<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED March 31, 1997
COMMISSION FILE NUMBER 000-21043
PACIFIC GATEWAY EXCHANGE, INC.
------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3134065
(State of Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification Number)
533 Airport Blvd, Suite 505, Burlingame, California, 94010
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (415) 375 6700
--------------
None
----
(Former name, former address and
former fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of April 30, 1997, the number of the registrant's Common Shares of $.0001 par
value outstanding was 18,938,000.
<PAGE>
PACIFIC GATEWAY EXCHANGE, INC.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I - FINANCIAL INFORMATION:
Item 1: Financial Statements
Consolidated condensed balance sheets as of
March 31, 1997 and December 31, 1996 3
Consolidated condensed statements of operations
for the three-month periods ended
March 31, 1997 and 1996 4
Consolidated condensed statements of cash flows
for the three-month periods ended
March 31, 1997 and 1996 5
Notes to consolidated condensed financial statements 6
Item 2: Management's discussion and analysis
of financial condition and results
of operations 7
Part II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 11
</TABLE>
2
<PAGE>
Item 1. Financial Statements
PACIFIC GATEWAY EXCHANGE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 34,530 $ 45,563
Accounts receivable, net of allowance for doubtful accounts
of $2,429 in 1997 and $1,679 in 1996 29,370 25,145
Accounts receivable, related party 2,564 3,066
Prepaids 801 729
Deferred income tax 1,338 1,184
----------- -------------
Total current assets 68,603 75,687
Property and equipment, net 36,169 27,636
Deposits and other assets 648 493
----------- -------------
Total assets $ 105,420 $ 103,816
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 36,016 $ 36,472
Accrued liabilities 785 1,304
Income taxes payable 1,761 2,493
Other liabilities 338 367
Current portion of capitalized lease obligations 216 -
----------- -------------
Total current liabilities 39,116 40,636
Long-term portion of capitalized lease obligations 353 -
Deferred income tax 835 708
----------- -------------
Total liabilities 40,304 41,344
----------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value, authorized
1,000,000 shares, no shares issued - -
Common stock, $.0001 par value, authorized 25,000,000 shares,
issued 19,081,560 shares, outstanding 18,938,000 shares
in 1997 and issued 19,040,050 shares, outstanding 18,896,490
shares in 1996 2 2
Additional paid in capital 55,296 55,113
Retained earnings 10,218 7,757
Less cost of common stock held in treasury,
143,560 shares in 1996 400 400
----------- -------------
Total stockholders' equity 65,116 62,472
----------- -------------
Total liabilities and stockholders' equity $ 105,420 $ 103,816
=========== -------------
</TABLE>
See Accompanying Notes to Consolidated Condensed Financial Statements
3
<PAGE>
PACIFIC GATEWAY EXCHANGE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except net income per share)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------
1997 1996
------- -------
(Unaudited)
<S> <C> <C>
Revenues $47,524 $27,480
Revenues - related party 3,927 4,760
------- -------
Total revenues 51,451 32,240
Cost of long distance services 43,141 29,130
------- -------
Gross margin 8,310 3,110
Selling, general and administrative expenses 3,825 1,956
Depreciation 853 385
------- -------
Total operating expenses 4,678 2,341
------- -------
Operating income 3,632 769
Interest expense/(income) (488) 152
------- -------
Income before income taxes 4,120 617
Provision for income taxes 1,658 250
------- -------
Net income $ 2,462 $ 367
------- -------
Net income per share $ 0.13 $ 0.03
======= =======
Weighted average number of common shares
outstanding 19,537 14,300
------- -------
</TABLE>
See Accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
PACIFIC GATEWAY EXCHANGE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------
1997 1996
-------- -------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 2,462 $ 367
Adjustments to net income:
Depreciation 853 385
Bad debts provision 750 135
Changes in operating assets and liabilities:
Accounts receivable (4,975) (6,323)
Accounts receivable, related party 502 473
Notes and advances receivable - 176
Prepaid Expenses (72) -
Deferred tax asset (154) (30)
Deposits and other assets (155) (163)
Accounts payable (457) 8,419
Accrued liabilities (519) (53)
Other liabilities (29) 115
Deferred tax liability 127 -
Income taxes payable (732) (481)
-------- -------
Net cash provided by (used in) operating activities (2,399) 3,020
-------- -------
INVESTING ACTIVITIES:
Purchase of property and equipment (8,771) (4,121)
-------- -------
Net cash used in investing activities (8,771) (4,121)
-------- -------
FINANCING ACTIVITIES:
Borrowings on revolving lines of credit, related party - 3,000
Repayments on capital lease obligation (46) -
Options exercised 183 -
-------- -------
Net cash provided by financing activities 137 3,000
-------- -------
Net increase (decrease) in cash and cash equivalents (11,033) 1,899
Cash and cash equivalents at beginning of the period 45,563 1,792
-------- -------
Cash and cash equivalents at end of the period $ 34,530 $ 3,691
======== =======
</TABLE>
See Accompanying Notes to Consolidated Condensed Financial Statements
5
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) GENERAL
- -----------
The financial statements included herein are unaudited and have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and Securities Exchange Commission ("SEC") regulations. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the financial statements reflect all adjustments (of a normal and
recurring nature) which are necessary to present fairly the financial position,
results of operations and cash flows for the interim periods. These financial
statements should be read in conjunction with the annual report on Form 10-K of
Pacific Gateway Exchange, Inc. (the "Company" or "Pacific Gateway") for the year
ended December 31, 1996. The results for the three month periods ended March,
1997 and 1996, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997.
