<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ____________ TO _______________
COMMISSION FILE NUMBER: 333-59889 AND 333-59903
PNV INC.
(Exact name of registrant as specified in its charter)
DELAWARE 65-0612435
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
11711 N.W. 39TH STREET,
CORAL SPRINGS, FLORIDA 33065
(Address of principal executive offices) (Zip code)
(954) 745-7800
(Registrant's telephone number, including area code)
PNV.NET, INC.
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
The number of shares outstanding of the registrant's common stock, par
value $0.001 per share, as of October 31, 1999 was 4,331,014.
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PNV INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Balance Sheets as of June 30, 1999 and September 30, 1999.......... 3
Statements of Operations for the three months ended September 30,
1998 and 1999...................................................... 4
Statements of Cash Flows for the three months ended September 30,
1998 and 1999...................................................... 5
Notes to Financial Statements...................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 7
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk.......... 21
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.................................................. 21
ITEM 2. Changes in Securities and Use of Proceeds.......................... 22
ITEM 3. Defaults Upon Senior Securities.................................... 22
ITEM 4. Submission of Matters to a Vote of Securities Holders.............. 23
ITEM 5. Other Information.................................................. 23
ITEM 6. Exhibits and Reports on Form 8-K................................... 23
SIGNATURE................................................................... 25
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PNV INC.
(FORMERLY PARK `N VIEW, INC.)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1999 SEPTEMBER 30, 1999
------------- ------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents .................................................... $ 4,100,848 $ 8,365,010
Short-term investments ....................................................... 8,367,324 23,429,457
Restricted investments ....................................................... 10,704,210 10,769,770
Accounts receivable, net of allowance for doubtful accounts of $25,083 and
$35,083 at June 30, 1999 and September 30, 1999, respectively ............ 301,503 582,198
Inventory .................................................................... 341,208 288,746
Prepaid expenses and other ................................................... 181,788 288,314
------------ ------------
Total current assets .................................................. 23,996,881 43,723,495
Property and equipment, Net (Note 2) ........................................... 32,053,824 34,445,136
Deferred financing costs ....................................................... 3,755,927 3,668,759
Other assets ................................................................... 1,579,037 1,822,528
------------ ------------
Total ................................................................. $ 61,385,669 $ 83,659,918
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable ............................................................. $ 1,256,994 $ 2,426,159
Accrued expenses ............................................................. 1,621,271 2,871,575
Accrued interest on senior notes ............................................. 1,245,831 3,683,331
Deferred revenue ............................................................. 724,850 785,725
Current portion of capital lease obligations ................................. 294,887 295,898
Current portion of long-term debt ............................................ 25,365 16,337
------------ ------------
Total current liabilities ............................................. 5,169,198 10,079,025
------------ ------------
Obligations under capital leases, less current portion ......................... 263,519 278,544
------------ ------------
Long-term debt, less current portion ........................................... 70,846,069 70,967,219
------------ ------------
Commitments and Contingencies (Note 3)
Series A Redeemable Preferred Stock and Accrued Dividends--Par value $.01 per
share; 627,630 shares authorized; 388,065 shares issued and outstanding
($10.00 per share liquidation preference, including accrued dividends of
$839,493 and $922,580 as of June 30, 1999 and September 30, 1999,
respectively) .............................................................. 4,609,809 4,695,786
------------ ------------
Series B Cumulative 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 $2,762,083 and $3,024,583 as of June 30, 1999 and
September 30, 1999, respectively) ......................................... 17,403,860 17,675,756
------------ ------------
Series C Cumulative Convertible Preferred Stock and Accrued Dividends--Par value
$.01 per share; 3,750,000 shares authorized, 2,351,543 issued and
outstanding ($8.00 per share liquidation preference, including accrued
dividends of $2,423,904 and $2,753,118 as of June 30, 1999 and September
30, 1999, respectively) .................................................... 20,079,630 20,510,771
------------ ------------
Series D Cumulative Convertible Preferred Stock and Accrued Dividends--Par value
$.01 per share; 3,000,000 shares authorized, issued and outstanding ($10.50
per share liquidation preference, including accrued dividends of
$91,875 as of September 30, 1999) .......................................... 18,668,342
------------
Common Stockholders' Deficiency:
Common stock--Par value $.001 per share; 12,000,000 and 50,000,000 shares
authorized at June 30, 1999 and September 30, 1999, respectively; 4,328,614
and 4,331,014 shares issued and outstanding as of June 30, 1999 and
September 30, 1999, respectively ........................................... 4,328 4,331
Additional paid-in capital ................................................. 13,011,612 25,337,985
Receivable from stockholder ................................................ (145,000) (92,000)
Deferred stock-based compensation .......................................... (8,345,375) (8,630,902)
Accumulated deficit ........................................................ (61,511,981) (75,834,939)
------------ ------------
Total common stockholders' deficiency ................................. (56,986,416) (59,215,525)
------------ ------------
Total ................................................................. $ 61,385,669 $ 83,659,918
============ ============
</TABLE>
See notes to financial statements.
3
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PNV INC.
(FORMERLY PARK `N VIEW, INC.)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1998 1999
----------- ------------
<S> <C> <C>
Net Revenues ....................................... $ 1,723,787 $ 3,380,691
----------- ------------
Cost of Revenues:
Service cost .................................... 1,513,006 4,060,467
Service depreciation ............................ 822,652 1,470,793
Equipment cost .................................. 367,241 426,658
Advertising ..................................... 4,399 369,215
----------- ------------
Total cost of revenues ...................... 2,707,298 6,327,133
----------- ------------
Gross margin ....................................... (983,511) (2,946,442)
Selling, general and administrative expenses ....... 3,602,680 6,885,842
Stock-based compensation ........................... -- 2,022,443
----------- ------------
Loss from operations ............................... (4,586,191) (11,854,727)
Interest expense ................................... 2,644,737 2,652,054
Interest income and other .......................... (749,246) (183,825)
----------- ------------
Net loss .................................... (6,481,682) (14,322,956)
Preferred stock dividends and amortization of
preferred stock issuance costs ............ (691,704) (813,692)
Accretion of preferred shares to fair value . -- (3,187,521)
----------- ------------
Net loss attributable to common stockholders $(7,173,386) $ 18,324,169)
=========== ============
Net loss per share (basic and diluted) ...... $ (1.66) $ (4.23)
=========== ============
Weighted-average shares outstanding ................ 4,318,182 4,329,397
=========== ============
</TABLE>
See notes to financial statements.
4
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PNV INC.
(FORMERLY PARK `N VIEW, INC.)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1998 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ....................................................... $ (6,481,682) $(14,322,956)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ............................... 1,050,768 1,812,921
Amortization of deferred stock-based compensation ........... -- 2,022,443
Stock-options issued for services ........................... -- 35,982
Changes in assets and liabilities:
Accounts receivable ....................................... (77,699) (280,696)
Inventory ................................................. (177,506) 52,462
Prepaid expenses and other ................................ (118,650) (106,528)
Other assets .............................................. 3,387 (269,249)
Accounts payable .......................................... 2,374,440 1,169,166
Accrued expenses .......................................... 445,750 1,250,303
Accrued interest on senior notes .......................... 2,437,500 2,437,500
Deferred revenue .......................................... 14,624 60,874
------------ ------------
Net cash used in operating activities ................... (529,068) (6,137,778)
------------ ------------
INVESTING ACTIVITIES:
Purchases of short-term investments ......................... (380,238) (20,068,663)
Proceeds from sales of short-term investments ............... -- 5,006,529
Purchases of restricted investments ......................... (193,273) (65,560)
Purchases of property and equipment ......................... (7,420,077) (3,789,983)
------------ ------------
Net cash used in investing activities ................... (7,993,588) (18,917,677)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock ................... -- 31,500,000
Payment of preferred stock issuance costs ................... -- (2,097,000)
Proceeds from exercise of warrants .......................... -- 24
Receivable from stockholder ................................. -- 53,000
Payment of obligation under capital lease ................... (96,354) (127,381)
Notes payable ............................................... (8,126) (9,026)
------------ ------------
Net cash provided by (used in) financing activities ..... (104,480) 29,319,617
------------ ------------
Net Increase (Decrease)In Cash And Cash Equivalents ............ (8,627,136) 4,264,162
Cash And Cash Equivalents, Beginning of Period ................. 19,810,656 4,100,848
------------ ------------
Cash And Cash Equivalents, End of Period ....................... $ 11,183,520 $ 8,365,010
============ ============
Supplemental Cash Flow Information:
Interest paid ............................................... $ 15,461 $ 16,603
============ ============
Non-Cash Financing And Investing Activities:
Capital lease obligations relating to acquisition of property
and equipment ............................................. $ 158,605 $ 139,391
============ ============
Issuance of common stock warrants .............................. $ 625,690
============
Issuance of conversion feature attached to Series D Preferred
Stock ....................................................... $ 13,372,685
============
</TABLE>
See notes to financial statements.
5
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PNV INC.
(FORMERLY PARK `N VIEW, INC.)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim balance sheet as of September 30, 1999, the interim statements of
operations for the three months ended September 30, 1998 and 1999 and the
interim statement of cash flows for the three months ended September 30, 1998
and 1999 are unaudited. In the opinion of management, all adjustments necessary
for a fair presentation of such financial statements have been included. 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. PNV Inc. (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 the entire year. These interim financial
statements should be read in conjunction with the audited financial statements
and notes thereto, contained in the Company's Annual Report on Form 10-K for the
fiscal year end June 30, 1999.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
JUNE 30, 1999 SEPTEMBER 30, 1999
------------- ------------------
Site equipment and improvements.......... $34,592,877 $37,415,479
Construction equipment................... 150,058 150,058
Computer equipment....................... 760,719 1,124,834
Vehicles................................. 985,014 1,119,139
Furniture, fixtures and other equipment.. 75,854 85,033
----------- -----------
Subtotal............................ 36,564,522 39,894,542
Less accumulated depreciation............ 7,332,654 8,870,719
----------- -----------
Subtotal............................ 29,231,868 31,023,823
Component equipment...................... 2,821,956 3,421,312
----------- -----------
Property and equipment, net.............. $32,053,824 $34,445,136
=========== ===========
Component equipment represents equipment that is awaiting installation at a
site. Upon installation the cost of the related equipment is transferred to site
equipment and improvements and depreciation commences once the site is
operational. Component equipment is temporarily staged at the Company's
warehouse until all equipment for a site is received, certain assembly
operations are complete and the site is ready to accept the equipment for
installation. Component equipment is reclassified to site equipment upon
completion of the site on a FIFO basis for all components.
3. PREFERRED STOCK
In September 1999, the Company sold 3,000,000 shares of Series D 7% Cumulative
Convertible Preferred Stock ("Series D Preferred") for $10.50 per share. The
Series D Preferred will automatically convert into 3,000,000 shares of common
stock upon the completion of an initial public offering for which the Company
has filed a registration statement. Dividends will accrue from the issuance of
the Series D Preferred until conversion at the rate of 7% per annum. Cumulative
unpaid accrued dividends were $91,875 at September 30, 1999. In connection with
the sale of the Series D Preferred, the Company issued to the placement agent
for the offering a warrant to purchase 60,000 shares of common stock at $10.50
per share which is exercisable for a five year period and paid to the placement
agent 6% of the gross proceeds of the sale of the Series D Preferred which was
$1.9 million. The Company has determined that the purchase price was below the
deemed fair market value of the Series D Preferred for financial reporting
purposes. As a result, the Company recorded the deemed fair market value of the
Series D Preferred as paid-in capital in September 1999 and the difference
between the purchase price and deemed fair market value as a dividend of $13.4
million. This dividend is being amortized over the first and second quarters of
fiscal year 2000 and included in the Company's net loss attributable to common
stockholders for these periods. The amount recognized for the three months ended
September 30, 1999 was $3.1 million.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements that involve risks and
uncertainties. Forward-looking statements typically are identified by use of
terms such as "may," "will," "expect," "anticipate," "estimate," "intend,"
"believe" and similar words, although some forward-looking statements are
expressed differently. You should be aware that our actual results could differ
materially from those contained in the forward-looking statements due to a
number of factors, including, our limited operating history and whether we will
be able to achieve or maintain profitability; whether we can significantly
increase subscriptions to the telecommunications and cable television services
that we offer through our network; whether we can convert daily members to
monthly subscribers and otherwise increase our revenue on a per subscriber
basis; whether a significant number of truck drivers subscribe to our Internet
access service; whether we can generate advertising revenue; whether we can
increase our resale of long distance telephone minutes; whether we can
successfully implement our business plan with respect to our development of the
portal; whether we can develop electronic commerce activities on the portal we
are creating; whether we can increase distribution channels for and sales of
prepaid phone cards; whether we can attract and retain sufficient sales and
marketing and technical personnel; Year 2000 problems; increased competition;
the unknown effects of possible system failures and rapid changes in technology;
adverse changes in economic conditions and in the markets we serve; regulatory,
economic and other changes; and changes in the law.
