<PAGE>
As filed with the Securities and Exchange Commission on August 14, 2000
Registration No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
UNIVERSAL BROADBAND NETWORKS, INC.
(Previously known as IJNT.net, Inc.)
(Exact Name Of Registrant As Specified In Its Charter)
Delaware 33-611753
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2030 Main Street, Suite 550
Irvine, California 92614
(949) 260-8100
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
--------------------
JEFFREY R. MATSEN, ESQ.
GENERAL COUNSEL
UNIVERSAL BROADBAND NETWORKS, INC.
2030 Main Street, Suite 550
Irvine, California 92614
(949) 260-8100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPY TO:
CHRISTOPHER A. WILSON, ESQ.
Pillsbury Madison & Sutro LLP
650 Town Center Drive, 7th Floor
Costa Mesa, California 92626
(714) 436-6800
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an 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 statement 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. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
========================= ====================== ======================= ====================== ======================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED SHARE (1) PRICE (1) REGISTRATION FEE
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Common stock, $.001 par 9,139,000 $3.562 $32,553,118 $8,594.00
value
========================= ====================== ======================= ====================== ======================
</TABLE>
-------------------
(1) Estimated solely for the purpose of computing the amount of the
registration fee in accordance with Rule 457(c) under the Securities
Act of 1933, as amended (the "Securities Act"), based on the average of
the bid and asked price for the common stock, $0.001 par value per
share, as reported on Nasdaq National Market at August 8, 2000.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
<PAGE>
9,139,000 SHARES
UNIVERSAL BROADBAND NETWORKS, INC.
COMMON STOCK
This prospectus relates to the offering of 9,139,000 shares of our
common stock, par value $.001, by the selling shareholders identified in this
prospectus. The common stock covered by this prospectus includes 2,525,000
shares issuable upon exercise of warrants issued to the selling security
holders. The prices at which such shareholders may sell the shares will be
determined by the prevailing market price for the shares or through negotiated
transactions. We will not receive any of the proceeds from the sale of the
shares, however, we are paying for the costs of registering the shares covered
by this prospectus.
The selling shareholders will receive all of the amounts received upon
any sale by them of the common stock, less any brokerage commissions or other
expenses incurred by them. While this offering is not being underwritten, the
selling shareholders and the brokers or other third parties through whom the
selling shareholders sell the common stock may be deemed "underwriters" as that
term is defined in the Securities Act of 1933, as amended, for purposes of the
resale of the shares of common stock offered in this prospectus.
THE SHARES HAVE NOT BEEN REGISTERED FOR SALE UNDER THE SECURITIES LAWS
OF ANY STATE OR JURISDICTION AS OF THE DATE OF THIS PROSPECTUS. BROKERS OR
DEALERS EFFECTING TRANSACTIONS IN THE SHARES SHOULD CONFIRM THE REGISTRATION OF
THE SHARES UNDER THE SECURITIES LAWS OF THE STATE IN WHICH SUCH TRANSACTIONS
OCCUR, OR THE EXISTENCE OF ANY EXEMPTIONS FROM SUCH REGISTRATION.
Our common stock is traded on the Nasdaq National Market under the
symbol "UBNT." On August 8, 2000, the last reported sale price for our common
stock on the Nasdaq National Market was $3.562 per share.
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 TO READ ABOUT CERTAIN RISKS THAT
YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
The date of this prospectus is August 15, 2000.
----------------
<PAGE>
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. FORWARD-LOOKING STATEMENTS DEAL WITH OUR
CURRENT PLANS, INTENTIONS, BELIEFS AND EXPECTATIONS AND STATEMENTS OF FUTURE
ECONOMIC PERFORMANCE. STATEMENTS CONTAINING TERMS SUCH AS "BELIEVES," "DOES NOT
BELIEVE," "PLANS," "EXPECTS," "INTENDS," "ESTIMATES," "ANTICIPATES" AND OTHER
PHRASES OF SIMILAR MEANING ARE CONSIDERED TO CONTAIN UNCERTAINTY AND ARE
FORWARD-LOOKING STATEMENTS.
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS AND
UNCERTAINTIES WHICH MAY CAUSE OUR ACTUAL RESULTS IN FUTURE PERIODS TO DIFFER
MATERIALLY FROM WHAT IS CURRENTLY ANTICIPATED. WE MAKE CAUTIONARY STATEMENTS IN
CERTAIN SECTIONS OF THIS PROSPECTUS, INCLUDING UNDER "RISK FACTORS." YOU SHOULD
READ THESE CAUTIONARY STATEMENTS AS BEING APPLICABLE T ALL RELATED
FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS, IN THE
MATERIALS REFERRED TO IN THIS PROSPECTUS, IN THE MATERIALS INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS, OR IN OUR PRESS RELEASES.
NO FORWARD-LOOKING STATEMENT IS A GUARANTEE OF FUTURE PERFORMANCE, AND
YOU SHOULD NOT PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENT.
-1-
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS ASPECTS OF OUR BUSINESS AND INFORMATION
CONTAINED ELSEWHERE IN THIS MEMORANDUM. THIS SUMMARY MAY NOT CONTAIN ALL OF THE
INFORMATION THAT SHOULD BE CONSIDERED BEFORE PURCHASING OUR COMMON STOCK, AND
YOU SHOULD READ THE ENTIRE MEMORANDUM CAREFULLY, INCLUDING THE FINANCIAL
INFORMATION AND RELATED NOTES, BEFORE MAKING AN INVESTMENT DECISION.
OVERVIEW
We are an emerging facilities-based integrated communications carrier
using digital subscriber line, or DSL, technology to offer broadband data and
voice telecommunications services. DSL technology allows for the utilization of
the existing copper telephone wires to provide high-speed access to the Internet
while simultaneously providing voice services. Our data offerings will include
ADSL, SDSL, IDSL, wireless connectivity and traditional dial-up. Our voice
products will include local exchange service and long distance. We are
constructing a carrier-grade voice switch in Los Angeles. We also plan to offer
voice over DSL ("VoDSL"), which will allow us to serve our target customers with
a bundled service offering of multiple phone lines and an "always-on" high-speed
Internet connection. Our target customers are small and medium-sized businesses,
multiple dwelling units ("MDUs") and multiple tenant units ("MTUs"), and
high-end residential customers. We intend to lead with a "DSL first" strategy to
capture customers and then market voice services. These voice services can be
provisioned over the existing copper pair that customers also utilize for their
broadband data access. The bundling of voice services with broadband data access
allows for the capital-efficient use of the Company's network equipment and
marketing expenditures. We intend to offer these services initially in
California and then expand our services within the western United States. Our
initial focus markets in California will include Los Angeles, Orange County and
various markets in central California. Additional markets for expansion will
include the states of Oregon and Washington.
Historically, we have generated revenue through the sale of Internet
services to small and medium-sized businesses and residential customers using
wireless and dial-up access. Over the past two years, the Company witnessed the
advancement and development of DSL as a technology to provide broadband data
access and eventually voice services to their core customer base of small and
medium-sized businesses. Commencing in 1998, the Company developed a
relationship with Nortel Networks, Inc. to begin the deployment of a DSL-based
network. Nortel provided substantial equipment and working capital financing.
During 1999, we began construction of our initial market in Los Angeles, our ATM
network throughout the western United States and our customer care center and
operational and support systems. We have expanded and continue to expand our
management team.
We have designed a network architecture that allows for the
capital-efficient deployment of equipment while leveraging the rapidly evolving
technology changes occurring in the DSL segment. In each major market we plan to
enter we will install a voice switch and associated access equipment. This
access equipment can be located in the central offices of the incumbent local
exchange carriers or in the facilities of various MDU's or MTU's. We expect to
have access equipment operational in more than 214 central office co-locations
and 52 MDU/MTU co-locations by the end of 2002. We intend to connect our markets
by a combination of leased and owned network facilities. We have acquired fiber
routes and co-location facilities in and between a number of major western
cities, including Los Angeles, San Francisco, San Jose, Seattle, Salt Lake City,
Dallas and Houston. We currently have competitive local exchange carrier
("CLEC") operating authority or pending applications in all states within our
targeted western United States region.
RECENT FINANCING DEVELOPMENTS
SALE OF SERIES B PREFERRED STOCK. On July 21, 2000, we issued and sold
100,000 shares of series B convertible preferred stock to one investor at a
purchase price of $10.00 per share. The shares of preferred stock are
convertible into our common stock at a conversion price equal to 65% of the
lower of the following (a) the average quoted closing price of the Company's
common stock for the 20 trading days immediately prior to the conversion, or (b)
the last quoted bid price of the common stock as of the time of the conversion,
provided however, that the price shall neither be higher than 110% nor lower
than 50% of the closing price of the common stock on July 7, 2000, which was
$4.00. Commensurate with this transaction, we also issued warrants to purchase
1,000,000 shares of our common stock to the investor and warrants to purchase
100,000 shares to the placement agent. The exercise price of such warrants is
calculated using the same formula as the conversion price for the preferred
stock. No shares of preferred stock have been converted into common stock as of
August 14, 2000.
-2-
<PAGE>
CONVERTIBLE NOTES AND WARRANTS. On August 2, 2000, we entered into a
Convertible Note Purchase Agreement to borrow $8,795,000 from Herkimer LLC
pursuant to convertible promissory notes (the "Notes"). Of this amount,
$1,295,000 was received on July 7, 2000 and an additional $2,500,000 was
received on August 3, 2000. The receipt of the remaining funds is contingent
upon, among other things, the filing and effectiveness of this registration
statement. We incur substantial increased costs and liquidated damages if the
registration statement is not filed and declared effective on a timely basis.
The entire note becomes convertible 91 days after the date of original issuance
date. Prior to the date on which the notes become convertible, we may prepay the
notes at an optional prepayment price of 133% of the principal amount of the
notes plus accrued interest. The note is convertible into shares of the
Company's common stock at a price equal to 75% of the average closing price of
our common stock on the five trading days immediately preceding the conversion
date. The note bears interest at the rate of 8% per annum, and is due and
payable, if not converted, on August 2, 2003. In connection with the sale of the
notes, we issued to the placement agent warrants to purchase 200,000 shares of
common stock at a price of $3.00 per share.
On June 5, 2000, the Company entered into a Note and Warrant Purchase
Agreement to borrow $1,000,000 from one investor. On July 7, 2000, the Agreement
was amended to include additional borrowings of $500,000. The agreement provides
for interest at 6% per annum, with principal and accrued interest due August 3,
2000. The agreement provides for default interest at a rate of 24% per annum.
The agreement requires us to register the shares underlying the warrants issued
in connection with the note by November 2000, and provides for a 2% per month
cash penalty if such registration is not effective on August 21, 2000 (45 days
from amendment). The agreement has been personally guaranteed by the Chairman of
the Board of Directors of the Company. As of August 11, 2000, the Company is in
default of repayment of this note. However, the note has not been called by the
lender, and the Company is accruing interest expense at the default rate noted
above. In conjunction with the agreement, the Company issued warrants to the
holder of the notes to purchase 200,000 and 100,000 shares of common stock at a
price of $2.875 and $4.06 per share, respectively. The warrants expire three
years from the date of grant.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Securities offered by the selling shareholders.... Up to 9,139,000 shares of common stock, par value
$0.001 per share.
Common stock outstanding as of August 8, 2000..... 20,859,095
Use of Proceeds................................... We will not receive any proceeds from the sale of
shares by the selling shareholders.
Nasdaq National Market symbol..................... UBNT
</TABLE>
----------------
We are a Delaware corporation and our principal executive offices are
located at 2030 Main Street, Suite 550, Irvine, CA 92614. Our telephone number
is (949) 260-8100. Our web site is http://www.ubnetworks.com.