(2) ACCOUNTING FOR INTERNATIONAL LONG DISTANCE TRAFFIC
- -------------------------------------------------------
The Company has entered into operating agreements with 32 telecommunications
carriers in 25 different countries under which international long distance
traffic is both delivered and received. Under these agreements, the foreign
carriers are contractually obligated to adhere to the policy of the Federal
Communications Commission (the "FCC"), whereby traffic from the foreign country
is routed to international carriers, such as the Company, in the same proportion
as traffic carried into the country. Mutually exchanged traffic between the
Company and foreign carriers is settled through a formal settlement policy that
generally extends over a six-month period at an agreed upon rate. The Company
records the amount due to the foreign partner as an expense in the period the
traffic is delivered. Of the 32 agreements the Company had at March 31, 1997,
12 agreements provided that the company generally must wait up to six months
before it actually receives the proportional return traffic. For these
agreements, the Company recognizes a loss in the period in which it sells to a
customer because the amount due to the foreign partner generally exceeds the
amount the Company charges its customers. As a result, a significant increase
in traffic with one or more of the carriers with which the Company must wait up
to six months to receive return traffic may cause the Company to report a net
loss in the accounting period in which such increase occurred. Historically,
when the return traffic is received in the future period, the Company generally
realized a gross margin on the return traffic that, when combined with the prior
period loss on the outbound traffic, has resulted in a gross profit on the total
transaction. Although the Company can reasonably estimate the revenue it will
receive under the FCC's proportional share policy, there is no guarantee that
there will be traffic delivered back to the United States or what impact changes
in either future settlement rates or changes in foreign exchange rates will have
on net payments made and revenue received.
(3) LEASE COMMITMENTS
- ---------------------
The Company leases certain computer equipment under an agreement which is
classified as a capital lease. The lease has a term of three years with a
minimum purchase price at the end of the lease. Leased capital assets included
in property plant and equipment at March 31, 1997 are as follows (in thousands):
March 31, 1997
--------------
Computer equipment $610
Future minimum payments by year and in the aggregate consist of the following at
March 31, 1997 (in thousands):
Capital Leases
--------------
<TABLE>
<S> <C>
1997 $ 161
1998 216
1999 216
2000 8
-----
Total minimum lease payments 601
Less amounts representing interest (32)
------
Present value of net minimum payments 569
Less current portion 216
------
$ 353
======
</TABLE>
6
<PAGE>
(4) NEW ACCOUNTING PRONOUNCEMENTS
- ----------------------------------
In December, 1996, the FASB issued SFAS No. 128, "Earnings per Share," which is
effective for both the interim periods and annual periods ending after December
15, 1997. SFAS 128 establishes standards for computing and presenting earnings
per share (EPS). This statement replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. The Company does not expect the impact on the financial
statements to be material.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, including statements
regarding expected future revenue from delayed proportional return traffic from
foreign partners pursuant to certain operating agreements. Forward-looking
statements are statements other than historical information or statements of
current condition. Some forward looking statements may be identified by use of
such terms as "believes," "anticipates," "intends," or "expects." These
forward-looking statements relate to the plans objectives and expectations of
the Company for future operations. In light of the risks and uncertainties
inherent in all future projections, the inclusion of forward-looking statements
in this report should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be achieved. The
Company's revenues and results of operations are difficult to forecast and could
differ materially from those projected in the forward-looking statements as a
result of numerous factors including the following: (i) changes in international
settlement rates; (ii) changes in the ratios between outgoing and incoming
traffic; (iii) foreign currency fluctuations; (iv) termination of certain
operating agreements or inability to enter into additional operating agreements;
(v) inaccuracies in the Company's forecast of traffic growth; (vi) changes in or
developments under domestic or foreign laws, regulations, licensing requirements
or telecommunication standards; (vii) foreign political or economic instability;
(viii) changes in the availability of transmission facilities; (ix) loss of the
services of key officers, such as Howard A. Neckowitz, Chairman of the Board,
President and Chief Executive Officer or Gail E. Granton, Executive Vice
President, International Business Development and Secretary; (x) loss of a
customer which provides significant revenues to the Company; (xi) highly
competitive market conditions in the industry; or (xii) concentration of credit
risk. The foregoing review of the important factors should not be considered as
exhaustive; the Company undertakes no obligation to release publicly the results
of any future revisions it may make to forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The following table sets forth income statement data as a percentage of revenues
for the period indicated.