You should also consider carefully the statements under "Risk Factors" below,
which address additional factors that could cause our actual results to differ
from those set forth in the forward-looking statements.
OVERVIEW
The following discussion of our financial condition and results of operations
should be read in conjunction with our Financial Statements and the related
Notes thereto included elsewhere in this report.
As of September 30, 1999, our network was available at 237 full-service
truckstops. The following table sets forth the number of monthly subscribers and
daily members to our network during the last month in each of our five most
recent quarters.
PERIOD MONTHLY SUBSCRIBER DAILY MEMBER
- ------ ------------------ ------------
September 1998................... 19,207 8,925
December 1998.................... 21,997 11,203
March 1999....................... 21,632 14,136
June 1999........................ 21,317 13,829
September 1999................... 24,803 10,456
The following table sets forth our monthly subscribers by category during the
last month in each of our five most recent quarters.
PERIOD POWER PLAN PAYROLL DEDUCTION FLEET FUNDED VENDING MACHINE
- ------ ---------- ----------------- ------------ ---------------
September 1998... 11,723 307 2,566 4,611
December 1998.... 13,606 506 2,974 4,911
March 1999....... 13,594 330 2,818 4,890
June 1999........ 11,988 2,000 3,200 4,129
September 1999... 11,443 4,159 3,259 5,942
We launched our Internet access service in July 1999. We initially offered this
service free of charge on a promotional basis during a trial period, and started
charging for this service November 1, 1999. We launched our portal website in
October 1999 and through this we are creating content for the trucking
community, including drivers and their families, industry suppliers and
manufacturers, truckstop operators and trucking fleets.
7
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In September 1999, we sold 3,000,000 shares of Series D preferred stock for
$10.50 per share and a total offering amount of $31.5 million. We received net
proceeds after commissions, but before offering expenses, of $29.6 million. The
Series D preferred stock will automatically convert into 3,000,000 shares of
common stock upon the completion of an initial public offering of our common
stock. Dividends will accrue from the issuance of the Series D preferred stock
until conversion at the rate of 7% per annum. Dividends are payable in cash or
in shares of common stock. In connection with the Series D preferred stock
offering, in September 1999, we granted the placement agent for the offering a
warrant to purchase 60,000 shares of common stock at $10.50 per share, which is
exercisable for a five year period, and paid the placement agent 6% of the gross
proceeds of the sale of the Series D preferred stock, which was $1.9 million. We
have determined that the purchase price of the Series D preferred stock was
below its deemed fair market value for financial reporting purposes. As a
result, we recorded the deemed fair market value of the Series D preferred stock
as paid-in capital and the difference between the purchase price and deemed fair
market value as a dividend of $13.4 million amortizable over the first and
second quarters of fiscal 2000 and includable in our net loss attributable to
common stockholders for these periods. The amount of this dividend recognized
for the three months ended September 30, 1999 was $3.1 million.
As a result of the closing of the Series D preferred stock offering and in
accordance with Mr. May's employment agreement, we granted to Mr. May an option
to purchase 130,097 shares of common stock upon the closing of the offering. The
option is exercisable for seven years, subject to earlier termination as
provided in the option agreement. The exercise price is $5.00 or any lower price
at which we sell common stock prior to the first anniversary of an initial
public offering of our common stock.
We have filed a registration statement relating to an initial public offering of
4,312,500 shares of our common stock, including the underwriters' over-allotment
option. We expect that the price of the common stock in the offering will be
between $15.00 and $17.00 per share. Upon the completion of this offering, we
will redeem our outstanding redeemable preferred stock for a cash redemption
price of $3.9 million, plus accrued dividends, and our outstanding convertible
preferred stock will automatically convert into 7,226,543 shares of common
stock. At this time, we intend to pay accrued dividends on our outstanding
convertible preferred stock by issuing shares of common stock equal to the
aggregate dividend amount divided by the initial public offering price.
RESULTS OF OPERATIONS
Net Revenues. Our net revenues increased 100% to $3.4 million for the three
months ended September 30, 1999 from $1.7 million for the three months ended
September 30, 1998. This increase was due principally to sales of prepaid phone
cards and an increase in sales of monthly subscriptions and, to a lesser extent,
sales of advertising in Connect!, our monthly cable television programming guide
and lifestyle magazine, and an increase in sales of resold long distance
telephone minutes. During the three months ended September 30, 1998, we had no
sales of prepaid phone cards and minimal sales of resold long distance telephone
minutes and advertising.
Cost of Revenues. Cost of revenues, excluding service depreciation, increased
153% to $4.8 million for the three months ended September 30, 1999 from $1.9
million for the three months ended September 30, 1998. This increase was
principally due to costs associated with increases in the number of truckstops
at which our network is deployed and in sales volume, as well as to costs of T-1
lines and routing equipment, both of which we added to our network beginning in
the three months ended December 31, 1998. The number of truckstops at which our
network is deployed increased 68% to 237 as of September 30, 1999 from 141 as of
September 30, 1998.
Service cost (which includes commissions payable to truckstops, cable
programming, T-1 lines, local telephone lines, long distance minutes purchased
for resale, routing equipment leases, prepaid phone card operations and site
repairs) increased 173% to $4.1 million for the three months ended September 30,
1999 from $1.5 million for the three months ended September 30, 1998. This
increase was principally due to costs associated with increases in the number of
truckstops at which our network is deployed and in sales volume, costs of T-1
lines and routing equipment, both of which we added to our network beginning in
the three months ended December 31, 1998, and costs associated with our prepaid
phone card operations, which we began to offer in April 1999. To a lesser
extent, this increase was due to commissions paid to a truckstop chain related
to our prepaid phone card operations. Service depreciation increased 88% to $1.5
million for the three months ended September 30, 1999 from $.8 million for the
three months ended September 30, 1998. The increase in service depreciation
reflects the additional buildout of our network. Advertising expense is
principally associated with the advertising revenue generated from Connect!. We
had no revenue from sales of advertising in Connect! during the three months
ended September 30, 1998.
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<PAGE> 9
Therefore, costs associated with Connect! during this period was classified as
marketing expenses and were immaterial. Fixed costs are a significant portion of
cost of revenues and are expected to increase.
Selling Expense. Selling expense increased 88% to $3.2 million for the three
months ended September 30, 1999 from $1.7 million for the three months ended
September 30, 1998. This increase was primarily attributable to an increase in
salaries and marketing expenses. Salaries increased 44% to $1.3 million for the
three months ended September 30, 1999 from $.9 million for the three months
ended September 30, 1998. Marketing expense increased 167% to $.8 million for
the three months ended September 30, 1999 from $.3 million for the three months
ended September 30, 1998. The increase in salary expense reflects principally
additional personnel to expand our sales and marketing programs and the increase
in marketing expense reflects the additional marketing and promotional efforts
to increase subscriptions to services offered on our network.
General and administrative expenses. General and administrative expenses
increased 95% to $3.7 million for the three months ended September 30, 1999 from
$1.9 million for the three months ended September 30, 1998. The increase was
primarily attributable to an increase in salaries, travel and professional fees.
Salaries increased 130% to $2.3 million for the three months ended September 30,
1999 from $1.0 million for the three months ended September 30, 1998 due to
additional personnel to support the expansion of our operations, including the
development of our portal website. Travel and per diem expense increased 400% to
$.5 million for the three months ended September 30, 1999 from $.1 million for
the three months ended September 30, 1998. Professional fees increased 200% to
$.3 million for the three months ended September 30, 1999 from $.1 million for
the three months ended September 30, 1998.
Stock-Based Compensation Expense. During the three months ended September 30,
1999, we granted options to purchase our common stock to employees at exercise
prices which we have determined were below the fair market value of our common
stock on the grant dates for financial reporting purposes. As a result, for the
period, we recorded additional deferred stock-based compensation of $2.3
million. In addition, we recognized stock-based compensation expense of $2.0
million for these options and options granted in the third and fourth quarters
of fiscal 1999. There was no stock-based compensation expense for the three
months ended September 30, 1998.
Interest Income (Expense) and Other-Net. Interest income (expense) and other-net
increased to ($2.5 million) for the three months ended September 30, 1999 from
($1.9 million) for the three months ended September 30, 1998. This increase in
net interest expense is primarily attributable to a reduction in interest
income.
Net Loss. Our net loss increased 120% to $14.3 million for the three months
ended September 30, 1999 from $6.5 million for the three months ended September
30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $6.1 million and $.5 million for the
three months ended September 30, 1999 and 1998, respectively. The $5.6 million
increase in net cash used in operating activities for the three months ended
September 30, 1999 compared to the three months ended September 30, 1998
resulted primarily from an increase in the net loss of $7.8 million to $14.3
million for the three months ended September 30, 1999 compared to a net loss of
$6.5 million for the three months ended September 30, 1998. The net loss was
partially offset by an increase in non-cash expenditures for depreciation and
amortization and stock-based compensation expense of $2.8 million to $3.9
million for the three months ended September 30, 1999 from $1.1 million for the
three months ended September 30, 1998.
Net cash used in investing activities was $18.9 million and $8.0 million for the
three months ended September 30, 1999 and 1998, respectively. The $10.9 million
increase in net cash used in investing activities for the three months ended
September 30, 1999 compared to the three months ended September 30, 1998
resulted primarily from the net purchases of short-term investments in the
amount of $15.1 million for the three months ended September 30, 1999. This was
partially offset by a decrease in capital expenditures of 49% to $3.8 million
for the three months ended September 30, 1999 from $7.4 million for the three
months ended September 30, 1998. The decrease in capital expenditures was
principally the result of the installation of our network at 17 truckstops
during the three months ended September 30, 1999 as compared to 23 truckstops
completed during the three months ended September 30, 1998.
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<PAGE> 10
Net cash provided by (used in) financing activities was $29.3 million and ($.1
million) for the three months ended September 30, 1999 and 1998, respectively.
The $29.4 million increase in net cash provided by financing activities for the
three months ended September 30, 1999 compared to the three months ended
September 30, 1998 resulted primarily from our sale of Series D preferred stock
in September 1999.
During the three months ended September 30, 1999, our working capital increased
$14.9 million. The increase was primarily attributable to an increase in cash
and cash equivalents of $4.3 million and an increase in short term investments
of $15.1 million and an increase in accrued interest of $2.4 million resulting
principally from our sale of Series D preferred stock in September 1999.
At September 30, 1999, our cash and short-term investments was approximately
$31.8 million.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. As a result,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the Year 2000. In addition, the Year 2000 is a leap year, and some computer
programs may not properly provide for February 29, 2000. System failures and
miscalculations causing disruptions of normal business activities may occur
including, among other things, our temporary inability to provide
telecommunications, cable television and Internet access services or engage in
similar normal business activities. As a result, many companies' software and
computer systems may need to be upgraded or replaced in order to comply with
Year 2000 requirements.
