<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 4, 1999
REGISTRATION NO. 333-87343
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PNV INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 4899 65-0612435
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
11711 N.W. 39TH STREET
CORAL SPRINGS, FLORIDA 33065
(954) 745-7800
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
ROBERT P. MAY
CHIEF EXECUTIVE OFFICER
PNV INC.
11711 N.W. 39TH STREET
CORAL SPRINGS, FLORIDA 33065
TELEPHONE (954) 745-7800
FACSIMILE (954) 745-7886
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
COPIES TO:
<TABLE>
<S> <C>
ELIZABETH G. WREN, ESQ. RICHARD A. GOLDBERG, ESQ.
JAMES M. O'CONNELL, ESQ. SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
KILPATRICK STOCKTON LLP 919 THIRD AVENUE
3500 ONE FIRST UNION CENTER NEW YORK, NEW YORK 10022
CHARLOTTE, NORTH CAROLINA 28202 TELEPHONE (212) 758-9500
TELEPHONE (704) 338-5000 FACSIMILE (212) 758-9526
FACSIMILE (704) 338-5125
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for any offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION, DATED NOVEMBER 4, 1999
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
3,750,000 SHARES
(PNV INC. LOGO)
COMMON STOCK
$ PER SHARE
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This is an initial public offering of common stock of PNV Inc. PNV is offering
3,750,000 shares of common stock.
PNV expects that the price to the public in the offering will be between $15.00
and $17.00 per share.
We have applied to include the common stock on the Nasdaq National Market under
the symbol "PNVN."
INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 8.
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<CAPTION>
PER SHARE TOTAL
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Price to the public............................. $ $
Underwriting discount...........................
Proceeds to PNV Inc. ...........................
</TABLE>
PNV has granted an over-allotment option to the underwriters. Under this option,
the underwriters may elect to purchase a maximum of 562,500 additional shares
from PNV within 30 days following the date of this prospectus to cover
over-allotments.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CIBC WORLD MARKETS
ALLEN & COMPANY INCORPORATED
VOLPE BROWN WHELAN & COMPANY
WILLIAM BLAIR & COMPANY
The date of this prospectus is , 1999.
<PAGE> 3
INSIDE COVER
CAPTIONS, PHOTOGRAPH AND DESCRIPTIONS:
1. Top: Our "PNV" logo appears in an oval. The caption "Connectivity for the
long haul." appears immediately below our "PNV" logo.
2. Background Photograph: A truck is parked at a truckstop. A graphic of a
highway that becomes cable appears on the side of the truck, as well as our
"PNV" logo and the phrase "Technology Road Show." People standing outside the
truck are climbing steps to enter the truck.
LEFT INTERIOR FOLDOUT
CAPTIONS AND GRAPHICS:
1. Background Graphic: A highway starts at the center bottom of the page,
continues until the top of the page and becomes cable.
2. Center Graphic: A graphic of cable forms the outer circle of our "PNV" logo.
The cable ends in the bottom half of the page and terminates as a piechart with
three parts labeled "Cable," "Internet" and "Telecom," respectively. Captions
around the cable (from left to right) read: "Drivers," "Fleets," "Truckstops,"
"Industry Suppliers" and "Advertising."
RIGHT INTERIOR FOLDOUT
CAPTIONS AND GRAPHICS:
1. Graphics: Three views of our portal website appear here.
2. Captions: "www.pnv.com" is displayed twice on the page, once in the
foreground and once in the background.
2
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 8
Forward Looking Statements.................................. 21
Use of Proceeds............................................. 22
Dividend Policy............................................. 23
Capitalization.............................................. 24
Dilution.................................................... 26
Selected Financial Data..................................... 27
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 29
Business.................................................... 42
Management.................................................. 66
Certain Transactions........................................ 76
Principal Stockholders...................................... 78
Description of our Capital Stock............................ 80
Description of our 13% Notes................................ 85
Shares Eligible for Future Sale............................. 87
Underwriting................................................ 89
Legal Matters............................................... 91
Experts..................................................... 91
Where You Can Find More Information......................... 92
Index to Financial Statements............................... F-1
</TABLE>
---------------------
Unless otherwise stated, all information contained in this prospectus assumes no
exercise of the over-allotment option granted to the underwriters.
The underwriters are offering the shares subject to various conditions and may
reject all or part of any order. The shares should be ready for delivery on or
about , 1999.
3
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained in other parts of this prospectus.
It does not contain all of the information that you should consider before
investing in our common stock. You should read this entire prospectus carefully,
including the section entitled "Risk Factors" and our financial statements and
the related notes to those statements included in this prospectus.
PNV INC.
We are the leading provider of bundled telecommunications, cable television and
Internet access services to truck drivers in the privacy and convenience of
their truck cabs. In addition to truck drivers, we offer our telecommunications
and Internet access services to other participants in the trucking community,
including trucking fleets, truckstop operators and trucking industry suppliers
and manufacturers. We deliver our services through our private, integrated
network that we have deployed at 237 truckstops in 41 states. In October 1999,
we had approximately 27,000 monthly subscribers and 10,000 daily members.
We believe our competitive advantages will enable us to expand our customer base
and increase our service offering which currently includes:
- telephone and cable television services for drivers while in their truck cab;
- Internet access in the truck cab, at home or other remote locations;
- specialized content and applications through our portal website;
- total telecommunications solutions for the truckstop including pre-paid phone
cards, public phone operations and public Internet kiosks; and
- advertising services through our cable channel and programming guide, our
lifestyle magazine, the portal website and voice response system.
We believe the Internet will become a significant communications and commerce
medium for the trucking community. In October 1999, we launched our portal
website and through this we are creating content for the entire trucking
community, including drivers and their families, industry suppliers and
manufacturers, truckstop operators and trucking fleets. We intend to leverage
our portal website in order to attract new customers, enable electronic commerce
applications, improve the productivity and overall lifestyle of drivers and
their families and enhance the trucking industry's work efficiencies. We are
creating our portal website to have the following components:
- business-to-business electronic commerce applications;
- business-to-consumer electronic commerce applications;
- advertising opportunities;
- specialized content; and
- personalized "lifestyle" applications.
We have entered into long-term contracts with approximately 450 of the
approximately 1,100 full-service truckstops across the country. We also have
contracts with trucking associations representing more than 300 additional
truckstops that permit us to offer our services to their members. In addition,
we have entered into strategic relationships with truckstop operators and
industry suppliers such as TravelCenters of America, Pilot Corporation, Volvo
Trucks and Cummins Engine Company.
4
<PAGE> 6
OUR STRATEGY
Our objective is become the leading provider of bundled Internet and
telecommunications solutions to the entire trucking community. We intend to
achieve this objective by:
- continuing to deploy our network in additional truckstops and increasing
subscription sales;
- becoming the leading trucking industry portal website and adapting
traditional trucking industry applications for the Internet;
- extending our brand name recognition;
- leveraging our position as an Internet service provider;
- expanding our entertainment services; and
- maximizing and expanding our strategic relationships.
---------------------
Our principal executive offices are located at 11711 N.W. 39th Street, Coral
Springs, Florida 33065. Our telephone number is (954) 745-7800.
In June 1999, we changed our name from Park 'N View, Inc. to PNV.net, Inc. and,
in November 1999, we changed our name to PNV Inc. We were incorporated in
Delaware on September 18, 1995. Our website address is www.pnv.com. Information
contained on our website does not constitute part of this prospectus.
THE OFFERING
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<S> <C>
Common stock offered........................ 3,750,000 shares
Common stock outstanding after this
offering.................................. 15,719,679 shares
Use of proceeds............................. We intend to use the net proceeds of this
offering to fund capital expenditures and
operating losses, for additional working
capital and other general corporate
purposes, for possible acquisitions or
investments, and to redeem our Series A
preferred stock
Proposed Nasdaq National Market symbol...... PNVN
</TABLE>
The common stock to be outstanding after this offering in the above table
includes:
- 4,331,014 shares outstanding as of September 30, 1999;
- the sale of 3,750,000 shares in this offering;
- 7,226,543 shares issuable upon the automatic conversion of our outstanding
convertible preferred stock;
- 408,122 shares issuable in payment of accrued dividends on our outstanding
convertible preferred stock, assuming an initial public offering price of
$16.00 and that the closing of this offering occurs on November 22, 1999; and
- the issuance of 4,000 shares upon the exercise of outstanding warrants.
The common stock to be outstanding after the offering in the above table
excludes:
- 1,978,343 shares issuable upon the exercise of options outstanding under our
stock option plan;
- 192,991 shares available for future grants of options under our stock option
plan; and
- 945,774 shares issuable upon the exercise of warrants that will remain
outstanding after this offering.
---------------------
5
<PAGE> 7
Unless otherwise indicated, all information in this prospectus assumes the
following upon or immediately prior to the completion of this offering:
- the redemption of all outstanding shares of our Series A preferred stock for
a total redemption price of $3.9 million, plus accrued dividends, which will
be $1.0 million, assuming the closing of this offering occurs on November 22,
1999;
- the automatic conversion of all outstanding shares of our Series B, Series C
and Series D preferred stock into a total of 7,226,543 shares of common
stock;
- the issuance of 408,122 shares of our common stock in payment of accrued
dividends on our outstanding convertible preferred stock, assuming an initial
public offering price of $16.00 and that the closing of this offering occurs
on November 22, 1999; and
- the issuance of 4,000 shares of our common stock upon the exercise of
outstanding warrants having an exercise price of $10.50 per share.
RECENT DEVELOPMENTS
For the three months ended September 30, 1999, we had total net revenues of
approximately $3.4 million as compared to total net revenues of approximately
$1.7 million for the three months ended September 30, 1998. Net loss
attributable to common stockholders was approximately $18.3 million for the
three months ended September 30, 1999. Included in this loss is a non-cash
charge of approximately $3.1 million for the Series D preferred stock dividend
and a non-cash charge of approximately $2.0 million for stock-based compensation
expense. The net loss attributable to common stockholders before these charges
was approximately $13.2 million. This compares to a net loss attributable to
common stockholders of $7.2 million for the three months ended September 30,
1998.
6
<PAGE> 8
SUMMARY FINANCIAL DATA
(in thousands, except share and per share data and other data)
The "pro forma" information in the balance sheet data below reflects:
- - the amendment of our certificate of incorporation to provide for authorized
capital of 50,000,000 shares of common stock and 8,750,000 shares of preferred
stock and the designation of 3,000,000 shares of Series D preferred stock in
September 1999;
- - the issuance of 2,400 shares of common stock upon exercise of options having
an exercise price of $0.01 per share in August 1999;
- - the sale of 3,000,000 shares of our Series D preferred stock for $10.50 per
share in September 1999;
- - the redemption of all outstanding shares of our Series A preferred stock for a
total redemption price of $3.9 million, plus accrued dividends, the amount of
which will be $1.0 million, assuming the closing of this offering occurs on
November 22, 1999, upon the completion of this offering;
- - the automatic conversion of all outstanding shares of our Series B, Series C
and Series D preferred stock into a total of 7,226,543 shares of common stock
on the completion of this offering;
- - the issuance of 408,122 shares of our common stock in payment of all accrued
dividends on our outstanding convertible preferred stock, assuming an initial
public offering price of $16.00 and the closing of this offering occurs on
November 22, 1999, upon the completion of this offering; and
- - the issuance of 4,000 shares of common stock immediately prior to the
completion of this offering upon the exercise of outstanding warrants having
an exercise price of $10.50 per share.
The "pro forma as adjusted" information in the balance sheet data reflects the
sale of 3,750,000 shares of common stock in this offering at an assumed initial
public offering price of $16.00, after deducting underwriting discounts and
estimated offering expenses, and the application of the net proceeds from the
sale.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
1997 1998 1999
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<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ 888 $ 3,504 $ 8,453
Cost of revenues........................................ 2,077 6,599 15,717
Selling, general and administrative expenses............ 5,027 10,414 19,546
Stock-based compensation................................ -- -- 5,035
---------- ---------- ----------
Loss from operations.................................... (6,216) (13,509) (31,845)
Interest (expense) income and other, net................ 171 (225) (7,927)
---------- ---------- ----------
Net loss................................................ $ (6,045) $ (13,734) $ (39,772)
========== ========== ==========
Basic and diluted net loss attributable to common
stockholders.......................................... $ (6,962) $ (16,526) $ (42,703)
Net loss per share (basic and diluted).................. $ (1.61) $ (3.83) $ (9.89)
Shares used to compute basic and diluted net loss per
share................................................. 4,318,182 4,318,182 4,318,456
Pro forma basic and diluted net loss per share.......... -- -- $ (3.57)
Shares used to compute pro forma basic and diluted net
loss per share........................................ -- -- 11,969,679
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 4,101 $ 28,764 $ 83,506
Working capital.......................................... 18,828 43,491 98,233
Total assets............................................. 61,386 86,049 140,791
Total current liabilities................................ 5,169 5,169 5,169
Total long-term debt and long-term portion of capital
leases................................................ 71,110 71,110 71,110
Total redeemable preferred stock......................... 42,093 -- --
Common stockholders' (deficiency) equity................. (56,986) 9,770 64,512
</TABLE>
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<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
1997 1998 1999
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<S> <C> <C> <C>
OTHER DATA:
Number of truckstops at which network is deployed....... 29 118 220
Number of monthly subscribers in the month ended........ 5,967 17,100 21,317
Number of daily members in the month ended.............. 3,943 8,161 13,829
</TABLE>
7
<PAGE> 9
RISK FACTORS
You should carefully consider the following risk factors and other information
contained in this prospectus before deciding to invest in the shares.
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 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 $61.5
million from our inception through June 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 June 30, 1999, our total liabilities
plus our preferred stock outstanding exceeded our total assets by $57.0 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.
8
<PAGE> 10
See the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" under the heading "Liquidity and Capital
Resources" for more information on our capital requirements.
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.
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 to 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. Beginning in November 1999, we intend to
charge separate subscription fees for this service. Once we begin to charge a
separate fee, 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 resale 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
9
<PAGE> 11
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 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 June 30, 1999, we had $71.1
million of outstanding indebtedness and $57.0 million of stockholders'
deficiency. On a pro forma basis, giving effect to the sale of our Series D
preferred stock, the redemption of our Series A preferred stock, the automatic
conversion of our Series B, Series C and Series D preferred stock into common
stock, the issuance of shares of common stock in payment of accrued dividends on
our convertible preferred stock, the exercise of certain outstanding warrants to
purchase common stock, the sale of 3,750,000 shares of common stock in this
offering at an assumed initial public offering price of $16.00 and the
application of the net proceeds of this offering, on June 30, 1999, we would
have had $65.8 million of stockholders' equity.
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 payment
on our 13% notes in May and November each year. The 13% notes mature in May
2008. We have made the first two interest payments and intend to make the next
two interest payments 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. See the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
the heading "Overview" and the section entitled "Business" under the heading
"Network Buildout; Truckstop
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Relationships and Contracts" for discussions about our contractual relationships
with truckstop owners and associations. 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. See
the section entitled "Business" under the heading "Network Buildout; Truckstop
Relationships and Contracts."
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 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
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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. See the
section entitled "Business" under the heading "Competition."
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.
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.
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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 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.
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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. See the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" under the heading "Liquidity and Capital Resources." If
we do not obtain the available discounts with regard to our required payments,
this could make it difficult for us to reduce our costs in a timely fashion.
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.
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
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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.
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.
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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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000" for a detailed
description of the state of our Year 2000 readiness.
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 necessary, for certain corporate actions, and/or
failure to notify the FCC and/or state public utility commissions in a timely
enough fashion.
In addition to the regulatory considerations indicated in this risk factor, see
also "Business -- Regulatory Matters" for a discussion of these and certain
other regulatory risks and considerations relevant to our business.
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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.
WE HAVE NOT PAID AND DO NOT ANTICIPATE PAYING ANY CASH DIVIDENDS ON OUR COMMON
STOCK IN THE FORESEEABLE FUTURE.
We have never paid, and for the foreseeable future do not anticipate paying, any
cash dividends on our common stock. We intend to retain our earnings, if any,
for use in our growth and ongoing operations. In addition, the terms of the
indenture governing our 13% notes restrict our ability to pay dividends on the
common stock.
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;
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- 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;
- 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.
THE PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW THAT
HINDER A CHANGE IN CONTROL COULD NEGATIVELY AFFECT OUR COMMON STOCK PRICE,
DISCOURAGE BIDS FOR OUR COMPANY OR REDUCE ANY PREMIUMS THAT COULD BE PAID TO OUR
STOCKHOLDERS.
Provisions of the certificate of incorporation and bylaws that we intend to
adopt immediately following the completion of this offering may discourage,
delay or make more difficult changes in control that are not approved by our
board of directors or prevent the removal of incumbent directors. The existence
of these provisions may have a negative impact on the price of the common stock
and may discourage third-party bidders from making a bid for our company or may
reduce any premiums paid to stockholders for their common stock. In addition,
our 13% notes are redeemable on changes in our control and the removal of
directors under certain circumstances, which may have a similar effect. In
particular, the provisions that we intend to adopt will prohibit stockholder
action by written consent, require advance notice for nomination of directors
and for stockholders proposals and allow only the chairman of the board or a
majority of the directors to call a special stockholders' meeting. In addition,
upon the completion of this offering, our outstanding preferred stock will be
redeemed or will automatically convert into common stock. Following this
redemption or conversion, we intend to eliminate our current preferred stock
designations and thereafter our board of directors may designate and issue
preferred stock without stockholder approval. Furthermore, as a Delaware
corporation, we are subject to Section 203 of the Delaware General Corporation
Law. In general, this law prevents a person who becomes the owner of 15% or more
of the corporation's outstanding voting stock from engaging in specified
business combinations for three years unless specified conditions are satisfied.
MANAGEMENT MAY APPLY A SIGNIFICANT PORTION OF THE PROCEEDS OF THIS OFFERING TO
USES THAT DO NOT INCREASE OUR PROFITS OR MARKET VALUE.
Our management will have considerable discretion in the application of the net
proceeds of this offering, and you will not have the opportunity, as part of
your investment decision, to assess whether a significant portion of the
proceeds are being used appropriately. The net proceeds may be used for purposes
that do not increase our profitability or our market value. Pending application
of the proceeds, they may be placed in investments that do not produce income or
that lose value.
INSIDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER US AFTER THIS OFFERING
AND COULD LIMIT YOUR ABILITY TO INFLUENCE THE OUTCOME OF KEY TRANSACTIONS,
INCLUDING CHANGES OF CONTROL.
Upon the completion of this offering, our present directors, executive officers
and principal stockholders as a group will beneficially own approximately 59.1%
of the outstanding common stock. Accordingly, if all these particular
stockholders were to act together they could exercise significant influence over
or control the election of our board of directors, our management and policies
and the outcome of particular corporate transactions or other matters submitted
to our stockholders for approval, including mergers and the sale of our assets.
In addition, each of our current directors serves as a designee of the holders
of our common stock or one of our series of preferred stock. Following the
completion of this offering, these designees will remain on the board of
directors at least until their respective successors, if any, are elected.
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OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED SO WE CANNOT PREDICT THE EXTENT
TO WHICH A TRADING MARKET WILL DEVELOP FOR OUR COMMON STOCK.
There has not been a public market for our common stock. We cannot predict the
extent to which a trading market will develop or how liquid that market might
become. The initial public offering price will be determined by negotiations
between representatives of the underwriters and us and may not be indicative of
prices that will prevail in the trading market.
IF OUR COMMON STOCK EXPERIENCES EXTREME PRICE AND VOLUME FLUCTUATIONS, INVESTORS
COULD FACE DECREASED LIQUIDITY AND WE COULD FACE SECURITIES CLASS ACTION
LITIGATION THAT WOULD RESULT IN SIGNIFICANT COSTS AND MANAGEMENT DISTRACTION.
The market price of our common stock is likely to be highly volatile as the
stock market in general, and the market for Internet-related and technology
companies in particular, has been highly volatile. Investors may experience
decreased liquidity of our common stock following periods of volatility because
of the market's adverse reaction to such volatility. The trading prices of many
technology and Internet-related companies' stocks have reached historical highs
within the last 52 weeks and have reflected relative valuations substantially
above historical levels. During the same period, these companies' market prices
have also been highly volatile and have recorded lows well below their
historical highs.
In the past, companies that have experienced volatility in the market price of
their stock have been the object of securities class action litigation. If we
were the object of securities class action litigation, it could result in
substantial costs and a diversion of our management's attention and resources.
Our current stockholders hold a substantial number of shares, which they will be
able to sell in the public market in the near future. Sales of a substantial
number of shares of our common stock within a short period of time after this
offering could cause our stock price to fall. In addition, the sale of these
shares could impair our ability to raise capital through the sale of additional
stock. See "Shares Eligible for Future Sale."
YOU WILL EXPERIENCE DILUTION DUE TO THE ISSUANCE OF SHARES TO CERTAIN OF OUR
PREFERRED STOCKHOLDERS IN CONNECTION WITH THIS OFFERING.
In November 1996, we sold 1,372,370 shares of Series B preferred stock. In
August 1997 and March 1999, we sold an aggregate of 2,351,543 shares of Series C
preferred stock. In September 1999, we sold 3,000,000 shares of Series D
preferred stock.
Our outstanding shares of Series B, Series C and Series D preferred stock will
automatically convert into common stock upon the completion of this offering.
The shares of Series B preferred stock will convert into common stock on a 1.37
to 1.00 basis. The shares of Series C preferred stock and Series D preferred
stock will convert into common stock on a 1.00 to 1.00 basis.
The holders of our Series A, Series B, Series C and Series D preferred stock are
entitled to per annum dividends equal to 7% of the liquidation value of their
stock, set at $10.00, $10.93, $8.00 and $10.50 per share respectively.
Effectively, these dividends accrue on a daily basis. We intend to pay all
accrued dividends on our outstanding convertible preferred stock upon the
completion of this offering by issuing a number of shares of common stock equal
to the aggregate dividend amount, divided by the initial public offering price.
By way of example, assuming an initial public offering price of $16.00 per share
and the closing of this offering occurs on November 22, 1999, the holders of our
Series B, Series C and Series D preferred stock would be entitled to receive
approximately 198,516 shares, 183,958 shares and 25,648 shares of common stock,
respectively, in payment of accrued dividends.
YOU WILL IMMEDIATELY EXPERIENCE SUBSTANTIAL DILUTION IN NET TANGIBLE BOOK VALUE.
If you buy shares in this offering, you will suffer immediate and substantial
dilution in pro forma net tangible book value. The exercise of outstanding
options and warrants, or our issuance of additional shares
19
<PAGE> 21
of stock at a price below the price of a share in this offering, may result in
further dilution. See the section entitled "Dilution" for further information.
WE MAY NOT HAVE IDENTIFIED ALL THE RISKS AND UNCERTAINTIES THAT WE MAY FACE.
The risks described in this section or elsewhere in this prospectus are not the
only ones that we may face. Although this prospectus includes all material risks
that we are aware of at this time, additional risks that are not yet identified
or that we currently think are immaterial may materially adversely affect our
business, results of operations and financial condition in the future.
20
<PAGE> 22
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking statements
within the meaning of the federal securities laws. These statements include,
among others, statements found under "Prospectus Summary," "Risk Factors," "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
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 PNV's 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" and other
sections of this prospectus, which address additional factors that could cause
PNV's actual results to differ from those set forth in the forward-looking
statements.
21
<PAGE> 23
USE OF PROCEEDS
PNV estimates that the net proceeds from the sale of the shares of common stock
it is offering will be approximately $54.7 million, assuming an initial public
offering price of $16.00 per share. "Net proceeds" is what PNV expects to
receive after paying the underwriting discount and other expenses of the
offering.
We intend to use the remaining net proceeds to fund capital expenditures and
operating losses, for additional working capital and other general corporate
purposes and to redeem our outstanding Series A preferred stock. We presently
anticipate that we will spend up to $18.7 million in capital expenditures during
fiscal 2000, including the deployment of our network at approximately 80
additional truckstops, the installation of additional switching capacity, the
purchase of additional prepaid phone card machines and the purchase of public
Internet kiosks. We have not quantified a particular portion of the net proceeds
to be used to fund operating losses. We plan to spend a significant portion of
the net proceeds on the expansion of our sales and marketing programs and the
development and maintenance of our portal website. In addition, we will spend a
portion of the net proceeds on the addition of personnel to support the
expansion of our operations that our business model contemplates, as well as the
ongoing expenses associated with our operations, including salaries, cable
programming, commissions payable to truckstops and the publication of our
monthly magazine. We will use the net proceeds to redeem our Series A preferred
stock for $3.9 million, plus accrued dividends, the amount of which will be $1.0
million, assuming the closing of this offering occurs on November 22, 1999, and
will be higher if the closing occurs later and lower if the closing occurs
earlier. Funds managed by Patricof & Co. Ventures, Inc., which will beneficially
own a total of approximately 15.3% of our common stock upon the completion of
this offering, own more than 99% of our Series A preferred stock. The amounts
actually expended for the purposes listed above other than capital expenditures
and the redemption of our outstanding Series A preferred stock, will depend on a
number of factors, including the cash generated by operations, our ability to
control our expenditures and the actual rate of expansion of our business.
Therefore, we cannot specify with certainty the particular uses of the net
proceeds of this offering. Our management will have significant flexibility and
discretion in applying the net proceeds of this offering.
We may also use a portion of the net proceeds to fund acquisitions or
investments. From time to time, in the ordinary course of business, we evaluate
possible acquisitions of, or investments in, businesses, products and
technologies that are complementary to ours. We currently have no arrangements,
agreements or understandings, and are not engaged in active negotiations for any
such acquisitions or investments.
Pending use of the net proceeds of this offering, PNV will invest these funds in
short-term, investment grade, interest-bearing instruments.
22
<PAGE> 24
DIVIDEND POLICY
PNV has never paid any cash dividends on its capital stock. PNV anticipates that
it will retain earnings, if any, to finance the growth and development of its
business. Therefore, PNV does not expect to pay cash dividends on our common
stock for the foreseeable future. Any future determination to pay cash dividends
will be at the discretion of the board of directors and will be dependent upon
our financial condition, operating results, capital requirements and such other
factors as the board of directors deems relevant. We cannot declare or pay any
cash dividends on our common stock unless permitted by the indenture governing
our 13% notes, which includes various financial restrictions on our ability to
declare and pay cash dividends. Upon the completion of this offering, we intend
to redeem our Series A preferred stock, which redemption price will include
accrued dividends, the amount of which will be $1.0 million, assuming the
closing of this offering occurs on November 22, 1999, and to issue 408,122
shares of common stock in payment of all accrued dividends on our outstanding
Series B, Series C and Series D preferred stock assuming an initial public
offering price of $16.00 and that the closing of this offering occurs on
November 22, 1999.
23
<PAGE> 25
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 on an
actual basis, a pro forma basis and a pro forma as adjusted basis. You should
read this information in conjunction with our financial statements appearing
elsewhere in this prospectus, and with the sections entitled "Selected Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- -------------- -----------
(IN THOUSANDS EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments.......... $ 12,468 $ 37,131 $ 91,873
======== ======== ========
Long-term debt:
Long-term debt, less current portion...................... $ 70,846 70,846 70,846
Obligations under capital leases, less current portion.... 264 264 264
-------- -------- --------
Total long-term debt, excluding current portion......... 71,110 71,110 71,110
Series A Redeemable Preferred Stock (including accrued
dividends of $839,493), par value $.01 per share; 627,630
shares authorized, actual; 388,065 shares issued and
outstanding, actual; no shares authorized or issued and
outstanding, pro forma and pro forma as adjusted......... 4,610 -- --
Series B 7% Cumulative Convertible Preferred Stock
(including accrued dividends of $2,762,083), par value
$.01 per share; 1,372,370 shares authorized, actual;
1,372,370 issued and outstanding, actual; no shares
authorized or issued and outstanding, pro forma and pro
forma as adjusted........................................ 17,404 -- --
Series C 7% Cumulative Convertible Preferred Stock
(including accrued dividends of $2,423,904), par value
$.01 per share; 3,750,000 shares authorized; 2,351,543
shares issued and outstanding, actual; no shares
authorized or issued and outstanding, pro forma and pro
forma as adjusted........................................ 20,080 -- --
Series D 7% Cumulative Convertible Preferred Stock, par
value $.01 per share, no shares authorized or issued and
outstanding, actual, pro forma and pro forma as
adjusted................................................. -- -- --
Common Stockholders'(Deficiency) Equity:
Common stock, par value $.001 per share; 12,000,000 shares
authorized; 4,328,614 shares issued and outstanding,
actual; 50,000,000 shares authorized, pro forma and pro
forma as adjusted; 11,969,679 shares issued and
outstanding, pro forma; 15,719,679 shares issued and
outstanding, pro forma as adjusted........................ 4 12 16
Additional paid-in capital................................ 13,012 79,760 134,498
Receivable from stockholder............................... (145) (145) (145)
Deferred stock-based compensation......................... (8,345) (8,345) (8,345)
Accumulated deficit....................................... (61,512) (61,512) (61,512)
-------- -------- --------
Total common stockholders' (deficiency) equity............. (56,986) 9,770 64,512
-------- -------- --------
Total capitalization.................................... $ 56,218 $ 80,880 $135,622
======== ======== ========
</TABLE>
24
<PAGE> 26
The "pro forma" column gives effect to:
- the amendment of our certificate of incorporation to provide for authorized
capital of 50,000,000 shares of common stock and 8,750,000 shares of
preferred stock and the designation of 3,000,000 shares of Series D preferred
stock in September 1999;
- the issuance of 2,400 shares of our common stock upon exercise of options
having an exercise price of $0.01 per share in August 1999;
- the sale of 3,000,000 shares of our Series D preferred stock for $10.50 per
share in September 1999;
- the redemption of our Series A preferred stock for a total redemption price
of $3.9 million, plus accrued dividends, the amount of which will be $1.0
million assuming the closing of this offering occurs on November 22, 1999,
upon the completion of this offering and the elimination of the designation
of this preferred stock;
- the automatic conversion of our Series B, Series C and Series D preferred
stock into a total of 7,226,543 shares of common stock upon the completion of
this offering and the elimination of the designation of this preferred stock;
- the issuance of 408,122 shares of our common stock, in payment of all accrued
dividends on our outstanding convertible preferred stock, upon the completion
of this offering, assuming an initial public offering price of $16.00 and
that the closing of this offering occurs on November 22, 1999; and
- the issuance of 4,000 shares of common stock upon the exercise of outstanding
warrants having exercise price of $10.50 per share immediately prior to the
completion of this offering.
The "pro forma as adjusted" column gives effect to the sale of 3,750,000 shares
of common stock in this offering at an assumed initial public offering price of
$16.00 after deducting underwriting discounts and estimated offering expenses.
The shares of common stock outstanding in the "actual," "pro forma" and "pro
forma as adjusted" columns do not include:
- 1,978,343 shares reserved for issuance upon the exercise of options
outstanding under our stock option plan having a weighted average exercise
price of $4.34 per share;
- 192,991 shares available for future grants of options under our stock option
plan; and
- 945,774 shares reserved for issuance upon the exercise of outstanding
warrants to purchase 505,375 shares having an exercise price of $.01 per
share and outstanding warrants to purchase 440,399 shares having a weighted
average exercise price of $8.61 per share that will remain outstanding after
this offering.
25
<PAGE> 27
DILUTION
Our pro forma net tangible book value of our common stock as of June 30, 1999
was approximately $5.0 million or approximately $.42 per share of common stock.
Pro forma net tangible book value per share represents the amount of our total
tangible assets less total tangible liabilities, divided by 15,719,679 shares of
common stock outstanding, after giving effect to the conversion of our Series B,
Series C and Series D preferred stock into 7,226,543 shares of common stock, the
issuance of 408,122 shares of common stock in payment of accrued dividends on
our convertible preferred stock (assuming an initial public offering price of
$16.00 and that the closing of this offering occurs on November 22, 1999), the
issuance of 4,000 shares of common stock upon the exercise of warrants having an
exercise price of $10.50 per share and the issuance of 2,400 shares of common
stock upon the exercise of options having an exercise price of $0.01 per share.
Dilution per share represents the difference between the amount per share paid
by investors in this offering and the pro forma as adjusted net tangible book
value per share after this offering. After giving effect to the sale of the
common stock offered in this offering at an assumed initial public offering
price of $16.00 per share and after deducting the estimated underwriting
discounts and commissions and offering expenses payable by us, our pro forma as
adjusted net tangible book value as of June 30, 1999 would have been
approximately $59.8 million, or $3.81 per share of common stock. This represents
an immediate increase in pro forma net tangible book value of $3.39 per share to
existing stockholders and an immediate dilution of $12.19 per share to new
investors purchasing shares at the initial public offering price.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $16.00
Pro forma net tangible book value per share before this
offering................................................. .42
Increase in pro forma net tangible book value per share
attributable to new investors............................ 3.39
-----
Pro forma as adjusted net tangible book value per share
after this offering....................................... 3.81
------
Dilution per share to new investors......................... $12.19
======
</TABLE>
The following table summarizes on a pro forma as adjusted basis as of June 30,
1999, the difference between the number of shares of common stock purchased from
us, the total consideration paid and the average price per share paid by
existing stockholders and by new investors at an assumed initial public offering
price of $16.00 per share, before deducting the estimated underwriting discounts
and commissions and offering expenses payable by us. Each of these figures is
based upon the number of shares of common stock outstanding as of June 30, 1999.
These figures give effect to the conversion of our Series B, Series C and Series
D preferred stock into 7,226,543 shares of common stock, the issuance of 408,122
shares of common stock in payment of accrued dividends on our convertible
preferred stock (assuming an initial public offering price of $16.00 and that
the closing of this offering occurs on November 22, 1999), the issuance of 2,400
shares of common stock upon the exercise of options having an exercise price of
$0.01 per share and the issuance of 4,000 shares of common stock upon the
exercise of warrants having an exercise price of $10.50 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 11,969,679 76.1% $ 65,414,662 52.2% $ 5.47
New investors....................... 3,750,000 23.9 60,000,000 47.8 $16.00
----------- ----- ------------ -----
Total............................ 15,719,679 100.0% $125,414,662 100.0% $ 7.99
=========== ===== ============ =====
</TABLE>
The foregoing table does not reflect our issuance of up to a total of 2,924,117
shares of common stock subject to outstanding options and warrants that will
remain outstanding after this offering. As of October 15, 1999, there were
options outstanding to purchase 1,978,343 shares of common stock at a weighted
average exercise price of $4.34 per share, warrants to purchase 505,375 shares
of common stock having an exercise price of $.01 per share and warrants to
purchase 440,399 shares of common stock having a weighted average exercise price
of $8.61 per share. To the extent that these options or warrants are exercised,
or we issue additional shares of stock at a price below the price of a share in
this offering, there will be further dilution to the new investors.
26
<PAGE> 28
SELECTED FINANCIAL DATA
(in thousands, except share and per share data and other data)
This section presents selected historical financial data of PNV. You should read
carefully the financial statements included in this prospectus. The selected
data in this section is not intended to replace the financial statements and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
PNV derived the statement of operations data for the Successor for the years
ended June 30, 1997, 1998 and 1999 and the balance sheet data as of June 30,
1998 and 1999 from audited financial statements in this prospectus. PNV derived
the statement of operations data for the Predecessor for the year ended December
31, 1994 and for the period from January 1, 1995 to November 2, 1995, and for
the Successor for the period from September 18, 1995 (Successor's date of
incorporation) to June 30, 1996 and the balance sheet data for the Predecessor
as of December 31, 1994 and for the Successor as of June 30, 1996 and 1997 from
the audited financial information of the Predecessor and the Successor that is
not included in this prospectus.
In November 1995, our Predecessor, Park 'N View, Ltd., transferred certain of
its assets, contractual rights and liabilities to PNV in exchange for 2,318,182
shares of common stock issued to the former partners of Park 'N View, Ltd. The
net liabilities transferred were recorded by PNV at Park 'N View, Ltd.'s
historical carrying amount of $84,446. The financial information identified
herein as for the "Predecessor" is for Park 'N View, Ltd. as of December 31,
1994 and the year ended December 31, 1994 and the period from January 1, 1995 to
November 2, 1995, the date the net liabilities were transferred to PNV. The
financial information identified herein as for the "Successor" is for PNV as of
and for the period ended June 30, 1996 and for the years ended June 30, 1997,
1998 and 1999.
The "pro forma" information in the statement of operations data reflects:
- - the amendment of our certificate of incorporation to provide for authorized
capital of 50,000,000 shares of common stock and 8,750,000 shares of preferred
stock and the designation of 3,000,000 shares of Series D preferred stock in
September 1999;
- - the issuance of 2,400 shares of our common stock upon exercise of options
having an exercise price of $0.01 per share in August 1999;
- - the sale of 3,000,000 shares of our Series D preferred stock for $10.50 per
share in September 1999;
- - the redemption of all outstanding shares of our Series A preferred stock for
$3.9 million, plus accrued dividends, the amount of which will be $1.0 million
assuming that this offering closes on November 22, 1999, upon the completion
of this offering;
- - the automatic conversion of all outstanding shares of our Series B, Series C
and Series D preferred stock into a total of 7,226,543 shares of common stock
on the completion of this offering;
- - the issuance of 408,122 shares of our common stock, assuming an initial public
offering price of $16.00 and that the closing of this offering occurs on
November 22, 1999, in payment of all accrued dividends on our outstanding
convertible preferred stock upon the completion of this offering; and
- - the issuance of 4,000 shares of common stock upon the exercise of outstanding
warrants having an exercise price of $10.50 per share immediately prior to the
completion of this offering.
27
<PAGE> 29
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
-------------------------- ------------------------------------------------------
PERIOD PERIOD FROM
FROM SEPTEMBER 18,
YEAR JANUARY 1, 1995 (DATE OF
ENDED 1995 TO INCORPORATION) YEAR ENDED JUNE 30,
DECEMBER 31, NOVEMBER 2, TO JUNE 30, -------------------------------------
1994 1995 1996 1997 1998 1999
------------ ----------- -------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ -- -- $ 150 $ 888 $ 3,504 $ 8,453
Cost of revenues........ -- -- 437 2,077 6,599 15,717
------- ---------- ---------- -----------
Gross margin............ -- -- (287) (1,189) (3,095) (7,264)
Selling, general and
administrative
expenses.............. $ 288 $ 476 1,576 4,432 10,379 19,546
Stock-based
compensation.......... -- -- -- -- -- 5,035
Write down of
equipment............. -- -- -- 595 35 --
----- ----- ------- ---------- ---------- -----------
Loss from operations.... (288) (476) (1,863) (6,216) (13,509) (31,845)
Interest expense........ -- -- 103 157 1,031 10,515
Interest income and
other................. -- -- (5) (328) (806) (2,588)
----- ----- ------- ---------- ---------- -----------
Net loss................ $(288) $(476) $(1,961) $ (6,045) $ (13,734) $ (39,772)
===== ===== ======= ========== ========== ===========
Net loss attributable to
common stockholders... -- -- $(1,983) $ (6,962) $ (16,526) $ (42,703)
Net loss per share
(basic and diluted)... -- -- -- $ (1.61) $ (3.83) $ (9.89)
Shares used to compute
basic and diluted net
loss per share........ -- -- -- 4,318,182 4,318,182 4,318,456
Pro forma basic and
diluted net loss per
share................. -- -- -- -- -- $ (3.57)
Shares used to compute
pro forma basic and
diluted net loss per
share................. -- -- -- -- -- 11,969,679
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------ ----------------------------------------
AS OF JUNE 30,
AS OF DECEMBER 31, ----------------------------------------
1994 1996 1997 1998 1999
------------------ ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 20 $ 366 $ 4,717 $19,811 $ 4,101
Working capital........................... 7 (82) 2,814 57,139 18,828
Total assets.............................. 175 2,898 12,939 94,578 61,386
Total long-term debt and long-term portion
of capital leases....................... 217 3,388 425 70,605 71,110
Total redeemable preferred stock.......... -- 721 19,131 39,134 42,093
Partnership deficiency/common
stockholders' deficiency................ (55) (1,970) (8,932) (20,270) (56,986)
OTHER DATA:
Number of truckstops at which network is
deployed................................ -- 10 29 118 220
Number of monthly subscribers in the month
ended................................... -- 1,548 5,967 17,100 21,317
Number of daily members in the month
ended................................... -- -- 3,943 8,161 13,829
</TABLE>
28
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with the financial statements
and other financial information included in this prospectus. This prospectus
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those indicated in the forward-
looking statements. Our fiscal year ends on June 30 and is named for the year in
which it ends.
OVERVIEW
Background
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. There were no revenues or significant selling expenses generated by Park
'N View, Ltd. during this period. Following the formation of PNV in September
1995, and the transfer to PNV of the business and net liabilities of Park 'N
View, Ltd., we began the buildout of our network utilizing principally proceeds
from sales of our securities and began offering services on our network in
December 1995 with the completion of our first site. As of September 30, 1999,
our network was available at 237 full-service truckstops. We have incurred net
losses of $61.5 million from our inception through June 30, 1999. As of June 30,
1999, our total liabilities plus our preferred stock outstanding exceeded our
total assets by $57.0 million.
During the third and fourth quarters of fiscal 1999 and the first and second
quarters of fiscal 2000, we granted options to purchase our common stock at
exercise prices which we have determined were below the deemed fair market value
of our common stock on the grant dates for financial reporting purposes to
employees, as well as consultants and a recently appointed non-employee
director. As a result of these option grants, for stock options granted to
employees in fiscal 1999, we recorded total deferred stock compensation expense
of $13.4 million which is being expensed over the vesting period of the options
in accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and recognized stock-based compensation
expense of approximately $5.0 million. For stock options granted to consultants
in fiscal 1999, we recognized consulting service expense of approximately $.1
million. For stock options granted through October 25, 1999, we intend to record
deferred compensation expense of $2.6 million, which will be amortized over the
vesting period of the options. Of the remaining total deferred stock
compensation for stock options granted in fiscal 1999 and the first and second
quarters of fiscal 2000, we expect that $7.9 million, $2.2 million, $.7 million
and $.2 million will be expensed in fiscal 2000, 2001, 2002 and 2003,
respectively. In March 1999, we issued a warrant to purchase 100,000 shares of
our common stock to a customer at an exercise price determined to be below the
deemed fair market value of our common stock on the issuance date for financial
reporting purposes. We are amortizing this warrant over the life of the
contract. As of June 30, 1999, the amount of deferred expense was $.7 million.
In September 1999, we sold 3,000,000 shares of our Series D preferred stock for
$10.50 per share. We have determined that the purchase price was below the
deemed fair market value of the Series D preferred stock for financial reporting
purposes. As a result, we have recorded the deemed fair market value of the
Series D preferred stock as paid-in capital in September 1999 and the difference
between the purchase price and deemed fair market value as a dividend of $13.0
million which will be amortized over the first and second quarters of fiscal
2000 and will be included in our net loss attributable to common stockholders
for these periods.
As a result of this offering, the issuance costs of our outstanding preferred
stock of approximately $4.0 million will be included in our net loss
attributable to common stockholders for the period in which this offering is
completed.
We had approximately $52.7 million in net operating loss carryforwards at June
30, 1999 for income tax purposes. Utilization of the net operating loss
carryforwards may be subject to a substantial annual
29
<PAGE> 31
limitation due to the "change in ownership" provisions of the Internal Revenue
Code of 1986. The annual limitation may result in the expiration of net
operating losses before utilization of the losses.
Certain fiscal 1997 and 1998 revenue amounts have been reclassified to conform
to the fiscal 1999 presentation.
Our prospects must be considered in light of our limited operating history. We
face all the risks and uncertainties of early-stage companies. Our future
success depends upon, among other things, our ability to increase revenues from
our current sources and generate revenues from additional sources, including
specifically, our ability to:
- increase sales of subscriptions to the telecommunications and cable
television services offered on our network;
- convert daily members to monthly subscribers and otherwise increase our
revenue on a per subscriber basis;
- generate sales of subscriptions to our Internet access service;
- increase our resale of long distance telephone minutes;
- generate advertising revenue;
- generate revenues from electronic commerce through the portal we are
creating; and
- expand our prepaid phone card operations.
Recently, we significantly increased our costs for:
- additional personnel to expand our sales and marketing programs and in
connection with the creation of our portal website;
- the deployment of prepaid phone card machines at truckstops operated by a
major chain; and
- the publication of Connect!.
During the remainder of fiscal 2000, we plan to further increase our costs for:
- additional personnel to expand our sales and marketing programs and in
connection with the creation and maintenance, our portal website;
- the deployment of public Internet kiosks at certain truckstops;
- the installation of additional switching capacity necessary for our provision
of public phone operations at truckstops operated by two major truckstop
chains; and
- the addition of personnel in other areas to support the expansion of our
operations that our business model contemplates.
We also plan, following the completion of this offering, to deploy prepaid phone
card machines at additional truckstops and to continue our publication of
Connect!. In addition, beginning in November 2000, we will be required to make
the scheduled semiannual interest payments on our 13% notes from our available
cash. Prior to that time, we have made, or will make, the first four scheduled
interest payments from funds and securities in an escrow account.
Net Revenues
To date, our revenues have been generated principally from sales to long-haul
truck drivers of monthly subscriptions and daily memberships to the
telecommunications and cable television services offered on our network and, to
a lesser extent, from prepaid phone card operations, resale of long distance
telephone minutes, advertising and membership kits.
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<PAGE> 32
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
fiscal quarters.
<TABLE>
<CAPTION>
PERIOD MONTHLY SUBSCRIBERS DAILY MEMBERS
- ------ ------------------- -------------
<S> <C> <C>
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
</TABLE>
Because a substantial number of our subscriptions have historically been sold
through vending machines and due to the deployment of our network over a three
year period, our subscriptions have not followed the typical pattern exhibited
by a mature subscriber-based business with recurring and automatically renewing
subscriptions. In addition to monthly subscriptions purchased at vending
machines located at truckstops where our network is deployed, our monthly
subscribers consist of the following categories:
- Drivers whose subscription fees are automatically charged to their credit
cards or deducted from their checking accounts, until cancelled, under a
program we refer to as the "power plan program;"
- Fleet drivers whose subscription fees are automatically deducted from their
compensation, until cancelled, under our payroll deduction program in which
their fleets participate. As of October 31, 1999, 47 fleets were
participating; and
- Fleet drivers whose subscription fees are paid by their fleets. We have
contracts with nine fleets under which they have agreed to pay ongoing
monthly subscription fees over varying periods of time.
The following table sets forth our monthly subscribers by category during the
last month in each of our five most recent quarters:
<TABLE>
<CAPTION>
PERIOD POWER PLAN PAYROLL DEDUCTION FLEET FUNDED VENDING MACHINE
- ------ ----------- ----------------- ------------ ---------------
<S> <C> <C> <C> <C>
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
</TABLE>
Prior to the commencement of our power plan program in October 1997, all of our
monthly subscriptions were purchased at vending machines at truckstops at which
our network was deployed. Currently, all purchases of daily memberships are
limited to vending machines at these truckstops.
We market our telecommunications, cable television and Internet access services
directly, and indirectly through fleets, to long-haul truck drivers. During
February 1999, we temporarily significantly reduced our sales and marketing
force to conserve cash and believe that this had an adverse impact on our
subscription sales for the remainder of fiscal 1999. We also jointly market our
services directly to drivers with some truckstop chains. Subscribers first
purchase a membership card and starter kit for $10. This fee is waived for
subscribers under our ongoing monthly subscription programs. Drivers then
sign-up under an ongoing monthly subscription program or, alternatively,
purchase a monthly or daily card from vending machines at the truckstop. Monthly
subscribers receive a number of free long distance telephone minutes depending
on the package of services purchased. Our sales to truck drivers at our vending
machines are cash transactions completed at the point of sale. Under the power
plan program, a subscriber's monthly subscription is automatically renewed and
the monthly fee is automatically deducted from or charged to the subscriber's
checking account or credit card. Under the payroll deduction program, a
subscriber's monthly subscription is automatically renewed and the monthly fee
is automatically deducted from the subscriber's fleet compensation. Subscribers
under the power plan or payroll deduction programs may cancel their
subscriptions at any time.
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<PAGE> 33
We offer a $10 cash card located at truckstops where our network is deployed.
This card serves as an additional method of payment for the purchase of long
distance telephone minutes over our network and pay-per-view programming. A
truck driver generally pays for long distance telephone minutes with our cash
card or the driver's credit card. Truck drivers may also pay for these minutes
through payroll deductions.
We generally recognize revenue in the period earned. Pre-paid revenues are
recorded as deferred revenue until earned. Monthly subscription fees are
recorded as revenue ratably over the subscription period.
During the fourth quarter of fiscal 1999, we also began to generate revenue from
our prepaid phone card operations in one major truckstop chain and sales of
advertising principally in our Connect! magazine. In July 1999, we began to
offer Internet access service on our network free of charge on a promotional
basis. Beginning in November 1999, we intend to charge separate fees for monthly
subscriptions and daily memberships to this service. We also have recently begun
to offer a total communications solution to truckstop owners and operators
consisting of public phone and prepaid phone card operations as well as public
Internet kiosks. We contracted with two truckstop chains to provide one or more
of these services. We intend to offer these services to other truckstop owners
and operators. We have recently entered into an advertising agreement with Volvo
Trucks for its advertising on our advertising media and following the completion
of this offering, we intend to expand our sales and marketing efforts with
regard to sales of advertising. Our agreement with Volvo Trucks restricts until
July 2000 our ability to place advertising on our cable channel known as the
"Drivers' Entertainment Network" for products or services of Volvo Trucks'
competitors or on specified portions of our portal for trucks that compete with
Volvo's Trucks. Volvo Trucks may elect to extend this restriction until July
2001 for an additional $300,000 payment to us. Volvo Trucks can terminate this
agreement if our subscribers do not log-on to our network at least 160,000 times
each month in any three consecutive months.
Cost of Revenues
Our fixed operating expenses currently consist principally of:
- amortization and depreciation of the capitalized costs of our network,
prepaid phone card machines and increased switching capacity to accommodate
our public phone operations;
- cable programming, which we purchase on a per parking stall basis;
- T-1 lines, local telephone lines and routers for our frame relay, which are
installed at each truckstop at which our network is deployed;
- commissions paid to one truckstop chain under a contract we entered into in
the first quarter of fiscal 2000; and
- long distance telephone services under a contract with AT&T.
Our variable operating expenses consist principally of purchases of long
distance and other telephone services, commissions paid to truckstop operators
under our contracts with them for services through our network, payments to the
provider of certain components of our prepaid phone card operations, incentive
payments to one truckstop chain relating to subscription sales quotas and the
starter kit equipment.
Under our contracts with most truckstop operators, commission expenses are
generally:
- 35% of revenues, after deducting promotions and sales tax of approximately
$5.12 per subscription, from sales from on-site vending machines for the
first five years and 40% for the second five years; and
- with regard to subscriptions under our power plan program and payroll
deduction programs, 35% of revenues, after deducting promotions and sales tax
of approximately $8.60 per subscription, for the first month and 10% of
revenues thereafter.
The contracts further provide that we will pay an additional commission to
truckstop operators equal to 10% of their revenues from subscription sales to
fleets pro rata based on the number of their stalls. In
32
<PAGE> 34
addition, under our contract with one truckstop chain, our commissions payable
is a fixed amount plus an incentive payment that is determined based on its
satisfaction of monthly subscription sales quotas for each truckstop.
During late fiscal 1999, we significantly increased our operating expenses in
connection with the publication of our Connect! magazine and the commencement of
development of the portal and we expect costs incurred in these activities will
increase significantly at least during fiscal 2000. We expect our other
operating expenses to also significantly increase as we continue to buildout our
network and implement our business plan.
Selling Expenses
We market our network to drivers through a direct sales force and intend to
continue to maximize and expand this sales force following the completion of
this offering. We currently maintain additional sales personnel at 50 to 60 of
our largest truckstop locations. Our sales force also sells to fleet drivers
whose fleets have agreed to establish payroll deduction accounts. We also have a
sales force that sells our advertising media. Selling expenses have therefore
consisted principally of salaries, benefits, travel and marketing expenses. In
addition, we have marketed subscriptions through point-of-sale merchandising
materials and, at larger sites, through field sales representatives. We added
approximately 18 persons to our sales and marketing staff during the first
quarter of fiscal 2000 and intend to add at least 25 persons to this staff
during the second quarter of fiscal 2000.
General and Administrative Expenses
We significantly increased the size of our management team during fiscal 1999
and the number of our full-time employees increased to 215 as of June 30, 1999
from 174 as of June 30, 1998, which resulted in an increase in general and
administrative expenses. We expect that general and administrative expenses will
increase substantially as we expand our sales and marketing programs, operations
and administrative staff to support the expansion of our operations that our
business plan contemplates. Such expenses will be incurred in advance of any
anticipated related revenues. We also will incur public relations expense in
fiscal 2000.
RESULTS OF OPERATIONS
Year Ended June 30, 1999 Compared to Year Ended June 30, 1998
Revenues. Our net revenues increased 143% to $8.5 million for fiscal 1999, from
$3.5 million for fiscal 1998. Service revenues increased 148% to $8.2 million
for fiscal 1999 from $3.3 million for fiscal 1998. The increase in revenues for
fiscal 1999 was primarily due to increases in sales of subscriptions to our
network and to a lesser extent, sales of long distance time.
Cost of Revenues. Cost of revenues, excluding service depreciation, increased
138% to $11.2 million for fiscal 1999 from $4.7 million for fiscal 1998. This
increase was principally due to costs associated with the increase in the number
of sites of our network, the costs associated with the increase in sales volume
and routing equipment leases incurred in connection with upgrading our network.
Service costs (which includes commission payable to truckstops, cable
programming, leased telephone lines and purchased long distance minutes, starter
kits, freight, site repairs and routing equipment leases incurred in connection
with the upgrading the cost of phone lines and purchased long distance minutes)
increased 188% to $9.5 million for fiscal 1999 from $3.3 million for fiscal
1998. This increase was due to the increase in the number of sites, long
distance telephone minutes included with memberships and the addition of T-1
lines, which began to be installed at our sites in the three month period ended
December 31, 1998. Service depreciation increased $2.6 million to $4.5 million
for fiscal 1999 from $1.9 million for fiscal 1998. This increase in service
depreciation reflects the additional buildout of our network. As we increase the
number of truckstops at which our network is deployed, we believe that cost of
revenues will increase significantly. Fixed costs are a significant portion of
the cost of revenues and as the number of new sites increase, fixed costs will
continue to increase.
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<PAGE> 35
Selling Expense. Selling expense increased 67% to $8.7 million for fiscal 1999
from $5.2 million for fiscal 1998. This increase was primarily attributable to
an increase in salaries, travel and marketing expenses. Salaries increased 43%
to $4.0 million for fiscal 1999 from $2.8 million for fiscal 1998. Travel and
per diem expenses increased 18% to $1.3 million for fiscal 1999 from $1.1
million for fiscal 1998. Marketing expenses increased 173% to $3.0 million for
fiscal 1999 from $1.1 million for fiscal 1998. This increase in salaries and
travel reflects the additional sales personnel needed for new sites. This
increase in marketing expenses reflects additional marketing efforts to increase
our subscriptions to services offered on our network.
General and Administrative Expenses. General and administrative expenses
increased 108% to $10.8 million for fiscal 1999 from $5.2 million for fiscal
1998. The increase was primarily attributable to an increase in salaries, travel
and professional fees. Salaries increased 122% to $5.1 million for fiscal 1999
from $2.3 million for fiscal 1998. Travel and per diem expenses increased 175%
to $1.1 million for fiscal 1999 from $.4 million for fiscal 1998. Professional
fees increased 25% to $.5 million for fiscal 1999 from $.4 million for fiscal
1998.
Stock-Based Compensation Expense. During the third and fourth quarters of
fiscal 1999, we granted options to purchase our common stock to employees and
consultants at exercise prices which we have determined were below the deemed
fair market value of our common stock on the grant dates for financial reporting
purposes. As a result of these options, we recorded total deferred stock
compensation expense of $13.4 million which is being amortized over the vesting
period of the options, generally three to four years, in accordance with APB 25
and recognized stock-based compensation expense of approximately $5.0 million in
fiscal 1999.
Interest Income (Expense) and Other-Net. Interest income (expense) and
other-net increased to ($7.9 million) for fiscal 1999 from ($.2 million) of
interest expense and other-net for fiscal 1998. The additional net interest
expense for fiscal 1999 compared to fiscal 1998 is primarily attributable to the
interest expense on our 13% notes in the aggregate principal amount of $75.0
million issued in May 1998.
Net Loss. Our net loss increased 191% to $39.8 million for fiscal 1999 from
$13.7 million for fiscal 1998. We expect to incur significant net losses and
negative cash flow from operations for the foreseeable future.
Year Ended June 30, 1998 Compared to Year Ended June 30, 1997
Revenues. Our net revenues increased 289% to $3.5 million for fiscal 1998 from
$.9 million for fiscal 1997. This increase in net revenues was primarily due to
additional subscription sales.
Cost of Revenues. Cost of revenues, excluding service depreciation, increased
236% to $4.7 million for fiscal 1998 from $1.4 million for fiscal 1997
principally due to increased sales volume. Cost of revenues includes commissions
payable to truckstops, cable programming, leased telephone lines, equipment and
freight. Service depreciation increased 217% to $1.9 million for fiscal 1998
from $.6 million for fiscal 1997 resulting primarily from increased buildout of
our network.
Selling Expenses. Selling expenses increased 271% to $5.2 million for fiscal
1998 from $1.4 million for fiscal 1997. This increase was primarily attributable
to an increase in salaries, travel, and marketing expenses. Salaries increased
300% to $2.8 million for fiscal 1998 from $.7 million for fiscal 1997. Travel
expenses increased 450% to $1.1 million for fiscal 1998 from $.2 million for
fiscal 1997. Marketing expenses increased 175% to $1.1 million for fiscal 1998
from $.4 million for fiscal 1997. This increase in salaries, travel and
marketing expenses reflects additional sales personnel and marketing efforts for
new sites.
General and Administrative Expenses. General and administrative expenses
increased 68% to $5.2 million for fiscal 1998 from $3.1 million for fiscal 1997.
This increase was primarily attributable to an increase in salaries,
professional fees and rent. Salaries increased 77% to $2.3 million for fiscal
1998 from $1.3 million for fiscal 1997. This increase was due to additional
administrative personnel to support additional sites. Professional fees
increased 300% to $.4 million for fiscal 1998 from $.1 million for fiscal 1997
primarily
34
<PAGE> 36
due to our need for accounting and legal assistance. Building rent increased
300% to $.4 million for fiscal 1998 from $.1 million for fiscal 1997 due to the
increase in office and warehouse space.
Interest Income (Expense) and Other-Net. Interest income (expense) and
other-net decreased $.4 million to ($.2 million) for fiscal 1998 from $.2
million for fiscal 1997, reflecting an increase in interest income of $.5
million from investment of cash in short-term investments and an increase in
interest expense and other-net of $.9 million. This increase in interest expense
is primarily related to interest on our 13% notes. See note 5 of notes to
financial statements.
Net Loss. Our net loss increased 128% to $13.7 million for fiscal 1998 from
$6.0 million for fiscal 1997 primarily as a result of the foregoing factors.
Year Ended June 30, 1997 Compared to Period from September 18, 1995 (Date of
Incorporation) to June 30, 1996
Revenues. Our net revenues increased 350% to $.9 million for fiscal 1997 from
$.2 million for the period from September 18, 1995 to June 30, 1996 (the "fiscal
1996 period"). Service revenues increased 700% to $.8 million for fiscal 1997
from $.1 million for the fiscal 1996 period. Equipment sales decreased 32% for
fiscal 1997 to $52,000 from $77,000 for the fiscal 1996 period. Advertising
revenue increased 475% for fiscal 1997 to $23,000 from $4,000 for the fiscal
1996 period. Other revenues increased $58,700 for fiscal 1997 to $59,000 from
$300 for the fiscal 1996 period. This increase in service revenue reflects
additional subscription membership to our network and the decrease in equipment
sales is the result of our discontinuing the selling of telephone kits to the
truckstop. This increase in advertising revenue was principally due to a
contract for advertising on our network. This increase in other revenues was due
to the sale of surplus cable equipment.
Cost of Revenues. Cost of revenues, excluding service depreciation, increased
250% to $1.4 million for fiscal 1997 from $.4 million for the fiscal 1996 period
principally due to increased subscription sales volume. Service depreciation
increased 600% to $.6 million for fiscal 1997 from $.1 million for the fiscal
1996 period.
Selling Expenses. Total selling expenses increased 180% to $1.4 million for
fiscal 1997 from $.5 million for the fiscal 1996 period. Salaries increased 600%
for fiscal 1997 to $.7 million from $.1 million for the fiscal 1996 period.
Marketing expenses increased 100% for fiscal 1997 to $.4 million from $.2
million for the fiscal 1996 period. This increase in salaries, travel and
marketing expenses was primarily due to additional sales personnel and marketing
efforts to support the new sites built during the year.
General and Administrative Expenses. Total general and administrative expenses
increased 182% to $3.1 million for fiscal 1997 from $1.1 million for the fiscal
1996 period. Salaries increased 225% for fiscal 1997 to $1.3 million from $.4
million for the fiscal 1996 period. Travel expenses increased 300% for fiscal
1997 to $.4 million from $.1 million for the fiscal 1996 period. This increase
reflects the addition of administrative personnel to support sites built
throughout the year.
Interest Income (Expense) and Other-Net. Interest income (expense) and
other-net increased 300% to $.2 million for fiscal 1997 from ($.1 million) for
the fiscal 1996 period reflecting an increase in interest income of $.3 million
from investment of cash in short-term investments and a gain on a sale of fixed
assets of $26,000, which was partially offset by an increase in interest expense
of $54,000. The principal amount of the related debt securities, together with
interest accrued thereon, was converted by the holders thereof into shares of
Series A preferred stock. See the section entitled "Certain Transactions" and
note 5 of notes to financial statements.
Net Loss. Our net loss increased 200% to $6.0 million for fiscal 1997 from $2.0
million for the fiscal 1996 period primarily as a result of the foregoing
factors.
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<PAGE> 37
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly results of operations
data for the eight quarters ended June 30, 1999. Our management believes that
this information has been prepared substantially on the same basis as the
audited financial statements appearing elsewhere in this prospectus, and all
necessary adjustments, consisting only of normal recurring adjustments, have
been included in the amounts stated below to present fairly the unaudited
quarterly results of operations. The quarterly data should be read in
conjunction with our audited financial statements and notes to financial
statements appearing elsewhere in this prospectus. The operating results for any
quarter are not necessarily indicative of the operating results for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1998 1998 1998 1998
------------- ------------ ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................... $ 568,942 $ 669,478 $ 868,037 $ 1,397,319 $ 1,723,787 $ 1,985,412
Cost of revenues:
Service cost.................... 496,142 683,954 933,687 1,222,393 1,513,006 2,300,751
Service depreciation............ 303,096 396,442 512,311 694,883 822,652 1,047,954
Equipment cost.................. 221,410 253,945 296,251 584,479 367,241 579,471
Advertising..................... -- 4,399 10,325
----------- ----------- ----------- ----------- ----------- -----------
Total cost of revenues......... 1,020,648 1,334,341 1,742,249 2,501,755 2,707,298 3,938,501
----------- ----------- ----------- ----------- ----------- -----------
Gross margin................... (451,706) (664,863) (874,212) (1,104,436) (983,511) (1,953,089)
Selling, general and
administrative expenses......... 1,719,951 2,212,037 2,571,078 3,875,405 3,602,680 5,338,719
Stock-based compensation......... -- -- -- -- -- --
Write-down of equipment.......... -- -- -- 35,151 -- --
----------- ----------- ----------- ----------- ----------- -----------
Loss from operations............. (2,171,657) (2,876,900) (3,445,290) (5,014,992) (4,586,191) (7,291,808)
Interest expense................. 9,709 11,226 3,014 1,006,645 2,644,737 2,596,997
Interest income and other........ (126,272) (160,171) (110,999) (408,244) (749,246) (797,106)
----------- ----------- ----------- ----------- ----------- -----------
Net loss....................... (2,055,094) (2,727,955) (3,337,305) (5,613,393) (6,481,682) (9,091,699)
Preferred stock dividends and
amortization of preferred stock
issuance costs.................. (531,418) (730,343) (728,082) (802,694) (691,704) (714,281)
Accretion of Series C Preferred
shares to fair value............ -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net loss attributable to common
stockholders................. $(2,586,512) $(3,458,298) $(4,065,387) $(6,416,087) $(7,173,386) $(9,805,980)
=========== =========== =========== =========== =========== ===========
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 31, JUNE 30,
1999 1999
----------- ------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................... $ 2,287,604 $ 2,455,917
Cost of revenues:
Service cost.................... 2,713,624 2,936,811
Service depreciation............ 1,259,697 1,387,547
Equipment cost.................. 434,064 292,414
Advertising..................... 27,510 19,313
----------- ------------
Total cost of revenues......... 4,434,895 4,636,085
----------- ------------
Gross margin................... (2,147,291) (2,180,168)
Selling, general and
administrative expenses......... 4,587,833 6,017,092
Stock-based compensation......... 250,000 4,785,315
Write-down of equipment.......... -- --
----------- ------------
Loss from operations............. (6,985,124) (12,982,575)
Interest expense................. 2,678,414 2,594,462
Interest income and other........ (461,296) (580,683)
----------- ------------
Net loss....................... (9,202,242) (14,996,354)
Preferred stock dividends and
amortization of preferred stock
issuance costs.................. (728,513) (708,105)
Accretion of Series C Preferred
shares to fair value............ -- (88,420)
----------- ------------
Net loss attributable to common
stockholders................. $(9,930,755) $(15,792,879)
=========== ============
</TABLE>
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<PAGE> 38
LIQUIDITY AND CAPITAL RESOURCES
Since our incorporation in September 1995, we have satisfied our cash
requirements through the proceeds of sales of common stock, sales of preferred
stock, certain debt securities and 13% notes which we sold together with
warrants to purchase 505,375 shares of our common stock. To date, we have raised
more than $140.0 million in debt and equity capital.
