SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 24, 1997
FiberNet Telecom Group, Inc.
(Exact name of registrant as specified in its charter)
Nevada 33-7841 13-3859938
State of Commission File IRS Employer
Incorporation No. Identification No.
121 Erie Canal Drive, Suite A
Rochester, New York 14626
Address of principal executive offices
Registrant's telephone number: (716) 225-0440
DESERT NATIVE DESIGNS, INC.
Former Name
1391 Luckspring Drive, Salt Lake City, Utah 84106
(Former Address)
<PAGE>
Item 1. Changes in Control of Registrant.
Effective November 24, 1997, the registrant issued
11,500,000 shares of restricted common stock, after given effect
to 3.5 to 1 forward stock split, and 80,000 shares of Series B
Voting Preferred Stock to the three stockholders of FiberNet
Telecom, Inc., a private Delaware corporation (hereafter referred
to as "FiberNet"). Three new individuals were also appointed to
serve on the registrant's board of directors in the place of the
resigning director. Current management of the registrant is now
comprised of:
Common Shares
Beneficially
Owned Following Percent
Name Acquisition of Class Positions Held
Santo Petrocelli, Sr. 6,900,000(1)(2) 46% Chairman of the
Board of Directors,
President, Chief
Executive Officer
and Director
Lawrence S. Polan 575,000(1)(3) 3.8% Vice President,
Secretary-Treasurer,
Chief Financial
Officer and Director
John J. Marchaesi -0- -0- Vice President -
Administration
and Director
All Directors as a 7,425,000(1) 49.8%
group (3 persons)
(1) The shares beneficially owned by these persons are
held of record by private corporations controlled,
respectively, by the individual shareholders named herein.
(2) Mr. Petrocelli also owns 48,000 shares of Series B
Preferred Stock (out of 80,000 outstanding shares), each
share of which is entitled to 100 votes on all matters voted
upon by common shareholders of the registrant. Mr.
Petrocelli also owns options to purchase 190,000 shares of
the registrant's common stock during the next five years at
$1.95 per share pursuant to the registrant's Incentive Stock
Option Plan.
<PAGE>
(3) Mr. Polan also owns 4,000 shares of Series B
Preferred Stock and options to purchase 190,000 shares of
the registrant's common stock during the next five years
at $1.95 per share pursuant to the registrant's Incentive
Stock Option Plan.
(4) Mr. Marchaesi owns options to purchase 30,000
shares of the registrant's common stock during the next five
years at $1.95 per share pursuant to the registrant's
Incentive Stock Option Plan.
One other shareholder of FiberNet, not referred to above,
was issued in the acquisition, 4,025,000 shares of common stock
(26.8%) and 28,000 shares of Series B Voting Preferred Stock.
This shareholder, Joseph A. Tortoretti, also owns options to
purchase 190,000 shares of the registrant's common stock during
the next five years at $1.95 per share pursuant to the
registrant's Incentive Stock Option Plan.
This change in control was the result of the acquisition of
FiberNet, as a wholly-owned subsidiary of the registrant. As a
part of the acquisition, the previous sole officer and director
resigned and the above-named persons were appointed in her place.
Also, the registrant's corporate offices were changed to the
offices of FiberNet in Rochester, New York.
The registrant issued 11,500,000 shares of restricted common
stock to the stockholders of FiberNet in the acquisition. The
11,500,000 shares represents 77% of the 15,000,000 shares of
common stock outstanding immediately after the acquisition. The
registrant also issued to the shareholders of FiberNet 80,000
shares of Series B Voting Preferred Stock, entitled to 100 votes
per share, which gives these three shareholders 81% voting
control of the registrant.
The consideration received by the registrant for the
issuance of its common and Series B Voting Preferred shares was
all of the shares of issued and outstanding common stock of
FiberNet.
Item 2. Acquisition or Disposition of Assets.
As mentioned in Item 1. above, the registrant issued
11,500,000 shares of restricted common stock and 80,000 shares of
Series B Voting Preferred Stock to the three shareholders of
FiberNet, effective as of November 24, 1997, in the acquisition
of all of the issued and outstanding common stock of FiberNet, a
privately-held Delaware corporation.
The consideration given by the registrant in the form of its
shares of capital stock was determined in arms-length
negotiations between management and stockholders of the
registrant or it agents and the stockholders of FiberNet. None
of the stockholders or management of FiberNet were previously
affiliated with the registrant in any manner. The principal
basis used in the negotiations to determine the number of shares
of common and preferred stock to be issued by the registrant was
<PAGE>
the percentage of outstanding common stock and voting control
stock which would be owned by the new control group after the
issuance thereof rather than any traditional valuation formulas.
A business description of FiberNet and its two controlled
subsidiaries is attached hereto as an exhibit.
Item 5. Other Events.
As an essential part of the acquisition of FiberNet the
following additional matters were effectuated on November 24,
1997:
1. A forward stock split of the outstanding shares of
common stock of the registrant increasing said shares from
1,000,000 to 3,500,000 shares;
2. The private sale by the registrant of 1,000,000 shares
of 6% Series A Convertible Cumulative preferred Stock at $5.125
per share for gross proceeds of $5,125,000. These shares are
convertible on a share for share basis to common stock at the
option of the holder or the registrant after February 24, 1998;
3. Amendment to the registrant's articles of incorporation
to change its name to FiberNet Telecom Group, Inc.;
4. The filing of Certificates of Designation with the
Secretary of State of Nevada to create the Series B Voting and 6%
Series A Preferred Stock.
5. The registrant received for cancellation, as a
contribution to capital, 462,850 Series A and 462,850 Series B
Warrants and notified the balance of the warrantholders that the
remaining Series A and Series B Warrants would be redeemed
effective December 8, 1997.
6. The registrant adopted a stock option plan in order to
retain and attract qualified employees and consultants.
1,500,000 shares are authorized for issuance under the plan.
Options covering 600,000 shares, exercisable at $1.95 for five
years, have been granted to the three members of management and
one other employee of the registrant.
All of these matters were approved by the board of directors
of the registrant and by written consent of shareholders owning
92.6% of the registrant's outstanding common stock on November
14, 1997.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
(1) June 30, 1997 unaudited financial statements
of FiberNet are attached hereto as Schedule 1.
<PAGE>
Registrant hereby undertakes to file audited
financial statements of FiberNet for its fiscal years
ended June 30, 1997 and 1996, within sixty days of the
date this report was required to be filed, as an
amendment hereto.
(b) Pro forma Financial information.
An unaudited Pro Forma combined financial
statement for the registrant giving effect to the
acquisition of FiberNet is attached hereto as Schedule
2.
(c) Exhibits. The following exhibits are filed
herewith.
(A) Agreement and Plan of Reorganization
dated effective as of November 24,
1997 with exhibits.
(B) Business description of FiberNet.
(C) Amendment to Articles of Incorporation
of the Registrant.
(D) Certificates of Designation creating
Series A and Series B Preferred Stock.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
FIBERNET TELECOM GROUP, INC.
Date: November 26, 1997 By: /s/ Lawrence S. Polan
Lawrence S. Polan, Secretary
<PAGE>
SCHEDULE 1
____________
Unaudited June 30, 1997
Financial Statements of FiberNet Telecom, Inc.
<PAGE>
FIBERNET TELECOM INC. AND AFFILIATED ENTITIES
(A DEVELOPMENT STAGE COMPANY)
COMBINED BALANCE SHEET
JUNE 30, 1997
(Unaudited)
A S S E T S
Current Assets:
Cash $ 1,652
Prepaid expenses 1,067
_________
Total current assets 2,719
Deferred commitment fee 99,000
Security deposits 800
_________
$ 102,519
_________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses
$ 338,480
Equity:
Capital contributed
147,100
Deficit accumulated (383,061) (235,961)
_________ _________
$ 102,519
_________
<PAGE>
FIBERNET TELECOM INC. AND AFFILIATED ENTITIES
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
ACCUMULATED DURING THE DEVELOPMENT STAGE
(Unaudited)
For The Inception
Year Ended To
June 30, 1997 June 30, 1997
_______________ _______________
Expenses
Salaries $ 27,500 $ 27,500
Employee welfare 6,589 6,589
Consultants 178,250 178,970
Travel and auto 14,045 19,686
Business development expenses 5,000 5,000
Rent 4,512 4,512
Telephone 4,549 4,868
Office expense 8,382 8,562
Legal and accounting 119,857 120,872
Taxes 2,009 2,998
Miscellaneous 2,981 3,504
Net loss (373,674) (383,061)
_________ _________
Accumulated deficit beginning ( 9,387) -
_________ _________
Accumulated deficit ending $ (383,061) $ (383,061)
_________ _________
See accompanying Accountants' Review Report and Notes.
<PAGE>
FIBERNET TELECOM INC. AND AFFILIATED ENTITIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(Unaudited)
For The Inception
Year Ended To
June 30, 1997 June 30, 1997
_____________ _____________
Cash Flows from Operating Activities:
Net loss $ (373,674) $ (383,061)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization of deferred expenses 56,200 56,200
Changes in operating assets and liabilities:
Prepaid expenses ( 1,067) ( 1,067)
Deferred expenses ( 56,200)
Accounts payable and accrued expenses 239,072 239,480
_________ _________
Net cash used by operating activities ( 79,469) (144,648)
_________ _________
Cash Flows from Investing Activities:
Other assets ( 800) ( 800)
_________ _________
Net cash used by investing activities ( 800) ( 800)
_________ _________
Cash Flows from Financing Activities:
Capital Contribution 81,000 147,100
_________ _________
Net cash provided by financing activities 81,000 147,100
_________ _________
Net increase in cash 731 1,652
Cash, beginning 921 -
_________ _________
Cash, ending $ 1,652 $ 1,652
_________ _________
See accompanying Accountants' Review Report and Notes.
<PAGE>
FIBERNET TELECOM INC. AND AFFILIATED ENTITIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
INCEPTION TO JUNE 30, 1997
(Unaudited)
Limited C Corporation
Liability Common Total
Companies Stock Capital
___________ ______________ __________
Fibernet Telecom Inc.:
Authorized 1,000 shares
to be issued
June 30, 1995 $ 60,000 $ 60,000
June 30, 1996 1,000 1,000
June 30, 1997 7,100 7,100
Local Fiber, LLC:
Class A:
June 30, 1997 $ 43,050 43,050
Class B:
June 30, 1997 10,000 10,000
Fibernet Equal Access, LLC:
June 30, 1997 25,950 25,950
___________ ______________ __________
Balance, June 30, 1997 $ 79,000 $ 68,100 $ 147,100
___________ ______________ __________
See accompanying Accountants' Review Report and Notes.
<PAGE>
FIBERNET TELECOM INC. AND AFFILIATED ENTITIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited)
1. Principal Business Activity and Significant Accounting
Policies
Principal Business Activity:
The group of entities (The Company), combined in the
accompanying financial statements, develops and plans to
operate telecommunication networks providing switched local
telecommunications and switched data communication services
to be marketed principally to the business community located
in New York City and parts of New Jersey.
Principles of Combination:
The accompanying combined financial statements include the
accounts of the following, all of which are under common
control:
Fibernet Telecom Inc.
Local Fiber, LLC (Formed March 20, 1996, NY, NY)
Fibernet Equal Access, LLC (Formed December 12,
1996, NY, NY)
The ownership of Local Fiber, LLC is divided into (a) three
Class A Members owning 90% and entitled to two votes each,
and (b) one Class B Member owning 10% and entitled to one
vote. The Class A Members were required to make the $10,000
capital contribution for the Class B Member who was
required, under the Operating Agreement, to grant a license
to Local Fiber with respect to fiber optic cable (See Note
2.) The 10% ownership of Class B Member cannot be diluted
until Local Fiber shall have completed a public offering.
Under the terms of the Local Fiber operating agreement, no
Class A or Class B Member has any personal liability for the
obligations of Local Fiber and it has a fixed period of
existence of twenty years.
All material intercompany accounts and transactions have
been eliminated in combination. Certain affiliates provide
management services to the Company. (See Note 5.)
Going Concern:
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles,
which contemplates continuation of the company as a going
concern. However, since inception, the company has
sustained substantial losses. In addition, the company has
used substantial amounts of working capital in its
operations. Further, at June 30, 1997, current liabilities
exceed current assets by $335,761 and total liabilities
exceed total assets by $235,961.
<PAGE>
1. Principal Business Activity and Significant Accounting
Policies (continued)
In view of these matters, realization of a major portion of
the assets in the accompanying balance sheet is dependent
upon continued operations of the company, which in turn is
dependent upon the company's ability to meet its financing
requirements, and the success of its future operations.
Management believes that actions presently being taken to
revise the company's operating and financial requirements
provide the opportunity for the company to continue as a
going concern.
Commitment Fees:
Amortization of deferred commitment fees will be over the
term of the related borrowings.
Income Taxes:
For income tax purposes, Fibernet Telecom Inc. files as a C
Corporation, and Local Fiber, LLC and Fibernet Equal Access,
LLC file as partnerships.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect reported
amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial
statements, and revenues and expenses during the reporting
period. In these financial statements, assets, liabilities
involve extensive reliance on management's estimates.
Actual results could differ from those estimates.
2. Intangibles
Network License:
Local Fiber, LLC, has been licensed for an exclusive use of
up to eight fiber optic strands on the existing fiber optic
cable network in New York City and New Jersey granted by one
of its members. The initial term of the license is July 1,
1996 - December 20, 2008. The Company has an option to
extend the term of the license for fifteen years at no cost.
The Company is responsible for ongoing franchise fees, taxes
and other expenses incurred in connection with its license.
Ownership of network construction undertaken by the Company
will substantially vest to the licensor. The grant of the
right to use the fiber optic cable and the continuation of
such right is subject to Local Fiber having arranged for
$2,000,000 in financing by December 31, 1997. The License
<PAGE>
terminates in the event Local Fiber is dissolved, involved
in an act of bankruptcy, the appointment of a receiver (or
similar custodian) or becomes insolvent.
3. Income taxes
Fibernet Telecom Inc., a C Corporation, has net operating
loss carryforwards available to offset future taxable income
of approximately $235,000. The tax benefit of the net
operating loss, a deferred tax asset of $87,000, is offset
by a valuation allowance of $87,000.
4. Warrants
Fibernet Equal Access, LLC, has issued a warrant for the
purchase of up to 10% of its membership interest. The
warrant's exercise price is $25 per unit, subject to certain
terms and conditions, and with an exercise period of three
years from August 7, 1997.
Warrants - to be Issued:
Local Fiber Access, LLC, and Fibernet Equal Access, LLC,
have each granted warrants for the acquisition of a 5%
interest, subject to closings on each respective Credit
Facility. (See notes 6 and 7.) These warrants will expire
on December 31, 2004 or three years after final repayment of
the Credit Facility, whichever is later. The warrants
contain full anti-dilution provisions, and equalization
provisions. The Company has the right to reacquire the
warrants through December 31, 2000 pursuant to certain
agreed upon values.
5. Related Party Transactions
The Company is obligated for payment of monthly management
fees for services rendered by two of its unconsolidated
affiliates. Management, marketing and administrative
services are provided. During the year, $60,000 was paid
for services rendered and, in addition, $60,000 has been
accrued for unpaid services.
<PAGE>
6. Commitments and Contingencies
Credit Facilities:
On June 16, 1997, Local Fiber, LLC, obtained a Credit
Facility commitment for project financing in connection with
the purchase and installation of a digital fiberoptic
network for multi-media services in New York City. The
availability of this Credit Facility is subject to certain
conditions precedent among which is the condition that the
Company's shareholders commit to fund $1,000,000 of capital.
The Credit Facility provides up to $9,300,000 for project
costs and up to $600,000 for capitalized interest. Interest
will be calculated based on the rate for 90-day commercial
paper plus 525 basis points. Borrowings will be repaid over
60 months. The lender will have a first priority security
interest on the Company's assets, revenues, present and
future real property, personal property and intangibles. A
commitment fee of 1%, or $99,000 will be due on acceptance
of the Credit Facility commitment in addition to standby
fees and reasonable expenses incurred by the lender. In
consideration of closing on the Credit Facility, the lender
will be issued warrants for the purchase of a 5% interest in
Local Fiber, LLC.
Building Access License:
Fibernet Equal Access, LLC, has obtained licenses to
construct and exclusively operate and maintain
telecommunication distribution systems within certain
commercial real estate. The term of the licenses is for ten
years. License fees are payable based on 14% of gross
revenues received from customers using the systems.
Leases:
The Company leases its office facilities on a month to month
basis requiring $800 per month rent.
<PAGE>
7. Subsequent Events
Credit Facility:
On August 1, 1997, Fibernet Equal Access, LLC, obtained a
Credit Facility commitment for project financing in
connection with the purchase and installation of a digital
local and long distance in-building fiber distribution
platform. The Credit Facility provides up to $3,000,000 for
project costs and up to $125,000 for capitalized interest.
Interest will be calculated based on the rate for 90-day
Libor rate plus 520 basis points. Borrowings will be repaid
over 60 months. The lender will have a first priority
security interest on the Company's assets, revenues, present
and future real property, personal property and intangibles.
A commitment fee of 1% will be due on acceptance of the
Credit Facility commitment in addition to standby fees and
reasonable expenses incurred by the lender. In
consideration of closing on the Credit Facility, the lender
will be issued warrants to acquire a 5% interest in Fibernet
Equal Access, LLC. The availability of this Credit Facility
is subject to certain conditions precedent among which is
the condition that the Company's shareholders will have
provided $1,000,000 of capital for working capital purposes.
Office Lease:
On August 22, 1997, the Company entered into a lease for
office facilities with a seven month term, requiring monthly
rent of $2,086 and additional charges for real estate taxes
and common building expenses.
<PAGE>
SCHEDULE 2
__________
Unaudited Pro Forma Combined Financial Statements
<PAGE>
FIBERNET TELECOM GROUP, INC.
AND FIBERNET TELECOM, INC.
PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[Unaudited]
The following unaudited proforma condensed combined balance sheet
aggregates the balance sheet of FiberNet Telecom Group, Inc.
[formerly Desert Native Designs, Inc.] (a Nevada corporation)
("PARENT") as of September 30, 1997 and the combined balance
sheet of FiberNet Telecom, Inc. (a Delaware corporation)
("SUBSIDIARY") as of June 30, 1997, accounting for the
transaction as a recapitalization of SUBSIDIARY with the issuance
of shares for the net assets of PARENT (a reverse acquisition)
and using the assumptions described in the following notes,
giving effect to the transaction, as if the transaction had
occurred as of the end of the period. The transaction was
completed as of November 24, 1997.
The following unaudited proforma condensed combined statement of
operations combine the results of operations of PARENT for the
nine months ended September 30, 1997 and the results of
operations of SUBSIDIARY for the period ended June 30, 1997
(approximately nine months) as if the transaction had occurred as
of the beginning of the period.