We retained IBM to review our computer systems and network switching, routing
and telecommunications equipment, constituting the equipment used in providing
our telecommunications, cable television and Internet access services, as well
as our internal management information systems, to identify those items and
systems that are not Year 2000 compliant. We paid IBM approximately $86,000 to
complete its review.
IBM recently completed its readiness review of our services, software, switches
and routers and other systems, as well as our analysis and planning,
remediation, readiness testing, staffing, and contingency planning for Year 2000
issues. IBM concluded that we were not ready for the Year 2000. However, IBM did
conclude that our proprietary software and databases were ready and would not
require any Year 2000 remediation.
Following the completion of IBM's readiness review, in August 1999, we hired
additional product development employees to address, among other things, Year
2000 issues. We also retained IBM to provide project management assistance for
our Year 2000 compliance efforts, to assist us with the implementation of the
recommendations included in IBM's readiness review, to develop action plans for
mission critical areas, and to provide other Year 2000 preparation services. IBM
also conducted project management training for our personnel who will lead our
Year 2000 efforts. With the assistance of IBM, we conducted an inventory
assessment of our mission critical systems during the third quarter of 1999. We
believe that our Year 2000 preparation, planning and remediation efforts is
substantially complete.
We have estimated $400,000 as the maximum cost of evaluating, testing,
reprogramming, and modifying our services, systems and equipment. This estimate
includes the approximately $86,000 paid to IBM for its readiness review and
approximately $100,000 paid to IBM for its project management, implementation
assistance and other services. This estimate also is based on the belief that no
major problems are encountered.
We also utilize software and hardware developed by third parties both for our
network and internal information systems. We have made inquiries to our
significant suppliers regarding their Year 2000 compliance or the status of
their review and implementation of their own Year 2000 compliance programs.
While some of these suppliers have provided oral or written assurances, we do
not have any information regarding, or any oral or written assurances from, some
of our significant suppliers and providers of equipment, telecommunications and
data communications regarding their Year 2000 compliance or the status of their
review and implementation of their own Year 2000 compliance programs. If our
primary suppliers and providers experience business interruptions as a result of
the failure to achieve Year 2000 compliance, our ability to provide
telecommunications, cable television and Internet services could be impaired.
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We conducted tests of our product delivery system during the third quarter of
1999 and will document our tests with the assistance of IBM. To the extent that
our systems and equipment were not Year 2000 compliant, we are working with IBM
to modify such systems and equipment to make them compliant. Noncompliant items
will be replaced or otherwise remediated. We expect any necessary modifications
will be made on a timely basis and do not believe that the cost of the
modifications will be material. We estimate that the capital and other costs
associated with any upgrade and conversion of our existing services, systems and
equipment relating to the Year 2000 issue will not be material.
Our non-information technology systems are more difficult to assess and repair
than information technology systems. We may have to replace, the non-information
technology systems that cannot be repaired. IBM has reviewed our non-information
technology systems and concluded that we did not have compliance information
from the suppliers of our non-information technology systems. As a result, while
we do not believe that we have many non-information technology assets with
microprocessors, we presently have no basis on which to estimate the costs of
assessing and repairing or replacing our non-information technology systems or
to determine whether such costs will have a material adverse effect on our
operations or our financial condition.
Our services and systems operate in complex network environments and directly
and indirectly interact with a number of other hardware and software systems. We
face risks to the extent that suppliers of products, services and systems
purchased by us and others with whom we transact business, including those which
form significant portions of our network and may be sole or limited source
suppliers, do not have business systems or products that comply with Year 2000
requirements, despite the implementation of a Year 2000 compliance program or
assurances of Year 2000 compliance by such suppliers. If these networks fail,
our business will be significantly impacted.
We do not currently have any information regarding the Year 2000 status of our
customers, many of whom are private companies and individuals. As is the case
with similarly situated companies, if our customers experience Year 2000
problems, which result in business interruptions or otherwise impact their
operations, we could experience a decrease in the demand for our Internet access
services. We have not made inquiries to our customers regarding their Year 2000
compliance because we do not believe that noncompliance by our customers will
have a material adverse effect on our business, results of operations and
financial condition.
We have not fully determined the risks associated with the reasonably worst-case
scenario. Contingency planning includes the identification of Year 2000
scenarios, including potential problems at various severity levels, and the
development of Year 2000 contingency plans for selected scenarios and the
testing of those plans. With the assistance of IBM, we developed contingency
procedures that would go into effect if any of our systems or suppliers
experience Year 2000 problems. While we have customary plans for back-up and
recovery of our system, we have not enhanced these plans to address Year 2000
issues.
Despite testing by us and our suppliers, our services, systems and equipment may
contain undetected errors or defects associated with Year 2000 date functions.
In the event any material errors or defects have not been detected and fixed or
third parties do not timely provide us with services, systems or equipment that
meet the Year 2000 requirements, our network could be adversely affected and
customer dissatisfaction could adversely affect usage of our network and our
business. Known or unknown errors or defects that affect the operation of our
services, systems and equipment could result in delay or loss of revenues,
interruption of telecommunication, cable television and Internet services,
cancellation of subscriptions, diversion of development resources, damage to our
reputation, damages paid to customers and litigation costs.
RISK FACTORS
WE HAVE BEEN IN BUSINESS FOR A SHORT PERIOD OF TIME AND WE HAVE NOT BEEN
PROFITABLE AND EXPECT FUTURE LOSSES AND NEGATIVE CASH FLOW.
From November 1993 to November 1995, our predecessor, Park `N View, Ltd.,
developed our network and installed and operated it at one truckstop as a field
test. We began offering services on our network in December 1995 with the
completion of our first site. We deployed our network at 14 truckstops in 1996,
59 truckstops in 1997, 113 truckstops in 1998 and 51 truckstops from January 1,
1999 to September 30, 1999. Consequently, we have a limited operating history
upon which you may evaluate us and we face all of the risks and uncertainties of
early-stage companies. To date, we have not been profitable. We may never be
profitable or, if we become
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profitable, we may be unable to sustain profitability. We have recognized
limited revenues since our inception and have incurred substantial costs to
build and deploy our network, offer our services and operate our business. We
have incurred net losses of approximately $75.8 million from our inception
through September 30, 1999. To date, our cash flow from operations has been
substantially insufficient to meet our cash requirements. We expect to incur
substantial net losses and experience substantial negative cash flows for the
foreseeable future. As of September 30, 1999, our total liabilities plus our
preferred stock outstanding exceeded our total assets by $59.2 million.
MANY OF OUR COSTS ARE FIXED ON BOTH A LONG-TERM AND SHORT-TERM BASIS AND WE
MAY NOT BE ABLE TO REDUCE THEM IN A TIMELY MANNER; WE HAVE RECENTLY
INCREASED OUR COSTS SIGNIFICANTLY AND WE EXPECT OUR COSTS TO CONTINUE TO
INCREASE.
A high percentage of the costs of operating our network are fixed, including our
commitments under our contract with AT&T for T-1 lines and our equipment leases
with Cisco for routers. If our revenues do not increase, we may not be able to
reduce our costs in a timely manner to account for any shortfall in revenues. In
addition, many of our costs are based on our expectations of the future demand
for our services and are relatively fixed in the short-term. Recently, we
significantly increased our operating costs and our capital expenditures. We
plan to further increase our costs during the remainder of fiscal 2000 and,
beginning in November 2000, we will be required to make the scheduled semiannual
interest payments on our $75.0 million in aggregate principal amount of 13%
notes due 2008 from our available cash. If we are unable to increase our
revenues from our current sources and generate revenue from other sources in
order to fund our operating losses and capital expenditures, we may be required
to curtail or cease our operations. We may not be able to sustain our current
revenues or successfully generate additional revenue.
IF WE FAIL TO GENERATE SUFFICIENT CASH FROM OPERATIONS, WE MAY NOT HAVE
SUFFICIENT FUNDS FOR WORKING CAPITAL AND CAPITAL EXPENDITURES AND MAY BE
REQUIRED TO SEEK ADDITIONAL FINANCING IN THE FUTURE, WHICH MAY NOT BE
AVAILABLE ON ACCEPTABLE TERMS.
We may need to seek additional financing in the future to fund our capital
requirements, which may not be available on acceptable terms, if at all. Our
capital requirements will depend on numerous factors, including the growth of
our revenues, if any, and the rate of such growth and our expenditures. We
expect that the net proceeds of this offering, together with existing cash and
anticipated cash generated from operations, will be sufficient to fund our
anticipated cash requirements for at least the next 18 months. Thereafter, if
our 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, we may experience insufficient liquidity which could cause us to
cease or curtail our operations. Any needed financing may not be available on
terms acceptable to us, or at all. If adequate funds are not available on
acceptable terms, we may curtail or cease our operations. Moreover, even if we
are able to continue our operations, if we are unable to obtain any needed
financing, our business could suffer due to our inability to continue the
buildout of our network, provide our current and planned services and products
and expand our business.
OUR FAILURE TO INCREASE OUR REVENUES OR GENERATE REVENUE FROM NEW SOURCES
WOULD PREVENT US FROM ACHIEVING AND MAINTAINING PROFITABILITY.
Currently, our revenues are generated primarily from sales of subscriptions to
the telecommunications and cable television services offered on our network and
to a lesser extent from prepaid phone card operations and resales of long
distance telephone minutes and advertising sales. Our future success depends
upon, among other things, our ability to increase revenues from our current
sources and generate revenues from additional sources. If we are unable to
increase our revenues from our current sources and generate revenue from other
sources, we may be required to curtail or cease our operations. We may not be
able to sustain our current revenues or successfully generate additional
revenue.
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IF WE DO NOT RETAIN OUR CURRENT SUBSCRIBERS OR INCREASE SALES OF
SUBSCRIPTIONS TO SERVICES OFFERED ON OUR NETWORK, OUR RECURRING REVENUES
WILL NOT INCREASE AND OUR INCREMENTAL COSTS OF ACQUIRING AND RETAINING
CUSTOMERS MAY INCREASE.
Our future success depends upon our ability to significantly increase the number
of subscribers to services currently offered on our network and to generate fees
for Internet access service. The number of our total active subscribers has not
increased significantly since September 1998.
Even if truck drivers initially subscribe to our network, they may not renew
their subscriptions. Of our new monthly subscribers in June 1999, our data
indicates that 82% were still active monthly subscribers in September 1999.
There are many factors that could cause a subscriber to cancel an ongoing
monthly subscription or fail to purchase a subscription, including
dissatisfaction with our network and the services offered, or with the number
and location of the truckstops at which our network is available, or truck
driver turnover. Some drivers have experienced problems in connecting to our
network due to an accumulation of moisture in the parking lot access points, or
bollards. This operational problem may cause drivers to cancel or decide not to
purchase a subscription. In July 1999, we began offering Internet access service
free of charge on a promotional basis. In November 1999, we began charging
separate subscription fees for this service. Truck drivers may be unwilling to
purchase a subscription to this service. Many truck drivers may not own a
computer for accessing the Internet.
Our power plan and payroll deduction programs, designed to increase ongoing
monthly subscriptions, may not be successful. If ongoing monthly subscriptions
do not increase, our recurring revenues will not increase, our incremental costs
of acquiring and retaining subscribers may increase and our business may suffer.
IF WE DO NOT INCREASE OUR RESALES OF LONG DISTANCE MINUTES, OUR REVENUES
MAY NOT INCREASE AS CONTEMPLATED BY OUR BUSINESS PLAN AND WE MAY NOT
ACHIEVE OR MAINTAIN PROFITABILITY.
Our future success also depends upon our ability to increase our resales of long
distance telephone minutes. We began marketing resold long distance telephone
minutes in February 1999. Since that time we have increased our sales of resold
long distance from $36,000 in February 1999 to $62,000 in September 1999. We
believe that increasing competition in the telecommunications industry will
result in significantly lower prices for long distance services. We may not be
able to reduce our prices sufficiently to compete effectively. Our failure to
increase our sales of resold long distance minutes on a profitable basis could
restrict the growth of our revenues and our ability to achieve or maintain
profitability.