<TABLE>
<CAPTION>
Three months
Ended March 31,
--------------------------
1997 1996
-------- -------
<S> <C> <C>
Total revenues 100.0% 100.0%
Cost of long distance services 83.8% 90.4%
-------- -------
Gross margin 16.2% 9.6%
Selling, general and administrative expenses 7.4% 6.1%
Depreciation 1.7% 1.2%
-------- -------
Total operating expenses 9.1% 7.3%
-------- -------
Operating income 7.1% 2.4%
Interest expense <0.9%> 0.5%
-------- -------
Income before income taxes 8.0% 1.9%
Provision for income taxes 3.2% 0.8%
-------- -------
Net income 4.8% 1.1%
======== =======
</TABLE>
8
<PAGE>
Three months ended March 31, 1997 Compared to three months ended March 31, 1996
Revenues: Total revenues for the quarter ended March 31, 1997 increased 60% to
$51.5 million from $32.2 million for the quarter ended March 31, 1996. The
increase was primarily the result of both increased sales to existing customers,
due to an increase in the number of operating agreements to 32 at March 31, 1997
from 25 at March 31, 1996 and a increase in the number of wholesale carrier
customers to 78 at March 31, 1997 from 57 at March 31, 1996. As a result, total
minutes of use have increased 66% over the same quarter last year while the
average price per minute charged to customers has declined to 28 cents compared
to 30 cents last year. The change in the terminating country mix with different
rates per minute, the reduction in the rates received for the traffic
terminating in and transiting the United States and the increase in the
incidental United States domestic terminating traffic, are factors influencing
the average customer price per minute. During the quarter (as in all previous
quarters) Pacific Gateway sent more minutes out than it received under its
operating agreements. Because the same rate is charged by the foreign carrier
to terminate calls in their country as Pacific Gateway charges to terminate
calls in the United States, declining rates have an adverse effect on revenue
and estimated return traffic revenue backlog, but, as a result of sending more
calls out than the Company receives, declining rates improve the gross margin
received on the entire transaction of a minute delivered with such foreign
carriers.
Gross Margin: Gross margin increased 167% to $8.3 million for the quarter
ended March 31, 1997 from $3.1 million for the quarter ended March 31, 1996. As
a percentage of revenue, gross margin increased from 9.6% in the quarter ended
March 31, 1996 to 16.2% in the current quarter. This increase resulted from
savings derived from a reduction in the transit or resale rates on the routes in
which the Company does not have a direct operating agreement, a reduction in the
foreign access charges on the routes in which the Company has a direct
operating agreement and a reduction in the domestic termination rates in the
United States. These savings were offset by the effects of an increase in the
estimated return traffic revenue backlog which adversely effects the current
gross margin. The cost of long distance service increased to $43.1 million for
the quarter ended March 31, 1997 from $29.1 million for the quarter ended March
31, 1996. This increase in costs represents growth in outbound traffic on new
and existing routes in advance of receiving proportional return traffic,
resulting in an increase in the estimated delayed proportional return traffic
backlog amount at March 31, 1997.