From November 1995 to November 1996, in connection with our capitalization,
certain investment limited partnerships managed by Patricof & Co. Ventures, Inc.
invested $3.8 million, purchasing shares of our Series A preferred stock and our
common stock as well as debt securities. In November 1996, a group of investors
comprised of the funds managed by Patricof and certain partners in such funds
made an additional $15.0 million investment in PNV, purchasing shares of our
Series B preferred stock. In August 1997, a group of investors, led by a
subsidiary of The Hillman Company, invested $18.6 million, purchasing shares of
our Series C preferred stock.
In May 1998, we sold an aggregate $75.0 million of units consisting of our 13%
notes due 2008 and 75,000 warrants to purchase 505,375 shares of common stock
for $.01 per share. We received net proceeds after commissions, but before
offering expenses, of $72.4 million. The indenture governing our 13% notes does
not contain any financial ratios or tests that we are required to satisfy.
In September 1999, ABRY Broadcast Partners III, L.P., Halpern Denny Fund IV,
L.P. and Cummins Engine Company, Inc. purchased a total of 3,000,000 shares of
our Series D preferred stock for $10.50 per share. We received net proceeds
after commissions, but before offering expenses, of $29.6 million.
Net cash used in operating activities was $29.3 million for fiscal 1999, $9.4
million for fiscal 1998 and $3.4 million for fiscal 1997. The $19.9 million
increase in net cash used in operating activities for fiscal 1999 as compared to
fiscal 1998 resulted primarily from an increase in cost of revenues and selling,
general and administrative activities. The $6.0 million increase in net cash
used in operating activities for fiscal 1998 as compared to fiscal 1997 resulted
primarily from increased marketing and additional staff to support the larger
number of sites and subscribers.
Net cash (used in) provided by investing activities was $14.4 million for fiscal
1999, ($63.9 million) for fiscal 1998 and ($6.4 million) was used in fiscal
1997. The $78.3 million change in net cash provided by investing activities for
fiscal 1999 as compared to fiscal 1998 resulted primarily from the purchase of
short-term investments in 1998 after the receipt of the proceeds from the $75.0
million unit offering and the subsequent sale of the short-term investments in
1999 to support our operations and to increase the buildout of our network. The
$57.5 million increase in net cash used in investing activities for fiscal 1998
as compared to fiscal 1997 resulted primarily from the additional buildout of
our network and the purchase of short-term investment securities.
Net cash (used in) provided by financing activities was ($.8 million) for fiscal
1999, $88.4 million for fiscal 1998 and $14.2 million for fiscal 1997. The $89.2
million decrease in net cash provided by financing activities for fiscal 1999 as
compared to fiscal 1998 was because no additional financing was obtained in
fiscal 1999. The $74.2 million increase in net cash provided by financing
activities for fiscal 1998 as compared to fiscal 1997 resulted primarily from
the issuance of Series C preferred stock and an offering of units consisting of
our 13% notes and warrants to purchase 505,375 shares of common stock.
During fiscal 1999, our working capital decreased $38.3 million. The decrease
was primarily attributable to a decrease in cash and cash equivalents of $15.7
million and a decrease in short-term investments of $23.7 million, as a result
of operating losses, and an increase in accrued interest of $.3 million.
We had capital expenditures of $17.9 million in fiscal 1999 related principally
to the deployment of our network at approximately 102 truckstops. Our capital
expenditures for fiscal 1999 also related to our purchase of prepaid phone card
machines and the installation of increased switching capacity related to our
public phone operations. In addition, component equipment has decreased to $2.7
million as of June 30, 1999. It is anticipated that such amount may increase in
the near term to support the installations of our network. Component equipment
is temporarily staged at our warehouse until all equipment for a site is
37
<PAGE> 39
received, certain assembly operations are complete and the site is ready to
accept the equipment for installation. The period of time that the component
equipment is staged at our warehouse is approximately 45 days and the
construction period at the site is approximately 30 days. Accordingly the time
period between the date of acquisition of the component equipment and the
completion date for the installation at the site is approximately 75 days. The
level of equipment inventory at any point of time will be dependent upon the
anticipated number of truckstops at which our network will be installed during
the next 75 days. An increase in component equipment will adversely affect
liquidity by the amount of such increase.
We currently estimate that our capital expenditures for fiscal 2000 will consist
of the following, among others:
- $12.0 million for the deployment of our network at approximately 80
additional truckstops;
- $2.2 million for the installation of additional switching capacity related to
our public phone operations, leasehold improvements and equipment for our
headquarters and the purchase of additional prepaid phone card machines; and
- up to $4.5 million for the purchase of public Internet kiosks.
Our capital commitments consist primarily of capital leases, commissions payable
to one truckstop chain, noncancelable leases of routers for our frame relay and
contracts for T-1 lines and for long distance and other telephone services.
Pursuant to our principal contract with AT&T for obtaining T-1 lines, we are
required to purchase T-1 lines having a value at our discounted rates, of at
least $2.0 million during the first year of operation, which corresponds to
approximately 200 of the T-1 lines currently provided to us by AT&T, and $3.0
million in each of the second and third years, which corresponds to
approximately 300 T-1 lines. The first year of operation under this contract
commenced March 1999. In addition, our contract with AT&T for long distance and
other telephone services requires us to purchase each month services having a
discounted price of $40,000 for a two-year period that began August 1998.
At June 30, 1999, our minimum commitments under capital leases and noncancelable
operating leases with terms in excess of one year, including commitments under
the contracts relating to our purchase of T-1 lines and long distance services
and the routers for our frame relay, totaled $4.7 million, $4.7 million, $3.1
million and $49,000, for the four years ending June 30, 2000 through 2003,
respectively. See note 4 of notes to financial statements.
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
two interest payments and intend to make the next two interest payments from
funds and securities in an escrow account established in connection with and
from the proceeds of our sale of these notes. Beginning with the November 2000
scheduled interest payment, we will be required to make these interest payments
from our available cash.
Our cash and short-term investments as of June 30, 1999 was approximately $12.5
million available for working capital.
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 we will have significant capital requirements in the future to fund
our anticipated capital expenditures and for working capital purposes. We expect
that the net proceeds of this offering, together with existing cash and
anticipated cash generated by operations, will be sufficient to meet our working
capital and capital expenditure 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, debt or other
financing is not available, we expect that we may experience insufficient
liquidity which could have a material adverse effect on our financial condition
and results of operations. There can be no assurance that additional financing
will be available when needed, if at all, or, if available, on terms acceptable
to us. If adequate funds are not available on acceptable terms, we will be
required to delay or limit any further expansion of our business. Any inability
to fund our future capital requirements could have a material adverse effect on
our business, financial condition and operating results.
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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 will be
substantially complete when IBM completes its services for us during the third
quarter of 1999.
On a preliminary basis, 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 $186,000 payable to IBM for their project
management, implementation assistance and other services. This estimate also is
based on the belief that no major problems will be encountered in becoming Year
2000 compliant.
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.
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
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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, prior to the end of
1999, 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.
Our expectation that, with the assistance of IBM, we will be able to upgrade our
services, systems and equipment to address the Year 2000 issue and our
expectation regarding the costs associated with these upgrades are
forward-looking statements subject to a number of risks and uncertainties.
Actual results may vary materially as a result of a number of factors. We cannot
assure you that we will be able to timely and successfully modify our services,
systems and equipment to comply with Year 2000 requirements. Any failure to do
so could adversely affect our network and customer dissatisfaction could
adversely affect usage of our network. Furthermore, 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 are not detected and fixed or third parties cannot 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including
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those set forth in the section entitled "Risk Factors." We do not use any
derivative financial instruments for hedging, speculative or trading purposes.
As of June 30, 1999, we had short-term investments and restricted investments of
approximately $8.4 million and $10.7 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 increase. A hypothetical increase or
decrease in market interest rates by 10 percent from the June 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 June 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 June
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.
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BUSINESS
INTRODUCTION
We are the leading provider of bundled telecommunications, cable television and
Internet access services to truck drivers in the privacy and convenience of
their truck cabs. We also provide telecommunications and Internet access
services to other participants in the trucking community. Our current customers
include drivers, long-haul trucking fleets, truckstop operators, and trucking
industry suppliers and manufacturers. As of September 30, 1999, we had deployed
our private, integrated network at 237 truckstops in 41 states through which we
offer telecommunications, cable television and Internet access services to
fleets and truck drivers in the privacy of the truck cab, as well as
comprehensive telecommunications services to truckstop operators for the public
areas inside the truckstop. We have no direct competitors for our bundled in-cab
services. During October 1999, we had approximately 27,000 monthly subscribers
and 10,000 daily members. To date, we have raised more than $140.0 million in
debt and equity capital, which has allowed us to deploy our network and
establish our brand name in the trucking industry. We believe that our
competitive advantages position us to become the preferred provider of
communications and Internet-based information solutions to the trucking
community. These competitive advantages include:
- our integrated nationwide network which allows us to deliver our bundled
telecommunications, cable television and Internet access services to truck
drivers in the privacy and convenience of their truck cabs;
- our strategic relationships with major truckstop operators and major industry
suppliers, such as TravelCenters of America, Pilot, Volvo Trucks and Cummins
Engine, as well as our brand name recognition in the trucking industry. We
have entered into long-term contracts with the operators of approximately 450
of the approximately 1,100 full service truckstops across the country. We
also have contracts with trucking associations representing more than 300
additional independent truckstops that permit us to offer our services to
their members; and
- the flexible and cost-efficient design of our network, which enables us to
offer a private full-service telecommunications network to the entire
trucking community.
We believe our competitive advantages position us to offer our services and
products to additional drivers, long-haul trucking fleets, truckstop operators
and trucking industry suppliers and manufacturers, as well as other trucking
industry participants. We currently offer:
- in-cab telecommunications and cable television services to truck drivers and
fleets, including incoming and outgoing local and long distance calling,
basic and premium cable television, as well as value-added communications
services, including a locator service, voice mail and wake-up calls;
- Internet access as an Internet service provider, as well as content and
applications on our portal website, to truck drivers and their families,
fleets and industry suppliers. These offerings are available in the truck cab
or any other Internet access point. They will also be available through
public Internet kiosks which we are deploying inside certain truckstops;
- a total telecommunications solution inside the truckstops for truckstop
operators, including prepaid phone cards, public phone operations and public
Internet kiosks; and
- advertising for industry suppliers and other industry participants through
our cable channel known as the "Drivers' Entertainment Network," our monthly
television programming guide and lifestyle magazine, Connect!, our portal
website and our voice response system.
We believe the Internet will become a significant communications and commerce
medium for the trucking community. We intend to capitalize on our position as
the leading provider of bundled telecommunications, cable television and
Internet access services to truck drivers in the privacy and convenience of
their truck cabs, and with others as a provider of telecommunications and
Internet access services, by providing
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a leading trucking industry portal website and expanding our network to improve
the lifestyles of drivers and their families and the trucking industry's work
efficiencies. We are creating this portal website to have the following
components:
- business-to-business electronic commerce applications that provide a platform
for fleets, drivers and industry suppliers to exchange information and
conduct transactions, such as load posting, freight matching and classified
ads;
- business-to-consumer electronic commerce applications that allow drivers and
constituent groups to purchase goods and services for their personal and
occupational use, including books, music, parts and electronics;
- advertising opportunities that allow advertisers to market their products,
provide links to their websites and target the driver market which has unique
demographic characteristics;
- specialized content on a wide variety of subjects of interest to the trucking
community and those who interact with the industry; and
- a "life style" segment that provides truck drivers with interactive tools and
services that permit them to personalize their on-line experience, including
e-mail, chat rooms, news, weather and games.
The foundation for our bundled telecommunications, cable television and Internet
access services is our private, integrated nationwide network. Our network
utilizes Cisco routers, PC-based private branch exchange switches with
proprietary software, modem banks and a cable headend system, as well as a
dedicated backbone that connects all sites to a central server at our
headquarters in Coral Springs, Florida. Our network provides flexible voice and
data channels and dedicated long distance and Internet access.
INDUSTRY BACKGROUND
Trucking Industry. The trucking industry consists of originating shippers,
end-point receivers, freight haulers, equipment suppliers, truckstop operators,
individual drivers and an extended network of service providers. According to
the American Trucking Association, the estimated truck freight revenue in the
United States for 1997 was $371 billion. According to industry data, the
trucking industry has experienced an increase in intercity ton-miles every year
from 1987 through 1997 and a compound annual average growth rate of
approximately 4.7% over this 10-year period.
Industry data and a survey of approximately 800 truck drivers conducted for us
in December 1998 by a third party research firm indicate that the long-haul
trucking industry is telecommunications intensive. We believe that long-haul
drivers spend over $2.0 billion annually on long distance services while on the
road, excluding data, Internet access and messaging.
Our target customers are drivers, long-haul trucking fleets, truckstop
operators, advertisers and trucking industry suppliers, as well as other
trucking industry participants.
Drivers. Based on independent market research commissioned by us in September
1999, we estimate there are between 800,000 to 1,000,000 drivers in the United
States who regularly sleep in their cabs. This September 1999 research and our
December 1998 survey indicate that long-haul truck drivers spend an average of
between 19 and 23 days a month on the road. Industry data indicates that truck
drivers earn an average of approximately $30,000 to $50,000 per year. According
to our December 1998 survey, approximately 21% of long-haul truck drivers have
personal computers in their cab and approximately 30% of long-haul truck drivers
can access the Internet from home. A significant portion of the time a long-haul
truck driver spends on the road is spent at truckstops since:
- federal regulations prescribe minimum periods that a driver must be off-duty
during any one day;
- there frequently are restrictions on the roads and streets on which a
long-haul truck can travel;
- many truckstops have fueling agreements with fleet trucking companies that
require refueling at certain specified truckstops; and
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- many full service truckstops provide a variety of services to long-haul truck
drivers, including showers, pay telephones, television rooms and stalls for
parking trucks.
While on the road, drivers need access to telecommunications and entertainment
services. Long-haul drivers must stay in regular contact with customers and
fleet dispatchers to coordinate load pickup, delivery, and routes. Truck drivers
also use telephones for personal communications purposes to stay in touch with
family and friends. According to our December 1998 survey, while on the road,
long-haul drivers use an average of approximately 1,100 minutes of long distance
a month. Drivers' options for entertainment while on the road are generally
limited to community television and video game rooms at truckstops. These
facilities are typically crowded, afford drivers little programming choice or
privacy, and are uncomfortable. Drivers can purchase satellite television
systems for their cabs, but these systems are cumbersome to install and have
relatively high up front costs and monthly subscription fees. We believe that
communications and entertainment services that provide privacy, choice and
flexibility are highly valued by drivers.
Truckstop Operators. According to industry data from 1997, there are
approximately 2,000 truckstops in the United States along the interstate highway
system, of which approximately 1,100 are full-service truckstops that provide
more than just fuel. A large number of truckstops are affiliated with or owned
by chains that maintain centralized control over operations. Full service
truckstops, generally located on major interstate highways, offer a wide range
of services for drivers and fleets including fueling facilities, certified
scales, repair facilities, restaurants, community television and game rooms,
public telephones and showers. These truckstops are the primary location at
which long-haul truck drivers stop to fuel, eat, shower, and park for their rest
periods, overnight stays and layovers. This is due to the range of services that
these truckstops offer, their location and the obvious limitations that a large
truck has in stopping at other venues, including regular gas stations, fast food
restaurants, malls and motels. Therefore, truckstops are the primary location at
which drivers conduct business with fleets and customers, communicate with
family and friends, and seek entertainment. Truckstop operators traditionally
have had to utilize multiple vendors and solutions to address their
telecommunication needs inside the truckstop, resulting in inefficient and
sub-optimal services. We believe truckstop operators have come to view
telecommunications as an important service and are seeking a complete suite of
telecommunication services, including prepaid phone cards, in stop phone
operations, in-bound and out-bound long distance, control over dial around
compensation for fleets and in-stop public Internet access.
Long-Haul Trucking Fleets. We believe there are over 750 trucking fleets in our
target market. Fleets must manage uniquely complex information and logistics
issues. In this industry, practically all of a fleet's assets are moving and
destinations are not consistent or, in some cases, even known until the load is
assigned. Fuel taxes must be filed quarterly, by state, for every mile driven in
that state and reconciled with taxes paid at the pump in each state by each
truck. Fleets and drivers must have logbooks updated, cargoes permitted,
manifests maintained, deliveries verified and billing initiated. Fleets have to
manage payroll for a mobile work force and that work force has to access funds
while on the road. This complexity, coupled with the relative lack of in-house
information management resources at the trucking companies, their suppliers and
customers, creates a tremendous opportunity to deliver information, data and
transaction-based services to all participants in this industry. An additional
significant issue facing the long-haul trucking industry is driver turnover. We
believe that many fleet trucking companies attempt to reduce costs of $3,000 to
$5,000 per driver associated with annual driver turnover approximating 100% and
to mitigate this driver turnover by seeking ways to improve the quality of life
for long-haul truck drivers on the road. We believe that services which address
the fleets' needs for efficient communication with drivers and customers and
effective management of high driver turnover rates are highly valued.
Trucking Industry Suppliers and Other Participants. The trucking industry is
served by a wide array of suppliers ranging from large truck manufacturers and
small accessory providers to financial service providers and load brokers. We do
not believe there is currently any comprehensive effective way for drivers,
long-haul trucking fleets, truckstop operators and trucking industry suppliers,
as well as other industry participants, to exchange information and conduct
transactions. For example, drivers looking for information on available loads
and destinations rely primarily on systems that provide information via text
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scrolling at public video monitors in truck stops. The information is not
categorized and is not searchable. Some truck manufacturers install on-board
computers that capture significant engine performance information, but still
lack the means for regular or efficient access to this data. We believe that,
increasingly, the Internet will develop into a data communications, commerce and
advertising pipeline for industry suppliers.
BUSINESS STRATEGY
Our objective is to capitalize on our position as the leading provider of
bundled telecommunications, cable television, and Internet access services to
truck drivers in the privacy and convenience of their truck cabs, and our
relationships with others in the trucking community, to become the preferred
provider of communications and Internet information solutions to the trucking
community. We plan to achieve our objective by:
- Continuing to deploy our network at additional truckstops and increasing
subscription sales. We intend to continue to deploy our network at
additional full-service truckstop locations, doubling by June 2002 the number
of truckstops at which our network is currently available. We believe that
the availability of our network at a larger number of truckstops, together
with our proposed marketing efforts and initiatives, will allow us to
increase our subscription sales to drivers and fleets.
- Becoming the leading trucking industry portal website. We are creating our
trucking industry portal website and adapting traditional trucking industry
applications for the Internet to allow all participants in this vertical
market to communicate with each other, obtain industry-related information
and entertainment, and conduct commerce. Through the portal, we expect to
offer various business-to-business and business-to-consumer applications,
including applications unique to the industry, such as load posting, freight
matching and classified ads. We also intend to sell advertising on our
website.
- Extending our brand name recognition. We intend to promote our strong brand
name in the trucking community and believe we will benefit from being an
early provider of content and services dedicated to the trucking community.
We believe that increasing the recognition of our strong brand name will
generate traffic growth on our portal and allow us to increase our
advertising revenues.
- Leveraging our position as an Internet service provider. We intend to use
our Internet access service to attract and retain subscribers by providing
connectivity between drivers, their families, fleets, truckstops, industry
suppliers and other industry participants. Our service allows drivers at
truckstops at which our network is deployed to access the Internet via a
local call from their truck cab.
- Providing a total communications solution to truckstop operators. We
recently contracted with TravelCenters of America, the largest truckstop
chain in the United States, to provide a total telecommunications solution
inside its truckstops, including public phone and prepaid phone card
operations, as well as public Internet kiosks. We intend to offer this
solution to other major truckstop chains.
- Providing comprehensive data and voice solutions to fleets and industry
suppliers. We intend to offer services to fleets and industry suppliers that
will allow them to install gateways into our network which will permit data
and voice communications among drivers, fleets and industry suppliers. We
also plan to offer fleets and industry suppliers the ability to integrate
their intranet sites with our network to access additional tools and
services.
- Expanding our entertainment services. We intend to expand our cable
television services to include additional programming, pay-per-view and other
channels specifically targeted to the trucking community that will increase
interest in our network among drivers and advertisers. In addition, we are
designing our portal website to provide content of interest to truck drivers
and other trucking community participants, as well as general information,
including news, weather, sports and entertainment.
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- Maximizing and expanding our strategic relationships. We intend to expand
our relationships with trucking industry participants, including truckstop
operators, fleets and suppliers, including Volvo, to provide additional
distribution channels for our services and additional sources of advertising
revenue. We plan to continue to expand our sales force, focusing on driver
subscriptions funded through fleet payroll deduction programs. We have also
recently begun to offer several different bundled offerings and price points
for our services and plan to simplify the initial subscription process.
PRODUCTS AND SERVICES
The following chart sets forth our current and planned services and target
customers.
<TABLE>
<CAPTION>
LOCAL AND LONG CABLE INTERNET WEB BASED
DISTANCE TELEVISION ACCESS CONTENT AND PUBLIC INTERNET
CUSTOMERS TELECOMMUNICATIONS SERVICE ADVERTISING SERVICE APPLICATIONS KIOSKS
--------- ------------------ ---------- ----------- -------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Individual drivers - - - - - -
Fleets - - - - - X
Truck stops - - - - - -
Original equipment - - - X X N/A
manufacturers
Other product and X N/A - X X N/A
service providers
</TABLE>
- ---------------------------
- - Current Services and Target Customers
X Planned Services and Target Customers
N/A Not Applicable
Current Services
We currently offer:
- in-cab telecommunications and cable television services;
- Internet access service, as well as content and applications on our portal
website;
- comprehensive telecommunications services and public Internet kiosks to
truckstop operators; and
- advertising opportunities for industry suppliers and others.
Telecommunications and Cable Television Services. We provide local and long
distance telephone services and cable television service to truck drivers in the
privacy of their cabs. Subscriptions can be purchased from vending machines at
truckstops that dispense cards similar to prepaid phone cards or, in the case of
monthly subscriptions, can be automatically billed to a credit card or checking
account or automatically deducted from the driver's compensation if we have a
payroll deduction arrangement with the driver's fleet. Services are sold both
individually and in a bundled package. As part of a subscription, the user
obtains a membership card and kit that includes a telephone, coaxial and
telephone cable and an owner's manual for a $10 fee, which is waived for fleet
and ongoing monthly subscribers. A subscriber accesses our network by plugging
the coaxial and telephone cable into a bollard installed at each parking stall
at a truckstop. The subscriber then dials * and logs on to our network. A
computerized voice response prompts the subscriber to enter the subscriber's
membership number. If the subscriber is a daily member or monthly subscriber,
the computer prompts the user to enter the member's or subscriber's daily or
monthly card number. If the member or subscriber is in good standing, service is
activated and the member or subscriber has access to telephone, cable television
and Internet services.
We market long distance services primarily to individual drivers. Users purchase
the minutes by charging a credit card or using a "cash card" purchased from our
vending machine at the truckstop. We also have a payment plan that allows fleet
drivers to purchase long distance minutes for personal use through payroll
deductions. The cash card is a multi-purpose prepaid card, the value of which
can be applied to the
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purchase of various services, including long distance minutes and premium
programming. We anticipate that, in the future, the cash card can be used as a
payment mechanism for certain additional services.
The basic cable television service at most truckstops currently features 13
basic channels, including ABC, CBS, NBC, Fox and our Drivers' Entertainment
Network, as well as CNN Headline News, ESPN and The Weather Channel. We also
offer a premium cable service which currently includes the 13 basic channels
plus five premium channels, which currently consist of Showtime, Showtime
Extreme, Showtime 2, TNT and Playboy.
The telecommunications and cable television services that we offer drivers
address the needs of fleets to efficiently communicate with drivers and
efficiently manage high driver turnover rates as follows:
- Efficient Communications -- Dispatch Control. Our network provides truck
cabs the same communications capability as hotel rooms and homes. Drivers can
make and receive phone calls in the comfort and convenience of their cab.
Since dispatchers cannot call drivers at a pay phone, drivers calling
dispatch for next load or destination information may be put on hold or
forced to call back several times if information is not immediately
available. With the ability to receive as well as make calls, our network
streamlines the communication process.
- Efficient Communications -- Avoid Surcharges. We believe that control over
dial around compensation is a major issue for fleet operators. Many fleets
provide their drivers with a toll free "800#" for calling fleet operations.
When an 800# is called using a pay phone, the owner of the phone can charge
the 800# owner a per call surcharge of approximately $0.25. Surcharges add
significantly to fleet communications costs. If drivers make such toll-free
calls from a phone in their truck cabs connected to our network, fleets can
bypass these surcharges for comparable pay phone calls made by their drivers.
- Efficient Communications -- Targeted Messages. Fleets can use our voice mail
and voice response system to deliver messages targeted to their drivers. This
functionality allows fleets to broadcast general company information to their
highly mobile fleet.
- Driver Retention -- Lifestyle Improvement. We believe that the
telecommunications and cable television services that we offer through our
network greatly improve driver lifestyles on the road. Many fleets that have
purchased our services for their drivers have advised us that they have
experienced lower turnover rates and they consider providing our services to
be an effective recruiting tool. Fleets currently can purchase memberships
for their drivers directly or arrange for automatic deductions from driver
payrolls.
Internet Service Provider and Portal Website Services. We are an Internet
service provider offering Internet access to truck drivers from the privacy and
convenience of their truck cabs. We launched our Internet access service in July
1999. We offered our Internet access service free of charge on a promotional
basis to our monthly subscribers until November 1999, when we began charging a
separate fee for this service. The service allows drivers at our locations to
access the Internet via a local call from their truck cabs. In October 1999, we
launched our portal website and through this we are creating content for the
entire trucking community, including drivers and their families, industry
suppliers and manufacturers, truckstop operators and trucking fleets.
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<PAGE> 49
The following table sets forth certain current pricing and content information
regarding the in-cab telecommunications, cable television and Internet access
services that we currently sell, or plan to sell in the near future to
individual truck drivers:
<TABLE>
<CAPTION>
DAILY PREMIUM INTERNET SERVICE
BASIC DAILY UPGRADE BASIC MONTHLY PREMIUM MONTHLY PROVIDER
----------- ------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
- - $5 per 24 hrs. - $5 per 24 hrs. - $20 per 30 - $30 per 30 - $10 per month
days days for subscribers
- - 13 basic - Must be on any monthly
channels purchased in - 13 basic - 13 basic plan
conjunction channels channels and 5
- - Telephone access with basic or premium - $15 per month
monthly - Telephone channels for members on
- - No long distance access daily plan
minutes - 5 premium - 30 minutes
channels - 15 minutes free long - Unlimited
- - Can be purchased free long distance Internet
through vending - Can be distance access on
machines or cash purchased - Can be network; 800
card through - Can be purchased toll
vending purchased through connection for
machine or through vending off-network
cash card vending machines, cash use
machines, cash card or
card or monthly - Can be
monthly subscription purchased
subscription through through
through checking, vending
checking, credit cards machines, cash
credit cards and payroll card or
and payroll deduction monthly
deduction subscription
through
checking,
credit cards
and payroll
deduction
</TABLE>
We also offer these in-cab telecommunications, cable television and Internet
access services to fleets and drivers whose fleets have a payroll deduction
arrangement with us. The following table sets forth certain current pricing and
content information regarding these services:
<TABLE>
<CAPTION>
FLEET FUNDED PROGRAM DRIVER FUNDED PROGRAM FLEET/DRIVER FUNDED PROGRAM
-------------------- --------------------- ---------------------------
<S> <C> <C>
- - Fleet pays $25 per month - Driver pays $25 per month - Fleet pays $5 per month per
per driver for telephone via payroll deduction for driver for telephone
access; free 800# calls; 60 Telephone access; free 800# access; and free 800#
minutes of long distance; calls; and 60 minutes of calls.
and premium cable long distance.
television. - Driver can pay $25 per
- On network unlimited month for premium cable
- - On network unlimited Internet access for an television package and $10
Internet access for an additional $10 per month; per month for unlimited
additional $10 per month off-network use available Internet access on network;
per driver; off-network use with long distance toll off-network use available
available with long charge. with long distance toll
distance toll charge charge.
- For every driver who signs
up for cable television
and/or Internet access
upgrade, fleet receives $5
per driver per month
rebate.
</TABLE>
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<PAGE> 50
Comprehensive Telecommunication Services to Truckstop Operators. In March 1999,
we implemented a program to offer a comprehensive telecommunications solution to
truckstop operators. Under this program, we offer truckstop operators prepaid
phone cards, in-stop public phone operations, in-bound and out-bound long
distance, control over dial-around compensation for fleets and in-stop public
Internet access through kiosks. In March 1999, we entered into a four-year
contract with TravelCenters of America the largest truckstop operator in the
United States, to provide a total communications solution, including prepaid
phone cards, public phone operations, and public Internet kiosks to
approximately 120 truckstops. In addition, we can provide support for frequent
fueler programs offered by the truckstop operators, which encourage drivers and
fleets to purchase fuel from a truckstop operator. We have also entered into a
contract with another large truckstop operator of more than 100 sites to provide
public Internet kiosks on an exclusive basis and prepaid phone cards on a
non-exclusive basis. We intend to offer other truckstop operators our
comprehensive telecommunications services.
Advertising. We have developed or are developing the following advertising
media specifically designed to allow suppliers to the trucking industry to
efficiently reach individual drivers and others:
- Connect! -- our monthly cable television programming guide and lifestyle
magazine. We distribute 100,000 copies of Connect! monthly at our truckstop
locations around the country free of charge. We believe that, due to its
television program guide section, copies will be read by drivers multiple
times during the month.
- Drivers' Entertainment Network -- our cable television channel. Drivers'
Entertainment Network currently features country music programming on a
two-hour video loop on which we offer advertising spots. We plan to expand
our programming content to include video magazine segments, educational
programming, business tools segments and sports-oriented content.
- Internet -- the trucking industry portal website that we are designing will
offer another medium for advertisers to reach individual drivers and others.
We are investing heavily to develop our portal and our business model
contemplates that we will expand our advertising base, and, in addition to
content and web banner advertising, sell strategic sponsorships for specific
services and content areas.
- Audio Messages -- can be delivered to drivers during service activation. In
order to activate service, our users interact with a voice response system
using their telephone. During this process we can play targeted audio
messages to the driver. This allows advertisers to play the equivalent of a
10 or 15 second radio spot with complete control over the frequency and
targeting of the advertisement.
We have recently entered into an advertising agreement with Volvo Trucks for its
advertising on our advertising media. Our agreement with Volvo Trucks restricts
until July 2000 our ability to accept advertising on our Drivers' Entertainment
Network for products or services of Volvo Trucks' competitors or on specified
portions of our portal website for trucks that compete with Volvo Trucks. Volvo
Trucks can terminate this agreement if our subscribers do not log-on to our
network at least 160,000 times each month in any three consecutive months.
PLANNED SERVICES AND PRODUCTS
With our established network deployed at the truckstops and our industry
alliances, we are positioned to expand the scope of our services and target
customers. We believe that the Internet will become the dominant platform for
information exchange and delivery as well as the primary medium for transactions
in the trucking industry. We are creating our trucking industry portal website
to deliver various information services, transactions and advertising services
and solutions based on communication, customized information, commerce and
education. Our business model contemplates that these services will expand our
customer base among trucking industry participants, including suppliers, fleets
and truckstops. We also plan to expand our service offering by providing voice
and data communications and on-line services to
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<PAGE> 51
fleets and to expand the scope of our cable television programming. We plan to
introduce the following services in the months ahead:
- Additional Applications and Personalized Services on our Portal
Website. During fiscal 2000, we plan to expand our trucking industry portal
website. We expect the key features and applications to include: trip
planning, mapping and enroute fuel pricing information, site location map,
fleet services, load posting and matching, support for online transactions,
personalized services including a personal calendar, digital logbook and
e-mail, news, sports, weather, games and entertainment, on-line banking and
clearinghouse functions, and business-to-business and business-to-consumer
electronic commerce.
- Private Voice and Data Network and Tools for Fleets. As our network expands,
we will offer services to fleets that allow them to install gateways into our
network at their headquarters, terminal facilities and even key customer
facilities. Through these gateways, we can offer voice and data
communications among fleets, drivers and their customers. We plan to offer
installation of network nodes at select large fleet locations. We also will
make other applications and tools available to fleets over our network.
- Additional Cable Television Programming. We plan to expand our cable
television programming to include more dedicated format channels, including
educational channels, additional premium programming and pay-per-view events.
SALES, MARKETING AND CUSTOMER SERVICE
We offer our services to each of our customer groups through a combination of
our direct sales force, consisting of 73 full-time employees as of September 30,
1999, fleet sales force, retail distribution channels and telemarketing. We
support our sales activities with advertising in industry publications, our
website, our public Internet access kiosks, special promotions and other
activities. We have also developed a comprehensive customer support program.
Individual Drivers. We offer our services to individual drivers through a
combination of direct and indirect sales and marketing channels at each
truckstop at which we provide our service. We have installed vending machines at
all of the truckstops at which we have deployed our network. Drivers can
purchase monthly subscriptions and daily memberships from these machines. To
support our vending machines, we deploy point of sale brochures, banners and
other displays throughout the truckstop. We also advertise in our own Connect!
magazine, as well as our Drivers' Entertainment Network and our voice response
system. From time to time we engage in special promotions and events in
coordination with truckstop operators.
We employ a field sales force that regularly visits our truckstop locations to
ensure that our materials are displayed and merchandised. We maintain additional
sales personnel at 50 to 60 of our largest truckstop locations to speak with
drivers and offer them monthly subscription plans. The field sales force also
supports subscription drives at fleet terminals. When a fleet agrees to allow
payroll deduction for our services, members of the field sales force spend
several days at the fleet terminal setting up displays and meeting with drivers.
We also have an in-house customer service and telemarketing group that sells
subscriptions to users who call us at the numbers provided on brochures and
other advertising materials. We also will be conducting on-going cross-selling
promotions, which will be heavily utilized to promote our Internet access
services and our portal's services and features. These promotions also will be
supported by direct marketing, print, online and point-of-purchase campaigns.
Pursuant to our contract with one large truckstop operator, we have entered into
an incentive arrangement pursuant to which the operator is compensated for
meeting subscription sales quotas. We are developing materials which will be
used to train the operators' employees to sell subscriptions and other services.
Truckstop Operators. We market our services to truckstop operators through
relationship account managers. Our marketing efforts with the truckstop
operators fall into two broad categories. First, we attempt to gain access to
the truckstop parking lot to install our network to provide in-cab telephone,
cable television and Internet access services for the drivers and fleets. Since
we already have contracts with many of the largest truckstops, we now focus most
of these efforts on account and relationship
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<PAGE> 52
management. We have entered into agreements with certain large truckstop chains
which provide such truckstops with incentives to market our products and
services.
We also market our comprehensive telecommunications solution to the truckstop
operator. For the larger truckstop operators, we use our existing relationships
to gain access to their top-level executives. Our top management is very
involved in developing comprehensive telecommunications agreements with
truckstop partners. We supplement our direct sales efforts with advertising in
trade publications, periodic direct mail campaigns and participation in industry
trade shows.
Fleets. Our fleet sales force markets our telecommunications, cable television
and Internet access services to fleets. Our fleet sales force targets fleets
with 100 or more trucks. Our fleet sales force emphasizes long-term partnerships
and the fact that we have developed our network to meet the needs of the fleet.
Specifically, we focus on the retention improvements that our network can
deliver by enhancing drivers' lifestyle with telecommunications, cable
television and Internet access services, as well as in-bound telephone access.
As we develop our portal, the availability and benefits of driver and fleet
business applications will become an important part of our marketing effort to
the fleets. The efforts of our fleet sales force are supported through periodic
advertising in trade journals targeted at fleet management, direct mail
campaigns and attendance at key industry tradeshows and events.
Our research indicates that there are a large number of fleet trucking companies
with less than 100 trucks. This segment represents a substantial but highly
fragmented sector of the fleet market. We primarily communicate with these fleet
owners with telemarketing and direct mail and expect to also market to them
through the Internet.
We have established a program with TravelCenters of America pursuant to which we
jointly market our products and services to large fleets.
Industry Suppliers. The primary service currently targeted at trucking industry
suppliers and other participants is advertising media. We market our advertising
media through a direct sales force that calls on potential advertisers and their
advertising agencies. We also are offering our advertising services as a part of
a broader strategic relationship with industry suppliers, including Volvo
Trucks. To sell these services, we utilize direct mail campaigns and participate
in trade shows.
Marketing of Internet Services and Solutions. In connection with the creation
of our portal, we are implementing a multi-media marketing campaign, which
includes print ads, direct mail, direct sales, materials at truckstops and
advertising on the Driver's Entertainment Network. We are marketing our portal
as the electronic gathering place where industry players can obtain information,
communicate and transact business. We are tailoring aspects of the campaign to
each market and emphasizing the features applicable to that marketing
initiative, including direct marketing, print, cable television, intercept
programs, extensive point-of-purchase and online advertising. We have placed
advertising in our Connect! magazine and used significant point of sale
placements in truck stops to support the portal launch and the ongoing
development of our portal. We also plan to place advertising on our Drivers'
Entertainment Network and our voice response system. We are also conducting
special events and promotions at the truckstops.
Customer Service. To retain customers, encourage more usage and promote the
purchase of additional services, we have developed a comprehensive customer
support program. To gauge customer satisfaction and to identify potential new
services, we regularly conduct customer satisfaction and market research; either
through interviews at the truckstops or through telephone surveys. We use
independent third party research firms to conduct more comprehensive studies
while our staff performs smaller scale surveys. These surveys have consistently
shown a very high degree of customer satisfaction and identified promising new
service bundles and pricing. Our recent introduction of new monthly and daily
pricing plans was based on the results of one such survey.
Another key component of our retention and promotion efforts is the in-house
customer service team. This group is comprised of approximately 30 members and
is on duty 19 hours per day. This group is trained to handle all inquiries from
customers including basic technical issues with a smaller subset of the group
also
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<PAGE> 53
trained in telemarketing. Among the programs that the customer service team
supports is a "welcome call" program whereby new customers are automatically
forwarded to a representative on their first or second activation to insure that
the user understands service features and functionality and to gather basic
information on the customer which can be used for future marketing.
NETWORK BUILDOUT; TRUCKSTOP RELATIONSHIPS AND CONTRACTS
As of September 30, 1999, our network has been installed at 237 truckstops in 41
states, and we installed our network at 96 sites during the twelve months ending
September 30, 1999. We intend to continue the buildout of our network to more
than double the number of sites by June 2002. We believe that the availability
of our network at a larger number of truckstops will significantly increase
membership sales to drivers and long-haul trucking fleets.
We have contracted with truckstop chains, independent truckstop owners and
associations of truckstop owners to provide our services over our network.
According to industry data from 1997, there are approximately 2,000 truckstops
in the United States located on the interstate highway system of which
approximately 1,100 are full service truckstops that provide more services than
just fuel. As of June 30, 1999, we have long-term contracts with the operators
of 450 truckstops to install our network. These operators include three of the
four largest full-service truckstop chains in the United States, TravelCenters
of America, Petro Stopping Centers, Inc., and Pilot Corporation. We also have
entered into contracts with the three largest associations representing more
than 300 additional independent truckstops that have agreed to permit us to
offer our services to their members. The truckstops represented by associations
generally consist of smaller truckstop chains generally having less than 10
truckstops. These associations act as purchasing agents for their members. We
have entered into contracts with these associations in order to gain access to
and establish a relationship with numerous independently-owned truckstops. These
associations do not have authority to legally bind their members. Therefore,
while each association has granted us the right to provide cable television and
telephone services to its members, this contractual provision is not binding on
each member. Prior to installing our network at an association member's
truckstop, we enter into a contract with the association member granting us the
right to install our network at the member's truckstops.
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. We offer a standard contract to the
truckstop owners and associations generally consisting of a term ranging from
five to ten years with an automatic five year renewal. Pursuant to the terms of
the standard contract, generally we are granted the right to provide
telecommunications and cable television services to all of the owners'
truckstops for a mutually agreed upon period of time which, if we achieve our
contractual buildout milestones, generally extends for 10 years. We generally
pay commissions to truckstop owners/operators based upon a percentage of our
revenues which, depending on the particular product, has ranged between 10% and
50%, less specified costs on a negotiated basis. We have entered into a contract
with one major truckstop chain that requires us to pay the operator a base
amount for each of the operator's truckstops at which our network is installed
and additional amounts upon meeting certain incentive sales criteria.
We believe that the average truckstop represents a substantial capital
investment for the truckstop operator. Despite the amount of capital invested in
the parking lot, the typical truckstop does not generate any revenue from that
asset, except for a limited number of truckstops which charge for parking. At
the same time, margins on fuel have been under pressure, forcing truckstop
operators to differentiate their truckstops from their competitors and find
other sources of revenue. We believe that our network offers truckstops:
- an amenity for long-haul truck driver customers;
- a means for competitive differentiation; and
- the ability to generate incremental revenue through the revenue and
profit-sharing provisions of the contracts.
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The table below summarizes our current contracts with truckstop owners and
operators and the buildout of their sites, as of September 30, 1999:
<TABLE>
<CAPTION>
TOTAL NO. OF LOCATIONS TOTAL NO. OF
TRUCKSTOP CHAINS AND OWNERS UNDER CONTRACT LOCATIONS INSTALLED
--------------------------- ---------------------- -------------------
<S> <C> <C>
TravelCenters of America............................... 150 86
Pilot Corporation...................................... 119 49
Petro Stopping Centers, Inc............................ 44 24
Additional Owners of Multiple or Single Truckstops..... 137 78
--- ---
Total............................................... 450 237
=== ===
</TABLE>
In addition, we have contracts with truckstop associations representing over 300
additional truckstops.
NETWORK AND TECHNOLOGY
Our Design
The current architecture of our network consists of a PC-based private branch
exchange switch at each truckstop connected to the host server. This switch
controls and manages all interaction with the subscriber, including telephone
communications, cable television activation, Internet access and communications
with the host server. The following diagram depicts the architecture of our
network:
(PNV NETWORK ARCHITECTURE CHART)
[There appears here a diagram labeled "PNV Network Architecture." In the top
center of the diagram is the word "Internet" in an irregularly shaped box
connected by a line to the left labeled "T3" to a circle labeled "Fiber Ring."
This circle is connected by a line to the left labeled "OC-3" to an illustration
labeled "Frame Relay Switch/Router" inside a box labeled "PNV Headquarters." The
illustration labeled "Frame Relay Switch/Router" is connected by lines to the
left to illustrations labeled "Host Server," "Voice Mail/Driver Tracking Server"
and "Web Server" respectively, each of which appears in the box labeled "PNV
Headquarters." The circle labeled "Fiber Ring" also is connected by a line to
the right labeled "T3" to a box labeled "Long Distance Carrier," which has three
lines from it, one going to the right to an irregularly shaped box labeled
"Frame Relay Network", one going down and splitting to go to both another box
labeled "Long Distance Carrier" and an irregularly shaped box labeled "Public
Network," and one labeled "T1" going down to an illustration labeled "Router" in
a box formed by broken lines labeled "Truckstop Headquarters." This illustration
labeled "Router" is connected by a line to the left to an illustration labeled
"PC-Based Switch" which also appears in the box formed by broken lines labeled
"Truckstop Headquarters." The irregularly shaped box labeled "Frame Relay
Network" has a line going to the right to another box labeled "Long Distance
Carrier," which is connected by a line to the right labeled "T1" to an
illustration labeled "Routers/Modems" inside a box formed by broken lines
labeled "Fleet Headquarters." This illustration labeled "Routers/Modems" is
connected by a line to the right to an illustration labeled "PC-Based Switch"
which also appears in the box formed by broken lines labeled "Fleet
Headquarters." The box labeled "Long Distance Carrier" which is connected by a
line to the irregularly shaped box labeled "Frame Relay Network" also is
connected by a line down to the irregularly shaped box labeled "Public Network."
The irregularly shaped box labeled "Public Network" is connected by a line to
the left to a box labeled "Long Distance Carrier" and by a line down to a box
labeled "Local Exchange Carrier." This box labeled "Long Distance Carrier" is
connected by a line down labeled "T1" to an illustration labeled "Router" inside
a box labeled "Truck Stop." This illustration labeled "Router" is connected by a
line down to an illustration labeled "PC-Based Switch," which also appears in
the box labeled "Truck Stop." The box labeled "Local Exchange Carrier" is
connected by a line down labeled "Local Lines" to the illustration labeled
"PC-Based Switch" inside the box labeled "Truck Stop." This illustration labeled
"PC-Based Switch" is connected by a line up to illustrations labeled "Video
Control Unit," "Modulators," "Receivers" and "Digital Satellite dish,"
respectively, each of which is inside the box labeled "Truck Stop." The
illustration labeled "PC-Based Switch" also is connected by a line to the left
to an illustration labeled "Bollard," which is inside a box labeled "Parking
Lot." The illustration labeled "Bollard" is connected by lines up to
illustrations labeled "Telephone," "Laptop Computer," "Fax" and "TV"
respectively, each of which appears in a box labeled "Driver Truck Cab." The box
labeled "Driver Truck Cab" is inside the box labeled "Parking Lot." The
illustration labeled "PC-Based Switch" also is connected by a line to the right
to illustrations labeled "Coinless Phones," "Data Port" and "Laptop Computer"
respectively, each of which appears in a box labeled "Restaurant." The
illustration labeled "PC-Based Switch" also is connected by a line to the right
to illustrations labeled "Coin/Coinless Phones," "Data Port" and "Laptop
Computer" respectively, each of which appears in a box labeled "Phone Room." The
illustration labeled "Router" which appears in the box labeled "Truck Stop" also
is connected by a line to the right to an illustration labeled "Public Internet
Kiosk" which appears in the box labeled "Phone Room." The broken lines forming
the boxes labeled "Truckstop Headquarters" and "Fleet Headquarters" denote
future services.]
The current architecture of the various components of our network and related
services are described below. In the future, we may modify the configuration of
our network architecture for deployment at
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<PAGE> 55
smaller truckstop locations. In addition, we are currently exploring wireless
technology with respect to telecommunications services offered at truckstops at
which our network is deployed.
Components and Related Items Located at our Headquarters
Host Server. The host server maintains control of all membership information
and determines individual membership privileges. The PC-based private branch
exchange switch located at the truckstop communicates via frame relay to the
host server each time a member attempts to log-on to or log-off of our network.
The membership number is checked in the database and specific information about
the user, including their membership expiration date, number of long distance
minutes available and voice mail messages, is downloaded to the site server for
subsequent interaction with and access by the user. We have multiple server
redundancy capable of performing all critical host server functions.
Software. We developed our software in-house and this software performs
numerous functions including:
- subscriber log-on entry;
- subscriber log-on host server validation;
- membership information maintenance, including membership cards and renewal
card tracking;
- log-on information communicated to subscribers including expiration date,
stall number and call back number;
- wake-up call notification;
- cable television system control including activation of basic and premium
channels;
- outbound call control and tracking;
- least cost call routing;
- prepaid long distance call control and tracking including account balance
maintenance;
- extension to extension call control and tracking;
- call detail record storage and reporting;
- inbound call control and tracking;
- subscriber location tracking and voice mail services;
- subscriber voice messaging with broadcast capability; and
- stall maintenance tracking.
Billable Long Distance Call Management. We have the advantage of having an
intelligent PC-based private branch exchange switch controlling each call at the
place of origination and can thereby reduce our cost per call. Prepaid calling
card vendors require the user to dial an 800 number, enter their card and access
numbers and then dial the number they wish to dial. Therefore, they are actually
making two calls each time. An inbound call to the calling switch and then an
outbound call from the calling switch to the applicable number. All completed
calls have double costs associated with them. If any calls are busy or not
answered, the calling card company must absorb the costs of the inbound call.
The long distance services that we offer have the equivalent of a prepaid
calling card switch at each site. All call management functions including adding
new minutes, deducting minutes for each call and terminating a call when all
minutes have been used are performed by PC-based private branch exchange switch.
Since call management is performed locally at each site, the user can simply
make long distance calls by dialing 9,1 + number. The call is originated from
the truckstop directly to the applicable number as a single call. Therefore, if
there is no answer or the line is busy, the user is not billed and we do not
incur the cost of an incoming call. This feature reduces our cost per call as
compared to typical prepaid phone card vendors.
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<PAGE> 56
Components and Related Items Located at Each Truckstop
PC-Based Private Branch Exchange Switch. The PC-based private branch exchange
switch is both the controlling computer and intelligent switch. Each telephone
extension and outside telephone line is connected and controlled by this switch.
The hardware architecture utilizes off-the-shelf components. Our software
controls all aspects of user interaction. Unlike a standard private branch
exchange switch, once a user picks up their telephone, all interaction with the
user is controlled by our software. Also, unlike a standard private branch
exchange switch system with computer interfaces, our network is programmable,
allowing for upgradability and flexibility as new capabilities are needed or
made available in the future.
Dedicated T-1 Access at Truckstop. We have installed a T-1 line at each
truckstop in order to obtain additional telecommunications capacity. Each T-1
line offers 24 channels of long distance voice or data capability at a fixed
cost. All 24 channels can be designated as voice channels for a flat monthly fee
or can be designated for data at an additional cost. The ability to designate
between voice or data channels allows flexibility as requirements change. Use of
T-1 lines allows us to bypass the local exchange carrier and associated local
exchange carrier access charges and obtain favorable pricing from long distance
carriers, creating a private network.
Frame Relay Network. We connect each truckstop via frame relay in a hub and
spoke configuration and can increase the bandwidth to each truckstop as traffic
warrants. The frame relay network protocol is Transmit Control Protocol/Internet
Protocol. This speeds up user access to the system and greatly increases system
flexibility. Additionally, we also perform site system monitoring and remote
access over the frame network, greatly enhancing site manageability.
Telephone Wiring. The telephone jack in each bollard in the truckstop parking
lot connects by twisted pair wiring to a pedestal box in the parking lot that in
turn is connected to the PC-based private branch exchange switch inside the
truckstop. Public phones have been installed at certain truckstops that are
connected to our network. The PC-based private branch exchange switch is
connected to the public network through T-1 lines. Each truckstop also has local
telephone lines which are used to connect all local calls.
Cable Television Headend and Wiring. The cable headend system is comprised of a
direct broadcast satellite dish connected to an individual receiver. Other
conventional methods of Off-Air antennas and C-Band technologies are also used
in supplying channels to the user. An encrypted control unit is used to control
Pay-Per-View access. The television plug-in terminal in each bollard is
connected through a single coaxial cable to the pedestal box. The pedestal box
is connected through a single coaxial cable to the cable headend system inside
the truckstop.
Internet Access. We have equipped each truckstop with a modem bank for locally
connecting Internet access calls from the truck cab. This gives us the ability
to offer Internet access at all truckstops. Since connections between the member
and the on site modems are over our private network, no local telephone lines
are used. The user only ties up bandwidth on the frame network when active. Idle
users have no effect on the frame network bandwidth.
Voice Over IP. We have equipped each site additionally with a voice
compression/decompression capability allowing the transfer of point-to-point
voice calls over the frame relay network. We use industry standard voice
compression allowing near toll quality voice to travel over the network. We use
this system for calls between truckstops and our offices. Subscriber service
calls are transferred over the network and calls to drivers from the voice
mail/driver locator system are routed directly to the driver's telephone rather
than requiring the user to hang up and dial the callback number. There is no
variable cost associated with this type of call. If network bandwidth is
unavailable at the time, including during peak hours, the call can be routed as
a voice call over the T-1. This allows us the ability to build network capacity
based on normal usage patterns instead of adding redundant capacity to handle
peak usage.
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Fleet Telecommunications Opportunities
By installing a router and PC-based private branch exchange switch, fleets can
connect to our network allowing direct connections to their drivers when they
are connected to our network.
Truckstop Headquarters Telecommunications Opportunities
Large truckstop chains can install a router and PC-based private branch exchange
switch, thereby connecting to our network allowing voice and data communications
among their truckstop locations.
COMPETITION
Overview. The market to provide telecommunications, cable television and
Internet access services to the trucking industry is highly competitive and
fragmented and is affected by the constant introduction of new products and
services by industry participants. Competition is based upon pricing, the
accessibility of services, and the perceived quality and reliability of the
telecommunications, cable television and Internet access services. Our
competition includes various providers and carriers of telecommunications, cable
television and Internet access services, many of which are substantially larger
than us and which have greater financial, technical, personnel and marketing
resources than we have.
Our ability to compete effectively in the market to provide telecommunications,
cable television and Internet access services to the trucking industry will
depend upon our continued ability to:
- enter into long-term contracts with truckstop owners and operators to become
their total communications solution;
- build out additional sites for our network;
- provide our services at prices competitive with, or lower than, those charged
by our competitors;
- establish and maintain our strong relationships in the trucking industry;
- enhance the brand recognition of our network and our services; and
- provide a broad suite of services which can be bundled to meet the needs of
the customer at competitive prices.
Because we provide bundled telecommunications, cable television and Internet
access services, we face competition, with respect to one or more of these
services, from a number of sources.
Telecommunications. We compete with a large number of providers of
telecommunications services, including public phones, cellular and other
wireless telephones, long distance service providers, calling cards, prepaid
phone cards, collect calls and toll-free numbers. Many of our competitors have
significantly larger capitalization and resources than us, which allow these
companies to achieve economies of scale and lower costs of funds employed. If
any of our competitors were to devote additional resources to the provision of
telecommunications services to our target customer base, there could be a
material adverse effect on our business and the price of our common stock.
In addition, the continuing trend toward consolidation of telecommunications
companies and the formation of strategic alliances within the telecommunications
industry is giving rise to significant new competitors. Many of these combined
entities have, or will have, resources far greater than us. These combined
entities may, now or in the future, be able to provide bundled packages of
telecommunications products, including local and long distance services and data
services and prepaid services in direct competition with the products offered,
or to be offered by us, and may be capable of offering these products sooner and
at more competitive rates. These types of consolidations and strategic alliances
could put us at a competitive disadvantage.
As a result of the 1996 Telecommunications Act, the Regional Bell Operating
Companies could compete with us in the long distance telecommunications
industry, both outside of their service territory and, upon satisfaction of
certain conditions, within their service territory. Regional Bell Operating
Companies have to
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satisfy a list of competitive requirements before they are authorized to offer
long distance service to their local customers. No Regional Bell Operating
Company is authorized to do so yet, but they are expected to be authorized soon.
In particular, Bell Atlantic, which serves the New York metropolitan area and
the mid-Atlantic regions, has long been considered by industry observers to be
the Regional Bell Operating Company most likely to be the first permitted to
offer long distance services. On September 29, 1999, Bell Atlantic filed its
Section 271 application for authorization to provide long distance services
within New York with the FCC. The FCC has 90 days to review Bell Atlantic's
filing. We believe that the Regional Bell Operating Companies expect to offset
share losses in their local markets by capturing a significant percentage of the
in-region long distance market, especially in the residential segment where the
Regional Bell Operating Companies' strong regional brand names and extensive
advertising campaigns may be very successful. This may have an unfavorable
effect on our business.
We also expect increasing competition from Internet telephony service providers
and others using newer and developing technologies. The use of the Internet to
provide telecommunications services, in particular, is a recent development.
This technology promises to substantially reduce the cost of carrying voice
conversations. Existing competitors are likely to continue to develop new
services that they offer to the trucking industry.
We believe that increasing competition in the telecommunications market 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 long-distance sales on a profitable basis could have a material
adverse effect on our financial condition and results of operations.
Our ability to compete effectively will depend partly upon our ability to
develop additional products and services which appeal to truckstop owners and
operators and drivers, as well as fleets. We believe that drivers currently use
public phones located at truckstops for a significant number of the calls they
make. We believe that our ability to offer telephone access at a cost comparable
to public phones with the added convenience and privacy of the truck cab allows
us to compete favorably. Cellular and other wireless service remains unavailable
in some remote truckstop locations and, even when cellular or other wireless
service is available, it historically has been expensive due to the roaming
charges that drivers frequently incur when they are away from home. We believe
that the accessibility of our network and our data transmission capability
allows us to compete effectively with cellular and other wireless carriers.
However, we expect competition from cellular and other wireless
telecommunications providers to be dynamic and increasingly more intense as a
result of the entrance of new competitors and the development of new
technologies, products and services, which may reduce the cost of cellular and
other wireless service by eliminating roaming charges and otherwise reducing
prices. At least one of our competitors, HighwayMaster, resells cellular service
to provide both voice and data communications to truck cabs. Our long distance
services, including our prepaid phone cards, compete with those provided by long
distance calling cards, prepaid phone cards and toll-free numbers, including
AT&T and MCI WorldCom, that drivers use to call fleet headquarters and home. We
may compete with other issuers of prepaid phone cards that may distribute cards
at or below our cost. 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. Our failure to increase our sales of prepaid phone cards
on a profitable basis could have a material adverse effect on our financial
condition and results of operations. We believe that our dedicated long distance
network will allow us to compete successfully with these providers by providing
long distance services at competitive rates.
Qualcomm's OmniTRACS service, a satellite-based system, is used primarily for
mobile vehicle location and two-way text messaging. Based on publicly available
information, as of September 1998, the OmniTRACS service had an installed base
of approximately 250,000 units in 33 countries worldwide. The OmniTRACS service
addresses the trucking fleets' need for real-time mobile text communication. We
believe that our ability to provide communication capabilities and Internet
access over our network will allow us to compete effectively with the OmniTRACS
service.
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Cable Television. The competition for our cable television offerings currently
consists of alternatives located outside the truck cab and primarily in the
truckstop. Community television and game rooms inside the truckstop are the most
readily available entertainment alternatives for truck drivers. These rooms
offer no privacy and limited choices in programming. We believe that a small
number of professional truck drivers have purchased direct broadcast satellite
dishes to receive television programming in their cabs. Cable, DBS and other
video service providers could seek to compete by offering cable television
programming to truckstops. We believe that our cable television services in the
comfort and convenience of the truck cab at a competitive price will allow us to
compete effectively against these alternatives.
Internet. The market for the provision of Internet access, content, transaction
processing and commerce solutions is extremely competitive and highly
fragmented. There are no substantial barriers to entry, and we expect that
competition will continue to intensify. Telecommunications carriers, including
Regional Bell Operating Companies, Internet service providers, network and
system integrators, and online network service providers each offer Internet
access. While we believe that our network infrastructure, bundled services, and
established relationships in the trucking industry distinguish us from these
providers, many of these competitors have greater financial, technical and
marketing resources, larger customer bases and greater name recognition. We
believe that Pay-Net, TIMM Communications and certain other companies also have
installed Internet/e-mail kiosks in truckstops. Our Internet-based transaction
processing services also will compete with established providers of integrated
transaction solutions for fleet operators and their customers, including
Ceridian's Comdata and J.B. Hunt Logistics. Various websites, including
www.trucknet.com, www.nettrans.com, www.layover.com, www.truckstop.com, and
www.yondar.com, also provide content and commerce solutions to the trucking
community. Several of these websites offer specialized content directed to the
trucking community and those who interact with the industry, as well as "life
style" segments that provide truck drivers with interactive tools and services
that permit them to personalize their on-line experience, including free e-mail,
chat rooms, news, weather and games. These websites also offer tools and
applications to assist the trucking community, including mileage, routing and
fuel optimization tools. Other websites offer targeted electronic commerce
solutions, such as load posting and freight matching services, that are very
similar to those that we plan to offer. These websites, which offer content,
tools and applications more extensive than those that we believe that our portal
will have at the time of its initial launch, have market acceptance and
established customer and advertising bases. In the market for advertising
revenue, we will compete with other online content providers and traditional
forms of media, including newspapers, magazines, radio and television. We
believe that the principal competitive factors in attracting advertisers will
include the amount of traffic on our website, brand recognition, the
demographics of our users, our ability to offer targeted audiences and the
overall cost-effectiveness of the advertising medium that we offer.
REGULATORY MATTERS
Telecommunications. 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 change as a result
of ongoing regulatory implementation proceedings, subject to review by courts
and otherwise. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on our 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.
We are subject, in our provision of telecommunications services, to the
provisions of the Communications Act of 1934, as amended by the
Telecommunications Act of 1996, the FCC regulations thereunder, as well as the
applicable laws and regulations of the various states administered by state
public utility commissions. The recent trend for both federal and state
regulation of telecommunications service providers has been in the direction of
reduced regulation. Although this trend facilitates market entry and competition
by multiple providers, it has also given AT&T, the largest international and
domestic long
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distance carrier in the United States, increased pricing and market entry
flexibility that has permitted it to compete more effectively with smaller
carriers. In addition, the Telecommunications Act of 1996 has opened the United
States market to increased competition from the Regional Bell Operating
Companies. We cannot be certain whether future regulatory, judicial and/or
legislative changes will materially affect our business and the price of our
common stock.
On the federal level, we are considered a non-dominant domestic interstate
carrier subject to minimal regulation by the FCC. We are not required to obtain
FCC authority to provide domestic interstate telecommunications services, but we
are required to maintain, and do maintain, a domestic interstate tariff on file
with the FCC. The FCC presumes the tariffs of non-dominant carriers to be
lawful. Therefore, the FCC does not carefully review such tariffs. The FCC
could, however, investigate our tariffs upon its own motion or upon complaint by
a member of the public. As a result of any such investigation, the FCC could
order us to revise our tariffs, or the FCC could prescribe revised tariffs. In
late 1996, the FCC ruled that interexchange carriers are no longer required to
file their tariffs for domestic interstate interexchange services. In August
1997, the FCC affirmed its decision to end tariff filing requirements for
domestic interstate long distance services provided by non-dominant carriers.
The FCC also eliminated the requirement that non-dominant carriers disclose
information on rates and terms of their products. These detariffing orders have
been stayed by the US Court of Appeals for the District of Columbia. Most
recently, on March 18, 1999, the FCC adopted an order that would permit the
alternative of posting rates on a carrier's website. This order will not become
effective until the Court affirms the FCC's mandatory detariffing plan.
In addition to the general requirement that before providing U.S. international
telecommunications services we obtain authority under Section 214 of the
Communications Act and file a tariff containing the rates, terms and conditions
applicable to such international services, we are also subject in our provision
of such U.S. international services to FCC rules requiring, among other things,
the filing of certain carrier-to-carrier contracts; notifications or approvals
of certain foreign carrier investments, assignments of FCC licenses and
transfers of control of certified carriers; and other international service
regulations. We are also subject to a number of reporting requirements including
requirements to report on our international revenue, traffic flows, and use of
international facilities. We have obtained authority under Section 214 to
provide U.S. international services and have filed an international tariff with
the FCC. Because we provided U.S. international service prior to obtaining such
Section 214 authorization, we are subject to sanctions, including fines, other
penalties and/or revocation of our 214 authority. We do not believe that an
enforcement action is likely, and if such action is taken, we do not believe
that any such penalties or fines would be onerous, or that our authorization
would be revoked. There can be no assurance, however, that this will be the
case.
The Telecommunications Act was intended to increase competition in the U.S.
telecommunications markets. Among other things, the Telecommunications Act
contains special provisions that eliminate the restrictions on incumbent local
exchange carriers such as the Regional Bell Operating Companies from providing
long distance service. These provisions permit a Regional Bell Operating Company
to provide certain long distance services (including international service)
outside of its current home region immediately upon the receipt of any state
and/or federal regulatory approvals otherwise applicable in the provision of
long distance service. The provisions also permit a Regional Bell Operating
Company to provide certain long distance services (including international
service) within its home region if it satisfies procedural and substantive
requirements, including showing that facilities-based local competition is
present in its market, that it has entered into interconnection agreements which
satisfy a "14-point" checklist of competitive requirements and that its entry
into this market is in the public interest.
No Regional Bell Operating Company is authorized to offer long distance service
to its local customers yet, but they are expected to be authorized soon. In
particular, Bell Atlantic, which serves the New York metropolitan area and the
mid-Atlantic regions, has long been considered by industry observers to be the
Regional Bell Operating Company most likely to be the first permitted to offer
long distance services. On September 29, 1999, Bell Atlantic filed its Section
271 application for authorization to provide long distance services within New
York with the FCC. The FCC has 90 days to review Bell Atlantic's filing.