IF ELECTRONIC COMMERCE TRANSACTIONS ON OUR PORTAL WEBSITE DO NOT DEVELOP,
WE MAY NOT BE ABLE TO OPERATE OUR PORTAL OR OUR BUSINESS PROFITABLY.
Our success depends upon our ability to develop and generate revenue from
electronic commerce activities on our portal website. If we are unable to
develop electronic commerce activities on our portal or if business-to-business
electronic commerce within the trucking industry does not grow or grows more
slowly than expected, our portal website and our business may not achieve or
maintain profitability. Many truck drivers may not have a computer for accessing
the Internet from their trucks which may adversely affect the growth of
electronic commerce in the trucking industry and on our portal.
IF THE INTERNET IS NOT ADOPTED AS AN ADVERTISING MEDIUM OR IF WE CANNOT
ATTRACT ADVERTISERS, OUR ADVERTISING REVENUES WILL NOT INCREASE AS PLANNED.
Our business model contemplates that we will generate significant advertising
revenue from sales of advertising in Connect!, our monthly television
programming guide and lifestyle magazine for truck drivers, and on our portal
website. We began publishing Connect! in July 1999 and launched our portal in
October 1999. If we do not successfully develop content for Connect! and the
portal that attracts a significant number of truck drivers and other trucking
industry participants, it is unlikely that we will be able to attract
advertisers.
The growth of Internet advertising requires validation of the Internet as an
effective advertising medium. This validation has yet to fully occur. Acceptance
of the Internet among advertisers will also depend on growth in the commercial
use of the Internet. If we do not generate advertising revenue or if widespread
commercial use of the
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Internet does not develop, or if the Internet does not develop as an effective
and measurable medium for advertising, our revenues will not increase as planned
and we may not be able to operate our portal website or business profitably.
OUR HIGH DEBT LEVELS MAY ADVERSELY AFFECT OUR ABILITY TO OPERATE AND EXPAND
OUR BUSINESS.
We have a significant amount of debt outstanding. On September 30, 1999, we had
$71.2 million of outstanding indebtedness and $59.2 million of stockholders'
deficiency. We may not be able to meet our debt service requirements. We will be
in default under the terms of the indenture governing our 13% notes if we are
unable to make required interest payments or we otherwise fail to comply with
the various covenants in the indenture. We are required to make semiannual
interest payments on our 13% notes in May and November of each year. The 13%
notes mature in May 2008. We have made the first three interest payments and
intend to make the next interest payment from funds and securities in an escrow
account. Beginning with the November 2000 scheduled interest payment, we will be
required to make these interest payments from our available cash. A default
would permit the holders of our 13% notes to accelerate the maturity of these
notes, which we may be unable to pay. Even if we are able to pay these notes
from our funds or from borrowed funds, we could be prevented from continuing the
buildout of our network, providing our current and planned services and products
or expanding our business. Even if we are able to meet our debt service
obligations, the amount of debt we have could adversely affect us in a number of
ways. For example, we could be required to dedicate a substantial portion of our
cash flow from operations to the payment of principal and interest on our debt,
thereby reducing the funds available for the growth of our business.
IF WE DO NOT MEET OUR OBLIGATIONS UNDER CONTRACTS WITH TRUCKSTOP OPERATORS,
THESE TRUCKSTOP OPERATORS MAY ENTER INTO CONTRACTS WITH OTHER PROVIDERS.
Most of our current revenues are generated from our operations at truckstops. We
expect that the provision of telecommunications, cable television and Internet
access services through our network will continue to be a primary source of
revenue for the foreseeable future. TravelCenters of America owns or operates
over 150 of the truckstops that we have under contract.
We have contracted with truckstop operators located throughout the United
States. 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. These contracts generally
provide that the truckstop chains and independent truckstop owners may terminate
the contracts, and our exclusive rights under the contracts, if we fail in any
material respect to perform any of our obligations under the contracts and fail
to remedy the breach within 30 days after we receive notice of the breach. Any
failure by us to meet our contractual obligations that results in the
termination of our contracts could impair our network and the sale of services
over our network.
OUR CONTRACTS WITH TRUCKING ASSOCIATIONS TO INSTALL OUR NETWORK AT
APPROXIMATELY 300 MEMBER TRUCKSTOPS ARE NOT LEGALLY BINDING ON THEIR
MEMBERS AND MAY NOT RESULT IN THE INSTALLATION OF OUR NETWORK AT THESE
TRUCKSTOPS.
As of September 30, 1999, we had entered into contracts with the three largest
trucking associations representing more than 300 additional independent
truckstops pursuant to which these associations have agreed to permit us to
offer our services to their members. These associations do not have authority to
legally bind their members. Therefore, while each association has granted us the
right to offer cable television and telephone services to their members, this
contractual provision is not binding on any member. Prior to installation of our
network at an association member's truckstop, we must enter into a contract with
the association member granting us the right to install our network at the
member's truckstops. Accordingly, our contracts with truckstop associations may
not result in our network being installed at additional truckstop locations.
OUR TELECOMMUNICATIONS AND CABLE TELEVISION SERVICES COMPETE WITH THOSE
OFFERED BY MANY WELL-ESTABLISHED COMPETITIVE PROVIDERS.
The market for telecommunications services, particularly long distance
telecommunications services, is highly competitive. Carriers compete principally
on the basis of ease of access, functionality and cost. Our telecommunications
services currently compete with traditional long distance services, with public
phones, cellular and other wireless telephones, calling cards, prepaid phone
cards, as well as collect call and toll-free number
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services. We believe that drivers currently use public phones located at
truckstops for a significant number of the calls they make and we may not
successfully attract drivers who predominantly use these public phones.
Moreover, we face particular constraints in our ability to keep our prices
competitive for our prepaid phone cards. Specifically, our contractual
arrangements with third parties relating to the prepaid phone cards that we
offer may make it difficult or impossible for us to reduce our prices for
prepaid long distance minutes to compete effectively on a profitable basis.
Finally, competitive pressures on companies like ours in the long distance
telecommunications sector, in particular, also seems likely to increase with the
entry of one or more Regional Bell Operating Companies into their own home long
distance markets, which appears imminent.
Competition in the markets for cable and other video services is becoming
increasingly more competitive. While our competition today largely consists of
alternatives located outside the truck cab and primarily in the truckstop (e.g.,
community television and game rooms inside the truckstop), we believe that a
small number of professional truck drivers have purchased direct broadcast
satellite dishes to receive television programming in their cabs. Cable, direct
broadcast satellite, and other video service providers to such users as
residential apartment buildings could seek to compete by offering cable
television programming to truckstops. We may not be able to compete successfully
against these providers, most of which will have access to greater resources and
provide more programming than our network. Some of our competitors, including
those arising from the consolidation of or strategic alliances between
telecommunications and/or cable television companies are well established
companies with significantly greater financial, marketing and programming
resources than we have. Our failure to compete successfully with these and
future competitors, including those arising from the emergence or increased
utilization of new and developing technologies, could have a material adverse
effect on our financial condition and results of operation.
COMPETITION FOR OUR CURRENT AND PLANNED INTERNET ACCESS SERVICES IS LIKELY
TO INCREASE IN THE FUTURE AND MAY PRECLUDE US FROM OFFERING THESE SERVICES
ON A PROFITABLE BASIS.
The market for providing Internet access is extremely competitive and highly
fragmented. There are no substantial barriers to entry, and we expect that
competition will continue to intensify. We may not be able to compete
successfully against current or future Internet service providers, many of whom
may have financial resources greater than ours. Increased competition could
cause us to increase the sales and marketing expenses related to our Internet
access services as well as cause our users to obtain Internet access from other
sources. We may not be able to offset the effects of these increased costs
through an increase in the number of subscribers to our Internet access service
and we may not have the resources to continue to compete successfully as an
Internet service provider.
We believe that new competitors, including large computer hardware and software,
media, and telecommunications companies, will continue to enter the Internet
access market. As consumer awareness of the Internet grows, existing competitors
are likely to further increase their emphasis on their Internet access services,
resulting in even greater competition. In addition, telecommunications companies
may be able to offer customers reduced communications costs in connection with
these services, reducing the overall cost of their Internet access solutions and
significantly increasing pricing pressures on our Internet access services. The
ability of our competitors to acquire other Internet service providers, to enter
into strategic alliances or joint ventures or to bundle other services and
products with Internet access could also put us at a significant competitive
disadvantage.
We intend to deploy public Internet kiosks in the truckstops of two major chains
following the completion of this offering. There is at least one company that
has installed Internet/e-mail kiosks in a number of truckstops.
COMPETITION FOR OUR CURRENT AND PLANNED INTERNET PRODUCTS AND SERVICES IS
LIKELY TO INCREASE IN THE FUTURE AND MAY PREVENT US FROM ESTABLISHING
CUSTOMER AND ADVERTISING BASES FROM WHICH TO GENERATE REVENUES AS PLANNED.
Competition for Internet products and services and electronic commerce is
intense. We expect that competition will continue to intensify. Barriers to
entry are minimal, and competitors can launch new websites at a relatively low
cost. Various websites currently exist that provide content and commerce
solutions to the trucking community. Several of these websites have market
acceptance, established customer and advertising bases and offer a greater
variety of content and applications than our portal may initially offer. Our
competitors may develop new Internet products or services that are superior to,
or have greater market acceptance than, our products and services.
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WE ARE DEPENDENT ON THIRD PARTIES FOR THE PUBLIC PHONE AND PREPAID PHONE
CARD OPERATIONS WE OFFER AND, IF THESE THIRD PARTIES DISCONTINUE DOING
BUSINESS WITH US, WE MAY NOT BE ABLE TO MAINTAIN THESE OPERATIONS IF WE ARE
UNABLE TO FIND ADEQUATE REPLACEMENTS.
We are currently dependent on third parties for the public phone and a portion
of the prepaid phone card operations that we offer truckstops. We are obligated
to provide public phone operations in the truckstops of one major chain. We have
contracted with a third party to provide these operations and do not intend to
provide this service directly. This third party's failure to provide public
phone operations would result in our breach of our contract with the truckstop
chain. Our system is currently unable to provide all of the components necessary
for prepaid phone card operations. Although we believe that other third parties
could provide these services for us or, over time, we could develop the systems
so that we could provide these services, any inability to rely on third party
systems without disruption prior to such development would eliminate our ability
to offer prepaid phone card operations to truckstops.
WE ARE DEPENDENT ON TELECOMMUNICATIONS CARRIERS AND OTHER SUPPLIERS AND, IF
THEY DISCONTINUE DOING BUSINESS WITH US, OUR ABILITY TO PROVIDE CURRENT AND
PLANNED SERVICES MAY SUFFER IF WE ARE UNABLE TO FIND ADEQUATE REPLACEMENTS.
We rely on local and long distance telecommunications carriers to provide
telecommunications services via local lines and T-1 lines. We may experience
disruptions or capacity constraints in our local and long distance
telecommunications services. If disruptions or capacity constraints occur, we
may have no means of replacing these services on a timely basis, at a cost
acceptable to us, or at all. In addition, local phone service is sometimes
available only from the local monopoly telephone company in the markets we
serve. We believe that the federal Telecommunications Act of 1996 generally will
lead to increased competition in the provision of local telephone service, but
we cannot predict when or to what extent this will occur or the effect of
increased competition on pricing or supply.
The long distance telecommunications carrier from which we purchase long
distance minutes for resale also sells or leases products and services to our
competitors and may be, or in the future may become, a direct competitor itself.
Our suppliers and our telecommunications carrier may enter into exclusive
arrangements with our competitors or stop selling or leasing their products or
services to us at commercially reasonable prices, or at all.