The proforma condensed combined financial statements should be
read in conjunction with the separate financial statements and
related notes thereto of PARENT and SUBSIDIARY. These proforma
financial statements are not necessarily indicative of the
combined financial position had the acquisition occurred on the
date indicated above, or the combined results of operations which
might have existed for the periods indicated or the results of
operations as they may be in the future.
<PAGE>
FIBERNET TELECOM GROUP, INC.
AND FIBERNET TELECOM, INC.
PROFORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
[Unaudited]
FiberNet Telcom FiberNet Proforma
Group, Inc. Telecom, Inc. Increase Proforma
September 30, 1997 June 30, 1996 (Decrease) Combined
_____________ ____________ __________ _________
ASSETS:
[B] (25,000) -
[C] (743)
Cash $ 3 $ 1,652 [D]$5,100,000 $5,075,912
Prepaid Expenses - 1,067 - 1,067
Assets of discontinued
operation 3,920 - [G] (3,920) -
Organization costs, net 276 - - 276
Deferred Commitment fee - 99,000 - 99,000
Security deposits - 800 - 800
_____________ ____________ __________ _________
$ 4,199 $ 102,519 $5,070,337 $5,177,055
_____________ ____________ ___________ _________
See notes to Unaudited Proforma Condensed financial statements.
<PAGE>
FIBERNET TELECOM GROUP, INC.
AND FIBERNET TELECOM, INC.
PROFORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
LIABILITIES AND SHAREHOLDERS EQUITY
[Unaudited]
FiberNet Telecom FiberNet
Group, Inc. Telecom, Inc. Proforma
September 30, June 30, Increase Proforma
1997 1997 (Decrease) Combined
_____________ ____________ __________ _________
LIABILITIES:
Accounts payable and
Accrued liabilities $ 794 $ 338,480 [G] $ (794) $ 338,480
[A] 235,961
Investment in Subsidiary - - [E] (235,961) -
_____________ ____________ __________ _________
Total Liabilities 794 338,480 (794) 338,480
_____________ ____________ __________ _________
STOCKHOLDERS' AND MEMBERS' EQUITY:
Preferred Stock, $.001 par value,
5,000,000 shares authorized
Series A preferred stock,
1,000,000 shares issued - (-)[D] 1,000 1,000
Series B preferred stock,
80,000 shares issued - (-)[A] 80 80
Common stock, $.001 par value
50,000,000 shares authorized,
15,000,000 shares issued and [A] 11,500 -
outstanding 1,000 - [C] 2,500 15,000
- [A] (247,541)
- [C] (2,500)
- [C] (743)
- [D] 5,099,000
- [E] 235,961
- [F] (79,160)
Additional paid-in capital 52,645 147,100 [G] 794 5,205,556
- [B] (25,000)
- [G] (3,920)
Retained earnings(deficit) (50,240) (383,061)[F] 79,160 (383,061)
_____________ ____________ __________ _________
Total Stockholders'
Equity 3,405 (235,961) 5,071,131 4,838,575
_____________ ____________ __________ _________
$ 4,199 $ 102,519 $5,070,337 $5,177,055
_____________ ____________ __________ _________
See notes to Unaudited Proforma Condensed financial statements.
<PAGE>
FIBERNET TELECOM GROUP, INC.
AND FIBERNET TELECOM, INC.
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
[Unaudited]
FiberNet Telecom FiberNet
Group, Inc. Telecom, Inc.
For the nine For the nine Proforma
months ended months ended Increase Proforma
September 30, 1997 June 30, 1997 (Decrease) Combined
_____________ ____________ __________ _________
FEE REVENUE $ - $ - $ - $ -
_____________ ____________ __________ _________
EXPENSES:
Operating, general and
administrative expenses - 373,674 - 373,674
_____________ ____________ __________ _________
Total costs and operating
expenses - 373,674 - 373,674
_____________ ____________ __________ _________
INCOME (LOSS) FROM
CONTINUING OPERATIONS - (373,674) - (373,674)
_____________ ____________ __________ _________
DISCONTINUED OPERATIONS:
(Loss) from operations of discontinued
crafts operation (6,234) - - (6,234)
Estimated loss on disposal of
crafts operation (2,201) - - (2,201)
_____________ ____________ __________ _________
Total Discontinued
Operations (8,435) - - (8,435)
_____________ ____________ __________ _________
NET INCOME (LOSS) $ (8,435) $ (373,674) $ - $(382,109)
_____________ ____________ __________ _________
NET LOSS PER COMMON SHARE: $ (.03)
_________
See notes to Unaudited Proforma Condensed financial statements.
<PAGE>
FIBERNET TELECOM GROUP, INC.
AND FIBERNET TELECOM, INC.
NOTES TO PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[Unaudited]
NOTE 1- FIBERNET TELECOM GROUP, INC.
FiberNet Telecom Group, Inc. (formerly Desert Native
Designs, Inc.) ["PARENT"], a Nevada corporation, was
incorporated in 1995. PARENT was previously involved in
producing and marketing crafts. The Company has
discontinued its crafts business and completed the
acquisition of FiberNet Telecom, Inc. on November 24, 1997.
NOTE 2 - FIBERNET TELECOM, INC.
FiberNet Telecom, Inc. ("FiberNet") was formed in the state
of Delaware and owns 90% of Local Fiber, LLC and 100% of
FiberNet Equal Access, LLC. FiberNet, together with its two
affiliated companys, is developing new ventures within the
telecommunications industry. The Company is currently
proposing to provide in-building fiber optic cables and
local telephone services in metropolitan areas.
NOTE 3 - PROFORMA ADJUSTMENTS
During November, 1997 PARENT entered into an acquisition
agreement to acquire 100% of SUBSIDIARY through the issuance
of 11,500,000 shares (post-split) of restricted common stock
and 80,000 shares of Series B voting preferred stock to the
stockholders of SUBSIDIARY in a transaction wherein
SUBSIDIARY became a wholly owned subsidiary of PARENT. In
connection with the acquisition which closed November 24,
1997, PARENT canceled 462,850 Series A Warrants and 462,850
Series B Warrants leaving an aggregate of 37,150 Series A
Warrants and 37,150 Series B Warrants currently outstanding.
The Company has also announced its intention to redeem the
remaining warrants in accordance with the terms of the
warrants. The Company also effected a 3.5 for 1 forward
stock split of its common stock thus increasing its shares
outstanding just prior to the acquisition from 1,000,000 to
3,500,000 shares. After the acquisition and stock split,
there are 15,000,000 shares of common stock outstanding with
approximately 23 % of those shares being held by former
PARENT stockholders. As a condition of the acquisition, the
Company sold 1,000,000 shares of Series A Convertible
Cumulative Preferred Stock at $5.125 per share for gross
proceeds of $5,125,000. There are also 80,000 shares of
Series B Voting Preferred Stock outstanding, none of which
is owned by former PARENT stockholders.
<PAGE>
FIBERNET TELECOM GROUP, INC.
AND FIBERNET TELECOM, INC.
NOTES TO PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[Unaudited]
NOTE 3 - PROFORMA ADJUSTMENTS [Continued]
Proforma adjustments on the attached financial statements
include the following:
[A]To record the acquisition of SUBSIDIARY by PARENT
through the issuance of 11,500,000 shares of common
stock and 80,000 shares of Series B preferred stock.
The ownership interests of the former owners of
SUBSIDIARY in the combined enterprise are greater than
the on-going shareholders of PARENT and accordingly, the
management of SUBSIDIARY has assumed operating control
of the combined enterprise. Consequently, the
acquisition is accounted for as the recapitalization of
SUBSIDIARY, wherein SUBSIDIARY purchased the assets
(consisting primarily of cash) of PARENT and accounted
for the transaction as a "reverse purchase" for
accounting purposes.
[B]The costs incurred in completing the reorganization have
been charged to operations on the books of the PARENT.
These costs ($25,000) consist primarily of legal and
accounting fees.
[C]To reflect a 3.5 for 1 forward stock split, the
cancellation of 462,850 Series A and 462,850 Series B
Warrants, and the redemption of 37,150 Series A and
37,150 Series B Warrants at $.01 per warrant redeemed.
[D]To reflect the sale of 1,000,000 shares of Series A
Preferred Stock in a limited offering at $5.125 per
share resulting in gross proceeds of $5,125,000. Costs
of the offering (estimated at $25,000) have been
recorded as a reduction to additional paid in capital.
[E]To eliminate and adjust shareholders equity for the
previous equity of SUBSIDIARY for consolidation
purposes.
[F]To eliminate the accumulated deficit of PARENT at the
date of acquisition to reflect the purchase by
SUBSIDIARY for accounting purposes.
[G]To reflect the disposal of the assets of PARENT's
discontinued crafts operations in lieu of salary and the
payment of accounts payable by shareholders accounted
for as additional paid in capital.
NOTE 4 - PROFORMA INCOME (LOSS) PER SHARE
The income (loss) per share is computed based on the number
of shares outstanding, after adjustment for shares issued in
the acquisition, as though all shares issued in the
acquisition had been outstanding from the beginning of the
periods presented. The computation also reflects the 3.5
for 1 forward stock split.
<PAGE>
EXHIBIT "A"
AGREEMENT AND PLAN OF REORGANIZATION
Dated: November 24, 1997
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
DESERT NATIVE DESIGNS, INC.,
D.N.D. SUB, INC.
AND
FIBERNET TELECOM, INC.
<PAGE>
TABLE OF CONTENTS
1. Plan of Reorganization 1
2. Terms of Merger 2
3. Delivery of Shares 6
4. Representations of FiberNet 6
5. Representations of DND, DND Sub and St.Clair 8
6. Closing 13
7. Conditions Precedent to the Obligations
of FiberNet 13
8. Conditions Precedent to the Obligation of
DND and DND Sub 15
9. Indemnification 16
10. Nature and Survival of Representations 16
11. Documents at Closing 17
12. Finder's Fees 18
13. Miscellaneous 18
Signature Page 20
Exhibit A - Agreement of Merger
Exhibit B - FiberNet Shareholder Schedule
Exhibit C - Form of Certificates of Designation as to Series A
and Series B Preferred Stock
Exhibit D - Amendment to Articles of Incorporation of DND
Exhibit E - Investment Letter
(i)
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (hereinafter the
"Agreement") is entered into effective as of this day of
November, 1997, by and among Desert Native Designs, Inc., a
Nevada corporation (hereinafter "DND"); D.N.D. Sub, Inc., a newly-
formed Delaware corporation and a wholly-owned subsidiary of DND
(hereinafter "DND Sub"); Jody St. Clair, an individual and the
sole officer and director of each of DND and DND Sub (hereinafter
"St. Clair"); and FiberNet Telecom, Inc., a Delaware corporation
(hereinafter "FiberNet").
RECITALS:
WHEREAS, DND desires to acquire FiberNet through the merger
of DND Sub with and into FiberNet, whereupon FiberNet shall
become the surviving corporation of said merger and a wholly-
owned subsidiary of DND (DND Sub and FiberNet are sometimes
collectively hereinafter referred to as the "Constituent
Corporations").
WHEREAS, the boards of directors of DND and FiberNet,
respectively, deem it advisable and in the best interests of such
corporations and their respective shareholders that DND Sub merge
with and into FiberNet pursuant to this Agreement and pursuant to
the Agreement of Merger in the form attached hereto as Exhibit
"A" and pursuant to applicable provisions of law (such
transaction hereafter referred to as the "Merger").
WHEREAS, DND Sub has an authorized capitalization consisting
of 5,000 shares of no par value common stock, of which 1,000
shares shall be issued and outstanding and owned by DND as of the
closing of the Merger; and FiberNet has an authorized
capitalization consisting of 1,000 shares of common stock, $.01
par value ("FiberNet Common Stock"), of which 1,000 shares are
issued and outstanding as of the date hereof. In connection with
the Merger, each outstanding share of FiberNet Common Stock shall
be converted into that number of validly issued, fully paid and
nonassessable shares of DND Common Stock as is contemplated by
the terms of this Agreement. All outstanding shares of FiberNet
Common Stock are owned by the shareholders of FiberNet as set
forth on the attached Exhibit "B" (hereafter "FiberNet
Shareholders").
NOW THEREFORE, for the mutual consideration set out herein,
and other good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Plan of Reorganization. DND Sub shall be merged with
and into FiberNet, with FiberNet as the Surviving Corporation,
upon the terms and conditions set forth herein. It is the
intention of the parties hereto that this transaction qualify as
a tax-free reorganization under Section 368(a)(2)(E) of the
Internal Revenue Code of 1986, as amended, and related sections
thereunder.
<PAGE>
2. Terms of Merger. In accordance with the provisions of
this Agreement and the requirements of applicable law, DND Sub
shall be merged with and into FiberNet as of the Effective Date
(the terms "Closing" and "Effective Date" are defined in Section
6 hereof). FiberNet shall be the surviving corporation in the
Merger (hereinafter sometimes the "Surviving Corporation") and
the separate existence of DND Sub shall cease at the effective
time of the Merger. Consummation of the Merger shall be upon the
following terms and subject to the following conditions:
(a) Corporate Existence
(1) At the Effective Date, the Surviving Corporation
shall continue its corporate existence as a Delaware
corporation and (i) it shall thereupon and thereafter
possess all rights, privileges, powers, franchises and
property (real, personal and mixed) of each of the
Constituent Corporations; (ii) all debts due to either of
the Constituent Corporations, on whatever account, all
causes in action and all other things belonging to either of
the Constituent Corporations shall be taken and deemed to be
transferred to and shall be vested in the Surviving
Corporation by virtue of the Merger without further act or
deed; and (iii) all rights of creditors and all liens upon
any property of any of the Constituent Corporations shall be
preserved unimpaired, limited in lien to the property
affected by such liens immediately prior to the Effective
Date, and all debts, liabilities and duties of the
Constituent Corporations shall thenceforth attach to the
Surviving Corporation.
(2) At the Effective Date, (i) the Articles of
Incorporation and the By-laws of the Surviving Corporation,
as existing immediately prior to the Effective Date, shall
be and remain the Articles of Incorporation and By-Laws of
the Surviving Corporation; (ii) the members of the Board of
Directors of the Surviving Corporation holding office
immediately prior to the Effective Date shall remain as the
members of the Board of Directors of the Surviving
Corporation (if on or after the Effective Date a vacancy
exists on the Board of Directors of the Surviving
Corporation, such vacancy may thereafter be filled in a
manner provided by applicable law and the By-laws of the
Surviving Corporation); and (iii) until the Board of
Directors of the Surviving Corporation shall otherwise
determine, all persons who hold offices of the Surviving
Corporation at the Effective Date shall continue to hold the
same offices of the Surviving Corporation.
(b) Pre-Merger Events and Recapitalizations.
The Closing is subject to the completion of the following:
(1) At Closing, DND shall have authorized 50,000,000
shares of Common Stock $.001 par value per share (the "DND
Common Stock") and 5,000,000 shares of preferred stock,
$.001 par value per share. The preferred stock shall be
subject to issuance in such series and with such rights,
preferences and designations as determined in the sole
discretion of the board of directors, except that 1,000,000
preferred shares shall be designated as Series A as
described below in Section 2(b)(4), and 80,000 preferred
<PAGE>
shares shall be designated as Series B with the rights and
preferences as set forth in the attached Exhibit "C".
(2) DND shall have effectuated, prior to Closing, a
forward stock split on a 3.5 to 1 basis of all outstanding
DND Common Stock outstanding as of the date hereof (the "DND
Forward Split") and DND shall have 3,500,000 shares of DND
Common Stock issued and outstanding and no other shares of
capital stock issued or outstanding immediately prior to
Closing except as described herein
(3) DND shall demonstrate to the reasonable
satisfaction of FiberNet that it has no liabilities,
contingent or fixed.
(4) DND shall have completed the sale of 1,000,000
shares of Series A Preferred Stock having the rights,
preferences and designations as set forth on Exhibit "C",
attached hereto, and shall have received $5,125,000 gross
proceeds from the sale of Series A Preferred Stock. DND
shall pay its expenses and fees incurred in connection with
the Merger resulting in $5,075,000 in net proceeds to DND
available in good funds at Closing.
(5) The two principal shareholders of DND shall have
canceled the outstanding Series A and Series B Warrants of
DND held by them, namely warrants representing the right to
purchase 925,700 shares of DND common stock without payment
of any additional consideration. This cancellation will
result in DND having 37,150 Series A Warrants and 37,150
Series B Warrants outstanding without giving effect to the
DND Forward Stock Split. DND shall have redeemed the
remaining outstanding Series A and Series B Warrants at a
price of $.01 per warrant.
(c) Conversion of Securities.
As of the Effective Date and without any action on the
part of DND, DND Sub, FiberNet or the holders of any of the
securities of any of these corporations each of the following
shall occur:
(1) Each one share of FiberNet Common Stock issued and
outstanding immediately prior to the Effective Date shall be
converted into (i) 11,500 validly issued, fully paid and
nonassessable shares of DND Common Stock (free and clear of
any liens or restrictions except for those imposed by
applicable securities laws), up to a maximum aggregate
amount of 11,500,000 shares of DND Common Stock, and (ii) 80
validly issued, fully paid and nonassessable shares of DND
Series B Voting Preferred Stock. All such shares of
FiberNet Common Stock shall no longer be outstanding and
shall automatically be canceled and shall cease to exist,
and each certificate previously evidencing any such shares
shall thereafter represent the right to receive, upon the
surrender of such certificate in accordance with the
provisions of Section 3 hereof, certificates evidencing such
number of validly issued, fully paid and nonassessable
<PAGE>
shares of DND Common Stock and Series B Voting Preferred
Stock into which such shares of FiberNet Common Stock were
converted. The holders of such certificates previously
evidencing shares of FiberNet Common Stock outstanding
immediately prior to the Effective Date shall cease to have
any rights with respect to such shares of FiberNet Common
Stock except as otherwise provided herein or by law;
(2) Any shares of FiberNet Common Stock held in the
treasury of FiberNet immediately prior to the Effective Date
shall automatically be canceled and extinguished without any
conversion thereof and no payment shall be made with respect
thereto;
(3) Each share of capital stock of DND Sub issued and
outstanding immediately prior to the Effective Date shall
remain in existence as one share of common stock of the
Surviving Corporation, all of which shall be owned by DND;
(4) The 3,500,000 shares of DND Common Stock (adjusted
to give effect to the DND Forward Split) previously issued
and outstanding immediately prior to the Merger will remain
outstanding so that after conversion of the FiberNet Common
Stock in the Merger, DND shall have no more than 15,000,000
shares of DND Common Stock outstanding at Closing.
(d) Other Events.
(1) On the Closing Date, DND shall file an amendment
to its articles of incorporation with the Secretary of State
of the State of Nevada in substantially the form attached
hereto as Exhibit "D" effecting an amendment to its articles
of incorporation to (i) change its corporate name to
FiberNet Telecom Group, Inc. or a derivation thereof, and
(ii) to give effect to the DND Forward Split.
