
COMMON STOCK ISSUABLE UPON EXERCISE OF WARRANTS
---------------------
This Prospectus relates to (i) the offering for resale from time to time by
certain selling security holders named herein or in supplements hereto (the
"Selling Security Holders") of an aggregate of 75,000 warrants (the "Warrants")
to purchase an aggregate 505,375 shares (as such number may be adjusted from
time to time in accordance with the terms of the Warrants, the "Warrant Shares")
of common stock, par value $.001 per share ("Common Stock"), of Park 'N View,
Inc. ("the Company"), (ii) the offering for resale from time to time of the
Warrant Shares by the initial investors in the Units (as defined herein) and
(iii) the offer and sale by the Company of the Warrant Shares to transferees of
such initial investors upon exercise of the Warrants by such transferees.
The Warrant Shares being offered by the Company and the Selling Security
Holders are issuable upon the exercise of the Warrants, which were sold in
connection with the offering (the "Unit Offering") of 75,000 units (the "Units")
consisting of $75,000,000 aggregate principal amount of 13% Senior Notes due
2008 (the "Notes") of the Company and 75,000 Warrants. Each Unit consisted of
$1,000 principal amount of Notes and one Warrant. The Units were issued and sold
on May 27, 1998 to Donaldson, Lufkin & Jenrette Securities Corporation (the
"Initial Purchaser") in a transaction exempt from the registration requirements
of the Securities Act of 1933, as amended (the "Securities Act"), to qualified
institutional buyers in reliance on Rule 144A ("Rule 144A") under the Securities
Act.
The Warrants will become exercisable on , 1998 (the "Separation
Date"). Unless exercised, the Warrants will automatically expire on May 15,
2008. The Company will receive the proceeds of any exercise of the Warrants.
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 number of shares of
Common Stock purchasable upon the exercise of the Warrants and payment of the
exercise price is subject to adjustment upon the occurrence of certain events.
The exercise of the Warrants will be subject to compliance with applicable
federal and state securities laws. See "Description of Warrants."
The Selling Security Holders will receive all of the proceeds from the sale
of the Warrants. The Selling Security Holders, directly or through agents,
dealers or underwriters to be designated from time to time, may sell the
Warrants and the Warrant Shares from time to time in the over-the-counter
market, on a securities exchange on which the Warrants or the Common Stock are
then listed, in negotiated transactions or otherwise, at prices and on terms to
be determined at the time of sale. At the time a particular offer of the
Warrants or the Warrant Shares is made, if required, the number of Warrants or
Warrant Shares being offered and the terms of the offering, including the name
or names of any agents, dealers or underwriters, the purchase price paid by any
underwriter, any discounts or commissions and the proposed public offering price
will be set forth in one or more supplements to this Prospectus. The aggregate
proceeds to the Selling Security Holders
(continued on next page)
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DESCRIPTION OF CERTAIN RISKS
TO BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES.
---------------------
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.
---------------------
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 3
(cover page continued)
from the sale of the Warrants or Warrant Shares will be the purchase price of
the securities sold less the aggregate agents' commissions and underwriters'
discounts, if any, and other expenses of issuance and distribution not borne by
the Company. The Selling Security Holders and any broker-dealers, agents or
underwriters that participate with the Selling Security Holders in the
distribution of any Warrants or Warrant Shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and any commission received by them and any profit on the
resale of the securities purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Selling Security
Holders" and "Plan of Distribution."
All costs (other than commission expenses and brokerage fees, if any)
incurred in connection with the registration and distribution of the Warrant
Shares and the Warrants by the Selling Security Holders are being borne by the
Company. Commission expenses and brokerage fees in respect of the Warrants and
the Warrant Shares are payable by the Selling Security Holders.
The Company is filing the Registration Statement of which this Prospectus
forms a part to fulfill in part its obligations under the Warrant Agreement (as
defined herein) and the Warrant Registration Rights Agreement (as defined
herein).
The Warrant Shares and the Warrants are referred to collectively herein as
the "Securities." There is no active market for the Securities, and there can be
no assurance that an active trading market will develop. Prospective investors
in the Securities should be aware that they may be required to bear the
financial risks of such investment for an indefinite period of time.
ii
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (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 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 SEC. Pursuant to the Warrant Agreement, dated May 27, 1998
(the "Warrant Agreement"), between the Company and State Street Bank and Trust
Company, as warrant agent (the "Warrant Agent"), as long as any of the Warrants
are outstanding and to the extent the Company is required to send such documents
to the holders of its outstanding Common Stock, whether or not required by the
rules and regulations of the Commission, the Company has agreed to provide the
registered holders of Warrants (and the beneficial Holders upon request) with
copies of quarterly and annual financial information that would be contained in
filings with the Commission on Forms 10-Q and 10-K and, with respect to annual
information, a report thereon by the Company's independent certified public
accountants, and all current reports on Form 8-K.
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 PNV Network (as defined
herein) 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.
---------------------
Certain market data used throughout this Prospectus were obtained from
industry and government sources. The Company has not independently verified this
market data and makes no representations as to its accuracy.
iii
<PAGE> 5
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 only 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 March 1998, the Company had over 19,000 active
subscribers, an increase of over 120% from the approximately 8,400 subscribers
it had in April 1997. The Company was formed in September 1995 and, as of March
31, 1998, had installed the PNV Network in 102 truckstops located in 35 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.
1
<PAGE> 6
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 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 730 full-service
truckstops under contract as of March 31, 1998, approximately 390 are covered by
contracts directly with the truckstop owner and approximately 340 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 730 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 March 31, 1998, the Company had
entered into long-term contracts to provide telecommunications and
entertainment services to long-haul drivers at approximately 730 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 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 purchase a membership card and starter kit
for $10. 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. See "Business -- Products and Services."
2
<PAGE> 7
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 2,300 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 personal computer (PC) based communications server installed at
each truckstop location (the "Site Server") which is connected by a wide area
network (WAN) to a central host server (the "Host Server"). The Company plans to
enhance the current capacity and functionality of the PNV Network by replacing
Plain Old Telephone Service ("POTS" or "local") 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 Internet Service Provider
("ISP") and develop voice over Internet Protocol (IP) capability. The Company
will be able to offer highly competitive long distance rates 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.
Since its formation in September 1995, the Company has received
approximately $37.4 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 Unit Offering (as defined herein). 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 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.
3
<PAGE> 8
THE OFFERING
Securities Subject to the
Offering................. 75,000 Warrants to purchase initially up to 505,375
shares of Common Stock. Shares of Common Stock
initially issuable upon exercise of the Warrants
plus such indeterminate number of shares of Common
Stock as may be issued pursuant to the
anti-dilution provisions of the Warrants.
Total Number of Warrants... 75,000 Warrants, which when exercised would entitle
the holders thereof to acquire an aggregate of
505,375 Warrant Shares, representing approximately
5% of the Common Stock on a fully diluted basis as
of the consummation of the Unit Offering. See
"Description of Warrants" and "Description of the
Company Capital Stock." The Warrants were issued
pursuant to the Warrant Agreement.
Exercise................... Each Warrant will entitle the holder thereof to
purchase 6.73833 Warrant Shares at an exercise
price of $.01 per share, subject to adjustment
under certain circumstances. The number of shares
of Common Stock for which a Warrant is exercisable
is subject to adjustment upon the occurrence of
certain events as provided in the Warrant
Agreement. See "Description of Warrants."
Duration................... The Warrants will be exercisable at any time on or
after the Separation Date and prior to 5:00 p.m.,
New York City time, on May 15, 2008. The exercise
of the Warrants will be subject to compliance with
applicable federal and state securities laws. See
"Description of Warrants" and "Risk
Factors -- Requirements for Exercising Warrants."
Warrant Agent.............. State Street Bank and Trust Company.
RISK FACTORS
Prospective investors should carefully consider the matters set forth
herein under "Risk Factors."
4
<PAGE> 9
SUMMARY FINANCIAL DATA
The summary financial data for the Predecessor for the year ended December
31, 1994 and 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 year ended June 30, 1997 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 for the nine months ended March 31, 1997 and 1998 are derived
from unaudited financial statements included elsewhere in this Prospectus,
which, in the opinion of management reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the Company's
financial position and results of operations. The summary balance sheet data set
forth below for the Predecessor as of December 31, 1994 and November 2, 1995 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>
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PREDECESSOR(1) SUCCESSOR(1)
-------------------------- ---------------------------------------------------------------
PERIOD PERIOD FROM
FROM SEPTEMBER 18,
JANUARY 1, 1995 (DATE OF NINE MONTHS ENDED
YEAR ENDED 1995 TO INCORPORATION) YEAR ENDED MARCH 31,
DECEMBER 31, NOVEMBER 2, TO JUNE 30, JUNE 30, --------------------------------
1994 1995 1996 1997 1997 1998
------------ ----------- -------------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $ 149,755 $ 888,397 $ 462,676 $ 2,106,455
Cost of revenues(2)............. 436,829 2,077,689 1,243,994 4,128,735
Selling, general and
administrative expenses....... $ 287,782 $ 475,891 1,576,209 5,026,580 3,400,159 6,471,565
--------- --------- ----------- ----------- ------------ ------------
Loss from operations............ (287,782) (475,891) (1,863,283) (6,215,872) (4,181,477) (8,493,845)
Interest (expense) income and
other, net.................... (97,954) 170,852 59,452 373,493
--------- --------- ----------- ----------- ------------ ------------
Net loss........................ $(287,782) $(475,891) $(1,961,237) $(6,045,020) $ (4,122,025) $ (8,120,352)
========= ========= =========== =========== ============ ============
OTHER OPERATING DATA:
EBITDA(3)....................... $(287,782) $(475,891) $(1,778,942) $(5,572,556) $ (3,747,633) $ (7,281,996)
Capital expenditures............ 109,587 909 1,650,177 6,443,899 3,614,764 9,822,272
Net cash flows used in operating
activities.................... (254,311) (389,809) (1,452,706) (3,448,848) (2,044,219) (7,566,197)
Net cash flows used in investing
activities.................... (109,587) (909) (1,650,177) (6,443,899) (3,614,764) (9,822,272)
Net cash flows provided by
financing activities.......... 369,449 380,070 3,468,614 14,244,410 14,345,524 17,447,526
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR(1) SUCCESSOR(1)
-------------------------- ---------------------------------------------------------------
MARCH 31, 1998
JUNE 30, --------------------------------
DECEMBER 31, NOVEMBER 2, ---------------------------- AS
1994 1995 1996 1997 ACTUAL ADJUSTED(4)(5)(6)
------------ ----------- -------------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....... $ 19,856 -- $ 365,731 $ 4,717,394 $ 4,776,451 $ 76,251,451
Working capital................. 6,521 -- (81,610) 2,516,806 3,143,811 74,618,811
Total assets.................... 174,711 -- 2,898,125 12,938,783 22,410,888 97,410,888
Total long-term debt............ 216,667 -- 3,387,934 128,692 187,940 70,537,940
Partnership deficiency/common
stockholders' deficit......... (55,292) -- (1,969,525) (8,931,927) (18,515,370) (13,865,370)
</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
December 31, 1994 and November 2, 1995 and for the year ended December 31,
1994 and the period from January 1, 1995 to November 2, 1995, the date of
the net liabilities 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 and 1997 and March 31, 1998 and for the period from
September 18, 1995 (date
5
<PAGE> 10
of incorporation) to June 30, 1996, for the year ended June 30, 1997 and the
nine months ended March 31, 1997 and 1998.
(2) Includes service depreciation of $84,000 and $643,000 for the period from
September 18, 1995 (date of incorporation) to June 30, 1996 and the year
ended June 30, 1997, respectively, and $434,000 and $1,212,000 for the nine
months ended March 31, 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.
(4) Adjusted to give effect to the Unit Offering and the application of the net
proceeds therefrom as if the Unit Offering had occurred March 31, 1998.
(5) Includes the aggregate principal amount of the Pledged Securities (as
defined herein), estimated at approximately $19.2 million.
(6) The Company received gross proceeds from the Unit Offering of $75.0 million.
The estimated value of the Warrants ($4.65 million) has been reflected as a
debt discount and an element of paid-in capital. However, the actual
aggregate principal amount of the Notes is $75.0 million. The resulting debt
discount will be amortized over the term of the Notes.
6
<PAGE> 11
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 purchasing the Securities.
LIMITED HISTORY OF OPERATIONS; HISTORY OF LOSSES, NEGATIVE CASH FLOW AND
NEGATIVE GROSS MARGIN
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 Units.
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.
The Company has experienced a net loss and negative cash flow from
operations in each quarter since it was incorporated. As of March 31, 1998, the
Company had a common stockholders' deficit of $19.1 million. The Company expects
to incur a significant net loss and negative cash flow from operations in the
fiscal year ending June 30, 1998 and for the next several years. 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 Unit 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 March 1998, the
Company had approximately 19,000 active subscribers of whom approximately 11,600
had subscribed on a monthly basis (including subscription sales at the Company's
vending machines at truckstops, pursuant to the Power Plan Program (as defined
herein) and pursuant to the Company's contracts with fleet trucking companies)
and 7,400 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
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
7
<PAGE> 12
between 200 and 250, depending on site location, size and other factors. As of
March 31, 1998, the PNV Network was installed and operating at 102 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 November or December 1997, Company data indicates
that approximately 69% renewed their subscriptions at least once between such
subscription and March 1998. In October 1997, the Company implemented a monthly
subscription program designed to increase monthly subscription renewals referred
to as the "Power Plan Program." 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 March 31, 1998, the Company had 5,400 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 March 31, 1998, the Company had entered into
contracts with five fleet trucking companies for a minimum of 2,300
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. After
giving pro forma effect to the Unit Offering and the estimated application of
the proceeds thereof, at March 31, 1998, the Company would have had total
long-term debt of $70.5 million and a common stockholders' deficit of $13.9
million. The Company's earnings were insufficient to cover its fixed charges and
preferred stock dividend requirements by approximately $7.0 and $10.1 million
for fiscal 1997 and for the nine months ended March 31, 1998, respectively. The
Company will be permitted to incur additional indebtedness in the future under
the indenture relating to the Notes (the "Indenture"). See "Capitalization,"
"Selected Financial Data" and "Description of the Notes."
8
<PAGE> 13
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 AND SERVICES; FUTURE REVENUE STREAMS;
MINIMUM REQUIREMENTS CONTRACTS; COST-SAVINGS
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. Following the completion of the Unit Offering, the
Company intends to increase its truckstop installation rate to approximately 15
to 20 per month by the first quarter of 1999. The Company is presently
installing the PNV Network at approximately seven truckstops per month. There
can be no assurance that the Company will be able to achieve its build-out rate
after the consummation of the Unit 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
9
<PAGE> 14
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.
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 a
contract 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.
The Company has also recently entered into a contract with AT&T for the
purchase of long distance and other telephone services. This contract, as well
as the Company's contract relating to its lease of T-1 lines, 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.
The Company's ability to achieve its objectives also depends significantly
on its ability to generate revenues from planned future services and recognize
cost-savings from planned enhancements to the PNV Network. 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.
10
<PAGE> 15
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.
In addition, as of March 31, 1998, the Company had contracts to install the
PNV Network at approximately 340 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
two executive officers, during the past 12 months. As of March 31, 1998, the
number of the Company's full-time employees had increased to 132 from 35 as of
April 1, 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
11
<PAGE> 16
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.
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 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.
12
<PAGE> 17
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 compliance process could have a material adverse effect on the
Company's results of operations and financial condition. See
"Business -- Regulatory Matters."
13
<PAGE> 18
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 PNV Software (as defined herein) 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 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
14
<PAGE> 19
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 believes that costs incurred in connection
with any such testing and required reprogramming and replacement will not have a
material adverse effect on the Company's financial condition or results of
operations. Based on its preliminary internal review, the Company believes that
the PNV Software is Year 2000 compliant. In addition, the Company relies on
third party vendors which must also become Year 2000 compliant. 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000."
RESTRICTIVE COVENANTS
The Indenture contains a number of covenants that will 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 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."
ABSENCE OF PUBLIC MARKET
There is currently no market for the Warrants or the Common Stock of the
Company. The Company does not currently intend to list the Warrants or its
Common Stock on any national securities exchange or to seek the admission
thereof to trading in the Nasdaq National Market. There can be no assurance that
an active trading market for any of the Securities will develop, or if one does
develop, that it will be sustained. Accordingly, no assurance can be made as to
the liquidity of the trading market for the Securities. If any of the Securities
are traded after their initial issuance, they may trade at a discount from their
initial offering price, depending on the market for similar securities and other
factors, including general economic conditions and the financial condition and
performance of the Company. Prospective investors in the Securities should be
aware that they may be required to bear the financial risks of such investment
for an indefinite period of time. See "Description of Warrants."
REQUIREMENTS FOR EXERCISING WARRANTS
Holders of Warrants will be able to exercise their Warrants only if a
registration statement relating to the shares of Common Stock underlying the
Warrants is then in effect, or the exercise of such Warrants is exempt from the
registration requirements of the Securities Act, and such securities are
qualified for sale or exempt from qualification under the applicable securities
laws of the states in which the various holders of the Warrants reside. Although
the Company is required under the terms of the Warrant Agreement to file and use
its best efforts to make effective a shelf registration statement on an
appropriate form under the Securities Act covering issuance of Common Stock upon
the exercise of the Warrants, there can be no assurance that the Company will be
able to do so in a timely manner. The Company will be unable to issue shares of
Common Stock to those persons desiring to exercise their Warrants if a
registration statement covering the securities issuable upon the exercise of the
Warrants is not effective (unless the sale and issuance of shares upon the
exercise of such Warrants is exempt from the registration requirements of the
Act) or if such securities are not qualified or exempt from qualification in the
states in which the holders of the Warrants reside. See "Description of the
Warrants."
CONTROL BY EXISTING SECURITY HOLDERS 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 74.9% of the outstanding shares of Common Stock and
15
<PAGE> 20
(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 Security Holders." 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.
ABSENCE OF DIVIDENDS
The Company has not paid and does not anticipate paying any cash dividends
on its Common Stock in the foreseeable future. The Company intends to retain its
earnings, if any, for use in the Company's growth and ongoing operations. In
addition, the terms of the Indenture, the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock restrict the ability of the
Company to pay dividends on the Common Stock. Holders of the Warrants will not
have the right to receive any dividends so long as their Warrants are
unexercised.
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."
USE OF PROCEEDS
The maximum gross proceeds to the Company from the exercise of the Warrants
and the issuance of the Common Stock offered hereby (assuming all Warrants are
exercised at the current exercise price of $.01 per share) would be $5,053.75.
The Company intends to use any such proceeds for working capital and general
corporate purposes. The Company will not receive any proceeds from the sale of
the Warrants offered hereby.
The net proceeds to the Company from the Unit Offering were approximately
$71.5 million. The Company placed approximately $19.2 million of such net
proceeds into an escrow account that was used to purchase a portfolio of U.S.
government obligations (the "Pledged Securities"). The account and the Pledged
Securities were 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 Notes. See "Description of the Notes." 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 from the Unit Offering as described above, the Company intends to
invest the net proceeds in short-term, investment grade, interest-bearing
securities.
16
<PAGE> 21
CAPITALIZATION
The following table sets forth the cash and cash equivalents and
capitalization of the Company as of March 31, 1998, and as adjusted to reflect
the issuance of the Units and the application of estimated net proceeds to the
Company therefrom. The following table should be read in conjunction with the
financial statements and notes thereto of the Company included elsewhere herein.
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Cash and cash equivalents(1)................................ $ 4,776,451 $ 76,251,451
============ ============
Long-term debt:
13% Senior Notes due 2008(2).............................. $ -- $ 70,350,000
Other long-term debt, less current portion................ 187,940 187,940
------------ ------------
Total long-term debt, excluding current portion... 187,940 70,537,940
------------ ------------
Series A Redeemable Preferred Stock (including accrued
dividends of $417,103), par value $.01 per share; 627,630
shares authorized; 388,075 shares issued and
outstanding............................................... 4,155,003 4,155,003
Series B Redeemable 7% Cumulative Convertible Preferred
Stock (including accrued dividends of $1,449,550), par
value $.01 per share; 1,372,370 shares authorized, issued
and outstanding........................................... 16,041,560 16,041,560
Series C Redeemable 7% Cumulative Convertible Preferred
Stock (including accrued dividends of $789,617), par value
$.01 per share; 3,750,000 shares authorized; 2,328,543
shares issued and outstanding............................. 18,146,910 18,146,910
Common Stockholders' Deficit:
Common stock, par value $.001 per share; 12,000,000 shares
authorized; 4,318,182 shares issued and outstanding.... 4,318 4,318
Additional paid-in capital(2)............................. 547,763 5,197,763
Accumulated deficit....................................... (19,067,451) (19,067,451)
------------ ------------
Total common stockholders' deficit................ (18,515,370) (13,865,370)
------------ ------------
Total capitalization.............................. $ 20,016,043 $ 95,016,043
============ ============
</TABLE>
- ---------------
(1) Includes the aggregate principal amount of the Pledged Securities, estimated
at approximately $19.2 million. See "Description of the Notes."
(2) The Company received gross proceeds from the Unit Offering of $75.0 million.
The estimated value of the Warrants ($4.65 million) has been reflected as
both a debt discount and an element of additional paid-in capital. However,
the actual aggregate principal amount of the Notes is $75.0 million. The
resulting debt discount will be amortized over the term of the Notes.
17
<PAGE> 22
SELECTED FINANCIAL DATA
The selected financial data for the Predecessor for the year ended December
31, 1994 and 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 year ended June 30, 1997 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 as of and for the nine months ended March 31, 1997 and 1998 are
derived from unaudited financial statements included elsewhere in this
Prospectus, which, in the opinion of management reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the Company's financial position and results of operations. The
selected financial data for the Predecessor as of December 31, 1993 and 1994 and
November 2, 1995 and for the period from November 19, 1993 (date of inception)
to December 31, 1993 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
DECEMBER 31, DECEMBER 31, NOVEMBER 2, TO JUNE 30, JUNE 30,
1993 1994 1995 1996 1997
------------- ------------ ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 149,755 $ 888,397
Cost of revenues(2)..... 436,829 2,077,689
----------- -----------
Gross margin............ (287,074) (1,189,292)
Selling, general and
administrative
expenses.............. $ 7,792 $ 287,782 $ 475,891 1,576,209 4,431,889
Lease cancellation
expense............... 594,691
------- --------- --------- ----------- -----------
Loss from operations.... (7,792) (287,782) (475,891) (1,863,283) (6,215,872)
Interest expense........ 103,079 157,416
Interest income and
other................. (5,125) (328,268)
------- --------- --------- ----------- -----------
Net loss................ $(7,792) $(287,782) $(475,891) $(1,961,237) $(6,045,020)
======= ========= ========= =========== ===========
OTHER OPERATING DATA:
EBITDA(3)............... $(7,792) $(287,782) $(475,891) $(1,778,942) $(5,572,556)
Capital expenditures.... 65,404 109,587 909 1,650,177 6,443,899
Net cash flows used in
operating
activities............ (7,792) (254,311) (389,809) (1,452,706) (3,448,848)
Net cash flows used in
investing
activities............ (65,404) (109,587) (909) (1,650,177) (6,443,899)
Net cash flows provided
by financing
activities............ 87,500 369,449 380,070 3,468,614 14,244,410
Ratio of earnings to
fixed charges and
preferred stock
dividend
requirements(4)....... -- --
<CAPTION>
SUCCESSOR(1)
---------------------------
NINE MONTHS ENDED
MARCH 31,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 462,676 $ 2,106,455
Cost of revenues(2)..... 1,243,994 4,128,735
------------ ------------
Gross margin............ (781,318) (2,022,280)
Selling, general and
administrative
expenses.............. 2,796,456 6,471,565
Lease cancellation
expense............... 603,703
------------ ------------
Loss from operations.... (4,181,477) (8,493,845)
Interest expense........ 144,617 23,949
Interest income and
other................. (204,069) (397,442)
------------ ------------
Net loss................ $ (4,122,025) $ (8,120,352)
============ ============
OTHER OPERATING DATA:
EBITDA(3)............... $ (3,747,633) $ (7,281,996)
Capital expenditures.... 3,614,764 9,822,272
Net cash flows used in
operating
activities............ (2,044,219) (7,566,197)
Net cash flows used in
investing
activities............ (3,614,764) (9,822,272)
Net cash flows provided
by financing
activities............ 14,345,524 17,447,526
Ratio of earnings to
fixed charges and
preferred stock
dividend
requirements(4)....... -- --
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR(1) SUCCESSOR(1)
------------------------------------------- -------------------------------------------
AS OF DECEMBER 31, AS OF AS OF JUNE 30, AS OF
---------------------------- NOVEMBER 2, ---------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------------- ------------ ------------ -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents........... $14,304 $ 19,856 -- $ 365,731 $ 4,717,394 $ 4,776,451
Working capital......... 14,304 6,521 -- (81,610) 2,516,806 3,143,811
Total assets............ 79,708 174,711 -- 2,898,125 12,938,783 22,410,888
Total long-term debt.... 87,500 216,667 -- 3,387,934 128,692 187,940
Total redeemable
preferred stock....... -- -- -- 721,370 19,131,466 38,343,473
Partnership deficiency/
common stockholders'
deficit............... (7,792) (55,292) -- (1,969,525) (8,931,927) (18,515,370)
<CAPTION>
<S> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents...........