OUR SUCCESS DEPENDS ON THE TIMELY AND COST-EFFECTIVE INSTALLATION OF OUR
NETWORK FOR WHICH WE RELY ON THIRD PARTIES.
Our future success will depend in large part on the timely and cost-effective
installation of our network at additional truckstops for which we rely on third
parties. To date, the installation of our network at truckstops by these
contractors has been completed substantially on our schedule and within our
budget, and, generally, the installation services performed by these contractors
have been satisfactory to us. Although we believe that there are sufficient
alternative sources for the installation of our network, we may not be able to
obtain these services on a timely basis or at a cost acceptable to us. If we
were unable to continue our buildout as planned, our monthly subscriptions and
our revenues may not increase.
WE DEPEND ON THIRD PARTIES TO SUPPLY US WITH PROGRAMMING AND EQUIPMENT AND,
IF THESE THIRD PARTIES DISCONTINUE DOING BUSINESS WITH US, OUR ABILITY TO
PROVIDE COMPETITIVE TELECOMMUNICATIONS AND CABLE TELEVISION SERVICES MAY
SUFFER IF WE ARE UNABLE TO FIND ADEQUATE REPLACEMENTS.
We purchase our satellite equipment, headend equipment, telephone switching
equipment, computer hardware and cable programming from outside suppliers and do
not have purchase agreements with any supplier other than our cable programming
supplier, Echostar Communications Corporation. We presently purchase our
satellite equipment and computer hardware from a sole supplier and we believe
that limited alternative sources for these items exist. If we were required to
purchase alternative telephone switching equipment from another source, it would
require the reprogramming of some of our software or if we were required to
purchase any alternative equipment from another source, it could require that we
modify and redesign our network in certain respects which, in each case, could
result in service delays and expense to us. In addition, we purchase the cable
programming offered on our network from Echostar. Although we believe that
limited alternative sources for cable programming exist, utilizing an
alternative source could require retrofitting certain equipment at each
truckstop site and could
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result in an interruption in our ability to offer cable television services
through our network for a limited period of time. If we are unable to obtain any
of the foregoing equipment, particularly telephone switching equipment, or cable
programming, our ability to buildout and operate our network and expand our
business in a timely fashion could suffer.
We depend on a few third-party suppliers of hardware components. Currently, we
acquire routers used to provide our networking services from only one source.
From time to time, we have experienced delayed delivery from some suppliers. If
we are unable to develop alternative sources of supply, if required, we could
experience delays and increased costs in expanding our network infrastructure.
OUR CONTRACTS THAT REQUIRE US TO PAY A SPECIFIED MINIMUM DOLLAR AMOUNT
REGARDLESS OF OUR NEEDS MAKE IT DIFFICULT FOR US TO REDUCE OUR COSTS IN A
TIMELY FASHION.
We have contracts with AT&T under which we obtain T-1 lines and related
communications services for our network and purchase long distance telephone
minutes that we resell. These contracts require us to pay specified minimum
dollar amounts regardless of the number of T-1 lines or long distance telephone
time we need. In return for our commitment to minimum payments, we have obtained
certain discounts applied to our payments for these services. If we do not
obtain the available discounts with regard to our required payments, our costs
could be higher than we anticipate.
IF THE TRUCKING INDUSTRY DOES NOT GROW OR EXPERIENCES A DOWNTURN, DEMAND
FOR OUR TELECOMMUNICATIONS, CABLE TELEVISION AND INTERNET ACCESS SERVICES
MAY SUFFER BECAUSE WE OFFER OUR SERVICES EXCLUSIVELY TO THE TRUCKING
COMMUNITY.
Our business depends on the trucking industry which is dependent on economic
factors, including the level of domestic economic activity and interest rates,
as well as operating factors such as fuel prices and fuel taxes over which we
have 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.
SECURITY BREACHES OF OUR NETWORK AND INAPPROPRIATE USE BY INTERNET USERS
COULD DISRUPT OUR SERVICE AND PREVENT US FROM INCREASING OUR SUBSCRIBER
BASE AND THE TRANSACTIONS OUR SUBSCRIBERS COMPLETE ON OUR NETWORK.
The future success of our business will depend on the security of our network
and, in part, on the security of the network infrastructures of our third-party
providers, over which we have no control. Despite the implementation of security
measures, our infrastructure is vulnerable to computer viruses or similar
disruptive problems. Computer viruses or problems caused by third parties,
including the sending of excessive volumes of unsolicited bulk e-mail or "spam,"
could lead to interruptions, delays, or cessation in service to our subscribers.
Third parties could also potentially jeopardize the security of confidential
information stored in our computer systems or our subscribers' computer systems
by their inappropriate use of the Internet, which could cause losses to us or
our subscribers or deter persons from subscribing to our services. Inappropriate
use of the Internet includes attempting to gain unauthorized access to
information or systems, commonly known as "cracking" or "hacking." Although we
intend to continue to implement security measures to prevent this, "hackers"
have circumvented security measures adopted by others in the past, and may be
able to circumvent our security measures in the future.
To alleviate problems caused by computer viruses or other inappropriate uses or
security breaches, we may have to interrupt, delay, or cease service to our
subscribers, which could result in cancellations of subscriptions, failures to
renew subscriptions or reduced sales of subscriptions. In addition, we expect
that our subscribers will increasingly use the Internet for commercial
transactions in the future. Any network malfunction or security breach could
cause these transactions to be delayed, not completed at all, or completed with
compromised security. Subscribers or others may assert claims of liability
against us as a result of any failure by us to prevent these network
malfunctions and security breaches. Until more comprehensive security
technologies are developed, the security and privacy concerns of existing and
potential subscribers may inhibit the growth of the Internet service industry in
general and our subscriber base and revenues in particular.
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WE MAY INCUR SUBSTANTIAL EXPENSES OR DISCONTINUE CERTAIN SERVICES IF WE ARE
FOUND LIABLE FOR INFORMATION DISSEMINATED ON OUR NETWORK OR IF WE MUST
IMPLEMENT MEASURES TO REDUCE OUR EXPOSURE TO THESE LIABILITIES.
Since the law relating to liability of Internet service providers for
information carried on or disseminated through their networks is not settled,
even with the defenses available in Section 223 of the Communications Decency
Act of 1996 and the recent enactment of the Digital Millennium Copyright Acts,
we may be subject to such liability. A number of lawsuits have sought to impose
liability for defamatory speech, indecent materials and infringement of
copyrighted materials. The United States Supreme Court has let stand a lower
court ruling that an Internet service provider was protected from liability for
material posted on its system by a provision of the Communications Decency Act.
However, the findings in that case may not apply in other circumstances. Other
courts have held that online service providers and Internet service providers
may be subject to damages for copying or distributing copyrighted materials.
Provisions of the Communications Decency Act that imposed criminal penalties for
using an interactive computer service for transmitting obscene or indecent
communications have been found unconstitutional by the United States Supreme
Court. However, the Child Online Protection Act requires limits on access to
pornography and other material deemed "harmful to minors." This legislation
imposes criminal penalties and civil liability. Numerous states have adopted or
are adopting similar types of legislation. We may be subject to claims relating
to content that is published on or downloaded from our site. We also could be
subject to liability for content that is accessible from our website through
links to other websites or that is posted by users in chat rooms or bulletin
boards. Potential liability imposed on Internet service providers like us for
material carried on or disseminated through our network could require us to
implement measures to reduce our exposure to that liability. These measures may
require us to spend substantial resources or discontinue certain service
offerings. We do not have errors and omissions insurance that would cover claims
relating to these risks. The imposition of liability could expose us to
significant costs and cause our business to suffer.
WE MUST ADAPT TO TECHNOLOGY TRENDS AND EVOLVING CUSTOMER NEEDS OR WE WILL
NOT BE COMPETITIVE.
The services that we offer through our network are characterized by evolving
technology, changes in customer needs, rapidly growing competition and frequent
new product and service introductions. Our future success will depend, in part,
on our ability to:
- effectively use and offer leading technologies;
- continue to develop our technical expertise;
- enhance our current networking services;
- develop new products and services that meet changing customer needs;
- advertise and market our services; and
- influence and respond to emerging industry standards and other
technological changes.
We must accomplish these tasks in a timely and cost-effective manner. New
technologies, such as wireless data transmissions, or industry standards may
replace or provide lower cost alternatives to our existing products and services
or could render our existing products and services noncompetitive and adversely
affect their marketability. We also believe that our ability to compete
successfully depends on the continued compatibility and interoperability of our
services with products and architectures offered by other vendors. Although we
intend to support emerging standards in the market for the Internet and other
network connectivity, new industry standards could emerge, and we may not be
able to conform to these new standards in a timely fashion and maintain a
competitive position in the market. Our pursuit of necessary technological
advances and maintenance of technological compatibility may require substantial
time and expense.
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BECAUSE WE DO NOT HAVE REMOTE BACK-UP FACILITIES, THE FAILURE OF OUR
COMPUTER AND COMMUNICATIONS HARDWARE SYSTEMS COULD RESULT IN CUSTOMER
DISSATISFACTION AND REDUCED USE OF OUR NETWORK.
We depend on the efficient and uninterrupted operation of our computer and
communications hardware systems in Coral Springs, Florida. However, we do not
have remote back-up facilities for our computer systems. Interruptions could
result from natural disasters, technical failures, including power loss, the
failure of telecommunications equipment and systems and similar events. Any
interruptions in the delivery of our services could result in customer
dissatisfaction and which in turn could adversely affect usage of our network
and our revenues.
FAILURE OF COMPUTER SYSTEMS AND SOFTWARE PRODUCTS TO BE YEAR 2000 COMPLIANT
COULD RESULT IN CUSTOMER DISSATISFACTION, REDUCED USE OF OUR NETWORK AND
SIGNIFICANT EXPENSES TO REMEDY ANY PROBLEMS.
Many currently installed computer systems and software products only accept two
digits to identify the year in any date. Thus, the Year 2000 will appear as
"00," which the system might consider to be the Year 1900 rather than the Year
2000. This could result in system failures, delays or miscalculations causing
disruptions to our operations. The failure of systems maintained by third
parties to be Year 2000 compliant could cause us to incur significant expense to
remedy any problems, reduce our revenues from customers or otherwise seriously
damage our business. A significant Year 2000-related disruption of our network
or equipment that vendors provide to us could also cause our subscribers or
others to consider seeking alternate providers or cause an unmanageable burden
on our customer service team. Our failure to correct a material Year 2000
problem could result in an interruption in, or a failure of, some of our normal
business activities or operations.
OUR FAILURE TO COMPLY WITH THE BURDENSOME GOVERNMENT REGULATIONS OF THE
TELECOMMUNICATIONS INDUSTRY OR CHANGES IN THESE REGULATIONS COULD RESULT IN
OUR INABILITY TO PROVIDE CERTAIN SERVICES AND COULD DECREASE OUR REVENUES
AND INCREASE OUR COSTS.
Regulation of the telecommunications industry is changing rapidly. As a provider
of telecommunications services nationwide, we are subject to varying degrees of
regulation in each of the jurisdictions in which we provide our services. Laws
and regulations, and the interpretation of such laws and regulations, differ
significantly among the jurisdictions in which we operate. These laws and
regulations are, moreover, subject to changes as a result of ongoing regulatory
implementation proceedings, subject to review by courts and otherwise. This is
particularly true in regard to Internet services, which, while not heavily
regulated at this time, are the subject of intense debate over the degree that
they should be regulated in the future, if at all. There can be no assurance
that future regulatory, judicial and legislative changes will not have a
material adverse effect on the company, that regulators and/or third parties
will not raise material issues with regard to our compliance or non-compliance
with applicable regulations, and/or that we will be in compliance with all such
laws and regulations at any one point in time.