(2) DND, as of the date hereof, shall have received
all requisite director and shareholder approval of the
matters set forth herein.
(e) Other Matters.
Prior to Closing:
(1) Except as expressly permitted or contemplated by
this Agreement, each of DND and DND Sub shall carry on its
respective business in the usual, regular and ordinary
course consistent with past practice and in compliance in
all material respects with all applicable laws and
regulations and, to the extent consistent therewith, use all
reasonable efforts to preserve intact its current business
organizations. Without limiting the generality of the
foregoing, continuing until the earlier of the termination
of this Agreement or the Effective Date, except as expressly
permitted or contemplated by this Agreement, without the
prior, express written consent of FiberNet, DND shall not,
and shall not permit any of its subsidiaries to:
<PAGE>
(i) (x) declare, set aside or pay any
dividends on, or make any other distributions in
respect of, any of its capital stock, (y) split,
combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of
its capital stock or (z) purchase, redeem or otherwise
acquire any shares of capital stock of DND or any of
its subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares
of other securities;
(ii) issue, deliver, sell, pledge or
otherwise encumber any shares of its capital stock, any
other voting securities or any securities convertible
into, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible
securities;
(iii) amend its certificate of
incorporation, by-laws or other charter or
organizational documents;
(iv) acquire or agree to acquire (x) by
merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other
manner, any interest in any business or corporation,
limited liability company, partnership, joint venture,
association or other business organization or division
thereof, or (y) any assets that, individually or in the
aggregate, are material to the Company and its
subsidiaries taken as a whole;
(v) sell, lease, license, mortgage or
otherwise encumber or subject to any lien or otherwise
dispose of any of its properties or assets, except, in
any such case, in the ordinary course of business
consistent with past practice;
(vi) incur any indebtedness, make any loans,
advances or capital contributions to, or investments
in, any other person, other than to DND or any direct
or indirect wholly owned subsidiary of DND;
(vii) make or agree to make any new capital
expenditure or capital expenditures;
(viii) make any material tax election or
settle or compromise any material tax liability or
agree to an extension of any applicable statute of
limitations;
(ix) modify, amend or terminate any material
contract or agreement to which DND or any subsidiary is
a party or waive, release or assign any material rights
or claims thereunder;
(x) make any material change to its
accounting methods, principles or practices, except as
may be required by law or by generally accepted
accounting principles;
<PAGE>
(xi) settle or agree to a final settlement
of any litigation against DND or any of its
subsidiaries;
(xii) enter into any contract or otherwise
agree to incur any obligation that would bind DND or
any of its subsidiaries to pay more than $1,000 in any
individual case or be for a term of more than one year;
or
(xiii) authorize, commit or agree to take,
any of the foregoing actions or any other actions which
could result in a breach of any of DND's
representations and warranties contained herein.
(2) FiberNet shall have received all requisite
director and shareholder approval of all matters set forth
herein and no shareholder of FiberNet shall have exercised
any dissenters rights under applicable corporate law.
Subsequent to Closing:
(1) FiberNet shall use its reasonable best efforts to
obtain an unqualified audit report with respect to the
FiberNet Financial Statements (as defined below) within
sixty (60) days of the Closing.
(2) DND shall file a Form 8-K in a timely manner to
report closing the Merger.
3. Delivery of Shares. On the Effective Date, the FiberNet
Shareholders shall surrender to DND for cancellation certificates
representing their shares of FiberNet Common Stock, against
delivery of certificates representing the shares of DND Common
Stock and Series B Voting Preferred Stock for which the shares of
FiberNet Common Stock are to be converted in the Merger. Until
surrendered and exchanged as herein provided, each outstanding
certificate which, prior to the Effective Date, represented a
FiberNet certificate shall be deemed for all corporate purposes
to evidence ownership of the same number of shares of DND Common
Stock into which the FiberNet certificate shall have been so
converted.
4. Representations of FiberNet. FiberNet hereby represents
and warrants as follows, which warranties and representations
shall also be true as of the Effective Date:
(a) Except as noted on Exhibit "B", the FiberNet
Shareholders listed on the attached Exhibit "B" are the sole
owners of record and beneficially of the issued and outstanding
FiberNet Common Stock.
(b) The FiberNet Common Stock constitutes duly
authorized, validly issued shares of common stock of
FiberNet, fully paid and nonassessable and are the only
capital shares of FiberNet authorized or outstanding.
<PAGE>
(c) The FiberNet unaudited financial statements as of
June 30, 1997, which have been delivered to DND (hereinafter
referred to as the "FiberNet Financial Statements") fairly
present the financial condition of FiberNet as of the dates
thereof and the results of its operations for the periods
covered subject to normal year-end adjustments. There are
no material liabilities or obligations, either fixed or
contingent, not disclosed in the FiberNet Financial
Statements which would be required to be disclosed under
generally accepted accounting principles or in any exhibit
thereto or notes thereto. FiberNet has good title to all
assets shown on the FiberNet Financial Statements subject to
any disclosures set forth therein and liens and encumbrances
of record or which do not materially impair the use to which
such assets are put. The FiberNet Financial Statements have
been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be
indicated therein or in the notes thereto and subject to
normal year end adjustments).
(d) Since June 30, 1997, there have not been any
material adverse changes in the financial condition of
FiberNet except changes arising in the ordinary course of
business, which changes will in no event materially and
adversely affect the financial condition of FiberNet.
(e) FiberNet is not a party to any material pending
litigation or, to its best knowledge, any governmental
investigation or proceeding, and to its best knowledge, no
material litigation, claims, assessments or any governmental
proceedings are threatened against FiberNet.
(f) FiberNet is in good standing in its state of
incorporation, and is in good standing and duly qualified to do
business in each state where required to be so qualified except
where the failure to so qualify would not have a material adverse
effect on FiberNet.
(g) FiberNet has, or by the Effective Date will have,
filed all material tax, governmental and/or related forms
and reports (or extensions thereof) due or required to be
filed through such date and has (or will have) paid or made
adequate provisions for all taxes or assessments which have
become due as of the Effective Date.
(h) FiberNet has not materially breached any material
agreement to which it is a party. FiberNet has previously
given DND copies or access thereto of all material
contracts, commitments and/or agreements to which FiberNet
is a party including all relationships or dealings with
related parties or affiliates.
(i) FiberNet is the record and beneficial owner of a
90% interest in Local Fiber LLC and a 100% interest in
FiberNet Equal Access, LLC.
<PAGE>
(j) FiberNet has made its corporate financial records,
minute books, and other corporate documents and records
available for review to present management of DND prior to
the Effective Date, during reasonable business hours and on
reasonable notice.
(k) The execution of this Agreement does not
materially violate or breach any material agreement or
contract to which FiberNet is a party and this Agreement has
been duly authorized by all appropriate and necessary
corporate action and FiberNet, to the extent required, has
obtained all necessary approvals or consents required by any
agreement to which FiberNet is a party.
(l) The information provided by FiberNet specifically
for inclusion in DND's Information Statement dated November
14, 1997, (the "Information Statement") does not contain an
untrue statement of material fact or omit to state a
material fact necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
5. Representations of DND, DND Sub and St. Clair. DND, DND
Sub and St. Clair hereby jointly and severally represent and
warrant as follows, each of which representations and warranties
shall continue to be true as of the Effective Date:
(a) As of the Effective Date, the shares of DND Common
Stock to be issued and delivered to the FiberNet
Shareholders hereunder will, when so issued and delivered,
constitute duly authorized, validly and legally issued
shares of DND capital stock, fully-paid and nonassessable.
(b) Each of DND and DND Sub has the corporate power
and authority, and St. Clair has the legal capacity, to
enter into this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby
have been or will be duly authorized by the respective
Boards of Directors of DND and DND Sub and, to the extent
necessary, the stockholders of DND and DND Sub. The
execution and performance of this Agreement will not
constitute a material breach of any agreement, indenture,
mortgage, license or other instrument or document to which
DND, DND Sub or St. Clair is a party and will not violate
any judgment, decree, order, writ, rule, statute, or
regulation applicable to DND, DND Sub or St. Clair or their
properties. The execution and performance of this Agreement
will not violate or conflict with any provision of the
respective articles of incorporation or by-laws of DND or
DND Sub. This Agreement has been duly executed and
delivered by each of DND, DND Sub and St. Clair and,
assuming the due authorization, execution and delivery
thereof by FiberNet, constitutes a valid and binding
obligation of each of DND, DND Sub and St. Clair,
enforceable against each such person in accordance with its
terms, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance and other similar laws and principles
now or hereafter in effect applicable to creditors' rights
generally and general principles of equity (including that
<PAGE>
the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any
proceeding therefor may be brought).
(c) DND has delivered to FiberNet a true and complete
copy of its (i) audited financial statements for the fiscal
years ended December 31, 1996 and 1995, and interim
unaudited financial statements for the period ended
September 30, 1997, (the "DND Financial Statements"). The
DND Financial Statements are complete, accurate and fairly
present the financial condition of DND as of the dates
thereof and the results of its operations for the periods
then ended. There are no material liabilities or
obligations either fixed or contingent not reflected
therein. The DND audited financial statements have been
prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be
indicated therein or in the notes thereto) and fairly
present the financial position of DND as of the dates
thereof and the results of its operations and changes in
financial position for the periods then ended. DND Sub has
no financial statements because it is currently being formed
for the purpose of effectuating the Merger and it has no
assets, liabilities, contracts or obligations of any kind.
DND has no subsidiaries except for DND Sub, and DND Sub has
no subsidiaries.
(d) Since June 30, 1997, there have not been any
material adverse changes in the financial condition of DND.
At Closing, DND will have no assets and no liabilities other
than the net proceeds from the sale of the Series A
Preferred Stock, which shall not be less than $5,075,000.
DND Sub has been formed solely for purposes of effecting the
Merger, has conducted no business since its formation and
has no assets or liabilities.
(e) Neither DND nor DND Sub is a party to or the
subject of any pending litigation, claims, or governmental
investigation or proceeding not reflected in the DND
Financial Statements or otherwise disclosed herein, and
there are no lawsuits, claims, assessments, investigations,
or similar matters, to the best knowledge of St. Clair,
threatened or contemplated against or affecting DND Sub,
DND, its management or its properties. No consent,
approval, order or authorization of, or registration,
declaration or filing with, any federal, state or local
government or any court, administrative or regulatory agency
or commission or other governmental authority or agency
(each a "Governmental Entity") or any other person is
required by or with respect to DND or any of its
subsidiaries or St. Clair in connection with the execution
and delivery of this Agreement by DND, DND Sub or St. Clair
or the consummation of the transactions contemplated by this
Agreement, except for (x) compliance by DND and DND Sub with
the applicable requirements under the Securities Exchange
Act of 1934, as amended, and the rules and regulations
promulgated thereunder as may be required in connection with
this Agreement and the transactions contemplated by this
Agreement and (y) the filing of the Certificate of Amendment
of DND's Certificate of Incorporation required to permit the
transactions contemplated hereby and the filing of a
Certificate of Merger to effect the merger of DND Sub with
and into FiberNet.
<PAGE>
(f) DND and DND Sub are each duly organized, validly
existing and in good standing under the laws of the
jurisdiction of their incorporation; each has the corporate
power to own its property and to carry on its business as
now being conducted and is duly qualified to do business in
any jurisdiction where so required except where the failure
to so qualify would not have a material adverse effect.
(g) DND and DND Sub have timely filed (or by the
Effective Date, will have filed) all federal, state, county,
local and foreign income, excise, property, payroll and
other tax, governmental and/or related returns, forms, or
reports, which are due or required to be filed by it on or
prior to the Effective Date and have paid or made adequate
provision in the DND Financial Statements for the payment of
all taxes, fees, or assessments which have or may become due
pursuant to such returns or pursuant to any assessments
received. Neither DND nor DND Sub is delinquent or
obligated for any tax, penalty, interest, delinquency or
charge. There are no claims or investigations by any taxing
authorities pending or threatened against DND or DND Sub.
DND has neither granted nor been requested to grant any
waiver of any statute of limitations or extension of the
time for assessment of any tax. There are no outstanding
requests for information made by any taxing authorities to
DND.
(h) The authorized capital stock of DND consists of
50,000,000 shares of DND Common Stock, 5,000,000 shares of
DND preferred stock and no other form of capital stock. At
the close of business on the date of this Agreement,
1,000,000 shares of DND Common Stock were issued and
outstanding and no other shares of capital stock or other
voting securities of DND were issued, reserved for issuance
or outstanding, except for 74,300 shares of DND Common Stock
reserved for issuance upon exercise of outstanding DND
Series A and Series B Warrants. There are no outstanding
securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind, to
which DND or any subsidiary is a party or by which it is
bound, obligating DND or any such subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold,
additional shares of its capital stock or other voting
securities of DND or any such subsidiary, or obligating DND
or any such subsidiary to issue, grant, extend or enter into
any such security, option, warrant, call right, commitment,
agreement, arrangement or undertaking, except for 37,150
outstanding DND Series A Warrants and 37,150 outstanding
Series B Warrants, which will be redeemed prior to Closing,
and conversion rights contained in the Series A Preferred
Stock. All outstanding shares of capital stock of DND are
duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. There
are no bonds, debentures, notes or other forms of
indebtedness of DND having the right to vote (or convertible
into, or exchangeable for, securities having the right to
vote) on any matters on which stockholders of DND may vote.
There are no outstanding contractual obligations of DND or
any of its subsidiaries to repurchase, redeem or otherwise
acquire any shares of capital stock of DND or any of its
subsidiaries or any other person. There are no outstanding
contractual obligations of DND or any of its subsidiaries to
register under the Securities Act of 1933, as amended, any
shares of their capital stock or any other outstanding
<PAGE>
securities except with respect to the Series A Preferred
Stock and common shares issuable upon conversion of the
Series A Preferred Stock.
Upon consummation of the Merger, the authorized capital
stock of DND will consist of 50,000,000 shares of DND Common
Stock, 5,000,000 shares of DND preferred stock and no other
form of capital stock, of which 15,000,000 shares of DND
Common stock will be issued and outstanding and no other
shares of capital stock will be outstanding other than
1,000,000 shares of Series A Preferred Stock and 80,000
shares of Series B Voting Preferred Stock.
(i) DND and DND Sub have (and at the Closing they will
have)disclosed in writing all events, conditions and facts
materially affecting the business, financial conditions or
results of operations of either DND or DND Sub.
(j) The corporate financial records, minute books, and
other documents and records of DND and DND Sub have been made
available to FiberNet prior to the Closing and accurately
reflect all transactions described therein
(k) Neither DND or DND Sub has breached, nor is there
any pending, or to the knowledge of management, any
threatened claim that DND or DND Sub has breached, any of
the terms or conditions of any agreements, contracts or
commitments to which either is a party or by which either of
its properties is bound. The execution and performance
hereof will not violate any provisions of applicable law or
any agreement to which DND or DND Sub is subject. Neither
DND or DND Sub is a party to any material contract or
commitment other than appointment documents with its
transfer agent, and each has disclosed to FiberNet all
relationships or dealings with related parties or
affiliates.
(l) DND has complied with all applicable provisions
for registration under the Securities Act of 1933 and all
applicable blue sky laws in connection with any shares of
its capital stock. There are no outstanding, pending or
threatened stop orders or other actions or investigations
relating thereto.
(m) The information contained in the Information
Statement, at the time it is mailed to DND stockholders,
will not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the
statements therein, in light of the circumstances under
which they were made, not misleading, provided however, that
no representation is made regarding information provided by
FiberNet specifically for inclusion therein.
(n) The Company has filed all forms, statements,
schedules, reports and documents required to be filed with
the Securities and Exchange Commission ("SEC") under the
Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "Securities Act"),
or the Securities Exchange Act of 1934, as amended
<PAGE>
(collectively, the 'SEC Documents') and has made available
to FiberNet (i) all of its Annual Reports on Form 10-KSB for
each of its fiscal years ended after January 1, 1995, (ii)
all other reports filed by DND under the Exchange Act with
the SEC since January 1, 1995 and (iii) all amendments and
supplements to all such reports filed by DND with the SEC.
As of their respective dates, the SEC Documents complied as
to form in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be,
and none of the SEC Documents when filed contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in
order to make the statements therein, in fight of the
circumstances under which they were made, not misleading.
The consolidated financial statements included in the SEC
Documents comply as to form in all material respects with
applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto. None of
the written information furnished to FiberNet by DND
relating to DND contains any untrue statement of a material
fact or omits to state any material fact necessary in order
to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(o) The board of directors of DND has approved the
terms of this Agreement and the consummation of the
transactions contemplated hereby and the other transactions
contemplated by this Agreement, and such approval is
sufficient to render inapplicable to such transactions the
provisions of any state takeover or business combination
statute.
(p) No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of
DND.
(q) DND is in compliance with all applicable statutes,
laws, ordinances, rules, regulations, judgments, decrees and
orders of any Governmental Entity applicable to its business
and operations except where the failure to be in compliance
would not, in any individual case or in the aggregate, have
a material adverse effect on DND. DND is in compliance with
all environmental laws and laws relating to the workplace.
(r) DND Common Stock is eligible for quotation on the
NASD Electronic Bulletin Board and there are no stop orders
in effect with respect thereto.
6. Closing. The closing of the transactions contemplated
herein shall take place on such date (the "Closing") as mutually
determined by the parties hereto when all conditions precedent
have been satisfied or waived and all required documents have
been delivered, which Closing is expected to be during the month
of November 1997, but not later than December 31, 1997. The
"Effective Date" of the Merger shall be that date on which an
executed copy of the Certificate of Merger included in the
attached Agreement of Merger is filed with the Secretary of State
of Delaware.
<PAGE>
7. Conditions Precedent to the Obligations of FiberNet.
All obligations of FiberNet under this Agreement are subject to
the fulfillment or waiver at FiberNet's option, prior to or as of
the Closing and/or the Effective Date, as indicated below, of
each of the following conditions:
(a) The representations and warranties by or on behalf
of DND, DND Sub and St. Clair contained in this Agreement or
in any certificate or document delivered pursuant to the
provisions hereof shall be true in all material respects at
and as of the Closing and Effective Date as though such
representations and warranties were made at and as of such
time.
(b) DND and DND Sub shall have performed and complied
with all covenants, agreements, and conditions set forth in,
and shall have executed and delivered all documents required
by this Agreement to be performed or complied with or
executed and delivered by them prior to or at the Closing.
(c) On or before the Closing, the sole director of DND
and DND Sub, and DND as sole shareholder of DND Sub shall
have approved in accordance with applicable state
corporation law the execution and delivery of this Agreement
and the consummation of the transactions contemplated
herein.
(d) On or before the Closing Date, DND and DND Sub
shall have delivered certified copies of resolutions of the sole
shareholder and director of DND Sub and of the sole director and
shareholders of DND approving and authorizing the execution,
delivery and performance of this Agreement and authorizing all of
the necessary and proper action to enable DND and DND Sub to
comply with the terms of this Agreement including the election of
FiberNet's nominees to the Board of Directors of DND and all
matters outlined herein.