-3-
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES MATERIAL RISK. PLEASE CAREFULLY READ THE
FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION INCLUDED AND
INCORPORATED BY REFERENCE IN THIS PROSPECTUS BEFORE INVESTING. THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS
PROSPECTUS.
OUR LIMITED OPERATING HISTORY CREATES SUBSTANTIAL UNCERTAINLY ABOUT FUTURE
RESULTS.
We have never before operated a switch-based telecommunications
facility and our facility is not yet fully operational. We recently organized
our principal operating subsidiary, UrJet Backbone Networks, Inc., in the last
quarter of 1998. We currently provide wireless, dial-up and T-1 Internet access
services in nine markets and we have never before offered Internet access
services using DSL technology. As a result of our limited operating history,
prospective investors have limited operating and financial data about us on
which to base an evaluation of our performance and an investment in our stock.
Our ability to provide an integrated package of bundled telecommunications
services on a widespread basis and to generate operating profits and positive
operating cash flow will depend on our ability, among other things, to:
o market our integrated telecommunications services and generate
demand for them among our targeted client categories;
o develop, enhance, promote and carefully manage our brand;
o respond appropriately and timely to competitive developments;
o develop our operational support and other back office systems;
o obtain state authorizations to operate as a competitive local
exchange carrier and any other required governmental
authorizations;
o attract and retain an adequate client base;
o secure additional financing;
o attract and retain qualified personnel; and
o enter into and implement interconnection agreements with
established telephone companies on satisfactory terms.
We cannot assure you that we will be able to achieve any of these
objectives, generate sufficient revenue to achieve or sustain profitability,
meet our working capital and debt service requirements or compete successfully
in the telecommunications industry.
WE HAVE A HISTORY OF LOSSES AND NEGATIVE CASH FLOWS, AND WE ANTICIPATE OUR
LOSSES TO INCREASE AND CONTINUE FOR THE FORESEEABLE FUTURE.
We have incurred significant operating losses and negative cash flows
from operating activities each year since the commencement of our operations in
1997. Through June 30, 2000, we had an accumulated deficit of $57.0 million. We
have not achieved profitability. During the fiscal year ended March 31, 2000, we
incurred net losses of $32.4 million and sustained negative cash flows from
operating activities of $12.2 million, resulting in a loss of $1.84 per share
applicable to our common stockholders. During the three months ended June 30,
2000, we incurred net losses of $12.3 million and sustained negative cash flows
-4-
<PAGE>
from operating activities of $5.7 million, resulting in a net loss of $0.60 per
share applicable to our common stockholders. We expect to make significant
expenditures in connection with the development of our business, the
acquisition, development and expansion of our network infrastructure, and the
deployment of our services and systems. As a result, we expect our losses to
continue and increase in the foreseeable future, and we expect to incur
significant future operating losses and negative cash flows from operating
activities.
Our historical losses also have translated into negative earnings
before interest, taxes, depreciation and amortization, or EBITDA, which is used
to determine our compliance with certain conditions and covenants in our credit
agreements. We expect that our EBITDA will be negative while we emphasize
development, construction and expansion of our telecommunications services
business and until we establish a sufficient revenue-generating client base. We
expect that each of our markets will generally produce losses and negative
EBITDA for at least 18 to 24 months after operations commence in such market,
and we expect to experience increasing operating losses, net losses and negative
EBITDA as we expand our operations.
If our revenue growth is slower than we anticipate or our operating
expenses are higher than expected, our losses will increase significantly. We
cannot assure you that we will achieve or sustain profitability or generate
positive cash flow and sufficient EBITDA to meet our working capital and debt
service requirements, which could increase our borrowing costs and losses
substantially, and have a material adverse effect on our business, financial
condition and operating results.
OUR INABILITY TO SATISFY OUR DEBT OBLIGATIONS COULD HARM OUR BUSINESS, FINANCIAL
CONDITION AND OPERATING RESULTS.
We expect to borrow substantial amounts to finance the development and
expansion of our network. As a result, we expect to increase our debt
obligations significantly in a short span of time. Our ability to repay our
indebtedness will depend on our future operating performance, which will be
affected by prevailing economic conditions and financial, business and other
factors. Some of these factors will be beyond our control.
If we are unable to service our indebtedness or other obligations, we
will be forced to examine alternative financing strategies. These strategies may
include reducing or delaying capital expenditures, restructuring or refinancing
indebtedness or seeking additional debt or equity financing. We cannot assure
you that we would be capable of implementing any of these strategies on
satisfactory terms. Our level of indebtedness could have important consequences
to our stockholders, including the following:
o We will have significant and increasing cash interest expense
and significant principal repayment obligations with respect
to outstanding indebtedness.
o Our degree of leverage and debt service obligations could
limit our ability to plan for, and make us more vulnerable
than some of our competitors are to the effects of, an
economic downturn or other adverse developments.
o We may need to dedicate cash flow from our operations to debt
service payments, making these funds unavailable for other
purposes.
o Our ability to obtain additional financing in the future for
working capital, capital expenditures, debt service
requirements or other purposes could be impaired.
o We will have a competitive disadvantage relative to the other
companies in our industry with less debt.
-5-
<PAGE>
OUR INDEPENDENT AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT AS TO OUR ABILITY TO
CONTINUE AS A GOING CONCERN.
Our consolidated financial statements have been prepared assuming we will
continue as a going concern. During the year ended March 31, 2000, we
experienced a net loss of $32.4 million and had negative cash flows from
operations of $12.2 million. During the three months ended June 30, 2000, we
experienced a net loss of $12.3 million and had negative cash flows from
operations of $5.7 million. In addition, we had substantial working capital and
shareholders deficits at March 31, 2000 and June 30, 2000. Lastly, we have
significant present and future working capital demands, which will require
substantial equity and debt financing which have not yet been secured. These
factors, among others, raise substantial doubt about our ability to continue as
a going concern. Our independent auditors have also expressed substantial doubt
as to our ability to continue as a going concern. The consolidated financial
statements included elsewhere herein do not include any adjustments that might
result from the outcome of this uncertainty.
In an effort to reverse the negative financial conditions noted above, we
intend to secure a series of debt and equity financings during 2000 expected to
exceed $200 million. Additionally, we intend to expand our operations through
the establishment of switch-based telecommunications facilities in
pre-designated markets, and develop our management and sales teams, and our
corporate infrastructure. We believe these events will provide the working
capital required to purchase necessary equipment, to establish the requisite
infrastructure and to fund operations until such time as we become profitable.
There can be no assurances that we will be able to successfully implement our
plans, including generating profitable operations, generating positive cash
flows from operations and obtaining additional debt and equity capital to meet
present and future working capital demands.
OUR INDEBTEDNESS SUBJECTS US TO FINANCIAL AND OPERATING RESTRICTIONS THAT COULD
HARM OUR BUSINESS.
We expect to use and apply our available credit in connection with the
development and expansion of our network. As a result, we expect to increase our
debt obligations significantly in a short span of time. Our current credit
agreement with Nortel imposes operating and financial restrictions on us. These
restrictions limit our ability to:
o incur additional indebtedness;
o issue stock of any subsidiaries;
o create liens on assets;
o pay dividends on the common stock of our principal operating
subsidiary, UrJet Backbone Network, Inc., redeem the Series B
Preferred Stock or make other distributions;
o sell assets;
o make capital expenditures;
o engage in mergers or acquisitions; and
o make investments.
Failure to comply with any restrictions could limit the availability of
borrowings or result in default under our current credit agreement with Nortel.
For the years ended March 31, 2000 and March 31, 1999, and for the remaining
term of our current credit agreement, Nortel agreed to amend the financial
covenants in our current credit agreement to grant us additional operating
flexibility. If Nortel had not agreed to grant us such flexibility, we would
have been in material noncompliance with our current credit agreement. We cannot
give any assurance that we will obtain a waiver or amendment for any future
noncompliance with our current credit agreement. Our failure or inability to
comply with all material requirements under our present credit arrangements with
Nortel and others could harm our business and financial condition. The terms of
any debt or equity financing undertaken by us to satisfy future cash
requirements could further restrict our operational flexibility, our ability to
incur additional indebtedness and adversely affect our financial condition.
-6-
<PAGE>
WE MAY BE UNABLE TO FINANCE THE COSTS ASSOCIATED WITH THE CONSTRUCTION OF OUR
NETWORK IF WE ARE UNABLE TO OBTAIN ACCESS TO CREDIT.
Nortel Networks, Inc. ("Nortel"), currently provides us with two credit
facilities, which includes a $7.0 million line of credit and a $37.0 million
credit facility for equipment financing. The maximum allowable amount on a
consolidated basis, for both facilities, is $37.0 million. While we have
borrowed and currently owe in excess of $7.9 million under the line of credit
facility, Nortel is not obligated to provide us funds under the $37.0 million
credit facility until we generate at least $30.0 million of additional equity
capital or subordinated debt and contribute at least that amount to the equity
capital of our operating subsidiary, UBN. Nortel's obligations under the credit
facility also are subject to the satisfaction of certain other customary
conditions. Until and unless we raise the required funds and satisfy the
remaining conditions under our credit agreement with Nortel, we will not be
entitled to additional funds under the existing credit facility. Additionally,
we cannot guarantee that Nortel will establish the proposed line of credit or
that we will satisfy applicable conditions to access funds under such line of
credit.
We depend on the availability of debt financing from Nortel to finance
the costs associated with the construction of our network. We may be forced to
discontinue or curtail our operations or to modify, delay or abandon the ongoing
development and expansion of our network if we are unable to secure additional
debt financing from Nortel or others.
OUR INABILITY TO ENSURE THE PROMPT COLLECTION OF PAYMENTS FOR SERVICES THAT WE
RENDER COULD HARM OUR BUSINESS.
Because we generally render our services before receiving payment, we
depend on the prompt collection of payment of our customers' bills. In turn, we
depend on the creditworthiness of our customers and adequate revenue assurance
programs. The failure of our customers to pay their bills on time or our failure
to assess the creditworthiness of our customers accurately and implement
adequate revenue assurance programs could materially and adversely affect our
business, financial condition and operating results.
OUR ABILITY TO ACHIEVE OUR STRATEGIC OBJECTIVES WILL DEPEND IN LARGE PART ON THE
SUCCESSFUL, TIMELY AND COST-EFFECTIVE EXPANSION OF OUR NETWORK.
We must continue to develop and expand our network infrastructure as
the number of clients and the amount of information they wish to transport as
well as the number of services we offer increases. The expansion and development
of our network infrastructure will require substantial financial, operational
and management resources. We may be unable to expand our network adequately to
meet the demand for increased usage. If we do not expand our network rapidly
enough, additional stress may be placed on our network hardware, traffic
management systems and operating facilities. Our network may be unable to
service a substantial number of additional clients while maintaining high
performance and competitive data transmission speeds.
A variety of factors, uncertainties and contingencies that are beyond
our control such as the availability of transmission capacity, price of
transmission capacity, continued deployment of our ATM-enabled network, local
regulations and the availability of third-party sales and support channels will
affect the continued expansion of our network. Currently, there is substantial
volatility in the market price for transmission capacity. We are investing
significant capital in acquiring transmission capacity at current fixed prices.
These prices are anticipated to decline in the future. We cannot assure you that
actual expansion costs or the time required to complete our network will not
substantially exceed current estimates. A failure to continue to expand our
network would have a material adverse effect on our ability to service our
clients and to grow our business.
-7-
<PAGE>
WE MAY BE FORCED TO CURTAIL OR DISCONTINUE OPERATIONS OR TO MODIFY, DELAY OR
ABANDON OUR ONGOING EXPANSION AND DEVELOPMENT IF WE ARE UNABLE TO SECURE
ADDITIONAL FUNDS TO FINANCE OUR WORKING CAPITAL REQUIREMENTS AND THE COSTS
ASSOCIATED WITH THE DEVELOPMENT AND EXPANSION OF OUR BUSINESS ENTERPRISE.