Regulatory considerations that affect and may limit our business include:
- certification, tariffing and other market entry requirements;
- requirements to obtain prior approval from or notify the FCC and state
public utility commissions of certain corporate actions including
transfers of control of certificated carriers, transfers of carrier
assets including customer bases, carrier stock offerings, the
incurrence by carriers of significant indebtedness and name changes;
and
- universal service and other ongoing filing and, in some cases,
contribution requirements.
Delay or failure in complying with applicable regulations could result in
sanctions, including fines or other penalties, and our authorizations being
conditioned, modified, canceled, terminated or revoked, which would limit or
eliminate our ability to provide telecommunications services. Conditions,
modifications, cancellations, termination or revocation could result in a
significant loss of revenues and may cause our business to suffer.
We may be subject to sanctions, including fines, penalties, and/or revocation of
our existing authorizations for our provision of telecommunications services in
certain jurisdictions prior to our having obtained necessary regulatory
authorization. We may also be subject to fines or other sanctions for failure to
seek prior approval, where
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necessary, for certain corporate actions, and/or failure to notify the FCC
and/or state public utility commissions in a timely enough fashion.
IF WE BECOME SUBJECT TO GOVERNMENTAL REGULATION OF CABLE TELEVISION
COMPANIES, WE COULD INCUR SIGNIFICANT COSTS AND THE CONTINUED BUILDOUT OF
OUR NETWORK COULD BE DELAYED.
Cable television companies are subject to extensive governmental regulation.
Because our cable system equipment is installed exclusively on private property,
we do not believe that we are subject to such regulations. Were we to be
required to comply with such regulations, however, our business may suffer due
to greatly increased expense, potential delay or prevention of the continued
buildout of our network and management distraction.
OUR INTERNET ACCESS SERVICE MAY BECOME REGULATED BY THE FEDERAL
COMMUNICATIONS COMMISSION OR OTHER GOVERNMENT AGENCIES WHICH COULD DECREASE
OUR REVENUES AND INCREASE OUR COSTS.
Internet service providers are not currently regulated like telecommunications
service providers by the Federal Communications Commission or any other United
States governmental agency. Nevertheless, Internet-related regulatory policies
are continuing to develop, primarily as determined by the industry itself, and
it is possible that we could be exposed to direct governmental regulation in the
future. For example, in its April 10, 1998 Report to Congress, while reaffirming
that Internet service providers should be classified as "information service
providers" rather than regulated "telecommunications providers" under the terms
of the Telecommunications Act of 1996, the FCC stated its intention to consider
whether to regulate voice and fax telephony services provided over the Internet
as "telecommunications" even though Internet access itself would not be
regulated. We cannot predict whether in the future the FCC will modify its
current policies against regulation of Internet service providers. Moreover, a
number of state commissions have initiated proceedings relating to the
regulation of, and adopted laws impacting, certain Internet-related services.
Others could do the same in the future.
Due to the increasing popularity and use of the Internet, it is possible that
additional laws and regulations may be adopted with respect to the Internet,
covering issues such as content, privacy, access to some types of content by
minors, pricing, bulk e-mail or "spam," encryption standards, consumer
protection, electronic commerce, taxation, copyright infringement, and other
intellectual property issues. Internet service providers are, of course, subject
to certain regulations applicable to businesses generally. We cannot predict the
impact, if any, that any future regulatory changes or developments may have on
our business, financial condition, and results of operations. Changes in the
regulatory environment relating to the Internet services industry, including
regulatory changes that directly or indirectly affect telecommunications costs
or increase the likelihood or scope of competition from regional telephone
companies or others, could increase our costs and make it difficult for us to
compete effectively.
LIMITATIONS IMPOSED BY RESTRICTIVE COVENANTS COULD LIMIT HOW WE CONDUCT
BUSINESS AND OUR ABILITY TO GENERATE REVENUES AND PROFITS.
The indenture governing our 13% notes contains covenants that restrict our
ability to, among other things:
- incur additional debt;
- pay dividends and make other distributions;
- prepay subordinated indebtedness;
- repurchase capital stock;
- make investments and other restricted payments;
- engage in transactions with affiliates;
- engage in business other than the provision of telecommunications,
television, Internet and other related services to the trucking
industry;
- enter into sale and leaseback transactions;
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<PAGE> 21
- create liens;
- sell assets; and
- engage in mergers and consolidations and certain other events which
could cause an event of default.
As a result of these restrictions, we are limited in how we conduct our business
and we may be unable to raise additional debt or equity financing to operate
during general economic or business downturns, to compete effectively or to take
advantage of new business opportunities. This may affect our ability to generate
revenues and make profits.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The following discusses our exposure to market risk related to changes in
interest rates, equity prices and foreign currency exchange rates. This
discussion contains forward-looking statements that are subject to risk and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth entitled "Risk Factors." We do not use any
derivative financial instruments for hedging, speculative or trading purposes.
As of September 30, 1999, we had short-term investments and restricted
investments of approximately $23.4 million and $10.8 million, respectively.
Substantially all of the short-term investments consisted of highly liquid
investments with remaining maturities at the date of purchase of less than 90
days. The restricted investments consisted of US Treasury securities with
remaining maturities of less than one year. These investments are subject to
interest rate risk and will decrease in value if market interest rates
increases. A hypothetical increase or decrease in market interest rates by 10
percent from the September 30, 1999 rates would cause the fair value of these
investments to decline by an insignificant amount. We have the ability to hold
these investments until maturity and, therefore, we do not expect our operating
results, cash flows or the value of these investments to be affected to any
significant degree by the effect of a sudden change in market interest rates.
Declines in interest rates over time will, however, reduce our interest income.
We do not own any equity investments. Therefore, we do not currently have any
direct equity price risk.
At September 30, 1999, we had fixed interest rate debt of $75.0 million. A
hypothetical increase or decrease in market interest rates by 10% from the
September 30, 1999 rates would not have a material impact on the fair market
value of this debt. We do not hedge any interest rate exposure.
All of our revenues are realized currently in U.S. dollars. In addition, we do
not maintain any asset or cash account balances in currencies other than the
United States dollar. Therefore, we do not believe that we currently have any
significant direct foreign currency exchange rate risk.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Under our contracts with truckstops relating to the deployment of our network,
we have agreed to indemnify the truckstops against any losses in connection with
our network. In addition, under most of these contracts, we, as well as the
truckstops, have agreed to maintain liability insurance coverage of $1.0 million
for each truckstop at which our network is deployed and to name each other as an
additional insured under the policy. Our insurance does not cover punitive
damages.
In March 1999, Cathy Sledge filed a lawsuit against us and a truckstop chain at
which our network is deployed in the Circuit Court of Jefferson County, Alabama
seeking damages up to, but not exceeding, $72,500 resulting from an injury
suffered by Ms. Sledge in connection with the installation of our network. Ms.
Sledge's recoverable damages are not limited to $72,500. We inadvertently failed
to name the truckstop chain defendant as an additional insured and our insurance
carrier has, as a result, denied coverage of the truckstop chain as an
additional insured under our policy with respect to this lawsuit. We are being
defended by the insurance carrier of the contractor
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<PAGE> 22
installing our network as an additional insured under the contractor's policy
and we have assumed the defense of the truckstop chain.
In September 1999, David and Lizette Morgan filed a lawsuit against us and a
truckstop chain at which our network is deployed in the Court of Common Pleas,
Cuyahoga County, Cleveland, Ohio. The lawsuit seeks actual damages for each
plaintiff in excess of $25,000 resulting from an injury suffered by Mr. Morgan
when he tripped on one of the access points to our network in a truckstop
parking lot. Although our insurance carrier is defending us under the terms of
our policy, it has refused to recognize the truckstop as an additional insured
under our policy. We are providing a defense to the truckstop chain. Under our
contract with the truckstop chain, generally, we are obligated to indemnify the
chain for any losses it suffers related to this lawsuit.
Because our insurance carrier in the Morgan lawsuit and another lawsuit in which
we are a defendant denied coverage of the defendant truckstop chains as
additional insureds, we have filed a lawsuit against this insurance carrier. The
defendant truckstop chains have joined us in this lawsuit.
We anticipate that we will be, from time to time, subject to claims and suits
for personal injury arising in the ordinary course of our business. We
anticipate that these future claims and suits, to the extent for actual damages,
will generally be covered by insurance.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In August 1999, we issued an aggregate of 2,400 shares of common stock to a
consultant upon exercise of options for an aggregate consideration of $24.00.
In August 1999, we issued warrants to purchase an aggregate of 4,000 shares of
common stock having an exercise price of $10.50 per share in connection with our
entering into contractual arrangements with the warrantholder.
In September 1999, we issued an aggregate of 3,000,000 shares of Series D
preferred stock to three investors for an aggregate consideration of
$31,500,000. The Series D preferred stock is convertible into common stock on a
one-for-one basis subject to adjustment in the event of stock splits, stock
dividends or similar transactions, as well as upon certain actual or deemed
issuances of additional shares of common stock, and automatically converts into
common stock upon the occurrence of an initial public offering of common stock
and certain other liquidity events.
In September 1999, we issued to Volpe Brown Whelan & Company, LLC, a warrant to
purchase 60,000 shares of common stock having an exercise price of $10.50 per
share as partial consideration for services provided by Volpe Brown Whelan &
Company, LLC, as placement agent for the Series D preferred stock described
above.
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, 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 securities. We
believe that all recipients had adequate access, through employment or other
relationships, to information about us to make an informed investment decision.
In addition, during the three months ended September 30, 1999, we issued options
to purchase an aggregate of 214,497 shares of common stock to employees and
consultants having exercise prices ranging from $.01 to $8.50 per share under
PNV's Stock Option Plan in reliance on the exemption from registration under the
Securities Act provided by Rule 701 and Section 4(2) of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
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<PAGE> 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Our stockholders approved by written consent, effective July 14, 1999, an
amendment to our certificate of incorporation, as amended, to change our name.
This amendment was effected on July 29, 1999. The number of shares voting in
favor of the amendment were 2,577,395 shares of common stock, 287,792 shares of
Series A preferred stock, 1,279,286 shares of Series B preferred stock, and
2,220,918 shares of Series C preferred stock. Votes were not received with
respect to 1,751,219 shares of common stock, 100,273 shares of Series A
preferred stock, 93,084 shares of Series B preferred stock, and 130,625 shares
of Series C preferred stock.
Our stockholders approved by written consent, effective August 27, 1999, (1) the
waiver of their registration rights related to an initial public offering of our
common stock; (2) the offer and sale of our Series D preferred stock; (3) an
amendment to our certificate of incorporation, as amended, to increase our
authorized capital; (4) an amendment to our certificates of designations related
to our Series A, Series B and Series C preferred stock; (5) the filing of a
certificate of designations related to our Series D preferred stock; (6) the
amendment of our stock option plan to increase the number of shares of common
stock available for issuance under the plan; and (7) the amendment of our bylaws
to increase the number of members of our board of directors. The certificate of
designations related to our Series D preferred stock and the amendments of each
of the certificate of incorporation and certificates of designations related to
our Series A, Series B and Series C preferred stock, were effected September 15,
1999. The number of shares voting in favor of the resolutions were 4,328,614
shares of common stock, 388,065 shares of Series A preferred stock, 1,372,370
shares of Series B preferred stock and 2,351,543 shares of Series C preferred
stock. Votes for all shares of stock were received.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
3.1* Certificate of Amendment to Certificate of
Incorporation, dated July 29, 1999.
3.2* Certificate of Amendment to Certificate of
Incorporation, dated September 15, 1999.
3.3* Certificate of Amendment to Certificate of
Incorporation, dated November 3, 1999.
3.4* Certificate of Amendment Relating to the Series A
Preferred Stock, dated November 3, 1999.
3.5* Certificate of Amendment to Certificate of
Designations, Preferences and Rights of Series B 7%
Cumulative Convertible Preferred Stock, dated
November 3, 1999.
3.6* Certificate of Amendment to Certificate of
Designations, Preferences and Rights of Series C 7%
Cumulative Convertible Preferred Stock, dated
November 3, 1999.