Working capital.........
Total assets............
Total long-term debt....
Total redeemable
preferred stock.......
Partnership deficiency/
common stockholders'
deficit...............
</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.
18
<PAGE> 23
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 November 2, 1995 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 of the net liabilities 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 and 1997 and March 31, 1998 and for the
period from September 18, 1995 (date of incorporation) to June 30, 1996, for
the year ended June 30, 1997 and the nine months ended March 31, 1997 and
1998.
(2) Includes service depreciation of $84,000 and $643,000 for the period from
September 18, 1995 (date of incorporation) to June 30, 1996 and the year
ended June 30, 1997, respectively, and $434,000 and $1,212,000 for the nine
months ended March 31, 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.
(4) In calculating 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. Earnings were insufficient to cover
fixed charges and preferred stock dividend requirements for the periods
ended June 30, 1996 and 1997 by $1,983,000 and $6,962,000, respectively, and
for the nine months ended March 31, 1997 and 1998 by $4,686,000 and
$10,100,000, respectively.
19
<PAGE> 24
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 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 March 31, 1998, the PNV Network was available at 102 full-service
truckstops. During March 1998, the Company had over 19,000 subscribers
(including approximately 2,300 drivers sponsored by five fleets under contracts
with the Company), an increase of over 120% from the 8,400 subscribers the
Company had in April 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."
Components of Revenues
To date, the Company's revenues have been generated principally from sales
of monthly and daily subscriptions to the PNV Network, as well as daily access
subscriptions to a Pay-Per-View channel, and, to a lesser extent, sales of long
distance telephone time and starter kits to long-haul truck drivers. 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. The Company's sales to truck
drivers at the 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 March
31, 1998 was available at approximately 40% of the truckstops as permitted by
the truckstop owner) for which it charges $5 for daily access. As of March 31,
1998, the Company has experienced a 19% penetration rate for this service.
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.
20
<PAGE> 25
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. The Company
already has one long-haul fleet trucking company advertising for
recruitment of drivers on the channel.
The Company generally recognizes service revenue in the period earned.
Prepaid service revenues are recorded as deferred revenue until earned.
Recognition of one-half of the revenue relating to an initial Power Plan Program
subscription sale is deferred until the beginning of the second month of the two
month period. Fees received in advance of recognizing the related revenue are
recorded as deferred revenue.
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 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 for the first month of service and 10% of revenues
thereafter. The contracts 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.
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.
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<PAGE> 26
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 and travel 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 132 as of March 31, 1998
from 35 as of April 1, 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 subsequent to the completion
of the Unit Offering, as the Company applies a portion of the net proceeds of
the Unit Offering to expand marketing 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
Nine Months Ended March 31, 1998 Compared to Nine Months Ended March 31, 1997
Revenues. The Company's revenues increased 355% to $2,106,000 for the nine
months ended March 31, 1998 from $463,000 for the nine months ended March 31,
1997 primarily due to an increase in subscription sales and an increase in
subscription fees initiated in the month of May 1997.
Cost of Revenues. Cost of revenues, excluding service depreciation,
increased 260% to $2,917,000 for the nine months ended March 31, 1998 from
$810,000 for the nine months ended March 31, 1997 principally due to increased
sales volume. Cost of revenues includes commissions payable to truckstops, cable
programming, leased 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, General and Administrative Expenses. Selling, general and
administrative expenses increased 131% to $6,472,000 for the nine months ended
March 31, 1998 from $2,796,000 for the nine months ended March 31, 1997,
reflecting principally increased expenses related to Company marketing programs,
additional selling, management and administrative personnel, additional
administrative offices and warehouse space.
Service Depreciation. Service depreciation increased 179% to $1,212,000
for the nine months ended March 31, 1998 from $434,000 for the nine months ended
March 31, 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 increased $314,000 to $373,000 for the nine months ended March 31,
1998 from $59,000 for the nine months ended March 31, 1997, reflecting an
increase in interest and other income of $193,000 from investment of cash in
short-term investments and a decrease in interest expense of $121,000. 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 6 of Notes to Financial Statements.
Net Loss. The Company's net loss increased 97% to $8,120,000 for the nine
months ended March 31, 1998 from $4,122,000 for the nine months ended March 31,
1997 primarily as a result of the foregoing factors.
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<PAGE> 27
Year Ended June 30, 1997 Compared to Period from September 18, 1995 (Date of
Incorporation) to June 30, 1996
Revenues. The Company's 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"), reflecting additional subscription
sales volume to the PNV Network in the year ending June 30, 1997.
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.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2,856,000 to $4,432,000 for the year ended
June 30, 1997 from $1,576,000 for the fiscal 1996 period reflecting the
Company's increased administrative personnel and increased expenses for
administrative offices and warehouse space.
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 6 of Notes to 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 and certain debt securities (an
aggregate of $37.4 million) and cash generated from operations.
From November 1995 to November 1996, in connection with the capitalization
of the Company, the Patricof Managed Funds (as defined herein) 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 of Notes to 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 before offering expenses of $72,375,000. See "Use of Proceeds."
Net cash used in operating activities was $7,566,000 and $2,044,000 for the
nine months ended March 31, 1998 and 1997, respectively, and $3,449,000 and
$1,453,000 for the year ended June 30, 1997 and the fiscal 1996 period,
respectively. The $5,522,000 increase in net cash used in operating activities
for the nine months ended March 31, 1998 as compared to the nine months ended
March 31, 1997 resulted primarily from increased marketing and additional staff
to support the larger number of sites and subscribers. The $1,996,000
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<PAGE> 28
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 $9,822,000 and $3,615,000 and for
the nine months ended March 31, 1998 and 1997, respectively, and $6,444,000 and
$1,650,000 for the year ended June 30, 1997 and the fiscal 1996 period,
respectively. The $6,207,000 increase in net cash used in investing activities
for the nine months ended March 31, 1998 as compared to the nine months ended
March 31, 1997 resulted primarily from the additional buildout of the PNV
Network. 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 $17,448,000 and $14,346,000
for the nine months ended March 31, 1998 and 1997, respectively, and $14,244,000
and $3,469,000 for the year ended June 30, 1997 and the fiscal 1996 period,
respectively. The $3,102,000 increase in net cash provided by financing
activities for the nine months ended March 31, 1998 as compared to the nine
months ended March 31, 1997 resulted primarily from the issuance of the Series C
Preferred Stock. The $10,775,000 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 of Notes to Financial Statements.
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. See "Business -- Products and
Services -- Future Products and Services" and "Risk Factors -- Expansion of PNV
Network Installation and Services; Future Revenue Streams; Minimum Requirements
Contracts; Cost-Savings." At June 30, 1997, the Company's minimum commitments
under capital leases and noncancellable operating leases with terms in excess of
one year totaled $223,000, $172,000, $128,000, $106,000 and $36,000 for the five
years ending June 30, 1998 through 2002, respectively. See Note 4 of Notes to
Financial Statements.
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 Unit Offering, together with 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
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<PAGE> 29
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 estimates that costs incurred in connection
with any such testing and required reprogramming and replacement will not have a
material adverse effect on the Company's financial condition or results of
operations. Based on its preliminary internal review, the Company believes that
the Company-developed software is Year 2000 compliant. In addition, the Company
relies on third party vendors which must also become Year 2000 compliant.
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.
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<PAGE> 30
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 March 1998, the Company had over 19,000
active subscribers, an increase of over 120% from the approximately 8,400
subscribers it had in April 1997. The Company was formed in September 1995 and,
as of March 31, 1998, had installed the PNV Network in 102 truckstops located in
35 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
26
<PAGE> 31
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 730 full-service
truckstops under contract as of March 31, 1998, approximately 390 are covered by
contracts directly with the truckstop owner and approximately 340 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 730 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 March 31, 1998, the Company had
entered into long-term contracts to provide telecommunications and
entertainment services to long-haul drivers at approximately 730 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 purchase a membership card and starter kit
for $10. 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. 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
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<PAGE> 32
basis. The Company recently signed contracts with five fleet trucking companies
that have purchased monthly subscriptions for an aggregate of approximately
2,300 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, 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-
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<PAGE> 33
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.
The Company plans to achieve its objective by:
- Continuing the build-out of the PNV Network from 102 sites as of March
31, 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");
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<PAGE> 34
- Enhancing the PNV Network by increasing its capacity and functionality
(see "-- Network and Technology); and
- Continuing to develop its marketing and sales program to further
penetrate the fleet and individual driver segments (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 quality
capability from inside the capability from inside the truck reception from inside the truck
truck cab. cab. cab.
- - Full local and long distance - Ability to use the telephone - 18 channels of programming.
calling. system to connect to the Internet
and to transmit/receive data - Pay-Per-View channel available
- - Ability to purchase incremental through a regular modem. for an incremental $5.00 per day
long distance minutes. at certain locations.
- - Ability to receive calls.
- Availability of dedicated
- - Location service to find advertising channels.
members logged on to the
Network. - The Driver Entertainment
Network.
- - Voicemail.
- - Wake-up calls
</TABLE>
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 subscription at - 30 days of usage from - 24 hours of usage from
$30 per month. $30 per month. time of first time of first
activation at $30 per activation at $5 per
- - $10 initial membership fee - $10 initial membership month. day.
waived. fee waived.
- $10 initial membership - $10 initial membership
- - Local and long distance - Local and long distance fee fee
access. access.
- Local and long - Local and long
- - 60 minutes of long - 60 minutes of long distance access. distance access.
distance included per distance included per
month with subscription. month with subscription. - 60 minutes of long - Purchased with cash at
distance included per a vending machine at the
- - One to three year - Second month of service month with truckstop.
contracts with minimum is free. subscription.
commitments. - Unlimited daily access
- Charged every month to a - Purchased withcashat to cable television
- - Billed to the fleet each credit card or checking a vending machine at the services.
month. account provided by the truckstop.
subscriber.
- - Unlimited monthly access - Unlimited monthly
to cable television - Unlimited monthly access access to cable
services to cable television television services.
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
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<PAGE> 35
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.
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. One fleet trucking company has
recently begun advertising on the DEN for driver recruitment. 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 expand its voice and data communication services by
increasing the network functionality and capacity through the installation of
T-1 lines and intelligent switches throughout the PNV Network and to major fleet
trucking companies. Expansion of the functionality of the PNV Network will allow
31
<PAGE> 36
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 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 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
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<PAGE> 37
800 lines, 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 period 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 102 sites
as of March 31, 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 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. See "Risk Factors -- Expansion of PNV Network
Installation and Services; Future Revenue Streams; Minimum Requirements
Contracts; Cost-Savings."
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 730 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 340 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
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<PAGE> 38
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 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 March 31, 1998.
<TABLE>
<CAPTION>
TOTAL NO. OF LOCATIONS
TRUCKSTOP CHAINS AND OWNERS NO. OF LOCATIONS INSTALLED
- --------------------------- ---------------- ----------------
<S> <C> <C>
TA Operating Corporation.................................... 123 14
Pilot Corporation........................................... 119 30
Petro Stopping Centers, Inc................................. 39 4
Travelports of America, Inc................................. 16 8
All American Travel Plaza's, Inc............................ 10 6
MAPCO Marketing, Inc........................................ 3 1
Sapp Brothers Truckstops, Inc............................... 7 6
Bosselman's Travel Plazas................................... 3 3
Hamburg Enterprises, Inc.................................... 5 2
Bruce's Truckstops, Inc..................................... 4 0
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
Additional Owners of a Single Truckstop..................... 38 18
--- ---
Subtotal.................................................. 386 102
</TABLE>
<TABLE>
<CAPTION>
TOTAL NO. OF LOCATIONS
NO. OF LOCATIONS INSTALLED
---------------- ----------------
<S> <C> <C>
TRUCKSTOP ASSOCIATIONS
Professional Transportation Partners, LLC................... 128 28(1)
North American Truckstop Network, Inc....................... 109 26(1)
Ambest, Inc................................................. 107 8(1)
---
Subtotal............................................ 344 -0-
Total............................................... 730
===
</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
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<PAGE> 39
association locations are also included under the appropriate truckstop
chain referenced in the section of this table entitled "Truckstop Chains and
Owners."
As of March 31, 1998, the Company was in negotiations to enter into
additional exclusive contracts with several truckstop chains and independent
owners that collectively own more than 70 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 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 2,300 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
35
<PAGE> 40
and direct mail. The Company believes that this segment is too fragmented and
each individual company is too small to warrant sales representative 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
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 March 31, 1998, the Company has two RMs, 12 ASMs and approximately 60 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
36
<PAGE> 41
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 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 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 proprietary software developed by the Company (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.
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
37
<PAGE> 42
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. Following the completion of the Unit
Offering, the Company plans to significantly enhance the functionality and
capacity of the PNV Network to expand the scope of services offered and reduce
operational costs. See "Risk Factors -- Expansion of PNV Network Installation
and Services; Future Revenue Streams; Minimum Requirements Contracts;
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 ENHANCED PNV NETWORK]
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
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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 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/decompression 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.
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<PAGE> 44
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 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
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<PAGE> 45
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 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.
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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.
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
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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," "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 March 31, 1998, the Company had 151 employees, including 19 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
The Company is not currently a party to any legal proceedings. From time to
time, the Company may be involved in legal proceedings relating to claims
arising in the ordinary course of business. Pursuant to the standard contract
between the Company and the truckstop owners and operators, both the Company and
the truckstop owners and operators are required to maintain at least $1,000,000
of comprehensive public liability coverage on each truckstop which offers the
PNV Network. To date, the Company has been notified of six claims for
reimbursement of medical expenses relating to slip and fall incidents. One
claimant has filed suit for unspecified damages. The Company has remitted these
claims to its insurance carrier for processing. The
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Company does not believe that the outcome of these claims will have a material
adverse effect on the Company or its business.
The Company has recently received a letter alleging that the Company's use
of its "Park 'N View" logo infringes certain federal trademark rights. While the
Company does not believe its logo infringes any rights as alleged, it is
changing certain aspects of its logo to eliminate any concerns regarding
infringement. As a result, the Company believes that the outcome of this matter
will not have a material adverse effect on the Company or its business.
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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............................... 48 President and Chief Executive Officer and
Director
Stephen L. Conkling........................ 53 Vice President-Finance and Chief Operating
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......................... 37 Vice President-Marketing
James D. Green............................. 39 Vice President-Product Development
Ralph A. Head.............................. 51 Vice President-Fleet Sales
Yves Roland Maynard........................ 37 Vice President-Engineering
Robert M. Chefitz.......................... 38 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 President, Chief
Executive Officer and a director of the Company since the Company's
incorporation in September 1995. From 1993 to 1995, Mr. Williams served as
President of Park 'N View, Ltd., the predecessor of the Company. The Company
intends to hire a Chief Financial Officer as soon as practicable, at which time
Mr. Conkling will assume the office of President of the Company and Mr. Williams
will thereafter serve as Chairman of the Board and Chief Executive Officer 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 Chief Operating Officer since December
1997 and as Vice President-Finance of the Company since April 1996. The Company
intends to hire a Chief Financial Officer as soon as practicable, at which time
Mr. Conkling will serve as President and Chief Operating Officer of the Company
and will cease to serve as Vice President-Finance. 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.
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
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<PAGE> 50
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, 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.
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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 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
47
<PAGE> 52
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 Security Holders' Agreement and
Exchange Agreement, dated as of November 13, 1996 (as amended pursuant to an
amendment, dated as of August 22, 1997, the "Security Holders' 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 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
48
<PAGE> 53
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.
49
<PAGE> 54
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($)(1)
- --------------------------- --------- -----------
<S> <C> <C>
Ian Williams................................................ 157,500 --
President, Chief Executive
Officer and Director
Stephen L. Conkling......................................... 132,501 --
Vice President-Finance and Chief
Operating Officer
Jody Green.................................................. 127,500 --
Vice President-Product Development
A. Alexander Ezazi(2)....................................... 87,083 27,500
Vice President-Marketing
Richard Brenner(2).......................................... 73,333 27,500
Vice President-Sales
</TABLE>
- ---------------
(1) Represents guaranteed cash bonuses paid for fiscal 1997.
(2) Mr. Ezazi's employment by the Company commenced in September 1997 and Mr.
Brenner's employment by the Company commenced in November 1997.
Stock Options
The following table summarizes the number and value of unexercised options
held by Named Executive Officers as of June 30, 1998. No Named Executive
Officers exercised any options during the year ended June 30, 1998.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AS OF JUNE 30, 1998(#) AS OF JUNE 30, 1998($)(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
Jody 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, as determined by the Board of Directors, less the
per share exercise price.
50
<PAGE> 55
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 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. 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
51
<PAGE> 56
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.
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, certain investment limited partnerships
managed by Patricof & Co. Ventures, Inc. (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 --
52
<PAGE> 57
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 James Green owned 50%, provided certain software
programming consulting services to the Company relating to the 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 the owner of the remaining 50% of
Greenlight, 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 (as defined therein). This note was
satisfied in August 1997.
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<PAGE> 58
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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<PAGE> 59
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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<PAGE> 60
SELLING SECURITY HOLDERS
The following table sets forth, as of a recent practicable date prior to
the date of this Prospectus, certain information with respect to the Warrants
owned by the Selling Security Holders listed below. As of the date hereof, none
of the Selling Security Holders owns any of the Warrant Shares offered hereby.
Such information has been obtained from such holders, DTC and/or the Warrant
Agent. None of such holders has, or within the past three years, has had any
position, office or other material relationship with the Company.
<TABLE>
<CAPTION>
WARRANTS WARRANTS
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO WARRANTS BEING OWNED AFTER
NAME THE OFFERING PERCENT OF CLASS OFFERED THE OFFERING
- ---- -------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
* * * * *
Total........................... 75,000 100% 75,000 -0-
</TABLE>
- ---------------
* To be filed by amendment.
Because the Selling Security Holders may, pursuant to this Prospectus,
offer all or some portion of the Warrants they presently hold, no estimate can
be given as to the number of Warrants that will be held by the Selling Security
Holders upon termination of any such sales. In addition, the Selling Security
Holders identified above may have sold, transferred or otherwise disposed of all
or a portion of their Warrants since the date on which they provided the
information regarding their Warrants, in transactions exempt from the
registration requirements of the Securities Act. See "Plan of Distribution."
Only Selling Security Holders identified above who own the Warrants set
forth opposite each such Selling Security Holder's name in the foregoing table
on the effective date of the Registration Statement, or in supplements to this
Prospectus, may sell such Warrants pursuant to the Registration Statement. The
Company may from time to time, in accordance with the Warrant Registration
Rights Agreement, include additional Selling Security Holders in supplements to
this Prospectus.
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<PAGE> 61
DESCRIPTION OF WARRANTS
The Warrants have been issued pursuant to the Warrant Agreement between the
Company and State Street Bank and Trust Company, as Warrant Agent. The following
summary of certain provisions of the Warrant Agreement does not purport to be
complete and is qualified in its entirety by reference to the provisions of the
Warrant Agreement including the definitions therein of certain terms used below.
The Warrant Agreement has been filed as an exhibit to the Registration Statement
and a copy is available as set forth under the heading "Available Information"
or will be made available to Warrantholders and prospective purchasers of the
Warrants upon request.
GENERAL
Each Warrant, when exercised, will entitle the registered holder thereof to
receive 6.73833 fully paid and non-assessable shares of Common Stock at an
exercise price of $.01 per share (the "Exercise Price"). The number of Warrant
Shares is subject to adjustment in certain cases referred to below. The Warrants
will entitle the holders thereof to purchase an aggregate of 505,375 Warrant
Shares, or approximately 5.0% of the Common Stock on a fully diluted basis, as
of the consummation of the Unit Offering. The Warrants will be exercisable at
any time on or after the Separation Date and prior to 5:00 p.m., New York City
time, on May 15, 2008. The exercise of the Warrants will be subject to
applicable federal and state securities laws.
The Warrants may be exercised by surrendering to the Company the warrant
certificates evidencing the Warrants to be exercised with the accompanying form
of election to purchase properly completed and executed, together with payment
of the Exercise Price. Payment of the Exercise Price may be made in the form of
cash or by certified or official bank check payable to the Warrant Agent for the
account of the Company. Upon surrender of the warrant certificate and payment of
the Exercise Price, the Company will deliver or cause to be delivered, to or
upon the written order of such holder, stock certificates representing the
number of whole shares of Common Stock to which the holder is entitled. If less
than all of the Warrants evidenced by a warrant certificate are to be exercised,
a new warrant certificate will be issued for the remaining number of Warrants.
No fractional shares of Common Stock will be issued upon exercise of the
Warrants. The Company will arrange to have paid to the holder of the Warrant at
the time of exercise an amount in cash equal to the current market value of any
such fractional shares of Common Stock less a corresponding fraction of the
Exercise Price.
The holders of the Warrants will have no right (i) to vote on matters
submitted to the stockholders of the Company, (ii) to receive notice of any
meeting of stockholders of the Company or (iii) to receive dividends. The
holders of the Warrants will not be entitled to share in the assets of the
Company in the event of liquidation, dissolution or the winding up of the
Company. In the event a bankruptcy or reorganization is commenced by or against
the Company, a bankruptcy court may hold that unexercised Warrants are executory
contracts which may be subject to rejection by the Company with approval of the
bankruptcy court, and the holders of the Warrants may, even if sufficient funds
are available, receive nothing or a lesser amount as a result of any such
bankruptcy case than they would be entitled to if they had exercised their
Warrants prior to the commencement of any such case.
In the event of a taxable distribution to holders of shares of Common Stock
that results in an adjustment to the number of shares of Common Stock or other
consideration for which a Warrant may be exercised, the holders of the Warrants
may, in certain circumstances, be deemed to have received a distribution subject
to United States federal income tax as a dividend. See "Certain United States
Federal Income Tax Considerations -- The Warrants." The number of shares of
Common Stock purchasable upon exercise of the Warrants will be subject to
adjustment in certain events including: (i) the payment by the Company of
dividends and other distributions on its shares of Common Stock in shares of
Common Stock, (ii) subdivisions, combinations and reclassifications of the
shares of Common Stock, (iii) the issuance to all holders of shares of Common
Stock of rights, options or warrants entitling them to subscribe for shares of
Common Stock or securities convertible into, or exchangeable or exercisable for
shares of Common Stock at an offering price (or with an initial conversion,
exchange or exercise price) which is less than the current market price per
share (as
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<PAGE> 62
defined in the Warrant Agreement) of shares of Common Stock, (iv) the
distribution to holders of shares of Common Stock of any cash, evidences of
indebtedness, other securities or other properties or assets or rights or
warrants to purchase any such securities (excluding those rights and warrants
referred to in clause (iii) above and any cash dividend that, when added to all
other cash dividends paid in the year prior to the declaration date of such
dividend (excluding any dividend included in a prior adjustment of the Exercise
Price) does not exceed 5% of the current market price), (v) the issuance of
shares of Common Stock for a consideration per share less than the then current
market price per share (excluding securities issued in transactions referred to
in clauses (i) through (iv) above), (vi) the issuance of securities convertible
into or exchangeable for shares of Common Stock for a conversion or exchange
price plus consideration received upon issuance less than the then current
market price per share of Common Stock (excluding securities issued in
transactions referred to in clauses (iii) and (iv) above) and (vii) certain
other events that could have the effect of depriving holders of the Warrants of
the benefit of all or a portion of the purchase rights evidenced by the
Warrants; provided, however, that no adjustment will be required upon conversion
of the Series B Preferred Stock or the Series C Preferred Stock or upon issuance
of shares pursuant to employee stock option plans or warrants to purchase shares
of Common Stock outstanding as of the date hereof.
In the case of certain consolidations or mergers of the Company, or the
sale of all or substantially all of the assets of the Company to another
corporation, each Warrant will thereafter be exercisable for the right to
receive the kind and amount of shares of stock or other securities or property
to which such holder would have been entitled as a result of such consolidation,
merger or sale had the Warrants been exercised immediately prior thereto.
AMENDMENT
From time to time, the Company and the Warrant Agent, without the consent
of the holders of the Warrants, may amend or supplement the Warrant Agreement
for certain purposes, including curing defects or inconsistencies or making any
change that does not materially adversely affect the rights of any holder. Any
amendment or supplement to the Warrant Agreement that has a material adverse
effect on the interests of the holders of the Warrants will require the written
consent of the holders of a majority of the then outstanding Warrants (excluding
Warrants held by the Company or any of its Affiliates). The consent of each
holder of the Warrants affected will be required for any amendment pursuant to
which the Exercise Price would be increased or the number of shares of Common
Stock purchasable upon exercise of Warrants would be decreased (other than
pursuant to adjustments provided in the Warrant Agreement).
REGISTRATION RIGHTS
The Company is required under the Warrant Registration Rights Agreement to
file and use its best efforts to make effective, by the earlier of (i) the date
that is one year after the date of the closing of the Offering and (ii) 65 days
after the occurrence of a Change of Control, and (subject to certain "black out"
periods) maintain effective until the earlier of expiration of all Warrants or
such time as all the Warrants and/or Warrant Shares have been sold pursuant to
such shelf registration statement, may be distributed pursuant to Rule 144 or
may be transferred pursuant to Rule 144(k), a shelf registration statement on an
appropriate form under the Securities Act covering (A) the resale of Warrants,
(B) the issuance of the Warrant Shares upon the exercise of the Warrants and (C)
the resale of Warrant Shares upon exercise of the Warrants by broker-dealers.