We anticipate that our present cash reserves, together with available
credit under our credit facilities, will be sufficient to finance our operating
costs and expenses for only a very short period. The actual amount and timing of
our future capital requirements may differ materially from our estimates as a
result of, among other things, the demand for our services and regulatory,
technological and competitive developments, including additional market
developments and new opportunities, in our industry. Our revenues and costs also
may depend on factors that are not within our control, including (without
limitation) regulatory changes, changes in technology, and increased
competition. Due to the uncertainty of these factors, actual revenues and costs
may vary from expected amounts, possibly to a material degree, and such
variations are likely to affect our future capital requirements.
We also expect that we may require additional financing or require
financing sooner than anticipated if our development plans change or prove to be
inaccurate or to complete our planned roll-out in nine additional markets. We
also may require additional financing in order to develop new services or to
otherwise respond to changing business conditions or unanticipated competitive
pressures. Sources of additional financing may include commercial bank
borrowings, vendor financing, or the private or public sale of equity or debt
securities. We cannot assure you that we will be successful in raising
sufficient additional capital on favorable terms or at all or that the terms of
any indebtedness we may incur will not impair our ability to develop our
business. Failure to raise sufficient funds may require us to curtail or
discontinue our operations or to modify, delay or abandon our planned future
expansion or expenditures, which could have a material adverse effect on our
business, financial condition and operating results.
WE EXPECT OUR BUSINESS TO GROW RAPIDLY, AND ANY INABILITY TO MANAGE SUCH GROWTH
EFFECTIVELY COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS, FINANCIAL
CONDITION AND OPERATING RESULTS.
We have experienced and are currently experiencing a period of
significant growth of facilities, personnel and operations. This growth has
placed, and will continue to place, a significant strain on our management,
financial controls, operating and accounting systems, personnel and other
resources. We currently rely on a relatively small core management team. As we
grow, we must not only manage demands on this team but also increase its
management resources, among other things, to continue to expand, train and
manage our employee base and maintain close coordination among our technical,
accounting, finance, marketing and sales staff. We also expect the demands on
our network infrastructure and technical support resources to grow rapidly with
our expanding client base, and we may experience difficulties responding to
client demand for our services and providing technical support in accordance
with clients' expectations. We are upgrading our network infrastructure and
technical support services to address increased client demand. Our network
infrastructure, technical support and other resources may be insufficient to
facilitate our growth. If we do not manage our growth successfully, or are
unable to hire sufficient qualified personnel or develop, acquire and integrate
successfully our operational and financial systems, procedures and controls, our
clients could experience delays in connection of service and/or lower levels of
client service, our resources may be strained and we may be subjected to
additional expenses. Our failure to meet client demands and to manage the
expansion of our business and operations could have a material adverse effect on
our business, financial condition and operating results.
We cannot assure you that we will implement and maintain efficient
operational and financial systems, procedures and controls or obtain, integrate
and utilize successfully the employees and management, and the operational,
financial and other resources necessary to manage a developing and expanding
business in our evolving, highly regulated and increasingly competitive
industry. Any failure to expand these areas and to implement and improve such
systems, procedures and controls in an efficient manner at a pace consistent
with the growth of our business could have a material adverse effect on our
business, financial condition and operating results.
-8-
<PAGE>
OUR NETWORK INFRASTRUCTURE IS VULNERABLE TO DISRUPTIONS AND SECURITY BREACHES.
We and other network services providers may in the future experience
interruptions in service as a result of fire, natural disasters, power loss, or
the accidental or intentional actions of service users, current and former
employees, and others. Although we continue to implement industry-standard
disaster recovery, security and service continuity protection measures,
including the physical protection of our plant and equipment, similar measures
taken by us or by others have been insufficient or circumvented in the past. We
cannot assure you that these measures will be sufficient or that they will not
be circumvented in the future. Unauthorized use of our network could also
potentially jeopardize the security of confidential information stored in the
computer systems of or transmitted by our clients. Furthermore, addressing
security problems may result in interruptions, delays or cessation of services
to our clients. These factors may result in material liability by us to our
clients.
ANY FAILURE OF OUR INTEGRATED OPERATIONAL SUPPORT SYSTEM, WHICH WE ARE
DEVELOPING, WOULD IMPEDE OUR ABILITY TO MONITOR AND SERVICE OUR NETWORKS,
PROVISION CLIENT ORDERS AND BILL CLIENTS, WHICH COULD HARM OUR BUSINESS.
We are developing an integrated operational support system at our
network operating center and switching facility in Los Angeles to monitor our
network infrastructure, systems and related components and to monitor operating
costs, bill clients, provision client orders and achieve operating efficiencies.
Our operational support system will consist of sophisticated information and
processing systems and computing components developed by Vitria, Portal, Siebel
and other third-party vendors. We plan to replicate the same or a similar
support system at the other network operating centers that we intend to
construct in our targeted markets. Our support system is not operational and we
are unable to guarantee that it will become operational and function as
contemplated. If we are unable to complete the development and integration of
our operational support system successfully, or if our operational support
system does not function properly or if it fails for any extended period of
time, we would be unable to monitor our network infrastructure and service our
networks properly in the case of a malfunction or breakdown. Such system
malfunction or failure also would impair our ability to process client orders
and bill clients for services rendered. Our inability to service our networks,
meet client demands and to bill clients for services rendered would have a
material adverse effect on our business, financial condition and operating
results.
OUR INABILITY TO COMPETE EFFECTIVELY IN OUR MARKETS COULD HARM OUR BUSINESS.
The telecommunications industry is highly competitive, and one of the
primary purposes of the Telecommunications Act is to foster further competition.
In each of our markets, we compete principally with the established telephone
company serving such market. We currently do not have a significant market share
in any of our markets. The established telephone companies have long-standing
relationships with their clients, financial, technical and marketing resources
substantially greater than ours and the potential to fund competitive services
with cash flows from a variety of businesses. These competitors also currently
benefit from existing regulations that favor the established telephone companies
over integrated communications providers and competitive local exchange carriers
in some respects. Furthermore, one large group of established telephone
companies, the regional Bell operating companies, recently have been granted,
under particular conditions, pricing flexibility from federal regulators with
regard to some services with which we compete. This may present established
telephone companies with an opportunity to subsidize services that compete with
our services and offer competitive services at lower prices. It is likely that
we will also face competition from other integrated communications providers and
facilities-based competitive local exchange carriers, and many other competitors
in some of our markets. We believe that second and third tier markets will
support only a limited number of competitors and that operations in such markets
with multiple competitive providers are likely to be unprofitable for one or
more of such providers. We expect to experience declining prices and increasing
price competition. We cannot assure you that we will be able to achieve or
maintain adequate market share or margins, or compete effectively, in any of our
markets. Moreover, substantially all of our current and potential competitors
have financial, technical, marketing, personnel and other resources, including
brand name recognition, substantially greater than ours as well as other
competitive advantages over our business, financial condition and results of
operations. Any of the foregoing factors could materially and adversely affect
our business, financial condition and operating results.
-9-
<PAGE>
OUR BUSINESS PROSPECTS MAY SUFFER IF WE ARE NOT ABLE TO KEEP UP WITH THE RAPID
TECHNOLOGICAL DEVELOPMENTS IN OUR INDUSTRY.
The communications industry is subject to rapid and significant
technological changes, such as continuing developments of alternative
technologies for providing high-speed data communications. We cannot predict the
effect of technological changes on our business. We may rely in part on third
parties, including some of our competitors and potential competitors, for the
development of and access to communications and networking technologies. We
expect that new services and technologies applicable to our market will emerge.
New products and technologies may be superior and/or render obsolete the
products and technologies that we currently use to deliver our services. Our
future success will depend, in part, on our ability to anticipate and adapt to
technological changes and evolving industry standards. We may be unable to
obtain access to new technologies on acceptable terms or at all, and we may be
unable to obtain access to new technologies and offer services in a competitive
manner. Any new products and technologies may not be compatible with our
technologies and business plan. We believe that the global communications
industry should set standards to allow for the compatibility of various products
and technologies. The industry, however, may not set standards on a timely basis
or at all.
WE DEPEND ON THE SERVICES OF OUR SENIOR MANAGEMENT TEAM AND KEY OPERATIONAL
PERSONNEL.
Our future success depends to a significant extent on the continued
services of our senior management, particularly Michael A. Sternberg, Nancy
Hobbs, Steve Pierson, and other members of our executive management team. We
also depend on the technical expertise and know-how of key operational personnel
responsible for the daily operation and maintenance of our network and systems.
The loss of the services of any of our key executives or operational personnel,
or any other present or future key employee, could have a material adverse
effect on the management of our business. We do not maintain "key person" life
insurance for any of our personnel.
COMPETITION FOR HIGHLY-SKILLED PERSONNEL IS INTENSE AND THE SUCCESS OF OUR
BUSINESS DEPENDS ON OUR ABILITY TO ATTRACT, RETAIN AND MANAGE KEY PERSONNEL.
Our future success depends on our continuing ability to attract, retain
and motivate highly-skilled employees. As we continue to grow, we will need to
hire additional personnel in all areas. Competition for personnel throughout the
data and voice communications industries is intense. We may be unable to attract
or retain key employees or other highly qualified employees in the future. We
have from time to time in the past experienced, and we expect to continue to
experience in the future, difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. If we do not succeed in attracting
sufficient new personnel or retaining and motivating our current personnel, our
ability to provide our services could be adversely affected.
OUR QUARTERLY OPERATING RESULTS MAY VARY, WHICH MAY CAUSE VOLATILITY OR A
DECLINE IN THE PRICE OF OUR COMMON STOCK.
Our revenue, expenses and operating results may vary significantly from
quarter to quarter due to a number of factors, not all of which are in our
control. These factors include:
o the size and timing of significant equipment and transmission
capacity purchases and other capital expenditures, as well as
other costs associated with the development and expansion of
our infrastructure;
o the timing of new service offerings;
o the rate at which customers subscribe to our services;
o subscriber turnover rates;
o the prices we pay for the services we provide to our
subscribers;
o the demand for Internet services and particularly the demand
for DSL services;
o price competition or changes in our pricing policies or those
of our competitors and pricing changes in the Internet, cable
and telecommunication industries;
o the introduction of new Internet access and telecommunications
services by us or our competitors;
o the timing and completion of our network expansion;
-10-
<PAGE>
o the availability and cost of financing to continue and
complete our network expansion;
o market acceptance of data and voice communications generally
and of new and enhanced versions of our services in
particular;
o the length of our contract cycles; and
o our success in expanding our sales and related sales force,
and expanding our distribution channels.
Additional factors that may affect our quarterly operating results
generally include technical difficulties or network downtime, general economic
conditions and economic conditions specific to the Internet, Internet media and
corporate intranet.
Our operating results are particularly sensitive to fluctuations in
revenues. Because we will rely on revenue forecasts when committing to a
significant portion of our future expenditures, we may be unable to adjust our
spending in the event of revenue shortfalls. Consequently, such shortfalls could
materially and adversely affect our business, financial condition and operating
results. We also plan on increasing our operating expenditures to finance the
cost of our network build-out and to fund increased sales and marketing efforts,
general and administrative activities and to strengthen our infrastructure. To
the extent that these expenses are not accompanied by a commensurate increase in
revenue, our quarterly results could fluctuate significantly in the future.
Due to the factors noted above and the other risks discussed in this
section, you should not rely on period-to-period comparisons of our operating
results. Quarterly results are not necessarily meaningful and you should not
rely on them as an indication of future performance. It is possible that in some
future periods our operating results may be below the expectations of public
market analysts and investors. In that case, the price of our common stock may
fall substantially.