Selling General and Administrative Expenses: As a percentage of revenues,
selling, general and administrative expenses increased from 6.1% in the first
quarter of 1996 to 7.4% in the first quarter of 1997 and the actual expenses
increased 96% to $3.8 million from $2.0 million. This increase was due
primarily to increased personnel and sales commission expenses. The increase in
personnel expenses was directly related to the increase in employees to 53 at
March 31, 1997 from 30 at March 31, 1996. The increase in sales commission
expenses was primarily due to increased revenues.
Depreciation: Depreciation increased 122% to $0.9 million in 1997 from $0.4
million in 1996. As a percentage of revenues, depreciation was 1.7% of revenue
for the quarter ended March 31, 1997 and 1.2% for the quarter ended March 31,
1996. The increase in the dollar amount was primarily due to depreciation of
additional transmission facilities acquired during 1996 and in the first quarter
of 1997.
Interest: The Company had interest income of $488 thousand for the quarter
ended March 31, 1997 compared to interest expense of $152 thousand for the
quarter ended March 31, 1996. This was due to the successful completion of the
initial public offering in July 1996 resulting in the Company having $34.5
million in cash or cash equivalents and no line of credit outstanding at March
31, 1997 compared to $3.7 million of cash and $8.4 million owing under the lines
of credit available to the Company at March 31, 1996.
Income Tax: Income taxes increased to $1.7 million from $0.3 million,
primarily due to increased operating income. The effective tax rate was 40% for
the quarter ended March 31, 1997 and 40.5% for the quarter ended March 31, 1996.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its rapid growth, including its capital expenditures,
through funds provided by operations and the funds from the public offering
completed in the third quarter of 1996. Due to the timing differences in the
international settlements, the Company's accounts receivable turnover varies
from its accounts payable turnover. The length of these turnovers is a function
of different timing requirements in the Company's agreements with foreign
partners. For example, the length of the Company's accounts payable turnover is
partially due to its accounts payable with foreign partners which generally have
180 day terms as a result of the six month lag in the international settlement
process.
Net cash used in operating activities was $2.4 million for the quarter ended
March 31, 1997 and the net cash provided by operating activities for the quarter
ended March 31, 1996 was $3.0 million. The decrease in the first quarter of
1997 was primarily a result of an increase in accounts receivable exceeded by an
increase in net income while the increase in the first quarter of 1996 was
primarily a result of an increase in net income and accounts payable which
exceeded the increase in accounts receivable.
Net cash used in investing activities was $8.8 million for the quarter ended
March 31, 1997 compared with $4.1 million for the quarter ended December 31,
1996. The expenditures in 1997 and 1996 were primarily for the acquisition of
partial ownership interests in international fiber optic cable transmission
systems and related equipment.
Net cash provided by financing activities was $0.1 million for the quarter ended
March 31, 1997 and $3.0 million for the quarter ended March 31, 1996. During the
first quarter of 1997 the Company utilized a supplier's attractive financing
terms for purchasing equipment and received payment for options that were
exercised.
The deficit in working capital excluding cash at March 31, 1997 is $5.0 million
compared to a deficit of $10.7 million at March 31, 1996. This is due to the
significant delay that occurs in both paying and receiving the actual cash for
the minutes sent and received from overseas. This is offset by the estimated
return traffic revenue backlog of $13.9 million at March 31, 1997 and $8.4
million at March 31, 1996.
At March 31, 1997, the Company had outstanding commitments of $18.3 million for
the acquisition of additional ownership in digital undersea fiber optic cables
and related network equipment. The Company believes that net proceeds from the
public offering in the third quarter of 1996, together with cash provided by
operating activities and other sources of liquidity, will be sufficient to meet
its outstanding capital commitments, current capital expenditures and working
capital needs through the end of 1997. However, the Company may raise
additional funds through an equity offering or other financing arrangements to
fund growth potential to the extent management identifies opportunities that are
beneficial for the Company.
OTHER OPERATING DATA
The information set forth below illustrates management's estimate of the amount
of revenue derived from the proportional delayed return traffic which certain
carriers are contractually obligated to provide to the Company within six months
of the Company delivering certain outbound calls. See Note 2 to the Notes to
the Financial Statements. The estimated delayed return traffic revenue is based
on the anticipated ratios between the outgoing and incoming traffic and
anticipated settlement rates. The information concerning estimated delayed
return traffic revenue backlog contains "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities
Exchange Act of 1934. The actual results and actual amounts of delayed return
traffic revenue could differ materially from the estimated amounts reflected
herein as a result of numerous factors, including, but not limited to, changes
in international settlement rates, changes in ratios between outgoing and
incoming traffic, foreign currency fluctuations, termination of certain
operating agreements and changes in US tax law.