Purchasers of Units will be able to exercise the Warrants only if a registration
statement relating to the shares of Common Stock underlying the Warrants is then
in effect or if the exercise of such Warrants is exempt from the registration
requirements of the Securities Act and only if such securities are qualified for
sale or exempt from the registration requirements of the Securities Act and only
if such securities are qualified for sale or exempt from qualifications under
the applicable securities laws of the states in which the various holders of the
Warrants reside. The Company will be unable to issue shares of Common Stock to
those persons desiring to exercise their Warrants if a registration statement
covering the securities issuable upon the exercise of the Warrants is not
effective (unless the sale and issue of shares upon the exercise of such Warrant
is exempt from the registration requirements of the Securities Act) or if such
securities are not qualified or exempt from qualification in the states in which
the holders of the Warrants reside. If the Company does not
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<PAGE> 63
comply with these and other obligations, subject to certain limitations, as set
forth in the Warrant Registration Rights Agreement, it will be required to pay
liquidated damages to holders of Warrants or Warrant Shares under certain
circumstances.
Each holder of Warrants that sells such Warrants pursuant to the
Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to the
purchaser, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by certain
provisions of the Warrant Agreement which are applicable to such holder
(including certain indemnification obligations). In addition, each holder of
Warrants will be required to deliver information to be used in connection with
the Registration Statement in order to have its Warrants included in the
Registration Statement.
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) 1,372,300 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
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<PAGE> 64
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.
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 below), 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
below), 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
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<PAGE> 65
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.
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 (as defined below)), before any dividends are set
apart for or paid on the Common Stock. Dividends paid in cash on the shares
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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.
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.
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 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.
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 the original purchase price 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 (as defined below) 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
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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 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 (as defined above), 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
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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 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
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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 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,
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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 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.
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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 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
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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 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
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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 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 280,399 shares of Common Stock, all 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. 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
69
<PAGE> 74
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 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 Security Holders' Agreement and
Exchange Agreement, dated as of November 13, 1996 (as amended pursuant to an
amendment, dated as of August 22, 1997, the "Amended Security Holders'
Agreement") (i) the Company's Board of Directors shall consist of not more than
seven
70
<PAGE> 75
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.
DESCRIPTION OF THE NOTES
On May 27, 1998, the Company issued an aggregate $75.0 million of its 13%
Senior Notes due 2008 pursuant to the Indenture. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939. 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. The Indenture has been filed as an exhibit to the
Registration Statement and a copy is available as set forth under "Available
Information." The Notes mature on May 15, 2008. Interest on the Notes accrues at
the rate of 13% per annum and is payable semi-annually in arrears on May 15 and
November 15 of each year, commencing on November 15, 1998. The Notes represent
senior, unsecured obligations of the Company, rank pari passu in right of
payment with all existing and future senior indebtedness of the Company and rank
senior in right of payment to all existing and future subordinated indebtedness
of the Company.
The Company has placed $19.2 million of the net proceeds of the Unit
Offering in an escrow account that was used to purchase the Pledged Securities.
The escrow account and the Pledged Securities were pledged as security for
repayment of the first four interest payments on the Notes (estimated at
approximately $19.5 million) and, under certain circumstances, as security for
repayment of principal of the Notes. The Pledged Securities will be held by
State Street Bank and Trust Company as Escrow Agent under an Escrow Agreement
dated as of May 27, 1998 (the "Escrow Agreement") pending disbursement as
provided therein. The Escrow Agreement has been filed as an exhibit to the
Registration Statement and a copy is available as set forth under "Available
Information."
The Notes will not be redeemable prior to May 15, 2003. Thereafter, the
Notes will be redeemable at the option of the Company, in whole or in part, at
redemption prices set forth in the Indenture. Notwithstanding the foregoing,
prior to May 15, 2001, the Company, at its option, may redeem up to 35% of the
then outstanding Notes with the net proceeds of an Initial Public Equity
Offering of the Company, as defined in the Indenture, at a redemption price
equal to 113% of the principal amount thereof, plus accrued and unpaid interest
thereon to the redemption date; provided that not less than 65% in aggregate
principal amount of Notes remain outstanding immediately after any such
redemption. Upon the occurrence of a Change of Control (as defined in the
Indenture), each holder of the 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 thereon to the date of purchase.
The Indenture contains certain covenants that limit the ability of the
Company and certain of its subsidiaries to, among other things, incur additional
indebtedness, pay dividends or make other distributions, repurchase equity
interests or subordinated indebtedness, make certain other restricted payments,
create certain liens, enter into certain transactions with affiliates, sell
assets, issue or sell equity interests or enter into certain mergers and
consolidations.
71
<PAGE> 76
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discusses the material federal income tax considerations
relating to the purchase, ownership and disposition of the Warrants. The
discussion deals only with Warrants 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 purchaser of Warrants in light of the purchaser'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 purchasers who are not U.S. Holders (as defined below), brokers or
dealers in securities or currencies, certain securities traders, tax-exempt
entities, banks, thrifts and insurance companies. 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 purchase, ownership or
disposition of Warrants.
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.
The following discussion applies only to purchasers of Warrants 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.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE FEDERAL INCOME TAX CONSIDERATIONS THAT MAY BE SPECIFIC TO THEM, AS WELL
AS WITH RESPECT TO ANY STATE, LOCAL OR FOREIGN TAX CONSIDERATIONS IN ACQUIRING,
HOLDING OR DISPOSING OF THE WARRANTS.
THE WARRANTS
Sale or Other Disposition of the Warrant
Generally, a U.S. Holder of Warrants will recognize gain or loss upon the
sale or exchange of the Warrants in an amount equal to the difference between
the amount realized on the sale and the holder's adjusted tax basis for the
Warrants. The adjusted tax basis of the Warrants for a U.S. Holder will
generally be equal to the purchase price paid for such Warrants (adjusted as
described below under "Adjustments under the Warrants"). Under section 1234 of
the Code, gain or loss attributable to the sale or exchange of an option to buy
or sell property is considered gain from the sale or exchange of property that
has the same character as the property to which the option relates. Because the
Warrants relate to Common Stock, gains or losses attributable to the sale or
exchange of the Warrants will generally constitute capital gains and losses if
the Common Stock would be a capital asset in the hands of the Warrant holder.
Such capital gains and losses will be long term if the Warrants have been held
for more than one year. U.S. Holders should contact their tax advisor for more
information regarding the particular capital gain tax rates applicable to their
sale or disposition of Warrants at any given time.
Exercise of the Warrants
The exercise of a Warrant will not result in a taxable event to the holder
of the Warrant (except with respect to cash, if any, paid by the Company in lieu
of the issuance of fractional shares of Common Stock). A U.S. Holder's tax basis
in the shares of Common Stock received upon exercise of a Warrant will be equal
to the sum of (a) such holder's basis in the Warrant and (b) the cash paid by
the holder upon exercise of the Warrant. The holding period for capital gain and
loss purposes for the shares of Common Stock acquired upon exercise of a Warrant
will not include the period during which the Warrant was held. If any cash is
received in lieu of fractional shares, the U.S. Holder will recognize gain or
loss, and the character and amount of gain or
72
<PAGE> 77
loss will be determined as if the holder had received such fractional shares and
then immediately sold such fractional shares back to the Company for cash.
If the exercise price of the Warrants is treated as de minimis for U.S.
federal income tax purposes, it is possible that the Warrants may be deemed to
have been exercised for tax purposes on the date on which they first became
exercisable or possibly on the date issued, regardless of whether they are
actually exercised on the date on which they are first exercisable. As a result,
it is possible that a U.S. Holder could be treated as holding Common Stock as of
such date, and the holding period of shares of Common Stock may be deemed to
have begun on the date on which the Warrants first became exercisable or
possibly on the date such Warrants were issued.
Expiration of the Warrants
Upon the expiration of an unexercised Warrant, a U.S. Holder will recognize
a loss equal to the adjusted tax basis of the Warrant in the hands of the
holder. Under section 1234 of the Code, the character of the loss realized upon
the failure to exercise an option is determined based on the character of the
property to which the option relates. Because the Warrants relate to Common
Stock, a loss realized upon expiration of a Warrant will generally be a capital
loss if the Common Stock would be a capital asset in the hands of the Warrant
holder. Such capital loss will be long term if the Warrant has been held for
more than one year.
Adjustments Under the Warrants
Pursuant to the terms of the Warrants, the number of shares that may be
purchased upon exercise of the Warrants is subject to adjustment from time to
time upon the occurrence of certain events. Under section 305 of the Code, a
change in conversion ratio or any transaction having a similar effect on the
interest of a Warrant holder may be treated as a distribution with respect to
any Warrant holder whose proportionate interest in the earnings and profits of
the Company is increased by such change or transaction. Thus, under certain
future circumstances which may or may not occur, such an adjustment pursuant to
the terms of the Warrants may be treated as a taxable distribution to the
Warrant holders to the extent of the Company's current or accumulated earnings
and profits, without regard to whether the Warrant holders receive any cash or
other property. If the Warrant holders receive such a taxable distribution their
tax bases in the Warrants will be increased by an amount equal to the taxable
distribution.
THE RULES WITH RESPECT TO ADJUSTMENTS ARE COMPLEX AND WARRANT HOLDERS
SHOULD CONSULT THEIR TAX ADVISORS IN THE EVENT OF AN ADJUSTMENT.
THE COMMON STOCK
Dividends Paid on Common Stock
A U.S. Holder generally will be required to include in gross income as
ordinary dividend income the amount of any distributions paid on Common Stock
owned pursuant to the exercise of Warrants to the extent that such distributions
are paid out of the Company's current or accumulated earnings and profits as
determined for U.S. federal income tax purposes. Distributions in excess of such
earnings and profits will reduce the U.S. Holder's tax basis in its Common Stock
and, to the extent such excess distribution exceeds such tax basis, will be
treated as gain from the sale or exchange of the Common Stock. Corporate U.S.
Holders may be entitled to a dividends received deduction with respect to such
distributions, but certain rules may limit such a deduction, and corporate
holders are urged to consult their tax advisors in this regard.
Disposition of Common Stock
Upon the sale or other disposition of Common Stock owned pursuant to the
exercise of Warrants, a U.S. Holder generally will recognize capital gain or
lose equal to the difference between the amount realized on the sale and such
holder's adjusted tax basis in the Common Stock. Gain or loss upon the
disposition of Common Stock will be long term if, at the time of the
disposition, the holding period for the Common Stock exceeds one year.
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<PAGE> 78
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 proceeds
of sale with respect to the Warrants and the Common Stock, and payments of
dividends of Common Stock. Backup withholding at the 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.
PLAN OF DISTRIBUTION
The Warrant Shares offered by the Company and the Selling Security Holders
hereby are issuable upon exercise of the outstanding Warrants. No underwriter
has been or will be engaged by the Company in connection with the offering of
the Warrant Shares. The exercise price of the Warrants was determined through
negotiation between the Company and the Initial Purchaser in connection with the
Unit Offering.
The Warrants and the Warrant Shares may be sold from time to time to
purchasers directly by the Selling Security Holders. Alternatively, the Selling
Security Holders may from time to time offer such securities through
underwriters, dealers or agents who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Security
Holders and/or the purchasers of the securities for whom they may act as agents.
The Selling Security Holders and any underwriters, dealers or agents that
participate in the distribution of the Warrants or the Warrant Shares may be
deemed to be "underwriters" under the Securities Act, and any profit on the sale
of such securities by them and any discounts, commissions or concessions
received by any such underwriters, dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act.
At the time a particular offer of the Warrants or the Warrant Shares is
made, if required, the number of Warrants or Warrant Shares being offered and
the terms of the offering, including the name or names of any underwriters,
dealers or agents, the purchase price paid by any underwriter for Warrants or
Warrant Shares purchased from the Selling Security Holders, any discounts,
commissions and other items constituting compensation from the Selling Security
Holders and any discounts, commissions or concessions allowed or reallowed or
paid to dealers, and the proposed selling price to the public will be set forth
in one or more supplements to this Prospectus.
The Warrants and the Warrant Shares offered hereby may be sold from time to
time in one or more transactions at a fixed offering price, which may be
changed, at varying prices determined at the time of sale, or at negotiated
prices. Such prices will be determined by the Selling Security Holders or by
agreement between the Selling Security Holders and any underwriters or dealers,
and the criteria used by them to establish price are likely to include
subjective factors.
To the best knowledge of the Company, there are currently no plans,
arrangements or understandings between any Selling Security Holders and any
broker, dealer or Underwriter regarding the sale of the Warrants and Warrant
Shares by the Selling Security Holders. There is no assurance that any Selling
Security Holder will sell any or all of the Warrants and Warrant Shares offered
by it hereunder or that any such Selling Security Holder will not transfer,
devise or gift such Warrants or Warrant Shares by other means not described
herein.
In order to comply with the applicable securities laws of certain states,
if any, the Warrant Shares and the Warrants may only be sold through registered
or licensed brokers or dealers in those states. In addition, in
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<PAGE> 79
certain states such securities may not be offered or sold unless they have been
registered or qualified for sale in such states or an exemption from such
registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of securities may not simultaneously bid for or
purchase securities of the same class for a period of two business days prior to
the commencement of such distribution. In addition and without limiting the
foregoing, the Selling Security Holders will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including without
limitation Regulation M, in connection with transactions in the Warrants and the
Common Stock during the effectiveness of the Registration Statement of which
this Prospectus forms a part. All the foregoing may affect the marketability of
the Warrant Shares and the Warrants.
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 April 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, 1996 and 1997 and
for the period from September 18, 1995 (date of incorporation) to June 30, 1996
and the year ended June 30, 1997; and of Park 'N View, Ltd. for the year ended
December 31, 1994 and 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.
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<PAGE> 80
PARK 'N VIEW, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ANNUAL FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-2
Balance Sheets as of June 30, 1996 and 1997................. F-3
Statements of Operations for the Predecessor for the year
ended December 31, 1994 and 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 year ended June 30, 1997........ F-4
Statements of Changes in Partnership Capital for the
Predecessor for the year ended December 31, 1994 and 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 year ended
June 30, 1997............................................. F-5
Statements of Cash Flows for the Predecessor for the year
ended December 31, 1994 and 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 year ended June 30, 1997............ F-6
Notes to Financial Statements............................... F-7
INTERIM CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheets as of June 30, 1997 and March 31, 1998
(unaudited)............................................... F-14
Statements of Operations for the nine months ended March 31,
1997 and 1998 (unaudited)................................. F-15
Statements of Cash Flows for the nine months ended March 31,
1997 and 1998 (unaudited)................................. F-16
Notes to Condensed Financial Statements (unaudited)......... F-17
</TABLE>
F-1
<PAGE> 81
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, 1996 and 1997, 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 year ended December
31, 1994 and 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 year ended June 30, 1997. 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, 1996 and 1997,
and the results of operations and cash flows of the Predecessor for the year
ended December 31, 1994 and 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 year ended June 30, 1997, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
September 5, 1997
F-2
<PAGE> 82
PARK 'N VIEW, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1996 1997
---------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 365,731 $ 4,717,394
Accounts receivable, net of allowance for doubtful
accounts of $5,411 at June 30, 1996 and 1997........... 52,390 11,526
Inventory................................................. 141,698 259,825
Prepaid expenses and other................................ 116,917 138,613
---------- -----------
Total current assets.............................. 676,736 5,127,358
Property And Equipment, Net (Note 3)........................ 2,012,928 7,650,753
Deferred Financing Costs.................................... 195,434 143,869
Other Assets................................................ 13,027 16,803
---------- -----------
Total............................................. $2,898,125 $12,938,783
========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable.......................................... $ 399,090 $ 1,116,464
Accrued expenses.......................................... 122,137 866,759
Deferred revenue.......................................... 48,557 31,929
Current portion of capital lease obligations (Note 4)..... 172,514 71,533
Current portion of long-term debt......................... 16,048 33,630
Lease cancellation payable (Note 3)....................... 490,237
---------- -----------
Total current liabilities......................... 758,346 2,610,552
---------- -----------
Obligations Under Capital Leases (Note 4)................... 299,515 69,828
---------- -----------
Long-Term Debt And Accrued Interest (Note 5)................ 3,088,419 58,864
---------- -----------
Commitments and Contingencies
Series A Redeemable Preferred Stock And Accrued
Dividends -- Par value $.01 per share; 140,010 and 627,630
shares authorized at June 30, 1996 and 1997, respectively;
70,010 and 388,075 shares issued and outstanding at June
30, 1996 and 1997, respectively ($10.00 per share
liquidation preference, including accrued dividends of
$21,370 and $212,252 as of June 30, 1996 and 1997,
respectively). (Note 6)................................... 721,370 3,931,320
---------- -----------
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 as of June 30, 1997). (Note 6)................... 15,200,146
---------- -----------
Common Stockholders' Deficit:
Common stock -- par value $.001 per share; 5,000,000 and
7,000,000 shares authorized at June 30, 1996 and 1997,
respectively; 4,318,182 shares issued and
outstanding............................................ 4,318 4,318
Additional paid-in capital................................ 8,764 8,764
Accumulated deficit....................................... (1,982,607) (8,945,009)
---------- -----------
Total common stockholders' deficit................ (1,969,525) (8,931,927)
---------- -----------
Total............................................. $2,898,125 $12,938,783
========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 83
PARK 'N VIEW, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
-------------------------------------- ----------------------------------
PERIOD FROM
SEPTEMBER 18, 1995
PERIOD FROM (DATE OF
YEAR ENDED JANUARY 1, 1995 TO INCORPORATION) TO YEAR ENDED
DECEMBER 31, 1994 NOVEMBER 2, 1995 JUNE 30, 1996 JUNE 30, 1997
----------------- ------------------ ------------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Service revenue............... $ 68,451 $ 755,057
Equipment sales............... 76,953 51,909
Advertising................... 4,050 22,500
Other......................... 301 58,931
----------- -----------
Total revenues........ 149,755 888,397
----------- -----------
Cost of Revenues
Service cost.................. 287,792 996,260
Service depreciation.......... 84,341 643,316
Equipment cost................ 62,821 422,557
Advertising................... 1,875 15,556
----------- -----------
Total cost of
revenues............ 436,829 2,077,689
----------- -----------
Gross margin.................... (287,074) (1,189,292)
Selling, general and
administrative expenses....... $ 287,782 $ 475,891 1,576,209 4,431,889
Lease cancellation expense and
related costs................. 594,691
--------- --------- ----------- -----------
Loss from operations............ (287,782) (475,891) (1,863,283) (6,215,872)
Interest expense................ 103,079 157,416
Interest income and other....... (5,125) (328,268)
--------- --------- ----------- -----------
Net loss........................ $(287,782) $(475,891) $(1,961,237) $(6,045,020)
========= ========= =========== ===========
Net loss per share.............. $ (0.45) $ (1.61)
=========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 84
PARK 'N VIEW, INC.
STATEMENTS OF CHANGES IN PARTNERSHIP CAPITAL AND
COMMON STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
PARTNERSHIP
PREDECESSOR CAPITAL
----------- -----------
<S> <C> <C>
Balance, December 31, 1993...................... $ (7,792)
Contributions from partners..................... 800,100
Distributions to partners....................... (559,818)
Net loss........................................ (287,782)
---------
Balance, December 31, 1994...................... (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 8,764 (1,982,607) (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 $ 8,764 $(8,945,009) $(8,931,927)
========= ====== ======== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 85
PARK 'N VIEW, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------------ ----------------------------------
PERIOD FROM
PERIOD FROM SEPTEMBER 18, 1995
YEAR ENDED JANUARY 1, 1995 (DATE OF
DECEMBER 31, TO NOVEMBER 2, INCORPORATION) TO YEAR ENDED
1994 1995 JUNE 30, 1996 JUNE 30, 1997
------------ --------------- ------------------ -------------
<S> <C> <C> <C> <C>
Operating Activities:
Net loss........................................ $(287,782) $(475,891) $(1,961,237) $(6,045,020)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 20,136 27,966 174,360 705,418
Provision for lease cancellation and related
costs....................................... 594,691
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
Inventories................................. (141,698) (118,127)
Prepaid expenses and other.................. (5,000) (116,917) (21,696)
Other assets................................ (13,027) (3,776)
Accounts payable............................ 13,335 54,116 399,090 717,374
Accrued expenses............................ 122,137 744,622
Deferred revenue............................ 48,557 (16,628)
Lease cancellation payable.................. (48,720)
Accrued interest............................ 88,419
--------- --------- ----------- -----------
Net cash used in operating activities..... (254,311) (398,809) (1,452,706) (3,448,848)
--------- --------- ----------- -----------
Investing Activities:
Purchases of property and equipment............. (109,587) (909) (1,650,177) (6,443,899)
--------- --------- ----------- -----------
Net cash used in investing activities..... (109,587) (909) (1,650,177) (6,443,899)
--------- --------- ----------- -----------
Financing Activities:
Proceeds from long-term debt.................... 3,000,000 1,500,000
Proceeds from issuance of common and preferred
stock......................................... 800,000 13,500,000
Contributions from partners..................... 800,100 70,070
Distributions to partners....................... (559,818)
Loans from partners............................. 369,349 310,000
Payment of loan from partner.................... (240,182)
Payment of stock and debt issuance costs and
other......................................... (152,000) (509,560)
Payment of obligation under capital lease....... (178,607)
Deferred financing costs........................ (195,434) (143,869)
Notes payable................................... 16,048 76,446
--------- --------- ----------- -----------
Net cash provided by financing
activities.............................. 369,449 380,070 3,468,614 14,244,410
--------- --------- ----------- -----------
Net Increase (Decrease) In Cash And Cash
Equivalents..................................... 5,551 (19,648) 365,731 4,351,663
Cash And Cash Equivalents, Beginning Of Period.... 14,305 19,856 365,731
--------- --------- ----------- -----------
Cash And Cash Equivalents, End Of Period.......... $ 19,856 $ 208 $ 365,731 $ 4,717,394
========= ========= =========== ===========
Supplemental Cash Flow Information:
Interest paid................................... $ 14,660 $ 48,987
=========== ===========
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
=========== ===========
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
===========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 86
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, 1997, the Company
has 41 sites in operation and 6 in the planning or construction phase. The
Company has contracts to provide their service to approximately 625 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 assets were recorded by the Company at
the transferor's 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 year ended December 31, 1994 and
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, 1996 and 1997 and for the period from September 18, 1995 (date of
incorporation) to June 30, 1996 and for the year ended June 30, 1997.
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.
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,
generally three to ten years.
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
accumulated deficit.
Revenue Recognition/Deferred Revenue -- Service revenues are
recognized as revenue in the period earned. Prepaid service revenues are
recorded as deferred revenue until earned.
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
F-7
<PAGE> 87
PARK 'N VIEW, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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 -- The Company has adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 requires that long-lived assets
and certain identifiable intangibles and goodwill be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 also
requires that long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair value less
cost to sell. The adoption of this standard did not have a significant
effect on the Company's results of operations or financial position.
Stock-Based Compensation -- The Company currently accounts for its
stock-based compensation plans using the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
("APB 25").
SFAS No. 123, Accounting for Stock-Based Compensation, provides that
companies may elect to account for stock-based compensation plans using a
fair value based method or continue measuring compensation expense for
those plans using the intrinsic value method prescribed in APB 25. SFAS No.
123 requires that companies electing to continue using the intrinsic value
method must make pro forma disclosures of net income as if the fair value
based method of accounting has been applied.
Net Loss Per Share -- Net 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 common stock equivalents
would have been antidilutive and therefore was not included. The weighted
average common shares outstanding was 4,318,182 for the period from
September 18, 1995 to June 30, 1996 and the year ended June 30, 1997.
Preferred stock dividends and related amortization of preferred stock
issuance costs was $21,370 and $917,382 for the period from September 18,
1995 to June 30, 1996 and the year ended June 30, 1997, respectively.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings Per Share. This statement supercedes Accounting
Principles Board 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. Application of this standard would have
had no impact on the Company's reported net loss per share.
F-8
<PAGE> 88
PARK 'N VIEW, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Site equipment and improvements............................. $1,567,452 $5,404,620
Component inventory......................................... 247,239 2,218,590
Construction equipment...................................... 117,972 127,912
Computer equipment.......................................... 110,024 231,907
Vehicles.................................................... 41,740 255,467
Furniture, fixtures and other equipment..................... 34,968 28,739
---------- ----------
Total............................................. 2,119,395 8,267,235
Less accumulated depreciation............................... 106,467 616,482
---------- ----------
Property and equipment, net....................... $2,012,928 $7,650,753
========== ==========
</TABLE>
During the year ended June 30, 1997, the Company decided to terminate
certain capital leases relating to telephone switches that will be replaced with
updated technology. The Company has accrued for a related lease cancellation fee
of $538,957 and has written down to estimated fair value certain equipment
previously used with the telephone switches by $55,734.