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The Telecommunications Act also addresses a wide range of other
telecommunications issues that may potentially impact our operations by spurring
additional competition in the telecommunications markets. For example, on August
1, 1996, the FCC adopted a Local Competition Order that required incumbent local
exchange carriers to allow new competitors to interconnect to the incumbent
local exchange carrier network, to allow competitors to lease portions of the
incumbent local exchange carrier network and offer, at wholesale rates, retail
local services that competitors may resell. The requirements of the Local
Competition Order have largely withstood challenges in the courts. Moreover, on
September 25, 1999, the FCC adopted an order reaffirming the unbundling
requirements for six of the original network elements that it required to be
unbundled in the original Local Competition Order. There may be future changes
to FCC rules that we cannot predict and which may have adverse effects on our
business.
The FCC has also taken steps to spur competition in the international
telecommunications markets in accordance with certain commitments made by the
U.S. under the World Trade Organization Basic Telecommunications Agreement which
have already resulted in additional competitors entering the U.S.
telecommunications markets. The World Trade Organization recently concluded an
agreement, known as the World Trade Organization Basic Telecommunications
Agreement. Under this agreement, the U.S. and other members of the World Trade
Organization committed themselves to, among other things, opening their
telecommunications markets to foreign carriers. The FCC has adopted streamlined
procedures for processing market entry applications from foreign carriers,
making it easier for such carriers to compete in the U.S.
The FCC has also significantly revised the universal service subsidy regime.
Beginning on January 1, 1998, interstate telecommunications carriers and certain
other entities became obligated to make FCC-mandated contributions to universal
service funds based upon end-user revenue. These funds subsidize, among other
things, the provision of telecommunications services in certain high cost areas
and to low-income customers. Such contributions are assessed as a percentage of
end user telecommunications revenues and international revenues. Since January
1998, this percentage has been in the range of 4 to 5%. Contribution factors
vary quarterly and carriers are billed monthly. In October 1999, the FCC, in
response to a Fifth Circuit decision reversing or reversing and remanding
certain aspects of its Universal Service Order, adopted certain significant
revisions to its universal service rules. For example, the FCC determined to use
a single contribution factor to fund all of the universal service funds and to
remove from the assessment base intrastate end user revenues. This means that
the FCC's universal service contribution factor will, upon the effectiveness of
the FCC's new rules, be based upon interstate and international end user
telecommunications revenues, except that the FCC also determined to exempt from
universal service contribution requirements the international revenues of
providers of interstate and international telecommunications revenues whose
interstate end user telecommunications revenues account for less than 8 percent
of their combined interstate and international revenues. The FCC will still,
however, require these providers to contribute based upon their interstate
telecommunications revenues. These and the other rules adopted by the FCC in
this latest order became effective on November 1, 1999. There can be no
assurance as to the effect that these new universal service rules and/or others
which may be adopted in the future will have on competition within the
telecommunications industry or specifically on our competitive position.
Interstate and international telecommunications carriers are also subject to
access charges imposed by local exchange carriers for origination and
termination of calls over local telephone lines. Telephone companies' costs of
providing long distance services are greatly affected by the access charges. The
FCC has significantly revised its access charge rules in recent years to permit
local exchange carriers greater pricing flexibility and relaxed regulation of
switched and special access services in those markets where there are other
providers of access services. The most recent pricing flexibility rules, which
were adopted August 5, 1999, have not yet been released. These rules would,
among other things, grant certain local exchange carriers the ability to file
access tariffs on a streamlined basis with no cost support and to provide volume
and term discounts after certain competitive triggers have been met. The FCC
continues to adjust its access charge rules, and we cannot predict future rates.
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The Telecommunications Act also requires interexchange carriers to compensate
pay phone owners when a pay phone is used to originate a coinless telephone
call. This rate is currently set at $0.24 per call.
The FCC also imposes requirements for the marketing of telephone services and
for obtaining customer authorization for changes in a customer's primary long
distance carriers. The FCC has recently imposed severe penalties on a number of
carriers for "slamming." Under an order recently issued by the FCC, carriers are
required to take certain additional steps to prevent slamming. The FCC is
continuing to examine its slamming rules.
The state public utility commissions also regulate telecommunications service
providers. Most states require carriers to obtain authorization, either pursuant
to certification, the fulfillment of tariff requirements or notification
requirements, to provide intrastate telecommunications services, or to be found
exempt from regulation, before commencing such services. Many states also
require carriers to file and maintain detailed tariffs or price lists listing
the rates, terms and conditions under which they provide service. We are
currently authorized pursuant to registration, certification, tariffs,
notifications, or on an unregulated basis to provide intrastate
telecommunications services in the 48 contiguous states and Hawaii.
The relevant regulatory authorities could find that we provided intrastate long
distance service prior to obtaining necessary authorization. In the event of any
such finding, we may be subject to sanctions, including fines, other penalties
and/or revocation of our authority. We do not believe that any enforcement
action is likely, or that if such action is taken, we do not believe that any
such fines or penalties would be onerous, or that our authorizations would be
revoked. There can be no assurance, however, that this will be the case.
While we believe that our service offerings do not subject us to rules and
regulations governing pay phone providers, competitive local exchange carriers,
operator service providers, and facilities-based providers, there can be no
assurance that all relevant regulatory authorities would agree, since such rules
and regulations are subject to different interpretations, and are subject to
change. In the event that any regulatory authorities were to determine that we
are subject to regulations governing pay phone providers, competitive local
exchange carriers, operator service providers, or facilities-based providers,
including additional authorization requirements, we could be subject to
sanctions for providing service without appropriate authorizations or for
otherwise failing to comply with applicable regulatory requirements. While we do
not believe that such determinations would result in a material adverse effect
upon us or our operations, there can be no assurance that this will be the case.
Many states impose various reporting and other requirements. A number of state
public utility commissions have also adopted rules governing the marketing of
telephone services and obtaining customer authorizations for changes of a
customers' primary long distance carrier, access charges, and also contributions
to state universal funds, among other issues. State public utility commissions
also regulate access charges and other pricing for telecommunications services
within each state. We may also be required to contribute to universal service
funds in some states.
Additionally, many states require prior approval or notification for corporate
actions including transfers of control of certified carriers, transfers of
carrier assets, including customer bases, carrier stock offerings, incurrence by
carriers of significant debt obligations and name changes. The FCC also requires
prior approval or notification under certain circumstances. In June 1999, we
changed our name from Park 'N View, Inc. to PNV.net, Inc. and, in November 1999,
we changed our name to PNV Inc. We are in the process of notifying the various
state public utility commissions and, where necessary, seeking approval in
connection with the name changes, this offering, a prior debt offering and our
Series D preferred stock offering. We are also in the process of making required
filings with the FCC. We cannot be certain that we will obtain all necessary
regulatory approvals in connection with the name change and such offerings.
Additionally, we may be subject to fines or other sanctions for failure to seek
prior approval, where necessary, for certain of these corporate actions or for
failure to notify the FCC or state public utility commissions in a timely enough
fashion.
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States generally retain the right to sanction a carrier and/or to condition,
modify, cancel, terminate or revoke authorization to provide telecommunications
services within the state for failure to comply with these and other state laws
and/or rules, regulations and policies of the state regulatory authorities. Any
such penalties, including revocation, termination or suspension of our authority
to provide service would limit our ability to provide telecommunications
services to the long-haul trucking industry and could have a material adverse
effect on our business, financial condition and results of operation.
Cable Television. Cable television companies are subject to extensive
governmental regulation. We do not believe that we are subject to such
regulations. Were we to be required to comply with such regulations, the
expense, potential delay and management distraction potentially resulting from
the compliance process could have a material adverse effect on our results of
operations and financial condition.
Internet. Both the provision of Internet access service and the provision of
underlying telecommunications services are affected by federal, state and local
regulation. Currently only a small body of laws and regulations directly apply
to access to or commerce on the Internet. Moreover, in an April 1998 report to
Congress, the FCC determined that Internet service providers were not
telecommunications carriers and should consequently not be regulated as such.
However, this report stated that it expected the regulatory status of Internet
service providers in the future to continue to be uncertain. For example, the
report concluded that some services offered over the Internet, including
phone-to-phone Internet protocol telephony, may be functionally
indistinguishable from traditional telecommunications service offerings, and
their non-regulated status may have to be re-examined.
Due to the Internet's increasing popularity and use, additional laws and
regulations may be adopted at the international, federal, state and local levels
with respect to the Internet, covering issues, which are currently largely
subject to policies set by individual Internet service providers, such as user
privacy, freedom of expression, pricing, characteristics and quality of products
and services, taxation, advertising, intellectual property rights, information
security and the convergence of traditional telecommunications services with
Internet communications. Moreover, a number of laws and regulations have been
proposed and are currently being considered by federal, state and foreign
legislatures with respect to such issues. The nature of any new laws and
regulations and the manner in which existing and new laws and regulations may be
interpreted and enforced cannot be fully determined. The adoption of any future
laws or regulations might decrease the Internet's growth, decrease demand for
our service, impose taxes or other costly technical requirements or otherwise
increase the cost of doing business or in some other manner have a material
adverse effect on us. In addition, applicability to the Internet of existing
laws governing issues including property ownership, copyrights and other
intellectual property issues, taxation, libel, obscenity and personal privacy is
uncertain. As our services are available over the Internet in multiple states,
and as we facilitate sales by our customers to end users located in such states,
one or more states may seek to assert jurisdiction over various aspects of our
business. Any new legislation or regulation, or the application of laws or
regulations from jurisdictions whose laws may not currently apply to our
business, could have a material adverse effect on us.
The Communications Decency Act of 1996 imposed criminal liability on persons
sending or displaying in a manner available to minors indecent material on an
interactive computer service, including the Internet, and on any entity
knowingly permitting facilities under its control to be used for such
activities. Sections of this Act that, among other things, proposed to impose
criminal penalties on anyone distributing "indecent" material to minors over the
Internet, were held to be unconstitutional by the United States Supreme Court.
Subsequently, the Child Online Protection Act of 1998 prohibited and imposed
criminal penalties and civil liability on anyone engaged in the business of
selling or transferring, by means of the World Wide Web, material that is
harmful to minors without restricting access to such material by persons under
seventeen years of age. The Child Online Protection Act has been challenged by
civil rights organizations in part on the grounds that, like the Communications
Decency Act, it violates the First Amendment. A United States District Court has
preliminarily enjoined enforcement of the law until final resolution of the
case. The Federal Trade Commission recently adopted rules implementing the
Children's Online Privacy Protection Act which are intended to maintain the
security of children's personal information collected online and to restrict the
assembling and disclosure of children's personal, identifiable information
without
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parental consent. Numerous states have adopted or are currently considering
similar types of legislation. Such legislation could subject us and/or our
customers to potential liability, which in turn could have an adverse effect on
us. The potential liability could require us to implement measures to reduce our
exposure to such liability. Such measures may require the expenditure of
substantial resources or the discontinuation of some of our product or service
offerings. Further, the costs of defending against any such claims and potential
adverse outcomes of such claims could have a material adverse effect on us.
Moreover, we do not currently have an acceptable use policy in place which would
bar unlawful use of our network. As a result, we are currently at increased risk
of liability for unlawful use of our network.
Even with such a policy in place, we still cannot control the content of
information transferred over our network. The law relating to the liability of
online service providers, private network operators and Internet service
providers for information carried on or disseminated through the facilities of
their networks is continuing to evolve and remains unsettled. In the past, one
federal district court in the northern district of California, where we conduct
business, has ruled that Internet service providers could be found liable for
copyright infringement as a result of information disseminated through their
networks. We cannot assure you that similar claims will not be asserted in the
future. Federal laws have been enacted, however, which provide Internet service
providers with immunity from publisher or speaker liability for information that
is disseminated through their networks when they are acting as mere conduits of
information. A Federal Court of Appeals has recently held that the
Telecommunications Act creates immunity from liability on the part of Internet
service providers for libel claims arising out of information disseminated over
their services by third-party content providers.
In addition, the Digital Millennium Copyright Act, enacted in 1998, creates a
safe-harbor from copyright infringement liability for Internet service providers
if:
- the transmission was initiated by or at the direction of a person other than
us;
- the transmission or routing is carried out through an automatic technical
process without selection of the material by us;
- we do not select the recipients of the material except as an automatic
response to the request of another person;
- no copy of the material in the course of intermediate or transient storage is
maintained on the system in a manner ordinarily accessible to anyone other
than the recipients nor for a period longer than is reasonably necessary for
the transmission or routing to occur; and
- no modification of the transmission's content occurs through our system.
We cannot assure you, however, that the Digital Millennium Copyright Act or any
other legislation will protect us from copyright infringement liability. We
maintain general liability insurance. However, any imposition of liability on us
for alleged negligence, intentional harmful acts, including infringement, or
other liability could have a material adverse effect on us.
Changes in the regulatory structure and environment affecting Internet related
service providers, including regulatory changes that directly or indirectly
affect telecommunications costs or increase the likelihood of competition from
Regional Bell Operating Companies or other telecommunications companies, could
have an adverse effect on our business. Although the FCC has decided not to
allow local telephone companies to impose per-minute access charges on Internet
service providers, and that decision has been upheld by the reviewing court,
further regulatory and legislative consideration of this issue is likely. In
addition, some telephone companies are seeking relief through state regulatory
agencies. Such rules, if adopted, are likely to have a greater impact on
consumer-oriented Internet access providers than on business-oriented Internet
service providers, including us. Nonetheless, the imposition of access charges
would affect our costs of serving dial-up customers and could have a material
adverse effect on us.
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PROPRIETARY RIGHTS
We believe that recognition of our products and services is an important
competitive factor in our industry and attempt to protect them with copyrights,
trademarks, trade secret laws, restrictions on disclosure and other methods. We
cannot be certain that these methods will offer sufficient protection. We have
entered into proprietary rights agreements with key technical employees. Despite
these precautions, it may be possible for a third party to copy or otherwise
obtain and use our products, services or technology without authorization, or to
develop similar technology independently. Accordingly, we have filed an
application for a United States trademark registration for the following: "PARK
'N VIEW," "INCAB PNV," "PNV USA," "YOUR CAB. YOUR CABLE. YOUR CALL," "PNV
CONNECT" and "PNV NET" and hold trademark registrations for "WHERE SMART DRIVERS
STAY CONNECTED" and "PARK 'N VIEW" (with design).
We regard our software as proprietary and attempt to protect it as a trade
secret. We hold no patents or copyrights on our software technology. We are
currently drafting a patent application on our truck stop bollard for filing
with the United States Patent and Trademark Office. Other products exist for
which possible patent registration is being investigated.
A substantial amount of uncertainty exists concerning the scope of protection
copyright and trademark laws afford on the Internet, and we cannot be assured
that copyright and trademark laws will be afforded on the Internet.
EMPLOYEES
As of September 30, 1999, we had 248 employees, including 12 part-time
employees, none of whom are represented by a collective bargaining agreement.
These employees do not include temporary personnel and consultants who we retain
from time to time. We consider our employee relations to be good.
PROPERTIES
We are headquartered in Coral Springs, Florida, where we lease an approximately
28,000 square foot facility in which our administrative offices and warehouse
facility are located. This lease extends to August 2002. We also lease an
approximately 11,650 square foot facility in Ft. Lauderdale which previously
served as our headquarters and warehouse facilities prior to our move to our
Coral Springs facility. This lease extends to June 2001. We have sublet a
portion of the Ft. Lauderdale facility to a third party. In addition, we
recently entered into a lease, extending to June 2004, for an approximately
5,500 square foot facility in New York, New York in which our media and Internet
product development staff are located. See note 4 of notes to financial
statements for information about our commitments under these real estate leases.
LEGAL MATTERS
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 July 1998, Lorenzo Ortiz filed a lawsuit against a truckstop chain at which
our network is deployed, as well as a contractor utilized by us in connection
with the installation of our network at a truckstop owned by the chain, in the
11th Judicial District, Webb County, Texas, seeking unspecified actual and
punitive damages allegedly resulting from an injury suffered by Mr. Ortiz at the
truckstop in connection with the installation. On July 6, 1999, defendant Red
Line Contracting, Inc. filed a third-party complaint against us seeking
indemnity and/or contribution for the plaintiff's claims. We inadvertently
failed to timely name the truckstop chain defendant as an additional insured and
our insurance carrier has, as a result, denied coverage of the truckstop chain
with respect to this lawsuit and is defending us under a reservation of its
rights. The truckstop chain has agreed to our assumption of the defense of this
lawsuit. We have agreed to
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indemnify the truckstop chain from any losses relating to this lawsuit and have
secured this obligation with a letter of credit in the amount of $.2 million.
Our insurance carrier is defending us in this lawsuit.
In July 1999, Robert T. and Julie McCurry filed a lawsuit against us, a
truckstop chain and others at which our network is deployed in Superior Court of
Shasta County, California. The lawsuit seeks a total of $2.0 million in actual
damages resulting from an injury suffered by Mr. McCurry when he tripped on one
of the access points to our network in a truckstop parking lot. The amount
sought exceeds the limit of our insurance policy. We have notified our insurance
carrier of this lawsuit and it is defending us in this lawsuit. We are unaware
of any issues which would result in the denial of insurance coverage.
In March 1999, Daniel Ray Claybaugh filed a lawsuit against us and a truckstop
chain at which our network is deployed in the Circuit Court for Knox County,
Tennessee. The lawsuit seeks unspecified actual damages resulting from an injury
suffered by Mr. Claybaugh when he tripped on one of the access points to our
network in a truckstop parking lot. Although our insurance carrier is defending
us pursuant to the terms of our policy, it has refused to recognize the
truckstop chain as an additional insured under the policy. We have agreed to
assume the costs of defense for 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.
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 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 Claybaugh and Morgan lawsuits 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 also have received 20 to 25 additional claims arising from slip and fall
incidents relating to our network. We have advised our insurance carrier of
these incidents and the carrier has denied coverage of the truckstop chain as an
additional insured or is reserving its rights to deny coverage on several of
these incidents due to our alleged failure to provide timely notice of such
incidents. Our present understanding of these claims is preliminary. Based upon
our understanding, however, management does not believe that the outcome of any
of these lawsuits or claims will have a material adverse effect on our financial
condition or results of operations.
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.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers, and their ages and positions, as of
November 1, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert P. May.......................... 50 Chief Executive Officer and Director
Ian Williams........................... 50 Chairman of the Board and Director
Stephen L. Conkling.................... 55 President, Chief Operating Officer and Chief
Financial Officer
R. Michael Brewer...................... 55 Vice President -- Finance
Anthony W. Allen....................... 38 Vice President -- Operations and Secretary
Richard K. Brenner..................... 45 Vice President -- Marketing
Bill J. Buzbee......................... 54 Vice President -- Business Development
Mark Cleveland......................... 36 Vice President -- Sales
James D. Green......................... 41 Vice President -- Product Development
Yves Roland Maynard.................... 38 Vice President -- Engineering
Steven Yevoli.......................... 29 Vice President -- New Media and E-Business
Robert M. Chefitz...................... 40 Director
Thomas P. Hirschfeld................... 36 Director
Daniel K. O'Connell.................... 70 Director
William J. Razzouk..................... 52 Director
</TABLE>
Robert P. May has served as our Chief Executive Officer since March 1999. Prior
to joining PNV, from March 1998 to February 1999, Mr. May was a private
investor. From October 1996 to February 1998, Mr. May served as Chief Operating
Officer of Cablevision Systems Corporation. In this position he oversaw several
key transactions including the successful integration of the New York-area cable
systems of Tele-Communications, Inc. From April 1995 to September 1996, Mr. May
served as Chief Operating Officer of Towne Air Freight, a regional airfreight
trucking company. From 1993 to October 1995, Mr. May also served as a Chief
Executive Officer of Intelligent Electronics' Intelogistics Division, a
distributor of desktop hardware and related outsourcing services. From 1973 to
1993, Mr. May was employed by Federal Express Corporation where he served in a
variety of senior management positions. Mr. May attended Curry College and
Boston College.
Ian Williams, a founder of PNV, has served as our Chairman of the Board since
August 1998 and as a director of PNV since its incorporation in September 1995.
From September 1995 to March 1999, Mr. Williams served as our Chief Executive
Officer. From September 1995 to July 1998, Mr. Williams served as our President.
From March 1993 to September 1995, Mr. Williams served as President of Park 'N
View, Ltd., the predecessor of PNV. Prior to joining Park 'N View, Ltd., from
1991 to March 1993, Mr. Williams served as President of Arden Technologies,
Inc., a manufacturer and distributor of wireless cable transmitters. Mr.
Williams' responsibilities at Arden, as well as other previous employers,
included the design of numerous satellite master antenna television systems,
multi-channel low-power television systems, FM rebroadcast and distribution
systems and wireless television broadcast systems and the installation of
low-power television and cable systems throughout Canada, the Arctic, and over
30 other countries throughout the world. Mr. Williams holds a diploma from West
Gloucestershire College of Education in the United Kingdom.
Stephen L. Conkling has served as our President since August 1998, as Chief
Operating Officer since December 1997 and as Chief Financial Officer since
October 1999. From April 1996 to July 1998, Mr. Conkling served as our Vice
President -- Finance. Prior to joining PNV, from January 1995 to March
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1996, Mr. Conkling served as Chief Financial Officer of Advanced Promotion
Technologies, a publicly held database marketing company that filed for Chapter
11 bankruptcy protection within two years after Mr. Conkling left the company.
From November 1993 to January 1995, Mr. Conkling was a consultant, providing
strategic and financial strategy services. From 1991 to November 1993, Mr.
Conkling served as Chief Executive Officer of Imagery, a document imaging
software company. Mr. Conkling served as Chief Financial Officer of Interactive
Systems, a systems software company, from 1984 to January 1991. Prior to 1984,
he worked for Xerox Corporation for 16 years in various finance and marketing
positions. Mr. Conkling holds a B.S. in Industrial Management from Purdue
University and an M.B.A. from the University of Southern California.
R. Michael Brewer has served as our Vice President -- Finance since August 1998
and served as our Chief Financial Officer from August 1998 to September 1999.
Prior to joining PNV, from January 1994 to August 1998, Mr. Brewer served as
Vice President of Finance and Chief Financial Officer for Boca Research, Inc., a
computer peripheral manufacturing company. From 1978 to January 1994, Mr. Brewer
served as Vice President of Finance for the U.S. operations of Mitel
Corporation, a Canadian company which manufactured private branch exchange
telephone equipment and semiconductors. Mr. Brewer holds a B.S. in Business
Administration from the University of Minnesota. Mr. Brewer received his Florida
CPA in 1975.
Anthony W. Allen has served as our Vice President -- Operations since March 1997
and Secretary since our incorporation in September 1995. Prior to joining PNV,
from 1993 to August 1997, Mr. Allen served as Director of Marketing for Arden
Technologies, Inc., a manufacturer and distributor of wireless cable
transmitters. From September 1995 to March 1997, Arden Technologies, Inc.
contracted with us to provide Mr. Allen's services to PNV. From 1990 to 1993, he
served as Director & General Manager of International Microwave Distribution
Systems, Ltd. in Barbados, where he was responsible for the international
distribution and installation of wireless cable products. From 1988 to 1990, he
served as Regional Sales Manager for Southfields Coachworks Ltd., located in the
United Kingdom, a manufacturer of semi-trailers and heavy truck bodywork. Mr.
Allen holds a diploma in mechanical engineering from Harper Adams in the United
Kingdom.
Richard K. Brenner has served as our Vice President -- Marketing since June 1999
and as our Vice President -- Sales from November 1997 to May 1999. Prior to
joining PNV, from February 1996 to October 1997, Mr. Brenner was the founder and
President of Brenner Consulting Group, a consulting firm that provided marketing
consulting services to PNV. See the section entitled "Certain Transactions."
From June 1995 to February 1996, Mr. Brenner served as Vice
President -- Worldwide Business Planning for Scott Paper Company, where he
directed business planning for all Scott brands. From January 1994 to June 1995,
Mr. Brenner served as Vice President -- Marketing of Advanced Promotion
Technologies, a publicly held database marketing company that filed for Chapter
11 bankruptcy protection within two years after Mr. Brenner left the company.
Mr. Brenner worked for Procter & Gamble from 1986 to January 1994 in various
marketing and product management positions. Prior to joining Procter & Gamble,
Mr. Brenner worked for Leo Burnett USA, an advertising agency, as an account
supervisor. Mr. Brenner holds a B.A. in Business Administration from the
University of Maryland and a M.A. in Management from Northwestern University.
Bill J. Buzbee has served as our Vice President -- Business Development since
October 1997 and Vice-President -- Marketing and Sales from April 1995 to
October 1997. Prior to joining PNV, from October 1993 to April 1995, he served
as Manager of Fuel/Ancillary Sales for National Auto/Truckstops Corp., a
truckstop operator. From 1989 to 1993 and from 1972 to 1984, Mr. Buzbee worked
for Truckstops of America and served in various capacities, including general
manager of several truckstop facilities. Mr. Buzbee worked for a Petro Stopping
Center franchisee from 1984 to 1986. Mr. Buzbee attended State Community College
in Columbia, Tennessee and David Lipscomb University in Nashville, Tennessee.
Mark A. Cleveland has served as our Vice President of Sales since June 1999.
Prior to joining PNV, from April 1990 to April 1999, Mr. Cleveland served as
Vice President of Jubitz Fleet Services, a division of Jubitz Corporation, a
company that provides a variety of services to fleets. From July 1997 to April
1999,
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Mr. Cleveland also served as the Vice President of Network Development for
SmartStop Inc., a company, partially-owned by Jubitz Fleet Services, that
marketed prepaid phone cards and public access telephone services in truckstops.
From July 1984 to August 1989, Mr. Cleveland was the President of Horizon
Satellite Systems, Inc., a retail and commercial satellite communications
services provider, and he was elected to the board of directors of the Satellite
Broadcasting and Communications Association. From September 1989 to March 1999,
Mr. Cleveland was a sales and marketing consultant. From June 1986 to June 1989,
Mr. Cleveland was a founder and Vice President of ONTOP Software Systems, a
developer of business operating software products in Portland, Oregon. Mr.
Cleveland holds a B.A. in Marketing and Finance from the University of Oregon.
James D. Green has served as our Vice President -- Product Development since
November 1996. Prior to joining PNV, Mr. Green served as President of GreenLight
Technologies, Inc., a software development company specializing in frequency
marketing and transaction processing services for truckstops and trucking
companies from its formation in March 1994 to November 1996. GreenLight
performed certain software programming consulting services for us. See the
section entitled "Certain Transactions." From 1984 to February 1994, Mr. Green
worked for Comdata Corporation as Senior Product Manager responsible for all
transportation card based products. Mr. Green worked as Product Manager for
Financial Institutional Services Inc. from 1982 to 1984 and as consultant for
Computer Sciences Corporation from 1980 to 1982. Mr. Green holds a B.S. in
Business Administration from The Evergreen State College in Olympia, Washington.
Yves Roland Maynard has served as our Vice President -- Engineering since
September 1995 and as Vice President -- Engineering of our predecessor, Park 'N
View, Ltd., from 1993 to August 1995. Mr. Maynard was an owner and served as
Vice President of Glocom Engineering from 1990 to 1993, and of Glocom
Engineering Ltd./Canada from 1987 to 1990. In this capacity he was responsible
for the engineering and installation of microwave distribution systems. His
experience at Glocom includes the design and manufacture of microwave and cable
and off-air television systems, transmitters and associated components. He has
designed, installed and managed projects in Canada, the United States and the
Caribbean. Mr. Maynard holds a degree in Industrial Electronics from Red River
Community College in Winnipeg, Manitoba.
Steven Yevoli has served as our Vice President of New Media/E-Business since May
1999. Prior to joining PNV, from May 1998 to May 1999, Mr. Yevoli served as
Director of Cablevision Systems Corporation's E-commerce Division. In this
position, he was responsible for the electronic commerce operations of various
entities, including Madison Square Garden and Radio City Music Hall. From
September 1996 to April 1998, Mr. Yevoli served as one of the five original
members of Cablevision System's New Media Team. In this position, he assisted in
launching one of the country's first cable modem services, Optimum Online. From
October 1997 to June 1998, for Cablevision Systems, Mr. Yevoli also assisted in
the development and launch EZSeek.com, a portal in Long Island, NY. From
September 1995 to September 1996, Mr. Yevoli served as Director of New Media of
Rainbow Interactive, the first interactive group of Rainbow Media, a subsidiary
of Cablevision Systems. From September 1993 to August 1995, Mr. Yevoli served as
Vice President -- Music Division of Sabbeth Industries, in which position he was
responsible for distribution of overruns and out-of-stock music to foreign
markets. Mr. Yevoli holds a B.S. in Business from Ithaca College.
Robert M. Chefitz has served as a director of PNV since November 1995. Mr.
Chefitz has served as a Managing Director of Patricof & Co. Ventures, Inc., a
venture capital firm, since 1991. Mr. Chefitz joined Patricof in 1987 and served
as Vice President until 1991. From 1981 to 1987, Mr. Chefitz served in various
management positions with Golder, Thoma & Cressey Co. of Chicago, Illinois. Mr.
Chefitz's experience includes consulting with management teams to consolidate
fragmented industries, including communications, security and specialty
retailing. Mr. Chefitz serves as a director of Protection One, Inc. and several
privately held companies in which the limited partnerships managed by Patricof
are investors. Mr. Chefitz holds a B.A. in History from Northwestern University
and an M.B.A. from Columbia University.
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Thomas P. Hirschfeld has served as a director of PNV since November 1995. Mr.
Hirschfeld has served as a Managing Director of Patricof since March 1999 and as
a Principal of Patricof from January 1995 through February 1999. From January
1994 to January 1995, he served as Assistant to the Mayor of New York City. From
August 1986 to December 1993, Mr. Hirschfeld worked for Salomon Brothers as an
investment banker. Mr. Hirschfeld serves as a director of Talk City, Inc., a
provider of on-line communities and interactive services for businesses and
consumers, and Audible, Inc., a provider of spoken audio content over the
Internet. Mr. Hirschfeld serves as a director of a number of privately held
companies in which the limited partnerships managed by Patricof are investors.
Mr. Hirschfeld holds a B.A. in Classics from Harvard College, and an M.A. in
Politics and Economics from Balliol College, Oxford University.
Daniel K. O'Connell has served as a director of PNV since November 1995. Mr.
O'Connell has been a private investor since April 1991. From 1964 to April 1991,
Mr. O'Connell worked for Ryder System, Inc., an international transportation
services company and served in various capacities including Executive Vice
President from 1974 to 1991, Financial Vice President from 1970 to 1974, General
Counsel from 1968 to 1970 and attorney from 1964 to 1968. He is a director of
American Retirement Corporation in Nashville, Tennessee, which develops, owns
and manages assisted living, continuing care and congregate living retirement
communities throughout the United States, and of Fortress-FAE Corporation in
Boston, Massachusetts, which transports and stores art objects and other
high-value personal property. Mr. O'Connell holds a B.A. from Southern Illinois
University and a J.D. from Georgetown University Law Center. Mr. O'Connell's son
is a partner in the law firm of Kilpatrick Stockton LLP, which provides legal
services to us.
William J. Razzouk has served as a director of PNV since October 1999. Mr.
Razzouk has served as Chairman and Chief Executive Officer of PlanetRx.com, Inc.
since September 1998. From August 1997 to May 1998, Mr. Razzouk served as
President and Chief Operating Officer of Storage USA, a real estate investment
trust. Mr. Razzouk was a consultant to Advanta Corporation from October 1996 to
April 1997. From February 1996 to June 1996, Mr. Razzouk served as President and
Chief Operating Officer of America Online, Inc. From August 1983 to February
1996, Mr. Razzouk was employed by FedEx Corporation and most recently served as
Executive Vice President of Worldwide Customer Operations. Mr. Razzouk serves as
a director of PlanetRx.com, Inc., Fritz Companies, Inc. and Waste Connections,
Inc. Mr. Razzouk holds a B.A. in Journalism and Marketing from the University of
Georgia.
Executive officers are appointed by the board of directors on an annual basis
and serve until their successors have been duly elected and qualified. There are
no family relationships among any of our directors or executive officers, except
that Mr. Williams and Mr. Allen are brothers-in-law.
COMPOSITION OF THE BOARD OF DIRECTORS
Our bylaws provide that the number of members of our board of directors will
consist of between one and nine and that the board has the power to determine
the number of directors, when not determined by the stockholders, and to fill
vacancies on the board. Currently, the number of directors is fixed at seven and
we have six directors and one vacancy on the board of directors. All directors
are elected annually to serve until the next annual stockholders' meeting
following their election and until their successors are elected and qualified.
Of our current directors, under the terms of the preferred stock designations
and stockholder agreement to which we are a party, Mr. Chefitz and Mr.
Hirschfeld are the designees of the holders of the Series A preferred stock, Mr.
May is the designee of the holders of the Series B preferred stock, Mr. Razzouk
is the designee of the holders of the Series C preferred stock and Mr. Williams
and Mr. O'Connell are the designees of the holders of the common stock. Upon the
completion of this offering, these designations will be eliminated and the
agreement will terminate. After the completion of this offering, the holders of
a majority of the common stock held by the holders of the Series A preferred
stock and the holders of a majority of the common stock issuable upon conversion
of each of the Series B and Series C preferred stock will each be entitled to
nominate one director for election to our Board of Directors, which we will
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nominate. These rights of the holders of the Series A preferred stock will
continue so long as they hold at least 10% of our common stock. These rights of
the holders of each of the Series B and Series C preferred stock will continue
so long as two-thirds of the shares of common stock issuable upon conversion of
the Series B and Series C preferred stock are held of record by the original
purchasers of such Series B and Series C preferred stock. After the completion
of this offering, Mr. Chefitz, Mr. Hirschfeld, Mr. May, Mr. Razzouk, Mr.
Williams and Mr. O'Connell will continue to serve as our directors, at least
until their respective successors, if any, are elected. We intend to fill the
vacancy on the board prior to the completion of this offering.
BOARD COMMITTEES
The audit committee of the board of directors reviews, acts on and reports to
the board of directors with respect to various auditing and accounting matters,
including the recommendation of our auditors, the scope of the annual audits,
fees to be paid to the auditors, the performance of our independent auditors and
our accounting practices. The members of the audit committee are Mr. O'Connell,
Mr. Hirschfeld and Mr. Razzouk.
The compensation committee of the board of directors reviews the performance of
all executive officers, determines the salaries and benefits for all executive
officers and administers our stock option plan. The members of the compensation
committee are Mr. Chefitz, Mr. Razzouk and Mr. Williams.
DIRECTOR COMPENSATION
In connection with the recent appointment of Mr. Razzouk to our board of
directors in October 1999, we granted him an option to purchase 25,000 shares of
common stock, having an exercise price of $10.50 per share and agreed to pay him
$1,500 for each board or committee meeting that he attends. This option became
exercisable in full on the date of grant and may be exercised by Mr. Razzouk at
any time during its 10-year term. Other than reimbursing directors for customary
and reasonable expenses of attending board of directors or committee meetings,
we do not currently compensate our directors for serving in this capacity.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee made decisions concerning the compensation of our
executive officers for the years ended June 30, 1998 and June 30, 1999, during
which time, Mr. Williams, our Chairman of the Board, has been a member of the
committee. No interlocking relationship exists between any member of our board
or our compensation committee and any member of the board of directors or
compensation committee of any other company, and no such interlocking
relationship has existed in the past.
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EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth all compensation during fiscal 1998 and 1999 for
each of our chief executive officers during fiscal 1999 and our four other most
highly compensated executive officers during fiscal 1999 who were serving as
executive officers as of the end of fiscal 1999. Mr. May joined us in March
1999. Mr. Williams served as our chief executive officer until March 1999. Mr.
Brenner joined us in November 1997 and Mr. Brewer joined us in August 1998. The
amounts listed in the column titled "Bonus" represent for Mr. May a
discretionary bonus awarded for fiscal 1999 and paid in fiscal 2000. These
amounts also include discretionary bonuses of $57,500 for Mr. Williams, $46,620
for Mr. Conkling, $22,400 for Mr. Green and $23,330 for Mr. Brenner, all of
which were awarded for fiscal 1999 and paid in fiscal 2000. The amounts listed
in the column titled "All Other Compensation" represents our contributions under
our 401(k) Profit Sharing Plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
--------------------------- ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. May..................... 1999 $ 91,667 $ 50,000 $15,775(1) 567,083 $1,375
Chief Executive Officer and 1998 -- -- -- -- --
Director
Ian Williams...................... 1999 165,000 107,750 -- -- 1,856
Chairman of the Board and 1998 157,000 -- -- -- --
Director
Stephen L. Conkling............... 1999 140,000 96,620 -- 65,735 1,575
President, Chief Operating 1998 132,501 -- -- -- --
Officer
and Chief Financial Officer
R. Michael Brewer................. 1999 95,474 48,000 -- 81,096 1,238
Vice President -- Finance(2) 1998 -- -- -- -- --
James D. Green.................... 1999 130,000 42,400 -- 75,867 1,556
Vice President -- Product 1998 127,500 -- -- -- --
Development
Richard K. Brenner................ 1999 130,433 32,330 -- 101,912 1,425
Vice President -- Marketing 1998 73,333 27,500 -- -- --
</TABLE>
- ---------------------------
(1) Mr. May's "Other Annual Compensation" includes reimbursements of $6,470 for
premiums paid by Mr. May on a whole-life insurance policy for the benefit of
Mr. May's designated beneficiaries and $7,805 paid to Mr. May for temporary
living and relocation expenses.
(2) Mr. Brewer's bonus compensation consists of a hiring bonus of $10,000 and a
guaranteed bonus of $38,000 that was earned in fiscal 1999, but paid in
fiscal 2000.
Stock Options
The following table sets forth information regarding options granted to each of
our executive officers named in the Summary Compensation Table during fiscal
1999. All of the options were granted under our stock option plan and are
"nonqualified" options. We granted options to purchase 1,345,969 shares of
common stock to employees and consultants in fiscal 1999. We have not granted
any stock appreciation rights.
To the extent the options set forth in the table below have become exercisable,
these options may be exercised for a period of three years following a
termination of the optionee's employment, except for the option granted to Mr.
May, which may be exercised at any time during the term of his option. All
options set forth in the table below terminate ten years from the date of grant,
except for the option granted to
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Mr. May, which terminates seven years from the date of grant. Optionees may pay
the exercise price in cash, shares of our common stock or any other property
approved by our board of directors.
The potential realizable values are based on an assumption that the price of our
common stock will appreciate at the compounded annual rate shown from the date
of grant until the end of the option term. These amounts are calculated based on
the requirements of the Securities and Exchange Commission and do not reflect
our estimate of future common stock prices. The exercise price of the options
granted was the fair market value of the common stock on the date of grant as
determined by our board of directors, except that the exercise price of the
options granted to Mr. Brenner was below this value. In determining the market
value of our common stock, the board of directors considered our financial
condition and business prospects, operating results, the absence of a market for
our common stock, sales of our convertible preferred stock (taking into
consideration the rights and preferences of such convertible preferred stock),
the trading prices of our 13% notes and a third party appraisal of the value of
our common stock. We subsequently determined that the exercise price of the
options granted was below the deemed fair market value of the common stock for
financial reporting purposes. We based this determination on preliminary
discussions with potential underwriters as to possible ranges of the initial
public offering price of our common stock, taking into account the risk that
such offering would not be consummated, and sales of our Series D preferred
stock in September 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF VALUE OF
STOCK PRICE APPRECIATION FOR OPTIONS
INDIVIDUAL GRANTS OPTION TERM BASED ON
-------------------------------------------------------- ----------------------------------- MID-
NUMBER OF PERCENT OF TOTAL POINT
SECURITIES OPTIONS OF
UNDERLYING GRANTED TO EXERCISE OR OFFERING
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRICE
NAME GRANTED FISCAL YEAR(%) PER SHARE DATE 0% 5% 10% RANGE
---- ---------- ---------------- ----------- ---------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert P. May........ 567,083(1) 42.45% $5.00(1) 03/02/09 -- $1,750,643 $4,519,652 $6,237,913
Ian Williams......... -- -- -- -- -- -- -- --
Stephen L.
Conkling........... 65,735(2) 4.92 5.00 03/02/09 -- 206,408 523,908 723,086
James D. Green....... 43,000(4) 3.22 5.00 03/02/09 -- 135,020 342,710 473,000
32,867(2) 2.46 5.00 03/02/09 -- 103,202 261,950 301,537
Richard K. Brenner... 80,000(3) 5.99 3.00 03/02/09 $160,000 151,200 382,400 1,040,000
21,912(2) 1.64 5.00 03/02/09 -- 68,804 174,639 241,032
R. Michael Brewer.... 80,000(4) 5.99 5.00 03/02/09 -- 251,200 637,600 880,000
1,096(2) .08 5.00 03/02/09 -- 3,441 8,735 12,056
</TABLE>
- ---------------------------
(1) This option becomes exercisable, subject to continued employment, in equal
monthly increments of approximately 2.1% each until the first anniversary of
the completion of this offering, when this option becomes exercisable in
full. The exercise price per share is $5 or any lower per share price at
which we sell common stock prior to the first anniversary of the completion
of this offering.
(2) This option becomes exercisable, subject to continued employment, in
cumulative annual increments of 20% each beginning on the date of grant and
the first, second, third and fourth anniversaries of the date of grant.
(3) This option becomes exercisable, subject to continued employment, as to
68,000 of the underlying shares on the date of grant and as to 4,000 shares
each in November 1999, 2000 and 2001.
(4) This option becomes exercisable, subject to continued employment, in
cumulative increments of 20% on the date of grant and in August 1999, 2000,
2001 and 2002.
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<PAGE> 74
The following table sets forth information concerning the number and year-end
value of exercisable and unexercisable options held by the executive officers
named in the Summary Compensation Table as of June 30, 1999. The "Value of
Unexercised In-the-Money Options as of June 30, 1999" is based on a value of
$15.00 per share, the deemed fair market value of our common stock as of June
30, 1999 for financial reporting purposes, less the per share exercise price,
multiplied by the number of shares issuable upon exercise of the options. All
options were granted under our stock option plan.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AS OF JUNE 30, 1999 AS OF JUNE 30, 1999(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert P. May................................ 35,442 531,641 $354,420 $5,316,410
Ian Williams................................. -- -- -- --
Stephen L. Conkling.......................... 71,874 91,739 917,648 1,049,994
Richard K. Brenner........................... 72,382 29,530 859,820 319,300
R. Michael Brewer............................ 16,219 64,877 162,190 648,770
James D. Green............................... 37,900 75,845 464,226 815,266
</TABLE>
EMPLOYMENT, SEVERANCE AND OTHER ARRANGEMENTS
In March 1999, under an employment agreement without a fixed term that either
party may terminate at any time, we employed Robert P. May as our chief
executive officer, and agreed to nominate him as a director. Under this
agreement, Mr. May's base annual salary is $275,000 and he is eligible for a
bonus initially targeted at 50% of his base annual salary based upon goals and
objectives to be established by the board of directors annually following our
fiscal year-end. This bonus may be increased or decreased by the board of
directors. Mr. May may also receive a discretionary bonus. We have agreed to
reimburse Mr. May for certain expenses related to his temporary living and
relocation, to pay certain life insurance premiums on his behalf and to
establish a nonqualified deferred compensation plan under which he may defer
amounts in excess of permissible contributions to our 401(k) plan. We have not
yet established the deferred compensation plan.
In March 1999, in accordance with this employment agreement, we issued to Mr.
May 23,000 shares of our Series C preferred stock for a purchase price of $8.00
per share. In partial payment of this purchase price, Mr. May issued to the
company his promissory note, also dated March 1999, in the original principal
amount of $92,000, which amount accrues interest at the rate of 6% per annum.
The principal balance of this note, together with accrued interest, is due in
March 2003. Under his employment agreement, Mr. May has agreed to pay the
remaining $92,000 of this purchase price over an eight month period that began
in March 1999.
If we terminate Mr. May's employment without cause, we are obligated to pay him
his base salary and the amount of the life insurance premiums that we have
agreed to pay on his behalf for six months. If a change in our control occurs
and we terminate Mr. May's employment without cause during the 18 months
following the change in control, we are obligated to pay him his base salary and
the amount of the life insurance premiums for 18 months, as well as an amount
equal to any bonus paid to Mr. May in the previous year. If Mr. May does not
agree to release the company and our representatives from liability relating to
his employment, we are obligated to pay him his base salary for one month only
upon termination.
In March 1999, in accordance with his employment agreement, we granted Mr. May,
under our stock option plan, an option to purchase 567,083 shares of common
stock for $5.00 per share. We also agreed with Mr. May that, if certain sales of
our stock in an aggregate amount up to $20.0 million closed prior to February
29, 2000, we would grant him additional options to purchase shares of common
stock such that, immediately following any such grant of additional options, he
would hold options to purchase an
73
<PAGE> 75
aggregate of up to five percent of the common stock, calculated on a fully
diluted basis, outstanding after such sale. Under this agreement, we granted to
Mr. May an option to purchase 130,097 shares of common stock having an exercise
price of $5.00 per share upon the closing of the sale of our Series D preferred
stock in September 1999. This option became exercisable as to 12.48% of the
underlying shares of common stock on the date of grant and becomes exercisable
in equal monthly increments of approximately 2.08% until the first anniversary
of the completion of this offering, when this option becomes exercisable in
full.
In November 1996, we acquired computer software from a software development
company known as GreenLight Technologies, Inc., of which James D. Green owned
50% of its capital stock. In connection with the acquisition, we agreed to pay
Mr. Green an annual salary of at least $100,000 as long as he is employed by us.
For additional information relating to the acquisition of GreenLight
Technologies, see the section entitled "Certain Transactions."
Other than Mr. May, we do not have an employment agreement with any executive
officer named in the Summary Compensation Table. In the event the employment of
any executive officer is terminated, we have verbally agreed to pay each of
these officers his base annual salary for a three-month period other than Mr.
Conkling or Mr. Brenner, each of whom we have agreed to pay for a six-month
period. Pursuant to our stock option plan, the exercisability of options granted
under the plan is accelerated in the event of certain changes in control of PNV.
BONUS PLAN
In February 1998, the board of directors adopted a bonus plan to provide annual
cash and/or stock awards to some of our key employees, including all of our
executive officers. Pursuant to the bonus plan, each of these key employees are
each eligible for bonuses of up to 61% of annual base salary depending upon the
employee's position with PNV and achievement of certain subjective employee
goals and objective company goals, both of which are determined by the board of
directors. The allocation of the bonus between cash and/or stock awards is
determined by the board of directors. To date, we have not established any goals
or made any awards under this bonus plan.
STOCK OPTION PLAN
Our stock option plan was adopted by our board of directors on August 26, 1996,
and approved by our stockholders on the same date for the benefit of our
officers, directors, employees and consultants. This plan has been amended, most
recently in August 1999 to approve an additional 250,000 shares of common stock
for issuance under this plan, and this amendment was subsequently approved by
our stockholders. An aggregate of 2,184,166 shares of common stock is reserved
for issuance under this plan. If shares subject to outstanding options are not
purchased because of termination, expiration or cancellation of an option, or
for some other reason, those shares will be available for future grants. Shares
of common stock subject to the stock option plan are made available from
authorized and unissued shares of our common stock. As of October 15, 1999, we
had outstanding options to purchase an aggregate of 1,978,343 shares of common
stock under this plan at a weighted average exercise price of approximately
$4.34 per share.
This plan is currently administered by the compensation committee of the board
of directors. The compensation committee may interpret this plan and may
prescribe, amend and rescind rules and make all other determinations necessary
or desirable for the administration of this plan. This plan permits the
compensation committee to select the officers, directors, employees, and
consultants who will receive awards and generally to determine the terms and
conditions of those awards.
We may issue two types of stock options under this plan: incentive stock
options, which are intended to qualify under the Internal Revenue Code of 1986,
as amended, to employees and nonqualified stock options to employees, directors
and consultants. The option price of each incentive stock option granted under
this plan must be at least equal to the fair market value of a share of common
stock on the date the incentive stock option is granted. The stock option plan
provides that we cannot issue incentive stock options after February 2006.
Options are generally not transferrable by the optionee.
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<PAGE> 76
In the event of a merger, consolidation, reorganization, recapitalization, stock
dividend or other change in corporate structure affecting the number of issued
shares of our common stock, then our board of directors may make equitable
adjustments to the terms of this plan. In particular, our board of directors may
make an equitable substitution or proportionate adjustment in the number and
type of shares authorized by this plan, the number and type of shares covered by
outstanding awards under this plan, and the exercise prices of these awards.
The terms of this plan provide that our board of directors may amend or
terminate this plan at any time, provided, however, that some amendments require
approval of our stockholders. No action may be taken which adversely affects any
rights under outstanding awards without the holder's consent.
We intend to file a registration statement on Form S-8 upon the completion of
this offering to register the sale of common stock issuable upon exercise of
options issued under our stock option plan.
401(k) PLAN
We adopted a Section 401(k) profit sharing plan in February 1999. The 401(k)
plan is designed as a tax-qualified plan under which all employees who are at
least 18 years of age and have completed at least one year of service with us
are eligible to participate. If, however, an employee was employed by us on
January 1, 1999, this employee became eligible to participate in the 401(k) plan
regardless of age or length of service with us. Under the 401(k) plan,
participants may elect to defer a portion of their compensation on a pre-tax
basis. In addition, at the discretion of the board of directors, we may make
matching contributions and/or nonelective employer contributions to the 401(k)
plan for all eligible employees. During fiscal 1999, we made contributions of
$59,430.
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<PAGE> 77
CERTAIN TRANSACTIONS
FINANCING TRANSACTIONS IN CONNECTION WITH THE ORGANIZATION OF PNV
In November 1995, PNV, which was organized by Patricof & Co. Ventures, Inc., Ian
Williams and the then partners of Park 'N View, Ltd., Sam Hashman, Monte
Nathanson and Nelgo Investments, of which Daniel O'Connell is a general partner,
acquired the business and assets, and assumed the liabilities, of Park 'N View,
Ltd. In connection with this purchase, we issued approximately 2.3 million
shares of common stock to Park 'N View, Ltd. Park 'N View, Ltd. subsequently
distributed those shares to its partners. The amount of the net liabilities
assumed by PNV was $84,000. In addition, over a 12-month period commencing in
November 1995, funds managed by Patricof invested $3.8 million in PNV in
exchange for which we issued to the funds managed by Patricof an aggregate of
2.0 million shares of common stock, 70,010 shares of Series A preferred stock
and $3.0 million aggregate principal amount of our 8% subordinated notes. During
the fall of 1996, we issued to the funds managed by Patricof an additional $1.5
million aggregate principal amount of our 8% subordinated notes and warrants to
purchase 239,250 shares of common stock. In connection with the sale of the
Series A preferred stock, PNV entered into certain agreements with certain
holders of our capital stock. Pursuant to these agreements, certain holders of
common stock and Series A preferred stock obtained rights of first refusal with
respect to proposed sales of stock by PNV or by certain holders of shares of our
common stock. The holders of our outstanding shares of common stock and Series A
preferred stock also had certain co-sale rights. These rights of first refusal
and co-sale will terminate upon the completion of this offering.
1996 PRIVATE EQUITY INVESTMENT
In November 1996, in connection with the sale of the Series B preferred stock,
the funds managed by Patricof:
- converted $3.0 million aggregate principal amount of our 8% subordinated
notes plus $.2 million in interest accrued on those notes into 318,065 shares
of the Series A preferred stock;
- converted $1.5 million aggregate principal amount of those notes and warrants
to purchase 239,250 shares of common stock, into 137,237 shares of the Series
B preferred stock; and
- purchased 45,746 shares of Series B preferred stock for $.5 million.
The State of Michigan Retirement System purchased 731,930 shares of the Series B
preferred stock for $8.0 million and the Benefit Capital Management Corporation
purchased 274,474 shares of the Series B preferred stock for $3.0 million. In
connection with the sale of the Series B preferred stock, we entered into
various agreements with certain holders of our capital stock. Pursuant to these
agreements, we granted demand and piggy-back registration rights to various
holders of shares of common stock and to holders of the shares of common stock
issuable upon the conversion of the Series B preferred stock and any additional
shares of common stock acquired as a result of a stock dividend, stock split or
other distribution in respect of the Series B preferred stock. Various holders
of common stock and Series B preferred stock also obtained rights of first
refusal with respect to proposed sales of stock by PNV or by various holders of
shares of common stock pursuant to these agreements. The holders of our
outstanding shares of common stock and Series B preferred stock also had certain
co-sale rights pursuant to these agreements. These rights of first refusal and
co-sale will terminate upon the completion of this offering.
ACQUISITION OF GREENLIGHT TECHNOLOGIES, INC.
From November 1995 to November 1996, GreenLight Technologies, Inc., of which
James Green owned 50% of the capital stock, and Lewis Tatham, also an employee
of PNV, owned the remaining 50% of the capital stock, provided certain software
programming consulting services to PNV relating to our software pursuant to a
software development agreement. Pursuant to the provisions of this agreement,
during this period, we paid Greenlight Technologies an aggregate of
approximately $49,800 in fees. In November 1996, pursuant to a technology
transfer agreement, Greenlight Technologies, Mr. Green and Mr. Tatham
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<PAGE> 78
transferred and assigned to us certain software relating to our software
developed by them, including rights in software developed pursuant to the
software development agreement, in consideration of our payment to each
individual of a $100,000 annual salary as long as he is employed by us and the
grant to each of them of an option to purchase 37,878 shares of common stock.
Each option has an exercise price of $1.25 per share and vests in five annual
cumulative increments of 20% each commencing on the date of grant so long as
employment continues.
1997 PRIVATE EQUITY INVESTMENT
In August 1997, we issued an aggregate of 2,328,543 shares of Series C preferred
stock for $18.6 million, of which (i) Henry L. Hillman, Elsie Hilliard Hillman
and C.G. Grefenstette, Trustees, purchased 812,500 shares of Series C preferred
stock for $6.5 million, (ii) funds managed by Patricof purchased 125,000 shares
of Series C preferred stock for $1.0 million, (iii) Benefit Capital Management
Corporation purchased 125,000 shares of Series C preferred stock for $1.0
million and (iv) the State of Michigan Retirement System purchased 125,000
shares of Series C preferred stock for $1.0 million. In connection with the sale
of the Series C preferred stock, we entered into certain amendments to the
agreements with various holders of our capital stock that we had entered into in
connection with the sale of the Series A preferred stock and the Series B
preferred stock. Pursuant to these amendments, we granted demand and piggy-back
registration rights to holders of the shares of common stock issuable upon the
conversion of the Series C preferred stock and any additional shares of common
stock acquired as a result of a stock dividend, stock split, or other
distribution in respect of the Series C preferred stock. These amendments also
provided holders of Series C preferred stock rights of first refusal with
respect to proposed sales of stock by PNV or by various holders of shares of
common stock. The holders of the Series C preferred stock also had certain
co-sale rights pursuant to these amendments. These rights of first refusal and
co-sale will terminate upon the completion of this offering.
1999 PRIVATE EQUITY INVESTMENT
In September 1999, we sold an aggregate of 3,000,000 shares of Series D
preferred stock for $31.5 million, of which ABRY Broadcast Partners III, L.P.
purchased 1,904,762 shares of Series D preferred stock for $20.0 million,
Halpern Denny Fund II, L.P. purchased 619,048 shares of Series D preferred stock
for $6.5 million and Cummins Engine Company, Inc. purchased 476,190 shares of
Series D preferred stock for $5.0 million.
In connection with the closing of the sale of the Series D preferred stock, we
entered into certain amendments to the agreements with various holders of our
capital stock that we had entered into in connection with the sale of our Series
A, Series B and the Series C preferred stock. Pursuant to these amendments, we
granted registration rights to holders of the shares of common stock issuable
upon the conversion of the Series D preferred stock. We also granted
registration rights to Volpe Brown Whelan & Company, LLC the placement agent for
the Series D preferred stock, to which we issued a warrant to purchase 60,000
shares of common stock for $10.50 per share. These amendments also provide
holders of Series D preferred stock rights of first refusal with respect to
proposed sales of stock by PNV or by various holders of common stock. The
holders of the Series D preferred also have certain co-sale rights. These rights
of first refusal and co-sale will terminate upon the completion of this
offering.
REDEMPTION OF SERIES A PREFERRED STOCK
We intend to use a portion of the net proceeds of this offering to redeem our
Series A preferred stock for $3.9 million, plus accrued dividends, the amount of
which will be $1.0 million, assuming the closing of this offering occurs on
November 22, 1999 and will be higher if the closing occurs later and lower if
the closing occurs earlier. Funds managed by Patricof, which will beneficially
own a total of approximately 15.3% of our common stock upon the completion of
this offering, own more than 99% of our Series A preferred stock.
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<PAGE> 79
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of October 15, 1999, and as adjusted to reflect
the sale of the shares of common stock offered hereby, by each person or group
of affiliated persons who is known by PNV to beneficially own 5% or more of our
common stock, each director, each executive officer named in the Summary
Compensation Table and all of our directors and executive officers as a group.
Unless otherwise indicated, the persons named in the table have sole voting and
sole investment control with respect to all shares beneficially owned.
Information with respect to beneficial ownership has been furnished by each
director, officer or 5% or more stockholder, as the case may be. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. These rules generally attribute beneficial ownership of
securities to persons who possess sole or shared voting power or investment
power with respect to those securities and include shares of common stock
issuable upon the exercise of stock options or warrants that are immediately
exercisable or exercisable within 60 days.
The number and percentage of shares of common stock beneficially owned are based
on 11,969,679 shares of common stock outstanding as of October 15, 1999,
assuming the conversion of our Series B, Series C and Series D preferred stock,
the issuance of 408,122 shares of common stock in payment of accrued dividends
on our convertible preferred stock (assuming an initial public offering price of
$16.00 and that the closing of this offering occurs on November 22, 1999) and
the exercise of certain outstanding warrants to purchase common stock.
<TABLE>
<CAPTION>
PERCENT OF SHARES
OUTSTANDING
----------------------
NUMBER OF SHARES BEFORE THE AFTER THE
NAME BENEFICIALLY OWNED OFFERING OFFERING
---- ------------------ ---------- ---------
<S> <C> <C> <C>
Patricof & Co. Ventures, Inc., as Manager(1)............ 2,409,851 20.1% 15.3%
445 Park Avenue, New York, New York 10022
ABRY Broadcast Partners III, L.P........................ 1,921,046 16.0 12.2
18 Newbury Street, Boston, Massachusetts 02116
State of Michigan Retirement System(2).................. 1,259,672 10.5 8.0
430 West Allegan Street, Lansing, Michigan 48922
Sam Hashman(3).......................................... 1,011,560 8.5 6.4
Henry L. Hillman, Elsie Hilliard Hillman and C.G.
Grefenstette, Trustees(4).............................. 889,968 7.4 5.7
2000 Grant Building, Pittsburgh, Pennsylvania 15219
Halpern Denny Fund II, L.P.............................. 624,340 5.2 4.0
500 Boylston Street, Boston, Massachusetts 02116
Robert M. Chefitz(5).................................... 2,409,851 20.1 15.3
c/o Patricof & Co. Ventures, Inc.,
445 Park Avenue, New York, New York 10022
Thomas P. Hirschfeld(6)................................. 2,409,851 20.1 15.3
c/o Patricof & Co. Ventures, Inc.,
445 Park Avenue, New York, New York 10022
Daniel K. O'Connell(7).................................. 270,810 2.3 1.7
William J. Razzouk(8)................................... 25,000 * *
Robert P. May(8)........................................ 168,829 1.4 1.1
Ian Williams(8)(9)...................................... 441,953 3.7 2.8
Stephen L. Conkling(8).................................. 85,449 * *
Richard K. Brenner(8)................................... 76,382 * *
R. Michael Brewer(8).................................... 32,219 * *
James D. Green(8)....................................... 54,075 * *
All directors and officers as group
(15 persons)(10)....................................... 3,711,102 29.6 22.8
</TABLE>
- ---------------------------
* Less than 1%
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<PAGE> 80
(1) Consists of shares of common stock beneficially owned as follows:
- 1,782,523 shares held by APA Excelsior IV, L.P.
- 314,314 shares held by APA Excelsior IV/Offshore, L.P.
- 313,014 shares held by The P/A Fund, L.P.
Patricof & Co. Ventures, Inc., directly or indirectly, controls, and has
sole voting or investment power with regard to shares beneficially owned by
such limited partnerships.
(2) Does not include shares held by APA Excelsior IV, L.P., a limited
partnership of which the State of Michigan Retirement System is a limited
partner.
(3) Includes 22,950 shares of common stock beneficially owned by PNV General
Partner, Inc., of which Mr. Williams, Mr. Hashman and Monte Nathanson, the
general partner of MPN Partners, Ltd., each owns one-third of such shares.
(4) Consists of shares of common stock beneficially owned as follows:
- 674,219 shares held by Juliet Challenger, Inc., an indirect, wholly-owned
subsidiary of The Hillman Company.
- 202,265 shares held by a trust for the benefit of Henry L. Hillman.
- 13,484 shares held by The Hillman Company.
The Hillman Company is controlled by the trust for the benefit of Henry L.
Hillman. The trustees of the trust are Henry L. Hillman, Elsie Hilliard
Hillman and C. G. Grefenstette. The trustees share voting and investment
power with respect to the shares held of record by the trust and the assets
of The Hillman Company. Does not include an aggregate of 269,687 shares
held by four trusts for the benefit of members of the Hillman family, as to
which shares the trustees (other than Mr. Grefenstette, who is one of the
trustees of such family trusts) disclaim beneficial ownership. Also does
not include 202,265 shared held by Venhill Limited Partnership, as to which
shares the trustees disclaim beneficial ownership. Howard B. Hillman, the
general partner of Venhill Limited Partnership, is a step-brother of Henry
L. Hillman.
(5) Represents an aggregate of 2,409,851 shares of common stock beneficially
owned by funds managed by Patricof. Mr. Chefitz, a director of PNV, is a
Managing Director of Patricof, and a general partner in the limited
partnerships which Patricof & Co. Ventures, Inc. manages. Mr. Chefitz does
not exercise sole or shared voting or investment power with respect to such
shares and disclaims beneficial ownership of such shares, except to the
extent of his pecuniary interest therein.
(6) Represents an aggregate of 2,409,851 shares of common stock beneficially
owned by funds managed by Patricof. Mr. Hirschfeld, a director of PNV, is a
Managing Director of Patricof. Mr. Hirschfeld does not exercise sole or
shared voting or investment power with respect to such shares and disclaims
beneficial ownership of such shares, except to the extent of his pecuniary
interest therein.
(7) Represents an aggregate of 270,810 shares of common stock beneficially
owned by Nelgo Investments, a partnership of which Mr. O'Connell is a
general partner. Mr. O'Connell owns 15% of Nelgo Investments.
(8) The following table indicates those people whose total number of
beneficially owned shares include shares subject to options exercisable
prior to January 3, 2000:
<TABLE>
<CAPTION>
SHARES SUBJECT TO OPTIONS
-------------------------
<S> <C>
William J. Razzouk.......................................... 25,000
Robert P. May............................................... 145,243
Stephen L. Conkling......................................... 85,449
Richard K. Brenner.......................................... 76,382
R. Michael Brewer........................................... 32,219
James D. Green.............................................. 54,075
</TABLE>
(9) Includes 22,950 shares of common stock beneficially owned by PNV General
Partner, Inc., of which Mr. Williams, Mr. Hashman and Monte Nathanson, the
general partner of MPN Partners, Ltd., each owns one-third of such shares.
(10) Includes an aggregate of 564,902 shares of common stock subject to options
that are presently exercisable or become exercisable by January 3, 2000.
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<PAGE> 81
DESCRIPTION OF OUR CAPITAL STOCK
In accordance with our amended and restated certificate of incorporation, we are
authorized to issue up to 50,000,000 shares of common stock, par value $0.001
per share, and 8,750,000 shares of preferred stock, par value $0.01 per share.
As of October 15, 1999, there were 4,331,014 shares of common stock outstanding
and 7,111,978 shares of preferred stock outstanding. Upon the completion of this
offering, all 6,723,913 shares of our convertible preferred stock will
automatically convert into 7,226,543 shares of common stock and our 388,065
shares of redeemable preferred stock will be redeemed.
The following summary description of our capital stock is not intended to be
complete and is qualified by reference to the provisions of applicable law and
to our amended and restated certificate of incorporation and our amended and
restated bylaws, filed as exhibits to the registration statement of which this
prospectus is a part.
COMMON STOCK
As of October 15, 1999, there were 4,331,014 shares of common stock outstanding
held by 19 stockholders of record. Based upon the number of shares outstanding
as of that date and giving effect to the issuance of the 3,750,000 shares of
common stock offered by us in this offering, the conversion of the outstanding
shares of convertible preferred stock, the payment with common stock of accrued
dividends on our convertible preferred stock and the issuance of common stock
upon the exercise of certain outstanding warrants, there will be 15,719,679
shares of common stock outstanding upon the completion of this offering. In
addition, as of October 15, 1999, there were outstanding stock options to
purchase 1,978,343 shares of common stock and outstanding warrants to purchase
949,774 shares of common stock.