10
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenues received in current period
from delayed return traffic(1) 4,882 1,260
Estimated delayed return traffic revenue 13,948 8,400 (5)
backlog at end of period(2)
Estimated delayed return traffic revenue
backlog at end of preceding period(3) 13,719 6,142
Increase in estimated revenues
from delayed return traffic(4) 229 2,258
</TABLE>
(1) Represents revenue recorded in the current period from certain of the
Company's operating agreements which require the Company to wait up to six
months to receive the return traffic. See Note 2 of the Financial
Statements.
(2) For the quarter ended March 31, 1996 the amount reflects the revenue
actually received by the Company from delayed return traffic for the six
months ended September 30, 1996. The amount as of March 31, 1997 reflects
management's estimate of the revenue to be received by the Company from
delayed return traffic during the six months ending September 30, 1997,
Such estimate being based on the anticipated ratios between outgoing and
incoming traffic, anticipated settlement rates and forecast foreign
exchange rates.
(3) To reflect the increase (decrease) in delayed return traffic revenue for
each respective period, the information presented reflects, for the purpose
of computing such increase/(decrease), the amount of the estimated return
traffic revenue for the preceding period. For example, the amount set
forth for the quarter ended March 31, 1997 is the amount of return traffic
revenue backlog for the period ending December 31, 1996.
(4) The increase in the amount of estimated delayed return traffic revenue
earned during the quarter ended March 31, 1997 and 1996, is (1) for the
period ending March 31, 1997, the difference between the amount of
estimated delayed return traffic revenue backlog at March 31, 1997 and
December 31, 1996 and (2) for the period ending March 31, 1996, the
difference between the amount of estimated delayed return traffic revenue
backlog at March 31, 1996 and December 31, 1995. The amount of the increase
reflects Management's estimate of such revenue earned in the particular six
month period, although not reported on the company's financial statements
until up to six months later, under the operating agreements which require
the company to wait up to six months before such revenue is actually
received pursuant to the contractual obligation of foreign carriers to
deliver such return traffic. Historically the company has realized an after
tax net margin of approximately 50% on the amount of such revenues when
these are received.
(5) At the end of each quarter, the Company determines the actual amount of
delayed return traffic revenue received for each preceding six month period
and uses this actual amount as the "estimated" return traffic backlog for
the period ending six months earlier. As a result, in each current quarter
and the immediately preceding quarter, the amounts represent estimates.
However, in the preceding comparison period, the delayed return backlog
represents the amount that the Company actually received in the ensuing six
months.
11
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended March 31, 1997.
The Exhibits filed as part of this report are listed below.
Exhibit No. Document Description
- ----------- --------------------
3. Amended and Restated Bylaws
4. Amended and Restated Bylaws
11. Computation of Per Share Earnings
21. Subsidiaries
27. Financial Data Schedule
12
<PAGE>
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.
PACIFIC GATEWAY EXCHANGE, INC.
Dated: May 15, 1997
By: /s/ Howard A Neckowitz
-----------------------
Howard A Neckowitz
President and CEO
(Authorized Signature)
By: /s/ Sandra Grey
----------------
Sandra Grey
Chief Financial Officer
(Principal Financial and Accounting Officer)
13
<PAGE>
EXHIBIT 3
AMENDED AND RESTATED BYLAWS
OF
PACIFIC GATEWAY EXCHANGE, INC.