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>
OPERATING CAPITAL
--------- --------
<S> <C> <C>
YEAR ENDING JUNE 30:
1998........................................................ $140,515 $ 82,736
1999........................................................ 122,568 49,266
2000........................................................ 101,418 26,878
2001........................................................ 106,488
2002........................................................ 36,069
-------- --------
Total............................................. $507,058 158,880
========
Imputed interest on capital leases.......................... (17,519)
--------
Present value of capital leases............................. 141,361
Current portion............................................. 71,533
--------
Long-term portion........................................... $ 69,828
========
</TABLE>
Rent expense was $77,569 and $149,401 for the period ended June 30, 1996
and the year ended June 30, 1997, respectively.
In August 1997, the Company entered into a five-year operating lease for
approximately 21,000 square feet of office space to be used as its new corporate
and operational headquarters. Total future minimum lease payments under this
lease approximate $835,000. The Company anticipates subleasing its existing
corporate and operational headquarters until that lease expires in 2002.
F-9
<PAGE> 89
PARK 'N VIEW, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. NOTES PAYABLE
At June 30, 1997, the Company had outstanding $92,494 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.
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.
Accrued interest at June 30, 1996 was $88,419.
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 $21,370 and
$212,252 at June 30, 1996 and 1997, 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) mandatory redemption of
50% of the number of shares outstanding on November 13, 2002 and the remaining
shares on November 13, 2003, (b) upon the receipt of proceeds of an initial
public offering of not less than $20 million, net of underwriting expenses, (c)
in the event the Company consolidates or merges with or into another entity, or
(d) upon sale of the Company's assets.
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, 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 and 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 dates, (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, or (d)
insolvency. Cumulative unpaid dividends accrued were $662,068 at June 30, 1997.
F-10
<PAGE> 90
PARK 'N VIEW, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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) mandatory
redemption of 50% of the shares outstanding on November 13, 2002 and the
remaining shares on November 13, 2003, (b) upon the receipt of proceeds of an
initial public offering of not less than $20 million, net of underwriting
expenses, (c) in the event the Company consolidates or merges with or into
another entity, or (d) upon sale of the Company's assets.
The shareholders of Series B 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 B Preferred Share for one share 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.
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 an initial public offering of not
less than $20 million, net of underwriting expenses ("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 50% 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 as a class have the exclusive right to elect a majority
of the Board of Directors.
7. RELATED PARTY TRANSACTIONS
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 total advances were satisfied in August 1997.
8. STOCK OPTIONS
The Company has incentive and non-qualified stock option plans for
directors and key employees and has 525,000 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.
Option activity for the year ended June 30, 1997 is as follows:
<TABLE>
<CAPTION>
AVERAGE
NUMBER EXERCISE PRICE RANGE OF
OF SHARES PER SHARE EXERCISE PRICE
--------- -------------- --------------
<S> <C> <C> <C>
Granted during the year ended June 30, 1997 and
outstanding at June 30, 1997...................... 409,846 $1.42 $1.00-$3.00
Exercisable at June 30, 1997........................ 81,969 1.42 1.00- 3.00
</TABLE>
The weighted average remaining contractual life of options outstanding is
9.5 years.
The Company accounts for stock options in accordance with APB 25. The
Company's stock options are issued with exercise prices which equal the fair
value of the Company's common stock on the date of grant and, consequently, no
compensation expense is recognized.
SFAS No. 123 requires entities that account for awards for stock-based
compensations in accordance with APB 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. The fair value for these options was 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
F-11
<PAGE> 91
PARK 'N VIEW, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
year ended June 30, 1997 would have been as follows:
<TABLE>
<S> <C>
Net loss:
As reported............................................... $(6,045,020)
Pro forma................................................. (6,082,726)
</TABLE>
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.
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 $7.4 million in net operating loss carryforwards at June 30, 1997
for income tax purposes, with approximately $2 million expiring in 2011 and $5.4
million in 2012 which are available to offset future taxes payable.
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, 1996 and 1997 are
as follows:
<TABLE>
<CAPTION>
1996 1997
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................... $ 662,135 $ 1,723,073
Nondeductible lease cancellation accrual.................. 237,876
Bad debt reserve.......................................... 2,164 2,164
Vacation accrual.......................................... 14,536
--------- -----------
664,299 1,977,649
========= ===========
Deferred tax liabilities:
Differences between book and tax basis of property........ 198 409
Amortization.............................................. 1,943 14,095
--------- -----------
2,141 14,504
--------- -----------
Valuation allowance......................................... (662,158) (1,963,145)
--------- -----------
Net deferred tax asset...................................... $ -- $ --
========= ===========
</TABLE>
F-12
<PAGE> 92
PARK 'N VIEW, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. SUBSEQUENT EVENT
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. The Series C Preferred will
vote 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 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 the 1997 Offering.
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) mandatory redemption of
50% of the shares outstanding on November 13, 2002 and the remaining shares on
November 13, 2003, (b) upon the receipt of proceeds of an initial public
offering of not less than $20 million, net of underwriting expenses, (c) in the
event the Company consolidates or merges with or into another entity, or (d)
upon sale of the Company's assets.
F-13
<PAGE> 93
PARK 'N VIEW, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 4,717,394 $ 4,776,451
Accounts receivable, net of allowance for doubtful
accounts of $5,411 at June 30, 1997 and March 31,
1998................................................... 11,526 160,129
Inventory................................................. 259,825 480,193
Prepaid expenses and other................................ 138,613 121,883
----------- -----------
Total current assets.............................. 5,127,358 5,538,656
Property And Equipment, Net................................. 7,650,753 16,395,669
Deferred Financing Costs.................................... 143,869 --
Other Assets................................................ 16,803 476,563
----------- -----------
Total............................................. $12,938,783 $22,410,888
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable.......................................... $ 1,116,464 $ 1,219,472
Accrued expenses.......................................... 866,759 521,968
Deferred revenue.......................................... 31,929 190,881
Current portion of capital lease obligations.............. 71,533 117,914
Current portion of long-term debt......................... 33,630 37,536
Lease cancellation payable................................ 490,237 307,074
----------- -----------
Total current liabilities......................... 2,610,552 2,394,845
----------- -----------
Obligations Under Capital Leases............................ 69,828 153,784
----------- -----------
Long-Term Debt.............................................. 58,864 34,156
----------- -----------
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 $417,103 as of June 30, 1997 and
March 31, 1998, respectively)............................. 3,931,320 4,155,003
----------- -----------
Series B Redeemable Convertible Preferred Stock And Accrued
Dividends -- Par value $.01 per share; 1,372,370 shares
authorized issued and outstanding ($8.00 per share
liquidation preference, including accrued dividends of
$662,068 and $1,449,550 as of June 30, 1997 and March 31,
1998, respectively)....................................... 15,200,146 16,041,560
----------- -----------
Series C Redeemable Convertible Preferred Stock And Accrued
Dividends -- Par value $.01 per share; 3,750,000 shares
authorized; 2,328,543 shares issued and outstanding ($8.00
per share liquidation preference, including accrued
dividends of $789,617).................................... 18,146,910
-----------
Common Stockholders' Deficit:
Common stock -- par value $.001 per share; 7,000,000 and
12,000,000 shares authorized at June 30, 1997 and March
31, 1998, respectively; 4,318,182 shares issued and
outstanding............................................ 4,318 4,318
Additional paid-in capital................................ 8,764 547,763
Accumulated deficit....................................... (8,945,009) (19,067,451)
----------- -----------
Total common stockholders' deficit................ (8,931,927) (18,515,370)
----------- -----------
Total............................................. $12,938,783 $22,410,888
=========== ===========
</TABLE>
See notes to condensed financial statements.
F-14
<PAGE> 94
PARK 'N VIEW, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-------------------------
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues:
Service revenue........................................... $ 392,377 $ 1,973,687
Equipment sales........................................... 42,380 71,158
Advertising............................................... 22,500 --
Other..................................................... 5,419 61,610
----------- -----------
Total revenues.................................... 462,676 2,106,455
----------- -----------
Cost of Revenues:
Service cost.............................................. 597,957 2,113,783
Service depreciation...................................... 433,844 1,211,849
Equipment cost............................................ 200,511 771,606
Advertising............................................... 11,682 31,497
----------- -----------
Total cost of revenues............................ 1,243,994 4,128,735
----------- -----------
Gross margin................................................ (781,318) (2,022,280)
Selling, general and administrative expenses................ 2,796,456 6,471,565
Lease cancellation expenses and related costs............... 603,703 --
----------- -----------
Loss from operations........................................ (4,181,477) (8,493,845)
Interest expense............................................ 144,617 23,949
Interest income and other................................... (204,069) (397,442)
----------- -----------
Net loss.......................................... $(4,122,025) $(8,120,352)
=========== ===========
Net loss per share................................ $ (1.09) $ (2.34)
=========== ===========
</TABLE>
See notes to condensed financial statements.
F-15
<PAGE> 95
PARK 'N VIEW, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-------------------------
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Operating Activities:
Net loss.................................................. $(4,122,025) $(8,120,352)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 492,811 1,286,143
Provision for lease cancellation and related costs..... 603,703 (50,000)
Changes in assets and liabilities:
Accounts receivable.................................. 42,952 (148,603)
Inventories.......................................... (14,506) (220,368)
Prepaid expenses and other........................... 15,650 16,730
Other assets......................................... (113,753)
Accounts payable..................................... 645,743 103,008
Accrued expenses..................................... 283,669 (344,791)
Deferred revenue..................................... 7,784 158,952
Lease cancellation payable........................... (133,163)
----------- -----------
Net cash used in operating activities............. (2,044,219) (7,566,197)
----------- -----------
Investing Activities:
Purchases of property and equipment....................... (3,614,764) (9,822,272)
----------- -----------
Net cash used in investing activities............. (3,614,764) (9,822,272)
----------- -----------
Financing Activities:
Proceeds from long-term debt.............................. 1,500,000 --
Proceeds from issuance of common and preferred stock...... 13,500,000 18,628,344
Payment of stock and debt issuance costs and other........ (509,560) (1,081,835)
Payment of obligation under capital lease................. (163,096) (78,181)
Notes payable............................................. 18,180 (20,802)
----------- -----------
Net cash provided by financing activities......... 14,345,524 17,447,526
----------- -----------
Net Increase In Cash And Cash Equivalents................... 8,686,541 59,057
Cash And Cash Equivalents, Beginning Of Period.............. 365,731 4,717,394
----------- -----------
Cash And Cash Equivalents, End Of Period.................... $ 9,052,272 $ 4,776,451
=========== ===========
Supplemental Cash Flow Information:
Interest paid............................................. $ 39,656 $ 29,460
=========== ===========
Non-Cash Financing And Investing Activities:
Capital lease obligations relating to acquisition of
property and equipment................................. $ 271,647 $ 208,518
=========== ===========
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
===========
Warrants issued in connection with securities offering and
contract commitments................................... $ 538,999
===========
</TABLE>
See notes to condensed financial statements.
F-16
<PAGE> 96
PARK 'N VIEW, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The interim financial statements of the Company as of March 31, 1998 and
for the nine months ended March 31, 1997 and 1998 are unaudited. In the opinion
of management, these interim financial statements include all adjustments
necessary to present fairly the financial position, results of operations and
cash flows as of March 31, 1998 and for the interim periods presented. All
adjustments made were of a normal recurring nature. Certain information and
footnote disclosure normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The Company believes that the disclosures included are adequate and
provide a fair presentation of interim period results. Interim financial
statements are not necessarily indicative of financial position or operating
results to be expected for an entire year. These interim financial statements
should be read in conjunction with the audited financial statements of the
Company and the notes thereto for the year ended June 30, 1997.
2. LIQUIDITY AND CAPITAL RESOURCES
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. The Series C Preferred will
vote 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 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.
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) mandatory redemption of
50% of the shares outstanding on November 13, 2002 and the remaining shares on
November 13, 2003, (b) upon the receipt of proceeds of an initial public
offering of not less that $20 million, net of underwriting expenses, (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's Series B 7% Cumulative Convertible Preferred Stock are
subject to certain antidilution provisions. In August 1997, the Company adjusted
the conversion price on the Series B 7% Cumulative Convertible Preferred Stock
from $10.93 per share to $8.00 per share as allowed by the antidilution
provisions.
The Company has experienced net operating losses since its inception and as
of March 31, 1998 had an accumulated deficit of $19.1 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.
In May 1998, the Company issued $75,000,000 of 13% Senior Notes (the
"Notes"). The 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 Notes have a maturity date of May 15, 2008. Interest on the Notes
will accrue commencing on the closing date and will be paid semiannually on May
15 and November 15. In addition, a portion of the net proceeds ($19.2 million)
from the Notes was used to purchase securities in an amount sufficient to
provide payment in full when due on the first four scheduled interest payments.
F-17
<PAGE> 97
PARK 'N VIEW, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
The 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. The Notes are mandatorily redeemable only at the
option of the holders due to change of control or an asset sale.
F-18
<PAGE> 98
- ------------------------------------------------------
- ------------------------------------------------------
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 SALE 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 WARRANTS OR THE WARRANT SHARES, 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................. ii
Disclosure Regarding Forward-Looking
Statements.......................... iii
Prospectus Summary.................... 1
Risk Factors.......................... 7
Use Of Proceeds....................... 16
Capitalization........................ 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 26
Management............................ 44
Certain Transactions.................. 51
Principal Stockholders................ 53
Selling Security Holders.............. 55
Description of Warrants............... 56
Description of Capital Stock.......... 58
Description of Notes.................. 70
Certain Federal Income Tax
Considerations...................... 71
Plan of Distribution.................. 73
Legal Matters......................... 74
Experts............................... 74
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
PARK 'N VIEW, INC.
---------------------
PROSPECTUS
---------------------
____________, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 99
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of the fees and
expenses payable by the Company in connection with the issuance and distribution
of the Securities. All items are estimated except the registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $1,371.53
Printing and Mailing Expenses............................... *
---------
Accounting Fees and Expenses................................ *
---------
Legal Fees and Expenses..................................... *
---------
Miscellaneous............................................... *
---------
Total............................................. *
=========
</TABLE>
- ---------------
* To be filed by amendment
All of the above expenses have been or will be paid by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Paragraph Eleventh of the Company'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 Company'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.
II-1
<PAGE> 100
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, 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.
II-2
<PAGE> 101
(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 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 Company 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 executive officers and directors of the
Company, subject to certain exclusions and deductible and maximum amounts, which
may extend to, among other things, liabilities arising under the Securities Act.
II-3
<PAGE> 102
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since July 1, 1995, the Company has sold and issued the following
securities on the date and for the consideration referenced below:
(1) 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 2,300,000 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.
(2) During the 12-month period commencing in November 1995, certain
investment limited partnerships managed by Patricof & Co. Ventures, Inc.
(the "Patricof Managed Funds") invested $3,800,000 in the Company in
exchange for which the Company issued to the Patricof Managed Funds
2,000,000 shares of Common Stock, 70,010 shares of Series A Preferred Stock
and $3,000,000 aggregate principal amount of the Company's 8% Subordinated
Notes.
(3) In August 1996, the Patricof Managed Funds invested $1,500,000 in
the Company in exchange for which the Company issued to the Patricof
Managed Funds $1,500,000 aggregate principal amount of the Company's 8%
Subordinated Notes and warrants to purchase 239,250 shares of Common Stock
at an exercise price of $0.01 per share.
(4) In November 1996, the Company issued an aggregate of 1,235,133
shares of Series B Preferred Stock to seven investors for an aggregate
consideration of $13,500,000.
(5) In November 1996, in connection with the sale of the Series B
Preferred Stock described above, (i) the Patricof Managed Funds (a)
converted $3,000,000 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, and (b) converted $1,500,000
aggregate principal amount of such notes, and warrants to purchase 239,250
shares of Common Stock at an exercise price of $0.01 per share, into
137,237 shares of the Series B Preferred Stock.
(6) In August 1997, the Company issued an aggregate of 2,328,543
shares of Series C Preferred Stock to thirty-five investors for an
aggregate consideration of $18,628,344.
(7) In August 1997, the Company issued to BT Alex. Brown Incorporated
warrants to purchase an aggregate of 100,399 shares of Common Stock at an
exercise price of $8.00 per share in consideration for services provided by
BT Alex. Brown Incorporated in connection with the sale of the Series C
Preferred Stock described above.
(8) In March 1998, the Company issued a warrant to purchase an
aggregate of up to 180,000 shares of Common Stock at an exercise price of
$8.00 per share in connection with the Company entering into a contractual
arrangement with the warrantholder.
(9) In May 1998, the Company sold to Donaldson, Lufkin & Jenrette
Securities Corporation 75,000 Units for an aggregate consideration of $71.5
million (net of discounts and commissions) pursuant to a Securities
Purchase Agreement, dated May 27, 1998.
The sales and issuances of securities in the above transactions were made
in reliance on the exemptions from registration under the Securities Act of
1933, as amended (the "Securities Act"), provided by Section 4(2) thereof and/or
Regulation D thereunder. The purchasers in each case represented their intention
to acquire the securities for investment only and not with a view to the
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. Similar representations of investment intent were
obtained and similar legends imposed in connection with any subsequent transfers
of such
II-4
<PAGE> 103
securities. The Company believes that all recipients had adequate access,
through employment or other relationships, to information about the Company to
make an informed investment decision.
In addition, from August 30, 1996 to June 10, 1997, the Company issued an
aggregate of 409,846 options to purchase Common Stock with exercise prices
ranging from $1.00 to $3.00 per share under the Stock Option Plan for an
aggregate exercise price of $582,385 in reliance on the exemption from
registration under the Securities Act provided by Rule 701. For additional
information concerning these transactions, reference is made to the information
contained under the caption "Management -- Stock Option Plan" in the form of the
Prospectus included herein.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. A list of exhibits included as part of this Registration
Statement is set forth in the Exhibit Index which immediately precedes such
exhibits and is hereby incorporated by reference herein.
(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 17. UNDERTAKINGS.
(a) The 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 a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act 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 indemnifications against public policy as expressed in the Securities Act
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 proceedings) is asserted by
such director, officer or controlling person in connection with
II-5
<PAGE> 104
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 whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-6
<PAGE> 105
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Coral Springs, State of
Florida, on July 24, 1998.
PARK 'N VIEW, INC.,
By: /s/ IAN WILLIAMS
------------------------------------
Ian Williams
President and Chief Executive
Officer
Each person whose signature appears below hereby constitutes and appoints
Ian Williams and Stephen L. Conkling and either of them his true and lawful
attorneys-in-fact with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
as well as any new registration statement filed to register additional
securities pursuant to Rule 462(b) under the Securities Act of 1933, as amended,
and to cause the same to be filed, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby
granting to said attorneys-in-fact and agent, full power and authority to do and
perform each and every act and thing whatsoever requisite or desirable to be
done in and about the premises, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
acts and things that said attorneys-in-fact and agents, or their substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the 24th day
of July, 1998, in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE POSITION
--------- --------
<C> <S>
/s/ IAN WILLIAMS President, Chief Executive Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
Ian Williams
/s/ STEPHEN L. CONKLING Vice President-Finance and Chief Operating
- ----------------------------------------------------- Officer (Principal Financial and Accounting
Stephen L. Conkling Officer)
/s/ ROBERT M. CHEFITZ Director
- -----------------------------------------------------
Robert M. Chefitz
/s/ THOMAS P. HIRSCHFELD Director
- -----------------------------------------------------
Thomas P. Hirschfeld
/s/ RICHARD M. JOHNSTON Director
- -----------------------------------------------------
Richard M. Johnston
/s/ DANIEL K. O'CONNELL Director
- -----------------------------------------------------
Daniel K. O'Connell
/s/ DAVID C. TURNER Director
- -----------------------------------------------------
David C. Turner
</TABLE>
II-7
<PAGE> 106
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C> <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* -- Certificate of Amendment to Certificate of Designations,
Preferences and Rights of Series B 7% Cumulative Convertible
Preferred Stock, dated May 7, 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 -- Warrant Agreement, dated as of May 27, 1998, by and between
the Company and State Street Bank and Trust Company, as
warrant agent.
4.3 -- Warrant Registration Rights Agreement, dated as of May 27,
1998, by and between the Company and Donaldson, Lufkin &
Jenrette Securities Corporation.
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>
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C> <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.
23.1** -- Consent of Kilpatrick Stockton LLP (included in Exhibit 5.1)
23.2 -- Consent of Deloitte & Touche LLP.
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated by reference to the corresponding exhibit filed with the
Company's Registration Statement on Form S-4 filed with the Securities and
Exchange Commission immediately prior to the filing of this Registration
Statement.
** To be filed by amendment.
+ 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 4.2
================================================================================
---------------------------------
WARRANT AGREEMENT
Dated as of May 27, 1998
by and among
PARK`N VIEW, INC.
and
STATE STREET BANK AND TRUST COMPANY
---------------------------------
================================================================================
<PAGE> 2
WARRANT AGREEMENT dated as of May 27, 1998 (the "AGREEMENT")
between Park`N View, Inc., a Delaware corporation (the "COMPANY"), and State
Street Bank and Trust Company, as warrant agent (the "WARRANT AGENT").
WHEREAS, the Company proposes to issue Common Stock Purchase
Warrants, as hereinafter described (the "WARRANTS"), to purchase up to an
aggregate of 505,735 shares of Common Stock (as defined below), in connection
with the offering of an aggregate of $75,000,000 principal amount of the
Company's 13% Senior Notes due 2008 (the "NOTES") and 75,000 Warrants, each
Warrant entitling the holder thereof to purchase 6.73833 shares of Common Stock.
The Notes and Warrants will be sold in Units (the "UNITS"), each Unit consisting
of $1,000 principal amount of Notes and one Warrant.
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing so to act, in connection
with the issuance of Warrant Certificates (as defined below) and other matters
as provided herein.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, and for the purpose of defining the
respective rights and obligations of the Company, the Warrant Agent and the
Holders (as defined below), the parties hereto agree as follows:
SECTION 1. Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
"Affiliate" of any person means any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such 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 means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; provided that
beneficial ownership of 5% or more of the voting securities of a person shall be
deemed to be control.
"Closing Date" means the date hereof.
"Commission" means the Securities and Exchange Commission.
"Common Equity Securities" means Common Stock and securities
convertible into, or exercisable or exchangeable for, Common Stock or rights or
options to acquire Common Stock or such other securities, excluding the
Warrants.
"Common Stock" means the common stock, par value $.001 per
share, of the Company, and any other capital stock of the Company into which
such common stock may be converted or reclassified or that may be issued in
respect of, in exchange for, or in substitution for, such common stock by reason
of any stock splits, stock dividends, distributions, mergers, consolidations or
other like events.
"Company" means Park `N View, Inc., a Delaware corporation,
and its successors and assigns.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
<PAGE> 3
"Exercise Date" means any time on or after the Separation Date
and prior to May 15, 2008.
"Exercise Price" means the purchase price per share of Common
Stock to be paid upon the exercise of each Warrant in accordance with the terms
hereof, which price shall initially be $.01 per share, subject to adjustment
from time to time pursuant to Section 13 hereof.
"Expiration Date" means May 15, 2008.
"Holder" means a person who owns Registrable Securities (as
defined in Section 7).
"Indenture" means the indenture, dated the date hereof,
between the Company and State Street Bank and Trust Company, as trustee.
"Initial Purchaser" means Donaldson, Lufkin & Jenrette
Securities Corporation.
"Notes" means the 13% Series A Senior Notes due 2008 of the
Company, being sold and issued pursuant to the Purchase Agreement and the
Indenture, or any notes exchanged therefor as contemplated by the Indenture and
the Registration Rights Agreement.
"person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of May 27, 1998, by and among the Company and the Initial
Purchaser relating to the Notes.
"Securities Act" means the Securities Act of 1933, as amended.
"Separation Date" means the earliest of (i) 180 days following
the Closing Date, (ii) the date on which a registration statement with respect
to a registered exchange offer for the Notes is declared effective under the
Securities Act, (iii) the date a shelf registration statement with respect to
the Notes is declared effective under the Securities Act, (iv) such date as the
Initial Purchaser shall determine and (v) in the event of a Change of Control
(as defined in the Indenture) occurs, the date the Company mails the required
notice thereof to the Note holders.
"Series B Preferred Stock" means Series B 7% Cumulative
Convertible Preferred Stock of the Company, as amended.
"Series C Preferred Stock" means the Series C 7% Cumulative
Convertible Preferred Stock of the Company, as amended.
"Trustee" means the trustee under the Indenture.
"Warrant Agent" means State Street Bank and Trust Company or
the successor or successors of such Warrant Agent appointed in accordance with
the terms hereof.
"Warrant Registration Rights Agreement" means the registration
rights agreement, dated as of May 27, 1998, by and among the Company and the
Initial Purchaser relating to the Warrants and the Warrant Shares.
3
<PAGE> 4
"Warrant Shares" means the shares of Common Stock issued or
issuable upon the exercise of the Warrants.