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors.
Holders of common stock are entitled to receive ratably the dividends, if any,
declared from time to time by the board of directors out of legally available
funds. Holders of common stock have no conversion, redemption or preemptive
rights to subscribe to any of our securities. In the event of any liquidation,
dissolution or winding-up of our affairs, holders of common stock will be
entitled to share ratably in our assets remaining after provision for payment of
liabilities to creditors. The rights, preferences and privileges of holders of
common stock are subject to the rights of the holders of any shares of preferred
stock which we may issue in the future.
PREFERRED STOCK
As of October 15, 1999, there were 7,111,978 shares of preferred stock
outstanding held by 49 stockholders of record. Upon the completion of this
offering, all of our currently outstanding convertible preferred stock will
automatically convert into common stock and our redeemable preferred stock will
be redeemed. In addition, upon completion of this offering we will issue 408,122
shares of common stock, assuming an initial public offering price of $16.00 per
share and that the closing of this offering occurs on November 22, 1999, in
payment of all accrued dividends on our convertible preferred stock. The holders
of our Series A, Series B, Series C and Series D preferred stock are entitled to
a per annum dividend equal to seven percent of the liquidation value of the
preferred stock, which value is set at $10.00, $10.93, $8.00 and $10.50 per
share, respectively. Effectively, these dividends accrue on a daily basis. The
redemption price of our Series A preferred stock payable upon the completion of
this offering will include the accrued dividends on the Series A preferred
stock. As a result, the amount of the redemption price of our Series A preferred
stock attributable to accrued dividends will be higher if the closing of this
offering occurs later than November 22, 1999 and lower if the closing occurs
earlier than this date. The dividend payable to these holders will be paid by
issuing to the holders of our Series B, Series C and Series D preferred stock,
upon the completion of this offering, an aggregate number of shares of common
stock equal to the quotient obtained by dividing (1) the aggregate accrued
dividends then in effect, by (2) the initial public offering price. By way of
example, if the initial public offering price is $16.00 per share and the
offering closes on November 22, 1999, the holders of our Series B, Series C and
Series D preferred stock would be entitled to receive approximately 198,516
shares, 183,958 shares and 25,648 shares, respectively. The
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<PAGE> 82
number of shares issuable to holders of our convertible preferred stock in
payment of accrued dividends will be higher if the actual offering price is
lower than $16.00 or the closing of this offering occurs later than November 22,
1999, and lower if the actual offering price is higher than this amount or the
closing of this offering occurs earlier than this date.
The board of directors has the authority, without action by the stockholders, to
designate and issue preferred stock in one or more series and to designate the
rights, preferences and privileges of each series, which may be greater than the
rights of the common stock. We cannot predict the effect of the issuance of any
shares of preferred stock upon the rights of holders of the common stock until
the board of directors determines the specific rights of the holders of the
preferred stock. However, the effects could include one or more of the
following:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
- discouraging or preventing a change in our control.
Upon the completion of this offering, we intend to eliminate the certificates of
designations relating to our existing preferred stock and all of our authorized
preferred stock will be undesignated. Upon the completion of this offering, no
shares of preferred stock will be outstanding, and we have no present plans to
issue any shares of preferred stock.
WARRANTS
In August 1997, we issued warrants to purchase 100,399 shares of our common
stock for $8.00 per share to the placement agent for our Series C preferred
stock offering. These warrants expire on August 22, 2002.
In March 1998 and March 1999, we issued warrants to purchase an aggregate of
280,000 shares of our common stock to a customer. These warrants have a weighted
average exercise price of $8.43 per share. Warrants to purchase 180,000 shares
expire on March 12, 2003 and warrants to purchase 100,000 shares expire on March
12, 2004.
In May 1998, we sold units consisting of our 13% notes and warrants to purchase
a total of 505,375 shares of our common stock for $.01 per share. These warrants
expire on May 15, 2008.
In August 1999, we issued warrants to purchase 4,000 shares of our common stock
for $10.50 per share to certain customers. These warrants expire upon the
completion of this offering.
In September 1999, we issued a warrant to purchase 60,000 shares of common stock
to the placement agent for our Series D preferred stock offering. This warrant
has an exercise price of $10.50 per share and expires five years from the date
of issuance.
REGISTRATION RIGHTS
After the completion of this offering, the holders of 9,666,110 shares of common
stock, plus the shares of common stock to be issued in payment of accrued
dividends on our convertible preferred stock, will be entitled to rights with
respect to the registration of these shares under the Securities Act of 1933, as
amended. We have granted demand registration rights to the beneficial owners of
9,386,110 shares of our common stock, including the holders of 7,226,543 shares
issuable on the conversion of our Series B, Series C and Series D preferred
stock and 160,399 shares issuable on the exercise of outstanding warrants. These
demand registration rights also will apply to the shares of our common stock
issued in payment of accrued dividends on our Series B, Series C and Series D
preferred stock upon completion of this offering.
Under the terms of the agreements providing registration rights, the holders of
a specified minimum number of shares can demand that we register their shares.
We are required to use our best efforts to effect any such registration, subject
to conditions and limitations. We are not required to effect more than
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<PAGE> 83
three of these registrations pursuant to these demand registration rights. Under
the terms of the agreements providing registration rights, if we propose to
register any of our securities under the Securities Act, either for our own
account or for the account of other security holders exercising registration
rights, these holders are entitled to notice of this registration and are
entitled to include shares of common stock in the registration. The rights are
subject to conditions and limitations, among them the right of the underwriters
of an offering subject to the registration to limit the number of shares
included in the registration. These registration rights have been waived with
respect to this offering. Furthermore, stockholders with demand registration
rights may require us to file additional registration statements on Form S-3,
subject to conditions and limitations. We are generally required to bear all of
the expenses of all of these registrations, except underwriting discounts and
selling commissions. We also have agreed to indemnify stockholders whose shares
are included in a registration statement from losses arising from violations by
us of applicable securities laws in connection with the registration.
Registration of any of the shares of common stock held by securityholders with
registration rights would result in shares becoming freely tradable without
restriction under the Securities Act immediately upon effectiveness of such
registration.
We have also agreed with the holders of outstanding warrants to purchase 505,375
shares of common stock to maintain an effective registration statement under
which the warrants and the underlying common stock can be resold or issued until
such time as these securities can be distributed under Rule 144 under the
Securities Act. We have previously filed a registration statement on Form S-1
registering the resale or issuance of these securities. In July 1999, we
notified the holders of these warrants that they must discontinue using the
prospectus in such registration statement in connection with dispositions of the
registered securities until further notice from us. As of October 26, 1999, we
had accrued liquidated damages of $17,688 to such holders under the terms of the
registration rights agreement relating to these warrants and these liquidated
damages will continue to accrue at a per week per warrant rate of $.005 until
the end of December 1999 and at increasing rates thereafter until we have
satisfied our obligations under this registration rights agreement.
ANTI-TAKEOVER EFFECTS OF VARIOUS PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE
OF INCORPORATION AND BYLAWS.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to some exceptions, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless:
- before the date of the business combination, the transaction is approved by
the board of directors of the corporation;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at least
85% of the outstanding stock; or
- the business combination is approved by the board and by the affirmative vote
of at least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
various exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to us and, accordingly, may discourage attempts to acquire us.
In addition, various provisions of our amended and restated certificate of
incorporation and our amended and restated bylaws, which provisions will be in
effect immediately after the completion of the offering and are summarized in
the following paragraphs, may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best
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interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders.
Board of Directors Vacancies; Removal of Directors. Our amended and restated
certificate of incorporation authorizes the board of directors to fill vacant
directorships or increase the size of the board of directors. These provisions
may prevent a stockholder from removing incumbent directors and simultaneously
gaining control of the board of directors by filling the vacancies created by
this removal with its own nominees.
Stockholder Action; Special Meeting of Stockholders. Our amended and restated
certificate of incorporation provides that stockholders may not take action by
written consent, but only at duly called annual or special meetings of
stockholders. The amended and restated certificate of incorporation further
provides that special meetings of our stockholders may be called only by the
chairman of the board of directors or a majority of the board of directors.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Our amended and restated bylaws provide that stockholders seeking
to bring business before an annual meeting of stockholders, or to nominate
candidates for election as directors at an annual meeting of stockholders, must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be delivered to or mailed and received at our principal executive offices
not less than 120 days nor more than 150 days prior to the first anniversary of
the date of our notice of annual meeting provided with respect to the previous
year's annual meeting of stockholders; provided, that if no annual meeting of
stockholders was held in the previous year or the date of the annual meeting of
stockholders has been changed to be more than 30 calendar days earlier than or
60 calendar days after this anniversary, notice by the stockholder, to be
timely, must be so received not more than 90 days nor later than the later of:
- 60 days prior to the annual meeting of stockholders, or
- the close of business on the 10th day following the date on which notice of
the date of the meeting is given to stockholders or made public, whichever
occurs first.
Our amended and restated bylaws also specify certain requirements as to the form
and content of a stockholder's notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of stockholders or
from making nominations for directors at an annual meeting of stockholders.
Authorized but Unissued Shares. The authorized but unissued shares of common
stock are available for future issuance without stockholder approval, subject to
various limitations imposed by the Nasdaq National Market. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued and unreserved
common stock could make more difficult or discourage an attempt to obtain
control of the company by means of a proxy contest, tender offer, merger or
otherwise. The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
a corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated certificate of incorporation provides that the
liability of a director of PNV will be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law. Under the Delaware
General Corporation Law, the directors have a fiduciary duty to us which is not
eliminated by this provision of the amended and restated certificate of
incorporation and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain
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<PAGE> 85
available. In addition, each director will continue to be subject to liability
under the Delaware General Corporation Law for:
- breach of the director's duty of loyalty to us;
- acts or omissions which are found by a court of competent jurisdiction to be
not in good faith or which involve intentional misconduct, or knowing
violations of law;
- actions leading to improper personal benefit to the director; and
- payment of dividends or approval of stock repurchases or redemptions that are
prohibited by the Delaware General Corporation Law.
This provision also does not affect the directors' responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.
Section 145 of the Delaware General Corporation Law empowers a corporation to
indemnify its directors and officers and to purchase insurance with respect to
liability arising out of their capacity or status as directors and officers,
provided that this provision will not eliminate or limit the liability of a
director:
- for any breach of the director's duty of loyalty to the corporation or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- arising under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the indemnification
permitted thereunder will not be deemed exclusive of any other rights to which
the directors and officers may be entitled under the corporation's bylaws, any
agreement, a vote of stockholders or otherwise. Our amended and restated
certificate of incorporation eliminates the personal liability of directors to
the fullest extent permitted by Section 102(b)(7) of the Delaware General
Corporation Law and provides that we will fully indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that that person is or was a director or
officer of PNV, or is or was serving at the request of PNV as a director or
officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. This indemnification will be against expenses
including attorney's fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by the indemnitee in connection with such
action, suit or proceeding.
Prior to the completion of this offering, we intend to obtain liability
insurance for our directors and officers. At present, there is no pending
litigation or proceeding involving any director, officer, employee or agent as
to which indemnification will be required or permitted under the amended and
restated certificate of incorporation. We are not aware of any threatened
litigation or proceeding that may result in a claim for this type of
indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is First Union National
Bank, Charlotte, North Carolina.
LISTING
We have reserved the Nasdaq National Market symbol "PNVN." We have applied to
include the common stock on the Nasdaq National Market.
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<PAGE> 86
DESCRIPTION OF OUR 13% NOTES
In May 1998, we issued 75,000 units consisting of $75.0 million in aggregate
principal amount of 13% Senior Notes due 2008 and warrants to purchase 505,375
shares of our common stock for $.01 per share. Interest on our 13% notes accrues
at the rate of 13% per annum and is payable semiannually in arrears on May 15
and November 15 of each year. Our 13% notes mature May 15, 2008.
We used $19.2 million of the net proceeds from the unit offering to purchase
U.S. Government Securities which were placed in an escrow account. The escrow
account was pledged as security for repayment of the first four scheduled
interest payments on our 13% notes (estimated at approximately $19.5 million)
and, under certain circumstances, as security for repayment of principal of the
13% notes. We made our first two scheduled interest payments due in November
1998 and May 1999 from funds in the escrow account and anticipate that these
funds will be sufficient to make our next two scheduled interest payments due in
November 1999 and May 2000.
Our 13% notes are not secured by any of our assets, other than the pledge of the
U.S. Government Securities described above, rank equally in right of payment
with all of our unsubordinated and unsecured indebtedness and are senior in
right of payment to all of our future subordinated indebtedness.
We may redeem our 13% notes at our option, in whole or in part, at anytime on or
after May 15, 2003. The initial redemption price is 106.5% of their principal
amount, plus accrued interest. The redemption price will decline each year and
will be 100% of their principal amount, plus accrued interest, beginning on May
15, 2006. In addition, at any time on or before May 15, 2001, we may redeem up
to 35% of the aggregate principal amount of our 13% notes with the proceeds of
certain public equity offerings at a redemption price equal to 113.0% of their
accreted value on the redemption date. We may make this redemption only so long
as at least $48.75 million aggregate principal amount of our 13% notes remains
outstanding immediately after such redemption.
If a change in our control (as defined in our indenture) occurs, we must make an
offer to purchase all outstanding 13% notes then outstanding at a purchase price
equal to 101% of their principal amount plus accrued and unpaid interest. This
requirement could deter a change of control transaction in which stockholders
could receive a premium.
The indenture governing our 13% notes contains certain restrictive covenants,
including among others, limitations on our ability and our restricted
subsidiaries to:
- 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;
- create liens;
- sell assets; or
- engage in mergers and consolidations and certain other events which could
cause an event of default.
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Events of default under the indenture governing our 13% notes include, among
other things:
- defaults in the payment of interest or liquidated damages on our 13% notes
when it becomes due and payable, which default continues for a period of 30
days or more; if such a default occurs before May 15, 2000, there will be no
30 day grace or cure period;
- default in the payment of the principal of, or premium, if any, on our 13%
notes when due;
- default in the performance, or breach, of covenants relating to the changes
of control, consolidations, mergers, asset sales, restricted payments and
incurrence of indebtedness;
- default in the performance, or breach, of any other covenant in the indenture
which is continued for a period of 60 days or more after written notice to
us;
- failure to perform any term, covenant, condition or provision of one or more
classes or issues of indebtedness in an aggregate principal amount of $3.0
million or more, and either such indebtedness is already due and payable in
full, or such failure results in the acceleration of the maturity of such
indebtedness;
- one or more final non-appealable judgements, orders or decrees for the
payment of money of $3.0 million or more, either individually or in the
aggregate, shall be entered against us and is not discharged, and 60 days
shall have passed without such judgement being stayed; or
- a bankruptcy, insolvency, reorganization or receivership or similar
proceedings with respect to us or one of our significant subsidiaries.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, we will have an aggregate of 15,719,679
shares of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option, an initial public offering price of at least $16.00 per
share, the closing of this offering occurs on November 22, 1999 and no exercise
of outstanding options or warrants, other than warrants to purchase 4,000 shares
of common stock. All of the shares sold in the offering will be freely tradable,
except for any such shares held by our "affiliates," as that term is defined in
Rule 144 under the Securities Act without restriction or further registration
under the Securities Act. The remaining 11,969,679 shares of common stock held
by existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act. Restricted securities and any shares
purchased in the offering by one of our "affiliates" may not be sold in the
public market without registration under the Securities Act or in compliance
with an applicable exemption from registration as provided in Rule 144 or 701
under the Securities Act, which rules are summarized below. These remaining
shares, which will also be restricted for 180 days as a result of lockup
agreements, will be available for public sale as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
---------------- ----
<S> <C>
8,545,157 After 180 days from the date of this prospectus, the 180-day
lock-up is released and these shares are saleable under Rule
144 (subject, in some cases, to volume limitations and other
applicable provisions of Rule 144), Rule 144(k) or Rule 701
3,424,522 After 180 days from the date of this prospectus, restricted
securities that have been held for less than one year and
are not yet saleable under Rule 144
</TABLE>
In general, under Rule 144, as currently in effect, a person, or persons whose
shares are required to be aggregated, including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of:
- 1% of the then outstanding shares of common stock, which will be
approximately 157,197 shares immediately after the offering; or
- the average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which notice of such sale is filed,
subject to certain restrictions.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been one of our affiliates
at any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, including the holding
period of any prior owner other than an affiliate, is entitled to sell the
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the holding
period requirement, of Rule 144. Any of our employees, officers, directors or
consultants who purchased shares under a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling their shares. However, substantially all Rule 701
shares are subject to lock-up agreements and will only become eligible for sale
at the earlier of the expiration of the 180-day lock-up agreements or no sooner
than 90 days after the offering upon obtaining the prior written consent of CIBC
World Markets Corp.
As of the date of this prospectus, options to purchase a total of 1,978,343
shares of common stock are outstanding, of which 777,339 are currently
exercisable or become exercisable by December 31, 1999. All directors and
officers and certain stockholders of PNV, holding substantially all of the
outstanding shares of common stock, as well as substantially all of our option
holders and holders of warrants to purchase
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440,399 shares of common stock, have agreed to a 180-day "lock-up" with respect
to these securities. This generally means that they cannot sell these securities
during the 180 days following the date of this prospectus. See the section
entitled "Underwriting." The holders of warrants to purchase 505,375 shares of
common stock have agreed not to sell the common stock issuable on the exercise
of these warrants for at least 90 days after the date of this prospectus. After
these lock-up periods expire, these securities may be sold in accordance with
applicable securities laws, including Rule 144.
We intend to file a registration statement on Form S-8 upon the completion of
this offering to register the common stock issuable upon exercise of options
granted under our stock option plan. Accordingly, shares of common stock
underlying such options will be eligible for sale in the public markets, subject
to vesting restrictions or the lock-up agreement described above.
We have agreed not to sell or otherwise dispose of any shares of common stock
during the 180-day period following the date of the prospectus, except we may
issue, and grant options to purchase, shares of common stock under the stock
option plan. In addition, we may issue shares of common stock in connection with
any acquisition of another company if the terms of such issuance provide that
such common stock shall not be resold prior to the expiration of the 180-day
period referenced above.
Following this offering, under specified circumstances and subject to customary
conditions, holders of 9,386,110 shares of our common stock, including the
holders of 7,226,543 shares issuable on the conversion of our Series B, Series C
and Series D preferred stock and 160,399 shares issuable on the exercise of
outstanding warrants, will have certain demand registration rights with respect
to their shares of common stock, subject to the 180-day lock-up arrangement
described above, to require us to register their shares of common stock under
the Securities Act. These demand registration rights also will apply to the
shares of our common stock to be issued in payment of accrued dividends on our
Series B, Series C and Series D preferred stock upon completion of this
offering, the number of which will be 408,122 assuming an initial public
offering price of $16.00 and that the closing of this offering occurs on
November 22, 1999. In addition, if we propose to register any of our common
stock under the Securities Act, these stockholders and warrantholders, as well
as the holders of warrants to purchase an additional 280,000 shares of common
stock, are entitled to participate. We are not required to effect more than an
aggregate of three demand registrations on behalf of such holders. If the
holders of these registrable securities request that we register their shares,
and if such registration is effected, these shares will become freely tradable
without restriction under the Securities Act. Any sales of securities by these
stockholders could have a material adverse effect on the trading price of our
common stock.
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UNDERWRITING
PNV has entered into an underwriting agreement with the underwriters named
below. CIBC World Markets Corp., Allen & Company Incorporated, Volpe Brown
Whelan & Company, LLC and William Blair & Company, L.L.C. are acting as the
representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
NAME OF UNDERWRITER OF SHARES
------------------- ---------
<S> <C>
CIBC World Markets Corp.....................................
Allen & Company Incorporated................................
Volpe Brown Whelan & Company, LLC...........................
William Blair & Company, L.L.C..............................
Total....................................................
========
</TABLE>
The underwriters have agreed to purchase all of the shares offered by this
prospectus (other than those covered by the over-allotment option described
below) if any are purchased. Under the underwriting agreement, if an underwriter
defaults in its commitment to purchase shares, the commitments of nondefaulting
underwriters may be increased or the defaulting underwriter may be substituted,
depending on the circumstances. The shares should be ready for delivery or about
______, ____ against payment in immediately available funds.
The representatives have advised PNV that the underwriters propose to offer the
shares directly to the public at the public offering price that appears on the
cover page of this prospectus. In addition, the representatives may offer some
of the shares to other securities dealers at such price less a concession of
$ per share. The underwriter may also allow, and such dealers may
reallow, a concession not in excess of $ per share to other dealers.
After the shares are released for sale to the public, the representatives may
change the offering price and other selling terms at various times.
PNV has granted the underwriters an over-allotment option. This option, which is
exercisable for up to 30 days after the date of this prospectus, permits the
underwriters to purchase a maximum of 562,500 additional shares from PNV to
cover over-allotments. If the underwriters exercise all or part of this option,
they will purchase shares covered by the option at the initial public offering
price that appears on the cover page of this prospectus, less the underwriting
discount. If this option is exercised in full, the total price to public will be
$ , and the total proceeds to PNV will be $ . The underwriters
have severally agreed that, to the extent the over-allotment option is
exercised, they will each purchase a number of additional shares proportionate
to the underwriter's initial amount reflected in the foregoing table.
The following table provides information regarding the amount of the discount to
be paid to the underwriters by PNV:
<TABLE>
<CAPTION>
TOTAL WITHOUT EXERCISE OF TOTAL WITH FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
---------- ------------------------- ---------------------------
<S> <C> <C> <C>
PNV.............................. $ $ $
</TABLE>
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PNV estimates that the total expenses of the offering, excluding the
underwriting discount, will be approximately $1.1 million.
PNV has agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
PNV, its officers and directors and other stockholders have agreed to a 180-day
"lock up" with respect to approximately 11,969,679 shares of common stock and
certain other PNV securities that they beneficially own, including securities
that are convertible into shares of common stock and securities that are
exchangeable or exercisable for shares of common stock. This means that, for a
period of 180 days following the date of this prospectus, PNV and such persons
may not offer, sell, pledge or otherwise dispose of these PNV securities without
the prior written consent of CIBC World Markets Corp.
The representatives have informed PNV that they do not expect discretionary
sales by the underwriters to exceed five percent of the shares offered by this
prospectus.
The underwriters have reserved for sale up to 187,500 shares for employees,
directors and other persons associated with PNV. These reserved shares will be
sold at the initial public offering price that appears on the cover page of this
prospectus. The number of shares available for sale to the general public in the
offering will be reduced to the extent reserved shares are purchased by such
persons. The underwriters will offer to the general public, on the same terms as
other shares offered by this prospectus, any reserved shares that are not
purchased by such persons.
There is no established trading market for the shares. The offering price for
the shares has been determined by PNV and the representatives, based on the
following factors:
- negotiations among PNV and the representatives;
- prevailing market and economic conditions;
- certain financial information of PNV;
- the history of, and the prospects for PNV;
- PNV and the industry in which it competes;
- an assessment of PNV management, its past and present operations, the
prospects for, and timing of, future revenues of PNV; and
- the present stage of PNV's development and the above factors in relation to
market values and various valuation measures of other companies engaged in
activities similar to those of PNV.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules:
- Stabilizing transactions -- The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares, so
long as stabilizing bids do not exceed a specified maximum.
- Over-allotments and syndicate covering transactions -- The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created in
connection with the offering, the representatives may engage in syndicate
covering transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by exercising all
or part of the over-allotment option.
- Penalty bids -- If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may reclaim
a selling concession from the underwriters and selling group members who sold
those shares as part of this offering.
90
<PAGE> 92
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither PNV nor the underwriters makes any representation or prediction as to
the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.
Volpe Brown Whelan & Company, LLC has acted as placement agent in connection
with our Series D preferred stock offering. In September 1999, upon the closing
of the transaction, we issued Volpe Brown Whelan & Company, LLC a warrant to
purchase 60,000 shares of common stock for $10.50 per share which is exercisable
for a five year period and paid Volpe Brown Whelan & Company, LLC 6% of the
gross proceeds of the offering which was $1.9 million.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for us by Kilpatrick Stockton LLP, Raleigh, North Carolina. James M. O'Connell,
a partner in the law firm of Kilpatrick Stockton LLP, is a general partner of
Nelgo Investments, a general partnership that owns 270,810 shares of our common
stock. Mr. O'Connell owned 17.0% of Nelgo Investments as of September 30, 1999.
Mr. O'Connell is the son of Daniel K. O'Connell, a director of PNV. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Swidler Berlin Shereff Friedman, LLP, New York, New York.
EXPERTS
The financial statements as of June 30, 1998 and 1999 and for each of the three
years in the period ended June 30, 1999 included in this prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and have been so included in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
91
<PAGE> 93
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission, including the exhibits, schedules and amendments thereto,
under the Securities Act with respect to the shares of common stock to be sold
in the offering. This prospectus is part of the registration statement and does
not contain all of the information included in the registration statement. For
further information with respect to us and the shares of common stock to be sold
in the offering, we refer you to the registration statement.
You may read and copy all or any portion of the registration statement or any
other information we file at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. Our Securities and Exchange Commission filings,
including the registration statement, are also available to you on the SEC's Web
site (http://www.sec.gov).
We intend to furnish our stockholders annual reports containing audited
financial statements and will make available copies of quarterly reports for the
first three quarters of each year containing unaudited interim financial
information.
92
<PAGE> 94
PNV INC.
(FORMERLY PARK 'N VIEW, INC.)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of June 30, 1998 and 1999................. F-3
Statements of Operations for the years ended June 30, 1997,
1998 and 1999............................................. F-4
Statements of Changes in Common Stockholders' Deficiency for
the years ended June 30, 1997, 1998 and 1999.............. F-5
Statements of Cash Flows for the years ended June 30, 1997,
1998 and 1999............................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 95
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
PNV Inc.:
We have audited the accompanying balance sheets of PNV Inc. (formerly Park 'N
View, Inc.) (the "Company") as of June 30, 1998 and 1999, and the related
statements of operations, changes in common stockholders' deficiency and cash
flows for each of the three years in the period ended June 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 1998 and 1999,
and the results of its operations and its cash flows for each of the three years
in the period ended June 30, 1999 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
August 27, 1999
(September 22, 1999 as to the fifth
paragraph of Note 11)
F-2
<PAGE> 96
PNV INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, PRO FORMA
--------------------------- (UNAUDITED)
1998 1999 (NOTE 2)
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................. $ 19,810,656 $ 4,100,848 $ 28,763,560
Short-term investments..................................... 32,039,916 8,367,324 8,367,324
Restricted investments (Note 5)............................ 9,750,000 10,704,210 10,704,210
Accounts receivable, net of allowance for doubtful accounts
of $5,400 and $25,083 at June 30, 1998 and 1999,
respectively............................................. 184,180 301,503 301,503
Inventory.................................................. 362,738 341,208 341,208
Prepaid expenses and other................................. 100,877 181,788 181,788
------------ ------------ ------------
Total current assets..................................... 62,248,367 23,996,881 48,659,593
Property and equipment, Net (Note 3)........................ 18,448,601 32,053,824 32,053,824
Restricted investments (Note 5)............................. 9,513,000
Deferred financing costs.................................... 3,744,366 3,755,927 3,755,927
Other assets................................................ 623,793 1,579,037 1,579,037
------------ ------------ ------------
Total.................................................... $ 94,578,127 $ 61,385,669 $ 86,048,381
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable........................................... $ 2,067,113 $ 1,256,994 $ 1,256,994
Accrued expenses........................................... 1,550,888 1,621,271 1,621,271
Accrued interest on senior notes........................... 920,831 1,245,831 1,245,831
Deferred revenue........................................... 205,853 724,850 724,850
Current portion of capital lease obligations (Note 4)...... 330,814 294,887 294,887
Current portion of long-term debt (Note 5)................. 33,727 25,365 25,365
------------ ------------ ------------
Total current liabilities................................ 5,109,226 5,169,198 5,169,198
------------ ------------ ------------
Obligations under capital leases, less current portion (Note
4)........................................................ 185,174 263,519 263,519
------------ ------------ ------------
Long-term debt, less current portion (Note 5)............... 70,419,566 70,846,069 70,846,069
------------ ------------ ------------
Commitments and Contingencies (Note 4)
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 $542,538 and $839,493 as of June 30, 1998 and
1999, respectively). (Note 6).............................. 4,301,345 4,609,809 --
------------ ------------ ------------
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
$1,712,083 and $2,762,083 as of June 30, 1998 and 1999,
respectively). (Note 6).................................... 16,316,432 17,403,860 --
------------ ------------ ------------
Series C Cumulative Convertible Preferred Stock and Accrued
Dividends -- Par value $.01 per share; 3,750,000 shares
authorized, 2,328,543 and 2,351,543 issued and outstanding
as of June 30, 1998 and 1999, respectively, ($8.00 per
share liquidation preference, including accrued dividends
of $1,115,631 and $2,423,904 as of June 30, 1998 and 1999,
respectively). (Note 6).................................... 18,516,147 20,079,630 --
------------ ------------ ------------
Common Stockholders' (Deficiency) Equity:
Common stock -- par value $.001 per share; 7,000,000 and
12,000,000 shares authorized at June 30, 1998 and 1999,
respectively; 4,318,182 and 4,328,614 shares issued and
outstanding at June 30, 1998 and 1999, respectively........ 4,318 4,328 11,951
Additional paid-in capital................................. 1,465,923 13,011,612 79,760,000
Receivable from stockholder (Note 4)....................... -- (145,000) (145,000)
Deferred stock based compensation.......................... -- (8,345,375) (8,345,375)
Accumulated deficit........................................ (21,740,004) (61,511,981) (61,511,981)
------------ ------------ ------------
Total common stockholders' (deficiency) equity........... (20,269,763) (56,986,416) 9,769,595
------------ ------------ ------------
Total.................................................... $ 94,578,127 $ 61,385,669 $ 86,048,381
============ ============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE> 97
PNV INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Net Revenues....................................... $ 888,397 $ 3,503,776 $ 8,452,720
----------- ------------ ------------
Cost of Revenues:
Service cost...................................... 996,260 3,336,176 9,464,192
Service depreciation.............................. 643,316 1,906,732 4,517,850
Equipment cost.................................... 422,557 1,356,085 1,673,190
Advertising....................................... 15,556 -- 61,547
----------- ------------ ------------
Total cost of revenues.......................... 2,077,689 6,598,993 15,716,779
----------- ------------ ------------
Gross margin....................................... (1,189,292) (3,095,217) (7,264,059)
Selling, general and administrative expenses....... 4,431,889 10,378,471 19,546,324
Stock-based compensation........................... -- -- 5,035,315
Write-down of equipment............................ 594,691 35,151 --
----------- ------------ ------------
Loss from operations............................... (6,215,872) (13,508,839) (31,845,698)
Interest expense................................... 157,416 1,030,594 10,514,610
Interest income and other.......................... (328,268) (805,686) (2,588,331)
----------- ------------ ------------
Net loss........................................ (6,045,020) (13,733,747) (39,771,977)
Preferred stock dividends and amortization of
preferred stock issuance costs............... (917,382) (2,792,537) (2,842,603)
Accretion of Series C Preferred shares to fair
value........................................ -- -- (88,420)
----------- ------------ ------------
Net loss attributable to common stockholders.... $(6,962,402) $(16,526,284) $(42,703,000)
=========== ============ ============
Basic and diluted net loss per share............ $ (1.61) $ (3.83) $ (9.89)
=========== ============ ============
Shares used to compute basic and diluted net loss
per share........................................ 4,318,182 4,318,182 4,318,456
=========== ============ ============
Pro forma basic and diluted net loss per share
(unaudited)...................................... $ (3.57)
============
Shares used to compute pro forma basic and diluted
net loss per share (unaudited)................... 11,969,679
============
</TABLE>
See notes to financial statements.
F-4
<PAGE> 98
PNV INC.
STATEMENTS OF CHANGES IN
COMMON STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED STOCK RECEIVABLE
------------------ PAID-IN BASED FROM ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDER DEFICIT TOTAL
--------- ------ ----------- -------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30,
1996................... 4,318,182 $4,318 $ (12,606) -- -- $ (1,961,237) $ (1,969,525)
Dividends accrued for
Series A preferred
stock................ -- -- (190,882) -- -- -- (190,882)
Dividends accrued for
Series B preferred
stock................ -- -- (662,068) -- -- -- (662,068)
Amortization of
preferred stock
issuance cost........ -- -- (64,432) -- -- -- (64,432)
Net loss............... -- -- -- -- -- (6,045,020) (6,045,020)
--------- ------ ----------- ------------ ----------- ------------ ------------
BALANCE, JUNE 30,
1997................. 4,318,182 4,318 (929,988) -- -- (8,006,257) (8,931,927)
Dividends accrued for
Series A preferred
stock................ -- -- (330,286) -- -- -- (330,286)
Dividends accrued for
Series B preferred
stock................ -- -- (1,050,015) -- -- -- (1,050,015)
Dividends accrued for
Series C preferred
stock................ -- -- (1,115,631) -- -- -- (1,115,631)
Amortization of
preferred stock
issuance cost........ -- -- (296,605) -- -- -- (296,605)
Issuance of common
stock warrants....... -- -- 5,188,448 -- -- -- 5,188,488
Net loss............... -- -- -- -- -- (13,733,747) (13,733,747)
--------- ------ ----------- ------------ ----------- ------------ ------------
BALANCE, JUNE 30,
1998................. 4,318,182 4,318 1,465,923 -- -- (21,740,004) (20,269,763)
Dividends accrued for
Series A preferred
stock................ -- -- (296,955) -- -- -- (296,955)
Dividends accrued for
Series B preferred
stock................ -- -- (1,050,000) -- -- -- (1,050,000)
Dividends accrued for
Series C preferred
stock................ -- -- (1,308,273) -- -- -- (1,308,273)
Amortization of
preferred stock
issuance cost........ -- -- (187,375) -- -- -- (187,375)
Issuance of common
stock warrants....... -- -- 789,704 -- -- -- 789,704
Issuance of conversion
feature attached to
Series C preferred
stock................ -- -- 155,648 -- -- -- 155,648
Accretion of Series C
preferred stock to
fair value........... -- -- (88,420) -- -- -- (88,420)
Exercise of stock
options.............. 10,432 10 680 -- -- -- 690
Receivable from
stockholder.......... -- -- -- -- $ (184,000) -- (184,000)
Payment of receivable
from stockholder..... -- -- -- -- 39,000 -- 39,000
Stock options issued
for services......... -- -- 149,990 -- -- -- 149,990
Deferred stock based
compensation......... -- -- 13,380,690 $(13,380,690) -- -- --
Amortization of
deferred stock based
compensation......... -- -- -- 5,035,315 -- -- 5,035,315
Net loss............... -- -- -- -- -- (39,771,977) (39,771,977)
--------- ------ ----------- ------------ ----------- ------------ ------------
BALANCE, JUNE 30,
1999................. 4,328,614 $4,328 $13,011,612 $ (8,345,375) $ (145,000) $(61,511,981) $(56,986,416)
========= ====== =========== ============ =========== ============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE> 99
PNV INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................... $(6,045,020) $(13,733,747) $(39,771,977)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 705,418 2,117,387 5,663,490
Amortization of deferred stock based compensation......... -- -- 5,035,315
Write-down of equipment................................... 594,691 35,151 --
Provision for losses on accounts receivable............... -- -- 19,672
Stock options issued for services......................... -- -- 149,990
Loss on disposal of property and equipment................ 2,150 -- 20,274
Changes in assets and liabilities:
Accounts receivable..................................... 40,864 (172,653) (136,995)
Inventory............................................... (118,127) (102,912) 21,530
Prepaid expenses and other.............................. (21,696) 37,737 (80,911)
Other assets............................................ (3,776) (285,567) (295,531)
Accounts payable........................................ 717,374 950,649 (810,119)
Accrued expenses........................................ 744,622 684,129 70,383
Accrued interest on senior notes........................ -- 920,831 325,000
Deferred revenue........................................ (16,628) 173,924 518,997
----------- ------------ ------------
Net cash used in operating activities................. (3,400,128) (9,375,071) (29,270,882)
----------- ------------ ------------
INVESTING ACTIVITIES:
Proceeds from (purchases) sales of short-term
investments............................................ -- (32,039,916) 23,672,592
Proceeds from sales of restricted investments............. -- -- 9,452,562
Purchases of restricted investments....................... -- (19,263,000) (893,772)
Purchases of property and equipment....................... (6,443,899) (12,596,875) (17,874,247)
----------- ------------ ------------
Net cash (used in) provided by investing activities... (6,443,899) (63,899,791) 14,357,135
----------- ------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt and common stock
warrants, net of offering commission................... 1,500,000 72,375,000 --
Proceeds from issuance of preferred stock................. 13,500,000 18,628,344 --
Proceeds from exercise of stock options................... -- -- 690
Payment of stock and debt issuance costs and other........ (509,560) (1,225,705) (373,575)
Payment of obligations under capital leases............... (227,327) (365,412) (428,449)
Deferred financing costs.................................. (143,869) (1,010,700) --
Receivable from stockholder............................... -- -- 39,000
Notes payable............................................. 76,446 (33,403) (33,727)
----------- ------------ ------------
Net cash provided by (used in) financing activities... 14,195,690 88,368,124 (796,061)
----------- ------------ ------------
Net increase (decrease) in cash and cash equivalents....... 4,351,663 15,093,262 (15,709,808)
Cash and cash equivalents, beginning of period............. 365,731 4,717,394 19,810,656
----------- ------------ ------------
Cash and cash equivalents, end of period................... $ 4,717,394 $ 19,810,656 $ 4,100,848
=========== ============ ============
Supplemental cash flow information:
Interest paid............................................ $ 48,987 $ 33,030 $ 9,516,653
=========== ============ ============
Non-Cash financing and investing activities:
Capital lease obligations relating to acquisition of
property and equipment................................. $ 357,932 $ 249,801 $ 470,096
=========== ============ ============
Exchange of promissory notes and accrued interest for
Series B preferred stock............................... $ 1,533,000 -- --
===========
Exchange of promissory notes and accrued interest for
Series A preferred stock............................... $ 3,180,646 -- --
===========
Issuance of common stock warrants......................... -- $ 538,998 $ 789,704
============ ============
Issuance of Series C preferred stock for notes
receivable............................................. -- -- $ 184,000
============
</TABLE>
See notes to financial statements.
F-6
<PAGE> 100
PNV INC.
NOTES TO FINANCIAL STATEMENTS
1. FORMATION OF THE COMPANY AND NATURE OF BUSINESS
PNV Inc. (formerly Park 'N View, Inc.) (the "Company"), a Delaware corporation,
was incorporated on September 18, 1995 and provides cable television and
telephone service to long-haul truck drivers at truckstops ("sites") throughout
the country. The Company's name was changed effective July 29, 1999. This change
has been reflected in the financial statements. As of June 30, 1999, the Company
has 221 sites in operation and has contracts to provide its service to over 600
sites. The final determination on the number of sites to be provided with the
service will be made by the Company on a site-by-site basis.
The Company commenced commercial operations as a result of the Securities
Purchase Agreement (the "Agreement") dated November 2, 1995 between the former
partners of Park 'N View, Ltd., the Company's predecessor entity, and an
investor group led by Patricof & Company ("Patricof").
Pursuant to the Agreement, Park 'N View, Ltd. transferred certain of its assets,
intangible assets, contractual rights, and certain liabilities to the Company in
exchange for 2,318,182 shares of common stock issued to the former partners of
Park 'N View, Ltd. These net liabilities were recorded by the Company at the
historical carrying amounts. Patricof was issued 2,000,000 shares of common
stock for $100,000.
The Company has experienced net operating losses since its inception and as of
June 30, 1999 had an accumulated deficit of $61.5 million. Management believes
that the Company must significantly increase the sales of service subscriptions
in order to achieve profitability. Management further believes that a
significant increase in sales of subscriptions is dependent on truck drivers'
perception that the Company's system is installed and operating at a sufficient
number and location of truckstops that potential uses of the system justify the
subscription fee. The Company's future success will depend on achieving market
acceptance in sufficient numbers and at commercially viable subscription rates,
the timely and cost-effective installation of the Company's system at a
significant number of additional truckstops, and obtaining the financing
necessary both to fund operating losses and to install its system in a
sufficient number of locations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows:
Unaudited Pro Forma Information. In connection with the Company's anticipated
initial public offering, all of the Company's outstanding Series A Redeemable
Preferred Stock and related accrued dividends will be redeemed for cash. The
Company's will receive approximately $29 million of net proceeds from the
issuance of 3,000,000 shares of Series D Preferred. The Series B, C and D
Preferred and related accrued dividends will be converted into shares of common
stock. The unamortized preferred stock issuance costs of $3,605,047 has been
charged to additional paid-in capital. The Company will also receive $42,000 for
the issuance of 4,000 shares of common stock upon the exercise of warrants. The
pro forma effect of these events has been reflected in the accompanying
unaudited pro forma balance sheet assuming the conversion had occurred on June
30, 1999.
Pro forma basic and diluted net loss per share (unaudited) is computed by
dividing the net loss attributable to common stockholders by the weighted
average number of common shares outstanding for the year ending June 30, 1999
and the number of common shares resulting from the assumed conversion of all
outstanding shares of Series B, C, and D Preferred, payment of related accrued
dividends with shares of common stock and conversion of warrants.
Accounting Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the
F-7
<PAGE> 101
PNV INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents. The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents. The Company's cash and cash equivalents are primarily composed of
bank deposits and overnight funds held by a bank.
Inventory. Consists principally of telephones and components and is stated at
lower of cost (first-in, first-out method) or market.
Property and Equipment. Property and equipment is stated at cost, less
accumulated depreciation. Depreciation is provided using the straight-line
method over the estimated useful lives of the assets, generally three to ten
years. Expenditures for improvements that substantially extend the capacity or
useful life of an asset are capitalized. Routine repairs and maintenance are
expensed as incurred.
The Company currently expenses the costs associated with developing internal use
proprietary software. In March 1998, the American Institute of Certified Public
Accountants (the "AICPA") issued Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use." SOP 98-1 establishes that computer software costs that are incurred in the
preliminary project stage should be expensed as incurred. Once the application
development stage criteria is met, certain costs are required to be capitalized.
SOP 98-1 is effective for financial statements for fiscal years beginning after
December 15, 1998. Adoption of SOP 98-1 is not expected to have a material
impact on the Company's financial position or results of operations.
Leases. The Company capitalizes leases that meet at least one of the following
criteria: (a) the lease transfers ownership of the property by the end of its
lease term; (b) the lease contains a bargain purchase option; (c) the lease term
is equal to 75% or more of its estimated economic life of the leased property or
(d) the present value at the beginning of the lease term of the minimum lease
payments equals or exceeds 90% of the fair value of the leased property. All
other leases are accounted for as operating leases.
Deferred Financing Costs. Costs incurred in connection with obtaining financing
are being amortized based on the interest method over the term of the related
obligations. Amortization of deferred financing costs relating to debt are
amortized to interest expense and amortization of deferred financing costs
relating to preferred stock are amortized to additional paid-in capital.
Revenue Recognition/Deferred Revenue. Initial membership provides a new member
identification within but no access to or usage of the Company's network and
provides a starter kit. To the extent initial membership fees exceed the
incremental direct cost (primarily the cost of the starter kit) of obtaining a
subscriber, such amount is deferred and recognized over the expected membership
life of the customer. An allowance for defective starter kits has been
established based on past experience. The starter kits do not have a warranty
and cannot be returned once the service is activated. Subscription fees charged
by the Company provide the customer with unlimited access to 16 channels of
cable television programming, unlimited local telephone access and 60 minutes of
long distance telephone time. Such fees are apportioned to these services based
on estimated fair value. Revenue is apportioned to the long distance telephone
time based on market rates for such service. The remaining revenue which is not
attributed to the long distance usage is apportioned to the cable television and
local telephone services which are provided throughout the subscription period.
Net revenues apportioned to the cable television and local telephone services
are recognized ratably throughout the period the service is activated. The
revenue related to the long distance telephone time that is provided with each
monthly subscription is deferred and recognized when the service is provided.
The revenue associated with additional long distance telephone time to current
members is recognized as such telephone time is used. Revenue attributable to
unused minutes is deferred. Fees from the daily and premium programs, which
allow access for a 24 hour period, are recognized as revenue when activated.
Advertising revenue, specifically designed commercials, ads or
F-8
<PAGE> 102
PNV INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
programming designed to run on our network, is recognized throughout the period
the service is provided. The production costs associated with this advertising
are amortized throughout the period the service is provided. Driver referral
program cost consists of one hour of long distance telephone time and is accrued
and expensed in the month the driver is referred to the Company. Revenues from
equipment sales are derived from the sale by the Company of cable and telephone
line extension kits to truckstops for resale to truck drivers. Net unearned
revenue associated with the Company's subscriptions, long distance, cable
service and advertising is the result of recording revenue as earned when the
service is provided and used. Deferred revenue as of June 30, 1998 and 1999 was
$205,853 and $724,850, respectively.
Income Taxes. The provision for income taxes for the Company represents the
amount payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities. The Company provides for deferred
taxes under the liability method. Under such method, deferred taxes are adjusted
for tax rate changes as they occur. Deferred income tax assets and liabilities
are computed annually for differences between the financial reporting and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are recorded when necessary to reduce deferred tax assets
to the amount that management believes is more likely than not to be realized.
Long-Lived Assets. Management reviews long-lived assets for possible impairment
whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable. If there is an indication of impairment, management
prepares an estimate of future cash flows (undiscounted and without interest
charges) expected to result from the use of the asset and its eventual
disposition. If these cash flows are less than the carrying amount of the asset,
an impairment loss is recognized to write down the asset to its estimated fair
value. Assets, if any, which management has committed to a plan to dispose,
whether by sale or abandonment, are reported at the lower of carrying amount or
fair value, less cost to sell. Preparation of estimated expected future cash
flows is inherently subjective and is based on management's best estimate of
assumptions concerning future conditions.
Financial Instruments. The carrying amount for cash, accounts receivable and
accounts payable approximates fair value due to their short-term maturity.
Short-term investments consist of commercial paper that is carried at amortized
cost, which approximates fair value. Restricted investments consist of US
Treasury securities that are actively traded and are carried at fair value, with
unrealized gains and losses included in earnings.
At June 30, 1999, the carrying value and fair value of the Company's long-term
debt approximates $71 million, net of discounts, and $23 million, respectively.
The fair value was based on the quoted market prices for the same or similar
issues or on the current rate offered to the Company for debt of the same
remaining maturities. The Company believes that it is not practical to estimate
a fair value different from the preferred stocks' carrying value as these
securities have numerous features unique to these securities.
Stock-Based Compensation. The Company accounts for its employees stock option
plan in accordance with the intrinsic value method and discloses the pro forma
net loss as required by Statement of Financial Accounting Standard ("SFAS") No.
123 "Accounting for Stock-Based Compensation."
Basic Loss Per Share. Basic loss per share is computed by dividing the net loss
attributable to common stockholders by the number of weighted average common
shares outstanding. The effect of potential common stock would have been
antidilutive and therefore basic loss per share for the Company is equivalent to
diluted loss per share.
Reclassifications. Certain 1997 and 1998 amounts have been reclassified to
conform with the 1999 presentation.
F-9
<PAGE> 103
PNV INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
New Accounting Pronouncements. In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts, and for hedging activities. In June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of FAS Statement 133," which postponed the adoption of
SFAS No. 133. As such, the Company is not required to adopt SFAS No. 133 until
fiscal year end 2002. The Company has not yet assessed the impact that SFAS No.
133 will have on its financial statements.
The Company currently expenses costs associated with start-up activities. In
April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up
Activities." This SOP requires that costs incurred to open a new facility,
introduce a new product, commence a new operation or other similar activity, be
expensed as incurred. The Company will adopt SOP 98-5 for fiscal year ending
June 30, 2000. The Company does not believe this SOP will have a material impact
on its financial statements.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Site equipment and improvements............................. $16,484,956 $34,592,877
Construction equipment...................................... 150,059 150,058
Computer equipment.......................................... 352,643 760,719
Vehicles.................................................... 451,382 985,014
Furniture, fixtures and other equipment..................... 65,869 75,854
----------- -----------
Subtotal................................................... 17,504,909 36,564,522
Less accumulated depreciation............................... 2,630,706 7,332,654
----------- -----------
Subtotal................................................... 14,874,203 29,231,868
Component equipment......................................... 3,574,398 2,821,956
----------- -----------
Property and equipment, net................................. $18,448,601 $32,053,824
=========== ===========
</TABLE>
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.
Depreciation expense was $696,278, $2,008,560 and $4,719,617 for the years ended
June 30, 1997, 1998 and 1999, respectively.
During the year ended June 30, 1997, the Company replaced certain telephone
switches with updated technology. At the time this equipment was taken out of
service there existed a related capital lease obligation of $538,957. The
Company is continuing to make the scheduled capital lease payments and has
written-off the idle equipment, which had a carrying value of $594,691.
4. COMMITMENTS AND CONTINGENCIES
In March 1999, the Company entered into an employment agreement with its Chief
Executive Officer, Robert May. The agreement provides for a minimum annual
compensation of $275,000 and he is eligible for an incentive bonus upon
satisfaction of certain goals and objectives. The Company may terminate Mr.
May's employment at any time pursuant to the agreement. In connection with his
employment agreement,
F-10
<PAGE> 104
PNV INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Company sold to Mr. May 23,000 shares of transferable Series C 7% Cumulative
Convertible Preferred Stock at $8.00 per share, for a total purchase price of
$184,000. In payment for this purchase, Mr. May issued to the Company two
unsecured promissory notes, each for $92,000. One note accrues interest at 6%
per annum with interest and principal due March 2003. The second note, which is
non-interest bearing, is being paid over an eight month period that began in
March 1999. At June 30, 1999, Mr. May's aggregated indebtedness to the Company
was $145,000, which has been recorded as a component of common stockholders'
deficiency.
The Company allocated the $184,000 of proceeds as follows: $28,352 to the Series
C Preferred and $155,648 to the common stock conversion feature based on the
fair value determined as of the closing date using the minimum value method. The
following assumptions were used: zero dividend yield, no volatility, risk free
rate of 5.88%, and expected life of one year. The Company is recognizing
accretion of value on the Series C Preferred to redemption value (fair value)
over the period between the effective date of the employment agreement and the
anticipated conversion date.
Mr. May also received from the Company a nonqualified stock option to purchase
567,083 shares of the Company's common stock having an exercise price of $5.00
per share. The options vest at the rate of approximately 2.08% monthly, but
becomes exercisable in full upon a change in control of the Company (as defined
in the employment agreement) or if Mr. May is employed with the Company as of
the first anniversary of the closing of an initial public offering of the
Company's common stock. The Company also agreed that, if certain sales of the
Company's stock in an aggregate amount up to $20,000,000 closed prior to
February 29, 2000, the Company would grant to Mr. May additional options to
purchase shares of the Company's common stock such that, immediately following
any such grant of additional options, Mr. May will hold options to purchase an
aggregate of up to five percent of the common stock (calculated on a fully
diluted basis) outstanding after such sale. The Company recorded deferred
compensation expense of $5,670,030 on the options granted to Mr. May during the
fiscal year ended June 30, 1999. This deferred compensation expense will be
recognized over the vesting period as described above. In August 1999, the
Company granted Mr. May options to purchase an additional 130,097 shares of the
Company's common stock having an exercise price of $5.00 per share as a result
of the private placement of the Series D Preferred Stock, in accordance with the
terms of its agreement with him. The Company will record $1,300,970 of deferred
compensation expense for the three months ended September 30, 1999, which will
be recognized over the vesting period as described above. All of Mr. May's
options will become fully vested upon the first anniversary of an initial public
offering.
If Mr. May's employment is terminated without cause he will receive six months
base salary and certain additional payments. If a change in control of the
Company occurs and Mr. May's employment is terminated without cause during the
eighteen months following the change in control, the Company will pay Mr. May
eighteen months base salary and certain additional payments. If Mr. May does not
execute a general release of the Company and its representatives from liability
relating to his employment or association with the Company, then Mr. May only
will be entitled to a severance payment of one month of his base salary upon
termination.
In May 1999, the Company entered into an employment agreement with its Vice
President of New Media and E-Business, Steven Yevoli. The agreement provides for
a minimum annual compensation of $135,000 and he is eligible for an incentive
bonus upon satisfaction of certain goals and objectives. The Company may
terminate Mr. Yevoli's employment at any time pursuant to the agreement. In
connection with his employment agreement, the Company granted to Mr. Yevoli a
nonqualified stock option to purchase 80,000 shares of the Company's common
stock at an exercise price of $5.00 per share. The options vest one-fifth on the
date of grant and one-fifth on each anniversary of the date of grant over the
next four years. Also, in connection with his employment agreement, the Company
granted to Mr. Yevoli an additional nonqualified stock option to purchase 25,000
shares of the Company's common stock at an exercise price of $5.00 per share.
The options will vest either in 12,500 share increments upon meeting
F-11
<PAGE> 105
PNV INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
certain performance achievements and milestones established by the Chief
Executive Officer for the fiscal years ended June 30, 2000 and 2001,
respectively, or will vest at the fifth anniversary of date of grant. The
Company will record deferred compensation expense of approximately $250,000 for
these additional options. The compensation expense will be recognized over
fiscal years ending 2000 and 2001, under the assumption that Mr. Yevoli will
meet his performance achievements.
In June 1999, the Company entered into an employment agreement with its Vice
President of Sales, Mark Cleveland. The agreement provides for a minimum annual
compensation of $160,000 and he is eligible for an incentive bonus upon
satisfaction of certain goals and objectives. The Company may terminate Mr.
Cleveland's employment at any time pursuant to the agreement. In connection with
the employment agreement, the Company granted to Mr. Cleveland a nonqualified
stock option to purchase 80,000 shares of the Company's common stock at an
exercise price of $5.00 per share. The options vest one-fifth on the date of
grant and one-fifth on each anniversary of the date of grant over the next four
years.
Cash compensation expense and stock-based compensation expense under the above
employment agreements were $110,955 and $2,159,024, respectively, for the year
ended June 30, 1999.
The Company leases routers, T-1 telephone lines, office sites and equipment
maintained at various facilities under operating leases. Capital leases
primarily consist of automobiles. Future minimum lease payments under capital
leases and noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30: OPERATING CAPITAL
- -------------------- ----------- --------
<S> <C> <C>
2000........................................................ $ 4,318,528 $340,905
2001........................................................ 4,499,982 231,715
2002........................................................ 3,039,262 51,416
2003........................................................ 49,482 --
----------- --------
Total.................................................... $11,907,254 624,036
===========
Imputed interest on capital leases.......................... (65,630)
--------
Present value of capital leases............................. 558,406
Less current portion........................................ 294,887
--------
Long-term portion........................................... $263,519
========
</TABLE>
Rent expense was $149,401, $355,765 and $1,760,963 for the years ended June 30,
1997, 1998 and 1999, respectively.
In July 1999, the Company entered into a five-year operating lease for office
space to be used as its Internet development site. Total future minimum lease
payments under this lease approximate $1,000,000.
5. LONG-TERM DEBT
In May 1998, the Company issued $75 million of 13% Senior Notes (the "Senior
Notes"). The Senior Notes are general senior obligations of the Company and will
rank pari passu with all current and future unsecured senior indebtedness of the
Company. The Senior Notes have a maturity date of May 15, 2008. Interest will be
paid semiannually on May 15 and November 15 to holders of record on the
immediately preceding May 1, and November 1, respectively. The Company placed
$19.2 million of the net proceeds from the Senior Notes in an escrow account.
The escrow account is pledged as security for payment of the first four
scheduled interest payments on the Senior Notes. The current and long-term
amounts in this escrow account are presented as restricted investments in the
accompanying balance sheet.
The Senior Notes are redeemable at the Company's option after May 15, 2003, at
which time the Company will pay a decreasing premium for this redemption until
maturity at May 15, 2008. At any time prior to May 15, 2001, the Company, at its
option, may redeem up to 35% of the then outstanding Senior
F-12
<PAGE> 106
PNV INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Notes with the net proceeds of an initial public equity offering at a redemption
price of 113% of the principal amount and accrued interest. The Senior Notes are
mandatorily redeemable at the option of the holders in the event of a change in
control (as defined) or an asset sale.
The Senior Notes were issued together with 75,000 detachable warrants in the
form of units. Each warrant, when exercised, will entitle the holder to receive
6.73833 shares of common stock at an exercise price of $.01 per share. The
warrants will become exercisable upon the earlier of November 23, 1998, the
effective date of a registration statement related to a registered exchange
offer of the Senior Notes or upon the occurrence of certain other events
(including a change in control, as defined, or default) as specified in the
related agreements and will automatically expire on May 15, 2008. The relative
fair market values for the Senior Notes and warrants were determined by the
negotiations with the purchasers of the units. The agreed upon original issue
discount resulted in an allocation of $70,350,000 of the proceeds to the Senior
Notes and $4,650,000 to the warrants, their deemed fair value.
At June 30, 1998 and 1999, the Company had outstanding $59,092 and $25,365,
respectively, of notes payable relating to the purchase of vehicles. These notes
have an average interest rate of 10.7% and mature on various dates through March
2000.
Scheduled debt maturities are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30:
--------------------
<S> <C>
2000........................................................ $ 25,365
2001........................................................ --
2002........................................................ --
2003........................................................ --
2004........................................................ --
Thereafter.................................................. 75,000,000
-----------
Subtotal................................................. 75,025,365
Less debt discount....................................... 4,153,931
-----------
Total.................................................... $70,871,434
===========
</TABLE>
At June 30, 1996, the Company had outstanding $3,000,000 of 8% Subordinated
Promissory Notes ("Notes") due November 1, 2000, with interest payable
semiannually on June 30 and December 31. The Notes were held by Patricof. On
August 5, 1996, Patricof provided the Company with an additional $1,500,000 in
exchange for 8% Subordinated Promissory Notes due November 2, 2000 and 239,250
common stock warrants. On November 13, 1996, the Company completed a private
placement (the "1996 Offering") with certain investors of 1,372,370 shares of
Series B 7% Cumulative Convertible Preferred Stock (the "Series B Preferred")
due November 7, 2003 for a purchase price of $10.93 per share and a total
offering amount of $15,000,000. As payment for 137,237 shares of the Series B
Preferred, Patricof exchanged the $1,500,000 8% Subordinated Promissory Notes
and the 239,250 common stock warrants. In addition, the $3,000,000 in Notes and
related accrued interest of $180,646 were exchanged by Patricof for 318,065
shares of Series A Redeemable Preferred Stock (the "Series A Preferred").
6. PREFERRED STOCK
Series A Redeemable Preferred Stock. On November 13, 1996, in connection with
the 1996 Offering, $3,000,000 in Notes and related accrued interest of $180,646
were exchanged for 318,065 shares of Series A Preferred. In November 1995, in
accordance with the Agreement, 32,210 shares of Series A Preferred were issued
at $10 per share to Patricof. In April 1996, Patricof purchased an additional
37,800 shares of Series A Preferred at $10 per share. The Series A Preferred
provides for an annual dividend of
F-13
<PAGE> 107
PNV INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7%, payable in arrears quarterly in cash or in kind. Cumulative unpaid dividends
in arrears were $542,538 and $839,493 at June 30, 1998 and 1999, respectively.
The Company is required to redeem, for $10 per share, all of the issued and
outstanding shares of Series A Preferred if any of the following occurs: (a) six
months after the Senior Notes are paid in full, (b) upon the receipt of proceeds
of an initial public offering of not less than $20 million, net of underwriting
expenses ("Qualifying Offer"), (c) in the event the Company consolidates or
merges with or into another entity, or (d) upon sale of the Company's assets.
The Company has the option to redeem shares of Series A Preferred at any time
for $10 per share plus all accrued dividends thereon.
If the Company fails to redeem the Series A Preferred as required, the
stockholders of the Series A Preferred shall be entitled to vote as a separate
class only in respect to any merger, consolidation, sale of assets or creation
of any class or series, other than Series B Preferred and Series C Preferred,
equal to or superior to its Series A Preferred. The stockholders of at least
66.6% of the outstanding Series A Preferred voting as a separate class shall be
entitled to elect two members of the Board of Directors.
Series B 7% Cumulative Convertible Preferred Stock. In connection with the 1996
Offering, the Company authorized and issued 1,372,370 shares of Series B
Preferred, par value of $.01 for $10.93 per share and a total offering amount of
$15,000,000.
Commencing on January 31, 1997, the stockholders of the Series B Preferred are
entitled to receive dividends payable in cash at 7% per annum (9% per annum upon
an event of default). An "Event of Default" includes any of the following: (a)
failure by the Company to declare and pay a dividend on the payment due date for
two consecutive quarterly periods, (b) failure by the Company to satisfy its
redemption obligations, (c) default by the Company in the performance or
observance of any obligation or condition with respect to the indebtedness of
the Company, (d) failure to comply with covenants in the governing agreement,
(e) failure by the Company to comply with its obligations upon liquidation,
dissolution or winding up, or (f) insolvency. Cumulative unpaid dividends
accrued were $1,712,083 and $2,762,083 at June 30, 1998 and 1999, respectively.
The Company is required to redeem for $10.93 per share all of the issued and
outstanding shares of Series B Preferred if any of the following occurs: (a) six
months after the Senior Notes are paid in full, (b) upon receipt of a Qualifying
Offer, (c) in the event the Company consolidates or merges with or into another
entity, or (d) upon sale of the Company's assets.
The stockholders of Series B Preferred can convert their shares at any time at
the option of the holder into common stock at a conversion rate of one Series B
Preferred share for 1.37 shares of common stock. Under antidilution provisions,
the conversion price of Series B Preferred will be adjusted upon the Company's
issuance of additional shares of common stock, warrants or rights to purchase
common stock or securities convertible into common stock.
Series B Preferred stockholders are entitled to the number of votes equal to the
number of full shares of common stock into which such shares of Series B
Preferred is then convertible. Stockholders of Series B Preferred and common
stock shall vote together on each matter submitted to stockholders and not by
class or series. Prior to the consummation of a Qualifying Offer, the
stockholders of the Series B Preferred, voting together as a class, shall be
entitled to elect one director. Subsequent to a Qualifying Offer and only so
long as at least 66.6% of the shares of Series B Preferred originally issued
remain outstanding, the holders of a majority of the shares of common stock
issuable upon conversion of the Series B Preferred shall be entitled to nominate
one director. Upon the occurrence of an event of default, the stockholders of
the Series B Preferred, together with the stockholders of Series C Preferred,
have the exclusive right to elect a majority of the board of directors.
Series C 7% Cumulative Convertible Preferred Stock. In August 1997, the Company
entered into a private placement offering (the "1997 Offering") with certain
investors to raise additional working capital
F-14
<PAGE> 108
PNV INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
through the sale of 2,328,543 shares of Series C 7% Cumulative Convertible
Preferred Stock (the "Series C Preferred") for a purchase price of $8.00 per
share and a total offering amount of $18,628,344. Also, as part of the 1997
Offering, the Company issued a warrant to the underwriting agent for the
purchase of 100,399 shares of common stock exercisable at $8.00 per share at any
time within five years from the date of this offering.
Commencing on August 22, 1997, the stockholders of the Series C Preferred are
entitled to receive dividends payable in cash at 7% per annum (9% per annum upon
an event of default). An "Event of Default" includes any of the following: (a)
failure by the Company to declare and pay a dividend on the payment due date for
two consecutive quarterly periods, (b) failure by the Company to satisfy its
redemption obligations, (c) default by the Company in the performance or
observance of any obligation or condition with respect to the indebtedness of
the Company, (d) failure to comply with covenants in the governing agreement,
(e) failure by the Company to comply with its obligations upon liquidation,
dissolution or winding up, or (f) insolvency. Cumulative unpaid dividends
accrued were $1,115,631 and $2,423,904 at June 30, 1998 and 1999, respectively.
The Company is required to redeem for $8.00 per share all of the issued and
outstanding shares of Series C Preferred if any of the following occurs: (a) six
months after the Senior Notes are paid in full, (b) upon receipt of a Qualifying
Offer, (c) in the event the Company consolidates or merges with or into another
entity, or (d) upon sale of the Company's assets.
The stockholders of Series C Preferred can convert their shares at any time at
the option of the holder into common stock at an initial conversion rate of one
Series C Preferred share for one share of common stock. Under antidilution
provisions, the conversion price of Series C Preferred will be adjusted upon the
Company's issuance of additional shares of common stock, warrants or rights to
purchase common stock or securities convertible into common stock.