OUR INABILITY TO DEVELOP OR FINANCE STRATEGIC ALLIANCES OR ACQUISITIONS NEEDED
TO COMPLEMENT OUR EXISTING BUSINESS COULD IMPEDE OUR EXPANSION AND HARM OUR
BUSINESS.
As part of our growth strategy, we may seek to develop strategic
alliances and to make investments or acquire assets or other businesses that
will relate to and complement our existing business. We are unable to predict
whether or when any strategic alliance will occur or the likelihood of a
material transaction being completed on favorable terms and conditions. Our
ability to finance acquisitions and strategic alliances may be constrained by
our degree of leverage at the time of such acquisition. In addition, our credit
facility may limit significantly our ability to make acquisitions or enter into
strategic alliances and to incur indebtedness in connection with acquisitions
and strategic alliances.
We cannot assure you that any acquisition will be made or that we will
be able to obtain the funds necessary to finance the costs associated with any
such acquisition. We currently have no definitive agreements with respect to any
material acquisition, although from time to time we may have discussions with
other companies and assess opportunities on an ongoing basis. We currently are
evaluating additional acquisitions as well. However, there can be no assurance
that we will complete successfully any or all of the acquisitions being
contemplated or what the consequences thereof would be.
POTENTIAL ACQUISITIONS MAY BE DIFFICULT TO ASSIMILATE INTO OUR OPERATIONS, USE A
SIGNIFICANT AMOUNT OF AVAILABLE CASH, RESULT IN DILUTION TO OUR STOCKHOLDERS AND
ADVERSELY AFFECT OUR OPERATING RESULTS.
As part of our business strategy, we may seek to acquire complementary
assets or businesses or develop strategic alliances. Any future acquisition or
strategic alliance would be accompanied by the risks commonly encountered in
such transactions. Such risks include, among others:
-11-
<PAGE>
o the difficulty of assimilating the acquired operations and
personnel;
o the potential disruption of our ongoing business and diversion
of resources and management time;
o the inability of management to maximize our financial and
strategic position by the successful incorporation of licensed
or acquired technology and rights into our service offerings;
o the inability of management to maintain uniform standards,
controls, procedures and policies;
o the entrance into markets in which we have little or no direct
prior experience; and
o the potential impairment of relationships with employees or
clients as a result of changes in management or otherwise
arising out of such transactions.
We cannot assure you that we will be able to integrate acquired
businesses or assets successfully. In addition, effecting acquisitions could
require use of a significant amount of our available cash. Furthermore, we may
have to issue equity or equity-linked securities to pay for future acquisitions,
and any such issuance could dilute the percentage ownership interest of our
existing and future shareholders. In addition, acquisitions and investments may
have negative effects on our operating results due to acquisition-related
charges and amortization of acquired technology and other intangibles. Any of
these acquisition-related risks or costs could harm our business, operating
results and financial condition.
OUR INTELLECTUAL PROPERTY PROTECTION MAY BE INADEQUATE TO PROTECT OUR
PROPRIETARY RIGHTS AND WE MAY BE SUBJECT TO INFRINGEMENT CLAIMS THAT COULD
MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS.
Our inability to protect our proprietary rights could have a material
adverse effect on our business, financial condition and operating results. The
steps we have taken to protect our rights may be inadequate to protect our
technology or other intellectual property. We currently have no patents or
patent applications pending. We also rely on non-patented trade secrets and
know-how to maintain our competitive position. We seek to protect this
information by confidentiality agreements with employees, consultants and
others. These agreements may be breached or terminated, leaving us with
inadequate remedies. Our competitors may learn or discover our trade secrets.
Our competitors may develop technologies independently that substantially are
equivalent or superior to ours. Third parties, including our competitors, may
assert infringement claims against us and, in the event of an unfavorable ruling
on any claim, we may be unable to obtain a license or similar agreement to use
technology we need to conduct our business. Our management personnel and key
employees previously were employees of other telecommunications companies,
including Pacific Bell. In many cases, these individuals are conducting
activities for us in areas similar to those in which they were involved before
joining us. As a result, our employees or we could be subject to allegations of
violation of trade secrets and other similar claims. If such claims materialize,
it could materially and adversely affect our business, financial condition and
operating results, and restrict our ability to continue our operations.
WE MAY BE SUBJECT TO CLAIMS FOR VIOLATIONS OF FEDERAL AND STATE SECURITIES LAWS.
In conjunction with the issuance and sale of securities, we may have
inadvertently violated certain provisions of various federal and state
securities laws. Further, we may have omitted from our quarterly or annual
reports material facts. Such violations and omissions may expose us to claims by
securities regulators and/or purchasers of our securities. Any such claims, if
asserted, could have a material impact on our consolidated financial condition
or results of operations.
WE ARE SUBJECT TO THE FOLLOWING RISKS INHERENT IN THE TELECOMMUNICATIONS
AND BROADBAND DATA INDUSTRIES
-12-
<PAGE>
OUR INABILITY TO SECURE AND MAINTAIN INTERCONNECTION AGREEMENTS ON FAVORABLE
TERMS COULD HARM OUR BUSINESS.
We must have in place agreements for the interconnection of our network
with the networks of the incumbent telephone companies and the competitive local
exchange carrier covering each market in which we intend to offer local service.
In some cases we may be able to piggy-back on the terms of existing agreements.
At other times, however, we may be required to negotiate such interconnection
and co-location agreements with established carriers and telephone companies,
which can take considerable time, effort and expense and are subject to federal,
state and local regulation. We currently have in place interconnection
agreements with Pacific Bell and GTE in our initial market in California. We
cannot assure you that we will be able to negotiate or renew interconnection
agreements on a timely basis and on satisfactory terms and conditions. Our
failure to secure and maintain these agreements could materially and adversely
affect our ability to become a single-source provider of broadband data and
telecommunications services.
Interconnection agreements are also subject to state telecommunications
regulatory, FCC and judicial oversight. These governmental bodies may modify the
terms or prices of our interconnection agreements in ways that materially and
adversely affect our business, financial condition and operating results.
IF THE MARKETS FOR OUR BROADBAND DATA AND COMMUNICATIONS SERVICES FAIL TO
DEVELOP OR GROW SLOWER THAN WE EXPECT, WE MAY BE UNABLE TO GENERATE SIGNIFICANT
REVENUE OR WE MAY GENERATE REVENUE LATER THAN EXPECTED, WHICH COULD HARM OUR
BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS.
The markets for broadband data and communications services are in the
early stages of development. It is difficult to predict the rate at which these
new and evolving markets will grow. We cannot assure you that our services will
receive market acceptance or that prices and demand for these services will be
sufficient to achieve or sustain profitable operations. If the markets for our
services fail to develop or grow more slowly than anticipated, we may be unable
to generate revenue or we may generate revenue later than expected, which would
have a material adverse effect on our business, financial condition and
operating results.
OUR INABILITY TO ACHIEVE OR SUSTAIN MARKET ACCEPTANCE FOR OUR SERVICES AT
DESIRED PRICING LEVELS COULD HARM OUR BUSINESS, FINANCIAL CONDITION AND
OPERATING RESULTS.
Prices for telecommunications services have historically fallen and we
expect this trend to continue. Consequently, we cannot predict to what extent we
may need to reduce our prices to remain competitive or whether we will be able
to sustain future pricing levels as our competitors introduce competing services
or similar services at lower prices. Our failure to achieve or sustain market
acceptance at desired pricing levels could impair our ability to achieve
profitability or positive cash flow, which would harm our business, financial
condition and operating results.
DSL TECHNOLOGY MAY NOT OPERATE AS EXPECTED ON INCUMBENT LOCAL CARRIER NETWORKS
AND MAY INTERFERE WITH OR BE AFFECTED BY OTHER TRANSPORT TECHNOLOGIES.
We will depend significantly on the quality of the copper telephone
lines we obtain from established telephone companies and carriers that provide
services in our target markets, and their maintenance of these lines to provide
DSL services. We cannot assure you that we will be able to obtain the copper
telephone lines and the services we require from these established telephone
companies on a timely basis or at quality levels, prices, terms and conditions
satisfactory to us or that such established telephone companies will maintain
the lines in a satisfactory manner.
Additionally, all transport technologies using copper telephone lines
have the potential to interfere with, or to be interfered with by, other traffic
on adjacent copper telephone lines. This interference could degrade the
performance of our services or make us unable to provide service on selected
lines. In addition, incumbent carriers may claim that the potential for
interference by DSL technology permits them to restrict or delay our deployment
of DSL services. The telecommunications industry and regulatory agencies are
still developing procedures to resolve interference issues between competitive
carriers and incumbent carriers, and these procedures may not be effective. We
may be unable to negotiate successfully with incumbent carriers the procedures
to resolve interference. Interference, or claims of interference, if widespread,
would adversely affect our speed of deployment, reputation, brand image, service
quality and client retention and satisfaction and may have a material adverse
effect on our business, financial condition and results of operations.
-13-
<PAGE>
THE LAW RELATING TO THE LIABILITY OF ONLINE SERVICES COMPANIES AND INTERNET
ACCESS PROVIDERS FOR DATA AND CONTENT CARRIED ON OR DISSEMINATED THROUGH THEIR
NETWORKS IS CURRENTLY UNSETTLED.
It is possible that claims could be made against online services
companies and Internet access providers under United States and/or foreign law
for defamation, negligence, copyright or trademark infringement, or other
theories based on data or content disseminated through their networks, even if a
user independently originated this data or content. Several private lawsuits
seeking to impose liability on online services companies and Internet access
providers have been filed in U.S. and foreign courts. While the United States
has passed laws protecting Internet access providers from liability for actions
by independent users in limited circumstances, this protection may not apply in
any particular case at issue. In addition, some countries, such as China,
regulate or restrict the transport of voice and data traffic in their
jurisdiction. The risk to us, as an Internet access provider, of potential
liability for data and content carried on or disseminated through our system
could require us to implement measures to reduce our exposure to this liability.
This may require us to expend substantial resources or to discontinue some of
our services. Our ability to monitor, censor or otherwise restrict the types of
data or content distributed through our network is limited. Failure to comply
with any applicable law or regulations in particular jurisdictions could result
in fines, penalties or the suspension or termination of our services in these
jurisdictions. The negative attention focused on liability issues as a result of
these lawsuits and legislative proposals could adversely the growth of public
Internet use adversely. Our professional liability insurance may not be adequate
to compensate or may not cover us at all if we incur liability for damages due
to data and content carried on or disseminated through our network. Any cost not
covered by insurance that are incurred as a result of this liability or alleged
liability, including any damage awarded and cost of litigation, could harm our
business and prospects.
DELAYS IN RECEIVING TRANSMISSION CAPACITY FROM SUPPLIERS COULD IMPAIR SERVICE
LEVELS AND OUR GROWTH.
We lease transmission capacity from suppliers (including, without
limitation, incumbent telephone companies, incumbent local exchange carriers,
competitive local exchange carriers, and inter-exchange carriers such as MCI
WORLDCOM, Inc., Quest Communications International Inc., Star Telecom, Level 3
Communications, Inc., UUNET and Electric Lightwave), both to connect client
premises to our network and for other network connections. We have from time to
time experienced delays in receiving the requisite transmission capacity from
suppliers. We cannot assure you that we will be able to obtain such services in
the future within the time frames required by us and at a reasonable cost. Our
inability to obtain transmission capacity in time and at a reasonable cost in a
particular jurisdiction, or any interruption of local access services, could
have an adverse effect on our business, financial condition and operating
results.
DELAYS IN EQUIPMENT DELIVERY OR LOSS OF OUR EQUIPMENT SUPPLIERS COULD ADVERSELY
AFFECT OUR NETWORK.