SECTION 2. Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
SECTION 3. Issuance of Warrants; Warrant Certificates. The
Warrants will be issued in global form (the "GLOBAL WARRANTS"), substantially in
the form of Exhibit A (including footnotes 1 and 2 thereto) in definitive form
(the "DEFINITIVE WARRANTS"), substantially in the form of Exhibit A. Each Global
Warrant shall represent such of the outstanding Warrants as shall be specified
therein and each shall provide that it shall represent the aggregate amount of
outstanding Warrants from time to time endorsed thereon and that the aggregate
amount of outstanding Warrants represented thereby may from time to time be
reduced or increased, as appropriate. Any endorsement of a Global Warrant to
reflect the amount of any increase or decrease in the amount of outstanding
Warrants represented thereby shall be made by the Warrant Agent and the
depositary with respect to the Global Warrants (the "Depositary") in accordance
with written instructions given by the Holder thereof. The Depository Trust
Company shall act as the Depositary until a successor shall be appointed by the
Company and the Warrant Agent. Upon written request, a Holder may receive from
the Depositary and the Warrant Agent separate Definitive Warrants as set forth
in Section 7 below. Any certificates (the "WARRANT CERTIFICATES") evidencing the
Global Warrants or the Definitive Warrants to be delivered pursuant to this
Agreement shall be substantially in the form set forth in Exhibit A attached
hereto.
SECTION 4. Execution of Warrant Certificates. Warrant
Certificates shall be signed on behalf of the Company by its Chairman of the
Board, its President or a Vice President. The signature upon the Warrant
Certificates may be in the form of a facsimile signature of the present or any
future Chairman of the Board, President or Vice President and may be imprinted
or otherwise reproduced on the Warrant Certificates and for that purpose the
Company may adopt and use the facsimile signature of any person who shall have
been Chairman of the Board, President or Vice President notwithstanding the fact
that at the time the Warrant Certificates shall be countersigned and delivered
or disposed of such person shall have ceased to hold such office.
In case any officer of the Company who shall have signed any
of the Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent, or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not ceased
to be such officer of the Company; and any Warrant Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Warrant Certificate, shall be a proper officer of the Company to sign such
Warrant Certificate, although at the date of the execution of this Warrant
Agreement any such person was not such officer.
Warrant Certificates shall be dated the date of
countersignature.
SECTION 5. Separation of Warrants. The Notes and Warrants
shall not be separately transferable prior to the Separation Date.
SECTION 6. Registration and Countersignature. The Warrant
Agent, on behalf of the Company, shall number and register the Warrant
Certificates in a register as they are issued by the Company.
4
<PAGE> 5
Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
The Warrant Agent shall, upon written instructions of the Chairman of the Board,
the President or the Treasurer of the Company, initially countersign, issue and
deliver Warrants entitling the Holders thereof to purchase not more than the
number of Warrant Shares referred to above in the first recital hereof and shall
countersign and deliver Warrants as otherwise provided in this Agreement.
The Company and the Warrant Agent may deem and treat the
Holder(s) of the Warrant Certificates as the absolute owner(s) thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone), for all purposes, and neither the Company nor the Warrant Agent shall
be affected by any notice to the contrary. Prior to a Separation Date, the
Depository Trust Company shall be deemed the registered Holder of such Warrants
for all purposes hereunder.
SECTION 7. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Definitive Warrants. When
Definitive Warrants are presented to the Warrant Agent with a written request:
(i) to register the transfer of the Definitive Warrants; or
(ii) to exchange such Definitive Warrants for an equal number of
Definitive Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange as requested
if its usual and customary requirements for such transactions are met; provided
that the Definitive Warrants presented or surrendered for registration of
transfer or exchange:
(x) shall be duly endorsed or accompanied by a written instruction
of transfer in form reasonably satisfactory to the Warrant
Agent, duly executed by the Holder thereof or by his attorney,
duly authorized in writing; and
(y) in the case of Registrable Securities (as defined below), such
request shall be accompanied by the following additional
information and documents, as applicable:
(A) if such Registrable Security is being delivered to
the Warrant Agent by a Holder for registration in the
name of such Holder, without transfer, a
certification from such Holder to that effect (in
substantially the form of Exhibit B hereto);
(B) if such Registrable Security is being transferred (1)
to a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act) in accordance
with Rule 144A under the Securities Act or (2)
pursuant to an exemption from registration in
accordance with Rule 144 under the Securities Act
(and based on an opinion of counsel if the Company so
requests) or (3) pursuant to an effective
registration statement under the Securities Act, a
certification to that effect (in substantially the
form of Exhibit B hereto);
(C) if such Registrable Security is being transferred to
an institutional "accredited investor," within the
meaning of Rule 501(a)(l), (2), (3) or (7) under the
Securities Act pursuant to a private placement
exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel
5
<PAGE> 6
reasonably acceptable to the Company if the Company
so requests), a certification to that effect (in
substantially the form of Exhibit B hereto) and a
certification from the applicable transferee; or
(D) if such Registrable Security is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act (and based on an
opinion of counsel reasonably acceptable to the
Company if the Company so requests), a certification
to that effect (in substantially the form of Exhibit
B hereto).
The term "REGISTRABLE SECURITIES" means the Warrants,
Warrant Shares and any other securities issued or issuable with respect
to the Warrants or the Warrant Shares by way of a stock dividend or
stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or
otherwise until such date as such security (i) is effectively
registered under the Securities Act and disposed of in accordance with
a registration statement covering it, (ii) is distributed to the public
pursuant to Rule 144 under the Securities Act or (iii) may be sold or
transferred under Rule 144(k) (or any similar provisions then in force)
under the Securities Act or otherwise.
(b) Restrictions on Exchange or Transfer of a Definitive
Warrant for a Beneficial Interest in a Global Warrant. A certificated Warrant
may not be exchanged for a beneficial interest in a Global Warrant except upon
satisfaction of the requirements set forth below. Upon receipt by the Warrant
Agent of a Definitive Warrant, duly endorsed or accompanied by appropriate
instruments of transfer, in form reasonably satisfactory to the Warrant Agent,
together with:
(A) if such Definitive Warrant is a Registrable Security,
certification from the Holder thereof (in
substantially the form of Exhibit B hereto) to the
effect that such Definitive Warrant is being
transferred by such Holder either (i) to a "qualified
institutional buyer" (as defined in Rule 144A under
the Securities Act) in accordance with Rule 144A
under the Securities Act who wishes to take delivery
thereof in the form of a beneficial interest in a
Global Warrant or (ii) to an "accredited investor,"
within the meaning of Rule 501(a)(l), (2), (3) or (7)
in accordance with Rule 144A under the Securities Act
(and based on an opinion of counsel if the Company so
requests) who wishes to take delivery thereof in the
form of a beneficial interest in a Global Warrant;
and
(B) whether or not such Definitive Warrant is a
Registrable Security, written instructions directing
the Warrant Agent to make, or to direct the
Depositary to make, an endorsement on the Global
Warrant to reflect an increase in the number of
Warrants and Warrant Shares represented by the Global
Warrant, then the Warrant Agent shall cancel such
Definitive Warrant and cause, or direct the
Depositary to cause, in accordance with the standing
instructions and procedures existing between the
Depositary and the Warrant Agent, the number of
Warrants and Warrant Shares represented by the Global
Warrant to be increased accordingly. If no Global
Warrants are then outstanding, the Company shall
issue and the Warrant Agent shall countersign a new
Global Warrant representing the appropriate number of
Warrants and Warrant Shares.
(c) Transfer and Exchange of Global Warrants. The
transfer and exchange of Global Warrants or beneficial interests therein shall
be effected through the Depositary, in accordance
6
<PAGE> 7
with this Warrant Agreement and the procedures of the Depositary therefor.
(d) Exchange of a Beneficial Interest in a Global Warrant for
a Certificated Warrant.
(i) Any person having a beneficial interest in a Global Warrant
may upon written request exchange such beneficial interest for
a Definitive Warrant. Upon receipt by the Warrant Agent of
written instructions or such other form of instructions as is
customary for the Depositary from the Depositary or its
nominee on behalf of any person having a beneficial interest
in a Global Warrant and, in the case of a Registrable
Security, the following additional information and documents
(all of which may be submitted by facsimile):
(A) if such beneficial interest is being delivered to the
person designated by the Depositary as being the
beneficial owner, a certification to that effect (in
substantially the form of Exhibit B hereto);
(B) if such beneficial interest is being transferred (1)
to a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act) in accordance
with Rule 144A under the Securities Act or (2)
pursuant to an exemption from registration in
accordance with Rule 144 under the Securities Act
(and based on an opinion of counsel reasonably
acceptable to the Company, if the Company so
requests) or (3) pursuant to an effective
registration statement under the Securities Act, a
certification to that effect (in substantially the
form of Exhibit B hereto);
(C) if such beneficial interest is being transferred to
any institutional "accredited investor," within the
meaning of Rule 501(a)(1), (2), (3) and (7) under the
Securities Act pursuant to a private placement
exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel
reasonably acceptable to the Company, if the Company
so requests), a certification to that effect (in
substantially the form of Exhibit B hereto) and a
certification from the applicable transferee;
(D) if such beneficial interest is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act (and based on an
opinion of counsel reasonably acceptable to the
Company, if the Company so requests), a certification
to that effect (in substantially the form of Exhibit
B hereto).
then the Warrant Agent shall cause, in accordance with the
standing instructions and procedures existing between the
Depositary and Warrant Agent, the number of Warrants and
Warrant Shares represented by the Global Warrant to be reduced
and, following such reduction, the Company shall execute and
the Warrant Agent shall countersign and deliver to the
transferee, as the case may be, a Definitive Warrant.
(ii) Definitive Warrants issued in exchange for a beneficial
interest in a Global Warrant pursuant to this Section 7(d)
shall be registered in such names as the Depositary, pursuant
to instructions from its direct or indirect participants or
otherwise, shall instruct the Warrant Agent. The Warrant Agent
shall deliver such Definitive Warrants to the persons in whose
names such Warrants are so registered.
7
<PAGE> 8
(e) Restrictions on Transfer and Exchange of Global Warrants.
Notwithstanding any other provisions of this Warrant Agreement (other than the
provisions set forth in subsection (f) of this Section 7), a Global Warrant may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Countersigning of Definitive Warrants in Absence of
Depositary. If at any time:
(i) the Depositary for the Global Warrants notifies the Company
that the Depositary is unwilling or unable to continue as
Depositary for the Global Warrants and a successor Depositary
for the Global Warrants is not appointed by the Company within
90 days after delivery of such notice; or
(ii) The Company, in its sole discretion, notifies the Warrant
Agent in writing that it elects to cause the issuance of
Definitive Warrants under this Warrant Agreement,
then the Company shall execute, and the Warrant Agent, upon written instructions
signed by two officers of the Company, shall countersign and deliver Definitive
Warrants, in an aggregate number equal to the number of Warrants represented by
Global Warrants, in exchange for such Global Warrants.
(g) Legends.
(i) Except for any Registrable Security sold or transferred
(including any Registrable Security represented by a Global
Warrant) as discussed in clause (ii) below, each Warrant
Certificate evidencing the Global Warrants and the Definitive
Warrants (and all Warrants issued in exchange therefor or
substitution thereof) and each certificate representing the
Warrant Shares shall bear a legend in substantially the
following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY
WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND
THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.
EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE
HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR
THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES
IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144
UNDER THE SECURITIES ACT OR (c) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" AS DEFINED
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IN RULE 501(A)(1), (2), (3) OR (7) OF THE SECURITIES
ACT (AN "INSTITUTIONAL ACCREDITED INVESTOR") THAT,
PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE OR THE
WARRANT AGENT, AS APPLICABLE, A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
(THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE
OR THE WARRANT AGENT, AS APPLICABLE) AND, IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF SECURITIES LESS THAN $250,000, AN OPINION
OF COUNSEL THAT SUCH TRANSFER IS IN COMPLIANCE WITH
SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND, IN THE CASE OF CLAUSE (b), (c)
or (d) BASED UPON AN OPINION OF COUNSEL IF THE
COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND,
IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR
ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH
IN (A) ABOVE."
(ii) Upon any sale or transfer of a Registrable Security (including
any Registrable Security represented by a Global Warrant)
pursuant to an effective registration statement under the
Securities Act, pursuant to Rule 144 under the Securities Act
or pursuant to an opinion of counsel reasonably satisfactory
to the Company that no legend is required:
(A) in the case of any Registrable Security that is a
certificated Warrant, the Warrant Agent shall permit
the Holder thereof to exchange such Registrable
Security for a Definitive Warrant that does not bear
the legend set forth in clause (i) above and rescind
any restriction on the transfer of such Registrable
Security; and
(B) in the case of any Registrable Security represented
by a Global Warrant, such Registrable Security shall
not be required to bear the legend set forth in
clause (i) above but shall continue to be subject to
the provisions of Section 7(c) hereof; provided that
with respect to any request for an exchange of a
Registrable Security that is represented by a Global
Warrant for a Definitive Warrant that does not bear
the legend set forth in clause (i) above, which
request is made in reliance upon Rule 144 (and based
on an opinion of counsel reasonably acceptable to the
Company, if the Company so requests), the Holder
thereof shall certify in writing to the Warrant Agent
that such request is being made pursuant to Rule 144
(such certification to be substantially in the form
of Exhibit B hereto).
(h) Cancellation of Global Warrant. At such time as all
beneficial interests in Global Warrants have either been exchanged for
Definitive Warrants, redeemed, repurchased or cancelled, all Global Warrants
shall be returned to or retained and cancelled by the Warrant Agent.
(i) Obligations with respect to Transfers and Exchanges of
Warrants.
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(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Warrant Agent is hereby
authorized to countersign, in accordance with the provisions
of Section 6 and this Section 7, Definitive Warrants and
Global Warrants as required pursuant to the provisions of this
Section 7.
(ii) All Definitive Warrants and Global Warrants issued upon any
registration of transfer or exchange of Definitive Warrants or
Global Warrants shall be the valid obligations of the Company,
entitled to the same benefits under this Warrant Agreement, as
the Definitive Warrants or Global Warrants surrendered upon
such registration of transfer or exchange.
(iii) Notwithstanding any provisions in the Warrant Registration
Rights Agreement, prior to due presentment for registration of
transfer of any Warrant, the Warrant Agent and the Company may
deem and treat the person in whose name any Warrant is
registered as the absolute owner of such Warrant and neither
the Warrant Agent, nor the Company shall be affected by notice
to the contrary.
(iv) No service charge shall, notwithstanding any provisions in the
Warrant Registration Rights Agreement, be made to a Holder for
any registration, transfer or exchange.
SECTION 8. Terms of Warrants; Exercise of Warrants. Subject to
the terms of this Agreement, each Warrant Holder shall have the right, which may
be exercised commencing at the opening of business on the Exercise Date and
until 5:00 p.m., New York City time on the Expiration Date to receive from the
Company the number of fully paid and nonassessable Warrant Shares registered
under the Securities Act which the Holder may at the time be entitled to receive
on exercise of such Warrants and payment of the Exercise Price then in effect
for such Warrant Shares; provided that no Warrant Holder shall be entitled to
exercise such Holder's Warrants at any time, unless, at the time of exercise,
(i) a registration statement under the Securities Act relating to the Warrant
Shares has been filed with, and declared effective by, the Commission, and no
stop order suspending the effectiveness of such registration statement has been
issued by the Commission or (ii) the issuance of the Warrant Shares is permitted
pursuant to an exemption from the registration requirements of the Securities
Act. Each Warrant not exercised prior to 5:00 p.m., New York City time, on the
Expiration Date shall become void and all rights thereunder and all rights in
respect thereof under this Agreement shall cease as of such time. No adjustments
as to dividends will be made upon exercise of the Warrants.
The Company shall give notice not less than 90, and not more
than 120, days prior to the Expiration Date to the Holders of all then
outstanding Warrants to the effect that the Warrants will terminate and become
void as of the 5:00 p.m., New York City time, on the Expiration Date. If the
Company fails to give such notice, the Warrants will not expire until 90 days
after the Company gives such notice, provided in no event will Holders be
entitled to any damages or other remedy for the Company's failure to give such
notice other than any such extension.
A Warrant may be exercised upon surrender to the Company at
the principal office of the Warrant Agent of the certificate or certificates
evidencing the Warrant to be exercised with the form of election to purchase on
the reverse thereof duly filled in and signed, which signature shall be
guaranteed by a bank or trust company having an office or correspondent in the
United States or a broker or dealer which is a member of a registered securities
exchange or the National Association of Securities Dealers, Inc., and upon
payment to the Warrant Agent for the account of the Company of the Exercise
Price as adjusted as herein provided, for each of the Warrant Shares in respect
of which such Warrant is then exercised. Payment of the aggregate Exercise Price
shall be made in cash or by certified or official bank
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<PAGE> 11
check, payable to the order of the Company. In the alternative, each Holder may
exercise its right to receive Warrant Shares on a net basis, such that without
the exchange of any funds, the Holder receives that number of Warrant Shares
otherwise issuable upon exercise of its Warrants less that number of Warrant
Shares having a fair market value equal to the aggregate Exercise Price that
would otherwise have been paid by the Holder of the Warrant Shares. For purposes
of the foregoing sentence, "FAIR MARKET VALUE" of the Warrant Shares shall be
the current market price of the Warrant Shares on the date immediately preceding
the date of payment of the Exercise Price as determined by the procedures set
forth in Section 13(e). The exercise of Warrants by Holders of beneficial
interest in Global Warrants shall be effected in accordance with this Agreement
and the procedures of the Depositary therefor.
Subject to the provisions of Section 9 hereof, upon surrender
of Warrants and payment of the Exercise Price as provided above, the Warrant
Agent shall thereupon promptly notify the Company, and the Company shall
promptly transfer to the Holder of such Warrant Certificate a certificate or
certificates for the appropriate number of Warrant Shares or other securities or
property (including any money) to which the Holder is entitled, registered or
otherwise placed in, or payable to the order of, such name or names as may be
directed in writing by the Holder, and shall deliver such certificate or
certificates representing the Warrant Shares and any other securities or
property (including any money) to the person or persons entitled to receive the
same, together with an amount in cash in lieu of any fraction of a share as
provided in Section 15. Any such certificate or certificates representing the
Warrant Shares shall be deemed to have been issued and any person so designated
to be named therein shall be deemed to have become a Holder of record of such
Warrant Shares as of the date of the surrender of such Warrants and payment of
the Exercise Price.
The Warrants shall be exercisable commencing on the Exercise
Date, at the election of the Holders thereof, either in full or from time to
time in part and, in the event that a certificate evidencing Warrants is
exercised in respect of fewer than all of the Warrant Shares issuable on such
exercise at any time prior to the date of expiration of the Warrants, a new
certificate evidencing the remaining Warrant or Warrants will be issued, and the
Warrant Agent is hereby irrevocably authorized to countersign and to deliver the
required new Warrant Certificate or Certificates pursuant to the provisions of
this Section and of Section 4 hereof, and the Company, whenever required by the
Warrant Agent, will supply the Warrant Agent with Warrant Certificates duly
executed on behalf of the Company for such purpose.
All Warrant Certificates surrendered upon exercise of Warrants
shall be cancelled by the Warrant Agent. Such cancelled Warrant Certificates
shall then be disposed of by the Warrant Agent in a manner satisfactory to the
Company. The Warrant Agent shall account promptly to the Company with respect to
Warrants exercised and concurrently pay to the Company all monies received by
the Warrant Agent for the purchase of the Warrant Shares through the exercise of
such Warrants.
The Warrant Agent shall keep copies of this Agreement and any
notices given or received hereunder by or from the Company available for
inspection by the Holders during normal business hours at its office. The
Company shall supply the Warrant Agent from time to time with such numbers of
copies of this Agreement as the Warrant Agent may reasonably request.
SECTION 9. Payment of Taxes. The Company will pay all
documentary stamp taxes attributable to the initial issuance of Warrant Shares
upon the exercise of Warrants or to any Separation; provided that the Company
shall not be required to pay any tax or taxes which may be payable in respect of
any transfer involved in the issue of any Warrant Certificates or any
certificates for Warrant Shares in a name other than that of the Holder of a
Warrant Certificate surrendered upon the exercise of a Warrant,
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<PAGE> 12
and the Company shall not be required to issue or deliver such Warrant
Certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
SECTION 10. Mutilated or Missing Warrant Certificates. In case
any of the Warrant Certificates shall be mutilated, lost, stolen or destroyed,
the Company may in its discretion issue and the Warrant Agent may countersign,
in exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence reasonably
satisfactory to the Company and the Warrant Agent of such loss, theft or
destruction of such Warrant Certificate and indemnity, if requested, also
reasonably satisfactory to them. Applicants for such substitute Warrant
Certificates shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Company or the Warrant Agent may prescribe.
SECTION 11. Reservation of Warrant Shares. The Company will at
all times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock or its authorized and
issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of shares of Common Stock which may then be deliverable upon the
exercise of all outstanding Warrants.
The transfer agent for the Common Stock (the "TRANSFER AGENT")
and every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of any of the rights of purchase aforesaid will
be irrevocably authorized and directed at all times to reserve such number of
authorized shares as shall be required for such purpose. The Company will keep a
copy of this Agreement on file with the Transfer Agent and with every subsequent
transfer agent for any shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants. The Company will
supply such Transfer Agent with duly executed certificates for such purposes and
will provide or otherwise make available any cash which may be payable as
provided in Section 15. The Company will furnish such Transfer Agent a copy of
all notices of adjustments and certificates related thereto, transmitted to each
Holder of the Warrants pursuant to Section 16 hereof.
Before taking any action which would cause an adjustment
pursuant to Section 13 hereof to reduce the Exercise Price below the then par
value (if any) of the Warrant Shares, the Company will take any corporate action
which may, in the opinion of its counsel (which may be counsel employed by the
Company), be necessary in order that the Company may validly and legally issue
fully paid and nonassessable Warrant Shares at the Exercise Price as so
adjusted.
The Company covenants that all Warrant Shares which may be
issued upon exercise of Warrants in accordance with the terms of this Agreement
(including the terms of the Exercise Price) will, upon issue, be duly and
validly issued, fully paid and nonassessable, free of preemptive rights and free
from all taxes, liens, charges and security interests with respect to the issue
thereof.
SECTION 12. Obtaining Stock Exchange Listings. The Company
will from time to time take all action which may be necessary so that the
Warrant Shares, immediately upon their issuance upon the exercise of Warrants,
will be listed on the principal securities exchanges and markets (including,
without limitation, the Nasdaq National Market) within the United States of
America, if any, on which other shares of Common Stock are then listed. Upon the
listing of such Warrant Shares, the Company shall notify the Warrant Agent in
writing. The Company will obtain and keep all required
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<PAGE> 13
permits and records in connection with such listing.
SECTION 13. Adjustment of Exercise Price and Number of Warrant
Shares Issuable. The number and kind of shares purchasable upon the exercise of
Warrants and the Exercise Price shall be subject to adjustment from time to time
as follows:
(a) Stock Splits, Combinations, etc. In case the Company shall
hereafter (A) pay a dividend or make a distribution on its Common Stock in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (B) subdivide its outstanding shares of Common Stock, (C)
combine its outstanding shares of Common Stock into a smaller number of shares
or (D) issue by reclassification of its shares of Common Stock any shares of
capital stock of the Company, the Exercise Price in effect immediately prior to
such action shall be adjusted so that the Holder of any Warrant thereafter
exercised shall be entitled to receive the number of shares of capital stock of
the Company which such Holder would have owned immediately following such action
had such Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this paragraph shall become effective immediately after the record
date in the case of a dividend and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
If, as a result of an adjustment made pursuant to this paragraph, the Holder of
any Warrant thereafter exercised shall become entitled to receive shares of two
or more classes of capital stock of the Company, the Board of Directors of the
Company (whose determination shall be conclusive) shall determine the allocation
of the adjusted Exercise Price between or among shares of such classes of
capital stock.