Series C Preferred stockholders are entitled to the number of votes equal to the
number of full shares of common stock into which such shares of Series C
Preferred is then convertible. Stockholders of Series C Preferred and common
stock shall vote together on each matter submitted to stockholders and not by
class or series. Prior to the consummation of a Qualifying Offer, the
stockholders of the Series C Preferred, voting together as a class, shall be
entitled to elect one director. Subsequent to a Qualifying Offer and only so
long as at least 66.6% of the shares of Series C Preferred originally issued
remain outstanding, the holders of a majority of the shares of common stock
issuable upon conversion of the Series C Preferred shall be entitled to nominate
one director. Upon the occurrence of an event of default, the stockholders of
the Series C Preferred, together with the stockholders of Series B Preferred, as
a class have the exclusive right to elect a majority of the board of directors.
In August 1999, the Company amended its Series B and C Preferred stock
agreements such that upon the completion of the Company's initial public
offering, the Company will issue shares of common stock to the Series B and C
preferred stockholders, valued at the initial public offering price, in payment
of all accrued dividends.
7. RELATED PARTY TRANSACTIONS
A common stockholder of the Company is also a partner in a law firm that
provides legal services to the Company. Fees and expenses paid to the law firm
were $293,647 and $351,970 for the years ended June 30, 1998 and 1999,
respectively. Fees and expenses paid to the law firm for the year ended June 30,
1997 were not significant.
F-15
<PAGE> 109
PNV INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCK OPTIONS AND WARRANTS
The Company has incentive and non-qualified stock option plans for directors and
key employees and has 1,934,166 shares of common stock reserved for issuance
under the plans. The incentive and non-qualified options become exercisable as
determined by the Board of Directors and have a term of ten years. Generally,
options become exercisable over three to four years.
Option activity for the years ended June 30, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE RANGE OF
NUMBER PRICE EXERCISE
OF SHARES PER SHARE PRICE
--------- --------- -----------
<S> <C> <C> <C>
Granted options:
Granted during the year ended June 30, 1997 and
outstanding at June 30, 1997........................ 409,846 $1.42 $1.00--$3.00
Forfeited.............................................. (500) 1.00 1.00
---------
Outstanding at June 30, 1998........................... 409,346 1.42 1.00--3.00
Granted................................................ 1,345,969 4.68 .001--5.00
Exercised.............................................. (10,432) .07 .001--5.00
Forfeited.............................................. (5,487) 2.96 1.00--5.00
---------
Outstanding at June 30, 1999........................... 1,739,396 3.95 1.00--5.00
=========
Vested options:
Exercisable at June 30, 1997........................... 81,969 $1.42 $ 1.00--3.00
Vested................................................. 81,869 1.42 1.00--3.00
Forfeited.............................................. (100) 1.00 1.00
---------
Exercisable at June 30, 1998........................... 163,738 1.42 1.00--3.00
Vested................................................. 355,639 3.38 .001--5.00
Exercised.............................................. (10,432) .07 .001--5.00
Forfeited.............................................. (2,000) 3.00 3.00
---------
Exercisable at June 30, 1999........................... 506,945 2.81 1.00--5.00
=========
</TABLE>
The following table summarizes information concerning options outstanding as of
June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
----------------------------------------------- ---------------------------------
WEIGHTED AVERAGE
NUMBER OF REMAINING WEIGHTED WEIGHTED
RANGE OF OPTIONS CONTRACTUAL LIFE AVERAGE NUMBER OF AVERAGE EXERCISE
EXERCISE PRICE OUTSTANDING (YEARS) EXERCISE PRICE OPTIONS VESTED PRICE
- -------------- ----------- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00--$1.50 333,646 7.3 $1.07 200,188 $1.07
3.00--4.00 262,000 9.2 3.02 160,982 3.01
5.00 1,143,750 9.7 5.00 145,775 5.00
--------- -------
1.00--5.00 1,739,396 9.2 3.95 506,945 2.81
========= =======
</TABLE>
SFAS No. 123 requires entities that account for awards for stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", to present pro forma disclosure as
if compensation cost was measured at the date of grant based on the fair value
of the award. No options were granted during the year ended June 30, 1998. The
fair value of the options granted during the years ended June 30, 1997 and 1999
were estimated at the date of grant using the minimum value method with the
following weighted-average assumptions: a risk free interest rate of 6.8% and
5.9%, respectively, no dividend yield and an expected life of six years. The
weighted average grant date fair value per option granted during 1997 and 1999
was $.46 and $3.95, respectively.
F-16
<PAGE> 110
PNV INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The minimum value option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the option vesting periods. The Company's net loss
determined in accordance with SFAS No. 123 on a pro forma basis for the years
ended June 30, 1997, 1998 and 1999 would have been as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Net Loss:
As reported.................................... $(6,045,020) $(13,733,747) $(39,771,977)
Pro forma..................................... (6,082,726) (13,771,453) (40,404,258)
Loss per share:
As reported................................... (1.61) (3.83) (9.89)
Pro forma..................................... (1.62) (3.84) (10.03)
</TABLE>
The pro forma amount may not be representative of the future effects on reported
net income that will result from the future granting of stock options, since the
pro forma compensation expense is allocated over the periods in which options
become exercisable and new option awards are granted each year.
The Company has granted options to non-employees for consulting services. The
vesting period for these options was immediate. Stock options issued to
non-employees are accounted for in accordance with provisions of SFAS No. 123
and EITF No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services."
At June 30, 1999, the Company had outstanding warrants which allow the holders
to purchase 280,399 and 100,000 shares of common stock at $8 and $9.20 per
share, respectively, and units that include warrants which allow the holders to
purchase 505,375 shares of common stock at $.01 per share.
In connection with options granted to purchase common stock, the Company
recorded deferred stock-based compensation of $13,380,690 for the year ended
June 30, 1999. Such amounts represent, for employee stock options, the
difference between the exercise price and the fair value of the Company's common
stock at the date of grant, and, for non-employees, the deemed fair value of the
option at the date of vesting. The deferred charges for employee options are
being amortized to expense through the Company's fiscal year ending 2003 and the
deferred charges for non-employee options were amortized to expense through the
year ended June 30, 1999. Stock-based compensation expense for employee and non-
employee options of $5,035,315 was recognized for the year ended June 30, 1999
and is a non-cash charge.
9. NET LOSS PER SHARE
The following is a reconciliation of the numerators and denominators used in
computing basic and diluted net loss per share.
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Net loss (numerator), basic and diluted:.......... $(6,962,402) $(16,526,284) $(42,703,000)
=========== ============ ============
Shares (denominator):
Weighted average common shares outstanding,
basic and diluted............................ 4,318,182 4,318,182 4,318,456
=========== ============ ============
Net loss per share, basic and diluted............ $ (1.61) $ (3.83) $ (9.89)
=========== ============ ============
</TABLE>
F-17
<PAGE> 111
PNV INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For the above mentioned periods, the Company had securities outstanding which
could potentially dilute basic earnings per share in the future, but were
excluded in the computation of diluted net loss per share in the periods
presented, as their effect would have been antidilutive. Such outstanding
securities consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Convertible preferred stock............................... 1,372,370 4,203,543 4,226,543
Outstanding options....................................... 409,846 409,346 1,739,615
Warrants.................................................. -- 785,774 885,774
--------- --------- ---------
Total.................................................. 1,782,216 5,398,663 6,851,932
========= ========= =========
</TABLE>
10. INCOME TAXES
No current income taxes have been provided for any periods presented as the
Company has had net operating losses since inception. The Company had
approximately $52.7 million in net operating loss carryforwards at June 30, 1999
for income tax purposes, with approximately $2 million expiring in 2011, $5.4
million expiring in 2012, $13.2 million expiring in 2013 and $32.1 million
expiring in 2019. Utilization of the net operating loss carryforwards may be
subject to a substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986. The annual limitation may
result in the expiration of net operating losses before utilization.
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
and tax credit carryforwards. The Company has not recognized any benefit for its
net deferred tax asset and has offset the net deferred tax asset by a valuation
allowance, as it is more likely than not that this asset will not be realized
prior to its expiration. The tax effects of significant items comprising the
Company's net deferred tax asset as of June 30, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Net deferred tax assets (liabilities):
Net operating loss carryforward............................ $ 6,876,586 $ 17,785,634
Nondeductible lease accrual................................ 88,932 10,057
Bad debt reserve........................................... 2,164 10,584
Vacation accrual........................................... 45,981 94,979
Differences between book and tax basis of property......... (45,771) 39,969
Amortization............................................... (8,821) (25,027)
----------- ------------
6,959,071 17,916,196
----------- ------------
Valuation allowance......................................... (6,959,071) (17,916,196)
----------- ------------
Net deferred taxes......................................... $ -- $ --
=========== ============
</TABLE>
11. LEGAL MATTERS
In July 1998, Lorenzo Ortiz filed a lawsuit against a truckstop chain at which
the Company's network is deployed, as well as a contractor utilized by the
Company in connection with the installation of the Company's network at a
truckstop owned by the chain, in the 11th Judicial District, Webb County, Texas,
seeking unspecified actual and punitive damages allegedly resulting from an
injury suffered by Mr. Ortiz at the truckstop in connection with the
installation. On July 6, 1999, defendant Red Line Contracting, Inc.
F-18
<PAGE> 112
PNV INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
filed a third party complaint against the Company seeking indemnity and/or
contribution for the plaintiff's claims. Pursuant to the Company's contract with
the truckstop chain defendant, the Company agreed, among other things, to
indemnify the truckstop chain for claims relating to the installation of the
Company's network. Further, pursuant to the contract, the Company maintains
$1,000,000 of liability insurance on each truckstop at which the Company's
network is deployed and the Company agreed to name the truckstop chain as an
additional insured on the Company's insurance policy. The Company inadvertently
failed to timely name the truckstop chain with respect to this lawsuit and the
insurance carrier is defending the Company under a reservation of its rights.
The truckstop chain has agreed to the Company's assumption of the defense of
this lawsuit. The Company has agreed to indemnify the truckstop chain from any
losses relating to this lawsuit and has secured this obligation with a letter of
credit in the amount of $200,000.
In March 1999, Cathy Sledge filed a lawsuit against the Company and a truckstop
chain at which the Company's 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 the Company's network. Ms. Sledge's recoverable damages are not
limited to $72,500. The Company inadvertently failed to name the truckstop chain
defendant as an additional insured and the Company's insurance carrier has, as a
result, denied coverage of the truckstop chain as an additional insured under
its policy with respect to this lawsuit. The Company is being defended by the
insurance carrier of the contractor installing its network as an additional
insured under the contractor's policy and the Company has assumed the defense of
the truckstop chain.
In March 1999, Daniel Ray Claybaugh filed a lawsuit against the Company and a
truckstop chain at which the Company's network is deployed in the Circuit Court
of Knox County, Tennessee. The lawsuit seeks unspecified actual damages
resulting from an injury suffered by Mr. Claybaugh when he tripped on one of the
access points to the Company's network in a truckstop parking lot. Although the
Company's insurance carrier is defending the Company pursuant to the terms of
its policy, it has refused to recognize the truckstop chain as an additional
insured under the policy. The Company has agreed to assume the costs of defense
for the truckstop chain. Under the Company's contract with the truckstop chain,
generally the Company is obligated to indemnify the chain for any losses it
suffers related to this lawsuit.
In July 1999, Robert T. and Julie McCurry filed a lawsuit against the Company, a
truckstop chain and others at which the Company's network is deployed in
Superior Court of Shasta County, California. The lawsuit seeks a total of
$2,000,000 in actual damages resulting from an injury suffered by Mr. McCurry
when he tripped on one of the access points to our network in a truckstop
parking lot. The amount sought exceeds the limit of the Company's insurance
policy. The Company has notified its insurance carrier of this lawsuit and it is
defending the Company in this lawsuit. The Company is unaware of any issues
which would result in the denial of insurance coverage.
On September 22, 1999, David and Lizette Morgan filed a lawsuit against the
Company and a truckstop chain at which the Company's 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 the
Company's network in a truckstop parking lot. Although the Company's insurance
carrier is defending the Company under the terms of its policy, the insurance
carrier has refused to recognize the truckstop as an additional insured under
the Company's policy. The Company is providing a defense to the truckstop chain.
Under the Company's contract with the truckstop chain, generally the Company is
obligated to indemnify the chain for any losses it suffers related to this
lawsuit.
The Company has received 20 to 25 additional claims arising from slip and fall
incidents relating to its network. The Company has advised its insurance carrier
of these incidents and the carrier has denied coverage or is reserving its
rights to deny coverage on several of these incidents due to the Company's
F-19
<PAGE> 113
PNV INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
alleged failure to provide timely notice of such incidents. The Company's
present understanding of these claims is preliminary. Based upon its
understanding, however, management does not believe that the outcome of any of
these lawsuits or claims will have a material adverse effect on its financial
condition or results of operations.
The Company anticipates that it will be, from time to time, subject to claims
and suits for personal injury arising in the ordinary course of its business.
The Company anticipates that these claims and suits, to the extent for actual
damages, will generally be covered by insurance.
12. BENEFIT PLAN
During fiscal year ended 1999, the Company adopted a 401(k) plan that is
available to substantially all its employees. Participants may contribute, on a
pre-tax basis, between 1% and 15% of their annual compensation. The Company is
not required to contribute to the plan, but has made a discretionary
contribution of $59,430 for the year ended June 30, 1999.
13. EVENTS SUBSEQUENT TO BALANCE SHEET DATE
On August 27, 1999, the Company entered into a definitive purchase agreement for
a private placement offering with certain investors to raise additional working
capital through the sale of 3,000,000 shares of Series D Preferred for a
purchase price of $10.50 per share and a total offering amount of $31,500,000.
The Series D Preferred would automatically convert into 3,000,000 shares of
common stock upon the completion of the initial public offering. Dividends will
accrue from the issuance of the Series D Preferred until conversion at the rate
of 7% per annum. The Company will pay accrued dividends by issuing shares of its
common stock valued at the initial public offering price. Upon closing of the
transaction, the Company will issue to the placement agent a warrant to purchase
60,000 shares of common stock at $10.50 per share which is exercisable for a
five year period and pay to the placement agent 6% of the gross proceeds of the
sale of the Series D Preferred which will be $1.9 million. In accordance with
Mr. May's employment agreement, the Company anticipates that it will grant an
option to purchase 130,097 shares of common stock having an exercise price of
$5.00 upon the closing of the sale of the Company's Series D Preferred Stock.
On August 27, 1999, the Board of Directors, subject to stockholder approval,
approved an additional 250,000 shares of common stock for issuance under the
stock option plan. An aggregate of 2,184,166 shares of common stock is reserved
for issuance under this plan.
The Company anticipates that it will increase its authorized shares of common
stock and preferred stock to 50,000,000 and 8,750,000, respectively, in
contemplation of its initial public offering.
F-20
<PAGE> 114
- --------------------------------------------------------------------------------
(PNV Inc. LOGO)
PNV INC.
3,750,000 SHARES
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
________ , 1999
CIBC WORLD MARKETS
ALLEN & COMPANY INCORPORATED
VOLPE BROWN WHELAN & COMPANY
WILLIAM BLAIR & COMPANY
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
UNTIL _______ , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 115
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses, other than underwriting
discounts and commissions, in connection with the issuance and distribution of
the shares of common stock being registered, all of which will be paid by PNV
Inc.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 20,381
NASD filing fee............................................. 7,832
NASDAQ National Market listing fee.......................... 90,500
Blue Sky fees and expenses.................................. 2,500
Printing and mailing expenses............................... 250,000
Accounting fees and expenses................................ 175,000
Legal fees and expenses..................................... 450,000
Transfer agent and registrar fees........................... 11,500
Miscellaneous............................................... 50,000
----------
Total.................................................... $1,057,713
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Paragraph Eleventh of PNV Inc.'s certificate of
incorporation, which provides as follows:
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a
director; provided, however, that to the extent required by the provisions
of Section 102(b)(7) of the General Corporation Law of the State of
Delaware or any successor statute, or any other laws of the State of
Delaware, this provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware or (iv) for any transaction from which the director derived an
improper personal benefit. If the General Corporation Law of the State of
Delaware hereafter is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a director
of the Corporation, in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted by the
amended General Corporation Law of the State of Delaware. Any repeal or
modification of this paragraph ELEVENTH by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation
existing at the time of such repeal or modification.
Reference is made to Section 8.1 of PNV Inc.'s Amended and Restated Bylaws,
which provides as follows:
To the extent permitted by law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that
such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment) the Corporation shall indemnify any person against any and all
judgments, fines, and amounts paid in settling or otherwise disposing of
actions or threatened actions, and expenses in connection therewith,
incurred by reason of the fact that he, his testator or intestate is or was
a director or officer of the Corporation or of any other corporation of any
type or kind, domestic or foreign, which he served in any capacity at the
request of the Corporation. To the extent permitted by law, expenses so
incurred by any such person in defending a civil or criminal action or
proceeding
II-1
<PAGE> 116
shall at his request be paid by the Corporation in advance of the final
disposition of such action or proceeding.
Reference also is made to Section 145 of Title 8 of the Delaware General
Corporation Law, which provides as follows:
145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.
(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by the
person in connection with such action, suit or proceeding if the person
acted in good faith and in a manner the person reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe
the person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the person's conduct was
unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in
a manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the present or former director, officer, employee or agent is proper in
the circumstances because the person has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (4) by the
stockholders.
II-2
<PAGE> 117
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action,
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in this
section. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon
such terms and conditions, if any, as the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
such person's official capacity and as to action in another capacity while
holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person in any such capacity or arising out of such
person's status as such whether or not the corporation would have the power
to indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Court of
Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees).
PNV currently intends to obtain liability insurance covering its executive
officers and directors against claims arising from certain acts or decisions by
them in their capacities as officers and directors of the company, subject to
certain exclusions and deductible and maximum amounts, which may extend to,
among other things, liabilities arising under the Securities Act.
II-3
<PAGE> 118
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since July 1, 1995, PNV has sold and issued the following securities on the date
and for the consideration referenced below:
(1) In November 1995, PNV, which was organized by Patricof, Ian Williams
and the then-partners of Park 'N View, Ltd. (Sam Hashman, Monte Nathanson
and Nelgo Investments, of which Daniel O'Connell is a general partner),
acquired the business and assets, and assumed the liabilities, of Park 'N
View, Ltd. In connection with such purchase, PNV issued 2,300,000 million
shares of common stock to Park 'N View, Ltd. Park 'N View, Ltd.
subsequently distributed such shares to its partners. The amount of the net
liabilities assumed by PNV was $84,446, including a promissory note of Park
'N View, Ltd., to Sam Hashman in the principal amount of $150,000, which
was subsequently paid in full by PNV.
(2) During the 12-month period commencing in November 1995, certain
investment limited partnerships managed by Patricof & Co. Ventures, Inc.
(the "Patricof Managed Funds") invested $3,800,000 in PNV in exchange for
which PNV issued to the funds managed by Patricof 2,000,000 shares of
common stock, 70,010 shares of Series A Preferred Stock and $3,000,000
aggregate principal amount of PNV's 8% Subordinated Notes.
(3) In August 1996, the funds managed by Patricof invested $1,500,000 in
PNV in exchange for which PNV issued to the funds managed by Patricof
$1,500,000 aggregate principal amount of PNV's 8% Subordinated Notes and
warrants to purchase 239,250 shares of common stock at an exercise price of
$0.01 per share.
(4) In November 1996, PNV issued an aggregate of 1,235,133 shares of Series
B Preferred Stock to seven investors for an aggregate consideration of
$13,500,000.
(5) In November 1996, in connection with the sale of the Series B Preferred
Stock described above, (i) the funds managed by Patricof (a) converted
$3,000,000 aggregate principal amount of PNV's 8% Subordinated Notes plus
$180,000 in interest accrued thereon into 318,065 shares of the Series A
Preferred Stock, and (b) converted $1,500,000 aggregate principal amount of
such notes, and warrants to purchase 239,250 shares of common stock at an
exercise price of $0.01 per share, into 137,237 shares of the Series B
Preferred Stock.
(6) In August 1997, PNV issued an aggregate of 2,328,543 shares of Series C
Preferred Stock to thirty-five investors for an aggregate consideration of
$18,628,344.
(7) In August 1997, PNV issued to BT Alex. Brown Incorporated warrants to
purchase an aggregate of 100,399 shares of common stock at an exercise
price of $8.00 per share in consideration for services provided by BT Alex.
Brown Incorporated in connection with the sale of the Series C Preferred
Stock described above.
(8) In March 1998, PNV issued a warrant to purchase an aggregate of up to
180,000 shares of common stock at an exercise price of $8.00 per share in
connection with PNV entering into a contractual arrangement with the
warrantholder.
(9) In May 1998, PNV sold to Donaldson, Lufkin & Jenrette Securities
Corporation, as the initial purchaser, 75,000 Units for an aggregate
consideration of $71.5 million (net of discounts and commissions) pursuant
to a Securities Purchase Agreement, dated May 27, 1998.
(10) In February 1999 and March 1999, PNV issued an aggregate of 432 shares
of common stock to former employees upon exercise of options for an
aggregate consideration of $680.00
(11) In March 1999, PNV issued a warrant to purchase an aggregate of up to
100,000 shares of common stock at an exercise price of $9.20 per share in
connection with PNV entering into a contractual arrangement with the
warrantholder.
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<PAGE> 119
(12) In March 1999, PNV issued an aggregate of 23,000 shares of Series C
Preferred Stock to Robert P. May, for an aggregate consideration of
$184,000. In partial payment of the purchase price, Mr. May issued to PNV
his promissory note, dated March 1999, in the original principal amount of
$92,000, which amount accrues interest at the rate of 6% per annum. The
principal balance of this note, together with accrued interest, is due in
March 2003. Mr. May also has agreed to pay the remaining $92,000 of the
purchase price over an eight month period that began in March 1999.
(13) In June 1999, PNV issued an aggregate of 10,000 shares of common stock
to a consultant upon exercise of options for an aggregate consideration of
$10.00.
(14) In August 1999, PNV issued an aggregate of 2,400 shares of common
stock to a consultant upon exercise of options for an aggregate
consideration of $24.00.
(15) In August 1999, PNV issued warrants to purchase an aggregate of up to
4,000 shares of common stock at an exercise price of $10.50 per share in
connection with PNV entering into contractual arrangements with the
warrantholder.
(16) In September 1999, PNV issued an aggregate of 3,000,000 shares of
Series D Preferred Stock to three investors for an aggregate consideration
of $31,500,000.
(17) In September 1999, PNV issued to Volpe Brown Whelan & Company, LLC,
warrants to purchase 60,000 shares of common stock at an exercise price of
$10.50 per share in consideration for services provided by Volpe Brown
Whelan & Company, LLC, in connection with the sale of 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 (the "Securities Act"), provided by Section 4(2) thereof and/or
Regulation D thereunder. The purchasers in each case represented their intention
to acquire the securities for investment only and not with a view to the
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. Similar representations of investment intent were
obtained and similar legends imposed in connection with any subsequent transfers
of such securities. PNV believes that all recipients had adequate access,
through employment or other relationships, to information about PNV to make an
informed investment decision.
In addition, from August 1996 to October 1999, PNV issued an aggregate of
2,038,162 options to employees and consultants to purchase common stock with
exercise prices ranging from $0.001 to $10.50 per share under the 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 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following exhibits are filed as part of this registration
statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
1.1** -- Form of Underwriting Agreement.
3.1*** -- Amended and Restated Certificate of Incorporation, dated
October 30, 1995 (as currently in effect, as amended in
Exhibits 3.2, 3.3, 3.4, 3.5, 3.5.1 and 3.5.2).
3.2*** -- Certificate of Amendment of the Certificate of
Incorporation, dated November 12, 1996.
3.3*** -- Certificate of Amendment of the Certificate of
Incorporation, dated August 22, 1997.
3.4** -- Certificate of Amendment to Certificate of Incorporation,
dated June 4, 1999.
3.5** -- Certificate of Amendment to Certificate of Incorporation,
dated July 29, 1999.
3.5.1** -- Certificate of Amendment to Certificate of Incorporation,
dated September 15, 1999.
3.5.2 -- Certificate of Amendment to Certificate of Incorporation,
dated November 3, 1999.
</TABLE>
II-5
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
3.6 -- Certificate of Amendment Relating to the Series A Preferred
Stock, dated November 3, 1999.
3.7 -- Certificate of Amendment to Certificate of Designations,
Preferences and Rights of Series B 7% Cumulative Convertible
Preferred Stock, dated November 3, 1999.
3.8 -- Certificate of Amendment to Certificate of Designations,
Preferences and Rights of Series C 7% Cumulative Convertible
Preferred Stock, dated November 3, 1999.
3.8.1 -- Certificate of Amendment to Certificate of Designations,
Preferences and Rights of Series D 7% Cumulative Convertible
Preferred Stock, dated November 3, 1999.
3.9 -- Form of Amended and Restated Certificate of Incorporation
(to take effect immediately following the completion of this
offering).
3.10** -- Amended and Restated By-laws (as currently in effect).
3.11 -- Form of Amended and Restated By-laws (to take effect
immediately following the completion of this offering).
4.1* -- Specimen common stock certificate.
4.2*** -- Indenture, dated as of May 27, 1998, by and between the
registrant and State Street Bank and Trust Company, as
trustee.
4.3**** -- Warrant Agreement, dated as of May 27, 1998, by and between
the registrant and State Street Bank and Trust Company, as
warrant agent.
4.4**** -- Warrant Registration Rights Agreement, dated as of May 27,
1998, by and between the registrant and Donaldson, Lufkin &
Jenrette Securities Corporation.
5.1* -- Opinion of Kilpatrick Stockton LLP.
10.1** -- Fleet Service Agreement, dated as of February 1, 1999, by
and between the registrant and Trucks For You.
10.2*** -- Fleet Service Agreement, dated as of February 1, 1998, by
and between the registrant and Carroll Fulmer & Co., Inc.
10.3*** -- Fleet Service Agreement, dated as of March 1, 1998, by and
between the registrant and Contract Freighters, Inc.
10.4*** -- Fleet Service Agreement, dated as of March 11, 1998, by and
between the registrant and Lake City Express.
10.5*** -- Fleet Service Agreement, dated as of April 1, 1998, by and
between the registrant and Top Gun Transport, Inc.
10.6*** -- Cable Television and Telephone Service Agreement, dated as
of August 14, 1995, by and between the registrant and
AMBEST.
10.7*** -- Cable Television and Telephone Service Agreement, dated as
of July 11, 1996, by and between the registrant and
Professional Transportation Partners, LLC.
10.8*** -- Cable Television and Telephone Service Agreement, dated as
of March 18, 1997, by and between the registrant and North
America Truck Stop Network.
10.9 -- Intentionally omitted.
10.10*** -- Cable Television and Telephone Service Agreement, dated as
of February 15, 1996, by and between the registrant and
Pilot Corporation.
10.11*** -- Cable Television and Telephone Service Agreement, dated as
of February 7, 1997, by and between the registrant and All
American Plazas, Inc.
10.12*** -- Cable Television and Telephone Service Agreement, dated as
of September 12, 1997, by and between the registrant and
Petro Stopping Centers, L.P.
</TABLE>
II-6
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
10.13***+ -- Cable Television and Telephone Service Agreement, dated
March 12, 1998 by and between the registrant and TA
Operating Corporation d/b/a TravelCenters of America.
10.14** -- Lease, dated as of July 20, 1992, by and between CB
Institutional Fund VI and Arden Technologies, Inc., as
amended March 29, 1996 and April 5, 1996, as assigned to the
registrant pursuant to Assignment of Lease, dated October
16, 1995, by and between the registrant and Arden
Technologies, Inc.
10.15** -- Sublease Agreement and Consent to Sublease, dated as of June
1, 1998, by and between the registrant and Security World
International, Inc.
10.16*** -- Lease, dated August 11, 1997, between Unipower Corporation
and the registrant.
10.17*** -- Software Development Agreement, dated November 22, 1995,
between the registrant and GreenLight Technologies, Inc.
10.18*** -- Technology Transfer and Development Agreement, dated as of
November 4, 1996, by and among GreenLight, Inc., Jody Green,
Lewis Tatham and the registrant.
10.19*** -- Customer Agreement, dated December 17, 1997, by and between
the registrant and Echostar Satellite Corporation.
10.20*** -- Compensation Plan.
10.21** -- Stock Option Plan.
10.21.1** -- Severance Program.
10.22*** -- Registration Rights Agreement, dated as of November 13,
1996, by and among the registrant and the Investors named
therein.
10.23*** -- Amendment to Registration Rights Agreement, dated as of
August 22, 1997, by and among the registrant and the
Investors named therein.
10.24*** -- Letter Agreement, dated as of May 20, 1998, by and among the
registrant and certain parties to the Registration Rights
Agreement, dated as of November 13, 1996, as amended.
10.25*** -- Pledge, Escrow and Disbursement Agreement, dated as of May
27, 1998, by and between the registrant and State Street
Bank and Trust Company, as trustee and escrow agent.
10.26*** -- Warrant, dated as of August 22, 1997, granted to Alex. Brown
& Sons Incorporated.
10.27*** -- Warrant, dated as of August 22, 1997, granted to Alex. Brown
& Sons Incorporated.
10.28***+ -- Warrant, dated March 12, 1998.
10.29***+ -- Letter Agreement, dated as of May 18, 1998, by and between
the registrant and a holder of warrants to purchase shares
of the registrant's common stock.
10.30*** -- Form of AT&T Contract Tariff Order Form, by and between the
registrant and AT&T.
10.31** -- Master Agreement to Lease Equipment, dated as of August 21,
1998, by and between the registrant and Cisco Systems
Capital Corporation.
10.32*****+ -- Telecom Service Agreement, dated as of January 27, 1999, by
and between the registrant and TA Operating Corporation.
10.33** -- Amendment to AT&T Contract Tariff Order Form, dated as of
February 19, 1999, by and between the registrant and AT&T.
10.34** -- Pay Telephone Telecommunications Service Agreement, dated as
of February 24, 1999 by and between the registrant and CfL,
LLC, as amended by Letter Agreement, dated as of February
24, 1999.
10.35***** -- Employment Agreement, dated as of March 1, 1999, by and
between the registrant and Robert P. May.
</TABLE>
II-7
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
10.36***** -- Joinder to Stock Purchase Agreement and Related Documents,
dated as of March 1, 1999 by Robert P May.
10.37***** -- Nonqualified Stock Option Award Agreement, dated as of March
3, 1999, by and between the registrant and Robert P. May.
10.38***** -- Letter Agreement, dated as of March 3, 1999 by and between
the registrant and Robert P. May.
10.39*****+ -- Warrant, dated as of March 12, 1999.
10.40** -- Marketing and Advertising Agreement, dated as of April 28,
1999, by and between the registrant and Volvo Trucks North
America, Inc.
10.41** -- Letter Agreement, dated May 12, 1999 by and between the
registrant and Volpe Brown Whelan & Company, LLC.
10.42** -- Employment Agreement, dated as of May 24, 1999, by and
between the registrant and Steven Yevoli.
10.43** -- Nonqualified Stock Option Award Agreement, dated as of May
24, 1999, by and between the registrant and Steven Yevoli.
10.44** -- Agreement of Lease, dated as of July 26, 1999, by and
between the registrant and Eleven Penn Plaza LLC.
10.45** -- Employment Agreement, dated as of June 21, 1999, by and
between the registrant and Mark Cleveland.
10.46** -- Nonqualified Stock Option Award Agreement, dated as of June
23, 1999, by and between the registrant and Mark Cleveland.
10.47**++ -- Second Amendment to Cable Television and Telephone Service
Agreement, dated as of June 28, 1999, by and between the
registrant and Pilot Corporation.
10.48**++ -- Pre-Paid Phone Card Agreement, dated as of July 16, 1999, by
and between the registrant and Transcommunications
Incorporated.
10.49** -- Fleet Services Agreement, dated as of August 19, 1999, by
and between the registrant and US Xpress, Inc.
10.50**++ -- Warrant, dated as of August 30, 1999.
10.51** -- 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.
10.52** -- Amendment to Registration Rights Agreement, dated as of
September 16, 1999, by and among the registrant and the
investors named therein.
10.53** -- Warrant, dated as of September 16, 1999, granted to Volpe
Brown Whelan & Company, LLC.
23.1* -- Consent of Kilpatrick Stockton LLP (included in Exhibit
5.1).
23.2 -- Consent of Deloitte & Touche LLP.
24.1** -- Powers of Attorney (included as part of the signature page).
24.2** -- Power of Attorney for William J. Razzouk.
27.1** -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------------------
* To be supplied by amendment.
** Previously filed.
*** Incorporated by reference to the registrant's Registration Statement on
Form S-4 (Registration No. 333-59889) filed with the Securities and
Exchange Commission on July 24, 1998, as amended.
II-8
<PAGE> 123
**** Incorporated by reference to the registrant's Registration Statement on
Form S-1 (Registration No. 333-59903) filed with the Securities and
Exchange Commission on July 24, 1998, as amended.
***** Incorporated by reference to the registrant's Quarterly Report on Form
10-Q filed with the Securities and Exchange Commission on May 17, 1999.
+ Portions of this Exhibit have been omitted and filed separately with the
Securities and Exchange Commission pursuant to an order for confidential
treatment granted by the Securities and Exchange Commission.
++ Portions of this Exhibit are omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
(b) Financial Statement Schedules. Financial statement schedules have been
omitted since the required information is not present, or not present in amounts
sufficient to require submission of the schedule, or because the information is
included in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide to the underwriters, at the closing
specified in the underwriting agreements, certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the Delaware General Corporations Law, Registrant's Amended and
Restated Certificate of Incorporation, the Registrant's Amended and Restated
Bylaws, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement for the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-9
<PAGE> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 2 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Coral
Springs, State of Florida, on November 3, 1999.
PNV Inc.
By: /s/ ROBERT P. MAY
------------------------------------
Robert P. May
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2
to the Registration Statement has been signed by the following persons on the
3rd day of November, 1999, in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE POSITION
--------- --------
<C> <S>
/s/ ROBERT P. MAY Chief Executive Officer and Director
- ----------------------------------------------------- (Principal Executive Officer)
Robert P. May
/s/ STEPHEN L. CONKLING President, Chief Operating Officer and Chief
- ----------------------------------------------------- Financial Officer (Principal Financial and
Stephen L. Conkling Accounting Officer)
* Chairman of the Board and Director
- -----------------------------------------------------
Ian Williams
* Director
- -----------------------------------------------------
Robert M. Chefitz
* Director
- -----------------------------------------------------
Thomas P. Hirschfeld
* Director
- -----------------------------------------------------
Daniel K. O'Connell
* Director
- -----------------------------------------------------
William J. Razzouk
*By: /s/ R. MICHAEL BREWER
------------------------------------------------
R. Michael Brewer
Attorney-in-fact
</TABLE>
II-10
<PAGE> 125
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <C> <S>
1.1** -- Form of Underwriting Agreement.
3.1*** -- Amended and Restated Certificate of Incorporation, dated
October 30, 1995 (as currently in effect, as amended in
Exhibits 3.2, 3.3, 3.4, 3.5, 3.5.1 and 3.5.2).
3.2*** -- Certificate of Amendment of the Certificate of
Incorporation, dated November 12, 1996.
3.3*** -- Certificate of Amendment of the Certificate of
Incorporation, dated August 22, 1997.
3.4** -- Certificate of Amendment to Certificate of Incorporation,
dated June 4, 1999.
3.5** -- Certificate of Amendment to Certificate of Incorporation,
dated July 29, 1999.
3.5.1** -- Certificate of Amendment to Certificate of Incorporation,
dated September 15, 1999.
3.5.2 -- Certificate of Amendment to Certificate of Incorporation,
dated November 3, 1999.
3.6 -- Certificate of Amendment Relating to the Series A Preferred
Stock, dated November 3, 1999.
3.7 -- Certificate of Amendment to Certificate of Designations,
Preferences and Rights of Series B 7% Cumulative Convertible
Preferred Stock, dated November 3, 1999.
3.8 -- Certificate of Amendment to Certificate of Designations,
Preferences and Rights of Series C 7% Cumulative Convertible
Preferred Stock, dated November 3, 1999.
3.8.1 -- Certificate of Amendment to Certificate of Designations,
Preferences and Rights of Series D 7% Cumulative Convertible
Preferred Stock, dated November 3, 1999.
3.9 -- Form of Amended and Restated Certificate of Incorporation
(to take effect immediately following the completion of this
offering).
3.10** -- Amended and Restated By-laws (as currently in effect).
3.11 -- Form of Amended and Restated By-laws (to take effect
immediately following the completion of this offering).
4.1 * -- Specimen common stock certificate.
4.2*** -- Indenture, dated as of May 27, 1998, by and between the
registrant and State Street Bank and Trust Company, as
trustee.
4.3**** -- Warrant Agreement, dated as of May 27, 1998, by and between
the registrant and State Street Bank and Trust Company, as
warrant agent.
4.4**** -- Warrant Registration Rights Agreement, dated as of May 27,
1998, by and between the registrant and Donaldson, Lufkin &
Jenrette Securities Corporation.
5.1 * -- Opinion of Kilpatrick Stockton LLP.
10.1** -- Fleet Service Agreement, dated as of February 1, 1999, by
and between the registrant and Trucks For You.
10.2*** -- Fleet Service Agreement, dated as of February 1, 1998, by
and between the registrant and Carroll Fulmer & Co., Inc.
10.3*** -- Fleet Service Agreement, dated as of March 1, 1998, by and
between the registrant and Contract Freighters, Inc.
10.4*** -- Fleet Service Agreement, dated as of March 11, 1998, by and
between the registrant and Lake City Express.
10.5*** -- Fleet Service Agreement, dated as of April 1, 1998, by and
between the registrant and Top Gun Transport, Inc.
10.6*** -- Cable Television and Telephone Service Agreement, dated as
of August 14, 1995, by and between the registrant and
AMBEST.
10.7*** -- Cable Television and Telephone Service Agreement, dated as
of July 11, 1996, by and between the registrant and
Professional Transportation Partners, LLC.
10.8*** -- Cable Television and Telephone Service Agreement, dated as
of March 18, 1997, by and between the registrant and North
America Truck Stop Network.
</TABLE>
<PAGE> 126
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<C> <C> <S>
10.9 -- Intentionally omitted.
10.10*** -- Cable Television and Telephone Service Agreement, dated as
of February 15, 1996, by and between the registrant and
Pilot Corporation.
10.11*** -- Cable Television and Telephone Service Agreement, dated as
of February 7, 1997, by and between the registrant and All
American Plazas, Inc.
10.12*** -- Cable Television and Telephone Service Agreement, dated as
of September 12, 1997, by and between the registrant and
Petro Stopping Centers, L.P.
10.13***+ -- Cable Television and Telephone Service Agreement, dated
March 12, 1998 by and between the registrant and TA
Operating Corporation d/b/a TravelCenters of America.
10.14** -- Lease, dated as of July 20, 1992, by and between CB
Institutional Fund VI and Arden Technologies, Inc., as
amended March 29, 1996 and April 5, 1996, as assigned to the
registrant pursuant to Assignment of Lease, dated October
16, 1995, by and between the registrant and Arden
Technologies, Inc.
10.15** -- Sublease Agreement and Consent to Sublease, dated as of June
1, 1998 and between the registrant and Security
10.16*** -- Lease, dated August 11, 1997, between Unipower Corporation
and the registrant.
10.17*** -- Software Development Agreement, dated November 22, 1995,
between the registrant and GreenLight Technologies, Inc.
10.18*** -- Technology Transfer and Development Agreement, dated as of
November 4, 1996, by and among GreenLight, Inc., Jody Green,
Lewis Tatham and the registrant.
10.19*** -- Customer Agreement, dated December 17, 1997, by and between
the registrant and Echostar Satellite Corporation.
10.20*** -- Compensation Plan.
10.21** -- Stock Option Plan.
10.21.1** -- Severance Program.
10.22*** -- Registration Rights Agreement, dated as of November 13,
1996, by and among the registrant and the Investors named
therein.
10.23*** -- Amendment to Registration Rights Agreement, dated as of
August 22, 1997, by and among the registrant and the
Investors named therein.
10.24*** -- Letter Agreement, dated as of May 20, 1998, by and among the
registrant and certain parties to the Registration Rights
Agreement, dated as of November 13, 1996, as amended.
10.25*** -- Pledge, Escrow and Disbursement Agreement, dated as of May
27, 1998, by and between the registrant and State Street
Bank and Trust Company, as trustee and escrow agent.
10.26*** -- Warrant, dated as of August 22, 1997, granted to Alex. Brown
& Sons Incorporated.
10.27*** -- Warrant, dated as of August 22, 1997, granted to Alex. Brown
& Sons Incorporated.
10.28***+ -- Warrant, dated March 12, 1998.
10.29***+ -- Letter Agreement, dated as of May 18, 1998, by and between
the registrant and a holder of warrants to purchase shares
of the registrant's common stock.
10.30*** -- Form of AT&T Contract Tariff Order Form, by and between the
registrant and AT&T.
10.31** -- Master Agreement to Lease Equipment, dated as of August 21,
1998, by and between the registrant and Cisco Systems
Capital Corporation
10.32*****+ -- Telecom Service Agreement, dated as of January 27, 1999, by
TA Operating Corporation.
</TABLE>
<PAGE> 127
<TABLE>
<CAPTION>
<C> <C> <S>
10.33** -- Amendment to AT&T Contract Tariff Order Form, dated as of
February 19, 1999, by and between the registrant and AT&T.
10.34** -- Pay Telephone Telecommunications Service Agreement, dated as
of February 24, 1999 by and between the registrant and CfL,
LLC, as amended by Letter Agreement, dated as of February
24, 1999.
10.35***** -- Employment Agreement, dated as of March 1, 1999, by and
between the registrant and Robert P. May.
10.36***** -- Joinder to Stock Purchase Agreement and Related Documents,
dated as of March 1, 1999 by Robert P May.
10.37***** -- Nonqualified Stock Option Award Agreement, dated as of March
3, 1999, by and between the registrant and Robert P. May.
10.38***** -- Letter Agreement, dated as of March 3, 1999 by and between
the registrant and Robert P. May.
10.39*****+ -- Warrant, dated as of March 12, 1999.
10.40** -- Marketing and Advertising Agreement, dated as of April 28,
1999, by and between the registrant and Volvo Trucks North
America, Inc.
10.41** -- Letter Agreement, dated May 12, 1999, by and between the
registrant and Volpe Brown Whelan & Company, LLC.
10.42** -- Employment Agreement, dated as of May 24, 1999, by and
between the registrant and Steven Yevoli.
10.43** -- Nonqualified Stock Option Award Agreement, dated as of May
24, 1999, by and between the registrant and Steven Yevoli.
10.44** -- Agreement of Lease, dated as of July 26, 1999, by and
between the registrant and Eleven Penn Plaza LLC.
10.45** -- Employment Agreement, dated as of June 21, 1999, by and
between the registrant and Mark Cleveland.
10.46** -- Nonqualified Stock Option Award Agreement, dated as of June
23, 1999, by and between the registrant and Mark Cleveland.
10.47**++ -- Second Amendment to Cable Television and Telephone Service
Agreement, dated as of June 28, 1999, by and between the
registrant and Pilot Corporation.
10.48**++ -- Pre-Paid Phone Card Agreement, dated as of July 16, 1999, by
and between the registrant and Transcommunications
Incorporated.
10.49** -- Fleet Services Agreement, dated as of August 19, 1999, by
and between the registrant and US Xpress, Inc.
10.50**++ -- Warrant, dated as of August 30, 1999.
10.51** -- 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.
10.52** -- Amendment to Registration Rights Agreement, dated as of
September 16, 1999, by and among the registrant and the
Investors named therein.
10.53** -- Warrant, dated as of September 16, 1999, granted to Volpe
Brown Whelan & Company, LLC.
23.1* -- Consent of Kilpatrick Stockton LLP (included in Exhibit
5.1).
23.2 -- Consent of Deloitte & Touche LLP.
24.1** -- Powers of Attorney (included as part of the signature page).
24.2** -- Power of Attorney for William J. Razzouk.
</TABLE>
<PAGE> 128
<TABLE>
<CAPTION>
<C> <C> <S>
27.1** -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------------------
* To be supplied by amendment.
** Previously filed.
*** Incorporated by reference to the registrant's Registration Statement on
Form S-4 (Registration No. 333-59889) filed with the Securities and
Exchange Commission on July 24, 1998, as amended.
**** Incorporated by reference to the registrant's Registration Statement on
Form S-1 (Registration No. 333-59903) filed with the Securities and
Exchange Commission on July 24, 1998, as amended.
***** Incorporated by reference to the registrant's Quarterly Report on Form
10-Q filed with the Securities and Exchange Commission on May 17, 1999.
+ Portions of this Exhibit have been omitted and filed separately with the
Securities and Exchange Commission pursuant to an order for confidential
treatment granted by the Securities and Exchange Commission.
++ Portions of this Exhibit are omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
<PAGE> 1
EXHIBIT 3.5.2
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
PNV.NET, INC.
It is hereby certified that:
1. The name of the corporation (the "Corporation") is PNV.net, Inc.
2. The Certificate of Incorporation of the Corporation is hereby
amended by striking out Article FIRST thereof and by substituting in lieu of
said Article the following new Article FIRST:
"The name of the corporation is PNV Inc."
3. The amendment of the Certificate of Incorporation herein certified
has been duly adopted and written consent has been given in accordance with the
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware.
Signed on November 3, 1999.
PNV.NET, INC.
By: /s/ Robert P. May
-------------------------------
Robert P. May, President
<PAGE> 1
EXHIBIT 3.6
PNV.NET, INC.
CERTIFICATE OF AMENDMENT
RELATING TO THE SERIES A PREFERRED STOCK
WITH A PAR VALUE OF $.01 PER SHARE
OF PNV.NET, INC.
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
PNV.net, Inc., a Delaware corporation (the "Corporation"), hereby
certifies that pursuant to the authority contained in Article Fourth of the
Corporation's Certificate of Incorporation, and in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware (the "DGCL"), the following resolution was duly adopted by the Board of
Directors of the Corporation, amending a series of its Preferred Stock
designated as Series A Preferred Stock:
WHEREAS, the amendment of the designations herein certified has been
duly adopted by the Corporation's Board of Directors and Holders of the Series A
Preferred Stock in accordance with Section 242 of the DGCL;
RESOLVED, that there is hereby created and the Corporation be, and it
hereby is, authorized to issue 627,630 shares of a series of its Preferred Stock
designated Series A Preferred Stock (the "Series A Stock") to have the powers,
preferences and rights and the qualifications, limitations or restrictions
thereof hereinafter set forth in this resolution:
1. Preference. The preferences of each share of Series A Stock with
respect to distributions of the Corporation's assets upon voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation shall be
equal to the preferences of every other share of: (i) Series A Stock; (ii)
Series B 7% Cumulative Convertible Preferred Stock of the Corporation (the
"Series B Stock"); (iii) Series C 7% Cumulative Convertible Preferred Stock of
the Corporation (the "Series C Stock"); and (iv) Series D 7% Cumulative
Convertible Preferred Stock of the Corporation (the "Series D Stock") from time
to time outstanding in every respect and prior in right to such preferences of
all other equity Securities of the Corporation, whether now or hereafter
authorized.
2. Voting Rights. Upon the failure of the Corporation to redeem the
Series A Stock in accordance with Section 5(a) hereof, except as otherwise
expressly provided herein, in the Certificate of Incorporation or the By-laws of
the Corporation or by law, the Holders of Series A Stock, by virtue of their
ownership thereof, shall be entitled to one vote for each share of Series A
Stock and shall be entitled to vote as a separate class only in respect of any
merger, consolidation, sale of assets or creation of any class or series, other
than Series B Stock, Series C
<PAGE> 2
Stock or Series D Stock, equal to or superior to the Series A Stock. The Holders
of at least 66.6% of the shares of the then outstanding Series A Stock voting as
a separate class shall be entitled to elect two members of the Board of
Directors.
3. Liquidation Rights. If the Corporation shall be voluntarily or
involuntarily liquidated, dissolved or wound up, at any time when any Series A
Stock shall be outstanding, each then outstanding share of Series A Stock shall
entitle the Holder thereof to a preference against the Assets of the corporation
available for distribution to the Holders of the Corporation's equity securities
equal to the Series A Stock Value plus an amount equal to all unpaid dividends
(including, without limitation, all accrued and unpaid interest thereon and the
Deferred Dividends, calculated in accordance with Section 4(B) hereof) accrued
on such share to the date of payment. If, upon any such liquidation, dissolution
or winding-up of the Corporation, the assets of the Corporation, or proceeds
thereof, distributed among the Holders of Series A Stock shall be insufficient
to pay in full the aggregate preferential amounts on all of the then outstanding
shares of the Series A Stock, then such assets, or the proceeds thereof, shall
be distributed among such Holders equally and ratably in proportion to the full
liquidation preferences to which each such Holder is entitled. After such
payment shall have been made in full to the Holders of the outstanding Series A
Stock, or funds necessary for such payment shall have been set aside in trust
for the account of the Holders of Series A Stock so as to be, and continue to
be, available therefor, the Holders of Series A Stock shall be entitled to no
further participation in such distribution of assets of the Corporation.
All of the preferential amounts to be paid to the Holders of Series A
Stock as provided in this Section 3 shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any Assets of the Corporation to, the Holders of any other
equity securities of the Corporation (other than the Series B Stock, Series C
Stock and Series D Stock which shall rank pari passu with the Series A Stock),
whether now or hereafter authorized, in connection with such liquidation,
dissolution or winding up.
4. Dividends.
(a) Accrual of Dividends. Commencing with the first anniversary of the
Initial Closing pursuant to and as defined in the Purchase Agreements, the
Holders of Series A Stock shall be entitled to receive, when and as declared by
the Board of Directors out of funds legally available therefor, cumulative
dividends payable quarterly on March 15, June 15, September 15 and December 15
of each year (each of such date being a "Dividend Payment Date") in cash or in
kind at a rate of 7% per annum, computed on the basis of the Series A Stock
Value. Such dividends shall be Series A Stock with respect to each share of
Series A Stock, from the later of the first anniversary of the Initial Closing
pursuant to and as defined in the Purchase Agreements and the date of issuance
of such share, and shall accrue until paid, whether or not earned, whether or
not declared by the Board and whether or not there are funds legally available
therefor on the date such dividends are payable. Dividends not declared and paid
in cash or paid in kind on any Dividend Payment Date shall accrue dividends
thereon at the rate of 7% per annum until such dividends are declared and paid
in full in cash.
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<PAGE> 3
(b) Payment of Dividends. Dividends shall be payable at the
Corporation's option in cash or in kind to each Holder of Series A Stock in
quarterly installments on March 31, June 30, September 30, and December 31, in
each year commencing on March 31, 1996 (each a "Regular Dividend Payment Date"),
as declared by the Board out of funds legally available therefor. Dividends paid
in cash on the shares of Series A Stock (or Series B Stock, Series C Stock or
Series D Stock which shall rank pari passu with the Series A Stock) in an amount
less than the total amount of such dividends shall be allocated pro rata so that
the total value of dividends paid on the Series A Stock, Series B Stock, Series
C Stock and Series D Stock shall in all cases bear to each other the same ratio
that the total value of accrued and unpaid dividends on the Series A Stock,
Series B Stock, Series C Stock and Series D Stock bear to each other. The Board
may fix a record date for the determination of a dividend or distribution
declared thereon, which record date shall not be more than 30 days prior to the
date fixed for the payment thereof.
(c) Limitation on Certain Distributions. Without the written consent of
the Holders of at least 66.6% of the then outstanding Series A Stock, the
Corporation shall not declare or pay any cash dividend on, or redeem or
repurchase or make any other cash distribution in respect of any other equity
Securities of the Corporation, unless at the time of such declaration, payment
or distribution the Corporation shall have paid all dividends on the Series A
Stock accrued through the most recent Regular Dividend Payment Date preceding
the date of such payment or distribution.
5. Redemption.
(a) Mandatory Redemption. On the date six (6) months immediately after
the payment in full and satisfaction of all of the obligations of the
Corporation to the lenders who provide financing to the Corporation in the
aggregate principal amount of Seventy-five Million Dollars ($75,000,000.00)
(referred to herein as the "Mandatory Redemption Date"), the Corporation shall
redeem all the shares of Series A Stock originally issued hereunder (or such
lesser amount as shall then be outstanding) at the "Redemption Price" per share
defined in paragraph (e) below, payable in cash on the Mandatory Redemption
Date.
(b) Redemption Upon an Initial Public Offering. Upon the consummation
of a Qualifying Offering (as defined below) (the date of such consummation being
referred to herein as a "Qualifying Offering Redemption Date"), upon not less
than ten (10) days prior written notice by the Corporation of the anticipated
consummation of such offering, each share of Series A Stock shall be redeemed
for cash at the Redemption Price. At all times on or prior to March 31, 2000, a
"Qualifying Offering" means (i) the Corporation shall have consummated a firm
commitment underwritten public offering of its Common Stock by a nationally
recognized investment banking firm pursuant to an effective registration under
the Securities Act covering the offering and sale of Common Stock which results
in gross proceeds of at least $20,000,000 and (ii) the Common Stock is listed on
either the Nasdaq Stock Market (National Market) ("Nasdaq"), the New York Stock
Exchange or the American Stock Exchange. From and after April 1, 2000, a
"Qualifying Offering" means (i) the Corporation shall have consummated a firm
commitment underwritten public offering of its Common Stock by a nationally
recognized investment banking firm pursuant to an effective registration under
the Securities Act covering the offering and sale of Common Stock which results
in gross proceeds of at least $20,000,000,
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<PAGE> 4
(ii) the Common Stock is listed on either Nasdaq, the New York Stock Exchange or
the American Stock Exchange, and (iii) the price at which the Common Stock is
sold in such offering is at least equal to an amount which (x) is 200% of the
Redemption Price (as adjusted for stock splits and other subdivisions and
combinations of the Common Stock after the date of the Purchase Agreements) or
(y) would represent a compound annual rate of return of 35% based upon the
original issuance price of the Series A Stock.
(c) Redemption on Change of Control. Upon a "Change of Control" of the
Corporation, each holder of the then outstanding shares of Series A Stock may
elect to have the Corporation redeem all (but not less than all) outstanding
shares of Series A Stock owned by such holder at the Redemption Price per share,
payable in cash on any date within 100 days of the effective date of the Change
of Control (such date being herein referred to as the "Change of Control
Redemption Date"). The election shall be made by delivering written notice to
the Corporation at least thirty (30) but no more than sixty (60) days prior to
the Change of Control Redemption Date. The Corporation will then be required to
redeem all the shares of Series A Stock owned by such holder on the Change of
Control Redemption Date. For purposes of this Section, "Change of Control" means
any one or more of the following events:
(i) The Corporation shall consolidate with or merge into any
other person or any person shall consolidate with or merge into the
Corporation (other than a consolidation or merger of the Corporation
and a wholly-owned subsidiary of the Corporation in which all shares of
the Corporation's Common Stock outstanding immediately prior to the
effectiveness thereof are changed into or exchanged for the same
consideration), in either event pursuant to a transaction in which any
of the Corporation's common stock outstanding immediately prior to the
effectiveness thereof is changed into or exchanged for cash, securities
or other property; or
(ii) the Corporation shall directly or indirectly convey,
transfer or lease, in one transaction or a series of transactions, all
or substantially all of its assets to any person or "group" (within the
meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of
1934 (the "1934 Act") (other than to a wholly-owned subsidiary of the
Corporation); or
(iii) there shall be a reorganization, share exchange, or
reclassification, other than a change in par value, or from par value
to no par value, or from no par value to par value; or
(iv) any person (other than the Corporation, any subsidiary of
the Corporation or an Existing Investor, including a "group" (within
the meaning of Section 13(d) and 14(D)(2) of the 1934 Act) that
includes such person), shall purchase or otherwise acquire, directly or
indirectly, beneficial ownership of securities of the Corporation and,
as a result of such purchase or acquisition, such person (together with
its associates and affiliates) shall directly or indirectly
beneficially own in the aggregate (1) more than 50% of the Common
Stock, or (2) securities representing more than 50% of the combined
voting power of the
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<PAGE> 5
Corporation's voting securities, in each case under subclause (1) or (2),
outstanding on the date immediately prior to the date of such purchase or
acquisition (or, if there be more than one, the last such purchase or
acquisition).
(d) Optional Redemption.
(i) Intentionally omitted.
(ii) Subject to the rights of the holders of the Series B
Stock, the Series C Stock and the Series D Stock, the Corporation shall
have the option of redeeming shares of Series A Stock at any time after
the date of issuance of such Series A Stock at a redemption price per
share equal to the Series A Stock Value plus an amount equal to all
unpaid dividends (and interest thereon) accrued thereon to the date of
redemption.
(e) Redemption Price. The Redemption Price per share of Series A Stock
shall equal $10.00 plus all accrued and unpaid dividends (and interest thereon)
on such share of Series A Stock to the Mandatory Redemption Date, Qualifying
Offering Redemption Date or Change of Control Redemption Date, as the case may
be.
(f) Procedure. The term "Redemption Date" as used in this paragraph (f)
shall refer to whichever of the Mandatory Redemption Date, Qualifying Offering
Redemption Date or Change of Control Redemption Date is applicable in a
particular circumstance. On or prior to the Redemption Date, the Corporation
shall deposit the Redemption Price of all outstanding shares of Series A Stock
to be redeemed with a bank or trust corporation having aggregate capital and
surplus in excess of $100,000,000 as a trust fund for the benefit of the holders
of the shares of Series A Stock, with irrevocable instructions and authority to
the bank or trust corporation to pay the Redemption Price for such shares to
their respective holders on or after the Redemption Date upon receipt of the
certificate or certificates of the shares of Series A Stock to be redeemed. From
and after the Redemption Date, unless there shall have been a default in payment
of the Redemption Price, all rights of the holders of shares of Series A Stock
as holders of Series A Stock (except the right to receive the Redemption Price
upon surrender of their certificate or certificates) shall cease as to those
shares of Series A Stock redeemed, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever. If on the Redemption Date the funds of the Corporation
legally available for redemption of shares of Series A Stock redeemed, and such
shares shall not thereafter be transferred on the books of the Corporation or be
deemed to be outstanding for any purpose whatsoever. If on the Redemption Date
the funds of the Corporation legally available for redemption of shares of
Series A Stock (or Series B Stock, Series C Stock or Series D Stock which shall
rank pari passu with the Series A Stock) are insufficient to redeem the total
number of shares of Series A Stock, Series B Stock, Series C Stock and Series D
Stock to be redeemed on such date, the Corporation will use those funds which
are legally available therefor to redeem the maximum possible number of shares
of Series A Stock, Series B Stock, Series C Stock and Series D Stock ratably
among the holders of such shares to be redeemed based upon the total amount
payable by the Corporation pursuant to the redemption of the Series A Stock,
Series B Stock, Series C Stock and Series D Stock if the Corporation had
sufficient funds legally available therefor. Payments shall first be applied
against accrued and unpaid dividends and thereafter
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<PAGE> 6
against the remainder of the Redemption Price. The shares of Series A Stock not
redeemed shall remain outstanding and entitled to all the rights and preferences
provided herein. At any time thereafter when additional funds of the Corporation
are legally available for the redemption of shares of Series A Stock such funds
will immediately be used to redeem the balance of the shares of Series A Stock
to be redeemed. No dividends or other distributions shall be declared or paid
on, nor shall the Corporation redeem, purchase or acquire any shares of, the
Common Stock or any other class or series of stock of the Corporation (other
than the Series B Stock, Series C Stock and Series D Stock which shall rank pari
passu with the Series A Stock) unless the Redemption Price of all shares elected
to be redeemed shall have been paid in full. Until the Redemption Price for a
share of Series A Stock elected to be redeemed shall have been paid in full,
such shares of Series A Stock shall remain outstanding for all purposes and
entitle the holder thereof to all the rights and privileges provided herein,
including, without limitation, that dividends (and interest thereon) shall
continue to accrue and, if unpaid prior to the date such shares are redeemed,
shall be included as part of the Redemption Price as provided in paragraph (e)
above.
(g) Prohibition on Redemption. Notwithstanding any other term of this
Certificate of Designation, the Corporation shall not redeem (or have any
obligation to redeem) any shares of Series A Stock under any circumstances,
whether upon a Qualifying Offering, Change of Control or otherwise, prior to the
payment in full and satisfaction of all of the obligations of the Corporation to
the lenders who provide financing to the Corporation in the aggregate principal
amount of up to $75,000,000.00. If the Corporation shall not have paid in full
or satisfied all of its obligations to such lenders on or before any Redemption
Date, upon such payment and satisfaction the Corporation will immediately use
any funds legally available therefor to redeem the shares of Series A Stock to
be redeemed.
6. Protective Provisions. So long as any shares of Series A Stock shall
be outstanding, the Corporation shall not, without the approval by the vote or
written consent of the Holders of at least 66.6% (or more if required by law) of
the then outstanding shares of Series A Stock:
(a) Amend, waive or repeal any provisions of, or add any provision to,
(i) this Certificate of Designation or (ii) any provision of the Corporation's
Certificate of Incorporation or any other certificate of designation filed with
the Secretary of State of Delaware by the Corporation with respect to its
preferred stock;
(b) Amend, waive or repeal any provisions of, or add any provision to,
the Corporations By-Laws;
(c) Authorize, create, issue or sell any shares of Equivalent Stock or
Superior Stock (other than Series B Stock, Series C Stock and Series D Stock);
except as authorized in this Certificate of Designation;
(d) Issue any shares of Series A Stock other than pursuant to the
Purchase Agreements or upon transfers of outstanding shares of Series A Stock;
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<PAGE> 7
(e) Enter into any agreement, indenture or other instrument which
contains any provisions restricting the Corporation's obligation to pay
dividends on or make redemptions of the Series A Stock in accordance with
Sections 4 and 5 hereof;
(f) Dissolve the Corporation.
7. Definitions. As used in this Certificate of Designation, the
following terms have the following meanings:
"Affiliate" shall mean any entity controlling, controlled by or under
common control with another entity. For the purposes of this definition,
"control" shall have the meaning presently specified for that word in Rule 405
promulgated by the Securities and Exchange Commission under the Securities Act.
"Assets" shall mean an interest in any kind of property or assets,
whether real, personal or mixed, or tangible or intangible.
"Board" shall mean the Board of Directors of the Corporation.
"Common Stock" shall mean the Corporation's Common Stock, par value
$.001 per share, and any stock into which such stock may hereafter be changed.
"Equivalent Stock" shall mean any shares of any class or series of
Stock of the Corporation having any preference or priority as to dividends or
Assets on a parity with any such preference or priority of the Series A Stock
and no preference or priority as to dividends or Assets superior to any such
preference or priority of the Series A Stock and any instrument or Security
convertible into or exchangeable for Equivalent Stock. Without limiting the
generality of the foregoing, a dividend rate, mandatory or optional sinking fund
payment amounts or schedules or optional redemption provisions, the existence of
a conversion right or the existence of a liquidation preference of up to 100% of
the original issue price plus unpaid accrued dividends plus a premium of up to
the dividend rate or up to the percentage of the equity of the Corporation
represented by such Stock, with respect to any class or series of Stock,
differing from that of the Series A Stock, shall not prevent such class of Stock
from being Equivalent Stock.
"Existing Investors" shall mean Ian Williams, Nelgo Investments, Samuel
Hashman, MPN Partners, Ltd., Park `N View General Partner, Inc. and the
Investors (as defined in the Purchase Agreements).
"Holders" shall mean the Persons who shall, from time to time, own of
record, or beneficially, any Security. The term "Holder" shall mean one of the
Holders.
"Person" shall mean an individual, a corporation, a partnership, a
trust, an unincorporated organization or a government organization or an agency
or political subdivision thereof.
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<PAGE> 8
"Purchase Agreements" shall mean those certain purchase agreements,
dated as of October 31, 1995, between the Corporation and each of the Investors,
as defined therein, providing for the purchase and sale of Subordinated Notes,
Series A Stock and Common Stock.
"Securities" shall mean any debt or equity securities of the
Corporation, whether now or hereafter authorized, and any instrument convertible
into or exchangeable for Securities or a Security. The term "Security" shall
mean one of the Securities.
"Securities Act" shall mean the Securities Act of 1933, as amended
prior to or after the date hereof, or any federal statutes or statutes which
shall be enacted to take the place of such Act together with all rules and
regulations promulgated thereunder.
"Securities and Exchange Commission" shall mean the United States
Securities and Exchange Commission or any successor to the functions of such
agency.
"Series A Stock Value" shall mean $10.00 per share of Series A Stock.
"Stock" shall include any and all shares, interests or other
equivalents (however designated) of, or participants in, corporate stock.
"Subordinated Notes" shall mean the $1,000 subordinated promissory with
an 8% coupon purchasable pursuer to the Purchase Agreements.
"Superior Stock" shall mean any shares of any class or series of Stock
of the Corporation having any preference or priority as to dividends or Asset
superior to any such preference or priority of the Series A Stock and any
instrument or security convertible into or exchangeable for Superior Stock.
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<PAGE> 9
IN WITNESS WHEREOF, PNV.net, Inc. has caused this Amended Certificate
to be duly executed this 3rd day of November, 1999.
PNV.NET, INC.