Nortel and Cisco are the primary providers of the switches and routers
used in our network. These suppliers also sell products to our competitors and
may become competitors themselves. We may experience delays in receiving
components from our suppliers or difficulties in obtaining their products at
commercially reasonable terms. If we are required to seek alternate sources of
switches and routers, we are likely to experience delays in obtaining the
requisite equipment we need and may be required to pay higher prices for that
equipment, increasing the cost of expanding and maintaining our network.
THE FCC AND STATE REGULATIONS MAY LIMIT THE SERVICES WE CAN OFFER AND RESTRICT
THE OPERATION AND EXPANSION OF OUR BUSINESS.
Our networks and the provision of telecommunications services are
subject to significant regulation at the federal, state and local levels. The
costs of complying with these regulations and the delays in receiving required
regulatory approvals or the enactment of new adverse regulation or regulatory
requirements may have a material adverse effect on our business, financial
condition and operating results.
We cannot assure you that the FCC or state commissions will grant
required authority or refrain from taking action against us if we are found to
have provided services without obtaining the necessary authorizations. If we do
not fully comply with the rules of the FCC or state regulatory agencies, third
parties or regulators could challenge our authority to do business. Such
challenges could cause us to incur substantial legal and administrative
expenses.
-14-
<PAGE>
Our Internet operations are not currently subject to direct regulation
by the FCC or any other governmental agency, other than regulations applicable
to businesses generally. However, the FCC recently indicated that the regulatory
status of some services offered over the Internet may have to be re-examined.
New laws or regulations relating to Internet services, or existing laws found to
apply to them, may have a material adverse effect on our business, financial
condition or results of operations.
The Telecommunications Act remains subject to judicial review and
additional FCC rulemaking, and thus it is difficult to predict what effect the
legislation will have on our operations. There are currently many regulatory
actions underway and being contemplated by federal and state authorities
regarding interconnection pricing and other issues that could result in
significant changes to the business conditions in the telecommunications
industry. We cannot assure you that these changes will not have a material
adverse effect on our business, financial condition or results of operations.
UNCERTAIN FEDERAL AND STATE TAXES AND SURCHARGES ON OUR SERVICES MAY INCREASE
OUR PAYMENT OBLIGATIONS AND HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Telecommunication service providers pay a variety of surcharges and
fees on their gross revenue from interstate and intrastate services. The
surcharges and fees we are required to pay may increase due to periodic
revisions of the applicable surcharges by federal and state regulators. A
finding that we misjudged the applicability of the surcharges and fees could
increase our payment obligations and have a material adverse effect on our
business, financial condition and operating results.
-15-
<PAGE>
BUSINESS
We are an emerging facilities-based integrated communications carrier
using digital subscriber line, or DSL, technology to offer broadband data and
voice telecommunication services to small and medium-sized businesses and
high-end residential consumers, particularly multiple tenant units ("MTUs") and
multiple dwelling units ("MDUs"). We are deploying a scalable, network in
targeted geographic areas where high demand exists for our services and which
are underserved by other carriers.
We began operations in 1997 as a provider of high-speed wireless
Internet access primarily to small and medium-sized businesses, MDUs and
telecommuters. We initially offered one-way Internet access and began offers of
two-way access in early 1998. We selected Salt Lake City as our initial market
because its topography offered excellent line-of-sight transmission to nearly
the entire population of 1.3 million. We subsequently expanded our wireless
Internet services to Texas and California.
In the fourth quarter of 1998, we formed Urjet Backbone Network, Inc.
("UBN") to operate as a competitive local exchange carrier and to provide fiber
connectivity services through the Internet. In late 1998, we commenced
discussions with Nortel Networks, Inc. ("Nortel") to finance construction of
portions of our broadband network and to offer DSL services using Nortel
products. Such negotiations resulted in the execution of a credit agreement with
Nortel in July 1999. Since July 1999, we have focused our primary capital and
management efforts to implement our DSL service strategy.
To date, we have completed installation of the primary components of
our high-capacity Nortel DMS-500 switch at our Los Angeles network operations
center and a redundant Internet protocol ("IP") core and asynchronous transport
mode ("ATM") network, completed co-location site selection and applications for
our Los Angeles market build, hired an experienced telecommunications operations
group, built our customer care center, completed phase one of our back office
operating support systems, and secured a substantial equipment financing
arrangement with Nortel Networks, Inc. We also have leased or acquired access to
fiber routes co-location facilities in and between a number of major western
cities, including Los Angeles, San Francisco, San Jose, Seattle, Salt Lake City,
Dallas and Houston. We currently have competitive local exchange carrier, or
CLEC, operating authority or pending applications in all states within our
targeted western United States region.
OUR BUSINESS STRATEGY
Our goal is to become a leading provider of integrated broadband data
and telecommunications services to small and medium-sized businesses and
residential users in our target markets. We seek to be among the first to offer
such bundled telecommunications services in the majority of our markets. Our
future success will depend on our ability to implement this strategy. We believe
our carrier-grade voice switch, our expanding network, our experienced
management team and our customized operational support system will allow us to
implement our growth strategy. The key elements of our business strategy are as
follows:
BECOME A LEADING SINGLE-SOURCE PROVIDER OF INTEGRATED TELECOMMUNICATIONS
SERVICES IN OUR TARGET MARKETS
The key to our success and growth is our ability to become a leading
single-source provider of bundled telecommunications services in each of our
target markets. For the most part, the customers we are targeting rely on two or
more vendors for their long distance, local phone and Internet connectivity
needs. We believe that customers prefer a single source for all of their
telecommunications requirements. We also believe that our integrated voice and
data services, for the first time, will provide small and medium-sized business
customers with the affordable broadband services necessary for success in the
rapidly evolving world of electronic commerce. We believe our customers will be
attracted to our bundled service offering, our consolidated billing and our
single point of contact for customer service, repairs and billing inquiries.
-16-
<PAGE>
We intend to offer carrier grade voice services bundled with DSL
Internet access. We also expect to offer voice over IP ("VoIP"), or voice over
DSL ("VoDSL") services, in certain geographical areas.
By providing bundled broadband communications services, we expect to
better meet the needs of our customers, accelerate our target markets, improve
customer retention and capture a larger portion of our customers' total
telecommunications expenditures. We also believe that our combined voice and
data technology will offer attractive pricing when compared to our competition
or the price of purchasing the services separately.
TARGET UNDERSERVED CUSTOMERS
We believe that small and medium-sized businesses and high-end
residential users, such as telecommuters and those with home-based businesses,
offer the greatest opportunity for our integrated voice and data communications
solutions. The vast majority of these users currently depend on traditional
dial-up modems for network access. Additionally, many larger enterprises have
remote locations and home-based workers who are not able to enjoy the full
advantages of the office network realized by their colleagues at the corporate
offices. We will offer integrated voice and data communications, high-speed
access to the Internet and private networks. We also intend to offer new
applications and features that increase worker productivity and network
security.
BUILD A CAPITAL-EFFICIENT NETWORK INFRASTRUCTURE
Our strategy is to expand our network where most economically or
strategically justifiable. We believe that this strategy is expected to increase
long-term operating margins, allow for greater control of our network and
enhance service quality. As we expand our infrastructure with fiber, switches,
and co-locations, the portion of our traffic that is carried on our own network
will increase. We select and build co-locations to maximize coverage of our
target customers of small and medium-sized businesses and high-end residential
users.
USE A COST-EFFICIENT MARKETING MODEL
We believe we can rapidly grow our subscriber base most efficiently by
targeting MDU/MTU customers. We anticipate that we will be able to co-locate our
network equipment on their premises and gain immediate access to the inside
wiring without co-locating equipment in an incumbent local exchange carrier
("ILEC") central office. This arrangement allows rapid access to large groups of
customers, who in many cases will be subscribing for premium value-added
services in addition to basic DSL service. Additionally, we are able to
economically provide services in such environments and to provision such
services with minimal ILEC involvement.
We believe our direct-response model for marketing and provisioning
services to residential and very small businesses (fewer than nine employees)
will be the most efficient method of reaching such customers. This
direct-response method consists of very targeted advertising to prospective
customers whose phone service is provided from central offices where we have
established co-locations. This approach reduces the expenditure of advertising
funds and customer care on customers outside our area of service. Upon
completion of our system, prospective customers will be able to subscribe
through our UBNetworks.com website, which we expect will be among the first
fully automated systems for subscribing, qualifying the DSL line, provisioning
services and handling customer billing and technical questions.
We also intend to enter into strategic relationships with regional
integrators which will be commissioned to sell our broadband solutions to their
existing business customers.
EXPAND OUR GEOGRAPHIC REACH
Initially, we intend to serve the Los Angeles and Orange County,
California markets. In late 2000 and in 2001, we intend to expand into other
markets in the western United States. We believe the western United States is
particularly attractive due to a number of factors, including the large
population, the rapidly growing metropolitan areas, the high percentage of small
and medium-sized businesses and the large demand for high-speed Internet access
in this region. We also intend to expand into other regions of the United States
as opportunities arise.
-17-
<PAGE>
DEVELOP STRONG BRAND AWARENESS
We believe that marketing and brand identity in the DSL and high-speed
Internet access markets have lacked the memorability and strength of association
found in other consumer product markets. We have therefore hired not only
marketing experts with telecommunications experience, but those with wide
ranging experience in consumer products outside of telecommunications, whose
expertise is in developing strong brand identity and consumer "mind share." We
believe that a strong brand identity will differentiate our products and
services from those of our competitors in the minds of the public, which we
believe will benefit our company over simple technical comparisons.
LEVERAGE THE EXPERIENCE OF OUR MANAGEMENT TEAM
Our management team has significant experience in the
telecommunications industry in general and, in particular, in the critical
functions of network operations, sales and marketing, back office and
operational support systems, finance and customer service. Our management team
obtained such experience at nationally recognized industry leaders, including
KMC, Pacific Bell, SBC Communications, Teligent, Sprint, MCI, Millicom
International and Comstar Cellular.
MARKET DEPLOYMENT
We select markets that we believe have high concentrations of customers
with demonstrated need and the ability to pay for our broadband services and
which we believe are underserved by our competition. We measure such need and
ability through our internally developed proprietary model, which takes into
account a variety of industry-specific and non-industry specific factors
relating to market size, receptivity and demographics. Based on information
compiled from a number of databases available through various third-party
consulting firms and publication sources, we rank each MSA within the larger
geographical regions that we are targeting. We also rank each co-location
facility and building in which we plan to deploy our equipment within each MSA.
We plan to introduce our services initially in Los Angeles and its
surrounding regions. We are completing the construction and implementation of
our central switching facilities in Los Angeles. We plan to introduce our
services sequentially in other markets.
OUR SERVICE OFFERINGS
Our services are designed to meet the needs of small to medium-sized
businesses and high-end residential users.
DSL SERVICES TO SMALL AND MEDIUM-SIZED BUSINESSES
We will offer our small and medium-sized business customers a full
range of high-speed "always on" Synchronous DSL ("SDSL"), Asynchronous DSL
("ADSL"), and IDSL services. SDSL provides speeds ranging from 256 Kbps to 2.32
Mbps both to and from the end user. ADSL provides speeds to the end user ranging
from 320 Kbps to 1.2 Mbps, but slower speeds from the end user ranging from 160
Kbps to 320 Kbps. IDSL will be offered to those users located more than 3.5
miles from our nearest co-location and provides speeds of 144 Kbps, five times
faster than 28.8 dial-up modems. We also intend to offer virtual private
networks, video streaming, video conferencing, web hosting, wireless and dial-up
services described below.
DSL SERVICES TO MDUS/MTUS
We will offer customers in MDUs and MTUs the same high-speed SDSL and
ADSL Internet connection services as those offered to small and medium-sized
businesses. We intend to co-locate our network access equipment at the
customer's or landlord's building.