(e) DND shall have completed the sale of 1,000,000
shares of Series A Preferred Stock and shall have net
proceeds of $5,075,000 on hand as proceeds from the sale of
said preferred stock.
(f) The Merger shall be permitted by applicable state
law and DND shall have sufficient shares of its capital
stock authorized to complete the Merger.
(g) At Closing, St. Clair shall have resigned in
writing from her positions as sole director and officer of
DND effective upon the election and appointment of the
FiberNet nominees as set forth in the Information Statement.
(h) At the Closing, all instruments and documents
delivered to FiberNet Shareholders pursuant to the
provisions hereof shall be reasonably satisfactory to legal
counsel for FiberNet.
<PAGE>
(i) At the Closing, upon consummation of the Merger,
DND shall have the capitalization described in Section 5(h).
(j) Certificates representing the DND Common Stock
shall be issued to FiberNet Shareholders at Closing and such
DND Common Stock shall be validly issued, nonassessable and
fully-paid under Nevada corporation law. Such DND Common
Stock will be issued in a nonpublic offering and isolated
transaction in compliance with all federal, state and
applicable securities laws and will constitute "restricted"
securities under applicable federal securities laws.
(k) FiberNet shall have received the advice of its tax
advisor that this transaction is a tax free reorganization
as to the exchanging FiberNet common shareholders.
(l) FiberNet shall have received all necessary and
required approvals and consents from required parties and
its shareholders.
(m) At the Closing, DND and DND Sub shall have
delivered to FiberNet an opinion of its counsel dated as of
the Closing to the effect that:
(i) DND and DND Sub, each is a corporation
duly organized, validly existing and in good standing
under the laws of the jurisdiction of incorporation;
(ii) This Agreement has been duly
authorized, executed and delivered by DND and DND Sub
and is a valid and binding obligation of DND and DND
Sub enforceable in accordance with its terms;
(iii) DND and DND Sub each through its Board
of Directors and stockholders have taken all corporate
action necessary for performance under this Agreement;
(iv) The shares of DND Common Stock and
Series B Voting Preferred Stock when issued in
accordance with the terms of the Merger will be duly
and validly issued, fully-paid and nonassessable. Upon
consummation of the Merger, the authorized capital
stock of DND will consist of 50,000,000 shares of DND
Common Stock, 5,000,000 shares of preferred stock, of
which, 1,000,000 shares shall be designated as Series A
and 80,000 shares designated as Series B Voting
Preferred Stock, and said Preferred Stock shall have
the rights and preferences set forth in Exhibit "C" to
this Agreement and no other form of capital stock, of
which, based upon a review of the stock ledger of the
Company, 15,000,000 shares will be issued and
outstanding, 1,000,000 shares of Series A Preferred
Stock will be issued and outstanding and 80,000 shares
of Series B Voting Preferred Stock will be outstanding.
To counsel's knowledge, there are no outstanding
securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings
of any kind, to which DND or any subsidiary is a party
<PAGE>
or by which it is bound, obligating DND or any such
subsidiary to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of its
capital stock or other voting securities of DND or any
such subsidiary, or obligating DND or any such
subsidiary to issue, grant, extend or enter into any
such security, option, warrant, call right, commitment,
agreement, arrangement or undertaking, except the
Series A and Series B Warrants and conversion rights
under the Series A Preferred Stock. All outstanding
shares of capital stock of DND are duly authorized,
validly issued, fully paid and nonassessable and not
subject to preemptive rights. To my knowledge, except
as otherwise described in this opinion, there are no
(1) bonds, debentures, notes or other forms of
indebtedness of DND having the right to vote (or
convertible into, or exchangeable for, securities
having the right to vote) on any matters on which
stockholders of DND may vote, (ii) outstanding
contractual obligations of DND or any of its
subsidiaries to repurchase, redeem or otherwise acquire
any shares of capital stock of DND or any of its
subsidiaries or any other person or (iii) outstanding
contractual obligations of DND or any of its
subsidiaries to register under the Securities Act of
1933, as amended, any shares of their capital stock or
any other outstanding securities, except with respect
to common shares issuable upon conversion of the Series
A Preferred Stock. The Certificate of Amendment has
been duly filed with the Secretary of State of the
State of Nevada and is effective. The Certificate of
Merger has been duly filed with the Secretary of State
of the State of Delaware and, upon the effectiveness
thereof, the merger of DND Sub with and into FiberNet
will become effective under applicable Delaware law;
and
(v) DND and DND Sub each has the corporate
power to execute, deliver and perform under this
Agreement.
(vi) Legal counsel for DND and DND Sub is
not aware of any liabilities, claims or lawsuits
involving DND or DND Sub.
8. Conditions Precedent to the Obligations of DND and DND
Sub. All obligations of DND and DND Sub under this Agreement are
subject to the fulfillment or waiver, prior to or at the Closing,
of each of the following conditions:
(a) The representations and warranties by FiberNet
contained in this Agreement or in any certificate or
document delivered pursuant to the provisions hereof shall
be true in all material respects at and as of the Closing as
though such representations and warranties were made at and
as of such time.
(b) FiberNet shall have performed and complied with,
in all material respects, all covenants, agreements, and
conditions required by this Agreement to be performed or
complied with by them prior to or at the Closing;
<PAGE>
(c) FiberNet shall cause each of its shareholders to
deliver to DND, a letter commonly known as an "Investment
Letter," in substantially the form attached hereto as
Exhibit "E", acknowledging that the shares of DND Common
Stock are being acquired by said shareholders for investment
purposes.
(d) DND shall have completed the sale of 1,000,000
shares of Series A Preferred Stock.
(e) FiberNet shall deliver an opinion of its legal
counsel to the effect that:
(i) FiberNet is a corporation validly
existing and in good standing under the laws of the
state of its incorporation;
(ii) FiberNet has the corporate power to
carry on its business as now being conducted; and
(iii) This Agreement has been duly
authorized, executed and delivered by FiberNet.
(f) FiberNet shall demonstrate to the reasonable
satisfaction of DND that it has a commitment from a
reputable lender to loan up to $10 million to FiberNet or
its affiliates for use as operating capital and that
FiberNet has met all, or will meet within approximately
three months, all conditions precedent to closing such
loans.
9. Indemnification. For a period of one year from the
Closing, St. Clair, DND and DND Sub agree to jointly and
severally indemnify and hold harmless FiberNet, and FiberNet
agrees to indemnify and hold harmless St. Clair, DND and DND Sub,
against and in respect of any liability, damage or deficiency,
all actions, suits, proceedings, demands, assessments, judgments,
costs and expenses including attorney's fees incident to any of
the foregoing, resulting from any material misrepresentations
made by an indemnifying party to an indemnified party, an
indemnifying party's breach of covenant or warranty or an
indemnifying party's nonfulfillment of any agreement hereunder,
or from any material misrepresentation in or omission from any
certificate furnished or to be furnished hereunder; provided,
however, that claims relating to taxes, environmental matters and
ERISA matters may be brought at any time prior to the expiration
of the applicable statute of limitations period.
10. Nature and Survival of Representations. All
representations, warranties and covenants made by any party in
this Agreement shall survive the Closing and the consummation of
the transactions contemplated hereby for one year from the
Closing, except that representations relating to taxes,
environmental matters and ERISA matters shall survive for the
applicable statute of limitations period. All of the parties
hereto are executing and carrying out the provisions of this
Agreement in reliance solely on the representations, warranties
and covenants and agreements contained in this Agreement and not
upon any investigation upon which it might have made or any
representation, warranty, agreement, promise or information,
<PAGE>
written or oral, made by the other party or any other person
other than as specifically set forth herein.
11. Documents at Closing. At the Closing, the following
documents shall be delivered:
(a) FiberNet will deliver, or will cause to be delivered,
to DND the following:
(i) a certificate executed by the President
and Secretary of FiberNet to the effect that all
representations and warranties made by FiberNet under
this Agreement are true and correct as of the Closing,
the same as though originally given to DND or DND Sub
on said date;
(ii) a certificate from the state of
FiberNet's incorporation dated at or about the Closing
to the effect that FiberNet is in good standing under
the laws of said state;
(iii) Investment Letters in the form
attached hereto as Exhibit "E" executed by each
FiberNet Shareholder;
(iv) such other instruments, documents and
certificates, if any, as are required to be delivered
pursuant to the provisions of this Agreement;
(v) executed copies of the Certificate of
Merger for filing; and certified copies of resolutions
by the shareholders and directors of FiberNet
authorizing this transaction; and
(vi) all other items, the delivery of which
is a condition precedent to the obligations of DND and
DND Sub, as set forth herein.
(vii) the legal opinion required by Section
8(e) hereof.
(b) DND and DND Sub will deliver or cause to be delivered
to FiberNet:
(i) stock certificates representing those
securities of DND to be issued as a part of the
exchange as described in Section 2 hereof;
(ii) a certificate of the President and
Secretary of DND and DND Sub, respectively, to the
effect that all representations and warranties of DND
and DND Sub made under this Agreement are true and
correct as of the Closing, the same as though
originally given to FiberNet on said date;
<PAGE>
(iii) certified copies of resolutions
adopted by DND's and DND Sub's Board of Directors and
DND's and DND Sub's stockholders authorizing the Merger
and all related matters;
(iv) certificates from the jurisdiction of
incorporation of DND and DND Sub dated at or about the
Closing Date that each of said corporations is in good
standing under the laws of said state;
(v) opinion of DND's counsel as described in
Section 7(m) above;
(vi) such other instruments and documents as
are required to be delivered pursuant to the provisions
of this Agreement;
(vii) resignation of St. Clair as the sole
officer and director of DND and DND Sub; and
(viii) all other items, the delivery of
which is a condition precedent to the obligations of
FiberNet, as set forth in Section 7 hereof.
12. Finder's Fees. St. Clair, DND and DND Sub,
jointly and severally, represent and warrant to FiberNet, and
FiberNet represents and warrants to each of St. Clair, DND and
DND Sub, that none of them, or any party acting on their behalf,
has incurred any liabilities, either express or implied, to any
"broker" of "finder" or similar person in connection with this
Agreement or any of the transactions contemplated hereby. In
this regard, St. Clair, DND and DND Sub, jointly and severally,
on the one hand, and FiberNet on the other hand, will indemnify
and hold the other harmless from any claim, loss, cost or expense
whatsoever (including reasonable fees and disbursements of
counsel) from or relating to any such express or implied
liability.
13. Miscellaneous.
(a) Further Assurances. At any time, and from time to
time, after the Effective Date, each party will execute such
additional instruments and take such action as may be
reasonably requested by the other party to confirm or
perfect title to any property transferred hereunder or
otherwise to carry out the intent and purposes of this
Agreement.
(b) Waiver. Any failure on the part of any party
hereto to comply with any of its obligations, agreements or
conditions hereunder may be waived in writing by the party
to whom such compliance is owed.
(c) Termination. All obligations hereunder may be
terminated at the discretion of either party's Board of
Directors if (i) the closing conditions specified in
Sections 7 and 8 are not met by December 31, 1997 unless
unanimously extended, or (ii) any of the representations and
<PAGE>
warranties made herein by the other party have been
materially breached.
(d) Amendment. This Agreement may be amended only in
writing as agreed to by all parties hereto.
(e) Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have
been given if delivered in person or sent by prepaid first
class registered or certified mail, return receipt requested
to the last known address of the noticed party.
(f) Headings. The section and subsection headings in
this Agreement are inserted for convenience only and shall
not affect in any way the meaning or interpretation of this
Agreement.
(g) Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which
shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(h) Binding Effect. This Agreement shall be binding
upon the parties hereto and inure to the benefit of the
parties, their respective heirs, administrators, executors,
successors and assigns.
(i) Entire Agreement. This Agreement and the attached
Exhibits including the Certificate and Agreement of Merger
attached hereto as Exhibit "A" contain the entire agreement
of the parties with respect to the subject matter hereof.
There are no oral promises, conditions, representations,
understandings, interpretations or terms of any kind as
conditions or inducements to the execution hereof.
(j) Time. Time is of the essence.
(k) Severability. If any part of this Agreement is
deemed to be unenforceable the balance of the Agreement
shall remain in full force and effect.
(l) Responsibility and Costs. Whether the Merger is
consummated or not, all fees, expenses and out-of-pocket
costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and
accountants, incurred by the parties hereto shall be borne
solely and entirely by the party that has incurred such
costs and expenses, unless the failure to consummate the
Merger is due to the failure of DND to meet any of its
obligations hereunder, in which event DND shall pay all out
of pocket expenses of FiberNet incurred in connection with
this matter but not to exceed $25,000. The direct costs of
DND incurred in connection with the Merger (not to exceed
$50,000) shall be paid from the proceeds of the sale of the
Series A Preferred Stock described in Section 2(b)(5).
<PAGE>
(m) Applicable Law. This Agreement shall be construed
and governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have executed this Agreement
the day and year first above written.
D.N.D. SUB, INC. DESERT NATIVE DESIGNS, INC.
By: ______________________________ By: ____________________
Jody St. Clair, President/Secretary Jody St. Clair
President/Secretary
__________________________
Jody St. Clair, individually
FIBERNET TELECOM, INC.
By: ____________________________ By:_________________________
Lawrence S. Polan, Secretary Santo Petrocelli, Sr., President
T65agrplor3.dnd
<PAGE>
EXHIBIT "B"
BUSINESS DESCRIPTION OF FIBERNET TELECOM, INC.
<PAGE>
BUSINESS OF FIBERNET
Summary
The following summary is qualified in its entirety by, and
should read in conjunction with, the more detailed information
appearing elsewhere herein. For a definition of technical terms
used herein, see "Glossary".
Introduction
FiberNet Telecom, Inc. ("FiberNet") and its subsidiaries
FiberNet Equal Access, LLC ("Equal Access") and Local Fiber, LLC
("Local Fiber") propose to provide in-building fiber optic cables
and local telephone services in metropolitan areas. Equal Access
constructs Premise Telecommunications Distribution Systems (PDS)
for office buildings. PDS is a fully redundant fiber optic
("Fiber") network running within a building to interconnect
tenants within one or a group of commercial office buildings to
telecommunications/cable service providers. Local Fiber, focuses
on providing communications services (including Centrex and ISDN)
to "on-net" properties (buildings in which Equal Access has
constructed a PDS). Local Fiber will act as a facilities based
carrier in Manhattan leveraging FiberNet's 12 year contract (15
year renewal option at no cost) (the "License") to utilize eight
strands of fiber loops (48 miles) on a major company's fiber
optic Manhattan network, and as a switched reseller in other
metropolitan areas.
FiberNet Equal Access, LLC
PDS is a new concept in telecommunications and FiberNet
believes that it is the front runner in providing such a service.
FiberNet's fiber optic voice and data network will benefit
telecommunication service providers, building tenants and the
property owners. The PDS will allow telecommunication service
providers to share telecommunications equipment and fiber routes
inside the building, where there are significant economies of
scale for the providers. The tenants will obtain high-speed,
faultless transmission of voice, data, and fax communications.
Building owners will have their existing copper wires upgraded
with redundant fiber loops at no cost to the owners. FiberNet
Equal Access has as its goal to construct 370 PDS systems
throughout metropolitan areas in the US over the next 10 years.
FiberNet will require each building owner/manager to provide
an exclusive eight year licensing agreement with two automatic
five year renewable options in exchange for upgrading the
premises and revenue sharing. The exclusive portion of the
license agreement provides FiberNet the exclusive right and
ability to resell and/or lease capacity to carriers, tenants, and
third parties. FiberNet already has agreements with one property
developer/manager covering 2 buildings and contingent
arrangements for 17 additional buildings and another
developer/manager covering 1 building and negotiating for two
additional buildings, in New York City. These landlords also
control additional properties in other targeted major cities.
FiberNet is also negotiating with other developer/managers (See
"Status of FiberNet Equal Access Building Contracts").
FiberNet's marketing strategy is to lease to each carrier
digital bandwidth circuits within a building between the tenant
and the service providers. This market consists of carriers who
provide private line transport for long distance access, intra
LATA transport, local service providers, InterNet service
<PAGE>
providers, cellular and PCN companies. The major companies for
New York City are Teleport, MFS, Time Warner Access, MCI, AT&T,
Worldcomm, Winstar and Sprint.
<PAGE>
Local Fiber, LLC
Local Fiber initially intends to provide switched local
telecommunications and long distance services. FiberNet plans to
expand its capabilities to include enhanced data communication
services to businesses throughout Manhattan, and cities such as
Los Angeles, Chicago, San Francisco, Philadelphia, Boston,
Detroit, Dallas, and Houston. As a result of FiberNet's rights
to utilize eight strands of fiber in Manhattan (in exchange for
10% of Local Fiber), Local Fiber will act as a facilities based
carrier in New York City, and as a switched reseller in other
metropolitan areas.
Local Fiber will offer "on-net" clients local telephone
services, Centrex, high speed Internet access, high speed
enhanced data network services including (ATM, switched
Ethernet), and Intra and Inter LATA toll telecommunications
services, which will be consolidated to one single billing
statement. Local Fiber plans to offer such services through
state of the art Lucent 5ESS-2000 switches, redundant "SONET
Transmission" networks and a 100% fiber network extending from
the fiber loop to customers' premises. Local Fiber will offer
its services though discounted prices, which is projected to be
10% lower than other carriers. Additionally, until FiberNet's
network capacity fills with end-user traffic, it plans to
wholesale its surplus capacity to CLECs and LEC's (20% discount
from other carriers).
The Management
Management of the predecessor company to FiberNet Telecom,
Inc. has successfully designed, installed and operated
Competitive Local Exchange Carriers (CLECs) business with
networks in three upstate New York markets (Albany, Buffalo, and
Rochester); and another CLEC with networks in Cincinnati (OH),
Raleigh-Durham (NC), Huntsville (AL) and St. Louis (MO). These
networks covering approximately 500 route miles, were later sold
to Metropolitan Fiber Systems ("MFS") in March 1994 and
InterMedia Communications of Florida in February 1995
respectively. These predecessors were primarily owned by
Petrocelli Industries Inc., an investment company controlled by
Santo Petrocelli, Chairman and CEO of the FiberNet companies.
Affiliation with Petrocelli Industries, Inc. and its
affiliation with Petrocelli Communications will allow FiberNet to
construct either initial or additional fiber in the most timely
and cost efficient manner. Petrocelli has installed the majority
of Manhattan's fiber for MFS, Teleport, and Time Warner. Other
than NYNEX, Petrocelli is considered as the company which has the
most significant telecommunications construction experience in
Manhattan. Over the past 60 years, Petrocelli has established
strong relationships with building owners, tenants and other
carriers, which will strengthen FiberNet's sales and marketing
efforts. Along with extensive construction experience, FiberNet
has, through its CEO Santo Petrocelli, built and grown a number
of telecommunication companies.