By: /s/ Robert P. May
------------------------------------
Name: Robert P. May
Title: Chief Executive Officer
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<PAGE> 1
EXHIBIT 3.7
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES B 7% CUMULATIVE CONVERTIBLE
PREFERRED STOCK OF PNV.NET, INC.
PNV.net, Inc., a Delaware corporation (the "Corporation"), hereby
certifies that pursuant to the authority contained in Article Seventh of the
Corporation's Certificate of Incorporation, and in accordance with Section 242
of the General Corporation Law of the State of Delaware (the "DGCL"), the
following resolution was duly adopted by the Board of Directors of the
Corporation, amending a series of its Preferred Stock designated as Series B 7%
Cumulative Convertible Preferred Stock:
WHEREAS, the amendment of the designations herein certified has been
duly adopted by the Corporation's Board of Directors and Holders of the Series A
Preferred Stock (the "Series A Stock"), the Holders of the Series B 7%
Cumulative Convertible Preferred Stock (the "Series B Stock"), the Holders of
the Series C 7% Cumulative Convertible Preferred Stock (the "Series C Stock")
and the Holders of the Series D Preferred Stock (the "Series D Stock"); and
WHEREAS, the Certificate of Incorporation of the Corporation provides
for two classes of shares known as common stock, $.001 par value per share (the
"Common Stock"), and preferred stock, $.01 par value per share ("Preferred
Stock"); and
WHEREAS, the Corporation has created: (i) a series of Preferred Stock
designated as Series A Preferred Stock; (ii) a series of Preferred Stock
designated as Series B 7% Cumulative Convertible Preferred Stock; and (iii) a
series of Preferred Stock designated as Series C 7% Cumulative Convertible
Preferred Stock; and (iii) a series of Preferred Stock designated as Series D 7%
Cumulative Convertible Preferred Stock; and
WHEREAS, the Board of Directors of the Corporation is authorized by the
Certificate of Incorporation to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in such series and to fix the designations,
preferences and rights of the shares of each such series and the qualifications,
limitations and restrictions thereof.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors deems it
advisable to, and hereby does, designate a Series B 7% Cumulative Convertible
Preferred Stock and fixes and determines the rights, preferences,
qualifications, limitations and restrictions relating to the Series B 7%
Cumulative Convertible Preferred Stock as follows:
<PAGE> 2
1. Designation. The shares of such series of Preferred Stock shall be
designated "Series B 7% Cumulative Convertible Preferred Stock" (referred to
herein as the "Series B Stock").
2. Authorized Number. The number of shares constituting the Series B
Stock shall be 1,372,370.
3. Dividends. The holders of shares of Series B Stock shall be entitled
to receive, when and as declared by the Board of Directors of the Corporation,
out of assets legally available for such purpose, dividends at the rate of
$0.7651 (i.e., 7%) (as adjusted for stock splits, and other subdivisions and
combinations of Common Stock after the date of the Purchase Agreements
("Recapitalization Events")) per share per annum, which shall be payable when
and if declared by the Board of Directors or shall accrue quarterly on the last
day of January, April, July and October in each year, commencing on January 31,
1997; provided, however, that upon an Event of Default (as hereinafter defined)
and so long as it shall continue, such dividend rate shall be $0.9837 (i.e., 9%)
(as adjusted for Recapitalization Events) per share per annum. Dividends on the
Series B Stock shall be cumulative so that if, for any dividend accrual period,
cash dividends at the rate hereinabove specified are not declared and paid or
set aside for payment, the amount of accrued but unpaid dividends shall
accumulate and shall be added to the dividends payable for subsequent dividend
accrual periods and upon any redemption or conversion of shares of Series B
Stock. If any shares of Series B Stock are issued on a date which does not
coincide with a dividend payment date, then the initial dividend accrual period
applicable to such shares shall be the period from the date of issuance thereof
through whichever of January 31, April 30, July 31, or October 31 next occurs
after the date of issuance. If the date fixed for payment of a final liquidating
distribution on any shares of Series B Stock, or the date on which any shares of
Series B Stock are redeemed or converted into Common Stock does not coincide
with a dividend payment date, then subject to the provisions hereof relating to
such payment, redemption or conversion, the final dividend accrual period
applicable to such shares shall be the period from whichever of February 1, May
1, August 1 or November 1 most recently precedes the date of such payment,
conversion or redemption through the effective date of such payment, conversion
or redemption. Dividends paid in cash on the shares of Series B Stock (or Series
A Stock, Series C Stock or Series D Stock, which shall rank pari passu with the
Series B Stock) in an amount less than the total amount of such dividends shall
be allocated pro rata so that the total value of dividends paid on the Preferred
Stock shall in all cases bear to each other the same ratio that the total value
of accrued and unpaid dividends on the Series A Stock, Series B Stock, Series C
Stock and Series D Stock bear to each other. Without the written consent of the
holders of at least 66 2/3% of the then outstanding Series B Stock, the
Corporation shall not declare or pay any cash dividend on, or redeem or
repurchase or make any other cash distribution in respect of any other equity
Securities (as defined herein) of the Corporation unless at the time of such
declaration, payment or distribution all dividends on the Series B Stock accrued
for all past dividend accrual periods shall have been paid and the full
dividends thereon for the current dividend period shall be paid or declared and
set aside for payment. Notwithstanding any other term or condition of this
Section 3 to the contrary, upon the consummation of a Qualifying Offering (as
defined below) and in connection with the conversion of the Series B Stock
pursuant to Section 5 hereof, the Company may pay any and all accrued but unpaid
dividends on the Series
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<PAGE> 3
B Stock with shares of Common Stock, each share of which shall, for the purposes
of determining the number of shares of Common Stock issuable in satisfaction of
such accrued but unpaid dividends pursuant to this Section 3, be deemed to have
a value equal to the price at which the Common Stock is sold in such Qualifying
Offering.
4. Liquidation.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the
shares of Series B Stock shall be entitled, before any distribution or
payment is made upon any Common Stock or any other class or series of
stock ranking junior to the Series B Stock as to distribution of assets
upon liquidation (other than the Series A Stock, the Series C Stock and
the Series D Stock of the Corporation which shall rank pari passu with
the Series B Stock), to be paid an amount equal to $10.93 per share (as
adjusted for Recapitalization Events) plus all accrued and unpaid
dividends to such date (collectively, the "Liquidation Payments"). If
upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the assets to be distributed among
the holders of Series B Stock shall be insufficient to permit payment
in full to the holders of Series B Stock of the Liquidation Payments,
then the entire assets of the Corporation shall be distributed ratably
among such holders and the holders of any class of preferred stock
ranking on a parity with the Series B Stock in proportion to the full
respective distributive amounts to which they are entitled.
(b) Upon any liquidation, dissolution or winding up of the
Corporation, after the holders of Series B Stock shall have been paid
in full the Liquidation Payments, the remaining assets of the
Corporation may be distributed ratably per share in order of preference
to the holders of Common Stock and any other class or series of stock
ranking junior to the Series B Stock as to distribution of assets upon
liquidation.
(c) Written notice of a liquidation, dissolution or winding
up, stating a payment date, the amount of the Liquidation Payments, the
amounts to be paid to the holders of Common Stock (both per share and
in the aggregate) upon such a liquidation, dissolution or winding up,
and the place where said Liquidation Payments shall be payable, shall
be given by mail, postage prepaid, not less than 30 days prior to the
payment date stated therein, to each holder of record of Series B Stock
at its post office address as shown by the records of the Corporation.
5. Conversion.
The holders of the Series B Stock shall have the following conversion
rights:
(a) Optional Conversion. Each share of Series B Stock shall be
convertible at any time, at the option of the holder of record thereof,
into fully paid and nonassessable shares of Common Stock at the
"conversion rate" (as defined in paragraph (c) below) then in effect
upon surrender to the Corporation or its transfer agent of the
certificate or
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<PAGE> 4
certificates representing the Series B Stock to be converted, as
provided below, or if the holder notifies the Corporation or its
transfer agent that such certificate or certificates have been lost,
stolen or destroyed, upon the execution and delivery of an agreement
satisfactory to the Corporation to indemnify the Corporation from any
losses incurred by it in connection therewith.
(b) Conversion on Qualifying Offering. Upon the consummation
of a Qualifying Offering (as defined below), upon not less than ten
(10) days prior written notice by the Corporation of the anticipated
consummation of such offering, each share of Series B Stock shall be
converted into fully paid and nonassessable shares of Common Stock at
the conversion rate then in effect. At all times on or prior to March
31, 2000, a "Qualifying Offering" means (i) the Corporation shall have
consummated a firm commitment underwritten public offering of its
Common Stock by a nationally recognized investment banking firm
pursuant to an effective registration under the Securities Act of 1933,
as amended, covering the offering and sale of Common Stock which
results in gross proceeds of at least $20,000,000 and (ii) the Common
Stock is quoted or listed by either The Nasdaq Stock Market (National
Market) ("Nasdaq"), the New York Stock Exchange or the American Stock
Exchange. From and after April 1, 2000, a "Qualifying Offering" means
(i) the Corporation shall have consummated a firm commitment
underwritten public offering of its Common Stock by a nationally
recognized investment banking firm pursuant to an effective
registration under the Securities Act of 1933, as amended, covering the
offering and sale of Common Stock which results in gross proceeds of at
least $20,000,000, (ii) the Common Stock is quoted or listed by either
Nasdaq, the New York Stock Exchange or the American Stock Exchange, and
(iii) the price at which the Common Stock is sold in such offering is
at least equal to an amount which (x) is 200% of the then effective
conversion price or (y) would represent, on an as converted basis, a
compound annual rate of return of 35% based upon the original issuance
price of the Series B Stock. Upon the achievement of (i), (ii) and
(iii) above and the giving of the mandatory conversion notice by the
Corporation, the outstanding shares of Series B Stock to be converted
shall be converted automatically without any further action by the
holders of such shares and whether or not the certificates representing
such shares are surrendered to the Corporation or its transfer agent.
(c) Basis For Conversion; Converted Shares. The basis for any
conversion under this Section 5 shall be the "conversion rate" in
effect at the time of conversion, which for the purposes hereof shall
mean the number of shares of Common Stock issuable for each share of
Series B Stock surrendered for conversion under this Section 5.
Initially, the conversion rate shall be 1.0, i.e., 1.0 share of Common
Stock for each share of Series B Stock being converted. Such conversion
rate shall be subject to adjustment as provided in Section 7 below. As
used herein, the term "conversion price" shall be an amount computed by
dividing $10.93 by the conversion rate then in effect. Initially, the
conversion price shall be $8.00 per share of Common Stock. If any
fractional interest in a share of Common Stock would be deliverable
upon conversion of Series B Stock (taking into account all shares of
Series B Stock being converted by each holder), the Corporation
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<PAGE> 5
shall pay in lieu of such fractional share an amount in cash equal to
the conversion price of such fractional share (computed to the nearest
one hundredth of a share) in effect at the close of business on the
date of conversion. Any shares of Series B Stock which have been
converted shall be canceled and all dividends on converted shares shall
cease to accrue and the certificates representing shares of Series B
Stock so converted shall represent the right to receive (i) such number
of shares of Common Stock into which such shares of Series B Stock are
convertible, plus (ii) cash payable for any fractional share plus (iii)
all accrued but unpaid dividends relating to such shares through the
immediately preceding dividend payment date. Upon the conversion of
shares of Series B Stock as provided in this Section 5, the Corporation
shall promptly pay all then accrued but unpaid dividends to the holder
of the Series B Stock being converted. The Board of Directors of the
Corporation shall at all times reserve a sufficient number of
authorized but unissued shares of Common Stock to be issued in
satisfaction of the conversion rights and privileges aforesaid.
(d) Mechanics of Conversion. In the case of an optional
conversion, before any holder of Series B Stock shall be entitled to
convert the same into shares of Common Stock, it shall surrender the
certificate or certificates therefor, duly endorsed, at the office of
the Corporation or its transfer agent for the Series B Stock, and shall
give written notice to the Corporation of the election to convert the
same and shall state therein the name or names in which the certificate
of certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver
at such office to such holder of Series B Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as
aforesaid. A certificate or certificates will be issued for the
remaining shares of Series B Stock in any case in which fewer than all
of the shares of Series B Stock represented by a certificate are
converted.
(e) Issue Taxes. The Corporation shall pay all issue taxes, if
any, incurred in respect of the issue of shares of Common Stock on
conversion. If a holder of shares surrendered for conversion specifies
that the shares of Common Stock to be issued on conversion are to be
issued in a name or names other than the name or names in which such
surrendered shares stand, the Corporation shall not be required to pay
any transfer or other taxes incurred by reason of the issuance of such
shares of Common Stock to the name of another, and if the appropriate
transfer taxes shall not have been paid to the Corporation or the
transfer agent for the Series B Stock at the time of surrender of the
shares involved, the shares of Common Stock issued upon conversion
thereof may be registered in the name or names in which the surrendered
shares were registered, despite the instructions to the contrary.
6. Adjustment of Conversion Price and Conversion Rate. The number and
kind of securities issuable upon the conversion of the Series B Stock, the
conversion price and the conversion rate shall be subject to adjustment from
time to time in accordance with the following provisions:
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(a) Certain Definitions. For purposes of this Certificate:
(i) The term "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (including the
sale and issuance of any shares of Common Stock at any time
directly or indirectly owned or held by or for the account of
the Corporation), or deemed to be issued by the Corporation
pursuant to paragraph (g) of this Section 6, after the
Original Issue Date except:
(A) shares of Common Stock issuable upon
conversion of, or distributions with respect to, the
Series B Stock, the Series C Stock or the Series D
Stock now or hereafter issued by the Corporation;
(B) up to 2,184,166 shares of Common Stock
(as reduced by previously exercised options to
purchase 10,432 shares of Common Stock) issuable upon
the exercise of options issued to officers, directors
employees, and consultants of the Corporation under
stock option plans maintained from time to time by
the Corporation and approved by the Board of
Directors, subject to adjustment for all subdivisions
and combinations;
(C) up to 186,750 shares of Common Stock
issuable upon the exercise of the Warrant held by
Alex. Brown & Sons Incorporated;
(D) up to 505,375 shares of Common Stock
issuable upon the exercise of warrants to be granted
to lenders in connection with loans to the
Corporation or to guarantors or purchasers of such
loans;
(E) up to 75,000 shares of Common Stock
issuable upon the exercise of the Warrant held by
Volpe Brown Whelan & Company, LLC;
(F) up to 12,000 shares of Common Stock
issuable upon the exercise of warrants to be issued
to customers in connection with contracts between the
Corporation and such customers; and
(G) shares of Common Stock issued with
respect to adjustments of the conversion price
hereunder.
(ii) The term "Common Stock" shall be deemed to mean
(i) the Common Stock, $.001 par value, and (ii) the stock of
the Corporation of any class, or series within a class,
whether now or hereafter authorized, which has the right to
participate in the distribution of either earnings or assets
of the Corporation without limit as to the amount or
percentage.
(iii) The term "Convertible Securities" shall mean
any evidence of indebtedness, shares (other than Series B
Stock, Series C Stock and Series D
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Stock issued prior to the Original Issue Date) or other
securities directly or indirectly convertible into or
exercisable or exchangeable for Common Stock.
(iv) The term "Options" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire
directly or indirectly Common Stock or Convertible Securities.
(v) The term "Original Issue Date" shall mean the
date of the initial issuance of the Series B Stock.
(vi) The term "Fair Market Price" shall mean with
respect to a share of Common Stock (i) prior to the first
anniversary of the Original Issue Date, $10.93, and (ii)
subsequent to the first anniversary of the Original Issue
Date, the average closing bid price of the Common Stock as
reported by Nasdaq (or the last sale price if the Common Stock
is traded on an exchange) for a period of thirty (30)
consecutive trading days ending on the third day prior to the
date of determination, or, if the Common Stock is not listed
on Nasdaq or an exchange, the fair market value as determined
by the vote of 66 2/3% of the Corporation's Board of Directors
or if the Board of Directors cannot reach such agreement, as
determined by a qualified independent investment banker
appointed by the vote of 66 2/3% of the Corporation's Board of
Directors.
(b) Reorganization, Reclassification. In the event of a
reorganization, share exchange, or reclassification, other than a
change in par value, or from par value to no par value, or from no par
value to par value or a transaction described in subsection (c) or (d)
below, each share of Series B Stock shall, after such reorganization,
share exchange or reclassification (a "Reclassification Event"), be
convertible at the option of the holder into the kind and number of
shares of stock or other securities or other property of the
Corporation which the holder of Series B Stock would have been entitled
to receive if the holder had held the Common Stock issuable upon
conversion of his Series B Stock immediately prior to such
reorganization, share exchange, or reclassification (subject to
adjustment as provided in this Section 6)
(c) Consolidation, Merger. In the event of a merger or
consolidation to which the Corporation is a party each share of Series
B Stock shall, after such merger or consolidation, be convertible at
the option of the holder into the kind and number of shares of stock
and/or other securities, cash or other property which the holder of
such share of Series B Stock would have been entitled to receive if the
holder had held the Common Stock issuable upon conversion of such share
of Series B Stock immediately prior to such consolidation or merger
(subject to adjustment as provided in this Section 6).
(d) Subdivision or Combination of Shares. In case outstanding
shares of Common Stock shall be subdivided, the conversion price shall
be proportionately reduced as of the effective date of such
subdivision, or as of the date a record is taken of the
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<PAGE> 8
holders of Common Stock for the purpose of so subdividing, whichever is
earlier. In case outstanding shares of Common Stock shall be combined,
the conversion price shall be proportionately increased as of the
effective date of such combination, or as of the date a record is taken
of the holders of Common Stock for the purpose of so combining,
whichever is earlier.
(e) Stock Dividends. In case shares of Common Stock are issued
as a dividend or other distribution on the Common Stock (or such
dividend is declared), then the conversion price shall be adjusted, as
of the date a record is taken of the holders of Common Stock for the
purpose of receiving such dividend or other distribution (or if no such
record is taken, as at the earliest of the date of such declaration,
payment or other distribution), to that price determined by multiplying
the conversion price in effect immediately prior to such declaration,
payment or other distribution by a fraction (i) the numerator of which
shall be the number of shares of Common Stock outstanding immediately
prior to the declaration of such dividend or other distribution, and
(ii) the denominator of which shall be the total number of shares of
Common Stock outstanding as of the time of the declaration and giving
effect to such dividend or other distribution as if paid. In the event
that the Corporation shall declare or pay any dividend on the Common
Stock payable in any right to acquire Common Stock for no
consideration, then the Corporation shall be deemed to have made a
dividend payable in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to
acquire Common Stock.
(f) Issuance of Additional Shares of Common Stock. If the
Corporation shall issue any Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued
pursuant to paragraph (g) below) after the Original Issue Date (other
than as provided in the foregoing subsections (b) through (e)), for no
consideration or for a consideration per share less than the greater of
(i) the Fair Market Price in effect on the date of and immediately
prior to such issue or (ii) the conversion price in effect on the date
of and immediately prior to such issue, then in such event, the
conversion price shall be reduced (but not increased) as follows:
(i) For issuances of Additional Shares of Common
Stock on or before 12 months after the Original Issue Date,
the conversion price shall be reduced (but not increased)
concurrently with any such issuance as follows: the conversion
price will equal the issuance or sales price of the Additional
Shares of Common Stock.
(ii) For issuances of Additional Shares of Common
Stock at any time after 12 months after the Original Issue
Date, the conversion price shall be reduced (but not
increased) concurrently with any such issuance to a price
equal to the quotient obtained by dividing:
(A) an amount equal to (x) the total number
of shares of Common Stock outstanding immediately
prior to such issuance or sale multiplied by the
conversion price in effect immediately prior to such
issuance or sale, plus (y) the
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<PAGE> 9
aggregate consideration received or deemed to be
received by the Corporation upon such issuance or
sale, by
(B) the total number of shares of Common
Stock outstanding immediately after such issuance or
sale.
For purposes of the formulas expressed in paragraph 6(e) and
6(f), all shares of Common Stock issuable upon the exercise of
outstanding Options or issuable upon the conversion of the Series B
Stock, the Series C Stock and the Series D Stock or outstanding
Convertible Securities (including Convertible Securities issued upon
the exercise of outstanding Options), shall be deemed outstanding
shares of Common Stock both immediately before and after such issuance
or sale.
(g) Deemed Issue of Additional Shares of Common Stock. In the
event the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities
or shall fix a record date for the determination of holders of any
class of securities then entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth
in the instrument relating thereto without regard to any provisions
contained therein designed to protect against dilution) of Common Stock
issuable upon the exercise of such Options, or, in the case of
Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue of Options or
Convertible Securities or, in case such a record date shall have been
fixed, as of the close of business on such record date, provided that
in any such case in which Additional Shares of Common Stock are deemed
to be issued:
(i) except as provided in Section 6(g)(ii) below, no
further adjustments in the conversion price shall be made upon
the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or the issue of
Common Stock upon the conversion or exchange of such
Convertible Securities, in accordance with their terms;
(ii) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise (or
the terms of such Options or Convertible Securities are
amended or modified to provide), for any increase or decrease
in the consideration payable to the Corporation, or increase
or decrease in the number of shares of Common Stock issuable,
upon the exercise, conversion or exchange thereof, the
conversion price computed upon the original issuance of such
Options or Convertible Securities (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, upon any such increase or decrease
becoming effective, shall be recomputed to reflect such
increase or decrease insofar as it affects such Options or the
rights of conversion or exchange under such Convertible
Securities (provided, however, that no such adjustment of the
conversion price shall affect Common Stock previously issued
upon conversion of the Series B Stock);
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(iii) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the conversion
price computed upon the original issue of such Options or
Convertible Securities (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments
based thereon, shall, upon such expiration, be recomputed as
if:
(A) in the case of Options or Convertible
Securities, the only Additional Shares of Common
Stock issued were the shares of Common Stock, if any,
actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible
Securities and the consideration received therefor
was the consideration actually received by the
Corporation (x) for the issue of all such Options,
whether or not exercised, plus the consideration
actually received by the Corporation upon exercise of
the Options or (y) for the issue of all such
Convertible Securities which were actually converted
or exchanged plus the additional consideration, if
any, actually received by the Corporation upon the
conversion or exchange of the Convertible Securities;
and
(B) in the case of Options for Convertible
Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued
at the time of issue of such Options, and the
consideration received by the Corporation for the
Additional Shares of Common Stock deemed to have been
then issued was the consideration actually received
by the Corporation for the issue of all such Options,
whether or not exercised, plus the consideration
deemed to have been received by the Corporation upon
the issue of the Convertible Securities with respect
to which such Options were actually exercised.
(iv) No readjustment pursuant to clause (ii) or (iii)
above shall have the effect of increasing the conversion price
to an amount which exceeds the lower of (x) the conversion
price on the original adjustment date or (y) the conversion
price that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date
and such readjustment date.
(v) In the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof,
no adjustment of the conversion price shall be made until the
expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause
(iii) above.
(h) Determination of Consideration. For purposes of this
Section 6, the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall be computed as follows:
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(i) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be the
aggregate amount of cash received by the Corporation;
and
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at
the time of the issue, as determined by the vote of
66 2/3% of the Corporation's Board of Directors or if
the Board of Directors cannot reach such agreement,
by a qualified independent public accounting firm,
other than the accounting firm then engaged as the
Corporation's independent auditors, agreed upon by
the Corporation on the one hand and the holders of 66
2/3% of the outstanding shares of Series B Stock on
the other hand.
(ii) Options and Convertible Securities. The
consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been issued
pursuant to paragraph (g) above, relating to Options and
Convertible Securities shall be determined by dividing:
(A) the total amount, if any, received or
receivable by the Corporation as consideration for
the issue of such Options or Convertible Securities,
plus the minimum aggregate amount of additional
consideration (as set forth in the instruments
relating thereto, without regard to any provision
contained therein designed to protect against
dilution) payable to the Corporation upon the
exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible
Securities by
(B) the maximum number of shares of Common
Stock (as set forth in the instruments relating
thereto, without regard to any provision contained
therein designed to protect against dilution)
issuable upon the exercise of such Options or
conversion or exchange of such Convertible
Securities.
(i) Adjustment of Conversion Rate. Upon each adjustment of the
conversion price under the provisions of this Section 6, the conversion
rate shall be adjusted to an amount determined by dividing (x) the
conversion price in effect on the Original Issue Date, by (y) the
adjusted conversion price.
(j) Other Provisions Applicable to Adjustment Under this
Section. The following provisions will be applicable to the adjustments
in conversion price and conversion rate as provided in this Section 6:
(i) Treasury Shares. The number of shares of Common
Stock at any time outstanding shall not include any shares
thereof then directly or indirectly owned or held by or for
the account of the Corporation.
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(ii) Other Action Affecting Common Stock. In case the
Corporation shall take any action affecting the outstanding
number of shares of Common Stock other than an action
described in any of the foregoing subsections 6(b) to 6(g)
hereof, inclusive, which would have an inequitable effect on
the holders of Series B Stock, the conversion price shall be
adjusted in such manner and at such time as the Board of
Directors of the Corporation on the advice of the
Corporation's independent public accountants may in good faith
determine to be equitable in the circumstances.
(iii) Minimum Adjustment. No adjustment of the
conversion price shall be made if the amount of any such
adjustment would be an amount less than one percent (1%) of
the conversion price then in effect, but any such amount shall
be carried forward and an adjustment with respect thereof
shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate an
increase or decrease of one percent (1%) or more.
(iv) Certain Adjustments. The conversion price shall
not be adjusted upward except in the event of a combination of
the outstanding shares of Common Stock into a smaller number
of shares of Common Stock or in the event of a readjustment of
the conversion price pursuant to Section 6(g)(ii) or (iii).
(k) Notices of Adjustments. Whenever the conversion rate and
conversion price is adjusted as herein provided, an officer of the
Corporation shall compute the adjusted conversion rate and conversion
price in accordance with the foregoing provisions and shall prepare a
written certificate setting forth such adjusted conversion rate and
conversion price and showing in detail the facts upon which such
adjustment is based, and such written instrument shall promptly be
delivered to the recordholders of the Series B Stock.
7. Redemption.
(a) Mandatory Redemption. On the date six (6) months
immediately after the payment in full and satisfaction of all of the
obligations of the Corporation to the lenders who provide financing to
the Corporation in the aggregate principal amount of Seventy-five
Million Dollars ($75,000,000.00) (referred to herein as the "Mandatory
Redemption Date") the Corporation shall redeem all the shares of Series
B Stock originally issued hereunder (or such lesser amount as shall
then be outstanding) at the "Redemption Price" per share defined in
paragraph (c) below, payable in each case in cash on the Mandatory
Redemption Date. The Corporation shall deliver notice of the pending
redemption to the holders of the Series B Stock at least thirty (30)
but no more than sixty (60) days prior to the Mandatory Redemption
Date.
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(b) Redemption on Change of Control. Upon a "Change of
Control" of the Corporation, each holder of the then outstanding shares
of Series B Stock may elect to have the Corporation redeem all (but not
less than all) outstanding shares of Series B Stock owned by such
holder at the "Redemption Price" per share defined in paragraph (c)
below, payable in cash on any date within 100 days of the effective
date of the Change of Control (such date being herein referred to as
the "Change of Control Redemption Date"). The election shall be made by
delivering written notice to the Corporation at least thirty (30) but
no more than sixty (60) days prior to the Change of Control Redemption
Date. The Corporation will then be required to redeem all the shares of
Series B Stock owned by such holder on the Change of Control Redemption
Date. For purposes of this Section 7, "Change of Control" means any one
or more of the following events:
(i) The Corporation shall consolidate with or merge
into any another person or any person shall consolidate with
or merge into the Corporation (other than a consolidation or
merger of the Corporation and a wholly-owned subsidiary of the
Corporation in which all shares of the Corporation's Common
Stock outstanding immediately prior to the effectiveness
thereof are changed into or exchanged for the same
consideration), in either event pursuant to a transaction in
which any of the Corporation's common stock outstanding
immediately prior to the effectiveness thereof is changed into
or exchanged for cash, securities or other property; or
(ii) the Corporation shall directly or indirectly
convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all of its assets to any
person or "group" (within the meaning of Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934 (the "1934
Act") (other than to a wholly-owned subsidiary of the
Corporation); or
(iii) there shall be a reorganization, share
exchange, or reclassification, other than a change in par
value, or from par value to no par value, or from no par value
to par value; or
(iv) any person (other than the Corporation, any
subsidiary of the Corporation or an Existing Investor (as
defined in the Purchase Agreement (as hereinafter defined))),
including a "group" (within the meaning of Section 13(d) and
14(D)(2) of the 1934 Act) that includes such person, shall
purchase or otherwise acquire, directly or indirectly,
beneficial ownership of securities of the Corporation and, as
a result of such purchase or acquisition, such person
(together with its associates and affiliates) shall directly
or indirectly beneficially own in the aggregate (1) more than
50% of the Common Stock, or (2) securities representing more
than 50% of the combined voting power of the Corporation's
voting securities, in each case under subclause (1) or (2),
outstanding on the date immediately prior to the date of such
purchase or acquisition (or, if there be more than one, the
last such purchase or acquisition).
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(c) The Redemption Price per share of Series B Stock shall
equal the sum of (x) $10.93 (as adjusted for Recapitalization Events)
plus (y) all accrued and unpaid dividends on such share of Series B
Stock to the Mandatory Redemption Date or Change of Control Redemption
Date, as the case may be.
(d) The term "Redemption Date" as used in this paragraph (d)
shall refer to whichever of the Mandatory Redemption Date or the Change
of Control Redemption Date is applicable in a particular circumstance.
On or prior to the Redemption Date, the Corporation shall deposit the
Redemption Price of all outstanding shares of Series B Stock to be
redeemed with a bank or trust corporation having aggregate capital and
surplus in excess of $100,000,000 as a trust fund for the benefit of
the holders of the shares of Series B Stock, with irrevocable
instructions and authority to the bank or trust corporation to pay the
Redemption Price for such shares to their respective holders on or
after the Redemption Date upon receipt of the certificate or
certificates of the shares of Series B Stock to be redeemed. From and
after the Redemption Date, unless there shall have been a default in
payment of the Redemption Price, all rights of the holders of shares of
Series B Stock to be redeemed as holders of Series B Stock (except the
right to receive the Redemption Price upon surrender of their
certificate or certificates) shall cease as to those shares of Series B
Stock redeemed, and such shares shall not thereafter be transferred on
the books of the Corporation or be deemed to be outstanding for any
purpose whatsoever. If on the Redemption Date the funds of the
Corporation legally available for redemption of shares of Series B
Stock (or Series A Stock, Series C Stock and Series D Stock, which
shall rank pari passu with the Series B Stock) are insufficient to
redeem the total number of shares of Preferred Stock to be redeemed on
such date, the Corporation will use those funds which are legally
available therefor to redeem the maximum possible number of shares of
Preferred Stock ratably among the holders of such shares to be redeemed
based upon the total amount payable by the Corporation pursuant to the
redemption of the Series A Stock, Series B Stock, Series C Stock and
Series D Stock if the Corporation had sufficient funds legally
available therefor. Payments shall first be applied against accrued and
unpaid dividends and thereafter against the remainder of the Redemption
Price. The shares of Series B Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided
herein. At any time thereafter when additional funds of the Corporation
are legally available for the redemption of shares of Series B Stock
such funds will immediately be used to redeem the balance of the shares
of Series B Stock to be redeemed. No dividends or other distributions
shall be declared or paid on, nor shall the Corporation redeem,
purchase or acquire any shares of, the Common Stock or any other class
or series of stock of the Corporation unless the Redemption Price of
all shares elected to be redeemed shall have been paid in full. Until
the Redemption Price for a share of Series B Stock elected to be
redeemed shall have been paid in full, such share of Series B Stock
shall remain outstanding for all purposes and entitle the holder
thereof to all the rights and privileges provided herein, including,
without limitation, that dividends and interest thereon shall continue
to accrue and, if unpaid prior to the date such shares are redeemed,
shall be included as part of the Redemption Price as provided in
paragraph (c) above. Notwithstanding anything in this Section 7 to the
contrary, even if a notice of redemption
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was delivered under paragraph (a) or (b) of this Section 7, all shares
of Series B Stock shall be convertible pursuant to Section 5 at all
times prior to the Redemption Date.
(e) Notwithstanding any other term of this Certificate of
Designation, the Corporation shall not redeem (or have any obligation
to redeem) any shares of Series B Stock under any circumstances,
whether upon a Change of Control or otherwise, prior to the payment in
full and satisfaction of all of the obligations of the Corporation to
the lenders who provide financing to the Corporation in the aggregate
principal amount of up to $75,000,000.00. If the Corporation shall not
have paid in full or satisfied all of its obligations to such lenders
on or before any Redemption Date, upon such payment and satisfaction
the Corporation will immediately use any funds legally available
therefor to redeem the shares of Series B Stock to be redeemed.
8. Notices of Record Dates and Effective Dates. In case: (a) the
Corporation shall declare a dividend (or any other distribution) on the Common
Stock payable otherwise than in shares of Common Stock; or (b) the Corporation
shall authorize the granting to the holders of Common Stock of rights to
subscribe for or purchase any shares of capital stock of any class or any other
rights; or (c) of any reorganization, share exchange or reclassification of the
capital stock of the Corporation (other than a subdivision or combination of
outstanding shares of Common Stock), or of any consolidation or merger to which
the Corporation is party or of the sale, lease or exchange of all or
substantially all of the property of the Corporation; or (d) of the voluntary or
involuntary dissolution, liquidation or winding up of the Corporation; or (e) of
a Change of Control, then the Corporation shall cause to be mailed to the
recordholders of the Series B Stock at least 20 days prior to the applicable
record date or effective date hereinafter specified, a notice stating (i) the
date on which a record is to be taken for the purpose of such dividend,
distribution or rights, or, if a record is not to be taken, the date as of which
the holders of record of Common Stock to be entitled to such dividend,
distribution or rights are to be determined or (ii) the date on which such
reclassification, reorganization, share exchange, consolidation, merger, sale,
lease, exchange, dissolution, liquidation, winding up or Change of Control is
expected to become effective, and the date as of which it is expected that
holders of record of Common Stock shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, reorganization share exchange, consolidation, liquidation,
merger, sale, lease, exchange, dissolution, liquidation, winding up or Change of
Control.
9. Voting Rights.
(a) Holders of Series B Stock shall be entitled to notice of
any stockholder's meeting. Except as otherwise required by law or
provided herein, at any annual or special meeting of the Corporation's
stockholders, or in connection with any written consent in lieu of any
such meeting, each outstanding share of Series B Stock shall be
entitled to the number of votes equal to the number of full shares of
Common Stock into which such share of Series B Stock is then
convertible. Except as otherwise required by law or provided herein,
the Series B Stock, the Series C Stock, the Series D Stock and the
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<PAGE> 16
Common Stock shall vote together on each matter submitted to
stockholders, and not by class or series.
(b) Prior to the consummation of a Qualifying Offering by the
Corporation of its Common Stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended, the holders of
the Series B Stock, voting together as a class, shall be entitled to
elect one (1) director to the Corporation's Board of Directors.
Subsequent to such Qualifying Offering, the holders of a majority of
the Common Stock issuable upon conversion of the Series B Stock shall
be entitled to nominate one (1) director for election to the
Corporation's Board of Directors which the Corporation shall nominate
to management's slate for election; provided, however, that the right
provided for in this last sentence of subsection 9(b) shall be
effective only for so long as at least 66 2/3% of the shares of Common
Stock issuable upon conversion of the Series B Stock are held of record
by the original Purchasers (as defined in the Purchase Agreement) of
the Series B Stock.
Notwithstanding the foregoing, upon an Event of Default and so
long as it shall continue, the holders of the Series B Stock, the
Series C Stock and the Series D Stock, voting together as a class,
shall be entitled at any annual meeting of the stockholders or special
meeting held in place thereof, or at a special meeting of the holders
of the Series B Stock, the Series C Stock and the Series D Stock called
as hereinafter provided, to elect a majority of the Board of Directors
and such right to elect a majority of the Board of Directors shall be
in lieu of the right of the holders of Series B Stock and the Series C
Stock (and, as may be provided pursuant to the terms of the Certificate
of Designations, Preferences and Rights of the Series D Stock, the
Series D Stock) to each elect one director. Such right of the holders
of the Series B Stock, the Series C Stock and the Series D Stock to
elect a majority of the Board of Directors may be exercised until an
Event of Default shall be cured, if curable, or waived, and when so
cured or waived, the right of the holders of the Series B Stock, the
Series C Stock and the Series D Stock to elect a majority of the Board
of Directors shall cease and the right of the holders of the Series B
Stock and the Series C Stock (and, as may be provided pursuant to the
terms of the Certificate of Designations, Preferences and Rights of the
Series D Stock, the Series D Stock) to each elect one director shall
resume, but subject always to the same provisions for the vesting of
such special voting rights in the case of any such future Event of
Default. At any time when such special voting rights shall have so
vested in the holders of the Series B Stock, the Series C Stock and the
Series D Stock, the Secretary of the Corporation may, and upon the
written request of the holders of 10% or more of the number of shares
of the Series B Stock, the Series C Stock and the Series D Stock then
outstanding addressed to him at the principal office of the
Corporation, shall, call a special meeting of the holders of the Series
B Stock, the Series C Stock and the Series D Stock for the election of
a majority of the Board of Directors to be elected by them as provided
herein, to be held in the case of such written request as soon as
practicable after delivery of such request, and in either case to be
held at the place and upon the notice provided by law and in the
by-laws for the holding of meetings of stockholders. If at any such
annual or special meeting or adjournment thereof the holders of at
least a majority of
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<PAGE> 17
the Series B Stock, the Series C Stock and the Series D Stock then
outstanding shall be present or represented at such meeting, the then
authorized number of directors of the Corporation shall be increased to
the extent necessary to provide a majority of new directors to be
elected and the holders of the Series B Stock, the Series C Stock and
the Series D Stock shall be entitled to elect the additional directors
so provided for. The directors so elected shall serve until the next
annual meeting or until their successors shall be elected and
qualified, provided, however, that whenever the holders of the
Preferred Stock shall be divested of the special rights to elect a
majority of the Board of Directors as above provided, the term of
office of the persons so elected as directors by the holders of the
Series B Stock, the Series C Stock and the Series D Stock as a class,
or elected to fill any vacancies resulting from the death, resignation
or removal of the directors so elected by the holders of the Series B
Stock, the Series C Stock and the Series D Stock, shall forthwith
terminate and the authorized number of directors shall be reduced
accordingly.
If during any interval between any special meeting of the
holders of the Series B Stock, the Series C Stock and the Series D
Stock for the election of directors to be elected by them as provided
above and the next ensuing annual meeting of stockholders, or between
annual meetings of stockholders for the election of directors, and
while the holders of the Series B Stock, the Series C Stock and the
Series D Stock shall be entitled to elect a majority of the Board of
Directors, any of the directors who have been elected by the holders of
the Series B Stock, the Series C Stock and the Series D Stock shall, by
reason of resignation, death or removal, have departed from the Board,
the Secretary of the Corporation shall call a special meeting of the
holders of the Series B Stock, the Series C Stock and the Series D
Stock and such vacancy or vacancies shall be filled at such special
meeting.
No director elected by the holders of Series B Stock as a
class, or elected by other directors to fill a vacancy resulting from
the death, resignation or removal of a director elected by such class
vote, may be removed from office by the vote or written consent of
stockholders unless such vote or written consent includes that of the
holders of a majority of the outstanding shares of Series B Stock.
(c) In addition to any other vote or consent of stockholders
provided by law or by the Corporation's Certificate of Incorporation,
the Corporation shall not, without the approval by vote or written
consent of the holders of not less than 66 2/3% of the then outstanding
shares of Series B Stock:
(i) amend, waive or repeal any provisions of, or add
any provision to, (i) this Certificate of Designation or (ii)
any provision of the Corporation's Certificate of
Incorporation or any other certificate of designation filed
with the Secretary of State of Delaware by the Corporation
with respect to its preferred stock;
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<PAGE> 18
(ii) amend, waive or repeal any provisions of, or add
any provision to, the Corporation's By-Laws;
(iii) authorize, create, issue or sell any shares of
Equivalent Stock or Superior Stock (other than Series A Stock,
Series C Stock and Series D Stock); except as authorized in
this Certificate of Designation;
(iv) issue any shares of Series B Stock other than
pursuant to the Purchase Agreement or upon transfers of
outstanding shares of Series B Stock;
(v) enter into any agreement, indenture or other
instrument which contains any provisions restricting the
Corporation's obligation to pay dividends on or make
redemptions of the Series B Stock in accordance herewith; or
(vi) dissolve the Corporation.
"Assets" shall mean an interest in any kind of property or assets,
whether real, personal or mixed, or tangible or intangible.
"Equivalent Stock" shall mean any shares of any class or series of
Stock of the Corporation having any preference or priority as to dividends or
Assets on a parity with any such preference or priority of the Series B Stock
and no preference or priority as to dividends or Assets superior to any such
preference or priority of the Series B Stock and any instrument or Security
directly or indirectly convertible into or exercisable or exchangeable for
Equivalent Stock. Without limiting the generality of the foregoing, a dividend
rate, mandatory or optional sinking fund payment amounts or schedules or
optional redemption provisions, the existence of a conversion right or the
existence of a liquidation preference of up to 100% of the original issue price
plus unpaid accrued dividends plus a premium of up to the dividend rate or up to
the percentage of the equity of the Corporation represented by such Stock, with
respect to any class or series of Stock, differing from that of the Series B
Stock, shall not prevent such class of Stock from being Equivalent Stock.
"Securities" shall mean any debt or equity securities of the
Corporation, whether now or hereafter authorized, and any instrument directly or
indirectly convertible into or exercisable or exchangeable for Securities or
Security. The term "Security" shall mean one of the Securities.
"Stock" shall include any and all shares, interests or other
equivalents (however designated) of, or participations in, corporate stock.
"Superior Stock" shall mean any shares of any class or series of Stock
of the Corporation having any preference or priority as to dividends or Assets
superior to any such preference or priority of the Series B Stock and any
instrument or security directly or indirectly convertible into or exercisable or
exchangeable for Superior Stock.
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<PAGE> 19
(d) Notwithstanding anything else contained herein, the
affirmative vote or written consent of the holders of not less than 90%
of the then outstanding shares of Series B Stock shall be necessary to
amend, alter or repeal any of the provisions of the Corporation's
Certificate of Incorporation or the Certificate of Designation creating
this Series B Stock which would alter or change (i) the dividend rate,
(ii) redemption provisions, (iii) anti-dilution provisions, (iv) the
place or currency of payments hereunder, (v) the right to institute
suit for the enforcement of any payment hereunder, (vi) the conversion
provisions, or (vii) provisions of this Section 9, so as to affect any
of the foregoing adversely.
10. Preemptive Rights.
(a) The Corporation shall not issue or sell any shares of
Common Stock, Preferred Stock or other securities directly or
indirectly convertible into or exercisable or exchangeable for shares
of Common Stock, other than any such issuance or sale (i) pursuant to a
Qualifying Offering, (ii) pursuant to a stock option plan approved by
the Board of Directors, (iii) as a form of consideration in connection
with mergers or acquisitions where the Corporation is the surviving
entity or (iv) where the aggregate gross proceeds are less than
$500,000 in any single transaction, provided that the sale price per
share is not less than the then applicable fair market value of such
shares, as determined in good faith by the Corporation's Board of
Directors, and, provided further, that the aggregate gross proceeds of
all such transactions shall not exceed $1,500,000 (the securities
issued in such transactions being referred to as the "Newly Issued
Securities"), unless prior to the issuance or sale of such Newly Issued
Securities each holder of Series B Stock shall have been given the
opportunity (such opportunity being herein referred to as the
"Preemptive Right") to purchase (on the same terms as such Newly Issued
Securities are proposed to be sold) the same proportion of such Newly
Issued Securities being issued or offered for sale by the Corporation
as (x) the number of shares of Common Stock (calculated solely on
account of outstanding shares of Series B Stock on an as converted
basis) held by such holder on the day preceding the date of the
Preemptive Notice (as defined herein), as the case may be, bears to (y)
the total number of shares of Common Stock (calculated on a fully
diluted basis) outstanding on that day.
(b) Prior to the issuance or sale by the Corporation of any
Newly Issued Securities, the Corporation shall give written notice
thereof (the "Preemptive Notice") to each holder of Series B Stock. The
Preemptive Notice shall specify (i) the name and address of the bona
fide investor to whom the Corporation proposes to issue or sell Newly
Issued Securities, (ii) the total amount of capital to be raised by the
Corporation pursuant to the issuance or sale of Newly Issued
Securities, (iii) the number of Securities of such Newly Issued
Securities proposed to be issued or sold, (iv) the price and other
terms of their proposed issuance or sale, (v) the number of such Newly
Issued Securities which such holder is entitled to purchase (determined
as provided in subsection (a) above), and (vi) the period during which
such holder may elect to purchase such Newly Issued Securities, which
period shall extend for at least thirty (30) days following the receipt
by such holder of the Preemptive Notice (the "Preemptive Acceptance
Period").
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<PAGE> 20
Each holder of Series B Stock who desires to purchase Newly Issued
Securities shall notify the Corporation within the Preemptive
Acceptance Period of the number of Newly Issued Securities he wishes to
purchase, as well as the number, if any, of additional Newly Issued
Securities he would be willing to purchase in the event that all of the
Newly Issued Securities subject to the Preemptive Right are not
subscribed for by the other holders of Series B Stock.
(c) In the event a holder of Series B Stock declines to
subscribe for all or any part of its pro rata portion of any Newly
Issued Securities which are subject to the Preemptive Right (the
"Declining Preemptive Purchaser") during the Preemptive Acceptance
Period, then the other holders of Series B Stock shall have the right
to subscribe for all (or any declined part) of the Declining Preemptive
Purchaser's pro rata portion of such Newly Issued Securities (to be
divided among the other holders of Series B Stock desiring to exercise
such right on a ratable basis).
(d) Any such Newly Issued Securities which none of the holders
elect to purchase in accordance with the provisions of this Section 10,
may be sold by the Corporation, within a period of three (3) months
after the expiration of the Preemptive Acceptance Period, to any other
person or persons at not less than the price and upon other terms and
conditions not less favorable to the Corporation than those set forth
in the Preemptive Notice.
(e) The preemptive rights afforded by this Section 10, and any
obligation for the Corporation to offer such shares of Common Stock,
Preferred Stock or other securities convertible into or exchangeable
for shares of Common Stock may be waived by a written instrument signed
by the holders of sixty-six and two-thirds percent (66 2/3 %) of the
Series B Stock.
11. Events of Default. An Event of Default shall mean any of the
following:
(i) Any failure by the Corporation to pay in cash any
dividend, if and when declared by the Board of Directors, on
the payment due dates and in the amounts provided pursuant to
Section 3 hereof, if such failure shall continue for any two
quarterly periods;
(ii) Any failure by the Corporation to satisfy its
redemption obligations pursuant to Section 7 hereof if any
such failure shall continue for a period of five days from the
appropriate redemption date;
(iii) Any failure by the Corporation to comply with
the provisions of Sections 4, 5, 6, 8, 9 or 10 hereof;
(iv) If any representation or warranty made by the
Corporation in the Stock Purchase Agreement dated as of
November 13, 1996 or the exhibits or schedules thereto (the
"Purchase Agreements") is or shall be untrue in any
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<PAGE> 21
material respect at the time it was made, if such
representation or warranty remains untrue after 10 days'
written notice, with such notice delivered by hand or by
first-class, certified or overnight mail, postage prepaid, or
by telecopier, from any holder of Series B Stock, unless
waived in writing by holders of not less than 66 2/3% of the
outstanding shares of Series B Stock;
(v) Any failure by the Corporation to comply with, or
any breach by the Corporation of, any of the covenants,
agreements or obligations of the Corporation contained in the
Purchase Agreements which continues for a period of 10 days
after written notice, with such notice delivered by hand or by
first-class, certified or overnight mail, postage prepaid, or
by telecopier, from any holder of Series B Stock, unless
waived in writing by holders of not less than 66 2/3% of the
outstanding shares of Series B Stock;
(vi) Default by the Corporation in the performance or
observance of any obligation or condition with respect to any
Indebtedness of the Corporation that is not cured or waived
within 90 days or if the effect of such default is to
accelerate the maturity of such Indebtedness or cause such
Indebtedness to be prepaid, purchased or redeemed or to permit
the holder or holders thereof, or any trustee or agent for
such holders, to cause such Indebtedness to become due and
payable prior to its expressed maturity or to cause such
Indebtedness to be prepaid, purchased or redeemed or to
realize upon any collateral or security for such Indebtedness,
unless such default shall have been waived by the appropriate
person. Indebtedness of any corporation shall mean the
principal of (and premium, if any) and unpaid interest on (i)
indebtedness which is for money borrowed from others; (ii)
indebtedness guaranteed, directly or indirectly, in any manner
by such corporation, or in effect guaranteed, directly or
indirectly, by such corporation through an agreement,
contingent or otherwise, to supply funds to or in any manner
invest in the debtor or to purchase indebtedness, or to
purchase assets or services primarily for the purpose of
enabling the debtor to make payment of the indebtedness or of
assuring the owner of the indebtedness against loss; (iii) all
indebtedness secured by any mortgage, lien, pledge, charge or
other encumbrance upon assets owned by such corporation, even
if such corporation has not in any manner become liable for
the payment of such indebtedness; (iv) all indebtedness of
such corporation created or arising under any conditional
sale, lease or other title retention agreement with respect to
assets acquired by such corporation even though the rights and
remedies of the seller, lessor or lender under such agreement
or lease in the event of default are limited to repossession
or sale of such assets and provided that obligations for the
payment of rent under a lease of premises from which the
business of such corporation will be conducted shall not
constitute indebtedness; and (v) renewals, extensions and
refunding of any such indebtedness; or
(vii) If the Corporation shall:
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<PAGE> 22
(a) become insolvent or generally fail to
pay, or admit in writing its inability to pay, its
debts as they become due;
(b) apply for, consent to, or acquiesce in,
the appointment of a trustee, receiver, sequestrator
or other custodian for the Corporation or any
property thereof, or make a general assignment for
the benefit of creditors (any of which shall be
referred to herein as a "Receiver");
(c) in the absence of such application,
consent or acquiescence, permit or suffer to exist
the appointment of a Receiver, and such Receiver
shall not be discharged within 60 calendar days;
(d) commit any act of bankruptcy, permit or
suffer to exist the commencement of any bankruptcy
reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or
any dissolution, winding up or liquidation proceeding
in respect of the Corporation, and, if any such case
or proceeding is not commenced by the Corporation,
such case or proceeding shall be consented to or
acquiesced in by the Corporation, or shall result in
the entry of an order for relief and shall remain for
30 calendar days undismissed; or
(e) take any corporate or other action
authorizing, or in furtherance of, any of the
foregoing.
B. The recitals and resolutions contained herein have not been
modified, altered or amended and are presently in full force and effect.
(The remainder of this page is intentionally left blank.)
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to Certificate of Designations, Preferences and Rights of Series B 7%
Cumulative Convertible Preferred Stock to be executed on its behalf by Robert P.
May, its Chief Executive Officer, this 3rd day of November, 1999, hereby
declaring and certifying that this is the act and deed of the Corporation and
that the facts stated herein are true.
PNV.NET, INC.
By: /s/ Robert P. May
------------------------------------------
Robert P. May, Chief Executive Officer
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<PAGE> 1
EXHIBIT 3.8
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES C 7% CUMULATIVE CONVERTIBLE
PREFERRED STOCK OF PNV.NET, INC.
PNV.net, Inc., a Delaware corporation (the "Corporation"), hereby
certifies that pursuant to the authority contained in Article Seventh of the
Corporation's Certificate of Incorporation, and in accordance with Section 242
of the General Corporation Law of the State of Delaware (the "DGCL"), the
following resolution was duly adopted by the Board of Directors of the
Corporation, amending a series of its Preferred Stock designated as Series C 7%
Cumulative Convertible Preferred Stock:
WHEREAS, the amendment of the designations herein certified has been
duly adopted by the Corporation's Board of Directors and Holders of the Series A
Preferred Stock (the "Series A Stock"), the Holders of the Series B 7%
Cumulative Convertible Preferred Stock (the "Series B Stock"), the Holders of
the Series C 7% Cumulative Convertible Preferred Stock (the "Series C Stock")
and the Holders of the Series D 7% Cumulative Convertible Preferred Stock (the
"Series D Stock"); and
WHEREAS, the Certificate of Incorporation of the Corporation provides
for two classes of shares known as common stock, $.001 par value per share (the
"Common Stock"), and preferred stock, $.01 par value per share ("Preferred
Stock"); and
WHEREAS, the Corporation has created: (i) a series of Preferred Stock
designated as Series A Preferred Stock; (ii) a series of Preferred Stock
designated as Series B 7% Cumulative Convertible Preferred Stock; and (iii) a
series of Preferred Stock designated as Series C 7% Cumulative Convertible
Preferred Stock; and (iii) a series of Preferred Stock designated as Series D 7%
Cumulative Convertible Preferred Stock ; and
WHEREAS, the Board of Directors of the Corporation is authorized by the
Certificate of Incorporation to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in such series and to fix the designations,
preferences and rights of the shares of each such series and the qualifications,
limitations and restrictions thereof.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors deems it
advisable to, and hereby does, designate a Series C 7% Cumulative Convertible
Preferred
<PAGE> 2
Stock and fixes and determines the rights, preferences, qualifications,
limitations and restrictions relating to the Series C 7% Cumulative Convertible
Preferred Stock as follows:
1. Designation. The shares of such series of Preferred Stock shall be
designated "Series C 7% Cumulative Convertible Preferred Stock" (referred to
herein as the "Series C Stock").
2. Authorized Number. The number of shares constituting the Series C
Stock shall be 3,750,000.
3. Dividends. The holders of shares of Series C Stock shall be entitled
to receive, when and as declared by the Board of Directors of the Corporation,
out of assets legally available for such purpose, dividends at the rate of $0.56
(i.e., 7%) (as adjusted for stock splits and other subdivisions and combinations
of Common Stock after the date of the Purchase Agreements ("Recapitalization
Events")) per share per annum, which shall be payable when and if declared by
the Board of Directors or shall accrue quarterly on the last day of January,
April, July and October in each year, commencing on August 31, 1997; provided,
however, that upon an Event of Default (as hereinafter defined) and so long as
it shall continue, such dividend rate shall be $.72 (i.e., 9%) (as adjusted for
Recapitalization Events) per share per annum. Dividends on the Series C Stock
shall be cumulative so that if, for any dividend accrual period, cash dividends
at the rate hereinabove specified are not declared and paid or set aside for
payment, the amount of accrued but unpaid dividends shall accumulate and shall
be added to the dividends payable for subsequent dividend accrual periods and
upon any redemption or conversion of shares of Series C Stock. If any shares of
Series C Stock are issued on a date which does not coincide with a dividend
payment date, then the initial dividend accrual period applicable to such shares
shall be the period from the date of issuance thereof through whichever of
January 31, April 30, July 31, or October 31 next occurs after the date of
issuance. If the date fixed for payment of a final liquidating distribution on
any shares of Series C Stock, or the date on which any shares of Series C Stock
are redeemed or converted into Common Stock does not coincide with a dividend
payment date, then subject to the provisions hereof relating to such payment,
redemption or conversion, the final dividend accrual period applicable to such
shares shall be the period from whichever of February 1, May 1, August 1 or
November 1 most recently precedes the date of such payment, conversion or
redemption through the effective date of such payment, conversion or redemption.
Dividends paid in cash on the shares of Series C Stock (or Series A Stock,
Series B Stock or Series D Stock, which shall rank pari passu with the Series C
Stock) in an amount less than the total amount of such dividends shall be
allocated pro rata so that the total value of dividends paid on the Preferred
Stock shall in all cases bear to each other the same ratio that the total value
of accrued and unpaid dividends on the Series A Stock, the Series B Stock, the
Series C and the Series D Stock bear to each other. Without the written consent
of the holders of at least 66 2/3% of the then outstanding Series C Stock, the
Corporation shall not declare or pay any cash dividend on, or redeem or
repurchase or make any other cash distribution in respect of any other equity
Securities (as defined herein) of the Corporation unless at the time of such
declaration, payment or distribution all
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<PAGE> 3
dividends on the Series C Stock accrued for all past dividend accrual periods
shall have been paid and the full dividends thereon for the current dividend
period shall be paid or declared and set aside for payment. Notwithstanding any
other term or condition of this Section 3 to the contrary, upon the consummation
of a Qualifying Offering (as defined below) and in connection with the
conversion of the Series C Stock pursuant to Section 5 hereof, the Company may
pay any and all accrued but unpaid dividends on the Series C Stock with shares
of Common Stock, each share of which shall, for the purposes of determining the
number of shares of Common Stock issuable in satisfaction of such accrued but
unpaid dividends pursuant to this Section 3, be deemed to have a value equal to
the price at which the Common Stock is sold in such Qualifying Offering.
4. Liquidation.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the
shares of Series C Stock shall be entitled, before any distribution or
payment is made upon any Common Stock or any other class or series of
stock ranking junior to the Series C Stock as to distribution of assets
upon liquidation (other than the Series A Stock, the Series B Stock and
the Series D Stock of the Corporation which shall rank pari passu with
the Series C Stock), to be paid an amount equal to $8.00 per share (as
adjusted for Recapitalization Events) plus all accrued and unpaid
dividends to such date (collectively, the "Liquidation Payments"). If
upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the assets to be distributed among
the holders of Series C Stock shall be insufficient to permit payment
in full to the holders of Series C Stock of the Liquidation Payments,
then the entire assets of the Corporation shall be distributed ratably
among such holders and the holders of any class of preferred stock
ranking on a parity with the Series C Stock in proportion to the full
respective distributive amounts to which they are entitled.
(b) Upon any liquidation, dissolution or winding up of the
Corporation, after the holders of Series C Stock shall have been paid
in full the Liquidation Payments, the remaining assets of the
Corporation may be distributed ratably per share in order of preference
to the holders of Common Stock and any other class or series of stock
ranking junior to the Series C Stock as to distribution of assets upon
liquidation.
(c) Written notice of a liquidation, dissolution or winding
up, stating a payment date, the amount of the Liquidation Payments, the
amounts to be paid to the holders of the Common Stock (both per share
and in the aggregate) upon such a liquidation, dissolution or winding
up, and the place where said Liquidation Payments shall be payable,
shall be given by mail, postage prepaid, not less than 30 days prior to
the payment date stated therein, to each holder of record of Series C
Stock at its post office address as shown by the records of the
Corporation.
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<PAGE> 4
5. Conversion.
The holders of the Series C Stock shall have the following conversion
rights:
(a) Optional Conversion. Each share of Series C Stock shall be
convertible at any time, at the option of the holder of record thereof,
into fully paid and nonassessable shares of Common Stock at the
"conversion rate" (as defined in paragraph (c) below) then in effect
upon surrender to the Corporation or its transfer agent of the
certificate or certificates representing the Series C Stock to be
converted, as provided below, or if the holder notifies the Corporation
or its transfer agent that such certificate or certificates have been
lost, stolen or destroyed, upon the execution and delivery of an
agreement satisfactory to the Corporation to indemnify the Corporation
from any losses incurred by it in connection therewith.
(b) Conversion on Qualifying Offering. Upon the consummation
of a Qualifying Offering (as defined below), upon not less than ten
(10) days prior written notice by the Corporation of the anticipated
consummation of such offering, each share of Series C Stock shall be
converted into fully paid and nonassessable shares of Common Stock at
the conversion rate then in effect. At all times on or prior to March
31, 2000, a "Qualifying Offering" means (i) the Corporation shall have
consummated a firm commitment underwritten public offering of its
Common Stock by a nationally recognized investment banking firm
pursuant to an effective registration under the Securities Act of 1933,
as amended, covering the offering and sale of Common Stock which
results in gross proceeds of at least $20,000,000, (ii) the Common
Stock is quoted or listed by either The Nasdaq Stock Market (National
Market) ("Nasdaq"), the New York Stock Exchange or the American Stock
Exchange, and (iii) all outstanding shares of the Series B Stock and
the Series D Stock shall have been converted into shares of common
stock of the Company in accordance with the Certificate of Designation
relating to the Series B Stock and the Series D Stock and all
outstanding shares of the Series A Stock shall have been redeemed in
accordance with the Certificate of Designation relating to the Series A
Stock. From and after April 1, 2000, a "Qualifying Offering" means (i)
the Corporation shall have consummated a firm commitment underwritten
public offering of its Common Stock by a nationally recognized
investment banking firm pursuant to an effective registration under the
Securities Act of 1933, as amended, covering the offering and sale of
Common Stock which results in gross proceeds of at least $20,000,000,
(ii) the Common Stock is quoted or listed by either Nasdaq, the New
York Stock Exchange or the American Stock Exchange, (iii) the price at
which the Common Stock is sold in such offering is at least equal to an
amount which (x) is 200% of the then effective conversion price or (y)
would represent, on an as converted basis, a compound annual rate of
return of 35% based upon the original issuance price of the Series C
Stock, and (iv) all outstanding shares of the Series B Stock and the
Series D Stock shall have been converted into shares of common stock of
the Company in accordance with the Certificate of Designation relating
to the Series B Stock and the Series D Stock and all
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<PAGE> 5
outstanding shares of the Series A Stock shall have been redeemed in
accordance with the Certificate of Designation relating to the Series A
Stock. Upon the achievement of (i), (ii), (iii) and (iv) above and the
giving of the mandatory conversion notice by the Corporation, the
outstanding shares of Series C Stock to be converted shall be converted
automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent.
(c) Basis For Conversion; Converted Shares. The basis for any
conversion under this Section 5 shall be the "conversion rate" in
effect at the time of conversion, which for the purposes hereof shall
mean the number of shares of Common Stock issuable for each share of
Series C Stock surrendered for conversion under this Section 5.
Initially, the conversion rate shall be 1.0, i.e., 1.0 share of Common
Stock for each share of Series C Stock being converted. Such conversion
rate shall be subject to adjustment as provided in Section 6 below. As
used herein, the term "conversion price" shall be an amount computed by
dividing $8.00 by the conversion rate then in effect. Initially, the
conversion price shall be $8.00 per share of Common Stock. If any
fractional interest in a share of Common Stock would be deliverable
upon conversion of Series C Stock (taking into account all shares of
Series C Stock being converted by each holder), the Corporation shall
pay in lieu of such fractional share an amount in cash equal to the
conversion price of such fractional share (computed to the nearest one
hundredth of a share) in effect at the close of business on the date of
conversion. Any shares of Series C Stock which have been converted
shall be canceled and all dividends on converted shares shall cease to
accrue and the certificates representing shares of Series C Stock so
converted shall represent the right to receive (i) such number of
shares of Common Stock into which such shares of Series C Stock are
convertible, plus (ii) cash payable for any fractional share plus (iii)
all accrued but unpaid dividends relating to such shares through the
immediately preceding dividend payment date. Upon the conversion of
shares of Series C Stock as provided in this Section 5, the Corporation
shall promptly pay all then accrued but unpaid dividends to the holder
of the Series C Stock being converted. The Board of Directors of the
Corporation shall at all times reserve a sufficient number of
authorized but unissued shares of Common Stock to be issued in
satisfaction of the conversion rights and privileges aforesaid.
(d) Mechanics of Conversion. In the case of an optional
conversion, before any holder of Series C Stock shall be entitled to
convert the same into shares of Common Stock, it shall surrender the
certificate or certificates therefor, duly endorsed, at the office of
the Corporation or its transfer agent for the Series C Stock, and shall
give written notice to the Corporation of the election to convert the
same and shall state therein the name or names in which the certificate
of certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver
at such office to such holder of Series C Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number
of
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<PAGE> 6
shares of Common Stock to which such holder shall be entitled as
aforesaid. A certificate or certificates will be issued for the
remaining shares of Series C Stock in any case in which fewer than all
of the shares of Series C Stock represented by a certificate are
converted.
(e) Issue Taxes. The Corporation shall pay all issue taxes, if
any, incurred in respect of the issue of shares of Common Stock on
conversion. If a holder of shares surrendered for conversion specifies
that the shares of Common Stock to be issued on conversion are to be
issued in a name or names other than the name or names in which such
surrendered shares stand, the Corporation shall not be required to pay
any transfer or other taxes incurred by reason of the issuance of such
shares of Common Stock to the name of another, and if the appropriate
transfer taxes shall not have been paid to the Corporation or the
transfer agent for the Series C Stock at the time of surrender of the
shares involved, the shares of Common Stock issued upon conversion
thereof may be registered in the name or names in which the surrendered
shares were registered, despite the instructions to the contrary.