<PAGE>
INDEX
Section Page
ARTICLE I
STOCKHOLDERS
<TABLE>
<S> <C> <C>
Section 1.1 Annual meeting........................................ 1
Section 1.2 Special Meetin........................................ 1
Section 1.3 Notice of Meetings.................................... 1
Section 1.4 Quorum................................................ 1
Section 1.5 Conduct of the Stockholders' Meeting.................. 2
Section 1.6 Conduct of Business................................... 2
Section 1.7 Notice of Stockholder Business........................ 2
Section 1.8 Proxies and Voting.................................... 2
Section 1.9 Stock List............................................ 3
Section 1.10 Stockholder Action by Written Consent................. 3
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office............................. 3
Section 2.2 Vacancies and Newly Created Directorships............. 3
Section 2.3 Removal............................................... 4
Section 2.4 Regular Meetings...................................... 4
Section 2.5 Special Meetings...................................... 4
Section 2.6 Quorum................................................ 4
Section 2.7 Participation in Meetings by Conference Telephone..... 4
Section 2.8 Conduct of Business................................... 4
Section 2.9 Powers................................................ 4
Section 2.10 Compensation of Directors............................. 5
Section 2.11 Nomination of Director Candidates..................... 5
ARTICLE III
COMMITTEES
Section 3.1 Committees of the Board of Directors................... 6
Section 3.2 Conduct of Business.................................... 6
ARTICLE IV
OFFICERS
Section 4.1 Generally.............................................. 6
Section 4.2 Chairman of the Board.................................. 6
Section 4.3 President.............................................. 6
Section 4.4 Vice President......................................... 6
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 4.5 Treasurer............................................... 7
Section 4.6 Secretary............................................... 7
Section 4.7 Delegation of Authority................................. 7
Section 4.8 Removal................................................. 7
Section 4.9 Action With Respect to Securities of
other Corporations...................................... 7
ARTICLE V
STOCK
Section 5.1 Certificates of Stock................................... 7
Section 5.2 Transfers of Stock...................................... 7
Section 5.3 Record Date............................................. 7
Section 5.4 Lost, Stolen or Destroyed Certificates.................. 7
Section 5.5 Regulations............................................. 8
ARTICLE VI
NOTICES
Section 6.1 Notices................................................. 8
Section 6.2 Waivers................................................. 8
ARTICLE VII
MISCELLANEOUS
Section 7.1 Facsimile Signatures..................................... 8
Section 7.2 Corporate Seal........................................... 8
Section 7.3 Reliance Upon Books, Reports and Records................. 8
Section 7.4 Fiscal Year.............................................. 8
Section 7.5 Time Periods............................................. 8
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 8.1 Right to Indemnification................................. 9
Section 8.2 Right of Claimant to Bring Suit.......................... 9
Section 8.3 Non-Exclusivity of Rights................................ 10
Section 8.4 Indemnification Contracts................................ 10
Section 8.5 Insurance................................................ 10
Section 8.6 Effect of Amendment...................................... 10
ARTICLE IX
AMENDMENTS
Section 9.1 Amendment of Bylaws...................................... 10
</TABLE>
<PAGE>
PACIFIC GATEWAY EXCHANGE, INC.
A DELAWARE CORPORATION
AMENDED AND RESTATED BYLAWS
ARTICLE I
---------
STOCKHOLDERS
------------
Section 1.1 Annual meeting. An annual meeting of the stockholders, for
----------- --------------
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall each year fix, which date shall be within thirteen subsequent to
the later of the date of incorporation or the last annual meeting of
stockholders.
Section 1.2 Special Meetings. Special meetings of the stockholders, for
----------- ----------------
any purpose or purposes prescribed in the notice of the meeting, may be called
only (i) by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there
exists any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption) or (ii) by the
holders of not less than 50% of all shares entitled to cast votes at the
meeting, voting together as a single class and shall be held at such place, on
such date, and at such time as they shall fix. Business transacted at special
meetings shall be confined to the purpose or purposes stated in the notice.
Section 1.3 Notice of Meetings. Written notice of the place, date, and
----------- ------------------
time of all meetings of the stockholders shall be given, not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or required by law (meaning, here and hereinafter, as requited
from time to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 1.4 Quorum. At any meeting of the stockholders, the holders of a
----------- ------
majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by the proxy, shall constitute a quorum for all purposes,
unless or except to the extent that the presence of a larger number may be
required by law.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date
or, time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.
1
<PAGE>
Section 1.5 Conduct of the Stockholders' Meeting. At every meeting of the
----------- ------------------------------------
stockholders, the Chairman, if there is such an officer, or if not, the
President of the Corporation, or in the absence the Vice President designated by
the President, or in the absence of such designation any Vice President, or in
the absence of the President or any Vice President, a chairman chosen by the
majority of the voting shares represented in person or by proxy, shall act as
Chairman. The Secretary of the Corporation or a person designated by the
Chairman shall act as Secretary of the meeting. Unless otherwise approved by
the Chairman, attendance at the stockholders' meeting is restricted to
stockholders of record, person authorized in accordance with Section 8 of these
---------- -------
Bylaws to act by proxy, and officers of the Corporation.