(b) Reclassification, Combinations, Mergers, etc. In case of
any reclassification or change of outstanding shares of Common Stock issuable
upon exercise of the Warrants (other than as set forth in paragraph (a) above
and other than a change in par value, or from par value to no par value, or from
no par value to par value or as a result of a subdivision or combination), or in
case of any consolidation or merger of the Company with or into another
corporation (other than a merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company or such a successor or purchasing
corporation, as the case may be, shall forthwith make lawful and adequate
provision whereby the Holder of such Warrant then outstanding shall have the
right thereafter to receive on exercise of such Warrant the kind and amount of
shares of stock or other securities or property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a Holder
of the number of shares of Common Stock issuable upon exercise of such Warrant
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance and enter into a supplemental warrant agreement so providing. Such
provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
13. If the issuer of securities deliverable upon exercise of Warrants under the
supplemental warrant agreement is an affiliate of the formed, surviving or
transferee corporation, that issuer shall join in the supplemental warrant
agreement. The above provisions of this paragraph (b) shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(c) Issuance of Options or Convertible Securities. In the
event the Company shall, at any time or from time to time after the date hereof,
issue, sell, distribute or otherwise grant in any manner (including by
assumption) to all holders of the Common Stock any rights to subscribe for or to
purchase, or any warrants or options for the purchase of, Common Stock or any
stock or securities
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<PAGE> 14
convertible into or exchangeable for Common Stock (any such rights, warrants or
options being herein called "OPTIONS" and any such convertible or exchangeable
stock or securities being herein called "CONVERTIBLE SECURITIES") or any
Convertible Securities (other than upon exercise of any Option), whether or not
such Options or the rights to convert or exchange such Convertible Securities
are immediately exercisable, and the price per share at which Common Stock is
issuable upon the exercise of such Options or upon the conversion or exchange of
such Convertible Securities (determined by dividing (i) the aggregate amount, if
any, received or receivable by the Company as consideration for the issuance,
sale, distribution or granting of such Options or any such Convertible Security,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the exercise of all such Options or upon conversion or
exchange of all such Convertible Securities, plus, in the case of Options to
acquire Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the conversion or exchange of all such
Convertible Securities, by (ii) the total maximum number of shares of Common
Stock issuable upon the exercise of all such Options or upon the conversion or
exchange of all such Convertible Securities or upon the conversion or exchange
of all Convertible Securities issuable upon the exercise of all such Options)
shall be less than the current market price per share of Common Stock on the
record date for the issuance, sale, distribution or granting of such Options or
Convertible Securities (any such event being herein called a "DISTRIBUTION"),
then, effective upon such Distribution, (I) the Exercise Price shall be reduced
to the price (calculated to the nearest 1/1,000 of one cent) determined by
multiplying the Exercise Price in effect immediately prior to such Distribution
by a fraction, the numerator of such shall be the sum of (1) the number of
shares of Common Stock outstanding (exclusive of any treasury shares)
immediately prior to such Distribution multiplied by the current market price
per share of Common Stock on the date of such Distribution plus (2) the
consideration, if any, received by the Company upon such Distribution, and the
denominator of which shall be the product of (A) the total number of shares of
Common Stock outstanding (exclusive of any treasury shares) immediately after
such Distribution multiplied by (B) the current market price per share of Common
Stock on the record date for such Distribution and (II) the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall be increased to
a number determined by multiplying the number of shares of Common Stock so
purchasable immediately prior to the record date for such Distribution by a
fraction, the numerator of which shall be the Exercise Price in effect
immediately prior to the adjustment required by clause (I) of this sentence and
the denominator of which shall be the Exercise Price in effect immediately after
such adjustment (for the purposes of this clause (ii) without giving effect to
the provisions of Section 13(h)). For purposes of the foregoing, the total
maximum number of shares of Common Stock issuable upon exercise of all such
Options or upon conversion or exchange of all such Convertible Securities or
upon the conversion or exchange of the total maximum amount of the Convertible
Securities issuable upon the exercise of all such Options shall be deemed to
have been issued as of the date of such Distribution and thereafter shall be
deemed to be outstanding and the Company shall be deemed to have received as
consideration therefor such price per share, determined as provided above.
Except as provided in paragraphs (j) and (k) below, no additional adjustment of
the Exercise Price shall be made upon the actual exercise of such Options or
upon conversion or exchange of the Convertible Securities or upon the conversion
or exchange of the Convertible Securities issuable upon the exercise of such
Options. Notwithstanding the provisions of this Section 13, no adjustment shall
be required upon the conversion of the Series B Preferred Stock and Series C
Preferred Stock into Common Stock or upon the issuance of Common Stock pursuant
to employee stock option plans or warrants to purchase shares of Common Stock
outstanding as of the date hereof.
(d) Dividends and Distributions. In the event the Company
shall, at any time or from time to time after the date thereof, distribute to
all the holders of Common Stock any dividend or other distribution of cash,
evidences of its indebtedness, other securities or other properties or assets
(in
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<PAGE> 15
each case other than (i) dividends payable in Common Stock, Options or
Convertible Securities and (ii) any cash dividend that, when added to all other
cash dividends paid in the one year prior to the declaration date of such
dividend (excluding any such other dividend included in a previous adjustment of
the Exercise Price pursuant to this paragraph (d)), does not exceed 5% of the
current market price per share of Common Stock on such declaration date), or any
options, warrants or other rights to subscribe for or purchase any of the
foregoing, then (A) the Exercise Price shall be decreased to a price determined
by multiplying the Exercise Price then in effect by a fraction, the numerator of
which shall be the current market price per share of Common Stock on the record
date for such distribution less the sum of (X) the cash portion, if any, of such
distribution per share of Common Stock outstanding (exclusive of any treasury
shares) on the record date for such distribution plus (Y) the then fair market
value (as determined in good faith by the Board of Directors of the Company) per
share of Common Stock outstanding (exclusive of any treasury shares) on the
record date for such distribution of that portion, if any, of such distribution
consisting of evidences of indebtedness, other securities, properties, assets,
options, warrants or subscription or purchase rights, and the denominator of
which shall be such current market price per share of Common Stock and (B) the
number of shares of Common Stock purchasable upon the exercise of each Warrant
shall be increased to a number determined by multiplying the number of shares of
Common Stock so purchasable immediately prior to the record date for such
distribution by a fraction, the numerator of which shall be the Exercise Price
in effect immediately prior to the adjustment required by clause (A) of this
sentence and the denominator of which shall be the Exercise Price in effect
immediately after such adjustment (for the purposes of this clause (B) without
giving effect to the provisions of Section 13(h)). The adjustments required by
this paragraph (d) shall be made whenever any such distribution occurs
retroactive to the record date for the determination of stockholders entitled to
receive such distribution.
(e) Current Market Price.
For the purpose of any computation of current market price
under this Section 13 and Section 15, the current market price per share of
Common Stock at any date shall be (x) for purposes of Section 15, the closing
price on the business day immediately prior to the exercise of the applicable
Warrant pursuant to Section 8 and (y) in all other cases, the average of the
daily closing prices for the shorter of (i) the 20 consecutive trading days
ending on the last full trading day on the exchange or market specified in the
second succeeding sentence prior to the Time of Determination (as defined below)
and (ii) the period commencing on the date next succeeding the first public
announcement of the issuance, sale, distribution or granting in question through
such last full trading day prior to the Time of Determination. The term "TIME OF
DETERMINATION" as used herein shall be the time and date of the earlier to occur
of (A) the date as of which the current market price is to be computed and (B)
the last full trading day on such exchange or market before the commencement of
"ex-dividend" trading in the Common Stock relating to the event giving rise to
the adjustment required by paragraph (a), (b), (c) or (d). The closing price for
any day shall be the last reported sale price regular way or, in case no such
reported sale takes place on such day, the average of the closing bid and asked
prices regular way for such day, in each case (1) on the principal national
securities exchange on which the shares of Common Stock are listed or to which
such shares are admitted to trading or (2) if the Common Stock is not listed or
admitted to trading on a national securities exchange, in the over-the-counter
market as reported by Nasdaq National Market or any comparable system or (3) if
the Common Stock is not listed on Nasdaq National Market or a comparable system,
as furnished by two members of the NASD selected from time to time in good faith
by the Board of Directors of the Company for that purpose. In the absence of all
of the foregoing, or if for any other reason the current market price per share
cannot be determined pursuant to the foregoing provisions of this paragraph (e),
the current market price per share shall be the fair market value thereof as
determined in good faith by the Board of Directors of the Company.
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<PAGE> 16
(f) Certain Distributions. If the Company shall pay a dividend
payable in Options or Convertible Securities or make any other distribution
payable in Options or Convertible Securities, then, for purposes of paragraph
(c) above, such Options or Convertible Securities shall be deemed to have been
issued or sold without consideration.
(g) Consideration Received. If any shares of Common Stock,
Options or Convertible Securities shall be issued, sold or distributed for a
consideration other than cash, the amount of the consideration other than cash
received by the Company in respect thereof shall be deemed to be the then
current market price of such consideration (as determined in good faith by the
Board of Directors of the Company). If any Options shall be issued in connection
with the issuance and sale of other securities of the Company, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be deemed
to have been issued without consideration; provided, that if such Options have
an exercise price equal to or greater than the fair market value of the Common
Stock on the date of issuance of such Options, then such Options shall be deemed
to have been issued for consideration equal to such exercise price.
(h) Deferral of Certain Adjustments. No adjustment to the
Exercise Price (including the related adjustment to the number of shares of
Common Stock purchasable upon the exercise of each Warrant) shall be required
hereunder unless such adjustment, together with other adjustments carried
forward as provided below, would result in an increase or decrease of at least
one percent of the Exercise Price; provided that any adjustments which by reason
of this paragraph (i) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. No adjustment need be made for
a change in the par value of the Common Stock. All calculations under this
Section shall be made to the nearest 1/1,000 of one cent or to the nearest
1/1000 of a share, as the case may be.
(i) Changes in Options and Convertible Securities. If the
exercise price provided for in any Options referred to in paragraph (c) above,
the additional consideration, if any, payable upon the conversion or exchange of
any Convertible Securities referred to in paragraph (c) above, or the rate at
which any Convertible Securities referred to in paragraph (c) above are
convertible into or exchangeable for Common Stock shall change at any time
(other than under or by reason of provisions designed to protect against
dilution upon an event which results in a related adjustment pursuant to this
Section 13), the Exercise Price then in effect and the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall forthwith be
readjusted (effective only with respect to any exercise of any Warrant after
such readjustment) to the Exercise Price and number of shares of Common Stock so
purchasable that would then be in effect had the adjustment made upon the
issuance, sale, distribution or granting of such Options or Convertible
Securities been made based upon such changed purchase price, additional
consideration or conversion rate, as the case may be, but only with respect to
such Options and Convertible Securities as then remain outstanding.
(j) Expiration of Options and Convertible Securities. If, at
any time after any adjustment to the number of shares of Common Stock
purchasable upon the exercise of each Warrant shall have been made pursuant to
paragraph (c) or (i) above or this paragraph (j), any Options or Convertible
Securities shall have expired unexercised, the number of such shares so
purchasable shall, upon such expiration, be readjusted and shall thereafter be
such as they would have been had they been originally adjusted (or had the
original adjustment not been required, as the case may be) as if (i) the only
shares of Common Stock deemed to have been issued in connection with such
Options or Convertible Securities were the shares of Common Stock, if any,
actually issued or sold upon the exercise of such Options or Convertible
Securities and (ii) such shares of Common Stock, if any, were issued or sold for
the consideration actually received by the Company upon such exercise plus the
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<PAGE> 17
aggregate consideration, if any, actually received by the Company for the
issuance, sale, distribution or granting of all such Options or Convertible
Securities, whether or not exercised; provided that no such readjustment shall
have the effect of decreasing the number of such shares so purchasable by an
amount (calculated by adjusting such decrease to account for all other
adjustments made pursuant to this Section 13 following the date of the original
adjustment referred to above) in excess of the amount of the adjustment
initially made in respect of the issuance, sale, distribution or granting of
such Options or Convertible Securities.
(k) Other Adjustments. In the event that at any time, as a
result of an adjustment made pursuant to this Section 13, the Holders shall
become entitled to receive any securities of the Company other than shares of
Common Stock, thereafter the number of such other securities so receivable upon
exercise of the Warrants and the Exercise Price applicable to such exercise
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the shares of
Common Stock contained in this Section 13.
(l) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to this Section 13 or upon the occurrence of any
event or action which would require an adjustment of the Exercise Price pursuant
to this Section 13 but for Section 13(h), each Warrant outstanding prior to the
making of the adjustment in the Exercise Price shall thereafter evidence the
right to receive upon payment of the adjusted Exercise Price that number of
share of Common Stock obtained by dividing (i) the sum of the adjusted number of
Warrant Shares issuable upon exercise of a Warrant by payment of the adjusted
Exercise Price plus the Exercise Price prior to adjustment by (ii) the adjusted
Exercise Price (without giving effect to the provisions of Section 13(h)).
Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon the exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
SECTION 14. Statement on Warrants. Irrespective of any
adjustment in the number or kind of shares issuable upon the exercise of the
Warrants or the Exercise Price, Warrants theretofore or thereafter issued may
continue to express the same number and kind of shares as are stated in the
Warrants initially issuable pursuant to this Agreement.
SECTION 15. Fractional Interest. The Company shall not be
required to issue fractional shares of Common Stock on the exercise of Warrants.
If more than one Warrant shall be presented for exercise in full at the same
time by the same Holder, the number of full shares of Common Stock which shall
be issuable upon such exercise shall be computed on the basis of the aggregate
number of shares of Common Stock acquirable on exercise of the Warrants so
presented. If any fraction of a share of Common Stock would, except for the
provisions of this Section, be issuable on the exercise of any Warrant (or
specified portion thereof), the Company shall direct the Transfer Agent to pay
an amount in cash calculated by it to equal the then current market price per
share multiplied by such fraction computed to the nearest whole cent less such
fraction of the Exercise Price. The Holders, by their acceptance of the Warrant
Certificates, expressly waive any and all rights to receive any fraction of a
share of Common Stock or a stock certificate representing a fraction of a share
of Common Stock.
SECTION 16. Notices to Warrant Holders. Upon any adjustment of
the Exercise Price pursuant to Section 13, the Company shall promptly thereafter
(i) cause to be filed with the Warrant Agent a certificate of a firm of
independent public accountants of recognized standing selected by the
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<PAGE> 18
Board of Directors of the Company (who may be the regular auditors of the
Company) setting forth the Exercise Price after such adjustment and setting
forth in reasonable detail the method of calculation and the facts upon which
such calculations are based and setting forth the number of Warrant Shares (or
portion thereof) issuable after such adjustment in the Exercise Price, upon
exercise of a Warrant and payment of the adjusted Exercise Price, which
certificate shall be conclusive evidence of the correctness of the matters set
forth therein, and (ii) cause to be given to each of the registered Holders of
the Warrant Certificates (or the DTC participants with interests in the Global
Warrant) at his address appearing on the Warrant register written notice of such
adjustments by first-class mail, postage prepaid. The Warrant Agent shall be
entitled to rely on the above-referenced accountant's certificate and shall be
under no duty or responsibility with respect to any such certificate, except to
exhibit the same from time to time to any Holder desiring an inspection thereof
during reasonable business hours. The Warrant Agent shall not at any time be
under any duty or responsibility to any Holder to determine whether any facts
exist that may require any adjustment of the number of shares of Common Stock or
other stock or property issuable on exercise of the Warrants or the Exercise
Price, or with respect to the nature or extent of any such adjustment when made,
or with respect to the method employed in making such adjustment or the validity
or value (or the kind or amount) of any shares of Common Stock or other stock or
property which may be issuable on exercise of the Warrants. The Warrant Agent
shall not be responsible for any failure of the Company to make any cash payment
or to issue, transfer or deliver any shares of Common Stock or stock
certificates or other common stock or property upon the exercise of any Warrant.
In case:
(a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for
or purchase shares of Common Stock or of any other subscription rights
or warrants; or
(b) the Company shall authorize the distribution to all
holders of shares of Common Stock of evidences of its indebtedness or
assets (other than cash dividends or cash distributions payable out of
consolidated earnings or earned surplus or dividends payable in shares
of Common Stock or distributions referred to in Section 13 hereof); or
(c) of any consolidation or merger to which the Company is a
party and for which approval of any shareholders of the Company is
required, or of the conveyance or transfer of the properties and assets
of the Company substantially as an entirety, or of any reclassification
or change of Common Stock issuable upon exercise of the Warrants (other
than a change in par value, or from par value to no par value, or from
no par value to par value, or as a result of a subdivision or
combination), or a tender offer or exchange offer for shares of Common
Stock; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(e) a Change of Control (as defined in the Indenture) occurs;
or
(f) the Company proposes to take any other action that would
require an adjustment of the Exercise Price or the number of Warrant
Shares pursuant to Section 13;
then the Company shall cause to be filed with the Warrant Agent and shall cause
to be given to each of the registered Holders of the Warrant Certificates at
such Holder's address appearing on the Warrant register, at least 20 days (or 10
days in any case specified in clauses (a) or (b) above) prior to the
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<PAGE> 19
applicable record date hereinafter specified, or promptly in the case of events
for which there is no record date, by first class mail, postage prepaid, a
written notice stating (i) the date as of which the holders of record of shares
of Common Stock to be entitled to receive any such rights, options, warrants or
distribution are to be determined, or (ii) the initial expiration date set forth
in any tender offer or exchange offer for shares of Common Stock, or (iii) the
date on which any such consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up or Change of Control is expected to become effective
or consummated, and the date as of which it is expected that holders of record
of shares of Common Stock shall be entitled to exchange such shares for
securities or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up or Change of Control. The failure to give the notice required by this Section
16 or any defect therein shall not affect the legality or validity of any
distribution, right, option, warrant, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up, or Change of Control or the
vote upon any action. Nothing contained in this Agreement or in any of the
Warrant Certificates shall be construed as conferring upon the Holders thereof
the right to vote or to consent or to receive notice as shareholders in respect
of the meetings of shareholders or the election of Directors of the Company or
any other matter, or any rights whatsoever as shareholders of the Company.
SECTION 17. Merger, Consolidation or Change of Name of Warrant
Agent. Any corporation into which the Warrant Agent may be merged or with which
it may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor warrant agent under
the provisions of Section 19. Any such successor Warrant Agent shall promptly
cause notice of its succession as Warrant Agent to be mailed (by first class
mail, postage prepaid) to each Holder at such Holder's last address as shown on
the register maintained by the Warrant Agent pursuant this Agreement. In case at
the time such successor to the Warrant Agent shall succeed to the agency created
by this Agreement, and in case at that time any of the Warrant Certificates
shall have been countersigned but not delivered, any such successor to the
Warrant Agent may adopt the countersignature of the original Warrant Agent; and
in case at that time any of the Warrant Certificates shall not have been
countersigned, any successor to the Warrant Agent may countersign such Warrant
Certificates either in the name of the predecessor Warrant Agent or in the name
of the successor to the Warrant Agent; and in all such cases such Warrant
Certificates shall have the full force and effect provided in the Warrant
Certificates and in this Agreement.
In case at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrant Certificates shall have been
countersigned but not delivered, the Warrant Agent whose name has been changed
may adopt the countersignature under its prior name, and in case at that time
any of the Warrant Certificates shall not have been countersigned, the Warrant
Agent may countersign such Warrant Certificates either in its prior name or in
its changed name, and in all such cases such Warrant Certificates shall have the
full force and effect provided in the Warrant Certificates and in this
Agreement.
SECTION 18. Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the Holders of Warrants, by their
acceptance thereof, shall be bound:
(a) The statements contained herein and in the Warrant
Certificates shall be taken as statements of the Company and the
Warrant Agent assumes no responsibility for the correctness
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<PAGE> 20
of any of the same except such as describe the Warrant Agent or action
taken or to be taken by it. The Warrant Agent assumes no responsibility
with respect to the distribution of the Warrant Certificates except as
herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure
of the Company to comply with any of the covenants contained in this
Agreement or in the Warrant Certificates to be complied with by the
Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant
Agent shall incur no liability or responsibility to the Company or to
any Holder of any Warrant Certificate in respect of any action taken,
suffered or omitted by it hereunder in good faith and in accordance
with the opinion or the advice of such counsel.
(d) Before the Warrant Agent acts or refrains from acting, it
may require an officer's certificate or an opinion of counsel, or both.
The Warrant Agent shall incur no liability or responsibility to the
Company or to any Holder of any Warrant Certificate for any action
taken in reliance on any Warrant Certificate, certificate of shares,
notice, resolution, waiver, consent, order, certificate, or other
paper, document or instrument believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind
and nature reasonably incurred by the Warrant Agent in the execution of
this Agreement and to indemnify the Warrant Agent and save it harmless
against any and all liabilities, including judgments, reasonable costs
and counsel fees, for anything done or omitted by the Warrant Agent in
the execution of this Agreement or arising out of or in connection with
its performance of its obligations or duties under this Agreement,
except to the extent such liabilities are attributable to its gross
negligence or bad faith.
(f) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other
action likely to involve expense unless the Company or one or more
Holders of Warrant Certificates shall furnish the Warrant Agent with
reasonable security and indemnity for any costs and expenses which may
be incurred, but this provision shall not affect the power of the
Warrant Agent to take such action as it may consider proper, whether
with or without any such security or indemnity. All rights of action
under this Agreement or under any of the Warrants may be enforced by
the Warrant Agent without the possession of any of the Warrant
Certificates or the production thereof at any trial or other proceeding
relative thereto, and any such action, suit or proceeding instituted by
the Warrant Agent shall be brought in its name as Warrant Agent and any
recovery of judgment shall be for the ratable benefit of the Holders of
the Warrants, as their respective rights or interests may appear.
(g) The Warrant Agent, and any stockholder, director, officer
or employee of it, may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as
though it were not Warrant Agent under this Agreement. Nothing herein
shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
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(h) The Warrant Agent shall act hereunder solely as agent for
the Company, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything
which it may do or refrain from doing in connection with this Agreement
except for its own gross negligence or bad faith.
(i) The Warrant Agent shall not at any time be under any duty
or responsibility to any Holder of any Warrant Certificate to make or
cause to be made any adjustment of the Exercise Price or number of the
Warrant Shares or other securities or property deliverable as provided
in this Agreement, or to determine whether any facts exist which may
require any of such adjustments, or with respect to the nature or
extent of any such adjustments, when made, or with respect to the
method employed in making the same. The Warrant Agent shall not be
accountable with respect to the validity or value or the kind or amount
of any Warrant Shares or of any securities or property which may at any
time be issued or delivered upon the exercise of any Warrant or with
respect to whether any such Warrant Shares or other securities will
when issued be validly issued and fully paid and nonassessable, and
makes no representation with respect thereto.
(j) Each Holder of Warrants, by its acceptance thereof,
acknowledges and agrees that the Trustee may also act as Escrow Agent
pursuant to the terms of the Escrow Agreement and Trustee pursuant to
the terms of the Indenture.
SECTION 19. Resignation and Removal of Warrant Agent;
Appointment of Successor. No resignation or removal of the Warrant Agent and no
appointment of a successor warrant agent shall become effective until the
acceptance of appointment by the successor warrant agent as provided herein. The
Warrant Agent may resign its duties and be discharged from all further duties
and liability hereunder (except liability arising as a result of the Warrant
Agent's own negligence of willful misconduct) after giving written notice to the
Company. The Company may remove the Warrant Agent upon written notice, and the
Warrant Agent shall thereupon in like manner be discharged from all further
duties and liabilities hereunder, except as aforesaid. The Warrant Agent shall,
at the Company's expense, cause to be mailed (by first class mail, postage
prepaid) to each Holder of a Warrant at his last address as shown on the
register of the Company maintained by the Warrant Agent a copy of said notice of
resignation or notice of removal, as the case may be. Upon such resignation or
removal, the Company shall appoint in writing a new warrant agent. If the
Company shall fail to make such appointment within a period of 30 days after it
has been notified in writing of such resignation by the resigning Warrant Agent
or after such removal, then the resigning Warrant Agent or the Holder of any
Warrant may apply to any court of competent jurisdiction for the appointment of
a new warrant agent. Any new warrant agent, whether appointed by the Company or
by such a court, shall be a corporation doing business under the laws of the
United States or any state thereof, in good standing and having a combined
capital and surplus of not less than $50,000,000. The combined capital and
surplus of any such new warrant agent shall be deemed to be the combined capital
and surplus as set forth in the most recent annual report of its condition
published by such warrant agent prior to its appointment, provided that such
reports are published at least annually pursuant to law or to the requirements
of a federal or state supervising or examining authority. After acceptance in
writing of such appointment by the new warrant agent, it shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or deed,
the same shall be done at the expense of the Company and shall be legally and
validly executed and delivered by the resigning or removed Warrant Agent. Not
later than the effective date of any such appointment, the Company shall give
notice thereof to the resigning or removed Warrant Agent. Failure to give any
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notice provided for in this Section, however, or any defect therein, shall not
affect the legality or validity of the resignation of the Warrant Agent or the
appointment of a new warrant agent, as the case may be.
SECTION 20. Registration. The Company and the Warrant Agent
acknowledge that Holders shall have the registration rights set forth in the
Warrant Registration Rights Agreement.
SECTION 21. Reports.
(a) So long as any of the Warrants remain outstanding, and to
the extent the Company is required to send such documents to the holders of its
outstanding Common Stock, whether or not required by the rules and regulations
of the Securities and Exchange Commission (the "COMMISSION"), the Company shall
furnish to the registered Holders of the Warrants (and to the beneficial
Holders, upon request) (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms l0-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 addition, 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
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request.
(b) The Company shall provide the Warrant Agent with a
sufficient number of copies of all SEC Reports that the Warrant Agent may be
required to deliver to the Holders of the Warrants under this Section 21.
SECTION 22. Rule 144A. The Company hereby agrees with each
Holder, for so long as any Registrable Securities remain outstanding, to make
available, upon request of any Holder of Registrable Securities, to any Holder
or beneficial owner of Registrable Securities in connection with any sale
thereof and any prospective purchaser of such Registrable Securities designated
by such Holder or beneficial owner, the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Registrable
Securities pursuant to Rule 144A.
SECTION 23. Notices to Company and Warrant Agent. Any notice
or demand authorized by this Agreement to be given or made by the Warrant Agent
or by the Holder of any Warrant Certificate to or on the Company shall be
sufficiently given or made when and if deposited in the mail, first class or
registered, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent), as follows:
Park `N View, Inc.
11711 NW 39th Street
Coral Springs, Florida 33065
Telecopier No.: (954) 745-7899
Attention: Stephen L. Conkling
In case the Company shall fail to maintain such office or
agency or shall fail to give such notice of the location or of any change in the
location thereof, presentations may be made and notices and demands may be
served at the principal office of the Warrant Agent.