6. Adjustment of Conversion Price and Conversion Rate. The number and
kind of securities issuable upon the conversion of the Series C Stock, the
conversion price and the conversion rate shall be subject to adjustment from
time to time in accordance with the following provisions:
(a) Certain Definitions. For purposes of this Certificate:
(i) The term "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (including the
sale and issuance of any shares of Common Stock at any time
directly or indirectly owned or held by or for the account of
the Corporation), or deemed to be issued by the Corporation
pursuant to paragraph (g) of this Section 6, after the
Original Issue Date except:
(A) shares of Common Stock issuable upon
conversion of, or distributions with respect to, the
Series B Stock, the Series C Stock or the Series D
Stock now or hereafter issued by the Corporation;
(B) up to 2,184,166 shares of Common Stock
(as reduced by previously exercised options to
purchase 10,432 shares of Common Stock) issuable upon
the exercise of options issued to officers,
directors, employees, and consultants of the
Corporation under stock option plans maintained from
time to time by the Corporation and approved by the
Board of Directors, subject to adjustment for all
subdivisions and combinations;
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(C) up to 186,750 shares of Common Stock
issuable upon the exercise of the Warrant held by
Alex. Brown & Sons Incorporated;
(D) up to 505,375 shares of Common Stock
issuable upon the exercise of warrants to be granted
to lenders in connection with loans to the
Corporation or to guarantors or purchasers of such
loans;
(E) up to 75,000 shares of Common Stock
issuable upon the exercise of the Warrant held by
Volpe Brown Whelan & Company, LLC;
(F) up to 12,000 shares of Common Stock
issuable upon the exercise of warrants to be issued
to customers in connection with contracts between the
Corporation and such customers; and
(G) shares of Common Stock issued with
respect to adjustments of the conversion price
hereunder.
(ii) The term "Common Stock" shall be deemed to mean
(i) the Common Stock, $.001 par value, and (ii) the stock of
the Corporation of any class, or series within a class,
whether now or hereafter authorized, which has the right to
participate in the distribution of either earnings or assets
of the Corporation without limit as to the amount or
percentage.
(iii) The term "Convertible Securities" shall mean
any evidence of indebtedness, shares (other than Series B
Stock, Series C Stock and Series D Stock issued prior to the
Original Issue Date (as defined below)) or other securities
directly or indirectly convertible into or exercisable or
exchangeable for Common Stock.
(iv) The term "Options" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire
directly or indirectly Common Stock or Convertible Securities.
(v) The term "Original Issue Date" shall mean the
date of the initial issuance of the Series C Stock.
(vi) The term "Fair Market Price" shall mean with
respect to a share of Common Stock (i) prior to the first
anniversary of the Original Issue Date, the conversion price
in effect on the Original Issue Date, and (ii) subsequent to
the first anniversary of the Original Issue Date, the average
closing bid price of the Common Stock as reported by Nasdaq
(or the last sale price if the Common Stock is traded on an
exchange) for a period of thirty (30) consecutive trading days
ending on the third day prior to the date of determination,
or, if the
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<PAGE> 8
Common Stock is not listed on Nasdaq or an exchange, the fair
market value as determined by the vote of 66 2/3% of the
Corporation's Board of Directors or if the Board of Directors
cannot reach such agreement, as determined by a qualified
independent investment banker appointed by the vote of 66 2/3%
of the Corporation's Board of Directors.
(b) Reorganization, Reclassification. In the event of a
reorganization, share exchange, or reclassification, other than a
change in par value, or from par value to no par value, or from no par
value to par value or a transaction described in subsection (c) or (d)
below, each share of Series C Stock shall, after such reorganization,
share exchange or reclassification (a "Reclassification Event"), be
convertible at the option of the holder into the kind and number of
shares of stock or other securities or other property of the
Corporation which the holder of Series C Stock would have been entitled
to receive if the holder had held the Common Stock issuable upon
conversion of his Series C Stock immediately prior to such
reorganization, share exchange, or reclassification (subject to
adjustment as provided in this Section 6).
(c) Consolidation, Merger. In the event of a merger or
consolidation to which the Corporation is a party each share of Series
C Stock shall, after such merger or consolidation, be convertible at
the option of the holder into the kind and number of shares of stock
and/or other securities, cash or other property which the holder of
such share of Series C Stock would have been entitled to receive if the
holder had held the Common Stock issuable upon conversion of such share
of Series C Stock immediately prior to such consolidation or merger
(subject to adjustment as provided in this Section 6).
(d) Subdivision or Combination of Shares. In case outstanding
shares of Common Stock shall be subdivided, the conversion price shall
be proportionately reduced as of the effective date of such
subdivision, or as of the date a record is taken of the holders of
Common Stock for the purpose of so subdividing, whichever is earlier.
In case outstanding shares of Common Stock shall be combined, the
conversion price shall be proportionately increased as of the effective
date of such combination, or as of the date a record is taken of the
holders of Common Stock for the purpose of so combining, whichever is
earlier.
(e) Stock Dividends. In case shares of Common Stock are issued
as a dividend or other distribution on the Common Stock (or such
dividend is declared), then the conversion price shall be adjusted, as
of the date a record is taken of the holders of Common Stock for the
purpose of receiving such dividend or other distribution (or if no such
record is taken, as at the earliest of the date of such declaration,
payment or other distribution), to that price determined by multiplying
the conversion price in effect immediately prior to such declaration,
payment or other distribution by a fraction (i) the numerator of which
shall be the number of shares of
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<PAGE> 9
Common Stock outstanding immediately prior to the declaration of such
dividend or other distribution, and (ii) the denominator of which shall
be the total number of shares of Common Stock outstanding as of the
time of the declaration and giving effect to such dividend or other
distribution as if paid. In the event that the Corporation shall
declare or pay any dividend on the Common Stock payable in any right to
acquire Common Stock for no consideration, then the Corporation shall
be deemed to have made a dividend payable in Common Stock in an amount
of shares equal to the maximum number of shares issuable upon exercise
of such rights to acquire Common Stock.
(f) Issuance of Additional Shares of Common Stock. If the
Corporation shall issue any Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued
pursuant to paragraph (g) below) after the Original Issue Date (other
than as provided in the foregoing subsections (b) through (e)), for no
consideration or for a consideration per share less than the greater of
(i) the Fair Market Price in effect on the date of and immediately
prior to such issue or (ii) the conversion price in effect on the date
of and immediately prior to such issue, then in such event, the
conversion price shall be reduced (but not increased) as follows:
(i) For issuances of Additional Shares of Common
Stock on or before 9 months after the Original Issue Date, if
the issuance or sales price of the Additional Shares of Common
Stock is below $8.00, the conversion price shall be reduced
(but not increased) so as to equal such issuance or sales
price.
(ii) For issuances of Additional Shares of Common
Stock at any time after 9 months after the Original Issue
Date, the conversion price shall be reduced (but not
increased) concurrently with any such issuance to a price
equal to the quotient obtained by dividing:
(A) an amount equal to (x) the total number
of shares of Common Stock outstanding immediately
prior to such issuance or sale multiplied by the
conversion price in effect immediately prior to such
issuance or sale, plus (y) the aggregate
consideration received or deemed to be received by
the Corporation upon such issuance or sale, by
(B) the total number of shares of Common
Stock outstanding immediately after such issuance or
sale.
For purposes of the formulas expressed in paragraph 6(e) and
6(f), all shares of Common Stock issuable upon the exercise of
outstanding Options or issuable upon the conversion of the
Series B Stock, the Series C Stock or the Series D Stock or
outstanding Convertible Securities (including Convertible
Securities issued upon the exercise of outstanding Options),
shall be deemed outstanding
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shares of Common Stock both immediately before and after such
issuance or sale.
(g) Deemed Issue of Additional Shares of Common Stock. In the
event the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities
or shall fix a record date for the determination of holders of any
class of securities then entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth
in the instrument relating thereto without regard to any provisions
contained therein designed to protect against dilution) of Common Stock
issuable upon the exercise of such Options, or, in the case of
Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue of Options or
Convertible Securities or, in case such a record date shall have been
fixed, as of the close of business on such record date, provided that
in any such case in which Additional Shares of Common Stock are deemed
to be issued:
(i) except as provided in Section 6(g)(ii) below, no
further adjustments in the conversion price shall be made upon
the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or the issue of
Common Stock upon the conversion or exchange of such
Convertible Securities, in accordance with their terms;
(ii) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise (or
the terms of such Options or Convertible Securities are
amended or modified to provide), for any increase or decrease
in the consideration payable to the Corporation, or increase
or decrease in the number of shares of Common Stock issuable,
upon the exercise, conversion or exchange thereof, the
conversion price computed upon the original issuance of such
Options or Convertible Securities (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, upon any such increase or decrease
becoming effective, shall be recomputed to reflect such
increase or decrease insofar as it affects such Options or the
rights of conversion or exchange under such Convertible
Securities (provided, however, that no such adjustment of the
conversion price shall affect Common Stock previously issued
upon conversion of the Series C Stock);
(iii) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the conversion
price computed upon the original issue of such Options or
Convertible Securities (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments
based thereon, shall, upon such expiration, be recomputed as
if:
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(A) in the case of Options or Convertible
Securities, the only Additional Shares of Common
Stock issued were the shares of Common Stock, if any,
actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible
Securities and the consideration received therefor
was the consideration actually received by the
Corporation (x) for the issue of all such Options,
whether or not exercised, plus the consideration
actually received by the Corporation upon exercise of
the Options or (y) for the issue of all such
Convertible Securities which were actually converted
or exchanged plus the additional consideration, if
any, actually received by the Corporation upon the
conversion or exchange of the Convertible Securities;
and
(B) in the case of Options for Convertible
Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued
at the time of issue of such Options, and the
consideration received by the Corporation for the
Additional Shares of Common Stock deemed to have been
then issued was the consideration actually received
by the Corporation for the issue of all such Options,
whether or not exercised, plus the consideration
deemed to have been received by the Corporation upon
the issue of the Convertible Securities with respect
to which such Options were actually exercised.
(iv) No readjustment pursuant to clause (ii) or (iii)
above shall have the effect of increasing the conversion price
to an amount which exceeds the lower of (x) the conversion
price on the original adjustment date or (y) the conversion
price that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date
and such readjustment date.
(v) In the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof,
no adjustment of the conversion price shall be made until the
expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause
(iii) above.
(h) Determination of Consideration. For purposes of this
Section 6, the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall be computed as follows:
(i) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be the
aggregate amount of cash received by the Corporation;
and
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(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at
the time of the issue, as determined by the vote of
66 2/3% of the Corporation's Board of Directors or if
the Board of Directors cannot reach such agreement,
by a qualified independent public accounting firm,
other than the accounting firm then engaged as the
Corporation's independent auditors, agreed upon by
the Corporation on the one hand and the holders of 66
2/3% of the outstanding shares of Series C Stock on
the other hand.
(ii) Options and Convertible Securities. The
consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been issued
pursuant to paragraph (g) above, relating to Options and
Convertible Securities shall be determined by dividing:
(A) the total amount, if any, received or
receivable by the Corporation as consideration for
the issue of such Options or Convertible Securities,
plus the minimum aggregate amount of additional
consideration (as set forth in the instruments
relating thereto, without regard to any provision
contained therein designed to protect against
dilution) payable to the Corporation upon the
exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible
Securities by
(B) the maximum number of shares of Common
Stock (as set forth in the instruments relating
thereto, without regard to any provision contained
therein designed to protect against dilution)
issuable upon the exercise of such Options or
conversion or exchange of such Convertible
Securities.
(i) Adjustments Based Upon EBITDA for Fiscal Year Ending June
30, 2000.
(i) If the Corporation reports earnings before
interest, taxes, depreciation, and amortization, as determined
in accordance with generally accepted accounting principles
("EBITDA") for the fiscal year ending June 30, 2000 (the
"Period"), of greater than or equal to Twenty-seven Million
Six Hundred Fourteen Thousand and Five Hundred Dollars
($27,614,500), then the conversion price of the Series C Stock
will not be adjusted (except as otherwise provided in this
Certificate of Designations).
(ii) If the Corporation reports EBITDA for the Period
of less than or equal to Sixteen Million Five Hundred Sixty
Eight Thousand and Seven Hundred Dollars ($16,568,700), then
the conversion price of the Series
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C Stock will be reduced to equal Five Dollars ($5.00);
provided, however, that if, prior to the end of the Period,
the conversion price of the Series C Stock has been reduced as
otherwise provided in this Certificate of Designations to less
than Five Dollars ($5.00), the conversion price of the Series
C Stock will not be adjusted pursuant to this Section
6(i)(ii).
(iii) If the Corporation reports EBITDA for the
Period of less than Twenty Seven Million Six Hundred Fourteen
Thousand and Five Hundred Dollars ($27,614,500), but more than
Sixteen Million Five Hundred Sixty Eight Thousand and Seven
Hundred Dollars ($16,568,700), then the conversion price of
the Series C Stock will be reduced to equal: (i) the
then-current conversion price, less (ii) the product of (A) a
fraction, the numerator of which will be Twenty Seven Million
Six Hundred Fourteen Thousand and Five Hundred Dollars
($27,614,500), minus the EBITDA reported by the Corporation
for the Period, and the denominator of which will be Twenty
Seven Million Six Hundred Fourteen Thousand and Five Hundred
Dollars ($27,614,500), minus Sixteen Million Five Hundred
Sixty Eight Thousand and Seven Hundred Dollars ($16,568,700),
multiplied by (B) the then-current conversion price minus Five
Dollars ($5.00); provided, however, that if, prior to the end
of the Period, the conversion price of the Series C Stock has
been reduced as otherwise provided in this Certificate of
Designations to less than Five Dollars ($5.00), the conversion
price of the Series C Stock will not be adjusted pursuant to
this Section 6(i)(iii).
(iv) Notwithstanding the foregoing provisions of this
Section 6(i), if, on or before December 31, 2000, the
Corporation sells all or substantially all of its assets,
merges or consolidates with any other business entity where
the Corporation is not the surviving corporation, or completes
a public offering of the Corporation's Common Stock pursuant
to an effective registration under the Securities Act of 1933,
as amended, then: (A) the provisions described in subsections
(i), (ii) and (iii) of this Section 6(i) (and the adjustments
described therein) will terminate immediately and the
conversion price of the Series C Stock will be immediately
adjusted as if subsections (i), (ii) and (iii) of this Section
6(i) (and the adjustments described therein) were of no force
or effect, and (B) with respect to (x) on or before March 31,
2000, a public offering of the Corporation's Common Stock
pursuant to an effective registration statement under the
Securities Act of 1933, as amended, with an offering price to
the public of less than $13.00 (subject to adjustment for
stock splits, stock dividends and other similar transactions),
and (y) on or after April 1, 2000, a public offering of the
Corporation's Common Stock pursuant to an effective
registration under the Securities Act of 1933, as amended, if
necessary to cause the holders of the Series C Stock to obtain
an internal rate of return ("IRR") (as defined below) equal to
thirty-five one hundredths (35/100), calculated as if each
such holder purchased such shares of Series C Stock at the
purchase price
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per share paid by such holder on the date such holder
purchased such shares, the then-current conversion price will
be reduced concurrently with any such transaction to an amount
that results in the holders of the Series C Stock obtaining
such an IRR in connection with the purchase of the Series C
Stock. For the purposes of this Section 6(i)(iv), "IRR" will
equal the number that satisfies the following expression:
0 1 2 2 T T
0 = C + (C /1+IRR) + (C /(1+IRR) ) + ... + (C /(1+IRR) )
where:
C = cash flows, including the purchase of shares of
Series C Stock and all dividends and other distributions paid
by the Corporation; provided, however, that for the purposes
of calculating IRR pursuant to the foregoing expression, the
fair market value of any consideration held or received by the
holders of the Series C Stock, including, without limitation,
shares of Series C Stock, in connection with or at the time of
any transaction(s) that results in adjustment pursuant to this
Section 6(i)(iv), shall be deemed to constitute a cash flow
and shall be treated as if paid on the date of such
transaction; and
T = the number of years (which may be expressed as a
fraction to the nearest one-twelfth based upon completed
calendar months) since the purchase of shares of Series C
Stock.
(v) The Corporation shall prepare (or shall cause its
accountants to prepare) its financial statement and calculate
EBITDA for the Period on or before September 30, 2000.
(vi) The provisions of this Section 6(i) shall be
adjusted to reflect any prior or concurrent adjustment of the
conversion price and the conversion rate pursuant to any other
provision of Section 6.
(j) Adjustment of Conversion Rate. Upon each adjustment of the
conversion price under the provisions of this Section 6, the conversion
rate shall be adjusted to an amount determined by dividing (x) the
conversion price in effect on the Original Issue Date, by (y) the
adjusted conversion price.
(k) Other Provisions Applicable to Adjustment Under this
Section. The following provisions will be applicable to the adjustments
in conversion price and conversion rate as provided in this Section 6:
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(i) Treasury Shares. The number of shares of Common
Stock at any time outstanding shall not include any shares
thereof then directly or indirectly owned or held by or for
the account of the Corporation.
(ii) Other Action Affecting Common Stock. In case the
Corporation shall take any action affecting the outstanding
number of shares of Common Stock other than an action
described in any of the foregoing subsections 6(b) to 6(g)
hereof, inclusive, which would have an inequitable effect on
the holders of Series C Stock, the conversion price shall be
adjusted in such manner and at such time as the Board of
Directors of the Corporation on the advice of the
Corporation's independent public accountants may in good faith
determine to be equitable in the circumstances.
(iii) Minimum Adjustment. No adjustment of the
conversion price shall be made if the amount of any such
adjustment would be an amount less than one percent (1%) of
the conversion price then in effect, but any such amount shall
be carried forward and an adjustment with respect thereof
shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate an
increase or decrease of one percent (1%) or more.
(iv) Certain Adjustments. The conversion price shall
not be adjusted upward except in the event of a combination of
the outstanding shares of Common Stock into a smaller number
of shares of Common Stock or in the event of a readjustment of
the conversion price pursuant to Section 6(g)(ii) or (iii).
(l) Notices of Adjustments. Whenever the conversion rate and
conversion price is adjusted as herein provided, an officer of the
Corporation shall compute the adjusted conversion rate and conversion
price in accordance with the foregoing provisions and shall prepare a
written certificate setting forth such adjusted conversion rate and
conversion price and showing in detail the facts upon which such
adjustment is based, and such written instrument shall promptly be
delivered to the recordholders of the Series C Stock.
7. Redemption.
(a) Mandatory Redemption. On the date six (6) months
immediately after the payment in full and satisfaction of all of the
obligations of the Corporation to the lenders who provide financing to
the Corporation in the aggregate principal amount of Seventy-five
Million Dollars ($75,000,000.00) (referred to herein as the "Mandatory
Redemption Date") the Corporation shall redeem all the shares of Series
C Stock originally issued hereunder (or such lesser amount as shall
then be outstanding) at the "Redemption Price" per share defined in
paragraph (c) below, payable in each case in
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<PAGE> 16
cash on the Mandatory Redemption Date. The Corporation shall deliver
written notice of the pending redemption to the holders of the Series C
Stock at least thirty (30) but no more than sixty (60) days prior to
the Mandatory Redemption Date.
(b) Redemption on Change of Control. Upon a "Change of
Control" of the Corporation, each holder of the then outstanding shares
of Series C Stock may elect to have the Corporation redeem all (but not
less than all) outstanding shares of Series C Stock owned by such
holder at the "Redemption Price" per share defined in paragraph (c)
below, payable in cash on any date within 100 days of the effective
date of the Change of Control (such date being herein referred to as
the "Change of Control Redemption Date"). The election shall be made by
delivering written notice to the Corporation at least thirty (30) but
no more than sixty (60) days prior to the Change of Control Redemption
Date. The Corporation will then be required to redeem all the shares of
Series C Stock owned by such holder on the Change of Control Redemption
Date. For purposes of this Section 7, "Change of Control" means any one
or more of the following events:
(i) The Corporation shall consolidate with or merge
into any other person or any person shall consolidate with or
merge into the Corporation (other than a consolidation or
merger of the Corporation and a wholly-owned subsidiary of the
Corporation in which all shares of the Corporation's Common
Stock outstanding immediately prior to the effectiveness
thereof are changed into or exchanged for the same
consideration), in either event pursuant to a transaction in
which any of the Corporation's common stock outstanding
immediately prior to the effectiveness thereof is changed into
or exchanged for cash, securities or other property; or
(ii) the Corporation shall directly or indirectly
convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all of its assets to any
person or "group" (within the meaning of Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934 (the "1934
Act"), (other than to a wholly-owned subsidiary of the
Corporation); or
(iii) there shall be a reorganization, share
exchange, or reclassification, other than a change in par
value, or from par value to no par value, or from no par value
to par value; or
(iv) any person (other than the Corporation, any
subsidiary of the Corporation or an Existing Investor (as
defined in the Purchase Agreement (as hereinafter defined))),
including a "group" (within the meaning of Section 13(d) and
14(D)(2) of the 1934 Act) that includes such person, shall
purchase or otherwise acquire, directly or indirectly,
beneficial ownership of securities of the Corporation and, as
a result of such purchase or acquisition, such person
(together with its associates and affiliates) shall directly
or indirectly
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<PAGE> 17
beneficially own in the aggregate (1) more than 50% of the
Common Stock, or (2) securities representing more than 50% of
the combined voting power of the Corporation's voting
securities, in each case under subclause (1) or (2),
outstanding on the date immediately prior to the date of such
purchase or acquisition (or, if there be more than one, the
last such purchase or acquisition).
(c) The Redemption Price per share of Series C Stock shall
equal the sum of (x) $8.00 (as adjusted for Recapitalization Events)
plus (y) all accrued and unpaid dividends on such share of Series C
Stock to the Mandatory Redemption Date or Change of Control Redemption
Date, as the case may be.
(d) The term "Redemption Date" as used in this paragraph (d)
shall refer to whichever of the Mandatory Redemption Date or the Change
of Control Redemption Date is applicable in a particular circumstance.
On or prior to the Redemption Date, the Corporation shall deposit the
Redemption Price of all outstanding shares of Series C Stock to be
redeemed with a bank or trust corporation having aggregate capital and
surplus in excess of $100,000,000 as a trust fund for the benefit of
the holders of the shares of Series C Stock, with irrevocable
instructions and authority to the bank or trust corporation to pay the
Redemption Price for such shares to their respective holders on or
after the Redemption Date upon receipt of the certificate or
certificates of the shares of Series C Stock to be redeemed. From and
after the Redemption Date, unless there shall have been a default in
payment of the Redemption Price, all rights of the holders of shares of
Series C Stock to be redeemed as holders of Series C Stock (except the
right to receive the Redemption Price upon surrender of their
certificate or certificates) shall cease as to those shares of Series C
Stock redeemed, and such shares shall not thereafter be transferred on
the books of the Corporation or be deemed to be outstanding for any
purpose whatsoever. If on the Redemption Date the funds of the
Corporation legally available for redemption of shares of Series C
Stock (or Series A Stock, Series B Stock and Series D Stock which shall
rank pari passu with the Series C Stock) are insufficient to redeem the
total number of shares of Preferred Stock to be redeemed on such date,
the Corporation will use those funds which are legally available
therefor to redeem the maximum possible number of shares of Preferred
Stock ratably among the holders of such shares to be redeemed based
upon the total amount payable by the Corporation pursuant to the
redemption of the Series D Stock, Series C Stock, Series B Stock and
Series A Stock if the Corporation had sufficient funds legally
available therefor. Payments shall first be applied against accrued and
unpaid dividends and thereafter against the remainder of the Redemption
Price. The shares of Series C Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided
herein. At any time thereafter when additional funds of the Corporation
are legally available for the redemption of shares of Series C Stock
such funds will immediately be used to redeem the balance of the shares
of Series C Stock to be redeemed. No dividends or other distributions
shall be declared or paid on, nor shall the Corporation redeem,
purchase or acquire any shares of, the Common
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<PAGE> 18
Stock or any other class or series of stock of the Corporation unless
the Redemption Price of all shares elected to be redeemed shall have
been paid in full. Until the Redemption Price for a share of Series C
Stock elected to be redeemed shall have been paid in full, such share
of Series C Stock shall remain outstanding for all purposes and entitle
the holder thereof to all the rights and privileges provided herein,
including, without limitation, that dividends and interest thereon
shall continue to accrue and, if unpaid prior to the date such shares
are redeemed, shall be included as part of the Redemption Price as
provided in paragraph (c) above. Notwithstanding anything in this
Section 7 to the contrary, even if a notice of redemption was delivered
under paragraph (a) or (b) of this Section 7, all shares of Series C
Stock shall be convertible pursuant to Section 5 at all times prior to
the Redemption Date.
(e) Notwithstanding any other term of this Certificate of
Designation, the Corporation shall not redeem (or have any obligation
to redeem) any shares of Series C Stock under any circumstances,
whether upon a Change of Control or otherwise, prior to the payment in
full and satisfaction of all of the obligations of the Corporation to
the lenders who provide financing to the Corporation in the aggregate
principal amount of $75,000,000.00. If the Corporation shall not have
paid in full or satisfied all of its obligations to such lenders on or
before any Redemption Date, upon such payment and satisfaction the
Corporation will immediately use any funds legally available therefor
to redeem the shares of Series C Stock to be redeemed.
8. Notices of Record Dates and Effective Dates. In case: (a) the
Corporation shall declare a dividend (or any other distribution) on the Common
Stock payable otherwise than in shares of Common Stock; or (b) the Corporation
shall authorize the granting to the holders of Common Stock of rights to
subscribe for or purchase any shares of capital stock of any class or any other
rights; or (c) of any reorganization, share exchange or reclassification of the
capital stock of the Corporation (other than a subdivision or combination of
outstanding shares of Common Stock), or of any consolidation or merger to which
the Corporation is party or of the sale, lease or exchange of all or
substantially all of the property of the Corporation; or (d) of the voluntary or
involuntary dissolution, liquidation or winding up of the Corporation; or (e) of
a Change of Control, then the Corporation shall cause to be mailed to the
recordholders of the Series C Stock at least 20 days prior to the applicable
record date or effective date hereinafter specified, a notice stating (i) the
date on which a record is to be taken for the purpose of such dividend,
distribution or rights, or, if a record is not to be taken, the date as of which
the holders of record of Common Stock to be entitled to such dividend,
distribution or rights are to be determined or (ii) the date on which such
reclassification, reorganization, share exchange, consolidation, merger, sale,
lease, exchange, dissolution, liquidation, winding up or Change of Control is
expected to become effective, and the date as of which it is expected that
holders of record of Common Stock shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, reorganization share exchange, consolidation, liquidation,
merger, sale, lease, exchange, dissolution, liquidation, winding up or Change of
Control.
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<PAGE> 19
9. Voting Rights.
(a) Holders of Series C Stock shall be entitled to notice of
any stockholder's meeting. Except as otherwise required by law or
provided herein, at any annual or special meeting of the Corporation's
stockholders, or in connection with any written consent in lieu of any
such meeting, each outstanding share of Series C Stock shall be
entitled to the number of votes equal to the number of full shares of
Common Stock into which such share of Series C Stock is then
convertible. Except as otherwise required by law or provided herein,
the Series B Stock, the Series C Stock, the Series D Stock and the
Common Stock shall vote together on each matter submitted to
stockholders, and not by class or series.
(b) Prior to the consummation of a Qualifying Offering by the
Corporation of its Common Stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended, the holders of
the Series C Stock, voting together as a class, shall be entitled to
elect one (1) director to the Corporation's Board of Directors.
Subsequent to such Qualifying Offering, the holders of a majority of
the Common Stock issuable upon conversion of the Series C Stock shall
be entitled to nominate one (1) director for election to the
Corporation's Board of Directors which the Corporation shall nominate
to management's slate for election; provided, however, that the right
provided for in this last sentence of subsection 9(b) shall be
effective only for so long as at least 66 2/3% of the shares of Common
Stock issuable upon conversion of the Series C Stock are held of record
by the original Purchasers (as defined in the Purchase Agreement) of
the Series C Stock.
Notwithstanding the foregoing, upon an Event of Default and so
long as it shall continue, the holders of the Series B Stock, the
Series C Stock and the Series D Stock, voting together as a class,
shall be entitled at any annual meeting of the stockholders or special
meeting held in place thereof, or at a special meeting of the holders
of the Series B Stock, the Series C Stock and the Series D Stock called
as hereinafter provided, to elect a majority of the Board of Directors
and such right to elect a majority of the Board of Directors shall be
in lieu of the right of the holders of the Series B Stock and the
Series C Stock (and, as may be provided pursuant to the terms of the
Certificate of Designations, Preferences and Rights of the Series D
Stock, the Series D Stock) to each elect one director. Such right of
the holders of the Series B Stock, the Series C Stock and the Series D
Stock to elect a majority of the Board of Directors may be exercised
until an Event of Default shall be cured, if curable, or waived, and
when so cured or waived, the right of the holders of Series B Stock,
the Series C Stock and the Series D Stock to elect a majority of the
Board of Directors shall cease and the right of the holders of the
Series B Stock and the Series C Stock
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<PAGE> 20
(and, as may be provided pursuant to the terms of the Certificate of
Designations, Preferences and Rights of the Series D Stock, the Series
D Stock) to each elect one director shall resume, but subject always to
the same provisions for the vesting of such special voting rights in
the case of any such future Event of Default. At any time when such
special voting rights shall have so vested in the holders of the Series
B Stock, the Series C Stock and the Series D Stock, the Secretary of
the Corporation may, and upon the written request of the holders of 10%
or more of the number of shares of the Series B Stock, the Series C
Stock and the Series D Stock then outstanding addressed to him at the
principal office of the Corporation, shall, call a special meeting of
the holders of the Series B Stock, the Series C Stock and the Series D
Stock for the election of a majority of the Board of Directors to be
elected by them as provided herein, to be held in the case of such
written request as soon as practicable after delivery of such request,
and in either case to be held at the place and upon the notice provided
by law and in the by-laws for the holding of meetings of stockholders.
If at any such annual or special meeting or adjournment thereof the
holders of at least a majority of the Series B Stock, the Series C
Stock and the Series D Stock then outstanding shall be present or
represented at such meeting, the then authorized number of directors of
the Corporation shall be increased to the extent necessary to provide a
majority of new directors to be elected and the holders of the Series B
Stock, the Series C Stock and the Series D Stock shall be entitled to
elect the additional directors so provided for. The directors so
elected shall serve until the next annual meeting or until their
successors shall be elected and qualified, provided, however, that
whenever the holders of the Preferred Stock shall be divested of the
special rights to elect a majority of the Board of Directors as above
provided, the term of office of the persons so elected as directors by
the holders of the Series B Stock, the Series C Stock and the Series D
Stock as a class, or elected to fill any vacancies resulting from the
death, resignation or removal of the directors so elected by the
holders of Series B Stock, the Series C Stock and the Series D Stock,
shall forthwith terminate and the authorized number of directors shall
be reduced accordingly.
If during any interval between any special meeting of the
holders of Series B Stock, the Series C Stock and the Series D Stock
for the election of directors to be elected by them as provided above
and the next ensuing annual meeting of stockholders, or between annual
meetings of stockholders for the election of directors, and while the
holders of the Series B Stock, the Series C Stock and the Series D
Stock shall be entitled to elect a majority of the Board of Directors,
any of the directors who have been elected by the holders of the Series
B Stock, the Series C Stock and the Series D Stock shall, by reason of
resignation, death or removal, have departed from the Board, the
Secretary of the Corporation shall call a special meeting of the
holders of the Series B Stock, the Series C Stock and the Series D
Stock and such vacancy or vacancies shall be filled at such special
meeting.
No director elected by the holders of Series C Stock as a
class, or elected by other directors to fill a vacancy resulting from
the death, resignation or removal of a
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<PAGE> 21
director elected by such class vote, may be removed from office by the
vote or written consent of stockholders unless such vote or written
consent includes that of the holders of a majority of the outstanding
shares of Series C Stock.
(c) In addition to any other vote or consent of stockholders
provided by law or by the Corporation's Certificate of Incorporation,
the Corporation shall not, without the approval by vote or written
consent of the holders of not less than 66 2/3% of the then outstanding
shares of Series C Stock:
(i) amend, waive or repeal any provisions of, or add
any provision to, (i) this Certificate of Designation or (ii)
any provision of the Corporation's Certificate of
Incorporation or any other certificate of designation filed
with the Secretary of State of Delaware by the Corporation
with respect to its preferred stock;
(ii) amend, waive or repeal any provisions of, or add
any provision to, the Corporation's By-Laws;
(iii) authorize, create, issue or sell any shares of
Equivalent Stock or Superior Stock, except as authorized in
this Certificate of Designation;
(iv) issue any shares of Series C Stock other than
pursuant to the Purchase Agreement or upon transfers of
outstanding shares of Series C Stock;
(v) enter into any agreement, indenture or other
instrument which contains any provisions restricting the
Corporation's obligation to pay dividends on or make
redemptions of the Series C Stock in accordance herewith;
(vi) dissolve the Corporation;
(vii) enter into any agreement(s) that would restrict
the Corporation's ability to perform its obligations pursuant
to the Purchase Agreements (as defined in Section 11(iv)
below);
(viii) sell, lease or otherwise dispose of 20% or
more of the assets of the Corporation, other than in the
ordinary course of business, unless the proceeds of such sale,
lease or other disposition are reinvested in assets of the
general type used in the business of the Corporation;
(ix) issue equity securities to employees, officers
or directors of the Corporation, except (a) securities
issuable upon the exercise of outstanding options and warrants
and pursuant to existing contractual commitments and (b)
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<PAGE> 22
options to purchase up to 2,184,166 shares of Common Stock,
together with the Common Stock issuable upon exercise thereof;
(x) issue any securities for a price less than fair
market value, other than as may be required by existing
contractual commitments or as permitted by clause (ix) hereof
or pursuant to warrants to purchase shares of Common Stock
granted by the Corporation from time to time where the
exercise price of such warrants equals or exceeds the fair
market price of the Common Stock as of the date of grant of
such warrants;
(xi) enter into any transactions (or series of
transactions), including loans, with any officer or director
of the Corporation or to or with their affiliates and family
members involving $100,000.00 or more per year individually or
$500,000.00 or more per year in the aggregate except (a) as
may be contemplated by existing contractual commitments, (b)
reasonable compensation payable to officers and directors, and
(c) for options and warrants issued in compliance with clause
(ix) hereof; or
(xii) engage in any transaction (or series of
transactions) that would impair or reduce the rights and
preferences of the holders of the Series C Stock as a class
relative to the rights and preferences of the holders of any
other class of the Corporation's capital stock.
"Assets" shall mean an interest in any kind of property or assets,
whether real, personal or mixed, or tangible or intangible.
"Equivalent Stock" shall mean any shares of any class or series of
Stock of the Corporation having any preference or priority as to dividends or
Assets on a parity with any such preference or priority of the Series C Stock
and no preference or priority as to dividends or Assets superior to any such
preference or priority of the Series C Stock and any instrument or Security
directly or indirectly convertible into or exercisable or exchangeable for
Equivalent Stock. Without limiting the generality of the foregoing, a dividend
rate, mandatory or optional sinking fund payment amounts or schedules or
optional redemption provisions, the existence of a conversion right or the
existence of a liquidation preference of up to 100% of the original issue price
plus unpaid accrued dividends plus a premium of up to the dividend rate or up to
the percentage of the equity of the Corporation represented by such Stock, with
respect to any class or series of Stock, differing from that of the Series C
Stock, shall not prevent such class of Stock from being Equivalent Stock.
"Securities" shall mean any debt or equity securities of the
Corporation, whether now or hereafter authorized, and any instrument directly or
indirectly convertible into or exercisable or exchangeable for Securities or
Security. The term "Security" shall mean one of the Securities.
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<PAGE> 23
"Stock" shall include any and all shares, interests or other
equivalents (however designated) of, or participations in, corporate stock.
"Superior Stock" shall mean any shares of any class or series of Stock
of the Corporation having any preference or priority as to dividends or Assets
superior to any such preference or priority of the Series C Stock and any
instrument or security directly or indirectly convertible into or exercisable or
exchangeable for Superior Stock.
(d) Notwithstanding anything else contained herein, the
affirmative vote or written consent of the holders of not less than 90%
of the then outstanding shares of Series C Stock shall be necessary to
amend, alter or repeal any of the provisions of the Corporation's
Certificate of Incorporation or the Certificate of Designation creating
this Series C Stock which would alter or change (i) the dividend rate,
(ii) redemption provisions, (iii) anti-dilution provisions, (iv) the
place or currency of payments hereunder, (v) the right to institute
suit for the enforcement of any payment hereunder, (vi) the conversion
provisions, or (vii) provisions of this Section 9, so as to affect any
of the foregoing adversely.
10. Preemptive Rights.
(a) The Corporation shall not issue or sell any shares of
Common Stock, Preferred Stock or other securities directly or
indirectly convertible into or exercisable or exchangeable for shares
of Common Stock, other than any such issuance or sale (i) pursuant to a
Qualifying Offering, (ii) pursuant to a stock option plan approved by
the Board of Directors, (iii) as a form of consideration in connection
with mergers or acquisitions where the Corporation is the surviving
entity or (iv) where the aggregate gross proceeds are less than
$500,000 in any single transaction, provided that the sale price per
share is not less than the then applicable fair market value of such
shares, as determined in good faith by the Corporation's Board of
Directors, and, provided further, that the aggregate gross proceeds of
all such transactions shall not exceed $1,500,000 (the securities
issued in such transactions being referred to as the "Newly Issued
Securities"), unless prior to the issuance or sale of such Newly Issued
Securities each holder of Series C Stock shall have been given the
opportunity (such opportunity being herein referred to as the
"Preemptive Right") to purchase (on the same terms as such Newly Issued
Securities are proposed to be sold) the same proportion of such Newly
Issued Securities being issued or offered for sale by the Corporation
as (x) the number of shares of Common Stock (calculated solely on
account of outstanding shares of Series C Stock on an as converted
basis) held by such holder on the day preceding the date of the
Preemptive Notice (as defined herein), as the case may be, bears to (y)
the total number of shares of Common Stock (calculated on a fully
diluted basis) outstanding on that day.
(b) Prior to the issuance or sale by the Corporation of any
Newly Issued Securities, the Corporation shall give written notice
thereof (the "Preemptive Notice")
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to each holder of Series C Stock. The Preemptive Notice shall specify
(i) the name and address of the bona fide investor to whom the
Corporation proposes to issue or sell Newly Issued Securities, (ii) the
total amount of capital to be raised by the Corporation pursuant to the
issuance or sale of Newly Issued Securities, (iii) the number of
Securities of such Newly Issued Securities proposed to be issued or
sold, (iv) the price and other terms of their proposed issuance or
sale, (v) the number of such Newly Issued Securities which such holder
is entitled to purchase (determined as provided in subsection (a)
above), and (vi) the period during which such holder may elect to
purchase such Newly Issued Securities, which period shall extend for at
least thirty (30) days following the receipt by such holder of the
Preemptive Notice (the "Preemptive Acceptance Period"). Each holder of
Series C Stock who desires to purchase Newly Issued Securities shall
notify the Corporation within the Preemptive Acceptance Period of the
number of Newly Issued Securities he wishes to purchase, as well as the
number, if any, of additional Newly Issued Securities he would be
willing to purchase in the event that all of the Newly Issued
Securities subject to the Preemptive Right are not subscribed for by
the other holders of Series C Stock.
(c) In the event a holder of Series C Stock declines to
subscribe for all or any part of its pro rata portion of any Newly
Issued Securities which are subject to the Preemptive Right (the
"Declining Preemptive Purchaser") during the Preemptive Acceptance
Period, then the other holders of Series C Stock shall have the right
to subscribe for all (or any declined part) of the Declining Preemptive
Purchaser's pro rata portion of such Newly Issued Securities (to be
divided among the other holders of Series C Stock desiring to exercise
such right on a ratable basis).
(d) Any such Newly Issued Securities which none of the holders
elect to purchase in accordance with the provisions of this Section 10,
may be sold by the Corporation, within a period of three (3) months
after the expiration of the Preemptive Acceptance Period, to any other
person or persons at not less than the price and upon other terms and
conditions not less favorable to the Corporation than those set forth
in the Preemptive Notice.
(e) The preemptive rights afforded by this Section 10, and any
obligation for the Corporation to offer such shares of Common Stock,
Preferred Stock or other securities convertible into or exchangeable
for shares of Common Stock may be waived by a written instrument signed
by the holders of sixty-six and two-thirds percent (66 2/3 %) of the
Series C Stock.
11. Events of Default. An Event of Default shall mean any of the
following:
(i) Any failure by the Corporation to pay in cash any
dividend, if and when declared by the Board of Directors, on
the payment due dates and in the amounts provided pursuant to
Section 3 hereof, if such failure shall continue for any two
quarterly periods;
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<PAGE> 25
(ii) Any failure by the Corporation to satisfy its
redemption obligations pursuant to Section 7 hereof if any
such failure shall continue for a period of five days from the
appropriate redemption date;
(iii) Any failure by the Corporation to comply with
the provisions of Sections 4, 5, 6, 8, 9 or 10 hereof;
(iv) If any representation or warranty made by the
Corporation in the Stock Purchase Agreement dated as of August
22, 1997 or the exhibits or schedules thereto (the "Purchase
Agreements") is or shall be untrue in any material respect at
the time it was made, if such representation or warranty
remains untrue after 10 days' written notice, with such notice
delivered by hand or by first-class, certified or overnight
mail, postage prepaid, or by telecopier, from any holder of
Series C Stock, unless waived in writing by holders of not
less than 66 2/3% of the outstanding shares of Series C Stock;
(v) Any failure by the Corporation to comply with, or
any breach by the Corporation of, any of the covenants,
agreements or obligations of the Corporation contained in the
Purchase Agreements which continues for a period of 10 days
after written notice, with such notice delivered by hand or by
first-class, certified or overnight mail, postage prepaid, or
by telecopier, from any holder of Series C Stock, unless
waived in writing by holders of not less than 66 2/3% of the
outstanding shares of Series C Stock;
(vi) Default by the Corporation in the performance or
observance of any obligation or condition with respect to any
Indebtedness of the Corporation that is not cured or waived
within 90 days or if the effect of such default is to
accelerate the maturity of such Indebtedness or cause such
Indebtedness to be prepaid, purchased or redeemed or to permit
the holder or holders thereof, or any trustee or agent for
such holders, to cause such Indebtedness to become due and
payable prior to its expressed maturity or to cause such
Indebtedness to be prepaid, purchased or redeemed or to
realize upon any collateral or security for such Indebtedness,
unless such default shall have been waived by the appropriate
person. Indebtedness of any corporation shall mean the
principal of (and premium, if any) and unpaid interest on (i)
indebtedness which is for money borrowed from others; (ii)
indebtedness guaranteed, directly or indirectly, in any manner
by such corporation, or in effect guaranteed, directly or
indirectly, by such corporation through an agreement,
contingent or otherwise, to supply funds to or in any manner
invest in the debtor or to purchase indebtedness, or to
purchase assets or services primarily for the purpose of
enabling the debtor to make payment of the indebtedness or of
assuring the owner of the indebtedness against loss; (iii) all
indebtedness secured by any mortgage, lien, pledge, charge or
other
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encumbrance upon assets owned by such corporation, even if
such corporation has not in any manner become liable for the
payment of such indebtedness; (iv) all indebtedness of such
corporation created or arising under any conditional sale,
lease or other title retention agreement with respect to
assets acquired by such corporation even though the rights and
remedies of the seller, lessor or lender under such agreement
or lease in the event of default are limited to repossession
or sale of such assets and provided that obligations for the
payment of rent under a lease of premises from which the
business of such corporation will be conducted shall not
constitute indebtedness; and (v) renewals, extensions and
refunding of any such indebtedness; or
(vii) If the Corporation shall:
(a) become insolvent or generally fail to
pay, or admit in writing its inability to pay, its
debts as they become due;
(b) apply for, consent to, or acquiesce in,
the appointment of a trustee, receiver, sequestrator
or other custodian for the Corporation or any
property thereof, or make a general assignment for
the benefit of creditors (any of which shall be
referred to herein as a "Receiver");
(c) in the absence of such application,
consent or acquiescence, permit or suffer to exist
the appointment of a Receiver, and such Receiver
shall not be discharged within 60 calendar days;
(d) commit any act of bankruptcy, permit or
suffer to exist the commencement of any bankruptcy
reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or
any dissolution, winding up or liquidation proceeding
in respect of the Corporation, and, if any such case
or proceeding is not commenced by the Corporation,
such case or proceeding shall be consented to or
acquiesced in by the Corporation, or shall result in
the entry of an order for relief and shall remain for
30 calendar days undismissed; or
(e) take any corporate or other action
authorizing, or in furtherance of, any of the
foregoing.
B. The recitals and resolutions contained herein have not been
modified, altered or amended and are presently in full force and effect.
(The remainder of this page is intentionally left blank.)
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to Certificate of Designations, Preferences and Rights of Series C 7%
Cumulative Convertible Preferred Stock to be executed on its behalf by Robert P.
May, its Chief Executive Officer, this 3rd day of November, 1999, hereby
declaring and certifying that this is the act and deed of the Corporation and
that the facts stated herein are true.
PNV.NET, INC.
By: /s/ Robert P. May
------------------------------------------
Robert P. May, Chief Executive Officer
<PAGE> 1
EXHIBIT 3.8.1
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES D 7% CUMULATIVE CONVERTIBLE
PREFERRED STOCK OF PNV.NET, INC.
PNV.net, Inc., a Delaware corporation (the "Corporation"), hereby
certifies that pursuant to the authority contained in Article Seventh of the
Corporation's Certificate of Incorporation, and in accordance with Section 242
of the General Corporation Law of the State of Delaware (the "DGCL"), the
following resolution was duly adopted by the Board of Directors of the
Corporation, amending a series of its Preferred Stock designated as Series D 7%
Cumulative Convertible Preferred Stock:
WHEREAS, the amendment of the designations herein certified has been
duly adopted by the Corporation's Board of Directors and Holders of the Series A
Preferred Stock (the "Series A Stock"), the Holders of the Series B 7%
Cumulative Convertible Preferred Stock (the "Series B Stock"), the Holders of
the Series C 7% Cumulative Convertible Preferred Stock (the "Series C Stock")
and the Holders of the Series D Preferred Stock (the "Series D Stock"); and
WHEREAS, the Certificate of Incorporation of the Corporation provides
for two classes of shares known as common stock, $.001 par value per share (the
"Common Stock"), and preferred stock, $.01 par value per share ("Preferred
Stock"); and
WHEREAS, the Corporation has created: (i) a series of Preferred Stock
designated as Series A Preferred Stock; (ii) a series of Preferred Stock
designated as Series B 7% Cumulative Convertible Preferred Stock; and (iii) a
series of Preferred Stock designated as Series C 7% Cumulative Convertible
Preferred Stock; and (iii) a series of Preferred Stock designated as Series D 7%
Cumulative Convertible Preferred Stock ("Series D Stock"); and
WHEREAS, the Board of Directors of the Corporation is authorized by the
Certificate of Incorporation to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in such series and to fix the designations,
preferences and rights of the shares of each such series and the qualifications,
limitations and restrictions thereof.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors deems it
advisable to, and hereby does, designate a Series D 7% Cumulative Convertible
Preferred
<PAGE> 2
Stock and fixes and determines the rights, preferences, qualifications,
limitations and restrictions relating to the Series D 7% Cumulative Convertible
Preferred Stock as follows:
1. Designation. The shares of such series of Preferred Stock shall be
designated "Series D 7% Cumulative Convertible Preferred Stock" (referred to
herein as the "Series D Stock").
2. Authorized Number. The number of shares constituting the Series D
Stock shall be 3,000,000.
3. Dividends. The holders of shares of Series D Stock shall be entitled
to receive, when and as declared by the Board of Directors of the Corporation,
out of assets legally available for such purpose, dividends at the rate of
$0.735 (i.e., 7%) (as adjusted for stock splits, and other subdivisions and
combinations of Common Stock after the date of the Purchase Agreements
("Recapitalization Events")) per share per annum, which shall be payable when
and if declared by the Board of Directors or shall accrue quarterly on the last
day of January, April, July and October in each year, commencing on October 31,
1999; provided, however, that upon an Event of Default (as hereinafter defined)
and so long as it shall continue, such dividend rate shall be $0.945 (i.e., 9%)
(as adjusted for Recapitalization Events) per share per annum. Dividends on the
Series D Stock shall be cumulative so that if, for any dividend accrual period,
cash dividends at the rate hereinabove specified are not declared and paid or
set aside for payment, the amount of accrued but unpaid dividends shall
accumulate and shall be added to the dividends payable for subsequent dividend
accrual periods and upon any redemption or conversion of shares of Series D
Stock. If any shares of Series D Stock are issued on a date which does not
coincide with a dividend payment date, then the initial dividend accrual period
applicable to such shares shall be the period from the date of issuance thereof
through whichever of January 31, April 30, July 31, or October 31 next occurs
after the date of issuance. If the date fixed for payment of a final liquidating
distribution on any shares of Series D Stock, or the date on which any shares of
Series D Stock are redeemed or converted into Common Stock, does not coincide
with a dividend payment date, then subject to the provisions hereof relating to
such payment, redemption or conversion, the final dividend accrual period
applicable to such shares shall be the period from whichever of February 1, May
1, August 1 or November 1 most recently precedes the date of such payment,
conversion or redemption through the effective date of such payment, conversion
or redemption. Dividends paid in cash on the shares of Series D Stock (or Series
A Stock, Series B Stock or Series C Stock, which shall rank pari passu with the
Series D Stock) in an amount less than the total amount of such dividends shall
be allocated pro rata so that the total value of dividends paid on the Preferred
Stock shall in all cases bear to each other the same ratio that the total value
of accrued and unpaid dividends on the Series A Stock, the Series B Stock, the
Series C Stock and the Series D Stock bear to each other. Without the written
consent of the holders of at least 60 % of the then outstanding Series D Stock,
the Corporation shall not declare or pay any cash dividend on, or redeem or
repurchase or make any other cash distribution in respect of any other equity
Securities (as defined herein) of the Corporation unless at the time of such
declaration, payment or
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<PAGE> 3
distribution all dividends on the Series D Stock accrued for all past dividend
accrual periods shall have been paid and the full dividends thereon for the
current dividend period shall be paid or declared and set aside for payment.
Notwithstanding any other term or condition of this Section 3 to the contrary,
upon the consummation of a Qualifying Offering (as defined below) and in
connection with the conversion of the Series D Stock pursuant to Section 5(b)
hereof, the Company may pay any and all accrued but unpaid dividends on the
Series D Stock with shares of Common Stock, each share of which shall, for the
purposes of determining the number of shares of Common Stock issuable in
satisfaction of such accrued but unpaid dividends pursuant to this Section 3, be
deemed to have a value equal to the price at which the Common Stock is sold in
such Qualifying Offering.
4. Liquidation.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the
shares of Series D Stock shall be entitled, before any distribution or
payment is made upon any Common Stock or any other class or series of
stock ranking junior to the Series D Stock as to distribution of assets
upon liquidation (other than the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock of the Corporation
which shall rank pari passu with the Series D Stock), to be paid an
amount equal to $10.50 per share (as adjusted for Recapitalization
Events) plus all accrued and unpaid dividends to such date
(collectively, the "Liquidation Payments"). If upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed among the holders of Series D
Stock shall be insufficient to permit payment in full to the holders of
Series D Stock of the Liquidation Payments, then the entire assets of
the Corporation shall be distributed ratably among such holders and the
holders of any class of preferred stock ranking on a parity with the
Series D Stock in proportion to the full respective distributive
amounts to which they are entitled.
(b) Upon any liquidation, dissolution or winding up of the
Corporation, after the holders of Series D Stock shall have been paid
in full the Liquidation Payments, the remaining assets of the
Corporation may be distributed ratably per share in order of preference
to the holders of Common Stock and any other class or series of stock
ranking junior to the Series D Stock as to distribution of assets upon
liquidation.
(c) Written notice of a liquidation, dissolution or winding
up, stating a payment date, the amount of the Liquidation Payments, the
amounts to be paid to the holders of Common Stock (both per share and
in the aggregate) upon such a liquidation, dissolution or winding up,
and the place where said Liquidation Payments shall be payable, shall
be given by mail, postage prepaid, not less than 30 days prior to the
payment date stated therein, to each holder of record of Series D Stock
at its post office address as shown by the records of the Corporation.
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<PAGE> 4
5. Conversion.
The holders of the Series D Stock shall have the following conversion
rights:
(a) Optional Conversion. Each share of Series D Stock shall be
convertible at any time, at the option of the holder of record thereof,
into fully paid and nonassessable shares of Common Stock at the
"conversion rate" (as defined in paragraph (c) below) then in effect
upon surrender to the Corporation or its transfer agent of the
certificate or certificates representing the Series D Stock to be
converted, as provided below, or if the holder notifies the Corporation
or its transfer agent that such certificate or certificates have been
lost, stolen or destroyed, upon the execution and delivery of an
agreement satisfactory to the Corporation to indemnify the Corporation
from any losses incurred by it in connection therewith.
(b) Conversion on Qualifying Offering. Upon the consummation
of a Qualifying Offering (as defined below), upon not less than ten
(10) days prior written notice by the Corporation of the anticipated
consummation of such offering, each share of Series D Stock shall be
converted into fully paid and nonassessable shares of Common Stock at
the conversion rate then in effect. At all times on or prior to March
31, 2000, a "Qualifying Offering" means (i) the Corporation shall have
consummated a firm commitment underwritten public offering of its
Common Stock by a nationally recognized investment banking firm
pursuant to an effective registration under the Securities Act of 1933,
as amended, covering the offering and sale of Common Stock which
results in gross proceeds of at least $20,000,000, (ii) the Common
Stock is quoted or listed by either The Nasdaq Stock Market (National
Market) ("Nasdaq"), the New York Stock Exchange or the American Stock
Exchange and (iii) all outstanding shares of the Series B Preferred
Stock and the Series C Preferred Stock shall have been converted into
shares of common stock of the Company in accordance with the
Certificate of Designation relating to the Series B Preferred Stock and
the Series C Preferred Stock and all outstanding shares of the Series A
Preferred Stock shall have been redeemed in accordance with the
Certificate of Designation relating to the Series A Preferred Stock.
From and after April 1, 2000, a "Qualifying Offering" means a
"Qualifying Offering" means (i) the Corporation shall have consummated
a firm commitment underwritten public offering of its Common Stock by a
nationally recognized investment banking firm pursuant to an effective
registration under the Securities Act of 1933, as amended, covering the
offering and sale of Common Stock which results in gross proceeds of at
least $20,000,000, (ii) the Common Stock is quoted or listed by either
Nasdaq, the New York Stock Exchange or the American Stock Exchange,
(iii) the price at which the Common Stock is sold in such offering is
at least equal to the lesser of an amount which (x) is 200% of the then
effective conversion price or (y) would represent, on an as converted
basis, a compound annual rate of return of 35% based upon the original
issuance price of the Series D Stock, and (iv) all outstanding shares
of the Series B Preferred Stock and the Series C Preferred
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<PAGE> 5
Stock shall have been converted into shares of common stock of the
Company in accordance with the Certificate of Designation relating to
the Series B Preferred Stock and the Series C Preferred Stock and all
outstanding shares of the Series A Preferred Stock shall have been
redeemed in accordance with the Certificate of Designation relating to
the Series A Preferred Stock. Upon the achievement of (i), (ii), (iii)
and (iv) above and the giving of the mandatory conversion notice by the
Corporation, the outstanding shares of Series D Stock to be converted
shall be converted automatically without any further action by the
holders of such shares and whether or not the certificates representing
such shares are surrendered to the Corporation or its transfer agent.
(c) Basis For Conversion; Converted Shares. The basis for any
conversion under this Section 5 shall be the "conversion rate" in
effect at the time of conversion, which for the purposes hereof shall
mean the number of shares of Common Stock issuable for each share of
Series D Stock surrendered for conversion under this Section 5.
Initially, the conversion rate shall be 1.0, i.e., 1.0 share of Common
Stock for each share of Series D Stock being converted. Such conversion
rate shall be subject to adjustment as provided in Section 6 below. As
used herein, the term "conversion price" shall be an amount computed by
dividing $10.50 by the conversion rate then in effect. Initially, the
conversion price shall be $10.50 per share of Common Stock. If any
fractional interest in a share of Common Stock would be deliverable
upon conversion of Series D Stock (taking into account all shares of
Series D Stock being converted by each holder), the Corporation shall
pay in lieu of such fractional share an amount in cash equal to the
conversion price of such fractional share (computed to the nearest one
hundredth of a share) in effect at the close of business on the date of
conversion. Any shares of Series D Stock which have been converted
shall be canceled and all dividends on converted shares shall cease to
accrue and the certificates representing shares of Series D Stock so
converted shall represent the right to receive (i) such number of
shares of Common Stock into which such shares of Series D Stock are
convertible, plus (ii) cash payable for any fractional share plus (iii)
all accrued but unpaid dividends relating to such shares through the
immediately preceding dividend payment date. Upon the conversion of
shares of Series D Stock as provided in this Section 5, the Corporation
shall promptly pay all then accrued but unpaid dividends to the holder
of the Series D Stock being converted. The Board of Directors of the
Corporation shall at all times reserve a sufficient number of
authorized but unissued shares of Common Stock to be issued in
satisfaction of the conversion rights and privileges aforesaid.
(d) Mechanics of Conversion. In the case of an optional
conversion, before any holder of Series D Stock shall be entitled to
convert the same into shares of Common Stock, it shall surrender the
certificate or certificates therefor, duly endorsed, at the office of
the Corporation or its transfer agent for the Series D Stock, and shall
give written notice to the Corporation of the election to convert the
same and shall state therein the name or names in which the certificate
of certificates for shares
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<PAGE> 6
of Common Stock are to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder
of Series D Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to
which such holder shall be entitled as aforesaid. A certificate or
certificates will be issued for the remaining shares of Series D Stock
in any case in which fewer than all of the shares of Series D Stock
represented by a certificate are converted.
(e) Issue Taxes. The Corporation shall pay all issue taxes, if
any, incurred in respect of the issue of shares of Common Stock on
conversion. If a holder of shares surrendered for conversion specifies
that the shares of Common Stock to be issued on conversion are to be
issued in a name or names other than the name or names in which such
surrendered shares stand, the Corporation shall not be required to pay
any transfer or other taxes incurred by reason of the issuance of such
shares of Common Stock to the name of another, and if the appropriate
transfer taxes shall not have been paid to the Corporation or the
transfer agent for the Series D Stock at the time of surrender of the
shares involved, the shares of Common Stock issued upon conversion
thereof may be registered in the name or names in which the surrendered
shares were registered, despite the instructions to the contrary.
6. Adjustment of Conversion Price and Conversion Rate. The number and
kind of securities issuable upon the conversion of the Series D Stock, the
conversion price and the conversion rate shall be subject to adjustment from
time to time in accordance with the following provisions:
(a) Certain Definitions. For purposes of this Certificate:
(i) The term "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (including the
sale and issuance of any shares of Common Stock at any time
directly or indirectly owned or held by or for the account of
the Corporation), or deemed to be issued by the Corporation
pursuant to paragraph (g) of this Section 6, after the
Original Issue Date except:
(A) shares of Common Stock issuable upon
conversion of, or distributions with respect to, the
Series B Stock, the Series C Stock or the Series D
Stock now or hereafter issued by the Corporation;
(B) up to 2,184,166 shares of Common Stock
(as reduced by previously exercised options to
purchase 10,432 shares of Common Stock) issuable upon
the exercise of options issued to officers,
directors, employees, and consultants of the
Corporation under stock option plans maintained from
time to time by the Corporation and
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<PAGE> 7
approved by the Board of Directors, subject to
adjustment for all subdivisions and combinations;
(C) up to 186,750 shares of Common Stock
issuable upon the exercise of the Warrant held by
Alex. Brown & Sons Incorporated;
(D) up to 505,375 shares of Common Stock
issuable upon the exercise of warrants granted to
lenders in connection with loans to the Corporation
or to guarantors or purchasers of such loans;
(E) up to 75,000 shares of Common Stock
issuable upon the exercise of the Warrant held by
Volpe Brown Whelan & Company, LLC;
(F) up to 12,000 shares of Common Stock
issuable upon the exercise of warrants to be issued
to customers in connection with contracts between the
Corporation and such customers; and
(G) shares of Common Stock issued with
respect to adjustments of the conversion price
hereunder.
(ii) The term "Common Stock" shall be deemed to mean
(i) the Common Stock, $.001 par value, and (ii) the stock of
the Corporation of any class, or series within a class,
whether now or hereafter authorized, which has the right to
participate in the distribution of either earnings or assets
of the Corporation without limit as to the amount or
percentage.
(iii) The term "Convertible Securities" shall mean
any evidence of indebtedness, shares (other than Series B
Stock, Series C Stock and Series D Stock issued prior to the
Original Issue Date (as defined below)) or other securities
directly or indirectly convertible into or exercisable or
exchangeable for Common Stock.
(iv) The term "Options" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire
directly or indirectly Common Stock or Convertible Securities.
(v) The term "Original Issue Date" shall mean the
date of the initial issuance of the Series D Stock.
(vi) The term "Fair Market Price" shall mean with
respect to a share of Common Stock (i) prior to the first
anniversary of the Original Issue Date, the conversion price
in effect on the Original Issue Date, and (ii) subsequent to
the first anniversary of the Original Issue Date, the average
closing bid price of
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<PAGE> 8
the Common Stock as reported by Nasdaq (or the last sale price
if the Common Stock is traded on an exchange) for a period of
thirty (30) consecutive trading days ending on the third day
prior to the date of determination, or, if the Common Stock is
not listed on Nasdaq or an exchange, the fair market value as
determined by the vote of 66 2/3% of the Corporation's Board
of Directors and approved by the holders of not less than a
majority of the then outstanding shares of Series D Stock or
if the Board of Directors cannot reach such agreement (or if
not so approved by the holders of Series D Stock), as
determined by a qualified independent investment banker
appointed by the vote of 66 2/3% of the Corporation's Board of
Directors, such banker to be approved by the holders of not
less than a majority of the then outstanding shares of Series
D Stock.
(b) Reorganization, Reclassification. In the event of a
reorganization, share exchange, or reclassification, other than a
change in par value, or from par value to no par value, or from no par
value to par value or a transaction described in subsection (c) or (d)
below, each share of Series D Stock shall, after such reorganization,
share exchange or reclassification (a "Reclassification Event"), be
convertible at the option of the holder into the kind and number of
shares of stock or other securities or other property of the
Corporation which the holder of Series D Stock would have been entitled
to receive if the holder had held the Common Stock issuable upon
conversion of his Series D Stock immediately prior to such
reorganization, share exchange, or reclassification (subject to
adjustment as provided in this Section 6).
(c) Consolidation, Merger. In the event of a merger or
consolidation to which the Corporation is a party each share of Series
D Stock shall, after such merger or consolidation, be convertible at
the option of the holder into the kind and number of shares of stock
and/or other securities, cash or other property which the holder of
such share of Series D Stock would have been entitled to receive if the
holder had held the Common Stock issuable upon conversion of such share
of Series D Stock immediately prior to such consolidation or merger
(subject to adjustment as provided in this Section 6).
(d) Subdivision or Combination of Shares. In case outstanding
shares of Common Stock shall be subdivided, the conversion price shall
be proportionately reduced as of the effective date of such
subdivision, or as of the date a record is taken of the holders of
Common Stock for the purpose of so subdividing, whichever is earlier.
In case outstanding shares of Common Stock shall be combined, the
conversion price shall be proportionately increased as of the effective
date of such combination, or as of the date a record is taken of the
holders of Common Stock for the purpose of so combining, whichever is
earlier.
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<PAGE> 9
(e) Stock Dividends. In case shares of Common Stock are issued
as a dividend or other distribution on the Common Stock (or such
dividend is declared), then the conversion price shall be adjusted, as
of the date a record is taken of the holders of Common Stock for the
purpose of receiving such dividend or other distribution (or if no such
record is taken, as at the earliest of the date of such declaration,
payment or other distribution), to that price determined by multiplying
the conversion price in effect immediately prior to such declaration,
payment or other distribution by a fraction (i) the numerator of which
shall be the number of shares of Common Stock outstanding immediately
prior to the declaration of such dividend or other distribution, and
(ii) the denominator of which shall be the total number of shares of
Common Stock outstanding as of the time of the declaration and giving
effect to such dividend or other distribution as if paid. In the event
that the Corporation shall declare or pay any dividend on the Common
Stock payable in any right to acquire Common Stock for no
consideration, then the Corporation shall be deemed to have made a
dividend payable in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to
acquire Common Stock.
(f) Issuance of Additional Shares of Common Stock. If the
Corporation shall issue any Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued
pursuant to paragraph (g) below) after the Original Issue Date (other
than as provided in the foregoing subsections (b) through (e)), for no
consideration or for a consideration per share less than the greater of
(i) the Fair Market Price in effect on the date of and immediately
prior to such issue or (ii) the conversion price in effect on the date
of and immediately prior to such issue, then in such event, the
conversion price shall be reduced (but not increased) as follows:
(i) For issuances of Additional Shares of Common
Stock on or before 9 months after the Original Issue Date, if
the issuance or sales price of the Additional Shares of Common
Stock is below $10.50, the conversion price shall be reduced
(but not increased) so as to equal such issuance or sales
price.