Section 1.6 Conduct of Business. The Chairman shall call the meeting to
----------- -------------------
order, establish the agenda, and conduct the business of the meeting in
accordance therewith or, at the Chairman's discretion, it may be conducted
otherwise in accordance with the wishes of the stockholders in attendance. The
date and time of the opening and closing of the polls for each matter upon which
the stockholders will vote at the meeting shall be announced at the meeting.
The chairman shall also conduct the meeting in an orderly manner, rule on
the precedence of and procedure on, motions and other procedural matters, and
exercise discretion with respect to such procedural matters with fairness and
good faith toward all those entitled to take part. The Chairman may impose
reasonable limits on the amount of time taken up at the meeting on discussion in
general or on remarks by any one stockholder. Should any person in attendance
become unruly or obstruct the meeting proceedings, the Chairman shall have the
power to have such person removed from participation. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at a meeting
except in accordance with the procedures set forth in this Section 1.6 and
Section 1.7, below. The Chairman of a meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 1.6 and
Section 1.7, and if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted.
Section 1.7 Notice of Stockholder Business. At an annual or special
----------- ------------------------------
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before a
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
properly brought before the meeting by or at the direction of the Board of
Directors, (c) properly brought before an annual meeting by a stockholder, or
(d) properly brought before a special meeting by a stockholder, but if, and only
if, the notice of a special meeting provides for business to be brought before
the meeting by stockholders. For business to be properly brought before a
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a stockholder
proposal to be presented at an annual meeting shall be received at the
Corporation's principal executive offices not less than 120 calendar days in
advance of the date that the Corporation's (or the Corporation's predecessor's)
proxy statement was released to stockholders in connection with the previous
year's annual meeting of stockholders, except that if no annual meeting was held
in the previous year or the date of the annual meeting has been changed by more
than 30 calendar days from the date contemplated at the time of the previous
year's proxy statement, or in the event of a special meeting, notice by the
stockholder to be timely must be received not later than the close of business
on the tenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure as made. A stockholder's notice to
the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual or special meeting (a) a brief description of the
business desired to be brought before the annual or special meeting and the
reasons for conducting such business at the special meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business.
Section 1.8 Proxies and Voting. At any meeting of the stockholders, every
----------- ------------------
stockholder entitled to vote
2
<PAGE>
may vote in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure established
for the meeting. No stockholder may authorize more than one proxy for his
shares.
Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his or her name on the record date for the meeting,
except as otherwise provided herein or required by law.
All voting, including on the election of directors but except where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast.
Section 1.9 Stock List. A complete list of stockholders entitled to vote
----------- ----------
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 1.10 Stockholder Action by Written Consent. Any action which may
------------ -------------------------------------
be taken at any annual or special meeting of stockholders may be taken without a
meeting and without prior notice, if a consent in writing, setting forth the
actions so taken, is signed by the holders of outstanding shares having not less
than the minimum number of votes which would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. All such consents shall be filed with the secretary of the
Corporation and shall be maintained in the corporate records. Prompt notice of
the taking of a corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
ARTICLE II
----------
BOARD OF DIRECTORS
------------------
Section 2.1 Number and Term of Office. The number of directors shall
----------- -------------------------
initially be five (5) and, thereafter, shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). All directors shall hold
office until the expiration of the term for they which elected and until their
respective successors are elected, except in the case of the death, resignation
or removal of any director.
Section 2.2 Vacancies and Newly Created Directorships. Newly created
----------- -----------------------------------------
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification or other causes (other than removal from office by
a vote of the
3
<PAGE>
stockholders) may be filled only by a majority vote of the directors then in
office, though less than a quorum, and directors so chosen shall hold office for
a term expiring at the next annual meeting of stockholders. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
Section 2.3 Removal. Subject to the rights of holders of any series of
----------- -------
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, with or without cause, but
only by the affirmative vote of the holders of at least a majority of the voting
power of all of the then outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class. Vacancies in the Board of Directors resulting from such removal
may be filled by a majority of the directors then in office, though less than a
quorum, or by the stockholders as provided in Article II, Section 2.2 above.
Directors so chosen shall hold office until the new annual meeting of
stockholders.
Section 2.4 Regular Meetings. Regular meetings of the Board of Directors
----------- ----------------
shall be held at such place or places, on such date or dates, and at such time
or times as shall have been established by the Board of Directors and publicized
among all directors. A notice of each regular meeting shall not be required.