-18-
<PAGE>
DSL SERVICES TO HIGH-END RESIDENTIAL USERS
We will offer ADSL residential users services high-end residential
users having downstream and upstream speeds of 640 Kbps/160 Kbps or 1.2 Mbps/320
Kbps. ISDL services will be available for residential users located more than
3.5 miles from our co-location facility. Our plug and play modems from Nortel
permit voice and data over the same line.
VODSL
We intend our voice services to be offered predominantly over our
Nortel DMS circuit switches. However, we also expect to provide local and long
distance phone service over packet-based VoDSL and VoIP facilities. Such VoDSL
and VoIP services may permit us to offer bundled services at a lower cost or
while we are building our circuit-based switches in other markets.
LOCAL AND LONG DISTANCE TELEPHONE CALLING SERVICES
We expect to launch our local calling services in September 2000 in Los
Angeles, California. We expect such services to include local dial tone,
simplified local rates, local number portability, listing in white and yellow
page directories, access to 911 and directory assistance. Also available through
the service will be certain enhanced features, such as three-way conference
calling, line rollover, call forwarding, call waiting, caller identification and
voice mail. Our voice mail service is expected to include free call forwarding,
remote access, paging notification, personalized greetings and password
protection. We also plan to originate and terminate interexchange calls placed
or received by our customers.
We expect to offer a full range of domestic and international long
distance services, including "1+" outbound calling, six second incremental
billing, inbound toll free service, and such complementary services as calling
cards with operator assistance and conference calling. To provide easy to
understand billing to our clients, we plan to also offer one rate on any call
within the continental United States.
WIRELESS INTERNET ACCESS
Historically, our primary service offering has been wireless Internet
access. We have integrated our existing wireless high-speed Internet access with
the DSL network build-out. As we enter new markets to provide DSL services, we
will also in many cases set up wireless high-speed Internet systems operating at
or near our main office in each MSA in order to continue to provide the
versatility and options for our customers that they have come to expect. We
currently offer Wireless T-1 services in two markets.
A wireless T-1 service is operated currently on systems in the 2.4
gigahertz public-access frequency band. In a radius of approximately 5 to 7
miles around our wireless point of presence (POPs), we can offer up to 1.5
megabit per second bi-directional Internet connections without wires. The
customer's location must have a clear line of site to our POP; and the user must
place a small antenna in a window, mounted to a wall, or on the roof of the
customer's location. This antenna is connected to a small radio unit that is
wired to a network interface card in the user's computer. The service offers
spread-spectrum frequency hopping technology for excellent network security and
symmetrical download and upload speeds. We offer a range of speeds over this
service, determined by the customer's issue and by the customer's distance from
our point of presence. Wireless T-1 service can serve a small office network as
a stand-alone connection, or can serve as a redundant backup for another type of
connection, where continuity of service is a concern. Voice services can be
offered over this wireless connection, but we have not offered the voice option
to date over wireless.
-19-
<PAGE>
TRADITIONAL DIAL-UP ACCESS
We currently offer national dial-up access through relationships with
Level (3) Communications and others. We do not expect to devote significant
resources to providing such services. However, many of our commercial DSL
customers will expect dial-up services for use by traveling employees and in
other circumstances where DSL is not available. Therefore, we will maintain our
dial-up service offerings to complement our DSL services.
WEB HOSTING
We offer a variety of web hosting services to enable our clients to
maintain a high quality, highly reliable Internet presence without investing
capital in data center space, multiple high speed connections or other capital
intensive infrastructure. These services include dedicated web hosting, shared
web hosting, and equipment co-location.
SALES AND MARKETING
We plan to focus our marketing efforts in the geographical regions
covered by the co-location facilities in which we deploy our equipment. Our
narrow cast marketing focus is designed to minimize our marketing expenditures
while attracting customers located in those regions that we are prepared to
serve. We plan to coordinate our marketing efforts with the regional
introduction of our services. In so doing, we will enhance our ability to
respond quickly to customer demands and reduce the likelihood that we will be
unable to deliver our services to prospective customers that encounter our
advertising. Whereas the capacity to process a flow of orders and institute
service for new customers generally is a limiting factor for other providers of
integrated telecommunications services, we believe our responsiveness in the
marketplace will be key to the development of our reputation for quality and
reliability. We intend to market our services primarily through the following
three methods: direct response; direct sales; and strategic reseller
relationships targeting specific vertical markets.
DIRECT SALES FORCE
We also began to assemble an experienced sales force to market our
services directly to larger businesses and users in MDU and MTU environments.
Our sales force will be organized around our regional offices. System
integrators and IT managers of businesses will be the focus of our business
sales efforts. Our regionally based sales force will use a consultative selling
approach to offer clients a full range of sophisticated and cost-effective
telecommunications solutions.
DIRECT RESPONSE
We expect to primarily rely on direct consumer response to our
advertising, or direct-response marketing, to generate sales to residential and
small business consumers. Under this direct-response approach, we will target
our services in our selected regions through the use of various forms of
advertising, including print ads, mailings, on-line banners, interactive ads and
a campaign of television and radio advertising. We believe that our
UBNetworks.com website, when completed, will be the first Internet site that
permits fully automated DSL line qualification, provisioning and service
ordering, as well as an interface for existing customers to view account
information and have their billing and technical questions answered. Interested
consumers will be able to respond directly by telephone or through our Web site.
We believe this form of marketing will generate responses from a high percentage
of residential and small business users at a lower cost per subscriber than
other methods.
STRATEGIC ALLIANCES WITH NETWORK INTEGRATORS
We are in the process of building relationships with strategic sales
partners, particularly network integrators, whose business customers depend on
them for integrated Internet and networking solutions. We expect to market our
services to various resellers, independent marketing representatives,
associations and affinity groups. We expect to offer commission incentives or
discount prices to such resellers, which in turn will sell such services at
retail prices to their customers.
Our sales and marketing approach is designed to build long-term
business relationships with our customers, with the intent of becoming the
single-source provider of their telecommunications services. We train our sales
force in-house with a customer-focused program that promotes increased sales
through both customer attraction and retention.
-20-
<PAGE>
CUSTOMER CARE SYSTEM
Historically, provisioning, billing and network maintenance and
surveillance systems have been the greatest obstacles to developing efficient
and scalable broadband networks. Therefore, we made these functions a prime
focus of our efforts by commencing the design and implementation of a
comprehensive customer care system before commencing commercial service. Among
the most crucial aspects of every DSL and telecommunications provider's business
is the establishment of a provisioning, billing and customer care systems that
accomplish the following goals:
o Allow rapid automated evaluation and qualification of a
prospective subscriber's copper phone line for DSL services by
interfacing with the incumbent carriers' line information
databases;
o Automate the process of contacting the incumbent carrier to
provision the line and, where necessary, turn the line over to
us;
o Automate the connection of the customer's line to our network
and the generation, storage and delivery of each subscriber's
billing information and billing statements;
o Automate the detection of network problems and line outages
and maintenance functions; and
o Provide all of the customer's provisioning, billing and
maintenance information in a format that allows a single
customer care representative (or the customer via a web-based
interface) to review and interact with the information, to
minimize the number of personnel involved in an incidence of
subscriber trouble, and to enable customer care representative
to cure any typical subscriber problem immediately.
Through the use of a common customer care platform, we expect that our
customer care associates will be able to solve the majority of customer issues
on the initial customer contact. The customer care associate will be able to
retrieve order, billing, and network information from a common system platform.
Our network management software working behind the scenes will allow our
customer care associate to perform end to end testing on a customer line. The
customer care associate will be able to view the entire circuit from our
equipment all the way to the customer's PC to isolate the case of trouble. Our
customer care system is expected to provide all of the necessary real-time
information and test capabilities to resolve and prevent customer service
issues. This design is expected to eliminate hand-offs and provide integrated
service to our customers with the initial contact. We believe that we will be
able to resolve network-related problems much more quickly than our competitors,
which will translate into increased customer satisfaction.
QUALIFYING A CUSTOMER FOR SERVICE
UBN's Customer Care Center has chosen to implement an automated triple
verification approach to assure accuracy in determining if a customer is
eligible to receive DSL, voice, or other bandwidth services. All three
verification steps will be integrated in one easy to use platform for our
customer care agents. The first will be our facility database to determine the
MDU and campus environments our company serves. The second will be a business
logic tool that determines the acceptable distance for services as well as
boundary calculations provided by Sagent. Sagent will provide ongoing address
standardization, geocoding and a wire center lookup by utilizing both Centrus
RealTime and custom Active Server Page code. Customer friendly portions of these
applications will be available on the UBN home page to prequalify potential
customers. To assure even greater accuracy the Customer Care Center also will
have access to the Regional Bell Operating Company or other ILEC qualification
tools.
NOTIFYING THE INCUMBENT CARRIER
When providing service to a customer, we will electronically notify the
incumbent dial-tone provider, once customer care associate has completed the
order. In the case of the RBOCs, each has its own legacy-based, usually manual,
order entry system. We will have a web-based front-end system that will take the
appropriate information and complete the information fields within the system.
-21-
<PAGE>
DELIVERY AND BILLING OF SERVICES
We have chosen a suite of Operational Support Systems ("OSS") that are
expected to allow for business process automation, real time analysis,
Internet-based communications, and application integration. This system combines
the appropriate information from the customer and our own network elements to
provision the customer line in an automated and efficient manner. All
information needed to deliver and bill for services will be directly entered
into a common system interface. The operating system will allow customers (via
the Internet) or our customer care associates use to enter specific customer and
product information. The basic information includes address, type of products
and services. The OSS system then automatically translates and passes this
information to the appropriate network systems to provide working service. In
order to qualify a customer for billing services and to generate a bill, the
information gathered is delivered to the billing platform. The billing platform
automatically debits the customer's credit card or checking account and can send
a detailed bill to the customer by e-mail transmittal and/or generate a printed
billing statement.
NETWORK ARCHITECTURE AND TECHNOLOGY
We pursue a capital-efficient network deployment strategy that involves
owning switches while acquiring or leasing fiber optic transmission facilities
on an incremental basis to satisfy customer demand. Our strategy has been to
build the first components of our network to serve a number of target markets.
We believe that, where economically or strategically justified, owning network
components, rather than relying on the facilities of third parties, will enable
us to have more flexibility in meeting customer needs for new products and
services, generate higher operating margins, obtain origination and termination
fees from other carriers and maintain greater control over our network
operations and service quality.
Our network structure is designed to have the following
characteristics:
o Redundant to ensure consistent performance.
o Easily scalable from each network access point and from MSA to
MSA.
o Accommodates new features and services.
o Ability to continuously monitor all network elements to
quickly identify and repair network problems.
o Highest level of security.
INTEGRATED NETWORK ARCHITECTURE
We will provide services to our customers over a single integrated
network that supports local and long distance voice services over traditional
circuit facilities, high-speed data, including DSL. We believe that the
integrated design of our local, long distance and data networks significantly
will reduce our cost of providing services. Our integrated network architecture
includes equipment located at customer premises, ILEC or CLEC copper wire (also
known as unbundled network elements), equipment located in the central offices
of ILECs and CLECs, carrier grade voice switches, gateway and long distance
switches, digital subscriber line access multiplexers, or DSLAMs, Internet
protocol-based routers and switches, application servers, asynchronous transfer
mode, or ATM, switches, and synchronous optical network, or SONET, fiber rings.
LONG DISTANCE SWITCHING PLATFORM - NORTEL SWITCHES
We are in the process of deploying a Nortel DMS-500 switch in Los
Angeles. We intend to deploy additional switch facilities as needed to serve our
target markets.