GE Capital has committed, subject to the satisfaction of
certain terms and conditions, to provide up to $20 million of
debt/vendor financing to FiberNet. Each subsidiary is expected
to receive approximately 50% of the funding provided by GE
Capital.
FiberNet's principal offices are located in Long Island City
and Rochester, New York.
<PAGE>
Certain Investment Considerations
Experienced Management Team
FiberNet's management team is comprised of individuals with
over 40 years of experience in telecommunications. Santo
Petrocelli, is the Chairman and CEO of FiberNet Telecom &
Petrocelli Communications Corporation (the constructor of
approximately 420 miles of fiber optic networks for most of the
major CLECs, and a primary electrical contractor in the city of
New York); and Lawerence Polan VP and CFO of FiberNet Telecom,
Inc. and Petrocelli Communications Inc. The team has created two
CLECs and has relationships with many CLECs and long distance
service providers and landlords throughout the US. FiberNet is
expected to benefit from the solid telecommunications and
construction experience its management team brings.
Strategic Relationships
Affiliation with Petrocelli Communications will allow
FiberNet to construct either initial or additional fiber in the
most timely and cost efficient manner. Petrocelli has installed
the majority of Manhattan's fiber for MFS, Teleport, and Time
Warner. Other than NYNEX, Petrocelli is considered to have the
most significant telecommunications construction experience in
Manhattan. Over the past 60 years, Petrocelli has established
strong relationships with:
- building owners through the installation of
electronic, security and telecommunications wiring, and
- tenants through the installation of communications
networks and other enhanced telecommunications
applications.
- CLECs through the installation of their NY
networks.
These relationships will aid FiberNet in strengthening its
sales and marketing efforts, and expedite the process of
establishing relationships with building owners, tenants and the
purchasers of the in building networks.
Competitive Conditions
Currently, there is no known direct competitor to Equal
Access, and minimal indirect competition exists. The closest
competitors are E-Connect and Riser Management Systems, Inc. E-
Connect focuses primarily on high speed data (not voice) networks
in buildings located in Canada, whereas Riser Management Systems,
Inc is only involved with the management of PDS. It encourages
the owners to invest and construct the PDS themselves, which
requires much time, effort and capital expenses. The other
competitors are the RBOCs which own most of the in-building
copper networks, but have cables with limited broadband
capabilities, FiberNet's redundant fiber optic network will be
more technologically advanced compared to existing systems in the
opinion of management.
Local Fiber will compete against the incumbent LECs, CLECs
and IXCs. However, Local Fiber can differentiate itself from and
compete with its competitors via the following advantages:
<PAGE>
- Accelerated building access through Equal Access -
Equal Access' intrabuilding PDS will allow Local Fiber
to gain building access to tenants with a broadband
intrabuilding redundant network quicker and more cost
effectively than its competitors.
- Selling to existing customers - Local fiber will
utilize relationships established through Petrocelli
Communications and Equal Access. Petrocelli
Communications customers include Nomura Securities,
Bear Steams, Dean Witter, Salomon Brothers, First
Boston Securities, Merrill Lynch, and the Ford
Foundation.
- Marketing alliance with the building owners
through FiberNet Equal Access- Equal Access intends to
form a marketing alliance with the building owners to
have Local Fiber as the tenants' vendor of choice.
- Dark fiber backbone in Manhattan at no cost- This
allows FiberNet to reach the customers in Manhattan at
a lower cost structure.
- Affiliation with Petrocelli Communications -
Petrocelli will insure best price and construction
quality for networks in Manhattan.
- Low Cost Network - The agreement for a dark fiber
backbone in NY at no incremental cost allows the
company to reach the customer at a guaranteed lower
cost structure than its competitors.
- Agreements with Landlords - The exclusive
agreements for third party resale positions Equal
Access as the "gateway" for high speed bandwidth
providers.
- Agreements with GE Capital - The senior debt will
provide the necessary capital to begin Phase 1 of the
project, which includes the New York city network and
PDS networks in 36 buildings.
Business Overview
FiberNet Equal Access, LLC
Premises Telecommunications Distribution System. FiberNet's
objective is to lease digital bandwidth circuits within a
building to the carriers and the service providers in order to
allow these carriers to offer tenants within the buildings higher
quality, completely redundant voice services and high bandwidth
data services. FiberNet expects PDS to increase tremendously in
the next few years due to increased number of carriers competing
with NYNEX. FiberNet is developing a mini CLEC within large
commercial buildings. The carriers are attracted to this service
because it provides them with immediate customer interconnection,
outsourced manpower, no internal or external construction costs,
and completely redundant service. It is also attractive to the
building owners because it provides them with a new source of
income, an enhanced telecommunications system for its tenants at
no cost and one complete homogeneous system instead of three to
six telecommunications systems clogging up risers and
telecommunications closets.
<PAGE>
FiberNet projects to construct PDS in 370 commercial
buildings in major metropolitan areas beginning with New York
City and expanding to 10 major North American cities over the
next ten years:
Total Total
City Year1 Year2 Year3 Year4 Year5 5 Years 10 Years
New York 20 26 10 56
Los Angeles 10 10 15 35
Chicago 14 10 24
San Francisco 10 10 15 35
Philadelphia 10 10 10 30
Boston 10 10 10 30
Detroit 10 10 20
Dallas 10 10 20
Houston 10 10 20
Total 20 40 70 70 70 270 370
FiberNet can provide lower costs due to the spreading of
capital costs over a number of carriers. FiberNet's completely
redundant fiber infrastructure is intended to replace. over time,
the current non redundant copper risers put in place by the
incumbent RBOC's and others. FiberNet's business strategy intent
is to secure exclusive license agreements from the building
owners prior to construction and capital deployment.
A Premises Telecommunication Distribution System is the
transmission network inside a building or group of buildings that
connects various types of voice and data communication devises,
<PAGE>
switching equipment and information management systems together,
and to outside communication networks. It includes the cabling
and distribution hardware components and facilities between the
point where building wiring connects to the outside network
lines, back to the voice and data terminals in the office. The
system consists of all the transmission media and electronics,
administration points, connectors, adapters, plugs, and supports
hardware between the building's side of the network interface and
the terminal equipment required to make the system operational.
The PDS will allow telecommunication service providers to
share telecommunication equipment and fiber routes inside the
building, providing significant economies of scale for these
providers. They will be able to obtain at low cost, high-speed,
faultless transmission of voice, data and fax communications
between tenant locations and their points of presence (POPs)
within the respective buildings.
In the building, fiber is run up two riser conduits and
connected at the top floor in order to create a self healing ring
architecture. Each floors existing telecommunication closet will
serve as the interconnection point between the (same floor)
tenants and the fiber optic network. The building will also
contain a Network Interface Equipment Room were the fiber risers
are terminated and connected to SONET electronics transmission
equipment. Service providers connect their networks to the "SONET
Network" via redundant fiber optic underground conduits. Each
building network is also connected to a Network Control Center
for monitoring purposes.
<PAGE>
Local Fiber, LLC
Local Fiber plans to operate as a facilities based carrier
in Manhattan, and as a switched reseller in other metropolitan
areas such as Chicago, Philadelphia, Boston, Los Angeles, San
Francisco, Detroit Dallas and Houston. FiberNet plans to offer
various telecom products, at attractive unified billing.
Local Sales Strategy. FiberNet's strategy for implementing
the delivery of basic telephone service (POTS), Local Exchange
InterLATA and IntraLATA, Centrex, and ISDN to telephone
subscribers contains the following components:
- - On Net sales - FiberNet's major focus will be to sell to on
net customers (customers within buildings directly connected
to its network) through Equal Access.
- - Off Net Sales - Additional sales will be generated from off
net customers (customers within buildings not connected to
the network) requiring interconnection through NYNEX and
other RBOC's. Eventually these off net customers will become
on net when Local Fiber LLC builds to that particular
building based on customer demand.
These sales strategies supplemented with:
- - Responsive Customer Service - FiberNet will employ full-time
customer service representatives. These Customer Service
Representatives will work with each customer on customized
billing, account management and follow up on new product
offerings though consultative selling. Each Representative
will be fully trained on the latest telecommunication
services available. If a customer's telecommunication
requirements have changed (or a new product becomes
available), the Representative will be in the position to
make recommendations and ensure that each customer is
getting the most from their telecommunications system.
- - Comprehensive Service Offerings - FiberNet can provide
advanced fiber optic digital technology directly to each
floor, of the buildings it serves, with comprehensive
services such as on-site repairs and maintenance and
customized solutions. Additionally, Local Fiber's ability to
structure services to fit each customer's exact needs allow
services to be performed at competitive rates.
- - State of the art switch (Lucent 5ESS-2000) - FiberNet will
use technology which allows the deployment of a highly
distributed switching architecture by using digital
communication links interconnected to the central control
element of the host switch. The host Switch offers the
following significant benefits to FiberNet: (a) the costs of
leasing local transport facilities and capital expenditures
are minimized; and (b) FiberNet will be able to provide a
full range of telecommunications services, including all
types of calls (local exchange, long distance, Centrex
services, and ISDN) to multiple carrier and end user
customers. FiberNet believes that the combination of its
bundling approach and its distributive switching
<PAGE>
architecture is a cost effective alternative to the current
local exchange services. FiberNet expects to offer more
complete services to long distance carriers and telephone
subscribers at low costs.
Manhattan Network
The Network is based upon the existing fiber optic cable
network of a major company. FiberNet is provided an indefeasible
right of use for 8 fiber loops on the network for an initial term
of 12 years and an option to exercise renewal for an additional
15 year term. A host switch (based at FiberNet's main node at 60
Hudson Street in Manhattan) along with "SONET" electronic
transmission equipment (located at the customers' premises and
FiberNet's main node) are connected via the dark fiber network to
establish communication between Local Fiber's switch and its
customers. In addition, interconnection agreements with
telecommunications carriers (NYNEX, MCI, AT&T, Sprint) are
established in order to transmit calls from Local Fiber customers
to NYNEX customers as well as vice versa and to switch long
distance traffic.
The following is a typical diagram of a redundant fiber
Network connected to selected buildings and Local Fiber's main
node at 60 Hudson Street.
The following is an example of the electronic transmission
equipment that will be housed in a small closet located at each
customer building.
<PAGE>
Interconnection Agreements
To provide a "seamless interconnection", it will be
necessary to negotiate interconnection arrangements with the
existing LECs. Fortunately, most state PSC's have allowed for
interconnection/collocation arrangements and has unbundled
services into link and ports such that FiberNet may purchase only
those services and/or facilities necessary to complete its
network. Negotiations will also be required for emergency
services, F911, operator services and directory. No obstacles are
expected with other LECs. Below is a diagram of Local Fiber's
local exchange network. Local Fiber has executed its first
interconnection and co-carrier agreement with NYNEX.
Operations
Management believes FiberNet's integration of advanced
telecommunications and information technology systems will
enhance FiberNet's ability to offer cost effective service.
FiberNet's outstanding network reliability is the product of
advanced technologies and experienced technicians. The fiber
optic network is made up of diversely routed cables so that a
cable cut should not affect service. Once a fault is detected
calls are automatically sent via a secondary route and an alarm
is sent off on the Network Control Center alerting technicians to
fix the problem in order to continue assuring a fault redundant
network. In addition, fully redundant electronics ensure that no
single component failure should cause a customer service problem.
To manage the development of the intelligent technology
systems, FiberNet intends to negotiate two strategic alliances
involving switching operations and information system technology.
- - Switch Operations- FiberNet plans to hire personnel to staff
the switching operations along with technical support from
Lucent Personnel.
<PAGE>
- - Information Technology Systems- FiberNet plans on forming a
billing services arrangement with a third party vendor.
FiberNet is currently seeking a vendor with the capabilities
of bundling local with long distance, enhance data, and
wireless communication services cost effectively in the
companies development stages. Management believes
outsourcing to a third party is desirable because of
FiberNet's planned growth across a wide variety of
telecommunication services.
The Company
Introduction
FiberNet Telecom, Inc. was incorporated in August 1994.
Management of FiberNet's predecessor company, FiberNet Inc.,
successfully designed, installed and maintained networks
providing Competitive Access Services in three upstate markets:
Albany (1992), Buffalo (1992) and Rochester (1991). The assets of
FiberNet, Inc., comprised primarily of the upstate networks
covering 420 route miles, were sold to Metropolitan Fiber Systems
("MFS") in March of 1994. The management continued its national
network expansion through another new company, FiberNet USA,
Inc., a Delaware corporation formed in 1993. FiberNet USA
successfully designed, installed and maintained networks
providing Competitive Access Services in Cincinnati, Ohio and
Raleigh-Durham, NC as well as networks in Huntsville, Alabama and
St Louis, Missouri. The assets covered over 75 route miles along
with the Huntsville and St. Louis markets in their development
stage, and were sold to InterMedia Communications of Florida,
Inc. in February 1995.
FiberNet and its predecessors are owned primarily by
Petrocelli Industries, Inc. ("Petrocelli"). Petrocelli
Communications, an affiliate of Petrocelli industries has been in
the business of offering network systems integration services,
which includes the design, development, engineering and
installation of integrated communications networks and systems
for telecommunications companies and business end users for over
25 years. Petrocelli is the largest fiber optic installer in New
York other than NYNEX. It has installed networks for many of the
largest CLECs, including MFS/WorldComm and Teleport, and will
provide construction work for FiberNet Equal Access, LLC.
The former customers of FiberNet USA, Inc. and FiberNet,
Inc. were mainly AT&T, MCI, and Sprint. While Petrocelli's
customers include the major long distance carriers and MFS and
Teleport.
FiberNet Equal Access, LLC
FiberNet Equal Access, LLC has been established to install
and manage a Premises Telecommunication Distribution Systems in
metropolitan areas. The company will install copper, dark fiber
and digital bandwidth circuits at the DS-O, DS1 and DS3
transmission levels within a building between the tenant and the
service providers. Once the PDS are built, the circuits will be
leased to carriers who provide private line transport for long
distance access, intraLATA transport service, local service,
cellular service and PCS. The company's major customers will be
Teleport, MFS/WorldComm, Times Warner Access, MCI, AT&T, National
Fiber Systems, Sprint and Winstar.
<PAGE>
The Telecommunications Premises Distribution System will
benefit the tenants by providing a redundant fiber optic and
dedicated copper cable connection to their carrier of choice.
This will provide faster transmission rates, less trouble reports
and the capability to connect to new protocols such as FDDI,
Frame Relay, Packet Switching and ISDN networks.
Local Fiber, LLC
Local Fiber plans to provide switched local
telecommunications, long distance and enhanced data communication
services throughout Manhattan and other metropolitan areas such
as Chicago, Philadelphia, Boston, Los Angeles, San Francisco,
Detroit, Dallas and Houston. Local Fiber intents to utilize
relationships (with building owners) established by Equal Access
to gain customer base and build an "on-net" network with these
buildings. Management believes that "On-net" clients will be
able to realize certain savings since such network can eliminate
access charges (which will exist for "off-net' clients).
Furthermore, the Management Team's success in building two CLECs
(which were sold to MFS and InterMedia respectively) provided
them with much experience and confidence in the
telecommunications industry.
PDS Implementation Process
Following are steps taken to ensure the completion and
continuous performance of a constructed PDS.
Telecommunications Site Planning
Physical Survey. The physical survey will include the
inspection of the Telecommunication Risers, Conduits and Riser
Telecommunication Closets. The carrier access points (Points of
Presence) will be thoroughly examined as well as follow up
communications with carriers. The existing copper and fiber will
be examined in order to establish traffic capacity and disaster
recovery potential. The PDS equipment and network will then be
designed to accommodate current requirements and future needs for
a planning horizon of 10 years.
User Group Survey. FiberNet will conduct a complete
Requirements Survey, which will include a systematic study of the
building's major tenants to determine the needs for voice and
data telecommunications equipment and distribution products. The
telecommunication needs will be surveyed in order to determine
the types and quantities of services they now use and assure that
the telecommunications pathways in the building are adequate to
serve the future needs of the tenants.
Design Telecommunications Premise Distribution System
After reviewing the buildings current telecommunications
system and surveying several tenants, FiberNet Equal Access, LLC
will consult with the major telecommunication equipment vendors
and carriers in order help determine the most suitable types of
equipment and design for the PDS. The PDS that will be developed
to provide a state of the art, efficient and cost effective
telecommunications intrabuilding distribution system.
In the basement of each of the buildings, FiberNet will
build a 1,000 to 1,500 square foot Network Interface Equipment
Room. This room will serve as a point of demarcation for
<PAGE>
FiberNet, and the other service providers who shall collocate
their electronic equipment containing the following:
- - DDM - 2000 OC-3 Bay
- - Channel Banks/SLC 2000
- - DSX-3
- - DSX-1
- - Battery system
- - Rectifiers
- - MDF
- - LGX
- - OC-3
- - Liebert AC Unit
- - Amp. Electrical Service
- - Transfer Switch
Project Administration. All the related information, for
the cabling and telecommunication equipment, including the
specific type, location, installation date, and maintenance
records will be kept up to date in well organized and specially
designed databases. This database will allow:
- - forecasts of 5 to 10 year capital budgets,
- - the scheduling of routine maintenance inspections,
- - the ability to track projects that are underway in order to
help insure timely completion,
- - a means to coordinate multiple projects in order to reduce
the potential for unnecessary capital
- - purchases and/or construction costs,
- - better management of telecommunications traffic by reducing
or eliminating bottlenecks, and
- - reporting and testing capabilities which will help prevent
system faults.
All of the blue prints, design layouts, and elevation, cabinet
layouts and possession will be produced through this database.
As new technology develops all the necessary information,
including the equipment specifications, will be compiled and
incorporated into the database in order to insure the PDS is run
in the most efficiently and effectively.
Communication to and from the telecommunication carriers and
the end users will be conducted on an ongoing basis in order to
find potential problems well before they develop and ensure that
end users are always receiving the most advanced technology.
Marketing
FiberNet Equal Access, LLC will sell its products and
services through a direct sales force. The sales group will
market the products to the Regional Bell Operating Companies, the
network based interexchange carriers such as Sprint, AT&T, MCI,
RCI, ACC, Wiltel, LDDS World Comm and Cable and Wireless, and the
network based competitive access companies such as MFS/WorldComm,
Teleport, Metromedia Fiber Systems, MCI Metro and Time Warner
Access.
<PAGE>
The market niche is the wire transport of advanced
telecommunication services between the commercial end user and
the service providers within multi-tenant office buildings first
in the New York City marketplace and then in other large
metropolitan cities. To provide services the company will design
and install a PDS within each building it will service. This
system which consists of fiber optic, advanced dedicated copper
cable and electronics which will provide a technology platform
for interconnect to the service providers point of presence in
the basement of each building.
<PAGE>
FiberNet will lease broadband high capacity services. These
services will be leased on a flat rate monthly fee basis.