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<PAGE> 23
Any notice pursuant to this Agreement to be given by the
Company or by the Holder(s) of any Warrant Certificate to the Warrant Agent
shall be sufficiently given when and if deposited in the mail, first-class or
registered, postage prepaid, addressed (until another address is filed in
writing by the Warrant Agent with the Company) to the Warrant Agent as follows:
State Street Bank and Trust Company
Goodwin Square, 225 Asylum Street
Hartford, CT 06103
Telecopier No.: (860) 244-1889
Attention: Elizabeth Hammer
SECTION 24. Supplements and Amendments. The Company and the
Warrant Agent may from time to time supplement or amend this Agreement without
the approval of any Holders of Warrant Certificates in order to cure any
ambiguity or to correct or supplement any provision contained herein which may
be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Warrant Agent may deem necessary or desirable and which shall
not in any way materially adversely affect the interests of any Holder of
Warrant Certificates. Any amendment or supplement to this Agreement that has a
material adverse effect on the interests of Holders shall require the written
consent of Holders representing a majority of the then outstanding Warrants
(excluding Warrants held by the Company or any of its Affiliates). The consent
of each Holder of a Warrant affected shall be required for any amendment
pursuant to which the Exercise Price would be increased or the number of Warrant
Shares purchasable upon exercise of Warrants would be decreased (other than
pursuant to adjustments provided by this Agreement). The Warrant Agent shall be
entitled to receive and, subject to Section 18, shall be fully protected in
relying upon, an officers' certificate and opinion of counsel as conclusive
evidence that any such amendment or supplement is authorized or permitted
hereunder, that it is not inconsistent herewith, and that it will be valid and
binding upon the Company in accordance with its terms.
SECTION 25. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Warrant Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 26. Termination. This Agreement (other than the
Company's obligations with respect to Warrants previously exercised and with
respect to indemnification under Section 18) shall terminate at 5:00 p.m., New
York City time on the Expiration Date.
SECTION 27. Governing Law. THIS AGREEMENT AND EACH WARRANT
CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE
LAWS OF THE STATE OF NEW YORK AND FOR ALL PURPOSES SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF SAID STATE WITHOUT GIVING EFFECT TO
CONFLICTS OF LAWS PRINCIPLES.
SECTION 28. Benefits of This Agreement.
(a) Nothing in this Agreement shall be construed to give to
any person or corporation other than the Company, the Warrant Agent and
the Holders of the Warrant Certificates any legal or equitable right,
remedy or claim under this Agreement; but this Agreement shall be for
the sole and exclusive benefit of the Company, the Warrant Agent and
the Holders of the Warrant Certificates.
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(b) Prior to the exercise of the Warrants, no Holder of a
Warrant Certificate, as such, shall be entitled to any rights of a
stockholder of the Company, including, without limitation, the right to
receive dividends or subscription rights, the right to vote, to
consent, to exercise any preemptive right, to receive any notice of
meetings of stockholders for the election of directors of the Company
or any other matter or to receive any notice of any proceedings of the
Company, except as may be specifically provided for herein. The Holders
of the Warrants are not entitled to share in the assets of the Company
in the event of the liquidation, dissolution or winding up of the
Company's affairs.
(c) All rights of action in respect of this Agreement are
vested in the Holders of the Warrants, and any Holder of any Warrant,
without the consent of the Warrant Agent or the Holder of any other
Warrant, may, on such Holder's own behalf and for such Holder's own
benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company suitable to enforce, or otherwise in
respect of, such Holder's rights hereunder, including the right to
exercise, exchange or surrender for purchase such Holder's Warrants in
the manner provided in this Agreement.
SECTION 29. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
[Signature Page Follows]
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<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
PARK`N VIEW, INC.
By: /s/ Stephen L. Conkling
----------------------------------
Name: Stephen L. Conkling
Title: CFO, COO
STATE STREET BANK AND TRUST COMPANY
By: /s/ Stephen Cimalore
----------------------------------
Name: Stephen Cimalore
Title: Vice President
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EXHIBIT A
[Form of Warrant Certificate]
[Face]
EXERCISABLE ON OR AFTER THE SEPARATION DATE (AS DEFINED HEREIN) AND ON OR
AFTER THE EXERCISE DATE (AS DEFINED HEREIN). THE WARRANTS EVIDENCED BY THIS
CERTIFICATE ARE NOT TRANSFERABLE SEPARATELY FROM THE NOTES ORIGINALLY SOLD AS A
UNIT WITH SUCH WARRANTS UNTIL THE SEPARATION DATE.
No. _______ ____ Warrants
CUSIP No. ________
Warrant Certificate
PARK`N VIEW, INC.
This Warrant Certificate certifies that Cede & Co., or its
registered assigns, is the registered holder of Warrants expiring May 15, 2008
(the "WARRANTS") to purchase Common Stock, par value $.001 (the "COMMON STOCK"),
of Park `N View, Inc., a Delaware corporation (the "COMPANY"). Each Warrant
entitles the registered holder upon exercise at any time from 9:00 a.m. on the
Separation Date referred to below (the "EXERCISE DATE") until 5:00 p.m. New York
City Time on May 15, 2008, to receive from the Company 6.73833 fully paid and
nonassessable shares of Common Stock (the "WARRANT SHARES") at the initial
exercise price (the "EXERCISE PRICE") of $0.01 per share payable in lawful money
of the United States of America upon surrender of this Warrant Certificate and
payment of the Exercise Price at the office or agency of the Warrant Agent, but
only subject to the conditions set forth herein and in the Warrant Agreement
referred to on the reverse hereof. The Exercise Price and number of Warrant
Shares issuable upon exercise of the Warrants are subject to adjustment upon the
occurrence of certain events set forth in the Warrant Agreement.
No Warrant may be exercised before the Exercise Date. No
Warrant may be exercised after 5:00 p.m., New York City Time on May 15, 2008,
and to the extent not exercised by such time such Warrants shall become void.
Reference is hereby made to the further provisions of this
Warrant Certificate set forth on the reverse hereof and such further provisions
shall for all purposes have the same effect as though fully set forth at this
place.
This Warrant Certificate shall not be valid unless
countersigned by the Warrant Agent, as such term is used in the Warrant
Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the internal laws of the State of New York.
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<PAGE> 27
IN WITNESS WHEREOF, Park `N View, Inc. has caused this Warrant
Certificate to be signed by its President and by its Secretary, each by a
signature or a facsimile thereof, and has caused a facsimile of its corporate
seal to be affixed hereunto or imprinted hereon.
Dated:
-------------------
PARK `N VIEW, INC.
By:
---------------------------
Name:
Title:
Countersigned:
- ------------------------------
as Warrant Agent
By:
---------------------------
Authorized Signature
A-2
<PAGE> 28
[Form of Warrant]
[Reverse]
[Unless and until it is exchanged in whole or in part for
Warrants in certificated form, this Warrant may not be transferred except as a
whole by the depositary to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary or by the
depositary or any such nominee to a successor depositary or a nominee of such
successor depositary. The Depository Trust Company ("DTC"), (55 Water Street,
New York, New York) shall act as the depositary until a successor shall be
appointed by the Company and the Warrant Agent. Unless this certificate is
presented by an authorized representative of DTC to the issuer or its agent for
registration of transfer, exchange or payment, and any certificate issued is
registered in the name of Cede & Co. or such other name as requested by an
authorized representative of DTC (and any payment is made to Cede & Co. or such
other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.](1)
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE
UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE
BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT OR (c) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) OF THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED
INVESTOR") THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE OR THE
WARRANT, AS APPLICABLE, A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED FROM
THE TRUSTEE, AS APPLICABLE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS THAN $250,000, AN OPINION
OF COUNSEL THAT SUCH TRANSFER IS IN COMPLIANCE WITH SECURITIES ACT OR
(d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND, IN THE CASE OF CLAUSE (b), (c)
or (d) BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS),
(2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
- ----------------------
(1) This paragraph is to be included only if the Warrant is in global form.
A-3
<PAGE> 29
OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE
SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A)
ABOVE.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants expiring May 15, 2008 entitling the holder
on exercise to receive shares of Common Stock, par value $.001, of the Company
(the "COMMON STOCK"), and are issued or to be issued pursuant to a Warrant
Agreement dated as of May 15, 1998 (the "WARRANT AGREEMENT"), duly executed and
delivered by the Company to State Street Bank and Trust Company, as warrant
agent (the "WARRANT AGENT"), which Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Warrant Agent, the Company and the holders (the
words "holders" or "holder" meaning the registered holders or registered holder)
of the Warrants. A copy of the Warrant Agreement may be obtained by the holder
hereof upon written request to the Company. Capitalized terms used herein
without definition shall have the meanings ascribed to them in the Warrant
Agreement.
Warrants may be exercised at any time from 9:00 a.m. on or
after the Exercise Date and until 5:00 p.m., New York City Time on May 15, 2008.
The holder of Warrants evidenced by this Warrant Certificate may exercise them
by surrendering this Warrant Certificate, with the form of election to purchase
set forth hereon properly completed and executed, together with payment of the
Exercise Price in lawful money of the United States of America at the office of
the Warrant Agent. In the event that upon any exercise of Warrants evidenced
hereby the number of Warrants exercised shall be less than the total number of
Warrants evidenced hereby, there shall be issued to the holder hereof or his
assignee a new Warrant Certificate evidencing the number of Warrants not
exercised. No adjustment shall be made for any dividends on any Common Stock
issuable upon exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price set forth on the face hereof and/or the number
of shares of Common Stock issuable upon the exercise of each Warrant shall,
subject to certain conditions, be adjusted. No fractions of a share of Common
Stock will be issued upon the exercise of any Warrant, but the Company will pay
the cash value thereof determined as provided in the Warrant Agreement.
The Warrant Agreement provides that the Company shall be bound
by certain registration obligations with respect to the Common Stock issuable
upon exercise of the Warrants.
[Warrant Certificates, when surrendered at the office of the
Warrant Agent by the registered holder thereof in person or by legal
representative or attorney duly authorized in writing, may be exchanged, in the
manner and subject to the limitations provided in the Warrant Agreement, but
without payment of any service charge, for another Warrant Certificate or
Warrant Certificates of like tenor evidencing in the aggregate a like number of
Warrants.]
[Upon due presentation for registration of transfer of this
Warrant Certificate at the office of the Warrant Agent a new Warrant Certificate
or Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferee(s) in exchange for this
Warrant Certificate, subject to the limitations provided in the Warrant
Agreement, without charge except for any tax or other governmental charge
imposed in connection therewith.]
A-4
<PAGE> 30
The Company and the Warrant Agent may deem and treat the
registered holder(s) thereof as the absolute owner(s) of this Warrant
Certificate (notwithstanding any notation of ownership or other writing hereon
made by anyone), for the purpose of any exercise hereof, of any distribution to
the holder(s) hereof, and for all other purposes, and neither the Company nor
the Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any holder hereof to any rights
of a stockholder of the Company.
A-5
<PAGE> 31
[Form of Election to Purchase]
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to receive _____________ shares
of Common Stock and herewith tenders payment for such shares to the order of
PARK`N VIEW, INC., in the amount of $__________ in accordance with the terms
hereof. The undersigned requests that a certificate for such shares be
registered in the name of _______________, whose address is __________________
and that such shares be delivered to ___________, whose address is
____________________________. If said number of shares is less than all of the
shares of Common Stock purchasable hereunder, the undersigned requests that a
new Warrant Certificate representing the remaining balance of such shares be
registered in the name of ______________________, whose address is
____________________, and that such Warrant Certificate be delivered to whose
address is ___________________.
--------------------------------
Signature
Date:
--------------------------------
Signature Guaranteed
A-6
<PAGE> 32
SCHEDULE OF EXCHANGES OF DEFINITIVE WARRANTS(2)
The following exchanges of a part of this Global Warrant for definitive Warrants
have been made:
<TABLE>
<CAPTION>
Number of Warrants in
Amount of decrease Amount of increase this Global Warrant
in Number of in Number of following such Signature of
warrants in this Warrants in this decrease or authorized officer
Date of Exchange Global Warrant Global Warrant increase of Warrant Agent
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- ----------------------------------
(2) This is to be included only if the Warrant is in global form.
A-7
<PAGE> 33
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF
WARRANTS
Re: _____________ Warrants to Purchase Common Stock (the "WARRANTS") of PARK`N
VIEW, INC.
This Certificate relates to ______ Warrants held in *__________
book-entry or * _____________ definitive form by __________ (the
"TRANSFEROR").
The Transferor*:
[ ] has requested the Warrant Agent by written order to deliver in
exchange for its beneficial interest in the Global Warrants held by the
depositary a Warrant or Warrants in definitive, registered form equal to its
beneficial interest in such Global Warrant (or the portion thereof indicated
above); or
[ ] has requested the Warrant Agent by written order to exchange
or register the transfer of a Warrant or Warrants.
In connection with such request and in respect of each such
Warrant, the Transferor does hereby certify that the Transferor is familiar with
the Warrant Agreement relating to the above captioned Warrants and that the
transfer of this Warrant does not require registration under the Securities Act
of 1933, as amended (the "SECURITIES ACT") because:
[ ] Such Warrant is being acquired for the Transferor's own
account without transfer (in satisfaction of Section 7 of the Warrant
Agreement).
[ ] Such Warrant is being transferred (i) to a qualified
institutional buyer (as defined in Rule 144A under the Securities Act), in
reliance on Rule 144A.
[ ] Such Warrant is being transferred (i) in accordance with Rule
144 under the Securities Act (and based on an opinion of counsel if the Company
so requests) or (ii) pursuant to an effective registration statement under the
Securities Act and the Transferor is named as a selling security holder in the
prospectus that forms a part of such registration statement or a supplement
thereto and the Transferor has complied with prospectus delivery requirement if
required to do so.
[ ] Such Warrant is being transferred to an institutional
accredited investor within the meaning of Rule 50l(a)(1), (2), (3) or (7) under
the Securities Act pursuant to a private placement exemption from the
registration requirements of the Securities Act (together with a certification).
- ----------
* Check applicable box.
B-1
<PAGE> 34
[ ] Such Warrant is being transferred in reliance on and in
compliance with another exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel if the Company so requests).
[INSERT NAME OF TRANSFEROR]
By:
-----------------------------
Date:
- ----------
* Check applicable box.
B-2
<PAGE> 1
EXHIBIT 4.3
===============================================================================
---------------------
WARRANT REGISTRATION RIGHTS AGREEMENT
Dated as of May 27, 1998
by and among
PARK `N VIEW, INC.
and
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
---------------------
===============================================================================
<PAGE> 2
This Warrant Registration Rights Agreement (the "Agreement")
is made and entered into as of May 27, 1998, by and among Park `N View, Inc., a
Delaware corporation (the "Company"), and Donaldson, Lufkin & Jenrette
Securities Corporation (the "Initial Purchaser"), who has agreed to purchase an
aggregate of 75,000 Units consisting of $75,000,000 in aggregate principal
amount of the Company's 13% Series A Senior Notes due 2008 and warrants (the
"Warrants") to purchase an aggregate of 505,375 shares of the Company's Common
Stock, $.001 par value, pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement (the
"Purchase Agreement"), dated as of May 20, 1998, by and among the Company and
the Initial Purchaser. In order to induce the Initial Purchaser to purchase the
Units, the Company has agreed to provide the registration rights set forth in
this Agreement. The execution and delivery of this Agreement is a condition to
the obligations of the Initial Purchaser set forth in Section 8 of the Purchase
Agreement. All defined terms used but not defined herein shall have the meanings
ascribed to them in the Indenture (as defined below).
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms
shall have the following meanings:
Act: The Securities Act of 1933, as amended.
Business Day: Any day except a Saturday, Sunday or other day
in the City of New York, or in the city of the corporate trust office of the
Trustee, on which banks are authorized to close.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Common Stock: The common stock, $.001 par value, of the
Company.
Exchange Act: The Securities Exchange Act of 1934, as amended
from time to time.
Exchange Offer: As defined in the Registration Rights
Agreement, dated the Closing Date, among the Company and the Initial Purchaser.
Holders: As defined in Section 2 hereof.
Indenture: The Indenture, dated the Closing Date, between the
Company and State Street Bank and Trust Company, as trustee (the "Trustee"),
pursuant to which the Units are
<PAGE> 3
to be issued, as such Indenture is amended or supplemented from time to time in
accordance with the terms thereof.
NASD: National Association of Securities Dealers, Inc.
Notes: The 13% Series A Senior Notes due 2008 of the Company,
being sold and issued pursuant to the Purchase Agreement and the Indenture, or
any notes exchanged therefor as contemplated by the Indenture.
Person: An individual, partnership, corporation, trust,
unincorporated organization, or a government or agency or political subdivision
thereof.
Prospectus: The prospectus included in a Registration
Statement at the time such Registration Statement is declared effective, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
Registrable Securities: The Warrants, Warrant Shares and any
other securities issued or issuable with respect to the Warrants or the Warrant
Shares by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization; provided that a security ceases to be a Registrable Security
when it is no longer a Transfer Restricted Security.
Registration Expenses: See Section 6 hereof.
Registration Statement: Any registration statement of the
Company which covers Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, and all exhibits
and all material incorporated by reference in such Registration Statement.
Transfer Restricted Securities: A Warrant or Warrant Share,
until such Warrant or Warrant Share (i) has been effectively registered under
the Act and disposed of in accordance with the Registration Statement covering
it, (ii) is distributed to the public pursuant to Rule 144 or (iii) may be sold
or transferred pursuant to Rule 144(k) (or any similar provisions then in force)
under the Act or otherwise.
Warrants: The warrants of the Company issued and sold pursuant
to the Purchase Agreement and the Warrant Agreement, together with any warrants
issued in substitution or replacement therefor.
Warrant Agreement: The Warrant Agreement dated the Closing
Date by and among the Company and State Street Bank and Trust Company, as
Warrant Agent.
Warrant Shares: The Common Stock or other securities which any
Holder may acquire upon exercise of a Warrant, together with any other
securities which such Holder may
2
<PAGE> 4
acquire on account of any such securities, including, without limitation, as the
result of any dividend or other distribution on Common Stock or any split-up of
such Common Stock as provided for in the Warrant Agreement.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Registrable Securities. The securities entitled to the
benefits of this Agreement are the Registrable Securities.
(b) Holders of Registrable Securities. A Person is deemed to be a
Holder of Registrable Securities whenever such Person owns Registrable
Securities or has the right to acquire such Registrable Securities, whether or
not such acquisition has actually been effected; provided that the Company shall
be required only to use its reasonable best efforts to establish the identity of
the Holders of Registrable Securities in order to enable such Holders to
exercise their respective rights under this Agreement.
SECTION 3. SHELF REGISTRATION
(a) The Company shall file and shall use its best efforts to have a
"shelf" registration with respect to all Registrable Securities on any
appropriate form pursuant to Rule 415 (or similar rule that may be adopted by
the Commission) under the Act (the "Shelf Registration") (i) covering resales by
the Holders of the Warrants or the resale of Warrant Shares upon the exercise of
the Warrants by broker-dealers and (ii) covering the issuance of the Warrant
Shares by the Company upon exercise, or if such issuance is not then permitted
to be registered by applicable rule or policy of the Commission, covering
resales of the Warrant Shares, on the earlier of (A) May 27, 1999 or (B) 65 days
after a Change of Control (as defined in the Indenture). Notwithstanding the
foregoing, the Company shall not be required to file such Shelf Registration on
or prior to the consummation of the Exchange Offer; provided that, in the event
the Exchange Offer is consummated later than the filing time required by the
preceding sentence for each Shelf Registration, the Company shall file such
Shelf Registration(s) within 30 days after the date of the consummation of the
Exchange Offer provided, further, that the Company shall not be required to
include any Holder who has not provided its information in accordance with
Section 5(b)(ii), so long as the Company within 30 days of the receipt of such
information agrees to include such Holder in such Shelf Registration Statement
provided that the Company shall be required to update such Shelf Registration
Statement no more than once per calendar month.
(b) If the Holders of a majority of the outstanding Registrable
Securities consisting of Warrants or Warrant Shares to be registered in the
Shelf Registration so elect, an offering of Registrable Securities pursuant to
the Shelf Registration may be effected in the form of an underwritten offering.
In such event, and if the managing underwriters advise the Company and the
Holders of such Registrable Securities in writing that in their opinion the
amount of Registrable Securities proposed to be sold in such offering exceeds
the amount of Registrable Securities which can be sold in such offering, there
shall be included in such underwritten offering the amount of such Registrable
Securities which in the opinion of such
3
<PAGE> 5
underwriters can be sold, and such amount shall be allocated pro rata among the
Holders of such Registrable Securities on the basis of the number of Registrable
Securities requested to be included by such Holders. The Holders of the
Registrable Securities to be registered shall pay all underwriting discounts and
commissions of such underwriters.
(c) If any of the Registrable Securities covered by the
Shelf Registration are to be sold in an underwritten offering, the investment
banker or investment bankers and manager or managers that will administer the
offering will be selected by the Holders of a majority of such Registrable
Securities consisting of outstanding Warrants or Warrant Shares included in such
offering; provided that such investment bank or manager shall be reasonably
satisfactory to the Company.
(d) The Company shall use its best efforts to keep the
Shelf Registration continuously effective until May 15, 2008 or such shorter
period that will terminate upon the earlier of such time as (i) all of the
Registrable Securities covered by the Shelf Registration Statement have been
sold pursuant to the terms of the Shelf Registration Statement or (ii) the
Registrable Securities may be distributed pursuant to Rule 144 under the Act or
transferred pursuant to Rule 144(k) under the Act.
The Company further agrees to use its best efforts to prevent
the happening of any event that would cause the Registration Statement pursuant
to Section 3 hereof to contain a material misstatement or omission or to be not
effective and usable for resale of the Registrable Securities during the period
that such Registration Statement is required to be effective and usable.
(e) Each Holder of Registrable Securities whose
Registrable Securities are covered by a Registration Statement filed pursuant to
this Section 3 agrees, if requested by the managing underwriters in an
underwritten offering that occurs either pursuant to this Agreement or in
connection with a registered initial public offering of the Common Stock of the
Company, not to effect any public sale or distribution of securities of the
Company of the same class as any Securities included in such Registration
Statement, including a sale pursuant to Rule 144 under the Act (except as part
of such underwritten registration), during the 10-day period prior to, and
during the 90-day period beginning on, the closing date of each such
underwritten offering (the "Lock-up Period"), to the extent that such Holders
are timely notified in writing by the Company or the managing underwriters;
provided that each Holder of Registrable Securities shall be subject to the
hold-back restrictions of this Section 3(e) only once during the term of this
Agreement; and provided, further, that such notice shall be deemed to be timely
for purposes of this Section 3(e) if such notice is electronically posted at the
facilities of the Depositary Trust Company or similar or successor entity at
least 15-days prior to the beginning of the Lock-up Period.
The foregoing provisions shall not apply to any Holder of
Registrable Securities if such Holder is prevented by applicable statute or
regulation from entering into any such agreement; provided that any such Holder
shall undertake, in its request to participate in any such underwritten
offering, not to effect any public sale or distribution of any applicable class
of
4
<PAGE> 6
Registrable Securities commencing on the date of sale of such applicable
class of Registrable Securities unless it has provided 45 days prior written
notice of such sale or distribution to the underwriter or underwriters.
SECTION 4. LIQUIDATED DAMAGES
If the Registration Statement: (i) is not filed with the Commission on
or prior to the date specified for such filing in Section 3(a) hereof; (ii) has
not been declared effective by the Commission pursuant to Section 3(a) hereof;
or (iii) following the date such Registration Statement is declared effective by
the Commission, shall cease to be effective without being restored to
effectiveness by amendment or otherwise within 30 business days, (each such
event referred to in clauses (i) through (iii), a "Shelf Registration Default")
to the extent permitted by applicable law, the Company shall pay as liquidated
damages and not as a penalty to each Holder during the first 90-day period
immediately following the occurrence, and during the continuance of such Shelf
Registration Default, an amount equal to $.0025 per week per Warrant (or per
such number of Warrant Shares then issuable upon exercise of or in respect of a
Warrant) with respect to each subsequent 90-day period until all Shelf
Registration Defaults have been cured, up to a maximum amount of liquidated
damages of $.0125 per week per Warrant (or per such number of Warrant Shares
then issuable upon exercise of or in respect of a Warrant); provided that the
Company shall in no event be required to pay liquidated damages for more than
one Registration Default at any given time. Notwithstanding anything to the
contrary set forth herein, (1) upon filing of the Shelf Registration Statement,
in the case of (i) above, (2) upon the effectiveness of the Shelf Registration
Statement or (3) upon the filing of a post-effective amendment to the Shelf
Registration Statement or an additional Registration Statement that causes the
Shelf Registration Statement to again be declared effective or made usable in
the case of (iii) above, the liquidated damages payable with respect to the
Transfer Restricted Securities as a result of such clause (i), (ii) or (iii), as
applicable, shall cease. Notwithstanding the foregoing, the Company will not be
obligated to pay any liquidated damages as provided in clause (iii) above during
the period that dispositions of Transfer Restricted Securities are permitted to
be suspended in accordance with Section 5(b); provided, that the Company is
otherwise in compliance with its obligations hereunder.
All accrued liquidated damages shall be paid to record Holders by the
Company by wire transfer of immediately available funds, or by mailing a federal
funds check, on each Interest Payment Date (as defined in the Indenture). All
obligations of the Company set forth in the preceding paragraph that are
outstanding with respect to any Registrable Security at the time such security
has been effectively registered under the Act shall survive until such time as
all such obligations with respect to such security have been satisfied in full.