-22-
<PAGE>
FIBER AND TRANSPORT
We have acquired an indefeasible right of use ("IRU") for fiber optic
cable in a certain portion of our network. We also lease long-haul network
transport capacity from major network-based carriers and local access from the
incumbent local carriers in their respective territories. We also use
competitive access provider facilities where available and economically
justified. We expect to lease additional transport circuits for certain
metropolitan area fiber rings or SONET services to interconnect our
co-locations, switching nodes, and long haul SONET backbone. To ensure seamless
off-net termination and origination, we also utilize interconnection agreements
with major carriers.
We have also built and own our ATM circuits and equipment, unlike many
providers that lease these ATM network elements. Ownership of our ATM network
reduces our susceptibility to ATM network congestion and strengthens our ability
to maintain and restore network performance.
CO-LOCATION FACILITIES
Central Office Co-location. Within each co-location facility we are in
the process of deploying both equipment to support switched voice services and
DSLAMs to support high-speed and DSL service offerings. By designing our
co-locations in this manner we are able to allocate the overhead costs
associated with deploying co-locations across multiple products and revenue
streams. This co-location architecture can be extended to support emerging
applications as customer requirements dictate.
MDU/MTU Co-location. Our SONET ring architecture and range of broadband
delivery services are expected to make it possible for us to locate some of our
network access points in co-location environments other than traditional central
offices. We expect to locate these sites in educational and business campuses,
MDU/MTU environments, community redevelopment projects and other locations where
copper lines aggregate outside central offices. In most instances, these access
point locations will permit us to have and control access to the facility at all
times while saving significant portions of the cost otherwise associated with
our co-location space.
"LAST MILE" AND CUSTOMER PREMISES EQUIPMENT
Our integrated network begins with our customer. To reach our
customers, we purchase or lease simple copper loops, or, if customer traffic
justifies, T-1 facilities, as unbundled network elements, or UNEs, from the
ILEC. By utilizing UNEs, we obtain access and termination revenues as if we
owned the copper loop to our customer and are able to rapidly connect the
customer directly to our co-location. We provide our customer with a modem that
we connect to a digitally conditioned copper loop that we have purchased or
leased as a UNE. To enable us to purchase these UNEs, we negotiate
interconnection agreements with the ILEC in each of our targeted jurisdictions.
We currently have in place interconnection agreements with GTE and Pacific Bell
in our initial target market in California and we are negotiating additional
interconnection agreements.
NETWORK SURVEILLANCE AND REPORTING AUTOMATION
The various network elements will be managed by several network
management systems to provide a variety of information regarding the operating
status of each element. These systems all have a common base architecture that
allows us to use a single system interface to capture the relevant information.
This system interface automatically captures the desired minor, major and
critical alarms generated by every network element. This system interface will
then pass this information to our core support system, Vitria, which in turn is
expected to deliver the information to our customer care associates and billing
system for appropriate action. Because alarms can be customized to each network
element and prioritized, this system is designed to permit proactive network
management and allow the prevention of problems or their repair in early stages
before significant outages occur.
Our entire network will be managed from the network operations center,
with web-based remote monitoring capability for most network elements also
available. We will provide end-to-end network management using advanced network
management tools on a continuous basis, which will enable us to address
performance or connectivity issues before they affect the end-user. Our
engineers and technicians will be able to "see" not only each network element,
but its connection and performance status at any time, so that a network problem
can be pinpointed and immediately repaired or bypassed.
-23-
<PAGE>
From the network operations center, we will monitor the equipment and
circuits in each metropolitan network, each central office and remote switching
site and each individual end-user line or wireless connection. Our network
operations center is located at One Wilshire in Los Angeles, the site of the
MAE-LA metropolitan access exchange on the Internet backbone. We anticipate that
construction of additional network monitoring facilities may be necessary to
service other target markets.
NETWORK SECURITY
Access to corporate networks via dial-up modems presents significant
security risks, since any telephone can be used to access such a network simply
by dialing the number. Businesses and other organizations therefore must spend
significant effort and resources to prevent unauthorized access. They also
usually limit remote access users to reading e-mail or other non-sensitive
applications. Our network permits secure availability of all internal
applications and information for use at remote locations. Our permanent virtual
circuits can connect individual end-users at fixed locations to a single
business. This reduces the possibility of unauthorized access and allows our
customers to transmit sensitive information and applications safely over our DSL
lines and wireless connections.
COMPETITION
The markets for business and consumer Internet access and voice
connection services are intensely competitive. We expect that these markets will
become increasingly competitive in the future. The principal bases of
competition in our markets include:
o price/performance;
o breadth of service availability;
o reliability of service;
o network security;
o ease of access and use;
o content bundling;
o customer support;
o brand recognition;
o operating experience;
o relationships with Internet service providers and other third
parties; and
o capital resources.
We face competition from traditional telephone companies, cable modem
service providers, competitive telecommunications companies, traditional and new
national long distance carriers, Internet service providers, on-line service
providers and wireless and satellite service providers.
INCUMBENT LOCAL EXCHANGE CARRIERS
Traditional telephone companies in our target markets, such as Pacific
Bell, SBC, GTE, and USWest have begun offering DSL services or have announced
their intention to provide DSL services in the near term. As a result, the
traditional telephone companies represent strong competition in all of our
target service areas, and we expect this competition to intensify. The
traditional telephone companies have an established brand name and reputation
for high quality in their service areas, possess sufficient capital to deploy
DSL equipment rapidly, own the telephone wires themselves and can bundle digital
data services with their existing voice services to achieve economies of scale
in serving their customers. The traditional telephone companies are also in a
position to offer service from central offices where we may be unable to secure
space and offer service because of asserted or actual space restrictions.
-24-
<PAGE>
CABLE MODEM SERVICE PROVIDERS
Cable modem service providers such as Cox Cable (Excite@Home), Time
Warner Cable (RoadRunner) and Charter Cable are deploying high-speed Internet
access services over hybrid fiber/coaxial cable networks. Hybrid fiber coaxial
cable is a combination of fiber optic and coaxial cables, and has become the
primary architecture utilized by cable operators in recent upgrades of their
systems. Where deployed, these networks provide similar and in some cases
higher-speed Internet access than we provide. They also may offer these services
at lower price points than our services. We believe the cable modem service
providers face a number of challenges that we and other providers of DSL
services avoid. For example, different regions within a metropolitan area may be
served by different cable modem service providers, making it more difficult to
offer the blanket coverage required by potential business customers. Also, most
of the current cable infrastructure in the United States must be upgraded to
support cable modems, a process which we believe is significantly more expensive
and time-consuming than the deployment of DSL-based networks. Additionally,
there are perceived and actual degradations of service over a cable modem system
when large numbers of subscribers join the service in a limited geographic area
because each subscriber does not generally receive dedicated bandwidth, but
shares the bandwidth of the same channel used by many other simultaneous users.
COMPETITIVE TELECOMMUNICATIONS COMPANIES
Many competitive telecommunications companies such as Covad
Communications, NorthPoint Communications, Rhythms NetConnections, Internet
Connections and FreeDSL and others offer high-speed digital services using a
business strategy with similarities to ours. Some of these competitors have
begun offering DSL-based access services and others are likely to do so in the
future. Some of our competitors have extensive fiber networks in many
metropolitan areas, primarily providing high-speed digital and voice circuits to
large corporations. They also have interconnection agreements with the
traditional telephone companies pursuant to which they have acquired central
office space in many markets we are also targeting.
NATIONAL LONG DISTANCE CARRIERS
Interexchange carriers, such as AT&T, Sprint, MCI WorldCom and Qwest,
have deployed large-scale Internet access networks and ATM networks, sell
connectivity to businesses and residential customers, and have high brand
recognition. They also have interconnection agreements with many of the
traditional telephone companies and a number of spaces in central offices from
which they are currently offering or could begin to offer competitive DSL
services.
INTERNET SERVICE PROVIDERS
Regional and national Internet service providers provide Internet
access to residential and business customers, generally using the existing
public switched telephone network at integrated services digital network speeds
or below. Some Internet service providers have also begun offering DSL-based
services, including Internet Connection and FreeDSL. Our largest DSL competitors
have generally used a wholesale strategy, providing their services to end users
only through resellers, to whom they must pay substantial incentives and
premiums in order to acquire many subscribers rapidly and at low per-subscriber
margins. Recently, at least one provider in our service area has begun offering
free DSL.
ON-LINE SERVICE PROVIDERS
On-line service providers include companies such as AOL, Excite@Home,
MSN (a subsidiary of Microsoft Corp.) and WebTV (a subsidiary of Microsoft
Corp.) that provide, over the Internet and on proprietary online services,
content and applications ranging from news and sports to consumer video
conferencing. These services are designed for broad consumer access over
telecommunications-based transmission media, which enable the provision of
digital services to the significant number of consumers who have personal
computers with modems. In addition, they provide Internet connectivity,
ease-of-use and consistency of environment. Many of these on-line service
providers have developed their own access networks for modem connections. As
these on-line service providers extend their access networks to DSL or other
high-speed service technologies, they become competitors of ours.
-25-
<PAGE>
WIRELESS AND SATELLITE DATA SERVICE PROVIDERS
Wireless and satellite data service providers are developing wireless
and satellite-based Internet connectivity. We may face competition from
terrestrial wireless services, including 2.5 - 2.7 Gigahertz (GHz) and 28 GHz
wireless cable systems (Multi-channel Microwave Distribution System (MMDS) and
Local Multi-channel Distribution System (LMDS)), and 18 GHz and 39 GHz
point-to-point microwave systems. The FCC has auctioned spectrum for LMDS
services in all markets. This spectrum is expected to be used for wireless cable
and telephony services, including high-speed digital services. In addition,
companies such as Teligent Inc., Advanced Radio Telecom Corp. and WinStar
Communications, Inc., hold point-to-point microwave licenses to provide fixed
wireless services such as voice, data and videoconferencing.
We also may face competition from satellite-based systems. Motorola
Satellite Systems, Inc., Hughes Communications (a subsidiary of General Motors
Corporation), Teledesic and others have filed applications with the FCC for
global satellite networks which can be used to provide broadband voice and data
services, and the FCC has authorized several of these applicants to operate
their proposed networks.
-26-
<PAGE>
THE SELLING SHAREHOLDERS
The following table lists the ownership of the common stock offered by
the selling shareholders assuming the exercise of all warrants covering shares
offered by this prospectus. None of the selling shareholders has held any
position or office or had a material relationship with us or any of our
affiliates within the past three years.
Each holder of the Convertible Promissory Notes originally issued to
Herkimer LLC may not convert its securities into shares of our common stock if
after the conversion, such holders, together with any of its affiliates, would
beneficially own over 4.999% and 9.999% of the outstanding shares of our common
stock. This restriction may be waived by each holder on not less than 61 days'
notice to us. Since the number of shares of our common stock issuable upon
conversion of the Notes will change based upon fluctuations of the market price
of our common stock prior to a conversion, the actual number of shares of our
common stock that will be issued under the Notes, and consequently the number of
shares of our common stock that will be beneficially owned by Herkimer cannot be
determined at this time. Because of this fluctuating characteristic, we agreed
to register a number of shares of our common stock that exceeds the number of
our shares of common stock currently beneficially owned by Herkimer. The number
of shares of our common stock listed in the table below as being beneficially
owned by Herkimer includes the shares of our common stock that are issuable to
Herkimer subject to the 4.999% limitation, upon conversion of their Notes.
However, the 4.999% and 9.999% limitation would not prevent Herkimer from
acquiring and selling in excess of 4.999% and 9.999% of our common stock through
a series of conversions and sales under the Notes.