FiberNet intents to pre-sell these services to the carriers.
Marketing activity will determine the approach to capital
deployment for the specific building. Based on carrier response,
FiberNet will build copper, primary and secondary fiber combined
with electronics for broadband circuit as an option.
FiberNet intends to market its services for both switched
and dedicated connections. Today, the RBOC's are the dominate
providers of switched services and will be the largest user for
this product. However, with the Telecommunication Act of 1996,
competitors are permitted in the market place. When this occurs,
the demand for switched services connections will significantly
increase due to CLECs entry in to this market segment. Dedicated
services will be purchased by all market segments, which will be
expected to lead to a high demand for FiberNet's products from
the RBOCs to support their data services.
FiberNet service have a cost advantage for its customers.
For the service providers to interconnect to their customers
within a building for service provisioning they must construct
their own riser system and install their own electronics. This is
economically unfeasible and is inefficient utilization of
equipment and capital.
An example of a typical situation for service provisioning
for a new customer is a follows:
- - CLEC sells a DS1 circuit to a customer on the 31st floor. To
accommodate the service the electronics cost is $25,000 for
the DSI electronics at the customer premise locations and
the basement, $125,000 for a point of presence in the
basement and $200,000 to install a fiber riser cable to the
31st floor. The total costs for this circuit are $350,000.
- - CLEC will receive annual revenue of $4,800.
On the capacity side, the minimum electronic package they
can use will support a total of 4 DS1 circuits, three are
underutilized.
For FiberNet, since it sells to all service providers within
a building, it can install the riser to service several
customers, terminate the fiber on each floor and use all ports on
the electronic equipment. This shared concept reduces the
carrier cost per circuit and the customer provisioning
significantly. Also, since FiberNet's market niche is wire
transport of communications between commercial end users and
service providers, carrier acceptance will be a major component
in the marketing plan. FiberNet believes that as an experienced
CLEC, acceptance by other carriers would be much easier than an
unfamiliar company. The RBOC's also should accept FiberNet, since
FiberNet's broadband networks will allow them to generate new
revenue from high bandwidth data connectivity and other similar
advanced telecom services.
FiberNet believes that given the benefits listed below,
there will be substantial demand for complete fiber PDS's
throughout the U.S. FiberNet's core market strategies are as
follows:
Provide flawless service from the start - the expectations
in this area are very clear. Carriers' want redundant fault
tolerant services, and restoration before any problems are
noticed by them or the end users (tenants). The system will have
a certification and feedback process that evaluates access
suppliers in several different areas including billing,
provisioning and repair.
<PAGE>
Become the highest value provider - by providing state of
the art transport technology and systems including network
monitoring at prices lower than currently available or that could
be attained by the carriers building their own networks.
Employ a system for strategic advantage - starting from a
clean slate provides the opportunity to structure Premises
Distribution Systems not only to meet current needs, but also
with the flexibility to anticipate future needs.
Organize first for effectiveness in meeting customers' needs
and second for efficiency - efficiencies will be gained though
economies of scale which can only be achieved by effectively
meeting the customers' (tenants' and carriers') needs.
Benefits
Benefits to Building Owners. The building owners will
receive the following benefits:
- - New Source of Income - by receiving a licensing fee for
telecommunication services building owners can earn money
with no investment or operating expenses.
- - Time Management - the negotiating, planning, and
coordination requirements with interexchange carriers,
competitive access providers and all of their subcontractors
is eliminated.
- - One Complete Homogeneous System - rather than having 3 to 6
different PDS's clogging up risers, closets and requiring
several different venders and technicians to maintain the
systems, buildings will have one system using limited space,
venders and technicians who can now specialize in specific
brands of equipment
- - Enhanced Tenants Telecommunications Services - tenants will
be able to take full advantage of new communications service
offerings, increasing the attractiveness of the building
thereby improving property owner's competitive position in
the real estate marketplace.
- - Enhanced PDS with no Capital Investment - FiberNet will pay
all costs for the installation and maintenance of the PDS.
Benefits to Tenants. By connecting all of the tenants to
multiple carriers via a high capacity fiber optic network the
tenants will have immediate and competitively priced access to
enhanced digital connectivity for services such as: broadcast
fax, video conferencing, and system integration though a diverse
routing- self healing network. In addition the Premises
Distribution System will allow:
- - Built-in Flexibility - to grow or adapt subsystems as
requirements change,
- - Upgraded System- the elimination of expensive, bulky and
hard to manage coax and shielded twisted pair cable,
- - Uniform Equipment- the coordination of equipment from
multiple vendors including computers and computer networks,
video and devices, switching equipment, telephones,
facsimile machines and network management systems all within
a building or campus environment, and
- - Simplified Transitions- the ability to make moves and
changes without major disruptions to business activity.
<PAGE>
Benefits to Carriers
Through the sharing of PDS's and the scale enhancing factors
involved when multiple tenants and/or locations are developed,
the carriers will be able to lease cheaper than it would be for
them to build. The PDS will provide immediate connection to all
tenants within the buildings managed by FiberNet. The Premises
Distribution System will allow:
- - No capital costs
- - Immediate customer interconnection
- - Outsourced manpower
- - Platform for switched services
- - Redundant street conduit entrances & dual risers within the
building
Committed Company Debt
FiberNet Telecom has debt committed, subject to various
conditions, to each of its divisions from a major lender.
However, there can be no assurance that all conditions to funding
will be satisfied.
Local Fiber, LLC has been provided with a $9.9 million
aggregate credit facility commitment with $9.3 million to be used
for project costs and $.6 million for capitalized interest. The
lender at all times will have a first priority perfected security
interest in all assets, revenues, personal and real property of
Local Fiber, LLC as collateral. The credit facility period is
expected to be for eight years with the initial three years
available for draw downs against the facility by Local Fiber LLC
and the last five years for debt repayment. The terms of the
facility provide for capitalized interest for the first year
followed by two years of interest only. Total debt shall be
repaid monthly beginning in year four based on the following
amortization schedule.
Years 4 and 5 15% per year
Year 6 20% per year
Years 7 and 8 25% per year
The following are the major conditions precedent to Credit
Facility funding:
- - Execution of a stock pledge agreement by the members of
Local Fiber, LLC.
- - Local Fiber, LLC shall have entered into interconnection
agreements with at least two major carriers. In addition,
Local Fiber shall have letters of intent for $83K in monthly
revenue from customers.
- - Local Fiber obtaining $2.5 million in unrestricted funded
cash capital contributions available for working capital
needs. In addition, the Local Fiber, LLC. owners shall
provide a support agreement to use their best efforts to
make available to Local Fiber no less than $1 million to
ensure maintenance of a positive working capital balance.
- - Execution of a purchase agreement between the Local Fiber,
LLC and Lucent Technologies.
- - Ability to assign IRU.
- - Regulatory approvals, permits, rights of way, hub site
leases and key employment contracts.
All conditions precedent are expected to be met at closing
<PAGE>
of the Acquisition Transaction except for the revenue commitment
of $83,000 per month and the IRU assignment, which are expected
to be completed within 90 days from closing. The Company shall
also adhere to financial maintenance covenants as provided in the
GE Capital loan documents. No assurance can be given that such
conditions precedent will in fact be met within such time periods
or at all.
FiberNet Equal Access, LLC has a commitment for an initial
credit facility of $3 million to be used for project costs and
$.12 million for capitalized interest. The initial facility will
be used to develop FiberNet Equal Access's Premise Distribution
Systems in approximately 6 buildings in Manhattan. In addition,
the lender has committed to provide phase 2 debt of approximately
$8.4 million to complete the remaining 30 buildings contemplated
in the initial 36 building plan. The lender at all times will
have a first priority perfected security interest in all assets,
revenues, personal and real property of the Company as
collateral. The initial credit facility period is expected to be
for eight years with the first three years available for draw
downs against the facility by the company and the last five years
for debt repayment. The terms of the facility provide for
capitalized interest for the first year followed by two years of
interest only. Total debt shall be repaid monthly beginning in
year four based on the following amortization schedule.
Years 4 and 5 5% per year
Year 6 20% per year
Years 7 and 8 25% per year
The following are the major conditions precedent to Credit
Facility funding:
- - Execution of a stock pledge agreement by the members of
FiberNet Equal Access, LLC.
- - FiberNet Equal Access, LLC. shall have entered into building
agreements with the owners of each of the six buildings
identified in the initial 6 building business plan. These
agreements must provide the company the right to construct
and own a redundant fiber optic network; be for a term
greater than 8 years; provide Equal Access unlimited access
to the network; ability to assign the rights under the
agreement; provide protection from other carriers reselling
or leasing excess capacity to third parties. Prior to
construction, Equal Access shall have a contract with at
least one acceptable carrier to pay a minimum of $35K in non
recurring revenue.
- - FiberNet Equal Access obtaining $1 million in unrestricted
funded cash capital contributions available for working
capital needs. In addition, Equal Access shall establish a
cash escrow agreement for the benefit of the lender. The
escrow must be funded as follows:
From 1/31/98 to 12/31/98 $200K
From 1/1/99 to 12/31/99 $400K
From 1/1/2000 and thereafter $600K
- - Execution of a purchase agreement with Lucent Technologies.
- - Environmental review of building prior to construction.
- - Regulatory approvals, permits, rights of way, hub site
leases and key employment contracts.
All conditions precedent are expected to be met at or prior
to the closing of the Acquisition. FiberNet Equal Access, LLC.
shall also adhere to financial maintenance covenants as provided
in the loan documents. No assurance can be given that such
conditions will be met at closing or at any time.
<PAGE>
Status of FiberNet Equal Access Building Contracts
FiberNet Equal Access, LLC is in final contract negotiations
with four major building managers in Manhattan to develop their
Premise Distribution Systems. There can be no assurance that
FiberNet Equal Access will be able to complete such negotiations.
The majority of said buildings are Class A, multi-tenant office
buildings. The following is a summary of the contract terms and
status with each of the building managers.
1. FiberNet Equal Access, LLC. has executed building
contracts with the managers of two managed properties which
include buildings located in Manhattan. The contracts are for
ten year terms and provide the building owner with license fees
as a percentage of Equal Access's gross revenues. The license
allows for the extension of licenses to carriers whenever a
tenant requests direct service from the carrier; provided however
that such carrier shall not be permitted to lease or sell excess
capacity to other tenants unless requested to do so by those
tenants. The building owners further agree that no other carrier
shall be granted a license in the buildings for the purposes
contemplated in Equal Access's license agreement. A caveat in
the agreement exists which allows the building owner to revoke
the license upon 60 days written notice to Equal Access upon a
transfer of not less than a majority interest in the ownership of
the building. However, the building owner shall pay to Equal
Access the sum of a) the total amount of cash funded as capital
contributions proceeds of which were used to fund the
installation of the Facilities by Equal Access and (b)
indebtedness the proceeds of which also were used to fund the
installation of the Facilities to the extent these amounts remain
unamortized as of the date of ownership transfer calculated using
the following amortization schedule:
Year 1-3 100%
Year 4 85%
Year 5 70%
Year 6 50%
Year 7 25%
Year 8 0%
In addition, FiberNet Equal Access, LLC. has executed a
contingent agreement, based on performance and other matters,
with the manager to construct PDS networks in an additional 17
properties partially owned and under long term management
contracts. These properties including a complex in Manhattan
will be scheduled for construction after approval of the
individual owners of each property. There can be no assurance
that the individual buildings will approve of such transactions.
2. FiberNet Equal Access, LLC. has provided building
contracts in a final form to be executed with the owners of two
managed properties which include buildings located in Manhattan.
The contracts are for ten year terms and provide the building
owner with license fees as a percentage of Equal Access's gross
revenues. The license allows for the extension of licenses to
carriers whenever a tenant requests direct service from the
carrier; provided however that such carrier shall not be
permitted to lease or sell excess capacity to other tenants
unless requested to do so by those tenants. The building owners
further agree that no other carrier shall be granted a license in
the buildings for the purposes contemplated in Equal Access's
license agreement.
<PAGE>
3. FiberNet Equal Access, LLC. has executed a contract
with the owners of a managed property located in Manhattan. The
contract is for an eight year term and provides the building
owner with license fees as a percentage of Equal Access's gross
revenues. The license allows for the extension of licenses to
carriers whenever a tenant requests direct service from the
carrier; provided however that such carrier shall not be
permitted to lease or sell excess capacity to other tenants
unless requested to do so by those tenants. The building owner
further agrees that no other carrier shall be granted a license
in the buildings for the purposes contemplated in Equal Access's
license agreement.
In addition, this manager also manages two other properties
for which FiberNet Equal Access plans to execute contracts for
PDS system development after the initial building is complete.
4. FiberNet Equal Access, LLC. is currently in final
negotiations with a manager and their telecommunications
consultant. The manager has provided a letter of intent to
construct PDS systems in three properties they manage which are
located in Manhattan. Upon completion and review of financial
results within these three buildings, the manager is expected to
provide the license agreements to install Premise Distribution
Systems in the remaining eight buildings they manage in
Manhattan.
Other Matters
Company Offices
FiberNet Equal Access, LLC. occupies approximately 5,000
square feet at 12-12 43rd Avenue in Long Island City, NY just
outside of Manhattan in Queens. This office houses executive
personnel including Equal Access's Chairman & CEO, as well as its
VP and CFO. In addition, a 2,000 square foot office in
Rochester, NY is currently leased for administrative staff
including Equal Access's VP administration. FiberNet Telecom is
in final negotiations to lease approximately 6,000 square feet at
60 Hudson Street in New York City for its Northeast Switching
center. This will be executed prior to the closing of the
transaction with DND.
Use of Proceeds
The net proceeds payable from the sale of the series A
Preferred Stock is approximately $5,000,000, which will be used
to support debt requirements from its lender as well as provide
proceeds to support development of it's business plan to fund
working capital needs as well as some capital equipment
including, but not limited to network electronics.
FiberNet Experience
The FiberNet companies are currently managed by
substantially the same executive group of FiberNet Inc. and
FiberNet USA, Inc. FiberNet, Inc. successfully designed,
installed and maintained networks providing Competitive Access
Services in three upstate markets: Albany (1992), Buffalo (1992)
and Rochester (1991).
The assets of FiberNet, Inc., comprised primarily of the
upstate networks covering 420 route miles, were sold to
Metropolitan Fiber Systems ("MFS") in March of 1994 for an
enterprise value of $21 million.
<PAGE>
Management of the former FiberNet, Inc. continued national
network expansion through a new company, FiberNet USA, Inc., a
Delaware corporation formed in 1993. FiberNet USA successfully
designed, installed and maintained networks providing Competitive
Access Services in Cincinnati, Ohio and Raleigh-Durham, NC as
well as networks in Huntsville, Alabama and St. Louis, Missouri
in various stages of engineering and construction. The assets of
Fiber Net USA, Inc., comprised primarily of the Cincinnati, Ohio
and Raleigh-Durham, NC networks covering 75 route miles along
with the Huntsville and St. Louis markets in their development
stage, were sold to Intermedia Communications of Florida, Inc. in
February 1995 for an enterprise value of $15 million.
FiberNet USA, Inc. and FiberNet, Inc. were owned primarily
by Petrocelli Industries Incorporated. The Petrocelli companies
has been in the business of offering network systems integration
services, which includes the design, development, engineering and
installation of integrated communications networks and systems
for telecommunications companies and business end users for over
25 years. Petrocelli, the largest fiber optic installer in New
York other than NYNEX, has installed networks for many of the
largest CAPs, including MFS and Teleport and will provide
construction work for FiberNet Equal Access, LLC.
Local Fiber Agreements with Owner of Fiber Optic Network
Local Fiber, LLC., on June 19, 1996, executed an Operating
agreement with it's members. The agreement, in addition to other
items, provides for a license agreement from a major third-party
fiber optic company and Local Fiber and established said company
as a 10% owner of Local Fiber.
Under the license agreement, the third-party has granted
Local Fiber the exclusive use of up to eight strands of fiber
optic cable, four strands immediately available for use by Local
Fiber, and four strands reserved for future use by Local Fiber.
The additional fibers are conditioned upon Local Fiber providing
the third-party network access to twenty buildings in the
Manhattan market. The total fiber provided for current and
future use to Local Fiber are 384 fiber miles. The initial term
of the agreement is for twelve years with an option to renew, at
no cost, for fifteen additional years.
The grant of the right to use the fiber optic cable and the
continuation of such right is subject to Local Fiber having
arranged for $2,000,000 in financing by December 31, 1997. The
requirement will be met upon closing the Acquisition Transaction.
The License terminates in the event Local Fiber is dissolved,
involved in an act of bankruptcy, the appointment of a receiver
(or similar custodian) or becomes insolvent.
Local Fiber must pay its own costs of establishing its own
connections to the cable and all other charges directly related
to its own business and must reimburse third-party for any costs
it incurs under the direction of the Company.
In the event Local Fiber requires additional fiber optic
capacity on the third-party network, such third party is required
to provide such capacity at a monthly rate equivalent to the
lowest monthly rate then charged to any other customer on the
network.
<PAGE>
The usage agreement requires no monthly fees payable to the
third-party In exchange for the use of the 384 fiber mile network
Local Fiber at its sole cost is required to construct additional
network for the third-party and provide 10% carried membership
interest in Local Fiber LLC. The Network addition, shall consist
of sixteen fibers constructed from the third-party backbone
network to each of twenty buildings within the Manhattan area and
construction of a four inch conduit with placement of two
interducts and sixteen fibers to each buildings point of
demarcation. The license agreement provides that Local Fiber
shall have the right to use 50% of the additional network.
<PAGE>
Related Transactions
Local Fiber, LLC, and FiberNet Equal Access, LLC are
required under their respective financing agreements to execute
General Service Agreements with Lucent Technologies to provide
network equipment and construction activities. Petrocelli
Communication Company, is an approved contractor for Lucent
Technologies and has performed previous sub-contracting work of
this company and other FiberNet Companies. Petrocelli
Communications Corporation is negotiating with Lucent
Technologies to sub-contract construction work relative to this
project or may perform construction work directly for the
FiberNet Telecom Companies.
Santo Petrocelli, Sr., is Chairman, President and CEO of
FiberNet Telecom. He is a director of National Abatement
Corporation. In addition, he is President and CEO of Petrocelli
Electric Company, Petrocelli Communications Company, SMFS, Inc.
and Petrocelli Industries Incorporated. Mr. Petrocelli controls
these companies.
Landtel Telecommunications Group, Inc. has performed and
will be retained to provide future consulting work for FiberNet
Telecom, Inc. LTJ Group, Inc., a shareholder of the Company and
Landtel Telecommunications Group, Inc. are owned and or
controlled by the same parties.
Mr. Lawrence Polan, is a Vice president and CFO for the
FiberNet Companies. He is also Vice President and CFO for
Petrocelli Electric Company, Petrocelli Communications Company
and Petrocelli Industries Incorporated. In addition, he controls
LPS Consultants, Inc.