3.7* Certificate of Amendment to Certificate of
Designations, Preferences and Rights of Series D 7%
Cumulative Convertible Preferred Stock, dated
November 3, 1999.
10.1*+ Pre-Paid Phone Card Agreement, dated as of July 16,
1999, by and between the registrant and
Transcommunications Incorporated.
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<PAGE> 24
10.2* Fleet Services Agreement, dated as of August 19,
1999, by and between the registrant and US Xpress,
Inc.
10.3 Warrant, dated as of August 30, 1999, granted to US
Xpress, Inc.
10.4* Series D 7% Cumulative Convertible Preferred Stock
Purchase Agreement, dated as of August 27, 1999, by
and among the registrant and the Investors named
therein.
10.5* Amendment to Registration Rights Agreement, dated as
of September 16, 1999, by and among the registrant
and the Investors named therein.
10.6* Warrant, dated as of September 16, 1999, granted to
Volpe Brown Whelan & Company, LLC.
27 Financial Data Schedule (For SEC use only).
* Incorporated by reference to the registrant's Registration Statement on
Form S-1 (Registration No. 333-87343) filed with the Securities and
Exchange Commission on September 17, 1999, as amended.
+ Portions of this Exhibit are omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for
confidential treatment.
(b) Reports on Form 8-K
None.
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<PAGE> 25
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PNV INC.
Date: November 15, 1999 /s/ R. Michael Brewer
------------------------------------
R. Michael Brewer, Vice President-Finance
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<PAGE> 26
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
3.1* Certificate of Amendment to Certificate of
Incorporation, dated July 29, 1999.
3.2* Certificate of Amendment to Certificate of
Incorporation, dated September 15, 1999.
3.3* Certificate of Amendment to Certificate of
Incorporation, dated November 3, 1999.
3.4* Certificate of Amendment Relating to the Series A
Preferred Stock, dated November 3, 1999.
3.5* Certificate of Amendment to Certificate of
Designations, Preferences and Rights of Series B 7%
Cumulative Convertible Preferred Stock, dated
November 3, 1999.
3.6* Certificate of Amendment to Certificate of
Designations, Preferences and Rights of Series C 7%
Cumulative Convertible Preferred Stock, dated
November 3, 1999.
3.7* Certificate of Amendment to Certificate of
Designations, Preferences and Rights of Series D 7%
Cumulative Convertible Preferred Stock, dated
November 3, 1999.
10.1*+ Pre-Paid Phone Card Agreement, dated as of July 16,
1999, by and between the registrant and
Transcommunications Incorporated.
10.2* Fleet Services Agreement, dated as of August 19,
1999, by and between the registrant and US Xpress,
Inc.
10.3 Warrant, dated as of August 30, 1999, granted to US
Xpress, Inc.
10.4* Series D 7% Cumulative Convertible Preferred Stock
Purchase Agreement, dated as of August 27, 1999, by
and among the registrant and the Investors named
therein.
10.5* Amendment to Registration Rights Agreement, dated as
of September 16, 1999, by and among the registrant
and the Investors named therein.
10.6* Warrant, dated as of September 16, 1999, granted to
Volpe Brown Whelan & Company, LLC.
27 Financial Data Schedule (For SEC use only).
* Incorporated by reference to the registrant's Registration Statement on
Form S-1 (Registration No. 333-87343) filed with the Securities and
Exchange Commission on September 17, 1999, as amended.
+ Portions of this Exhibit are omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for
confidential treatment.
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<PAGE> 1
EXHIBIT 10.3
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. IT MAY
NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER
SAID ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO THE COMPANY
OR HOLDER'S COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION OR UNLESS PURSUANT
TO RULE 144.
PNV.NET, INC.
WARRANT
THIS CERTIFIES that, subject to the terms and conditions of this
Warrant, US Xpress, Inc. (the "Warrantholder"), for value received, is entitled
to subscribe for and purchase up to Four Thousand (4,000) fully-paid and
non-assessable shares (the "Shares") of the Common Stock (the "Stock"), of
PNV.net, Inc., a Delaware corporation (the "Company"), at the exercise price of
Ten Dollars and Fifty cents ($10.50) per share (the "Initial Exercise Price"),
which number of Shares and Initial Exercise Price will be adjusted pursuant to
the provisions of Section 7 hereof (the "Exercise Price").
1. Term. Except as otherwise provided for herein, the term of this
Warrant and the right to purchase shares as granted herein will be exercisable,
at any time and from time to time, during the period commencing on August 30,
1999 (the "Warrant Grant Date") and terminating at 5:00 p.m. on the fifth
anniversary of the Warrant Grant Date (the "Termination Date"), unless earlier
terminated pursuant to Section 2(c) of this Warrant.
2. Exercise of Purchase Rights.
(a) Exercise. The purchase rights represented by this Warrant
are exercisable by the Warrantholder, in whole or in part, at any time, or from
time to time during the period set forth in Section 1 above, by tendering the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit A (the "Notice of Exercise"), duly completed and executed. Upon
receipt of the Notice of Exercise and the payment of the Exercise Price in
accordance with the terms set forth below, the Company will issue to the
Warrantholder a certificate for the number of shares of Stock of the Company
purchased and will execute the Notice of Exercise indicating the number of
shares of Stock which remain subject to future purchases, if any. The person or
persons in whose name(s) any certificate(s) representing shares of Stock will be
issued upon exercise of this Warrant will be deemed to have become the holder(s)
of, the Shares represented thereby (and such shares will be deemed to have been
issued) immediately prior to the close of business on the date or dates upon
which this Warrant is exercised. In the event of any exercise of the rights
represented by this Warrant, certificates for the Shares so purchased will be
delivered to the Warrantholder or its designee as soon as practical and in any
event within thirty (30) days after receipt of such notice
<PAGE> 2
and, unless this Warrant has been fully exercised or expired, a new Warrant
representing the remaining portion of the Shares, if any, with respect to which
this Warrant will not then have been exercised will also be issued to the
Warrantholder as soon as possible and in any event within such thirty (30) day
period.
(b) Method of Exercise. The purchase rights hereby represented
may be exercised, at the election of the Warrantholder, by the tender of the
Notice of Election and the surrender of this Warrant at the principal office of
the Company and by the payment to the Company, by check, cancellation of
indebtedness or other form of payment acceptable to the Company, of an amount
equal to the then applicable Exercise Price per share multiplied by the number
of Shares then being purchased.
(c) Termination in the Event of Initial Public Offering.
Notwithstanding any other term or provision of this Warrant, this Warrant will
terminate immediately upon the effectiveness of a registration statement under
the Securities Act of 1933, as amended, and sale of the Company's Stock in a
firm commitment underwritten public offering. The Company will give written
notice thereof to the Warrantholder stating the date on which such event is to
take place (which will be at least ten (10) days after the giving of such
notice). The Warrantholder may condition exercise of this Warrant upon the
Securities and Exchange Commission declaring the registration statement
effective.
3. Reservation of Shares.
(a) Authorization and Reservation of Shares. The Company will
at all times have authorized and reserved a sufficient number of Shares to
provide for the exercise of the rights to purchase Stock as provided herein.
(b) Registration or Listing. If any shares of Stock required
to be reserved for purposes of exercise of this Warrant require registration
with or approval of any governmental authority under any Federal or State law
(other than any registration under the Securities Act of 1933, as then in
effect, or any similar Federal statute then enforced, or any state securities
law, required by reason of any transfer), or listing on any domestic securities
exchange, or if at the time of exercise the class of Stock into which this
Warrant is then exercisable is listed on any domestic securities exchange, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered, listed or approved for
listing on such domestic securities exchange, as the case may be.
4. No Fractional Shares. No fractional shares or scrip representing
fractional shares will be issued upon the exercise of the Warrantholder's rights
to purchase Stock, but in lieu of such fractional shares the Company will make a
cash payment therefor upon the basis of the fair market value of a share of that
stock at the time of Exercise.
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<PAGE> 3
5. No Rights as Shareholder. This Warrant does not entitle the
Warrantholder to any voting rights or other rights as a shareholder of the
Company prior to the exercise of the Warrantholder's rights to purchase Stock as
provided for herein.
6. Warrantholder Registry. The Company will maintain a registry showing
the name and address of the registered holder of this Warrant.
7. Adjustment Rights. The Exercise Price and the number of Shares of
Stock purchasable hereunder are subject to adjustment from time to time, as
follows:
(a) Reclassification or Merger. In case of any
reclassification, change or conversion of securities of the class issuable upon
exercise of this Warrant into the same or a different number of securities of
any other class or classes, or in case of any merger of the Company with or into
another corporation (other than a merger with another corporation in which the
Company is the acquiring and the surviving corporation and which does not result
in any reclassification or change of outstanding securities issuable upon
exercise of this Warrant), or in case of any sale of all or substantially all of
the assets of the Company, the Company, or such successor or purchasing
corporation, as the case may be, will duly execute and deliver to the holder of
this Warrant, so that the holder of this Warrant will have the right to receive,
at a total purchase price not to exceed that payable upon the exercise of the
unexercised portion of this Warrant, and in lieu of the Shares of Stock
theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change or merger by a holder of the number of Shares of Stock
then purchasable under this Warrant. Such new Warrant will provide for
adjustment that will be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 7. The provisions of this subparagraph
(a) will similarly apply to successive reclassifications, changes, mergers and
transfers.
(b) Subdivision or Combination of Shares. If the Company at
any time will subdivide its Stock, the Exercise Price will be proportionately
decreased and the number of Shares issuable pursuant to this Warrant will be
proportionately increased. If the Company at any time will combine its Stock,
the Exercise Price will be proportionately increased and the number of Shares
issuable pursuant to this Warrant will be proportionately decreased.
(c) Stock Dividends. If the Company at any time will pay a
dividend payable in, or make any other distribution (except any distribution
specifically provided for in the foregoing subsections (a) or (b)) of Stock,
then the Exercise Price will be adjusted, from and after the date of
determination of stockholders entitled to receive such dividend or distribution
of stockholders to that price determined by multiplying the Exercise Price in
effect immediately prior to such date of determination by a fraction (i) the
numerator of which will be the total number of shares of Stock outstanding
immediately prior to such dividend or distribution, and (ii) the denominator of
which will be the total number of shares of Stock outstanding immediately after
such dividend or distribution. The Warrantholder will thereafter be entitled to
purchase, at the Exercise Price resulting from such adjustment, the number of
Shares of Stock (calculated to the nearest whole share) obtained by multiplying
(i) the Exercise Price in effect immediately prior to such adjustment
3
<PAGE> 4
by (ii) the number of Shares of Stock issuable upon the exercise hereof
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment.
(d) Reserved Shares Adjustment. The number of shares reserved
for issuance pursuant to this Warrant will automatically be adjusted without
further action by the Company in the event of any adjustment of the number of
Shares issuable pursuant to this Warrant.
8. Compliance with Securities Act; Disposition of Warrant or Shares of
Stock.
(a) Compliance with Securities Act. The Warrantholder, by
acceptance hereof, agrees that this Warrant, and the Shares of Stock to be
issued upon exercise hereof, are being acquired for investment and that such
Warrantholder will not offer, sell or otherwise dispose of this Warrant, or any
Shares of Stock to be issued upon exercise hereof except under circumstances
which will not result in a violation of the Securities Act of 1933, as amended
(the "Securities Act"), or any applicable state securities laws. At the time of
exercise, the Warrantholder will execute an Investment Letter in the form
attached hereto as Exhibit B stating (among other things) that the shares issued
pursuant to the Warrant have not been registered under federal or state
securities laws, and that such shares may not be transferred unless the shares
are so registered or unless the Company has received an opinion of the Company's
counsel or such holder's counsel reasonably acceptable to the Company that such
transfers are exempt from registration.