<TABLE>
<CAPTION>
Shares Owned Shares Number of Percent
Prior to Offered Shares Owned
Selling Shareholder Offering(1) Hereby After Sale (2) After Sale
------------------- ----------- ------ -------------- ----------
<S> <C> <C> <C> <C>
Herkimer, LLC(3) 1,042,746 5,864,000 0 *
Dominion Fixed Income Plus Fund Limited (4) 2,250,000 2,250,000 0 *
I W Miller (5) 150,000 150,000 0 *
Newport Federal (6) 300,000 300,000 0 *
Dominion Capital (7) 25,000 25,000 0 *
Sovereign Partners (8) 25,000 25,000 0 *
David Kaplan (9) 275,000 275,000 0 *
Kaufman Bros., LP (10) 250,000 250,000 0 *
----------- ----------- ---
TOTAL 4,317,746 9,139,000 0 *
</TABLE>
-------------
* Less than 1%
(1) Assumes exercise and conversion of all warrants into their underlying
shares of common stock.
(2) Because the selling shareholders may offer all, some or none of their
common stock, no definitive estimate as to the number of shares that
will be held by the selling shareholders after such offering can be
provided and this table has been prepared on the assumption that all
shares of common stock offered under this prospectus will be sold.
(3) Includes the shares of our common stock issuable to Herkimer, subject
to the 4.999% limitation, upon conversion of its Notes. Assumes
conversion of $8,795,000 convertible Note at a conversion price of
$3.00 per share. Registrant is required to register 200% of the total
number of shares issuable on conversion of the Note.
-27-
<PAGE>
(4) Includes the maximum number of shares issuable upon conversion of
150,000 shares of series B convertible preferred stock issued under a
Unit Purchase Agreement dated July 21, 2000, between Dominion and us,
at the lowest assumed conversion price of $2.00 per share, and warrants
to purchase 1,500,000 shares of common stock at the assumed lowest
conversion price of $2.00 per share, which are immediately exercisable.
(5) Consists of warrants to acquire 150,000 shares of common stock at $2.00
per share that are immediately exercisable.
(6) Consists of warrants to acquire 200,000 and 100,000 shares of common
stock at $2.875 and $4.06 per share, respectively, that are immediately
exercisable.
(7) Consists of warrants to acquire 25,000 shares of common stock at $3.24
per share that are immediately exercisable.
(8) Consists of warrants to acquire 25,000 shares of common stock at $3.24
per share that are immediately exercisable.
(9) Consists of warrants to acquire 200,000 and 75,000 shares of common
stock at $3.00 and $2.50 per share, respectively, that are immediately
exercisable.
(10) Consists of warrants to acquire 250,000 warrants at $6.06 per share
that are immediately exercisable.
-28-
<PAGE>
PLAN OF DISTRIBUTION
We will not receive any of the proceeds from the sale of the securities
offered under this prospectus. The Selling Stockholders and any of their
pledgees, assignees and successors-in-interest may, from time to time, sell any
or all of their shares of Common Stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions. These sales
may be at fixed or negotiated prices. The Selling Stockholders may use any one
or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales
o broker-dealers may agree with the Selling Stockholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The Selling Stockholders may also engage in short sales against the
box, puts and calls and other transactions in securities of the Company or
derivatives of Company securities and may sell or deliver shares in connection
with these trades. The Selling Stockholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a Selling
Stockholder defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged shares. The Selling Stockholders have advised the Company
that they have not entered into any agreements, understandings or arrangements
with any underwriters or broker-dealers regarding the sale of their shares other
than ordinary course brokerage arrangements, nor is there an underwriter or
coordinating broker acting in connection with the proposed sale of shares by the
Selling Stockholders.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
-29-
<PAGE>
At any time a particular offer of the securities is made, a revised
prospectus or prospectus supplement, if required, will be distributed which will
contain the amount and type of securities being offered and the terms of the
offering, including the name or names of any underwriters, dealers or agents,
any discounts, commissions and other items constituting compensation from the
selling stockholders, selling securities and any discounts, commissions or
concessions allowed or reallowed or paid to dealers. A prospectus supplement
and, if necessary, a post-effective amendment to the registration statement of
which this prospectus is a part, will be filed with the SEC to reflect the
disclosure of additional information with respect tot he distribution of the
securities.
The selling shareholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations under the Exchange Act, including, Regulation M, which
may limit the timing of purchases and sales of any of the common stock by you
and any other such person. Furthermore, under Regulation M under the Exchange
Act, any person engaged in the distribution of the common stock may not
simultaneously engage in market-making activities with respect to the particular
common stock being distributed for certain periods prior to the commencement of
or during such distribution. All of the above may affect the marketability of
the securities and the availability of any person or entity to engage in
market-making activities with respect to the common stock.
LEGAL MATTERS
Pillsbury Madison & Sutro, LLP, Costa Mesa, California, will pass upon
the validity of the common stock offered hereby.
EXPERTS
The consolidated financial statements incorporated by reference in this
prospectus have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the periods set forth in their report (which
contains an explanatory paragraph regarding our ability to continue as a going
concern) incorporated herein by reference, and are incorporate herein in
reliance upon such report given the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements incorporated by reference in this
prospectus have been audited by Smith & Co., independent certified public
accountants, to the extent and for the periods set forth in their report,
incorporated herein by reference, and are incorporate herein in reliance upon
such report given the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirement of the Securities
Exchange Act of 1934, as amended and, in accordance therewith, file reports,
proxy statements and other information with the Securities and Exchange
Commission. Such reports, proxy statements and other information we have filed
may be inspected and copied at the Commission's public reference facilities
maintained by the SEC, Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at the regional offices of the Commission located at
Seven World Trade Center, New York, New York, 10048, and 500 West Madison
Street, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for
further information about the public reference rooms. The SEC maintains a Web
site at HTTP://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC.
You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. The selling shareholders are offering to
sell, and seeking offers to buy, shares of our common stock only in
jurisdictions where offers and sales are permitted. The information contained in
this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or of any sale of our common stock.
In this prospectus, "UBN," "we," "us" and "our" refer to Universal Broadband
Networks, Inc., its predecessors and its subsidiaries.
-30-
<PAGE>
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" into the prospectus
information we have previously filed with them. The information incorporated by
reference is an important part of this prospectus and the information that we
file subsequently with the SEC will automatically update this prospectus. The
information incorporated by reference is considered to be part of this
prospectus. We incorporate by reference the documents listed below and any
filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, after the initial filing of this
registration statement and prior to the time that the shares covered by this
prospectus are sold:
o Our Annual Report on Form 10-K for the fiscal year ended March
31, 2000, filed July 10, 2000;
o Our Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2000 filed August 14, 2000;
o Our Definitive Proxy Statement for our 2000 Annual Meeting of
Shareholders, filed July 5, 2000;
o Our Current Reports on Form 8-K filed on April 10, 2000,
August 2, 2000 and August 9, 2000; and
o Our Form 8-A filed April 21, 2000.
We also incorporate by reference each of the following documents that
we will file with the SEC after the date of this prospectus but before all the
shares offered by this prospectus are sold:
o Reports filed under Sections 13(a) and (c) of the Exchange
Act; and
o Definitive proxy statement filed under Section 14 of the
Exchange Act in connection with any subsequent shareholders'
meeting. The reports and other documents we file after the
date of this prospectus will update and supercede the
information in this prospectus.
You may request a copy of any filings referred to above (excluding
exhibits) at no cost by writing or telephoning us at the following address:
Universal Broadband Networks, Inc., Attention: Jeffrey R. Matsen, 2030 Main
Street, Suite 500, Irvine, California, 92614, (949) 260-8100.
DEALER PROSPECTUS DELIVERY OBLIGATION
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.
-31-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, payable by us in
connection with the sale of common stock being registered. All amounts are
estimates except for the Registration Fee.
Registration fee............................................$ 8,594.00
Printing......................................................2,500.00
Legal Fees and Expenses......................................25,000.00
Accounting fees and expenses..................................5,000.00
Miscellaneous expenses........................................2,500.00
-----------
Total.......................................................$43,594.00
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law ("DGCL") provides
that a corporation may indemnify such person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is or was a director, officer, employee or agent of
the corporation or is or was serving at its request in such capacity in another
corporation or business association, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if such
person acted in good faith and in a manner such 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 his
conduct was unlawful.
As permitted by Section 145 of the DGCL, the company's Bylaws provide
that, to the fullest extent permitted by the DGCL, directors, officers and
certain other persons who are made, or are threatened to be made, parties to, or
are involved in, any action, suit or proceeding will be indemnified by the
company with respect thereto. Article V of the company's Bylaws provides for the
indemnification of officers, directors, employees and agents of the corporation
if such person acted in good faith and in a manner reasonably believed to be in
and not opposed to the best interest of the corporation, and, with respect to
any criminal action or proceeding the indemnified party had no reason to believe
his conduct was unlawful.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
Certificate of Incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, expect for liability (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 DGCL,
or (iv) for any transaction from which the director derived an improper personal
benefit.
As permitted by Section 102(b)(7) of the DGCL, our Amended and Restated
Certificate of Incorporation includes a provision that limits a director's
personal liability to the company or its stockholders for monetary damages for
breaches of his or her fiduciary duty as a director. Article X of the company's
Amended and Restated Certificate of Incorporation provides that no director or
the company shall be personally liable to the company or its stockholders for
monetary damages for breach of fiduciary duty to the fullest extent permitted by
DGCL.
II-1
<PAGE>
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit Description
------- -----------
4.1 Form of Convertible Note Purchase Agreement by and between
Registrant and Herkimer LLC
4.2 Registration Rights Agreement by and between Registrant and
Herkimer LLC
4.3 8% Convertible Note by and between Registrant and Herkimer
LLC
4.4 Unit Purchase Agreement by and between Registrant and each
of Dominion Fixed Income Plus Fund Limited
4.5 Form of Warrant Agreement between Registrant and Dominion
Fixed Income Plus Fund Limited and IW Miller
4.6 Form of Warrant Agreements between Registrant and Newport
Federal
4.7 Form of Warrant Agreement between Registrant and each of
Dominion Capital and Sovereign Partners
4.8 Form of Warrant Agreement and Certificate between Registrant
for Havkit Corporation
4.9 Form of Warrant Agreement between Registrant and Kaufman
Brothers LP
5.1 Opinion of Pillsbury Madison & Sutro LLP
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Smith & Co.
23.3 Consent of Pillsbury Madison & Sutro LLP (Included in
Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
II-2
<PAGE>
2. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
3. To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3
under the Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X are not set
forth in the prospectus, to deliver, or cause to be delivered to each person to
whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such interim
financial information.
4. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 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 Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Irvine, State of California, on August ___,
2000.
UNIVERSAL BROADBAND NETWORKS, INC.
By: /s/ MICHAEL A. STERNBERG
------------------------
Michael A. Sternberg,
CHIEF EXECUTIVE OFFICER
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael A. Sternberg and Jeffrey R.
Matsen and each of them his or her true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him or her and in
his or her name, place and stead, in any and all capacities, to sign any and all
amendments, including post-effective amendments, to this registration statement,
and to file the same, with exhibits thereto and other documents in connection
herewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or his or her
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated:
Name Title Date
---- ----- ----
/s/ JON H. MARPLE Chairman of the Board August ___, 2000
---------------------------
Jon H. Marple
/s/ MARY E. BLAKE Vice Chairman and Director August ___, 2000
---------------------------
Mary E. Blake
/s/ MICHAEL A. STERNBERG Chief Executive Officer and August ___, 2000
--------------------------- Director
Michael A. Sternberg
/s/ RICHARD W. TORNEY Director August ___, 2000
---------------------------
Richard W. Torney
/s/ RICHARD F. CHARLES Director August ___, 2000
---------------------------
Richard F. Charles
/s/ H. DEAN CUBLEY Director August ___, 2000
---------------------------
H. Dean Cubley
/s/ TERRY D. KRAMER Director August ___, 2000
---------------------------
Terry D. Kramer
/s/ STEPHEN E. PAZIAN Director August ___, 2000
---------------------------
Stephen E. Pazian
II-5