The Company is expected to have extensive continuing
relationships with the Petrocelli Companies. Such relationships
could involve conflicts of interest and non-armslength dealings,
however, management believes that the terms and conditions of
such dealings will be fair and reasonable to the Company and
based upon terms that would be no less beneficial than could be
negotiated with unrelated parties.
Regulatory Environment
Telecommunications Art of 1996
The 1996 Telecommunications Act was enacted in February,
1996. The legislation is intended to promote competition and
reduce regulation in order to secure lower prices and higher
quality services for consumers and encourage the rapid deployment
of new telecommunications technologies. The legislation opens the
local, long distance and cable television service markets to full
competition, strikes down most state and local barriers to
competition in local markets, and removes restrictions or
limitations on the lines of business that the Bell operating
companies may enter. In short, the legislation allows competition
in more telecommunication services and allows more companies to
compete in more telecommunication markets. Many new rights
enjoyed by the RBOC's under the new law are contingent upon their
ability to foster competition in their local markets. One key
will be to work out interconnection arrangements between
themselves and the independent local telephone service providers.
The following table outlines the RBOC's interconnection
obligations under the Telecommunications Act of 1996:
Issue Obligation
<PAGE>
Resale RBOC's must offer at wholesale prices
any service provided at retail rates to
customers, who are not telecommunications
carriers.
Number portability Incumbent telco's must provide, to the
extent technically feasible, facilities
allowing customers to retain their phone
numbers when switching local phone companies.
Dialing parity Must be provided to all competing
providers of local and long distance service
(as well as access to telephone numbers,
operator services, directory assistance, &
listings) with no unreasonable delays.
Access to rights of way Provide competitors with reasonable
access to poles, ducts, conduits, & rights of
way.
Reciprocal compensation RBOC's must enter into agreements for
the origination and termination of calls.
Unbundled access Incumbents must make network elements
available to competitors on an individual
basis to enable competitors to purchase only
what they need.
Under the new law, the FCC has a checklist of
responsibilities that the RBOC's must comply before being allowed
to offer in region long distance services.
Whom does the legislation effect?
Every residential and business user of communications will
be affected by the legislation. More and diverse kinds of telecom
providers will be pursuing consumers and selling their products
and offerings to all market segments.
Every company in the communications industry, whether
telephony, cable TV or broadcasting, will be affected. Service
providers in the business will find more markets to enter, more
potential partners to team with and more competitors to sell
against.
How will the legislation affect users and companies in the
Business?
Telecommunications users, residential customers, and
business users of all sizes can expect increased choice. Users
will find one stop shopping options, as well as new specialized
service offerings from an array of providers. The challenge for
users will be to decide which services and features are most
important to them and then identify the provider that can best
serve those needs. With this in mind providers will have to
differentiate themselves by emphasizing strengths they can offer,
such as diversity through suppliers, back up protection through
redundancy, or simplicity through streamlined service ordering.
<PAGE>
Glossary
Access charges - Fees paid by long distance carriers to
local exchange carriers for originating and terminating long
distance calls on their local networks.
Address - A unique identifier assigned to networks and
stations so that each device can separately designated to receive
and reply to messages.
Administration Point - A location at which communication
circuits are administered; that is, rearranged or rerouted by
means of cross connections, interconnections, or information
outlets.
Administration Subsystem - A subsystem that ties the
horizontal subsystem on each floor to the backbone (riser)
subsystem. It provides maximum flexibility when administrating
workstation changes and rearrangements.
Backbone - Cable to which two or more workstations or
networks may be attached.
Backbone /Riser Closet - See Riser Telecommunications
Closet.
Backbone /Riser Subsystem - A subsystem which contains the
primary circuit that connects satellite closets to main
administration points in the equipment room.
Building Distribution Frame (BDF) - A term for: where
campus backbone cable enters a building and is terminated, where
a riser backbone cable starts to be terminated on floors above,
or a station termination point.
Building Entrance Area - The area inside a building where
cables enter and are connected to riser backbone cables and where
electrical protection is provided. The network interface, as
well as the protectors and other distribution components for the
Campus Backbone Subsystem, may be located here.
Campus Backbone Cable - The communications cable that is
part of the Campus Backbone Subsystem and runs between buildings.
There are four methods of installing campus backbone cable: in-
conduit (in underground conduits), direct-buried (in trenches),
aerial (on poles), and in-tunnel (in steam tunnels).
Campus Cable Entrance - The point at which Campus Backbone
Subsystem cabling (aerial, direct-buried, or underground) enters
a building.
Central Offices - The central switching facilities of the
local exchange carriers.
Ceiling Distribution System - Distribution systems that use
the space between a suspended or false ceiling and the structural
floor of the story above for housing cable. Methods include
zone, poke-though, conduit, and raceway.
Cellular Floor Method - A floor distribution method in which
<PAGE>
cables pass through floor cells, constructed of steel or
concrete, that provide a ready-made raceway for distributing
power and communications cables.
Center Office Local Area Network (COLAN) - A LAN data
switching system typically located at the local telephone
company's central office and used for providing advanced features
or services to customers.
Circuit - A two way communication path between electronic
devices.
Closet - Location for hardware, conduits, power panels, and
electronic, such as multiplexes and concentrators.
Collocation - The ability of a CAP to connect its network to
the local exchange carrier's central office. Physical
collocation occurs when a CAP places its network connection
equipment inside the LEC's central offices. Virtual collocation,
an alternative to physical collocation, exists when the LEC
allows a CAP to connect its network to the LEC's central offices
at competitive prices, even though the CAP's network connection
equipment is not physically located inside the central offices.
Competitive Access Provider (CAP) - A company that provides
private line local transport and special access telecommunication
services, as an alternative to the local exchange carrier.
Composite Cable - A cable construction technique that
combines multiple cables or media in a single overjacket.
Conduit - A pipe, usually metal, that runs underground, from
floor to floor, or along a floor or ceiling to protect cables.
In the Riser Backbone Subsystem, when riser telecommunications
closets are not aligned, conduit is used to protect cable and
provide the means for pulling cable from floor to floor. In the
Horizontal Subsystem, conduit may be used between a
telecommunications closet and information outlet in an office or
other room. Conduit is also used for in-conduit campus
distribution, where it is run underground between buildings and
intermediate manholes and is made of plastic encased in concrete
Multiduct, clay-tile conduit may also be used.
Cross Connect - A component where communication circuits are
administered (that is, added or rearranged using jumper wire or
patch cords). In 110 Connector Systems, CCW-F Hook-Up Wire or
patch cords are used to make circuit connections. In fiber optic
connectors systems, fiber optic patch cords are used. The cross
connect is located in an equipment room or telecommunication
closet.
Cross Connect Field - Copper wire or fiber terminations
grouped to provide cross-connect capability. The groups are
identified by color-coded sections of backboards mounted on the
wall in equipment rooms or telecommunications closets, or by
designation strips or labels placed on the wiring block or unit.
The color coding identifies the type of circuit that terminates
at the field.
Data Circuit - IBM refers to the multistation access unit's
(MAU's) port connector as a "data connector." Also called media
interface connector (MIC).
Dedicated Lines - Telecommunication lines used exclusively
for use by particular customers along predetermined routes.
<PAGE>
Digital - A method of storing, processing and transmitting
data through the use of electronic or optical pulses that
represent the binary digits 0 and 1. Digital transmission and
switching technologies utilize a sequence of electronic pulses to
represent information as opposed to a continuous analog signal.
Diverse Routing - A network configuration in which signals
are carried simultaneously along two separate paths so that in
the event a cable is cut, communications traffic can continue
uninterrupted, along the second path, to its ultimate
destination.
DS-0, DS-1, DS-3 - Standard telecommunications industry
digital signal formats, distinguishable by bit rate. DS-0
service has a bit rate of 64 kilobits per second. DS-1 service
has a bit rate of 1.544 megabits per second and DS-3 service has
a bit rate of 45 megabits per second.
Ducts - The main feeder channels in which communication
cable is routed between buildings in a campus environment. See
also Campus Backbone Cable.
Equipment Room - The room in which voice and data common
equipment is housed, protected, and maintained, and where circuit
administration is done using the trunk and distribution cross
connects.
Equipment Subsystem - A subsystem that connects the systems
common equipment to the administration subsystem in the equipment
room.
Fault Management - One of five categories of network
management defined by the International Standards Organization
(ISO). Detects, isolates, and corrects network faults.
Fault Tolerance - The ability of a system to perform fault
management and continue operating in the event of system
failures.
FCC - Federal Communications Commission, a United States
governmental agency which regulates the national
telecommunications industry.
Fiber mile - The number of route miles installed along a
telecommunications network, multiplied by the number of fibers
along that path. See "Route mile".
Fiber Optic building Cable - A fiber optic cable in which
individual optical fibers are stranded around central members.
For indoor use.
Fiber Optic Cable - A transmission medium consisting of a
core of glass or plastic surrounded by a protective cladding,
strengthening material, and outer jacket. Signals are
transmitted as light pulses, introduced into the fiber by a light
transmitter (either a laser or light-emitting diode). Some of
the advantages offered by fiber optic cable are low data loss,
high-speed transmission, large bandwidth, small physical size,
light weight, and freedom from electromagnetic interference and
grounding problems. Fiber common types are single, dual, quad,
LIGHTPACK, and ribbon.
<PAGE>
Fiber Optic Cross Connection - Fiber optic apparatus for
terminating cable in couplings. Designed for high-density cross-
connections fields, the apparatus can terminated up to 72 fibers
on each shelf, with up to nine shelves in a bay frame. Single
shelves can also be wall mounted. Cross connections are handled
with fiber optic patch cords.
Fiber Optic interconnect - An interconnection unit used for
circuit administration and built from modular cabinets. It
provides interconnection for individual optical fibers but,
unlike the fiber optic cross-connect panel, it does not use patch
cords or jumpers. The fiber optic interconnect provides some
capability for routing and rerouting circuits, but is usually
used where circuit rearrangements are infrequent.
File Server - A computer that stores data centrally for
network users and manages access to that data. File servers can
be dedicated so that no processes other than network management
can be executed while the network is available, or non-dedicated
so that standard user applications can be run while the network
is available.
Frame - A metallic structure for hanging switch hardware.
Gateway - A device connecting two or more networks that may
use different protocols and media. Gateways can connect locally
or over wide areas.
Horizontal Subsystem - The part of a premises distribution
system installed on one floor that includes the cabling and
distribution components connecting the Riser Backbone Subsystem
to the information outlet via cross-connect components of the
Administration Subsystem.
Information Outlet (IO) - A connecting device designed for a
fixed location (usually a wall or floor in an office) on which
horizontal cable pairs terminate and which receives an inserted
plug. It is an administration point located between the
Horizontal Subsystem and the Work Area Subsystem. Although such
devises are also referred to as "phone jacks" the term
"information outlet" encompasses the integration of voice, data,
and other communication services that can be supported via
premises distribution system.
Inside Wire - Telecommunication wiring not maintained by the
local exchange carrier.
Interconnection Decisions - Rulings announced by the FCC in
September of 1992, which required the Bell operating companies
and other local exchange carriers to provide interconnection in
local exchange carrier's central offices to any CAP, long
distance carrier or end user seeking interconnection to provide
interstate special access services. The decisions also propose
similar interconnection and price unbundling for switched access
services.
Jumper Wire - A short length of connected copper wire used
to route a circuit by linking two cross-connect termination
points.
Long distance carriers - Providers of telecommunications
services between local exchanges on an interstate or intrastate
basis.
Local exchange - A geographic area, determined by the
state's telecommunications regulatory authority, within which
calls are transmitted without toll charges to the calling or
called party.
<PAGE>
Local Exchange Carrier (LEC) - A company providing local
telephone services.
Multiplexing - An electronic or optic process that creates a
high speed line through the aggregation several lower speed
transmission lines. This is accomplished by frequency division -
splitting the total available bandwidth into narrower bands, or
time division - allotting a common channel to several different
transmitting devices one at a time in sequence.
Network - A group or system of electrical components
connected to function in a specific way.
Network Interface - The point of interconnection between
building communications wiring and outside communications lines
(telephone company facilities).
Network Systems Integration - The process by which a turnkey
telecommunications network is created including: (i) route and
site selection and obtaining rights of way and legal
authorizations to install the network; (ii) design and
engineering of the system; and (iii) project and construction
management.
PBX (Private Branch Exchange) - A private switching system
usually serving an organization, such as a business or government
agency, and located on the customer's premises. It switches
calls both inside a building or premises and outside to the
telephone network, and can sometimes also provide access to a
computer from a data terminal.
Points of Presence - Locations where a long distance carrier
has installed transmission equipment in a service area that
serves as, or relays calls to, a network switching center of that
long distance carrier.
Port - The cable terminations in the equipment system at
which various types of communication devices, switching
equipment, and other devices are connected to the transmission
network.
Premises Distribution System - The transmission network
inside a building or group of buildings that connects various
types of voice and data communication devises, switching
equipment, and information management systems together, as well
as to outside communication networks. It includes the cabling
and distribution hardware components and facilities between the
point where building wiring connects to the outside network
lines, back to the voice and data terminals in the office or
other work location. The system consists of all the transmission
media and electronics, administration points, connectors,
adapters, plugs, and support hardware between the building's side
of the network interface and the terminal equipment required to
make the system operational.
Primary Ring - One of two rings of the dual counter-rotating
ring architecture. This ring is designated as the "primary ring"
because it is the default ring that single media access control
(SMAC) stations connect to unless instructed to do otherwise.
Private Line - A private, dedicated telecommunications
connection between different locations.
<PAGE>
Public switched network - The segment of a LEC's network
available to all network users on a non-dedicated basis. Traffic
along this segment of the network is switched at the LEC's
central offices.
Public Utility Commission (PUC) - A state regulatory agency
that regulates utilities, including telephone companies providing
intrastate service.
Rack - A vertical or horizontal open support, usually made
of aluminum or steel, that is attached to a ceiling or wall.
Cables are laid in and fastened to the rack.
Requirements Survey - The systematic study of a building or
campus of buildings to determine the needs for voice and data
telecommunications equipment and distribution media.
Riser Backbone Subsystem - The part of a premises
distribution system that includes a main cable route and
structure for supporting the cable from an equipment room (often
in the building basement) to the upper floors, or along the same
floor, where it is terminated on a cross connect in a riser
telecommunications closet, at the network interface, or at
distribution components of the Campus Backbone Subsystem. The
Riser Backbone Subsystem usually extends from an equipment
building, or along the same floor in a low-wide building. It is
terminated on a cross connect in riser telecommunications closet,
at the network interface, or on the distribution components of
the Campus Backbone Subsystem.
Riser Telecommunication Closet - The closet where riser
backbone cable is terminated and cross connected to either
horizontal cable or to other riser backbone cable. The riser
telecommunications closet houses cross-connect facilities, and
may contain auxiliary power supplies for terminal equipment
located at the user work area.
Route mile - The number of miles of the telecommunications
path in which fiber optic cables are installed.
Secondary Ring - One of the two rings of the dual counter-
rotating ring architecture. Designated the "secondary" ring
because single-medial access control (SMAC) stations connect in
the default mode to the primary ring. The secondary ring is used
for data transport by dual-media access control (DMAC) stations,
SMAC stations command to move to the secondary ring, or in the
case of ring wrap, by all stations.
Service Entrance - See Campus Cable Entrance.
Special access services - The lease of private, dedicated
telecommunications lines along the network of a LEC or a CAP,
which lines or circuits run to or from the long distance carrier
POPs. Typical special access services include telecommunications
lines running: (i) between POPs of a single long distance
carrier; (ii) from one long distance carrier POP to the POP of
another long distance carrier; or (iii) from an end user to its
long distance carrier POP. Special access services do not
require the use of switches.
Switch - A network device that opens or closes circuits or
selects circuits or paths to be used for the transmission of
data. Switching is a process of connecting circuits from a
transmission path between users.
<PAGE>
Switched traffic - Telecommunications traffic along the
public switched network. The traffic is switched at the LEC's
central offices.
Telecommunications - The transmission and receptions of
radio, electrical or optical signals over a network for the
purpose of communication between two or more points.
Telecommunications Closet - A room where cables are
terminated on cross-connect fields, and where circuit
administration takes place. There are two kinds of
telecommunications closets: riser telecommunications closets and
satellite telecommunications closets.
Topology - The physical or electrical configuration of a
local communications network (that is, the shape or arrangement
of the system). The most common distribution system topologies
are the bus, ring and star.
<PAGE>
Twisted Pair - Two insulated copper wires twisted together.
The twists., or lays, are varied in length to reduce the
potential for signal interference between pairs. In cables
greater than 25 pairs, the twisted pairs are grouped and bound
together in a common sheath. Twisted pair is the most common
type of transmission media. Formerly referred to as Direct
Inside Wire (DIW)
Underground Distribution Method - The method of running
cable underground between buildings in campus by going thorough a
buried conduit call a dip.
<PAGE>
EXHIBIT "C"
AMENDMENT TO ARTICLES OF INCORPORATION
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
DESERT NATIVE DESIGNS, INC.
Pursuant to the applicable provisions of the Nevada Business
Corporations Act, Desert Native Designs, Inc. (the "Corporation")
adopts the following Articles of Amendment to its Articles of
Incorporation:
FIRST: The present name of the Corporation is Desert Native
Designs, Inc.
SECOND: The following amendment to its Articles of
Incorporation was adopted by the board of directors and by
majority consent of shareholders of the Corporation in the manner
prescribed by applicable law.
The Article entitled ARTICLE I - NAME, is amended to read as follows:
ARTICLE I - NAME
The name of the corporation shall be:
FiberNet Telecom Group, Inc.
THIRD: The Corporation has effectuated, effective with the
commencement of business on Tuesday, November 25, 1997, a 3.5 for
1 forward stock split as to its shares of common stock
outstanding as of November 21, 1997, which increases the
outstanding shares as of that date from 1,000,000 shares to
3,500,000 shares. The forward split shall not change the
authorized capital stock of the Corporation.
FOURTH: The number of shares of the Corporation outstanding
and entitled to vote at the time of the adoption of said
amendment was 1,000,000.
FIFTH: The number of shares voted for such amendments was
925,700 (92.6%) and no shares were voted against such amendment.
DATED this day of November, 1997.
DESERT NATIVE DESIGNS, INC.
By: _______________________________
Jody St. Clair, President/Secretary
<PAGE>
VERIFICATION
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
The undersigned being first duly sworn, deposes and states:
that the undersigned is the President of Desert Native Designs,
Inc., that the undersigned has read the Certificate of Amendment
and knows the contents thereof and that the same contains a
truthful statement of the Amendment duly adopted by the board of
directors and stockholders of the Corporation.
________________________
Jody St. Clair, President
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
Before me the undersigned Notary Public in and for the said
County and State, personally appeared the President and Secretary
of Desert Native Designs, Inc., a Nevada corporation, and signed
the foregoing Articles of Amendment as their own free and
voluntary acts and deeds pursuant to a corporate resolution for
the uses and purposes set forth.