(b) This Warrant and all shares of Stock issued upon exercise
of this Warrant (unless registered under the Securities Act and any applicable
state securities laws) will be stamped or imprinted with a legend in
substantially the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO UNDER SAID ACT OR UNLESS THE COMPANY
HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION OR UNLESS PURSUANT
TO RULE 144."
(c) Representations and Warranties of Warrantholder. In
addition, in connection with the issuance of this Warrant, the Warrantholder
specifically represents to the Company by acceptance of this Warrant as follows:
(i) The Warrantholder is aware of the Company's
business affairs and financial condition, and has acquired information about the
Company sufficient to reach an informed and knowledgeable decision to acquire
this Warrant. The Warrantholder is acquiring this Warrant for its own account
for investment purposes only and not with a view to, or for the resale in
connection with, any "distribution" thereof in violation of the Securities Act.
4
<PAGE> 5
(ii) The Warrantholder understands that this Warrant
has not been registered under the Securities Act in reliance upon a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of the Warrantholder's investment intent as expressed herein.
(iii) The Warrantholder further understands that this
Warrant and any shares of Stock to be issued upon exercise hereof must be held
indefinitely unless subsequently registered under the Securities Act and
qualified under any applicable state securities laws, or unless exemptions from
registration and qualification are otherwise available.
(d) Disposition of Warrant or Shares. Subject to the terms and
conditions of Section 8(e), with respect to any offer, sale or other disposition
of this Warrant or any Shares of Stock acquired pursuant to the exercise of this
Warrant prior to registration of such Warrant or Shares, the holder agrees to
give written notice to the Company prior thereto, describing briefly the manner
thereof, together with an opinion of the Company's counsel or such holder's
counsel reasonably satisfactory to the Company, or other evidence, if reasonably
requested by the Company, to the effect that such offer, sale or other
disposition may be effected without registration or qualification (under the
Securities Act as then in effect or any federal or state securities law then in
effect) of this Warrant or such shares of Stock and indicating whether or not
under the Securities Act certificates for this Warrant or such shares of Stock
to be sold or otherwise disposed of require any restrictive legend as to
applicable restrictions on transferability in order to ensure compliance with
such law. Promptly upon receiving such written notice and reasonably
satisfactory opinion or other evidence, if so requested, the Company, as
promptly as practicable but no later than five (5) days after receipt of the
written notice, will notify such holder that such holder may sell or otherwise
dispose of this Warrant or such shares of Stock, all in accordance with the
terms of the notice delivered to the Company. Notwithstanding the foregoing,
this Warrant or such shares of Stock may, as to such federal laws, be offered,
sold or otherwise disposed of in accordance with Rule 144 or 144A under the
Securities act, provided that the Company will have been furnished with such
information as the Company may reasonably request to provide a reasonable
assurance that the provisions of Rule 144 or 144A have been satisfied. Each
certificate representing this Warrant or the shares of Stock thus transferred
(except a transfer pursuant to Rule 144 or 144A) will bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
such laws, unless in the aforesaid opinion of counsel for the Company or the
Warrantholder or pursuant to Rule 144 or 144A, such legend is not required in
order to ensure compliance with such laws. The Company may issue stop transfer
instruction to its transfer agent in connection with such restrictions.
Notwithstanding the foregoing, (i) until a public market develops for the
securities of the Company, neither the Warrantholder nor any subsequent
transferee may transfer the Warrant or any Warrant Shares to any competitor of
the Company; and (ii) any transferee of the Warrantholder and any subsequent
transferee will expressly agree in writing with the Company to be bound by and
to comply with all applicable provisions of this Warrant.
(e) If in connection with the initial public offering of
shares of Common Stock of the Company registered pursuant to the Securities Act,
the managing underwriter for such
5
<PAGE> 6
registration will so request, the Warrantholder will not sell, make any short
sale of, grant any option for the purchase of, or otherwise dispose of any
Warrant Shares (other than those shares of Common Stock included in such
registration) without the prior written consent of the Company for a period
designated by the Company in writing to the Warrantholder, which period will
begin not more than ten (10) days prior to the effectiveness of the registration
statement pursuant to which such public offering will be made and will not last
more than one hundred eighty (180) days (or such other period as the officers
and directors of the Company and holders of greater than ten percent (10%) of
all securities registered pursuant to the registration statement mutually agree)
after the effective date of such registration statement. The holders hereby
agree to execute such form of agreement evidencing this obligation as any
underwriter requests.
(f) Prohibition Against Transfer. This Warrant, the rights of
the Warrantholder hereunder and the Shares may not be assigned or transferred
except to a parent or subsidiary entity of the Warrantholder that, in the case
of a parent, owns at least 80% of the Warrantholder, and, in the case of a
subsidiary, is 80% owned by the Warrantholder; provided however that such
transferee shall be bound by the terms and provisions hereof and the prohibition
on transfer of the Shares in this Section 8(f) shall terminate upon the
termination of all of the Company's rights to repurchase the Shares pursuant to
Section 1 hereof.
9. Miscellaneous.
(a) Attorney's Fees. In any litigation, arbitration or court
proceeding between the Company and the Warrantholder relating hereto, the
prevailing party will be entitled to attorneys' fees and expenses and all costs
of proceedings incurred in enforcing this Warrant.
(b) Governing Law. This Warrant Agreement will be governed by
and construed for all purposes under and in accordance with the laws of the
State of Delaware without respect to the principles of the choice of law or the
conflict of laws.
(c) Descriptive Headings. The descriptive headings of the
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
(d) Notices. Any notice required or permitted hereunder will
be given in writing and will be deemed effectively given upon personal delivery
or upon deposit in the United States mail, by registered or certified mail,
addressed (i) to the Warrantholder, at the address in the Warrant Register
maintained by the Company, and (ii) to the Company, 11711 N.W. 39th Street,
Coral Springs, Florida 33065, Attention: R. Michael Brewer, or at such other
address as any such party may subsequently designate by written notice to the
other party.
(e) Lost Warrants. The Company covenants to the Warrantholder,
that upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant or any stock certificate
and, in the case of any such loss, theft or destruction, upon receipt of an
indemnity reasonably satisfactory to the Company, or in the case of any such
mutilation, upon surrender and cancellation of such Warrant or stock
certificate, the
6
<PAGE> 7
Company will make and deliver a new Warrant or stock certificate of like tenor,
in lieu of the lost, stolen, destroyed or mutilated Warrant or stock
certificate.
(f) Severability. In the event any one or more of the
provisions of this Warrant will for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant will be unimpaired, and
the invalid, illegal or unenforceable provision will be replaced by a mutually
acceptable valid, legal and enforceable provision, which comes closest to the
intention of the parties underlying the invalid, illegal or unenforceable
provision.
(g) Modification and Waiver. This Warrant and any provision
hereof may be amended, waived, discharged or terminated only by an instrument in
writing signed by the party against whom enforcement of the same is sought.
(h) Application of Securityholders' Agreement. The
Warrantholder understands and acknowledges that there is in effect that certain
Amended and Restated SecurityHolders' and Exchange Agreement, as amended, (a
copy of which has been provided to the Warrantholder) and that the Shares and
the Warrantholder shall be subject to the terms and conditions thereof.
(i) Entire Agreement. This Warrant constitutes the entire
agreement between the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous agreements, representations and
undertakings of the parties, whether oral or written, with respect to such
subject matter.
IN WITNESS WHEREOF, this warrant has been duly executed and delivered
by the undersigned.
PNV.NET, INC.
By: /s/
--------------------------------
Steven L. Conkling, President
7
<PAGE> 8
EXHIBIT A
FORM OF
NOTICE OF EXERCISE
The undersigned hereby exercises the right to purchase _________ shares of
Common Stock which the undersigned is entitled to purchase by the terms of the
within Warrant according to the conditions thereof, and herewith makes payment
of $__________ therefor.
All shares to be issued pursuant hereto shall be issued in the name of and the
initial address of such person to be entered on the books of the Company shall
be:
The shares are to be issued in certificates of the following denominations:
- -----------------------------------
[Type Name of Holder]
By:
--------------------------------
Title:
-----------------------------
Dated:
-----------------------------
8
<PAGE> 9
EXHIBIT B
FORM OF
INVESTMENT LETTER
-----------, -----
PNV.net, Inc.
11711 N.W. 39th Street
Coral Springs, Florida 33065
Attention: R. Michael Brewer
Gentlemen:
The undersigned, ________________________ ("Purchaser") intends to
acquire up to _________ shares (the "Shares") of the Common Stock of PNV.net,
Inc. (the "Company") from the Company pursuant to the exercise of certain
Warrant held by Purchaser. The Shares will be issued to Purchaser in a
transaction not involving a public offering and pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the "1933 Act"). In
connection with such purchase and in order to comply with the exemption from
registration relied upon by the Company, Purchaser represents, warrants and
agrees as follows:
1. Purchaser is acquiring the Shares for Purchaser's own account, to
hold for investment, and Purchaser will not make any sale, transfer or other
disposition of the Shares in violation of the 1933 Act or the rules and
regulations promulgated thereunder by the Securities and Exchange Commission or
in violation of any applicable state securities law.
2. Purchaser has been advised that the issuance of the Shares is not
being registered under the 1933 Act on the ground that this transaction is
exempt from registration under Section 3(b) or 4(2) of the 1933 Act, as not
involving any public offering, and that reliance by the Company on such
exemptions is predicated in part on Purchaser's representations set forth in
this letter. Purchaser also has been advised that neither the Shares nor the
issuance thereof are being registered under the securities laws of any state.
3. Purchaser has been informed that the Shares must be held
indefinitely unless subsequently registered under the 1933 Act and applicable
state securities laws, or unless exemptions from such registration are available
with respect to any proposed transfer or disposition by Purchaser of the Shares.
Purchaser understands and agrees that the Company, as a condition to the
transfer of any of the Shares, may require that the request for transfer be
accompanied by an opinion of counsel satisfactory to the Company, in form and
substance satisfactory to the Company, to the effect that the proposed transfer
is exempt from registration under 1933 Act and applicable state securities laws,
unless such transfer is covered by an effective registration statement under the
1933 Act and all applicable state securities laws.
9
<PAGE> 10
4. Purchaser understands and agrees that there will be placed on the
certificates for the Shares, or any substitutions therefor, a legend stating in
substance:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO UNDER SAID ACT OR UNLESS THE COMPANY
HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION OR UNLESS PURSUANT
TO RULE 144."
5. Purchaser has been furnished with or has had access to the
information it has requested from the Company in connection with the investment
represented by the Shares and has had an opportunity to discuss with the
officers and management of the Company the Company's business and financial
affairs. Purchaser has such knowledge and experience in business and financial
matters and with respect to investments in securities or in privately held
companies so as to enable it to understand and evaluate the risks of such
investment and form an investment decision with respect thereto.
Very truly yours,
------------------------------------
Name:
-------------------------------
Accepted as of the _____ day of ____________, 19____.
PNV.NET, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT SEPTEMBER 30, 1999 AND THE STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,365,010
<SECURITIES> 34,199,227
<RECEIVABLES> 582,198
<ALLOWANCES> 35,083
<INVENTORY> 288,746
<CURRENT-ASSETS> 43,723,495
<PP&E> 43,315,854
<DEPRECIATION> 8,870,719
<TOTAL-ASSETS> 83,659,918
<CURRENT-LIABILITIES> 10,079,025
<BONDS> 70,967,219
61,550,655
0
<COMMON> 4,331
<OTHER-SE> (92,000)
<TOTAL-LIABILITY-AND-EQUITY> 83,659,918
<SALES> 3,380,691
<TOTAL-REVENUES> 3,380,691
<CGS> 6,327,133
<TOTAL-COSTS> 6,327,133
<OTHER-EXPENSES> 8,908,285
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,652,054
<INCOME-PRETAX> (14,322,956)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,322,956)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,322,956)
<EPS-BASIC> (4.230)
<EPS-DILUTED> (4.230)
</TABLE>
