DSL.net Eliminates $46.5M in Existing Debt and Preferred Stock, Cancels 191 Million Warrants through New Financing; DunKnight Te
November 03 2005 - 5:20PM
Business Wire
DSL.net, Inc. (AMEX: BIZ), a leading nationwide provider of
broadband communications services to businesses, today announced
that it has reached an agreement with DunKnight Telecom Partners
LLC under which DSL.net is to receive up to $10 million in new debt
financing. The first $6 million of such financing has been received
and used by the Company to eliminate $30.8 million in senior
secured debt due July 6, 2006, cancel all outstanding Series Z
Preferred Stock that carried a liquidation preference of $15.7
million, and cancel warrants to purchase approximately 191 million
shares of the Company's common stock, all of which debt and equity
interests were held by the Company's former senior lenders,
Deutsche Bank and VantagePoint Venture Partners. The remaining $4
million of new financing from DunKnight will be funded in January
2006, and will help support the Company's working capital needs.
"This agreement is the culmination of a year-long effort by the
senior management team, with the support of the Company's Board of
Directors and Jefferies Broadview, a division of Jefferies &
Company, Inc., the Company's financial advisor, in which we
fine-tuned the Company's operations, realigned its strategy and
recapitalized the Company," said Kirby G. "Buddy" Pickle, departing
president and chief executive officer of DSL.net. "I am pleased to
have helped navigate the Company through this realignment process
and believe that this transaction is a significant step in better
positioning DSL.net to expand its Voice over Internet Protocol
(VoIP) strategy and take advantage of potential growth
opportunities in the markets served by the Company's high-quality
broadband network and VoIP platform. DSL.net's employees and
customers should be quite pleased with this announcement." For the
initial $6 million funding, the Company issued an $8 million
promissory note. For the remaining $4 million funding, which is
subject to certain terms and conditions, the Company will issue, on
Jan. 3, 2006, a $5 million promissory note. The notes, which total
an aggregate face principal amount of $13 million, will both mature
on Aug. 2, 2006, and bear interest at 18 percent annually, with
interest payable monthly in arrears in cash based on the face
principal amount of the notes. The new debt is secured by a lien on
substantially all of the Company's assets. In addition, the terms
of the debt contain certain on-going financial covenants and
various operational covenants, including restrictions on the
Company's ability to change its business operations and
restrictions on the Company's issuance of additional debt or equity
securities other than for purposes of paying off DunKnight's debt
in full. "This transaction improves our balance sheet and includes
a commitment to provide us, in January of 2006, with additional
working capital," said Walter R. Keisch, DSL.net's chief financial
officer. "The Company will need to raise additional capital in
2006; nevertheless, this financing is a milestone event for the
Company and demonstrates the investor's confidence in our
outstanding network and growth potential." As part of the
financing, David F. Struwas has been appointed as the Company's new
chief executive officer and as a director on the Company's Board,
replacing Pickle, who served as CEO and as a director since April
2004. Struwas, who was one of the Company's original founders,
previously served as the Company's CEO from November 1998 to April
2004. During his tenure, DSL.net was named the 49th fastest growing
technology company in North America for the five-year period ending
Dec. 31, 2003, as part of the Deloitte Technology Fast 500 program.
Most recently, Struwas, who has a minority, non-managing membership
interest in DunKnight Telecom Partners LLC, has served as a
consultant in the telecommunications industry. Previously, Struwas
held key positions with Brooks Fiber-Worldcom and Southern New
England Telephone, which is now part of SBC Communications. Struwas
has nearly 20 years of senior-level experience in the
telecommunications industry. "Dave's in-depth knowledge of the
Company and his track record of growth in the companies he's been
involved with will be valuable assets as DSL.net employs its
strategic initiatives in the VoIP marketplace," said Pickle. "I've
enjoyed my association with the Company and its employees,
particularly working closely with a very dedicated group of senior
executives, and it is truly a pleasure to pass the reigns of
DSL.net back over to one of its original founders." In addition, as
part of the DunKnight financing, Keir Kleinknecht, the manager and
leading principal of DunKnight, has been appointed to the Company's
Board of Directors, and William J. "Jeff" Marshall, Deutsche Bank's
former representative to the Company's Board, has resigned from the
Company's Board of Directors. On a separate matter, the Company is
still evaluating various alternatives in response to the notice
received from The American Stock Exchange ("Amex") in October 2005,
advising the Company that Amex deems it appropriate for the Company
to effect a reverse split of its shares of common stock within a
reasonable amount of time to address the low trading price of such
stock. About DSL.net DSL.net, Inc. is a leading nationwide provider
of broadband communications services to businesses. The Company
combines its own facilities, nationwide network infrastructure and
Internet Service Provider (ISP) capabilities to provide high-speed
Internet access, private network solutions and value-added services
directly to small- and medium-sized businesses or larger
enterprises looking to connect multiple locations. DSL.net product
offerings include T-1, DS-3 and business-class DSL services,
virtual private networks (VPNs), frame relay, Web hosting, DNS
management, enhanced e-mail, online data backup and recovery
services, firewalls and nationwide dial-up services, as well as
integrated voice and data offerings in select markets. For more
information, visit www.dsl.net, e-mail info@dsl.net, or call
1-877-DSL-NET1 (1-877-375-6381). This press release may contain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, such as the Company's
future business prospects, and, to the extent it does, these
forward-looking statements are subject to a variety of risks and
uncertainties, many of which are beyond DSL.net's control, which
could cause actual results to differ materially from those
contemplated in these forward-looking statements. In particular,
the risks and uncertainties associated with DSL.net's business
include, among other things, (i) fluctuations in DSL.net's
quarterly operating results, which could adversely affect the price
of its common stock; (ii) DSL.net's unproven business model, which
may not be successful; (iii) DSL.net's ability to raise sufficient
additional capital on acceptable terms, or at all, to finance
continuing operations and the repayment of DSL.net's debt to
DunKnight Telecom Partners LLC; (iv) DSL.net's failure to generate
sufficient revenue, contain certain discretionary spending, achieve
certain other business plan objectives, or obtain additional debt
or equity financing could have a material adverse effect on
DSL.net's results of operations or financial position, or cause it
to restructure its operations to further reduce operating costs or
to cease operations or to sell all or a portion of DSL.net's
assets; (v) DSL.net's ability to maintain compliance with the
American Stock Exchange's continuing listing requirements, which
failure could adversely impact the pricing and trading of DSL.net's
common stock; (vi) regulatory, legislative and judicial
developments, which could adversely affect the way DSL.net operates
its business or increase its costs of operations; (vii)
competition; (viii) the marketplace's receptiveness to DSL.net's
offering of integrated voice and data services; (ix) DSL.net's
ability to recruit and retain qualified personnel; and (x)
DSL.net's dependence on third-party providers to supply it with
local DSL and T-1 facilities in areas where it has not deployed its
own equipment. Existing and prospective investors are cautioned not
to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. DSL.net undertakes no obligation,
and disclaims any obligation, to update or revise the information
contained in this press release, whether as a result of new
information, future events or circumstances or otherwise. For
additional information regarding these and other risks faced by
DSL.net, see the disclosure contained under "Risk Factors'' in
DSL.net's Annual Report on Form 10-K for the year ended December
31, 2004, which has been filed with the Securities and Exchange
Commission. DSL.net is a trademark of DSL.net, Inc. Other company
names may be trademarks of their respective owners.
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