IN WITNESS WHEREOF, I have set my hand and seal this
day of November, 1997.
NOTARY PUBLIC
Notary Seal:
T65(a)amendart.dnd
<PAGE>
EXHIBIT "D"
CERTIFICATES OF DESIGNATION CREATING
SERIES A AND SERIES B PREFERRED STOCK
<PAGE>
CERTIFICATE OF DESIGNATION
OF
DESERT NATIVE DESIGNS, INC.
Pursuant to Section 78.1955 of the
General Corporation Law of the State of Nevada
SERIES A CONVERTIBLE CUMULATIVE PREFERRED STOCK
Desert Native Designs, Inc., a Nevada corporation (the
"Corporation"), hereby certifies that the following resolution
has been duly adopted by the Board of Directors of the
Corporation.
RESOLVED, that pursuant to the authority expressly granted
to and vested in the Board of Directors of the Corporation by the
provisions of its Articles of Incorporation (the "Articles of
Incorporation"), there is hereby created, out of the 5,000,000
shares of Preferred Stock, par value $0.001 per share, of the
Corporation authorized in Article IV of the Articles of
Incorporation (the "Preferred Stock"), a series of Preferred
Stock of the Corporation consisting of 1,000,000 shares, which
series shall have the following powers, designations, preferences
and relative, participating, optional and other rights, and the
following qualifications, limitations and restrictions:
1. Designation and Amount. This series of Preferred Stock
shall be designated "Series A Convertible Cumulative
Preferred Stock" and the authorized number of shares
constituting such series shall be 1,000,000. The par value
of the Series A Preferred Stock shall be $0.001 per share.
2. Dividends
(a) The holders of shares of Series A Preferred Stock
shall be entitled to receive, out of any assets at the time
legally available therefor and when, as and if declared by
the Board of Directors, cumulative dividends at the rate of
six percent (6%) per share per annum based on a liquidation
value of $5.125 per share, and no more, payable to holders
of record in cash, accruing, without interest thereon, from
the initial date of issuance, and first payable in arrears,
as soon as practicable after December 31, 1997, for the
period ending December 31, 1997, and thereafter for the
period ending December 31st of each year that any such
shares shall be outstanding. Such dividends on Series A
Preferred Stock are prior and in preference to any
declaration or payment of any distribution (as defined
below) on any other outstanding shares of preferred stock or
the common stock of this Corporation. Such dividends shall
accrue on each share of Series A Preferred Stock from day to
day from the date of initial issuance thereof whether or not
<PAGE>
earned or declared so that if such dividends with respect to
any previous dividend period at the rate provided for herein
have not been paid on, or declared and set apart for, all
shares of Series A Preferred Stock at the time outstanding,
the deficiency shall (without interest thereon) be fully
paid on, or declared and set apart for, such shares before
any distribution shall be paid on, or declared and set apart
for any other outstanding shares of preferred stock or
common stock.
(b) For purposes hereof, unless the context otherwise
requires, "distribution" shall mean the transfer of cash or
property without consideration, whether by way of dividend
or otherwise, payable upon shares of capital stock of the
Corporation other than in common stock, or the purchase or
redemption of shares of this Corporation (other than
conversions set forth in Paragraph 2 below or repurchases of
common stock held by employees or consultants of this
Corporation upon termination of their employment or services
pursuant to agreements providing for such repurchase) for
cash or property, including any such transfer, purchase or
redemption by a subsidiary of this Corporation.
3. Conversion
(a) At any time after the three (3) month
anniversary of the initial issuance of the Series A
Preferred Stock, the Corporation may, at the option of the
Board of Directors, convert all or part of the outstanding
shares of the Series A Preferred Stock at the conversion
rate set forth in subparagraph (c) below, provided that the
Corporation shall give written notice by mail, postage
prepaid, to the holders of such stock to be converted at
least ten (10) days prior to the date specified for
conversion (the "Conversion Date"). Such notice shall be
addressed to each such shareholder at the address of such
holder appearing on the books of the Corporation or given by
such holder to the Corporation for the purpose of notice, or
if no such address appears or is so given, at the place
where the principal office of the Corporation is located.
Such notice shall state the Conversion Date, the Conversion
Rate (as hereinafter defined), the number of shares of
Series A Preferred Stock of such holders, to be converted
and shall call upon such holder to surrender to the
Corporation on the Conversion Date at the place designated
in the notice such holder's converted stock. On or after
the Conversion Date, each holder of shares of Series A
Preferred Stock called for conversion shall surrender the
certificate evidencing such shares to the Corporation at the
place designated in such notice and shall thereupon be
entitled to receive shares of the Corporation's common stock
at the Conversion Rate. If less than all of the outstanding
shares of Series A Preferred Stock, treated as one class,
are to be converted, then the Corporation shall convert a
pro rata portion from each holder of such stock according to
the respective number of shares of such stock held by such
holder.
<PAGE>
(b) At any time, on or after the three (3) month
anniversary of the initial issuance of the Series A
Preferred Stock, the holders of the outstanding shares of
Series A Preferred Stock may, at their option, convert all
or part of the outstanding shares of the Series A Preferred
Stock at the Conversion Rate set forth in subparagraph (c)
below, provided that the holders shall give written notice
by mail, postage prepaid, to the Corporation of such stock
to be converted at least ten (10) days prior to the
Conversion Date. Such notice shall state the Conversion
Date, the number of shares of Series A Preferred Stock of
such holders to be converted and the agreement of such
holders to surrender to the Corporation on the Conversion
Date at the Corporation's principal place of business or
such other place designated by the Corporation such holder's
conversion stock. On or after the Conversion Date, each
holder of shares of Series A Preferred Stock requesting
conversion shall surrender the certificate evidencing such
shares to the Corporation at the place designated by the
Corporation and shall thereupon be entitled to received
shares of common stock at the Conversion Rate.
(c) The Series A Preferred Stock shall be
converted at the rate of one share of the Corporation's
common stock for each share of Series A Preferred Stock. At
the time of conversion all accumulated and unpaid dividends
to the Conversion Date shall be paid in cash, or at the
option of the Corporation, in additional shares of its
Common Stock at fair market value.
(d) From and after the Conversion Date the
holders of the shares of the Series A Preferred Stock called
for conversion shall cease to have any rights as Series A
Preferred stockholders of the Corporation.
(e) There shall be no conversion of any shares of
Preferred Stock of the Corporation where such action would
be in violation of applicable law.
(f) The shares of the Corporation's common stock
issued in the conversion of Series A Preferred stock shall
be restricted stock issued pursuant to an exemption from
registration under the Securities Act of 1933. The
recipient of said common stock shall make such
representations as are required by the Corporation so as to
qualify for said exemptions from registration.
(g) The Corporation undertakes, upon request of
at least a majority of the holders of the common stock
issued upon conversion of at lease one-half of the Series A
Preferred Stock, as soon as practicable thereafter, to use
its best efforts to prepare and file a registration
statement under the Securities Act of 1933 (the "Act") to
register resale of said shares of common stock and to pursue
the same with diligence to effectiveness. All costs and
expenses associated with the preparation, filing and
completion of such registration statement (other than
brokers' commissions) shall be borne by the Company. The
<PAGE>
Company will also use its best efforts to qualify the shares
for sale in various state as required by applicable law.
(h) The number of shares of common stock issuable
upon conversion of the Series A Preferred Stock shall be
adjusted to reflect an equivalent number of shares, as
required, to reflect any stock split or similar
recapitalization of the Corporation's outstanding common
stock.
(i) The Corporation shall reserve and shall have
at all times available the shares of common stock issuable
upon conversion of the Series A Preferred Stock.
4. Preferences on Liquidation
(a) Subject to Paragraph 8 below, in the event of
any voluntary or involuntary liquidation, dissolution, or
winding up of the Corporation, the holders of shares of the
Series A Preferred Stock then outstanding, shall be entitled
to be paid, out of the assets of the Corporation available
for distribution to its stockholders, whether from capital,
surplus or earnings, before any payment shall be made in
respect of the Corporation's common stock, an amount equal
to $5.125 per share, plus all accrued and unpaid dividends
thereon to the date fixed for distribution. After setting
apart or paying in full the preferential amounts due the
holders of the Series A Preferred Stock, the remaining
assets of the Corporation available for distribution to
stockholders, if any, shall be distributed exclusively to
the holders of common stock, each such issued and
outstanding share of common stock entitling the holder
thereof to receive an equal proportion of said remaining
assets. If upon liquidation, dissolution, or winding up of
the Corporation, the assets of the Corporation available for
distribution to its shareholders shall be insufficient to
pay the holders of the Series A Preferred Stock the full
amounts to which they respectively shall be entitled, the
holders of such stock shall share ratably in any
distribution of assets according to the respective amounts
which would be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with
respect to said shares were paid in full.
(b) In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation,
the Corporation shall, within ten (10) days after the date
the Board of Directors approves such action, or within
twenty (20) days prior to any shareholder's meeting called
to approve such action, or within twenty (20) days after the
commencement of any involuntary proceeding, whichever is
earlier, give each holder of shares of Series A Preferred
Stock initial written notice of the proposed action. Such
initial written notice shall describe the material terms and
conditions of such proposed action, including a description
of the stock, cash, and property to be received by the
holders of shares of Series A Preferred Stock upon
<PAGE>
consummation of the proposed action and the date of delivery
thereof. If any material change in the facts set forth in
the initial notice shall occur, the Corporation shall
promptly give written notice to each holder of shares of
Series A Preferred Stock of such material change. The
Corporation shall not consummate any voluntary or involun
tary liquidation, dissolution, or winding up of the
Corporation before the expiration of twenty (20) days after
the mailing of the initial notice or ten (10) days after the
mailing of any subsequent written notice, whichever is
later; provided that any such twenty-day or ten-day period
may be shortened upon the written consent of the holders of
a majority of the outstanding shares of Series A Preferred
Stock.
(c) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation
which will involve the distribution of assets other than
cash, the Corporation shall promptly engage competent
independent appraisers to determine the value of the assets
to be distributed to the holders of shares of Series A Pre
ferred Stock and the holders of shares of common stock (it
being understood that with respect to the valuation of
securities, the Corporation shall engage such appraiser as
shall be approved by the holders of a majority of shares of
the Corporation's outstanding Series A Preferred Stock).
The Corporation shall, upon receipt of such appraiser s
valuation, give prompt written notice to each holder of
shares of Series A Preferred Stock of the appraiser's
valuation.
5. Voting Rights
The holders of Series A Preferred Stock shall be entitled to
one vote per share of Series A Preferred Stock outstanding as to
all matters upon which shareholders of common stock are entitled
to vote.
6. Preemptive Rights.
The Series A Preferred Stock is not entitled to any
preemptive or subscription rights in respect of any securities
of the Corporation.
7. Status
In case any outstanding shares of Series A Preferred Stock
shall be converted, the shares so converted shall be deemed to be
permanently canceled and shall not resume the status of
authorized but unissued shares of Series A Preferred Stock.
8. Ranking: Changes Affecting Series A
(a) The Series A Preferred Stock shall, with
respect to dividend rights and rights on liquidation,
winding up and dissolution, rank senior to any of the
<PAGE>
Corporation's common stock and any other class or series of
stock of the Corporation. The approval of the holders of a
majority of the issued and outstanding shares of Series A
Preferred Stock shall be required for the authorization or
issuance of any shares of any class or series of stock of
the Company, which is proposed to rank senior or on a parity
with the Series A Preferred Stock.
(b) So long as any shares of Series A Preferred
Stock are outstanding, the Corporation shall not (i) alter
or change any of the powers, preferences, privileges, or
rights of the Series A Preferred Stock; or (ii) amend the
provisions of this paragraph (8); or (iii) create any new
class or series of shares having preferences prior to or
being on a parity with the Series A Preferred Stock as to
dividends or liquidations; in each case, without first
obtaining the approval by vote or written consent, in the
manner provided by law, of the holders of at least a
majority of the total number of outstanding shares of the
Series A Preferred Stock, as to changes affecting the Series
A Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Designation to be signed by its President and
Secretary this day of , 1997.
DESERT NATIVE DESIGNS, INC.
By: ________________________
Jody St. Clair, President
and Secretary
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
On this day of , 1997, personally appeared
before me Jody St. Clair, President/Secretary of Desert Native
Designs, Inc., the signer of the foregoing instrument, whose
identity is personally known to me or proven on the basis of
satisfactory evidence, who duly acknowledged to me that she
voluntarily signed the document for its stated purpose on behalf
of said corporation.
_____________________ ________________________
Official Seal Notary Public
T65certdesg.dnd
<PAGE>
CERTIFICATE OF DESIGNATION
OF
DESERT NATIVE DESIGNS, INC.
Pursuant to Section 78.1955 of the
General Corporation Law of the State of Nevada
SERIES B VOTING PREFERRED STOCK
Desert Native Designs, Inc., a Nevada corporation (the
"Corporation"), hereby certifies that the following resolution
has been duly adopted by the Board of Directors of the
Corporation.
RESOLVED, that pursuant to the authority expressly granted to
and vested in the Board of Directors of the Corporation by the
provisions of its Articles of Incorporation (the "Articles of
Incorporation"), there is hereby created, out of the 5,000,000
shares of Preferred Stock, par value $0.001 per share, of the
Corporation authorized in Article IV of the Articles of
Incorporation (the "Preferred Stock"), a series of Preferred
Stock of the Corporation consisting of 80,000 shares, which
series shall have the following powers, designations, preferences
and relative, participating, optional and other rights, and the
following qualifications, limitations and restrictions:
1. Designation and Amount. This series of Preferred Stock
shall be designated "Series B Voting Preferred Stock" and the
authorized number of shares constituting such series shall be
80,000. The par value of the Series B Preferred Stock shall be
$0.001 per share.
2. Dividends. The holders of Series B Voting Preferred Stock
shall participate on an equal basis with holders of the
Corporation's common stock as though each outstanding share of
Series B Voting Preferred Stock was one share of outstanding
common stock.
3. Preferences on Liquidation
(a) In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation, the
holders of shares of the Series B Voting Preferred Stock then
outstanding, shall be entitled to be paid, out of the assets of
the Corporation available for distribution to its stockholders,
whether from capital, surplus or earnings, before any payment
shall be made in respect of the Corporation's common stock, but
after payment to holders of Series A Preferred Stock, an amount
equal to $1.00 per share. After setting apart or paying in
full the preferential amounts due the holders of the Series A
Preferred Stock and Series B Voting Preferred Stock, the
<PAGE>
remaining assets of the Corporation available for distribution
to stockholders, if any, shall be distributed exclusively to
the holders of common stock, each such issued and outstanding
share of common stock entitling the holder thereof to receive
an equal proportion of said remaining assets. If upon
liquidation, dissolution, or winding up of the Corporation, the
assets of the Corporation available for distribution to its
shareholders shall be insufficient to pay the holders of the
Series B Voting Preferred Stock the full amounts to which they
respectively shall be entitled, the holders of such stock shall
share ratably in any distribution of assets according to the
respective amounts which would be payable in respect of the
shares held by them upon such distribution if all amounts
payable on or with respect to said shares were paid in full.
(b) In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation, the
Corporation shall, within ten (10) days after the date the
Board of Directors approves such action, or within twenty (20)
days prior to any shareholder's meeting called to approve such
action, or within twenty (20) days after the commencement of
any involuntary proceeding, whichever is earlier, give each
holder of shares of Series B Voting Preferred Stock initial
written notice of the proposed action. Such initial written
notice shall describe the material terms and conditions of such
proposed action, including a description of the stock, cash,
and property to be received by the holders of shares of Series
B Voting Preferred Stock upon consummation of the proposed
action and the date of delivery thereof. If any material change
in the facts set forth in the initial notice shall occur, the
Corporation shall promptly give written notice to each holder
of shares of Series B Voting Preferred Stock of such material
change. The Corporation shall not consummate any voluntary or
involuntary liquidation, dissolution, or winding up of the
Corporation before the expiration of twenty (20) days after the
mailing of the initial notice or ten (10) days after the
mailing of any subsequent written notice, whichever is later;
provided that any such twenty-day or ten-day period may be
shortened upon the written consent of the holders of a majority
of the outstanding shares of Series B Voting Preferred Stock.
(c) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation which
will involve the distribution of assets other than cash, the
Corporation shall promptly engage competent independent
appraisers to determine the value of the assets to be
distributed to the holders of shares of Series B Voting Pre
ferred Stock and the holders of shares of common stock (it
being understood that with respect to the valuation of
securities, the Corporation shall engage such appraiser as
shall be approved by the holders of a majority of shares of the
Corporation's outstanding Series B Voting Preferred Stock).
The Corporation shall, upon receipt of such appraiser's
valuation, give prompt written notice to each holder of shares
of Series B Voting Preferred Stock of the appraiser's
valuation.
4. Voting Rights. Except as otherwise required by law each
outstanding share of Series B Voting Preferred Stock shall be
entitled to 100 votes to be voted at any annual or special
<PAGE>
meeting of shareholders of the Corporation or may act by written
consent of shareholders wherein the shares of Series B Voting
Preferred Stock shall be entitled to 100 votes per share entitled
to be voted or obtained on any matter.
5. Other Rights. The holders of the Series B Voting Preferred
Stock are not entitled to any preemptive or subscription rights
in respect of any securities of the Corporation and there are no
redemption, conversion or other rights relating to the Series B
Voting Preferred Stock.
6. Status. In case any outstanding shares of Series B Voting
Preferred Stock shall be retired for any reason, the shares so
retired shall be deemed to be permanently canceled and shall not
resume the status of authorized but unissued shares of Series B
Voting Preferred Stock.
7. Ranking. The Series B Voting Preferred Stock shall, with
respect to rights on liquidation, winding up and dissolution,
rank senior to any of the Corporation's common stock, and with
respect to dividend rights, be equivalent to the Corporation's
common stock.
8. Changes Affecting Series B. So long as any shares of
Series B Voting Preferred Stock are outstanding, the Corporation
shall not, without first obtaining the approval by vote or
written consent, in the manner provided by law, of the holders of
at least two-thirds of the shares of Series B Voting Stock
outstanding, to alter or change any of the powers, preferences,
privileges or rights of the Series B Voting Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Designation to be signed by its President and
Secretary this day of , 1997.
DESERT NATIVE DESIGNS, INC.
By: ________________________
Jody St. Clair, President
and Secretary
<PAGE>
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
On this day of , 1997, personally appeared
before me Jody St. Clair, President/Secretary of Desert Native
Designs, Inc., the signer of the foregoing instrument, whose
identity is personally known to me or proven on the basis of
satisfactory evidence, who duly acknowledged to me that she
voluntarily signed the document for its stated purpose on behalf
of said corporation.
______________ ___________________
Official Seal Notary Public
T65certdesb.dnd
<PAGE>