SECTION 5. REGISTRATION PROCEDURES
(a) General Provisions. In connection with the Company's registration
obligations pursuant to Section 3 hereof, the Company will use its best efforts
to effect such registration to permit the sale of such Registrable Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Company will as expeditiously as possible:
5
<PAGE> 7
(1) use its best efforts to keep such Registration
Statement continuously effective and provide or incorporate by
reference all requisite financial statements for the period specified
in Section 3 of this Agreement. Upon the occurrence of any event that
would cause any such Registration Statement or the Prospectus contained
therein (A) to contain a material misstatement or omission or (B) not
to be effective and usable for resale of Registrable Securities during
the period required by this Agreement, the Company shall file promptly
an appropriate amendment to such Registration Statement or file
appropriate documents that will be so incorporated by reference, (1) in
the case of clause (A), correcting any such misstatement or omission,
and (2) in the case of either clause (A) or (B), use its best efforts
to cause such amendment to be declared effective and such Registration
Statement and the related Prospectus to become usable for their
intended purpose(s) as soon as practicable thereafter;
(2) prepare and file with the Commission such
amendments and post-effective amendments to the Registration Statement
as may be necessary to keep the Registration Statement effective for
the period set forth in Section 3(d) hereof; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Act; and comply
in all material respects with the provisions of the Act with respect to
the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended
method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus; the
Company shall not be deemed to have used its best efforts to keep a
Registration Statement effective during the applicable period if it
voluntarily takes any action that would result in selling Holders of
the Registrable Securities covered thereby not being able to sell such
Registrable Securities during that period unless such action is
required under applicable law, provided that the foregoing shall not
apply to actions taken by the Company in good faith and for valid
business reasons, including without limitation the acquisition or
divestiture of assets, so long as the Company promptly thereafter
complies with the requirements of clause (14) below, if applicable;
(3) advise the underwriter(s), if any, and selling
Holders promptly and, if requested by such Persons, confirm such advice
in writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when
the same has become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements
to the Prospectus or for additional information relating thereto, (C)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the
suspension by any state securities commission of the qualification of
the Registrable Securities for offering or sale in any jurisdiction, or
the initiation of any proceeding for any of the preceding purposes, (D)
of the existence of any fact or the happening of any event that makes
any statement of a material fact made in the Registration Statement,
the
6
<PAGE> 8
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making
of any additions to or changes in the Registration Statement in order
to make the statements therein not misleading, or that requires the
making of any additions to or changes in the Prospectus in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification
or exemption from qualification of the Registrable Securities under
state securities or Blue Sky laws, the Company shall use its best
efforts to obtain the withdrawal or lifting of such order at the
earliest possible time provided, however, that with respect to the
foregoing clauses (A) and (B), the Company shall only be obligated to
advise the selling Holders of such events upon the receipt of a written
request by such selling Holder to be so advised;
(4) upon request, make available to each selling
Holder named in any Registration Statement or Prospectus and each of
the underwriter(s) in connection with such sale, if any, before filing
with the Commission, copies of any Registration Statement or any
Prospectus included therein or any amendments or supplements to any
such Registration Statement or Prospectus and the Company will not file
or will correct any such Registration Statement or Prospectus or any
amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference) to
which the selling Holders of the Registrable Securities covered by such
Registration Statement or the underwriter(s) in connection with such
sale, if any, shall reasonably object within five days after the
receipt thereof. A selling Holder or underwriter, if any, shall be
deemed to have reasonably objected to such filing if such Registration
Statement, amendment, Prospectus or supplement, as applicable, as
proposed to be filed, contains a material misstatement or omission or
fails to comply with the applicable requirements of the Act;
(5) upon request, promptly upon the filing of any
document that is to be incorporated by reference into a Registration
Statement or Prospectus, make available copies of such document to the
selling Holders and to the underwriter(s) in connection with such sale,
if any, make the Company's representatives available for discussion of
such document and other customary due diligence matters, and include
such information in such document prior to the filing thereof as such
selling Holders or underwriter(s), if any, reasonably may request;
(6) upon request, make available at reasonable times
for inspection by the selling Holders, any underwriter participating in
any disposition pursuant to such Registration Statement and any
attorney or accountant retained by such selling Holders or any of such
underwriter(s), all financial and other records, pertinent corporate
documents and properties of the Company and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such Holder, underwriter, attorney or accountant in
connection with such Registration Statement or any post-effective
amendment thereto subsequent to the filing thereof and prior to its
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<PAGE> 9
effectiveness; provided that any person to whom information is provided
under this clause (6) agrees in writing to maintain the confidentiality
of such information to the extent such information is not in the public
domain;
(7) if requested by any selling Holders or the
underwriter(s) in connection with such sale, if any, promptly include
in any Registration Statement or Prospectus, pursuant to a supplement
or post-effective amendment if necessary, such information as such
selling Holders and underwriter(s), if any, may reasonably request to
have included therein, including, without limitation, information
relating to the "Plan of Distribution" of the Registrable Securities,
information with respect to the principal amount of Registrable
Securities being sold to such underwriter(s), the purchase price being
paid therefor and any other terms of the offering of the Registrable
Securities to be sold in such offering; and make all required filings
of such Prospectus supplement or post-effective amendment as soon as
practicable after the Company is notified of the matters to be included
in such Prospectus supplement or post-effective amendment;
(8) upon request, furnish to each selling Holder and
each of the underwriter(s) in connection with such sale, if any,
without charge, at least one copy of the Registration Statement, as
first filed with the Commission, and of each amendment thereto, and
make available all documents incorporated by reference therein and all
exhibits (including exhibits incorporated therein by reference);
(9) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; the Company
hereby consents to the use of the Prospectus and any amendment or
supplement thereto by each of the selling Holders and each of the
underwriter(s), if any, in connection with the offering and the sale of
the Registrable Securities covered by the Prospectus or any amendment
or supplement thereto;
(10) in connection with an underwritten offering
pursuant to Section 3 hereof, enter into such agreements (including,
unless not required pursuant to Section 3 hereof, an underwriting
agreement) and make such representations and warranties and take all
such other actions in connection therewith in order to expedite or
facilitate the disposition of the Registrable Securities pursuant to
any Registration Statement contemplated by this Agreement as may be
reasonably requested by any Holder of Registrable Securities or
underwriter in connection with any sale or resale pursuant to any
Registration Statement contemplated by this Agreement, and in such
connection, the Company shall:
(A) furnish to each selling Holder and each
underwriter, if any, upon the effectiveness of the Registration
Statement:
(1) a certificate, dated the date of
effectiveness of the Registration Statement, signed
by (x) the President and (y) any Vice
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<PAGE> 10
President, the Secretary or an Assistant Secretary of
the Company, confirming, as of the date thereof, the
matters set forth in paragraphs (a), (b), (c) and (d)
of Section 8 of the Purchase Agreement and such other
matters as the Holders and/or underwriter(s) may
reasonably request;
(2) an opinion, dated the date of
effectiveness of the Registration Statement, of
counsel for the Company, covering (i) due
authorization and enforceability of the Warrants,
(ii) a statement to the effect that such counsel has
participated in conferences with officers and other
representatives of the Company and representatives of
the independent public accountants for the Company
and have considered the matters required to be stated
therein and the statements contained therein,
although such counsel has not independently verified
the accuracy, completeness or fairness of such
statements; and that such counsel advises that, on
the basis of the foregoing (relying as to materiality
to a large extent upon facts provided to such counsel
by officers and other representatives of the Company
and without independent check or verification), no
facts came to such counsel's attention that caused
such counsel to believe that the applicable
Registration Statement, at the time such Registration
Statement or any post-effective amendment thereto
became effective, and contained an untrue statement
of a material fact or omitted to state a material
fact required to be stated therein or necessary to
make the statements therein not misleading, or that
the Prospectus contained in such Registration
Statement as of its date and, contained an untrue
statement of a material fact or omitted to state a
material fact necessary in order to make the
statements therein, in the light of the circumstances
under which they were made, not misleading and (iii)
such other matters of the type customarily covered in
opinions of counsel for an issuer in connection with
similar securities offerings, as may reasonably be
requested by such parties. Without limiting the
foregoing, such counsel may state further that such
counsel assumes no responsibility for, and has not
independently verified, the accuracy, completeness or
fairness of the financial statements, notes and
schedules and other financial, statistical and
accounting data included in any Registration
Statement contemplated by this Agreement or the
related Prospectus; and
(3) a customary comfort letter, dated as of
the date of effectiveness of the Registration
Statement, from the Company's independent
accountants, in the customary form and covering
matters of the type customarily covered in comfort
letters to underwriters in connection with primary
underwritten offerings, and affirming the matters set
forth in the comfort letters delivered pursuant to
Section 8(i) of the Purchase Agreement, without
exception;
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<PAGE> 11
(B) set forth in full or incorporate by reference in
the underwriting agreement, if any, in connection with any
sale or resale pursuant to any Registration Statement the
indemnification provisions and procedures of Section 7 hereof
with respect to all parties to be indemnified pursuant to said
Section; and
(C) deliver such other documents and certificates as
may be reasonably requested by such parties to evidence
compliance with clause (A) above and with any customary
conditions contained in the underwriting agreement or other
agreement entered into by the Company pursuant to this clause
(10), if any.
The above shall be done at each closing under such
underwriting or similar agreement, as and to the extent required
thereunder, and if at any time the representations and warranties of
the Company contemplated in (A)(l) above cease to be true and correct,
the Company shall so advise the underwriter(s), if any, and selling
Holders promptly and if requested by such Persons, shall confirm such
advice in writing;
(11) prior to any public offering of Registrable
Securities, cooperate with the selling Holders, the underwriter(s), if
any, and their respective counsel in connection with the registration
and qualification of the Registrable Securities under the securities or
Blue Sky laws of such jurisdictions as the selling Holders or
underwriter(s), if any, may request and do any and all other acts or
things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the applicable
Registration Statement; provided that the Company shall not be required
to register or qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject it to the service of
process in suits or to taxation, other than as to matters and
transactions relating to the Registration Statement, in any
jurisdiction where it is not now so subject;
(12) in connection with any sale of Registrable
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold
and not bearing any restrictive legends; and to register such
Registrable Securities in such denominations and such names as the
Holders or the underwriter(s), if any, may request at least two
Business Days prior to such sale of Registrable Securities;
(13) use its best efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with
or approved by such other governmental agencies or authorities as may
be necessary to enable the seller or sellers thereof or the
underwriter(s), if any, to consummate the disposition of such
Registrable Securities, subject to the proviso contained in clause (11)
above;
(14) if any fact or event contemplated by clause (2)
above shall exist or have occurred, prepare a supplement or
post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of
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<PAGE> 12
Registrable Securities, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(15) provide a CUSIP number for all Registrable
Securities not later than the effective date of a Registration
Statement covering such Registrable Securities and provide the Trustee
under the Indenture with printed certificates for the Registrable
Securities which are in a form eligible for deposit with the Depository
Trust Company;
(16) cooperate and assist in any filings required to
be made with the NASD and in the performance of any due diligence
investigation by any underwriter (including any "qualified independent
underwriter") that is required to be retained in accordance with the
rules and regulations of the NASD, and use its best efforts to cause
such Registration Statement to become effective and approved by such
governmental agencies or authorities as may be necessary to enable the
Holders selling Registrable Securities to consummate the disposition of
such Registrable Securities;
(17) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make
generally available to its security holders with regard to any
applicable Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
(which need not be audited) covering a twelve-month period beginning
after the effective date of the Registration Statement (as such term is
defined in paragraph (c) of Rule 158 under the Act);
(18) cause all Registrable Securities covered by the
Registration Statement to be listed on each securities exchange on
which similar securities issued by the Company are then listed if
requested by the Holders of a majority in aggregate principal amount of
Registrable Securities or the managing underwriter(s), if any;
(19) provide promptly to each Holder upon written
request each document filed with the Commission pursuant to the
requirements of Section 13 or Section 15(d) of the Exchange Act; and
(20) if the registration is a registration in which
securities of the Company are sold to an underwriter for reoffering to
the public, obtain a customary comfort letter, dated as of the date of
effectiveness of each Registration Statement, addressed to the Board of
Directors of the Company from the Company's independent accountants, in
the customary form and covering matters of the type customarily covered
in comfort letters to boards of directors in underwritten offerings.
(b) Restrictions on and Obligations of Holders. (i) Each
Holder agrees by acquisition of a Registrable Security that, upon receipt of any
notice from the Company of the existence of any fact of the kind described in
Section 5(a)(3)(C) or (D) hereof, such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to the applicable Registration
Statement until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 5(a)(14) hereof, or until it is
advised in writing (the "Advice") by the
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<PAGE> 13
Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings that are incorporated by reference in
the Prospectus. If so directed by the Company, each Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Registrable
Securities that was current at the time of receipt of such notice. The Company
will be deemed not to have used its best efforts to cause a Registration
Statement to remain effective during the requisite period if the Company has
voluntarily taken any action that resulted in the delivery of a notice described
in Section 5(a)(3)(D) hereof unless (A) such action was required by applicable
law or (B) such action was taken by the Company in good faith and for valid
business reasons (but not including avoidance of the Company's obligations
hereunder), including a material corporate transaction; provided that, in any
event, the aggregate number of days in any consecutive twelve-month period for a
which a Registration Statement is not effective or usable does not exceed 45
days. In the event the Company shall give any such notice, the time period
regarding the effectiveness of such Registration Statement set forth in Section
3 hereof, as applicable, shall be extended by the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 5(a)(3)(D) hereof to and including the date when each selling Holder
covered by such Registration Statement shall have received the copies of the
supplemented or amended Prospectus contemplated by Section 5(a)(14) hereof or
shall have received the Advice.
(ii) Each Holder agrees (A) to the extent that it is required by the
Act to comply with the registration and prospectus delivery requirements of the
Act in connection with its use of the Shelf Registration Statement, such Holder,
by its acquisition of a Registrable Security, agrees to comply with such
requirements and (B) it will furnish to the Company in writing, within 20 days
after receipt of a request therefor, the information specified in Item 507 or
508 of Regulation S-K, as applicable, of the Act for use in connection with any
Shelf Registration Statement or Prospectus or preliminary Prospectus included
therein. In the event that any such Holder fails to provide such information
such Holder of Transfer Restricted Securities shall not be entitled to
liquidated damages pursuant to Section 4 hereof unless and until such Holder
shall have provided all such information. Each selling Holder agrees to promptly
furnish additional information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading.
SECTION 6. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses (including filings
made by any Holder with the NASD (and, if applicable, the fees and expenses of
any "qualified independent underwriter") and its counsel, as may be required by
the rules and regulations of the NASD); (ii) all fees and expenses of compliance
with federal securities and state Blue Sky or securities laws; (iii) all
expenses of printing (including, without limitation, expenses of printing or
engraving certificates for the Registrable Securities in a form eligible for
deposit with the Depositary Trust Company and printing of Prospectuses),
messenger and delivery services and telephone; (iv) all fees and disbursements
of counsel for the Company and
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<PAGE> 14
the Holders of Transfer Restricted Securities; (v) all application and filing
fees in connection with listing the Registrable Securities on a national
exchange or automated quotation system pursuant to the requirements hereof; and
(vi) all fees and disbursements of independent certified public accountants of
the Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with each Registration Statement required
hereunder, the Company will reimburse the Holders of Registrable Securities
being registered pursuant to such Registration Statement for the fees and
disbursements of not more than one counsel chosen by the Holders of a majority
of the principal amount of such Registrable Securities, or more than one, if, in
the reasonable judgment of counsel for the Holders and counsel for the Company,
a conflict exists among such Holders. Notwithstanding the provisions of this
Section 6, each Holder of Registrable Securities shall pay all registration
expenses to the extent required by applicable law.
SECTION 7. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each Holder,
its directors, officers and each Person, if any, who controls such Holder
(within the meaning of Section 15 of the Act or Section 20 of the Exchange Act),
from and against any and all losses, claims, damages, liabilities, judgments,
(including without limitation, any legal or other expenses reasonably incurred
in connection with investigating or defending any matter, including any action
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, preliminary prospectus or
Prospectus (or any amendment or supplement thereto) provided by the Company to
any Holder, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or judgments are caused by an untrue statement or omission or
alleged untrue statement or omission that is (i) based upon information relating
to any of the Holders furnished in writing to the Company by or on behalf of any
of the Holders or (ii) made in any preliminary prospectus if a copy of the
Prospectus (as amended or supplemented, if the Company shall furnish such
amendment or supplement thereto) was not sent or given by or on behalf of such
Holder to the person asserting any such loss, claim, damage, liability or
expense, if required to law so to have been delivered, at or prior to the
written confirmation of the sale of the Registrable Securities as required by
the Act and the Prospectus (as so amended or supplemented) would have corrected
in all material respects such untrue statement or omission.
(b) Each Holder of Registrable Securities agrees, severally and
not jointly, to indemnify and hold harmless the Company, and its directors and
officers, and each person, if
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<PAGE> 15
any, who controls (within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act) the Company, to the same extent as the foregoing indemnity
from the Company set forth in section (a) above, but only with reference to
information relating to such Holder furnished in writing to the Company by or on
behalf of such Holder expressly for use in any Registration Statement. In no
event shall any Holder, its directors, officers or any Person who controls such
Holder be liable or responsible for any amount in excess of the amount by which
the total amount received by such Holder with respect to its sale of Registrable
Securities pursuant to a Registration Statement exceeds (i) the amount paid by
such Holder for such Registrable Securities and (ii) the amount of any damages
that such Holder, its directors, officers or any Person who controls such Holder
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 7(a) and 7(b), a Holder shall not be required to assume the
defense of such action pursuant to this Section 7(c), but may employ separate
counsel and participate in the defense thereof, but the fees and expenses of
such counsel, except as provided below, shall be at the expense of the Holder).
Any indemnified party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by a majority of the
Holders, in the case of the parties indemnified pursuant to Section 7(a), and by
the Company, in the case of parties indemnified pursuant to Section 7(b). The
indemnifying party shall indemnify and hold harmless the indemnified party from
and against any and all losses, claims, damages, liabilities and judgments by
reason of any settlement of any action (i) effected with its written consent or
(ii) effected without its written consent if the settlement is entered into more
than twenty business days after the indemnifying party shall have received a
request from the indemnified party for reimbursement for the fees and expenses
of counsel (in any case where such fees and expenses are at the expense of the
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<PAGE> 16
indemnifying party) and, prior to the date of such settlement, the indemnifying
party shall have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this
Section 7 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company, on
the one hand, and the Holders, on the other hand, from their sale of Registrable
Securities or (ii) if the allocation provided by clause 7(d)(i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 7(d)(i) above but also the relative
fault of the Company, on the one hand, and of the Holder, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand,
and of the Holder, on the other hand, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, on the one hand, or by the Holder, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and judgments referred to above shall be deemed to include, subject
to the limitations set forth in the second paragraph of Section 7(a), any legal
or other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
SECTION 8. RULE 144A
The Company hereby agrees with each Holder, for so long as any
Registrable Securities remain outstanding, to make available, upon request of
any Holder of Registrable Securities, to any Holder or beneficial owner of
Registrable Securities in connection with any sale thereof and any prospective
purchaser of such Registrable Securities designated by such Holder or beneficial
owner, the information required by Rule 144A(d)(4) under the Act in order to
permit resales of such Registrable Securities pursuant to Rule 144A.
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<PAGE> 17
SECTION 9. MISCELLANEOUS
(a) Remedies. Each Holder of Registrable Securities, in addition
to being entitled to exercise all rights provided herein, and as provided in the
Purchase Agreement and the Warrant Agreement and granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after
the date of this Agreement enter into any agreement with respect to its
securities that conflicts with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The Company has not previously entered into any agreement granting any
registration rights of its securities to any Person except as set forth in the
Offering Memorandum, dated May 20, 1997 with respect to the Offering. Except as
described in Schedule 1, the rights granted to the Holders of Registrable
Securities hereunder do not in any way conflict with and are not inconsistent
with the rights granted to the holders of the Company's securities under any
other agreement in effect on the date hereof, except where a waiver with respect
thereto has been obtained prior to the date of effectiveness of any Registration
Statement required under this Agreement.
(c) Adjustments Affecting the Registrable Securities. The Company
will not take any action, or permit any change to occur, with respect to the
Registrable Securities which would adversely affect the ability of any of the
Holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement.
(d) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of a majority of the outstanding Registrable Securities consisting of
outstanding Warrants or Warrant Shares. Notwithstanding the foregoing, a waiver
or consent to departure from the provisions hereof that relates exclusively to
the rights of Holders of Registrable Securities whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect the rights of other Holders of Registrable Securities may be given by the
Holders of at least a majority of the Registrable Securities being sold.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under
the Indenture; and
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(ii) if to the Company:
Park `N View, Inc.
11711 NW 39th Street
Coral Springs, Florida 33065
Telecopier No.: (954) 745-7899
Attention: Steve Conkling
With a copy to:
Kilpatrick Stockton, LLP
4100 Lake Boone Trail, Suite 400
Raleigh, NC 27607
Telecopier No.: (919) 420-1800
Attention: James M. O'Connell, Esq.
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt acknowledged, if telecopied; and on
the next business day, if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Trustee at
the address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Registrable Securities.
(g) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement together with the
other Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their
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agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein with respect to
the registration rights granted by the Company with respect to the securities
sold pursuant to the Purchase Agreement. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
[Signature Page Follows]
18
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PARK `N VIEW, INC.
By: /s/ Stephen L. Conkling
---------------------------------------
Name: Stephen L. Conkling
Title: CFO, COO
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By: /s/ Marc Cummins
-------------------------------
Name: Marc Cummins
Title: M.E.
<PAGE> 21
SCHEDULE I
EXISTING
REGISTRATION RIGHTS
The Holders of the Company's Series B Preferred Stock and Series C Preferred
Stock and certain holders of Common Stock and warrants to purchase shares of
Common Stock are parties to a Registration Rights Agreement, dated as of
November 13, 1996, as amended by the Amendment to Registration Rights Agreement,
dated as of August 22, 1997, and subsequently amended by letter agreement, dated
as of May 20, 1998 (collectively referred to herein as the "Registration Rights
Agreement"). The Registration Rights Agreement, as amended, prohibits the
Company from granting demand registration rights and piggyback registration
rights under certain circumstances, but does not prohibit the Company from
granting the registration rights provided pursuant to this Agreement.
Furthermore, the Registration Rights Agreement provides that such holders of the
Series B Preferred Stock and Series C Preferred Stock, as well as certain
holders of Common Stock and warrants to purchase shares of Common Stock,
generally have piggyback registration rights, but such holders do not have any
such rights in connection with the registration contemplated by this Agreement.
The holder of a warrant to purchase up to 180,000 shares of Common Stock at an
exercise price of $8.00 per share also has piggyback registration rights. The
warrant granting such piggyback registration rights provides that, if the
proposed registration is an underwritten offering and the managing underwriter
determines cutbacks are necessary, then all selling security holders (other than
the holders of the Series B Preferred Stock and the Series C Preferred Stock and
certain holders of Common Stock and warrants to purchase shares of Common Stock,
who will have priority as to the holder of the warrant) will be reduced pro
rata. Prior to exercise of such piggyback registration rights, the warrant
holder must exercise the warrant for at least the number of shares being
registered.
19
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Park 'N View, Inc. on
Form S-4 of our report dated September 5, 1997, 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
July 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AT JUNE 30, 1997 AND MARCH 31, 1998 AND THE STATEMENTS OF OPERATIONS FOR
THE YEAR ENDED JUNE 30, 1997 AND THE NINE MONTH PERIOD ENDED MARCH 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1998
<PERIOD-START> JUL-01-1996 JUL-01-1997
<PERIOD-END> JUN-30-1997 MAR-31-1998
<CASH> 4,717,394 4,776,451
<SECURITIES> 0 0
<RECEIVABLES> 16,937 165,540
<ALLOWANCES> 5,411 5,411
<INVENTORY> 259,825 480,193
<CURRENT-ASSETS> 5,127,358 5,538,656
<PP&E> 8,267,235 18,298,023
<DEPRECIATION> 616,482 1,902,354
<TOTAL-ASSETS> 12,938,783 22,410,888
<CURRENT-LIABILITIES> 2,610,552 2,394,845
<BONDS> 0 0
3,931,320 4,155,003
15,200,146 34,188,470
<COMMON> 4,318 4,318
<OTHER-SE> (8,936,245) (18,519,688)
<TOTAL-LIABILITY-AND-EQUITY> 12,938,783 22,410,888
<SALES> 888,397 2,106,455
<TOTAL-REVENUES> 888,397 2,106,455
<CGS> 2,077,689 4,128,735
<TOTAL-COSTS> 2,077,689 4,128,735
<OTHER-EXPENSES> 4,431,889 6,471,565
<LOSS-PROVISION> 594,691 0
<INTEREST-EXPENSE> (170,852) (373,493)
<INCOME-PRETAX> (6,045,020) (8,120,352)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (6,045,020) (8,120,352)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,045,020) (8,120,352)
<EPS-PRIMARY> (1.61) (2.34)
<EPS-DILUTED> (1.61) (2.34)
</TABLE>