(ii) For issuances of Additional Shares of Common
Stock at any time after 9 months after the Original Issue
Date, the conversion price shall be reduced (but not
increased) concurrently with any such issuance to a price
equal to the quotient obtained by dividing:
(A) an amount equal to (x) the total number
of shares of Common Stock outstanding immediately
prior to such issuance or sale multiplied by the
conversion price in effect immediately prior to such
issuance or sale, plus (y) the aggregate
consideration received or deemed to be received by
the Corporation upon such issuance or sale, by
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<PAGE> 10
(B) the total number of shares of Common
Stock outstanding immediately after such issuance or
sale.
For purposes of the formulas expressed in paragraph 6(e) and
6(f), all shares of Common Stock issuable upon the exercise of
outstanding Options with an exercise price less than the then current
fair market value of Common Stock or issuable upon the conversion of
the Series B Stock, the Series C Stock or the Series D Stock or other
outstanding Convertible Securities with an exercise or exchange price
less than the then current fair market value of Common Stock (including
Convertible Securities issued upon the exercise of outstanding
Options), shall be deemed outstanding shares of Common Stock both
immediately before and after such issuance or sale.
(g) Deemed Issue of Additional Shares of Common Stock. In the
event the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities
or shall fix a record date for the determination of holders of any
class of securities then entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth
in the instrument relating thereto without regard to any provisions
contained therein designed to protect against dilution) of Common Stock
issuable upon the exercise of such Options, or, in the case of
Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue of Options or
Convertible Securities or, in case such a record date shall have been
fixed, as of the close of business on such record date, provided that
in any such case in which Additional Shares of Common Stock are deemed
to be issued:
(i) except as provided in Section 6(g)(ii) below, no
further adjustments in the conversion price shall be made upon
the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options, or the issue
of Common Stock upon the conversion or exchange of such
Convertible Securities, in accordance with their terms;
(ii) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise (or
the terms of such Options or Convertible Securities are
amended or modified to provide) for any increase or decrease
in the consideration payable to the Corporation, or increase
or decrease in the number of shares of Common Stock issuable,
upon the exercise, conversion or exchange thereof, the
conversion price computed upon the original issuance of such
Options or Convertible Securities (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, upon any such increase or decrease
becoming effective, shall be recomputed to reflect such
increase or decrease insofar as it affects such Options or the
rights of conversion or exchange under such Convertible
Securities (provided, however, that no such adjustment of the
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<PAGE> 11
conversion price shall affect Common Stock previously issued
upon conversion of the Series D Stock);
(iii) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the conversion
price computed upon the original issue of such Options or
Convertible Securities (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments
based thereon, shall, upon such expiration, be recomputed as
if:
(A) in the case of Options or Convertible
Securities, the only Additional Shares of Common
Stock issued were the shares of Common Stock, if any,
actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible
Securities and the consideration received therefor
was the consideration actually received by the
Corporation (x) for the issue of all such Options,
whether or not exercised, plus the consideration
actually received by the Corporation upon exercise of
the Options or (y) for the issue of all such
Convertible Securities which were actually converted
or exchanged plus the additional consideration, if
any, actually received by the Corporation upon the
conversion or exchange of the Convertible Securities;
and
(B) in the case of Options for Convertible
Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued
at the time of issue of such Options, and the
consideration received by the Corporation for the
Additional Shares of Common Stock deemed to have been
then issued was the consideration actually received
by the Corporation for the issue of all such Options,
whether or not exercised, plus the consideration
deemed to have been received by the Corporation upon
the issue of the Convertible Securities with respect
to which such Options were actually exercised.
(iv) No readjustment pursuant to clause (ii) or (iii)
above shall have the effect of increasing the conversion price
to an amount which exceeds the lower of (x) the conversion
price on the original adjustment date or (y) the conversion
price that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date
and such readjustment date.
(v) In the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof,
no adjustment of the conversion price shall be made until the
expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause
(iii) above.
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(h) Determination of Consideration. For purposes of this
Section 6, the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall be computed as follows:
(i) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be the
aggregate amount of cash received by the Corporation;
and
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at
the time of the issue, as determined by the vote of
66 2/3% of the Corporation's Board of Directors and
approved by holders of not less than a majority of
the then outstanding shares of Series D Stock or if
the Board of Directors cannot reach such agreement
(or if not so approved by the holders of Series D
Stock), by a qualified independent public accounting
firm, other than the accounting firm then engaged as
the Corporation's independent auditors, agreed upon
by the Corporation on the one hand and the holders of
60 % of the outstanding shares of Series D Stock on
the other hand.
(ii) Options and Convertible Securities. The
consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been issued
pursuant to paragraph (g) above, relating to Options and
Convertible Securities shall be determined by dividing:
(A) the total amount, if any, received or
receivable by the Corporation as consideration for
the issue of such Options or Convertible Securities,
plus the minimum aggregate amount of additional
consideration (as set forth in the instruments
relating thereto, without regard to any provision
contained therein designed to protect against
dilution) payable to the Corporation upon the
exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible
Securities by
(B) the maximum number of shares of Common
Stock (as set forth in the instruments relating
thereto, without regard to any provision contained
therein designed to protect against dilution)
issuable upon the exercise of such Options or
conversion or exchange of such Convertible
Securities.
(i) Adjustments Based Upon EBITDA for Fiscal Year Ending June
30, 2000. If the conversion price of the Series C Stock is adjusted
pursuant to the terms and conditions of Section 6(i) of the Certificate
of Designations providing for the rights,
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<PAGE> 13
privileges and preferences of the Series C Stock (the "EBITDA
Adjustment), then the conversion price of the Series D Stock shall be
adjusted to an amount determined by multiplying the conversion price of
the Series D Stock by a ratio (x) the numerator of which will equal the
conversion price of the Series C Stock, as adjusted pursuant to the
EBITDA Adjustment, and (y) the denominator of which will equal $8.00.
If the conversion price of the Series C Stock is subsequently adjusted
pursuant to the terms and conditions of Section 6(i)(iv) of the
Certificate of Designations providing for the rights, privileges and
preferences of the Series C Stock, then corresponding adjustments will
be made to the conversion price of the Series D Stock.
(j) Adjustment of Conversion Rate. Upon each adjustment of the
conversion price under the provisions of this Section 6, the conversion
rate shall be adjusted to an amount determined by dividing (x) the
conversion price in effect on the Original Issue Date, by (y) the
adjusted conversion price.
(k) Other Provisions Applicable to Adjustment Under this
Section. The following provisions will be applicable to the adjustments
in conversion price and conversion rate as provided in this Section 6:
(i) Treasury Shares. The number of shares of Common
Stock at any time outstanding shall not include any shares
thereof then directly or indirectly owned or held by or for
the account of the Corporation.
(ii) Other Action Affecting Common Stock. In case the
Corporation shall take any action affecting the outstanding
number of shares of Common Stock other than an action
described in any of the foregoing subsections 6(b) to 6(g)
hereof, inclusive, which would have an inequitable effect on
the holders of Series D Stock, the conversion price shall be
adjusted in such manner and at such time as the Board of
Directors of the Corporation on the advice of the
Corporation's independent public accountants may in good faith
determine to be equitable in the circumstances.
(iii) Minimum Adjustment. No adjustment of the
conversion price shall be made if the amount of any such
adjustment would be an amount less than one percent (1%) of
the conversion price then in effect, but any such amount shall
be carried forward and an adjustment with respect thereof
shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate an
increase or decrease of one percent (1%) or more.
(iv) Certain Adjustments. The conversion price shall
not be adjusted upward except in the event of a combination of
the outstanding shares of Common Stock into a smaller number
of shares of Common Stock or in the
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event of a readjustment of the conversion price pursuant to
Section 6(g)(ii) or (iii).
(l) Notices of Adjustments. Whenever the conversion rate and
conversion price is adjusted as herein provided, an officer of the
Corporation shall compute the adjusted conversion rate and conversion
price in accordance with the foregoing provisions and shall prepare a
written certificate setting forth such adjusted conversion rate and
conversion price and showing in detail the facts upon which such
adjustment is based, and such written instrument shall promptly be
delivered to the recordholders of the Series D Stock.
7. Redemption.
(a) Mandatory Redemption. On the date six (6) months
immediately after the payment in full and satisfaction of all of the
obligations of the Corporation to the lenders who provide financing to
the Corporation in the aggregate principal amount of Seventy-five
Million Dollars ($75,000,000.00) (referred to herein as the "Mandatory
Redemption Date") the Corporation shall redeem all the shares of Series
D Stock originally issued hereunder (or such lesser amount as shall
then be outstanding) at the "Redemption Price" per share defined in
paragraph (c) below, payable in each case in cash on the Mandatory
Redemption Date. The Corporation shall deliver written notice of the
pending redemption to the holders of the Series D Stock at least thirty
(30) but no more than sixty (60) days prior to the Mandatory Redemption
Date.
(b) Redemption on Change of Control. Upon a "Change of
Control" of the Corporation, each holder of the then outstanding shares
of Series D Stock may elect to have the Corporation redeem all (but not
less than all) outstanding shares of Series D Stock owned by such
holder at the "Redemption Price" per share defined in paragraph (c)
below, payable in cash on any date within 100 days of the effective
date of the Change of Control (such date being herein referred to as
the "Change of Control Redemption Date"). The election shall be made by
delivering written notice to the Corporation at least thirty (30) but
no more than sixty (60) days prior to the Change of Control Redemption
Date. The Corporation will then be required to redeem all the shares of
Series D Stock owned by such holder on the Change of Control Redemption
Date. For purposes of this Section 7, "Change of Control" means any one
or more of the following events:
(i) The Corporation shall consolidate with or merge
into any other person or any person shall consolidate with or
merge into the Corporation (other than a consolidation or
merger of the Corporation and a wholly-owned subsidiary of the
Corporation in which all shares of the Corporation's Common
Stock outstanding immediately prior to the effectiveness
thereof are changed into or exchanged for the same
consideration), in either event pursuant to a transaction in
which any of the Corporation's common stock
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<PAGE> 15
outstanding immediately prior to the effectiveness thereof is
changed into or exchanged for cash, securities or other
property; or
(ii) the Corporation shall directly or indirectly
convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all of its assets to any
person or "group" (within the meaning of Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934 (the "1934
Act") (other than to a wholly-owned subsidiary of the
Corporation); or
(iii) there shall be a reorganization, share
exchange, or reclassification, other than a change in par
value, or from par value to no par value, or from no par value
to par value; or
(iv) any person (other than the Corporation, any
subsidiary of the Corporation or an Existing Investor (as
defined in the Purchase Agreement (as hereinafter defined))),
including a "group" (within the meaning of Section 13(d) and
14(D)(2) of the 1934 Act) that includes such person, shall
purchase or otherwise acquire, directly or indirectly,
beneficial ownership of securities of the Corporation and, as
a result of such purchase or acquisition, such person
(together with its associates and affiliates) shall directly
or indirectly beneficially own in the aggregate (1) more than
50% of the Common Stock, or (2) securities representing more
than 50% of the combined voting power of the Corporation's
voting securities, in each case under subclause (1) or (2),
outstanding on the date immediately prior to the date of such
purchase or acquisition (or, if there be more than one, the
last such purchase or acquisition).
(c) The Redemption Price per share of Series D Stock shall
equal the sum of (x) $10.50 (as adjusted for Recapitalization Events)
plus (y) all accrued and unpaid dividends on such share of Series D
Stock to the Mandatory Redemption Date or Change of Control Redemption
Date, as the case may be.
(d) The term "Redemption Date" as used in this paragraph (d)
shall refer to whichever of the Mandatory Redemption Date or the Change
of Control Redemption Date is applicable in a particular circumstance.
On or prior to the Redemption Date, the Corporation shall deposit the
Redemption Price of all outstanding shares of Series D Stock to be
redeemed with a bank or trust corporation having aggregate capital and
surplus in excess of $100,000,000 as a trust fund for the benefit of
the holders of the shares of Series D Stock, with irrevocable
instructions and authority to the bank or trust corporation to pay the
Redemption Price for such shares to their respective holders on or
after the Redemption Date upon receipt of the certificate or
certificates of the shares of Series D Stock to be redeemed. From and
after the Redemption Date, unless there shall have been a default in
payment of the Redemption Price, all rights of the holders of shares of
Series D Stock to be redeemed as holders of Series D Stock
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<PAGE> 16
(except the right to receive the Redemption Price upon surrender of
their certificate or certificates) shall cease as to those shares of
Series D Stock redeemed, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. If on the Redemption Date the
funds of the Corporation legally available for redemption of shares of
Series D Stock (or Series A Stock, Series B Stock and Series C Stock
which shall rank pari passu with the Series D Stock) are insufficient
to redeem the total number of shares of Preferred Stock to be redeemed
on such date, the Corporation will use those funds which are legally
available therefor to redeem the maximum possible number of shares of
Preferred Stock ratably among the holders of such shares to be redeemed
based upon the total amount payable by the Corporation pursuant to the
redemption of the Series D Stock, Series C Stock, Series B Stock and
Series A Stock if the Corporation had sufficient funds legally
available therefor. Payments shall first be applied against accrued and
unpaid dividends and thereafter against the remainder of the Redemption
Price. The shares of Series D Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided
herein. At any time thereafter when additional funds of the Corporation
are legally available for the redemption of shares of Series D Stock
such funds will immediately be used to redeem the balance of the shares
of Series D Stock to be redeemed. No dividends or other distributions
shall be declared or paid on, nor shall the Corporation redeem,
purchase or acquire any shares of, the Common Stock or any other class
or series of stock of the Corporation unless the Redemption Price of
all shares elected to be redeemed shall have been paid in full. Until
the Redemption Price for a share of Series D Stock elected to be
redeemed shall have been paid in full, such share of Series D Stock
shall remain outstanding for all purposes and entitle the holder
thereof to all the rights and privileges provided herein, including,
without limitation, that dividends and interest thereon shall continue
to accrue and, if unpaid prior to the date such shares are redeemed,
shall be included as part of the Redemption Price as provided in
paragraph (c) above. Notwithstanding anything in this Section 7 to the
contrary, even if a notice of redemption was delivered under paragraph
(a) or (b) of this Section 7, all shares of Series D Stock shall be
convertible pursuant to Section 5 at all times prior to the Redemption
Date.
(e) Notwithstanding any other term of this Certificate of
Designation, the Corporation shall not redeem (or have any obligation
to redeem) any shares of Series D Stock under any circumstances,
whether upon a Change of Control or otherwise, prior to the payment in
full and satisfaction of all of the obligations of the Corporation to
the lenders who provide financing to the Corporation in the aggregate
principal amount of $75,000,000.00. If the Corporation shall not have
paid in full or satisfied all of its obligations to such lenders on or
before any Redemption Date, upon such payment and satisfaction the
Corporation will immediately use any funds legally available therefor
to redeem the shares of Series D Stock to be redeemed.
8. Notices of Record Dates and Effective Dates. In case: (a) the
Corporation shall declare a dividend (or any other distribution) on the Common
Stock payable otherwise
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<PAGE> 17
than in shares of Common Stock; or (b) the Corporation shall authorize the
granting to the holders of Common Stock of rights to subscribe for or purchase
any shares of capital stock of any class or any other rights; or (c) of any
reorganization, share exchange or reclassification of the capital stock of the
Corporation (other than a subdivision or combination of outstanding shares of
Common Stock), or of any consolidation or merger to which the Corporation is
party or of the sale, lease or exchange of all or substantially all of the
property of the Corporation; or (d) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation; or (e) of a Change of Control,
then the Corporation shall cause to be mailed to the recordholders of the Series
D Stock at least 20 days prior to the applicable record date or effective date
hereinafter specified, a notice stating (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or rights, or, if a record
is not to be taken, the date as of which the holders of record of Common Stock
to be entitled to such dividend, distribution or rights are to be determined or
(ii) the date on which such reclassification, reorganization, share exchange,
consolidation, merger, sale, lease, exchange, dissolution, liquidation, winding
up or Change of Control is expected to become effective, and the date as of
which it is expected that holders of record of Common Stock shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, reorganization share exchange,
consolidation, liquidation, merger, sale, lease, exchange, dissolution,
liquidation, winding up or Change of Control.
9. Voting Rights.
(a) Holders of Series D Stock shall be entitled to notice of
any stockholder's meeting. Except as otherwise required by law or
provided herein, at any annual or special meeting of the Corporation's
stockholders, or in connection with any written consent in lieu of any
such meeting, each outstanding share of Series D Stock shall be
entitled to the number of votes equal to the number of full shares of
Common Stock into which such share of Series D Stock is then
convertible. Except as otherwise required by law or provided herein,
the Series B Stock, the Series C Stock, the Series D Stock and the
Common Stock shall vote together on each matter submitted to
stockholders, and not by class or series.
(b) Upon an Event of Default and so long as it shall continue,
the holders of the Series B Stock, the Series C Stock and the Series D
Stock, voting together as a class, shall be entitled at any annual
meeting of the stockholders or special meeting held in place thereof,
or at a special meeting of the holders of the Series B Stock, the
Series C Stock and the Series D Stock called as hereinafter provided,
to elect a majority of the Board of Directors and such right to elect a
majority of the Board of Directors shall be in lieu of the right of the
holders of the Series B Stock and the Series C Stock (and, as may be
provided pursuant to the terms of this Certificate of Designations,
Preferences and Rights of the Series D Stock, the Series D Stock) to
each elect one director. Such right of the holders of the Series B
Stock, the Series C Stock and the Series D Stock to elect a majority of
the Board of Directors may be
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<PAGE> 18
exercised until an Event of Default shall be cured, if curable, or
waived, and when so cured or waived, the right of the holders of Series
B Stock, the Series C Stock and the Series D Stock to elect a majority
of the Board of Directors shall cease and the right of the holders of
the Series B Stock and the Series C Stock (and, as may be provided
pursuant to the terms of this Certificate of Designations, Preferences
and Rights of the Series D Stock, the Series D Stock) to each elect one
director shall resume, but subject always to the same provisions for
the vesting of such special voting rights in the case of any such
future Event of Default. At any time when such special voting rights
shall have so vested in the holders of the Series B Stock, the Series C
Stock and the Series D Stock, the Secretary of the Corporation may, and
upon the written request of the holders of 10% or more of the number of
shares of the Series B Stock, the Series C Stock and the Series D Stock
then outstanding addressed to him at the principal office of the
Corporation, shall, call a special meeting of the holders of the Series
B Stock, the Series C Stock and the Series D Stock for the election of
a majority of the Board of Directors to be elected by them as provided
herein, to be held in the case of such written request as soon as
practicable after delivery of such request, and in either case to be
held at the place and upon the notice provided by law and in the
by-laws for the holding of meetings of stockholders. If at any such
annual or special meeting or adjournment thereof the holders of at
least a majority of the Series B Stock, the Series C Stock and the
Series D Stock then outstanding shall be present or represented at such
meeting, the then authorized number of directors of the Corporation
shall be increased to the extent necessary to provide a majority of new
directors to be elected and the holders of the Series B Stock, the
Series C Stock and the Series D Stock shall be entitled to elect the
additional directors so provided for. The directors so elected shall
serve until the next annual meeting or until their successors shall be
elected and qualified, provided, however, that whenever the holders of
the Preferred Stock shall be divested of the special rights to elect a
majority of the Board of Directors as above provided, the term of
office of the persons so elected as directors by the holders of the
Series B Stock, the Series C Stock and the Series D Stock as a class,
or elected to fill any vacancies resulting from the death, resignation
or removal of the directors so elected by the holders of Series B
Stock, the Series C Stock and the Series D Stock, shall forthwith
terminate and the authorized number of directors shall be reduced
accordingly.
If during any interval between any special meeting of the
holders of Series B Stock, the Series C Stock and the Series D Stock
for the election of directors to be elected by them as provided above
and the next ensuing annual meeting of stockholders, or between annual
meetings of stockholders for the election of directors, and while the
holders of the Series B Stock, the Series C Stock and the Series D
Stock shall be entitled to elect a majority of the Board of Directors,
any of the directors who have been elected by the holders of the Series
B Stock, the Series C Stock and the Series D Stock shall, by reason of
resignation, death or removal, have departed from the Board, the
Secretary of the Corporation shall call a special meeting of the
holders
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<PAGE> 19
of the Series B Stock, the Series C Stock and the Series D Stock and
such vacancy or vacancies shall be filled at such special meeting.
(c) In addition to any other vote or consent of stockholders
provided by law or by the Corporation's Certificate of Incorporation,
the Corporation shall not, without the approval by vote or written
consent of the holders of not less than 60 % of the then outstanding
shares of Series D Stock:
(i) amend, waive or repeal any provisions of, or add
any provision to, (i) this Certificate of Designation or (ii)
any provision of the Corporation's Certificate of
Incorporation or any other certificate of designation filed
with the Secretary of State of Delaware by the Corporation
with respect to its preferred stock;
(ii) amend, waive or repeal any provisions of, or add
any provision to, the Corporation's By-Laws;
(iii) authorize, create, issue or sell any shares of
Equivalent Stock or Superior Stock, except as authorized in
this Certificate of Designation;
(iv) issue any shares of Series D Stock other than
pursuant to the Purchase Agreement or upon transfers of
outstanding shares of Series D Stock;
(v) enter into any agreement, indenture or other
instrument which contains any provisions restricting the
Corporation's obligation to pay dividends on or make
redemptions of the Series D Stock in accordance herewith;
(vi) dissolve the Corporation;
(vii) enter into any agreement(s) that would restrict
the Corporation's ability to perform its obligations pursuant
to the Purchase Agreements (as defined in Section 11(iv)
below);
(viii) (A) at any time prior to the second
anniversary of the Original Issue Date, sell, lease or
otherwise dispose of all or substantially all of the assets of
the Corporation, other than in the ordinary course of
business, or merge or consolidate with any other business
entity in a transaction in which the Corporation is not the
surviving corporation, unless (i) the aggregate consideration
received by the Corporation or its stockholders, divided by
(ii) the total number of shares of Common Stock (calculated on
a fully diluted basis) outstanding as of the date of such
transaction, equals or exceeds $25.00 (as adjusted for
Recapitalization Events); or (B) at any time after the second
anniversary of the Original Issue Date, sell, lease or
otherwise dispose of all or
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substantially all of the assets of the Corporation, other than
in the ordinary course of business, or merge or consolidate
with any other business entity in a transaction in which the
Corporation is not the surviving corporation, unless such
transaction provides holders of Series D Stock with an IRR (as
defined in the Certificate of Designations of the
Corporation's Series C Stock, as in effect on the Original
Issue Date) equal to at least twenty-five one hundredths
(25/100), calculated as if the holder of Series D Stock
purchased such shares of Series D Stock on the date such
holder purchased such shares at the purchase price paid by
such holder;
(ix) sell, lease or otherwise dispose of 20% or more
of the assets of the Corporation, other than in the ordinary
course of business, unless the proceeds of such sale, lease or
other disposition are reinvested in assets of the general type
used in the business of the Corporation;
(x) issue more than 3,750,000 shares of Common Stock
(as adjusted for Recapitalization Events and excluding any
shares that the Corporation may issue pursuant to an
underwriters' overallotment option) in connection with any
public offering of the Corporation's Common Stock pursuant to
an effective registration under the Securities Act of 1933, as
amended, covering the offering and sale of Common Stock;
(xi) issue equity securities to employees, officers
or directors of the Corporation, except (a) securities
issuable upon the exercise of outstanding options and warrants
and pursuant to existing contractual commitments and (b)
options to purchase up to 2,184,166 shares of Common Stock,
together with the Common Stock issuable upon exercise thereof;
(xii) issue any securities for a price less than fair
market value, other than as may be required by existing
contractual commitments, as permitted by clause (xi) hereof or
pursuant to warrants to purchase shares of Common Stock
granted by the Corporation from time to time where the
exercise price of such warrants equals or exceeds the fair
market value of the Common Stock as of the date of grant of
such warrants;
(xiii) enter into any transactions (or series of
transactions), including loans, with any officer or director
of the Corporation or to or with their affiliates and family
members involving $100,000.00 or more per year individually or
$500,000.00 or more per year in the aggregate except (a) as
may be contemplated by existing contractual commitments, (b)
reasonable compensation payable to officers and directors, and
(c) for options and warrants issued in compliance with clause
(ix) hereof; or
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(xiv) engage in any transaction (or series of
transactions) that would impair or reduce the rights and
preferences of the holders of the Series D Stock as a class
relative to the rights and preferences of the holders of any
other class of the Corporation's capital stock.
"Assets" shall mean an interest in any kind of property or assets,
whether real, personal or mixed, or tangible or intangible.
"Equivalent Stock" shall mean any shares of any class or series of
Stock of the Corporation having any preference or priority as to dividends or
Assets on a parity with any such preference or priority of the Series D Stock
and no preference or priority as to dividends or Assets superior to any such
preference or priority of the Series D Stock and any instrument or Security
directly or indirectly convertible into or exercisable or exchangeable for
Equivalent Stock. Without limiting the generality of the foregoing, a dividend
rate, mandatory or optional sinking fund payment amounts or schedules or
optional redemption provisions, the existence of a conversion right or the
existence of a liquidation preference of up to 100% of the original issue price
plus unpaid accrued dividends plus a premium of up to the dividend rate or up to
the percentage of the equity of the Corporation represented by such Stock, with
respect to any class or series of Stock, differing from that of the Series D
Stock, shall not prevent such class of Stock from being Equivalent Stock.
"Securities" shall mean any debt or equity securities of the
Corporation, whether now or hereafter authorized, and any instrument directly or
indirectly convertible into or exercisable or exchangeable for Securities or
Security. The term "Security" shall mean one of the Securities.
"Stock" shall include any and all shares, interests or other
equivalents (however designated) of, or participations in, corporate stock.
"Superior Stock" shall mean any shares of any class or series of Stock
of the Corporation having any preference or priority as to dividends or Assets
superior to any such preference or priority of the Series D Stock and any
instrument or security directly or indirectly convertible into or exercisable or
exchangeable for Superior Stock.
(d) Notwithstanding anything else contained herein, the
affirmative vote or written consent of the holders of not less than 90%
of the then outstanding shares of Series D Stock shall be necessary to
amend, alter or repeal any of the provisions of the Corporation's
Certificate of Incorporation or the Certificate of Designation creating
this Series D Stock which would alter or change (i) the dividend rate,
(ii) redemption provisions, (iii) anti-dilution provisions, (iv) the
place or currency of payments hereunder, (v) the right to institute
suit for the enforcement of any payment hereunder, (vi) the conversion
provisions, or (vii) provisions of this Section 9, so as to affect any
of the foregoing adversely.
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10. Preemptive Rights.
(a) The Corporation shall not issue or sell any shares of
Common Stock, Preferred Stock or other securities directly or
indirectly convertible into or exercisable or exchangeable for shares
of Common Stock, other than any such issuance or sale (i) pursuant to a
Qualifying Offering, (ii) pursuant to a stock option plan approved by
the Board of Directors, (iii) as a form of consideration in connection
with mergers or acquisitions where the Corporation is the surviving
entity or (iv) where the aggregate gross proceeds are less than
$500,000 in any single transaction, provided that the sale price per
share is not less than the then applicable fair market value of such
shares, as determined in good faith by the Corporation's Board of
Directors, and, provided further, that the aggregate gross proceeds of
all such transactions shall not exceed $1,500,000 (the securities
issued in such transactions being referred to as the "Newly Issued
Securities"), unless prior to the issuance or sale of such Newly Issued
Securities each holder of Series D Stock shall have been given the
opportunity (such opportunity being herein referred to as the
"Preemptive Right") to purchase (on the same terms as such Newly Issued
Securities are proposed to be sold) the same proportion of such Newly
Issued Securities being issued or offered for sale by the Corporation
as (x) the number of shares of Common Stock (calculated solely on
account of outstanding shares of Series D Stock on an as converted
basis) held by such holder on the day preceding the date of the
Preemptive Notice (as defined herein), as the case may be, bears to (y)
the total number of shares of Common Stock (calculated on a fully
diluted basis) outstanding on that day.
(b) Prior to the issuance or sale by the Corporation of any
Newly Issued Securities, the Corporation shall give written notice
thereof (the "Preemptive Notice") to each holder of Series D Stock. The
Preemptive Notice shall specify (i) the name and address of the bona
fide investor to whom the Corporation proposes to issue or sell Newly
Issued Securities, (ii) the total amount of capital to be raised by the
Corporation pursuant to the issuance or sale of Newly Issued
Securities, (iii) the number of Securities of such Newly Issued
Securities proposed to be issued or sold, (iv) the price and other
terms of their proposed issuance or sale, (v) the number of such Newly
Issued Securities which such holder is entitled to purchase (determined
as provided in subsection (a) above), and (vi) the period during which
such holder may elect to purchase such Newly Issued Securities, which
period shall extend for at least thirty (30) days following the receipt
by such holder of the Preemptive Notice (the "Preemptive Acceptance
Period"). Each holder of Series D Stock who desires to purchase Newly
Issued Securities shall notify the Corporation within the Preemptive
Acceptance Period of the number of Newly Issued Securities he wishes to
purchase, as well as the number, if any, of additional Newly Issued
Securities he would be willing to purchase in the event that all of the
Newly Issued Securities subject to the Preemptive Right are not
subscribed for by the other holders of Series D Stock.
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(c) In the event a holder of Series D Stock declines to
subscribe for all or any part of its pro rata portion of any Newly
Issued Securities which are subject to the Preemptive Right (the
"Declining Preemptive Purchaser") during the Preemptive Acceptance
Period, then the other holders of Series D Stock shall have the right
to subscribe for all (or any declined part) of the Declining Preemptive
Purchaser's pro rata portion of such Newly Issued Securities (to be
divided among the other holders of Series D Stock desiring to exercise
such right on a ratable basis).
(d) Any such Newly Issued Securities which none of the holders
elect to purchase in accordance with the provisions of this Section 10,
may be sold by the Corporation, within a period of three (3) months
after the expiration of the Preemptive Acceptance Period, to any other
person or persons at not less than the price and upon other terms and
conditions not less favorable to the Corporation than those set forth
in the Preemptive Notice.
(e) The preemptive rights afforded by this Section 10, and any
obligation for the Corporation to offer such shares of Common Stock,
Preferred Stock or other securities convertible into or exchangeable
for shares of Common Stock may be waived by a written instrument signed
by the holders of sixty percent (60 %) of the Series D Stock.
11. Events of Default. An Event of Default shall mean any of the
following:
(i) Any failure by the Corporation to pay in cash any
dividend, if and when declared by the Board of Directors, on
the payment due dates and in the amounts provided pursuant to
Section 3 hereof, if such failure shall continue for any two
quarterly periods;
(ii) Any failure by the Corporation to satisfy its
redemption obligations pursuant to Section 7 hereof if any
such failure shall continue for a period of five days from the
appropriate redemption date;
(iii) Any failure by the Corporation to comply with
the provisions of Sections 4, 5, 6, 8, 9 or 10 hereof;
(iv) If any representation or warranty made by the
Corporation in the Stock Purchase Agreement dated as of August
27, 1999 or the exhibits or schedules thereto (the "Purchase
Agreements") is or shall be untrue in any material respect at
the time it was made, if such representation or warranty
remains untrue after 10 days' written notice, with such notice
delivered by hand or by first-class, certified or overnight
mail, postage prepaid, or by telecopier, from any holder of
Series D Stock, unless waived in writing by holders of not
less than 60 % of the outstanding shares of Series D Stock;
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(v) Any failure by the Corporation to comply with, or
any breach by the Corporation of, any of the covenants,
agreements or obligations of the Corporation contained in the
Purchase Agreements which continues for a period of 10 days
after written notice, with such notice delivered by hand or by
first-class, certified or overnight mail, postage prepaid, or
by telecopier, from any holder of Series D Stock, unless
waived in writing by holders of not less than 60 % of the
outstanding shares of Series D Stock;
(vi) Default by the Corporation in the performance or
observance of any obligation or condition with respect to any
Indebtedness of the Corporation that is not cured or waived
within 90 days or if the effect of such default is to
accelerate the maturity of such Indebtedness or cause such
Indebtedness to be prepaid, purchased or redeemed or to permit
the holder or holders thereof, or any trustee or agent for
such holders, to cause such Indebtedness to become due and
payable prior to its expressed maturity or to cause such
Indebtedness to be prepaid, purchased or redeemed or to
realize upon any collateral or security for such Indebtedness,
unless such default shall have been waived by the appropriate
person. Indebtedness of any corporation shall mean the
principal of (and premium, if any) and unpaid interest on (i)
indebtedness which is for money borrowed from others; (ii)
indebtedness guaranteed, directly or indirectly, in any manner
by such corporation, or in effect guaranteed, directly or
indirectly, by such corporation through an agreement,
contingent or otherwise, to supply funds to or in any manner
invest in the debtor or to purchase indebtedness, or to
purchase assets or services primarily for the purpose of
enabling the debtor to make payment of the indebtedness or of
assuring the owner of the indebtedness against loss; (iii) all
indebtedness secured by any mortgage, lien, pledge, charge or
other encumbrance upon assets owned by such corporation, even
if such corporation has not in any manner become liable for
the payment of such indebtedness; (iv) all indebtedness of
such corporation created or arising under any conditional
sale, lease or other title retention agreement with respect to
assets acquired by such corporation even though the rights and
remedies of the seller, lessor or lender under such agreement
or lease in the event of default are limited to repossession
or sale of such assets and provided that obligations for the
payment of rent under a lease of premises from which the
business of such corporation will be conducted shall not
constitute indebtedness; and (v) renewals, extensions and
refunding of any such indebtedness; or
(vii) If the Corporation shall:
(a) become insolvent or generally fail to
pay, or admit in writing its inability to pay, its
debts as they become due;
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<PAGE> 25
(b) apply for, consent to, or acquiesce in,
the appointment of a trustee, receiver, sequestrator
or other custodian for the Corporation or any
property thereof, or make a general assignment for
the benefit of creditors (any of which shall be
referred to herein as a "Receiver");
(c) in the absence of such application,
consent or acquiescence, permit or suffer to exist
the appointment of a Receiver, and such Receiver
shall not be discharged within 60 calendar days;
(d) commit any act of bankruptcy, permit or
suffer to exist the commencement of any bankruptcy
reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or
any dissolution, winding up or liquidation proceeding
in respect of the Corporation, and, if any such case
or proceeding is not commenced by the Corporation,
such case or proceeding shall be consented to or
acquiesced in by the Corporation, or shall result in
the entry of an order for relief and shall remain for
30 calendar days undismissed; or
(e) take any corporate or other action
authorizing, or in furtherance of, any of the
foregoing.
B. The recitals and resolutions contained herein have not been
modified, altered or amended and are presently in full force and effect.
(The remainder of this page is intentionally left blank.)
25
<PAGE> 26
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to Certificate of Designations, Preferences and Rights of Series D 7%
Cumulative Convertible Preferred Stock to be executed on its behalf by Robert P.
May, its Chief Executive Officer, this 3rd day of November, 1999, hereby
declaring and certifying that this is the act and deed of the Corporation and
that the facts stated herein are true.
PNV.NET, INC.
By: /s/ Robert P. May
------------------------------------------
Robert P. May, Chief Executive Officer
26
<PAGE> 1
EXHIBIT 3.9
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PNV INC.
PNV INC., a corporation organized and existing under and by virtue of
the Delaware General Corporation Law (the "Corporation"), does hereby certify
that:
I. The name of the Corporation is PNV Inc.
II. The Corporation's original Certificate of Incorporation was
filed on September 18, 1995, under the name Park N' View, Inc.
III. Pursuant to Sections 242 and 245 of the Delaware General
Corporation Law, the Corporation has adopted this Amended and Restated
Certificate of Incorporation, restating, integrating and further amending its
Certificate of Incorporation, which Amended and Restated Certificate of
Incorporation has been duly proposed by the directors and adopted by the
stockholders of this Corporation (by written consent pursuant to Section 228 of
the Delaware General Corporation Law) in accordance with the provisions of such
Sections 242 and 245.
ARTICLE I.
The name of the Corporation is PNV Inc.
ARTICLE II.
The registered office of the Corporation is to be located at 1013
Centre Road, in the City of Wilmington, County of New Castle, State of Delaware,
19805. The name of its registered agent at that address is Corporation Service
Company.
ARTICLE III.
The nature of the business or purpose to be conducted or promoted is to
engage in any lawful act or activity for which a corporation may be organized
under the Delaware General Corporation Law.
ARTICLE IV.
(a) The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation shall have authority to issue is fifty eight
million seven hundred fifty thousand
<PAGE> 2
(58,750,000) shares. The total number of shares of Common Stock which the
Corporation shall have authority to issue is fifty million (50,000,000) shares,
and the par value of each share of Common Stock is $0.001. The total number of
shares of Preferred Stock which the Corporation shall have authority to issue is
eight million seven hundred fifty thousand (8,750,000) shares, and the par value
of each share of Preferred Stock is $0.01. The Preferred Stock may be issued
from time to time, in one or more series, each series to be appropriately
designated by a distinguishing letter or title, prior to the issue of any shares
thereof.
(b) The Board of Directors is hereby authorized to fix or alter the
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions, if any), the redemption
price or prices, the liquidation preferences, any other designations,
preferences and relative, participating, optional or other special rights, and
any qualifications, limitations or restrictions thereof, of any wholly unissued
series of Preferred Stock, and the number of shares constituting any such
unissued series and the designation thereof, or any of them; and to increase or
decrease the number of shares of any series subsequent to the issue of shares of
that series, but not below the number of shares of such series then outstanding.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
ARTICLE V.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, repeal, alter,
amend and rescind the bylaws of the Corporation.
ARTICLE VI.
The Board of Directors shall have that number of Directors set out in
the bylaws of the Corporation as adopted or as set from time to time by a duly
adopted amendment thereto by the Directors or stockholders of the Corporation.
ARTICLE VII.
Elections of directors at an annual or special meeting of stockholders
need not be by written ballot unless the bylaws of the Corporation shall so
provide.
ARTICLE VIII.
No action shall be taken by the stockholders except at an annual or
special meeting of stockholders. The stockholders may not take action by written
consent.
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<PAGE> 3
ARTICLE IX.
Special meetings of the stockholders of the Corporation for any purpose
or purposes may be called at any time by the chairman of the Board of Directors
or by a majority of the members of the Board of Directors, but special meetings
may not be called by any other person or persons.
ARTICLE X.
Each reference in this Certificate of Incorporation to any provision of
the Delaware General Corporation Law refers to the specified provision of the
General Corporation Law of the State of Delaware, as the same now exists or as
it may hereafter be amended or superseded.
ARTICLE XI.
To the fullest extent permitted by the Delaware General Corporation
Law, the Corporation shall indemnify and advance indemnification expenses on
behalf of all directors and officers of the Corporation. The Corporation shall
indemnify such other persons as may be required by statute or by the bylaws of
the Corporation. The Corporation may, to the fullest extent permitted by the
Delaware General Corporation Law, purchase and maintain insurance on behalf of
any director or officer, or such other person as may be permitted by statute or
the bylaws of the Corporation, against any liability which may be asserted
against any director, officer or such other person and may enter into contracts
providing for the indemnification of any director, officer or such other person
to the fullest extent permitted by Delaware law. The liability of directors of
the Corporation (for actions or inactions taken by them as directors) for
monetary damages shall be eliminated to the fullest extent permissible.
If the Delaware General Corporation Law is hereafter amended to
authorize corporate action further limiting or eliminating the personal
liability of directors, then the liability of the director to the Corporation
shall be limited or eliminated to the fullest extent permitted by the Delaware
General Corporation Law, as so amended from time to time. Any repeal or
modification of this Article XI by the stockholders of the Corporation shall be
prospective only, and shall not adversely affect any limitation on the personal
liability of a director of the Corporation existing at the time of such repeal
or modification.
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<PAGE> 4
IN WITNESS WHEREOF, PNV Inc. has caused this certificate to be signed
by its duly authorized officer this ____ day of _______________, 1999.
PNV INC.
By: _________________________________
Robert P. May, Chief Executive Officer
<PAGE> 1
EXHIBIT 3.11
AMENDED AND RESTATED BYLAWS
OF
PNV INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of PNV Inc.
(hereinafter, called the "corporation") shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings. Meetings of stockholders shall be held at
any place within or outside the State of Delaware designated by the board of
directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. Annual Meetings of Stockholders. The annual meeting of
stockholders shall be held each year on a date and time designated by the board
of directors. Any previously scheduled annual meeting of the stockholders may be
postponed by resolution of the board of directors upon public notice given prior
to the date previously scheduled for such annual meeting of the stockholders.
Section 3. Special Meetings of Stockholders. A special meeting of the
stockholders may be called at any time by the chairman of the board of directors
or by a majority of the directors, but such special meetings may not be called
by any other person or persons. Any previously scheduled special meeting of the
stockholders may be postponed by resolution of the board of directors upon
public notice given prior to the date previously scheduled for such special
meeting of the stockholders.
Section 4. Notice of Stockholders' Meetings. All notices of meetings of
stockholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting being noticed. The notice shall specify the place, date and
hour of the meeting and in the case of a special meeting, the general nature of
the business to be transacted.
<PAGE> 2
Section 5. Manner of Giving Notice; Affidavit of Notice. If mailed,
notice shall be deemed to have been given when deposited in the mail, postage
prepaid, directed to the stockholder at his address appearing on the books of
the corporation or given by the stockholder to the corporation for the purpose
of notice. An affidavit of the mailing or other means of giving any notice of
any stockholders' meeting shall be executed by the secretary, assistant
secretary or any transfer agent of the corporation giving such notice, and shall
be filed and maintained in the minute book of the corporation.
Section 6. Quorum. The presence in person or by proxy of the holders of
a majority of the shares entitled to vote at any meeting of stockholders shall
constitute a quorum for the transaction of business. The stockholders present at
a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 7. Adjourned Meeting and Notice Thereof. Any stockholders'
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the chairman of the meeting, but in the absence of a
quorum, no other business may be transacted at such meeting, except as provided
in Section 6 of this Article II.
When any meeting of stockholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at a meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than thirty (30) days from the date
set for the original meeting. Notice of any such adjourned meeting, if required,
shall be given to each stockholder of record entitled to vote at the adjourned
meeting in accordance with the provisions of Sections 4 and 5 of this Article
II. At any adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting.
Section 8. Voting. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section 11
of this Article II. Such vote may be by voice vote or by ballot, at the
discretion of the chairman of the meeting. Any stockholder entitled to vote on
any matter (other than the election of directors) may vote part of the shares in
favor of the proposal and refrain from voting the remaining shares or vote them
against the proposal; but, if the stockholder fails to specify the number of
shares such stockholder is voting affirmatively, it will be conclusively
presumed that the stockholder's approving vote is with respect to all shares
such stockholder is entitled to vote. If a quorum is present, the affirmative
vote of the majority of the shares represented at the meeting and entitled to
vote on any matter shall be the act of the stockholders, unless the vote of a
greater number or voting by classes is required by the Delaware General
Corporation Law or the certificate of incorporation or the certificate of
designation of preferences as to any preferred stock.
At a stockholders' meeting involving the election of directors, no
stockholder shall be entitled to cumulate (i.e., cast for any one or more
candidates a number of votes greater than the
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<PAGE> 3
number of the stockholders shares). The candidates receiving the highest number
of votes, up to the number of directors to be elected, shall be elected.
Section 9. Waiver of Notice or Consent by Absent Stockholders. The
transactions of any meeting of stockholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, not present in person or by proxy, signs a written waiver of
notice or a consent to the holding of the meeting, or an approval of the minutes
thereof. The waiver of notice or consent need not specify either the business to
be transacted or the purpose of any annual or special meeting of stockholders.
All such waivers, consents or approvals shall be filed with the corporate
records or made part of the minutes of the meeting.
Attendance of a person at a meeting shall also constitute a waiver of
notice of such meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if such objection is expressly made at the meeting.
Section 10. No Stockholder Action by Written Consent Without a Meeting.
Stockholders may take action only at a regular or special meeting of
stockholders.
Section 11. Record Date for Stockholder Notice and Voting. For purposes
of determining the holders entitled to notice of any meeting or to vote, the
board of directors may fix, in advance, a record date, which shall not be more
than sixty (60) days nor less than ten (10) days prior to the date of any such
meeting, and in such case only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date fixed as aforesaid, except as
otherwise provided in the Delaware General Corporation Law.
If the board of directors does not so fix a record date, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held.
Section 12. Proxies. Every person entitled to vote for directors or on
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, prior to the vote pursuant thereto, by a
writing delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy, or (ii) written notice of the death or
incapacity of the maker of such proxy is received by the corporation before the
vote pursuant thereto is counted; provided, however, that no such proxy shall be
valid after the expiration of three (3) years from the date of such proxy,
unless otherwise provided in the proxy.
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<PAGE> 4
Section 13. Inspectors of Election; Opening and Closing the Polls. The
board of directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of stockholders, the chairman of
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall have the
duties prescribed by law.
The chairman of the meeting shall fix and announce at the meeting the
date and time of the opening and the closing of the polls for each matter upon
which the stockholders will vote at a meeting.
Section 14. Nomination and Stockholder Business Bylaw.
(A) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the board of directors
of the corporation and the proposal of business to be
considered by the stockholders may be made at an annual
meeting of stockholders (a) pursuant to the corporation's
notice of meeting, (b) by or at the direction of the board of
directors or (c) by any stockholder of the corporation who was
a stockholder of record at the time of giving of notice
provided for in this bylaw, who is entitled to vote at the
meeting and who complies with the notice procedures set forth
in this bylaw.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause
(c) of paragraph (A)(1) of this bylaw, the stockholder must
have given timely notice thereof in writing to the secretary
of the corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the secretary at
the principal executive offices of the corporation not less
than the close of business on the 120th calendar day in
advance of the first anniversary of the date the corporation's
proxy statement was released to security holders in connection
with the preceding year's annual meeting; provided, however,
that if no annual meeting was held in the previous year or the
date of the annual meeting has been changed by more than
thirty (30) calendar days from the date contemplated at the
time of the previous year's proxy statement, a proposal shall
be received by the corporation no later than the close of
business on the tenth day following the day on which notice of
the date of the meeting was mailed or public announcement of
the date of the meeting was made, whichever comes first. In no
event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a
stockholder's notice as described above. Such
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<PAGE> 5
stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or
reelection as a director all information relating to such
person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or
is otherwise required, in each case pursuant to applicable
federal securities laws, including, without limitation,
Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Rule 14a-11 thereunder
(including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of
the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such stockholder,
as they appear on the corporation's books, and of such
beneficial owner and (ii) the class and number of shares of
the corporation which are owned beneficially and of record by
such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this bylaw to the contrary, in the event that the
number of directors to be elected to the board of directors of
the corporation is increased and there is no public
announcement by the corporation naming all of the nominees for
director or specifying the size of the increased board of
directors at least 70 days prior to the first anniversary of
the date of the preceding years annual meeting, a stockholders
notice required by this bylaw shall also be considered timely,
but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the
secretary at the principal executive offices of the
corporation not later than the close of business on the 10th
day following the day on which such public announcement is
first made by the corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall be brought before the
meeting pursuant to the corporation's notice of meeting. A stockholder's
nomination of one or more persons for election to the board of directors shall
only be permitted to be made at a special meeting of stockholders if: (i) the
corporation's notice of such meeting specified that directors are to be elected
at such special meeting; (ii) such stockholder was a stockholder of record
entitled to vote at the meeting at the time of giving of notice provided for in
this bylaw; and (iii) if such stockholder complies with the notice procedures
set forth in this bylaw. In the event the corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the board of
directors, any such stockholder may nominate a person or persons (as the case
may be), for election to such position(s) as specified in the corporation's
notice of meeting, if the stockholder's notice required by paragraph (A)(2) of
this bylaw shall be delivered to the secretary at the principal executive
offices of the corporation not earlier than the close of business on the 90th
day prior to such special meeting and not later than the close of business on
the later of the 60th day prior to such special meeting or the 10th day
following the day on which public announcement is first made of the date of the
special
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<PAGE> 6
meeting and of the nominees proposed by the board of directors to be elected at
such meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
(C) General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this bylaw shall be eligible to serve
as directors. Except as otherwise provided by law, the
certificate of incorporation or these bylaws, the chairman of
the meeting shall have the power and authority to determine
the procedures of a meeting of stockholders, including,
without limitation, the authority to determine whether a
nomination or any other business proposed to be brought before
the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this bylaw and, if
any proposed nomination or business is not in compliance with
this bylaw, to declare that such defective proposal or
nomination shall be disregarded.
(2) For purposes of this bylaw, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service
or in a document publicly filed by the corporation with the
Securities and Exchange Commission pursuant to Section 13, 14
or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this bylaw, a
stockholder shall also comply with all applicable requirements
of the Exchange Act and the rules and regulations thereunder
with respect to the matters set forth in this bylaw. Nothing
in this bylaw shall be deemed to affect any rights (i) of
stockholders to request inclusion of proposals in the
corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (ii) of the holders of any series of preferred
stock, if any, to elect directors under certain circumstances.
ARTICLE III
DIRECTORS
Section 1. Powers. Subject to the provisions of the Delaware General
Corporation Law and any limitations in the certificate of incorporation and
these bylaws relating to action required to be approved by the stockholders or
by the outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
the board of directors.
Section 2. Number; Term of Office and Qualification of Directors. The
number of directors which shall constitute the whole board of directors shall
not be less than one nor more than nine. The board of directors as of the date
of these amended and restated bylaws shall consist of seven directors.
Thereafter, within the limits specified, the number of directors shall be
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<PAGE> 7
determined by resolution of the board of directors. Directors need not be
stockholders. Each of the directors of the corporation shall hold office until
his successor shall have been duly elected and shall qualify or until he shall
resign or shall have been removed in the manner hereinafter provided. Directors
need not be residents of the State of Delaware or shareholders of the
corporation.
Section 3. Election and Term of Office of Directors. Directors shall be
elected at the annual meeting of the stockholders or a special meeting of the
stockholders.
Section 4. Removal of Directors; Vacancies. Vacancies in the board of
directors may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director. Each director elected to fill a
vacancy shall hold office for the remainder of the term of the person whom he
succeeds, and until a successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist in the case of the death, retirement, resignation or removal of any
director, or if the board of directors by resolution declares vacant the office
of a director who has been declared of unsound mind by an order of court or
convicted of a felony, or if the authorized number of directors be increased, or
if the stockholders fail at any meeting of stockholders at which any director or
directors are elected, to elect the full authorized number of directors to be
voted for at that meeting.
Any director may resign or voluntarily retire upon giving written
notice to the chairman of the board, the president, the secretary or the board
of directors. Such retirement or resignation shall be effective upon the giving
of the notice, unless the notice specifies a later time for its effectiveness.
If such retirement or resignation is effective at a future time, the board of
directors may elect a successor to take office when the retirement or
resignation becomes effective.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his term of office.
Section 5. Place of Meetings and Telephonic Meetings. Regular meetings
of the board of directors may be held at any place within or without the State
of Delaware that has been designated from time to time by resolution of the
board. In the absence of such designation, regular meetings shall be held at the
principal executive office of the corporation. Special meetings of the board
shall be held at any place within or without the State of Delaware that has been
designated in the notice of the meeting or, if not stated in the notice or there
is no notice, at the principal executive office of the corporation. Any meeting,
regular or special, may be held by conference telephone or similar communication
equipment, so long as all directors participating in such meeting can hear one
another, and all such directors shall be deemed to be present in person at such
meeting.
Section 6. Annual Meetings. Immediately following each annual meeting
of stockholders, the board of directors shall hold a regular meeting for the
purpose of organization, any desired election of officers and transaction of
other business. Notice of this meeting shall not be required.
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Section 7. Other Regular Meetings. Other regular meetings of the board
of directors shall be held at such time as shall from time to time be determined
by the board of directors. Such regular meetings may be held without notice
provided that notice of any change in the determination of time of such meeting
shall be sent to all of the directors. Notice of a change in the determination
of the time shall be given to each director in the same manner as for special
meetings of the board of directors.
Section 8. Special Meetings. Special meetings of the board of directors
for any purpose or purposes may be called at any time by the chairman of the
board or the chief executive officer or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by facsimile, first-class
mail or telegram, charges prepaid, addressed to each director at his or her
address as it is shown upon the records of the corporation. In case such notice
is mailed, it shall be deposited in the United States mail at least two (2) days
prior to the time of the holding of the meeting. In case such notice is
delivered personally, by telephone, facsimile or telegram, it shall be delivered
personally, or by telephone, by facsimile or to the telegraph company at least
twenty-four (24) hours prior to the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated to either the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose of the meeting nor the place if the meeting
is to be held at the principal executive office of the corporation.
Section 9. Quorum. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn as
hereinafter provided. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the board of directors. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for such meeting.
Section 10. Waiver of Notice. The transactions of any meeting of the
board of directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum be present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes thereof. The waiver of notice or consent
need not specify the purpose of the meeting. All such waivers, consents and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Notice of a meeting shall also be deemed given to any
director who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director.
Section 11. Adjournment. A majority of the directors present, whether
or not constituting a quorum, may adjourn any meeting to another time and place.
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Section 12. Notice of Adjournment. Notice of the time and place of an
adjourned meeting need not be given, unless the meeting is adjourned for more
than twenty-four (24) hours, in which case notice of such time and place shall
be given prior to the time of the adjourned meeting, in the manner specified in
Section 8 of this Article III, to the directors who were not present at the time
of the adjournment.
Section 13. Action Without Meeting. Any action required or permitted to
be taken by the board of directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
such action. Such action by written consent shall have the same force and effect
as a unanimous vote of the board of directors. Such written consent or consents
shall be filed with the minutes of the proceedings of the board.
Section 14. Fees and Compensation of Directors. Directors and members
of committees may receive such compensation, if any, for their services and such
reimbursement of expenses, as may be fixed or determined by resolution of the
board of directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for such services.
ARTICLE IV
COMMITTEES
Section 1. Committees of Directors. The board of directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, including an executive committee, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent member at any meeting of the committee. Any such
committee, to the extent provided in the resolution of the board, shall have all
the authority of the board, except with respect to:
(a) the approval of any action which, under the Delaware General
Corporation Law, also requires the approval of the full board of directors, or
the stockholders of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or on any committee;
(d) the amendment or repeal of bylaws or the adoption of new bylaws;
(e) the amendment or repeal of any resolution of the board of directors
which by its express terms is not so amendable or repealable;
(f) a distribution to the stockholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the board of
directors; or
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(g) the appointment of any other committees of the board of directors
or the members thereof.
Section 2. Meetings and Action of Committees. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, Sections 5 (place of meetings), 7
(regular meetings), 8 (special meetings and notice), 9 (quorum), 10 (waiver of
notice), 11 (adjournment), 12 (notice of adjournment) and 13 (action without
meetings), with such changes in the context of those bylaws as are necessary to
substitute the committee and its members for the board of directors and its
members, except that the time of regular meetings of committees may be
determined by resolution of the board of directors as well as the committee,
special meetings of committees may also be called by resolution of the board of
directors, and notice of special meetings of committees shall also be given to
all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
Section 1. Officers. The officers of the corporation shall be chosen by
the board of directors and shall include a president, a secretary, and a chief
financial officer. The corporation may also have, at the discretion of the board
of directors, a chairman of the board, a chief executive officer, a treasurer,
one or more vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and such other officers as may be appointed in accordance
with the provisions of these bylaws. Any number of offices may be held by the
same person.
Section 2. Appointment of Officers. The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article V, shall be chosen by the board of
directors, and each shall hold his office until he shall resign or be removed or
otherwise disqualified to serve or his successor shall be appointed in
accordance with the provisions of Section 3 of this Article V. Any number of
officers may be appointed.
Section 3. Subordinate Officers, etc. The board of directors may
appoint, and may empower the chairman of the board or chief executive officer to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority and perform
such duties as are provided in the bylaws or as the board of directors may from
time to time determine.
Section 4. Removal and Resignation of Officers. Any officer may be
removed, either with or without cause, by the board of directors, at any regular
or special meeting thereof, or, except in case of an officer chosen by the board
of directors, by any officer upon whom such power of removal may be conferred by
the board of directors.
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Any officer may resign at any time by giving written notice to the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 5. Vacancies in Office. A vacancy in any office because of
death, resignation, removal, disqualification, or any other cause shall be
filled in the manner prescribed in these bylaws for regular appointments to such
office.
Section 6. Chairman of the Board. The chairman of the board, if such an
officer be appointed, shall, if present, preside at meetings of the board of
directors and exercise and perform such other powers and duties as may from time
to time be assigned to him by the board of directors or as may from time to time
be assigned to him by the board of directors or as may be prescribed by these
bylaws.
Section 7. Chief Executive Officer. The chief executive officer shall
be the chief executive officer of the corporation and shall, subject to the
control of the board of directors, have general supervision, direction and
control of the business and affairs of the corporation. He shall, in the absence
of a chairman of the board of directors, preside at all meetings of the board of
directors and stockholders. He shall have the general powers and duties of
management usually vested in the office of the chief executive officer of a
corporation, and shall have such other powers and perform such other duties as
from time to time may be prescribed by the board of directors or these bylaws.
Section 8. President. In the absence or disability of the chief
executive officer, the president shall perform all the duties of the chief
executive officer and when so acting shall have the power of, and be subject to
all the restrictions upon, the chief executive officer. The president shall have
such other powers and perform such other duties as from time to time may be
prescribed for the president by the board of directors, these bylaws, the chief
executive officer or the chairman of the board.
Section 9. Vice Presidents. In the absence or disability of the
president, a vice president designated by the board of directors shall perform
all the duties of the president, and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the president. The vice
presidents shall have such other powers and perform such other duties as form
time to time may be prescribed for them respectively by the board of directors
or the bylaws.
Section 10. Secretary. The secretary shall keep or cause to be kept, at
the principal executive office or such other place as the board of directors may
order, a book of minutes of all meetings and actions of directors, committees of
directors and stockholders, with the time and place of holding, whether regular
or special, and, if special, how authorized, the notice thereof given, the names
of those present at directors' and committee meetings, the number of shares
present or represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the board of directors,
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a stock register, or a duplicate register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required by the bylaws or by
law to be given, and he shall keep the seal of the corporation in safe custody,
and shall have such other powers and perform such other duties as may be
prescribed by the board of directors or by the bylaws.
Section 11. Chief Financial Officer. The chief financial officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall be open at all reasonable times to inspection by any director.
The chief financial officer shall deposit all monies and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the board of directors. The chief financial
officer shall disburse the funds of the corporation as may be ordered by the
board of directors, shall render to the chairman of the board and directors,
whenever they request it, an account of all of his transactions as chief
financial officer and of the financial condition of the corporation, and shall
have other powers and perform such other duties as may be prescribed by the
board of directors or the bylaws.
Section 12. Assistant Secretaries and Assistant Treasurers. Any
assistant secretary may perform any act within the power of the secretary, and
any assistant treasurer may perform any act within the power of the chief
financial officer, subject to any limitations which may be imposed in these
bylaws or in board resolutions.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. Indemnification. The corporation shall indemnify, in the
manner and to the full extent permitted by law, any person (or the estate of any
person) who was or is a party to, or is threatened to be made a party to, any
threatened, pending or completed action, suit or proceeding, whether or not by
or in the right of the corporation, and whether civil, criminal, administrative,
investigative or otherwise, by reason of the fact that such person is a director
or officer of the corporation, and at the discretion of the board of directors
may indemnify any person (or the estate of any person) who is such a party or
threatened to be made such a party by reason of the fact that such person is or
was an employee or agent of the corporation or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
corporation may, to the full extent permitted by law, purchase and maintain
insurance on behalf of any such person against any liability which may be
asserted against him and may enter into contracts providing for the
indemnification of such person
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to the full extent permitted by law. To the full extent permitted by law, the
indemnification provided herein shall include expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, and, in the manner
provided by law, any such expenses may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding. The indemnification
provided herein shall not be deemed to limit the right of the corporation to
indemnify any other person for any such expenses to the full extent permitted by
law, nor shall it be deemed exclusive of any other rights to which any person
seeking indemnification from the corporation may be entitled under any
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.
For the purposes of this Article V1, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors or officers so that any
person who is or was a director or officer of such constituent corporation, or
is or was serving at the request of such constituent corporation as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article VI with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
For purposes of this Article VI, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include service
as a director or officer of the corporation which imposes duties on, or involves
services by, such director or officer with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this section.
ARTICLE VII
GENERAL CORPORATE MATTERS
Section 1. Record Date for Purposes Other Than Notice and Voting. For
purposes of determining the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action, the board of
directors may fix, in advance, a record date, which date shall not precede the
date upon which the resolution fixing the record date is adopted by the board of
directors, and which shall not be more than sixty (60) nor less than ten (10)
days prior to any such action, and in such case only stockholders of record on
the date so fixed are entitled to receive the dividend, distribution or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date fixed as aforesaid, except as otherwise provided in the Delaware
General Corporation Law.
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A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting. In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the board
of directors may fix a record date which shall not be more than ten days after
the date upon which the resolution fixing the record date is adopted by the
board of directors.
Section 2. Checks, Drafts, Evidences of Indebtedness. All checks,
drafts or other orders for payment of money, notes or other evidences of
indebtedness, issued in the name of or payable to the corporation shall be
signed or endorsed by such person or persons and in such manner as, from time to
time, shall be determined by resolution of the board of directors.
Section 3. Corporate Contracts and Instruments, How Executed. The board
of directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances; and, unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or to any amount.
Section 4. Stock Certificates. A certificate or certificates for shares
of the capital stock of the corporation shall be issued to each stockholder when
any such shares are fully paid. All certificates shall be signed in the name of
the corporation by the chairman of the board, the chief executive officer or the
president or vice president and by the chief financial officer, the treasurer or
an assistant treasurer or the secretary or any assistant secretary, certifying
the number of shares and the class or series of shares owned by the stockholder.
Any or all of the signatures on the certificate may be facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if such person were an officer,
transfer agent or registrar at the date of issue.
Section 5. Lost Certificates. Except as hereinafter in this Section 5
provided, no new stock certificate shall be issued in lieu of an old certificate
unless the latter is surrendered to the corporation and canceled at the same
time. The board of directors may in case any stock certificate or certificate
for any other security is lost, stolen or destroyed, authorize the issuance of a
new certificate in lieu thereof, upon such terms and conditions as the board of
directors may require, including provision for indemnification of the
corporation secured by a bond or other adequate security sufficient to protect
the corporation against any claim that may be made against it, including any
expense or liability, on account of the alleged loss, theft or destruction of
such certificate or the issuance of such new certificate.
Section 6. Representation of Stock of Other Corporations. The chairman
of the board, the president, or any vice president, or any other person
authorized by resolution of the board of directors by any of the foregoing
designated officers, is authorized to vote on behalf of the
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corporation any and all stock of any other corporation or corporations, foreign
or domestic, standing in the name of the corporation. The authority herein
granted to said officers to vote or represent on behalf of the corporation any
and all stock by the corporation in any other corporation or corporations may be
exercised by any such officer in person or by any person authorized to do so by
proxy duly executed by said officer.
Section 7. Construction and Definitions. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
Delaware General Corporation Law shall govern the construction of the bylaws.
Without limiting the generality of the foregoing, the singular number includes
the plural, the plural number includes the singular, and the term "person"
includes both a corporation and a natural person.
Section 8. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
Section 9. Seal. The seal of the corporation shall be round and shall
bear the name of the corporation and words and figures denoting its organization
under the laws of the State of Delaware and year thereof, and otherwise shall be
in such form as shall be approved from time to time by the board of directors.
ARTICLE VIII
AMENDMENTS
Section 1. Amendment. The bylaws, or any of them, may be rescinded,
altered, amended or repealed, and new bylaws may be made by the board of
directors or by the stockholders at any annual or special meeting of
stockholders, provided that notice of such proposed amendment, modification,
repeal or adoption is given in the notice of the annual or special meeting;
provided, however, that the bylaws can only be amended if such amendment would
not conflict with the certificate of incorporation. Any bylaw made or altered by
the requisite number of stockholders may be altered or repealed by the board of
directors or may be altered or repealed by the requisite number of stockholders.
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CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(a) That I am the duly elected and acting Secretary of PNV Inc., a
Delaware corporation (the "Corporation"); and
(b) That the foregoing Amended and Restated Bylaws constitute the
Amended and Restated Bylaws of the Corporation, as duly adopted by the board of
directors of the Corporation pursuant to resolutions adopted at a meeting of the
board of directors held on October 25, 1999 and as adopted by the stockholders
of the Corporation pursuant to a consent dated as of October ___, 1999.
IN WITNESS WHEREOF, I have hereunto subscribed my name as of this ___
day of _____________________, 1999.
- ---------------------------
Anthony Allen, Secretary
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-87343 of PNV.net, Inc. of our report dated August 27, 1999 (September 22,
1999 as to the fifth paragraph of Note 11), appearing in the Prospectus, which
is part of such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
November 3, 1999