Section 2.5 Special Meetings. Special meetings of the Board of Directors
----------- ----------------
may be called by one-third of the directors then in office (rounded up to the
nearest whole number) or by the chief executive officer and shall be held at
such place, on such date, and at such time as they or he or she shall fix.
Notice of the place, date, and time of each such special meeting shall be given
each director by whom it is not waived by mailing written notice not fewer than
five (5) days before the meeting or by telegraphing or personally delivering the
same not fewer than twenty-four (24) hours before the meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at a
special meeting.
Section 2.6 Quorum. At any meeting of the Board of Directors, a majority
----------- ------
of the total number of authorized directors shall constitute a quorum for all
purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 2.7 Participation in Meetings by Conference Telephone. Members of
----------- -------------------------------------------------
the Board of Directors, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence in
person at such meeting.
Section 2.8 Conduct of Business. At any meeting of the Board of Directors,
----------- -------------------
business shall be transacted in such order and manner as the Board may from time
to time determine, and all matters shall be determined by the vote of a majority
of the directors present, except as otherwise provided herein or requited by
law. Action may be taken by the Board of Directors without a meeting if all
members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors.
Section 2.9 Powers. The Board of Directors may, except as otherwise
----------- ------
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or privileges on
such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it may
determine, of written obligations of every kind, negotiable or non-negotiable,
secured or unsecured, and to do all things necessary in connection therewith;
4
<PAGE>
(4) To remove any officer of the Corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon any other
person for the time being;
(5) To confer upon any officer of the Corporation the power to appoint,
remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase, bonus or
other compensation plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers,
employees and agents of the Corporation and its subsidiaries as it may
determine; and
(8) To adopt from time to time regulations, not inconsistent with these
bylaws, for the management of the Corporation's business and affairs.
Section 2.10 Compensation of Directors. Directors, as such, may receive,
------------ -------------------------
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as directors, including, without limitation,
their services as members of committees of the Board of Directors.
Section 2.11 Nomination of Director Candidates. Subject to the rights of
------------ ---------------------------------
holders of any class or series of Preferred Stock then outstanding, nominations
for the election of Directors may be made by the Board of Directors or a proxy
committee appointed by the Board of Directors or by any stockholder entitled to
vote in the election of Directors generally. However, any stockholder entitled
to vote in the election of Directors generally may nominate one or more persons
for election as Directors at a meeting only if timely notice of such
stockholder's intent to make such nomination or nominations has been given in
writing to the Secretary of the Corporation. To be timely, a stockholder
nomination for a director to be elected at an annual meeting shall be received
at the Corporation's principal executive offices not less than 120 calendar days
in advance of the date that the Corporation's (or the Corporation's
Predecessor's) Proxy statement was released to stockholders in connection with
the previous year's annual meeting of stockholders, except that if no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than 30 calendar days from the date contemplated at the time of
the previous year's proxy statement, or in the event of a nomination for
director to be elected at a special meeting, notice by the stockholders to be
timely must be received not later than the close of business on the tenth day
following the day on which such notice of the date of the special meeting was
mailed or such public disclosure was made. Each such notice shall set forth:
(a) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
for the election of Directors on the date of such notice and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (d) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission, had the nominee be nominated, or intended to be nominated, by the
Board of Directors; and (e) the consent of each nominee to serve as a director
of the Corporation if so elected.
In the event that a person is validly designated as a nominee in accordance
with this Section 2.11 and shall thereafter become unable or unwilling to stand
for election to the Board of Directors, the Board of Directors or the
stockholder who proposed such nominee, as the case may be, may designate a
substitute nominee upon delivery, not fewer than five days prior to the date of
the meeting for the election of such nominee, of a written notice to the
Secretary setting forth such information regarding such substitute nominee as
would have been required to be delivered to the Secretary pursuant to this
Section 2.11 had such substitute nominee been initially proposed as a nominee.
Such notice shall include a signed consent to serve as a director of the
Corporation, if elected, of each such substitute nominee.
If the chairman of the meeting for the election of Directors determines
that a nomination of any
5
<PAGE>
candidate for election as a Director at such meeting
was not made in accordance with the applicable provisions of this Section 2.11,
such nomination shall be void; provided, however, that nothing in this Section
2.11 shall be deemed to limit any voting rights upon the occurrence of dividend
arrearage provided to holders of Preferred Stock pursuant to the Preferred Stock
designation for any series of Preferred Stock.
ARTICLE III
-----------
COMMITTEES
----------
Section 3.1 Committees of the Board of Directors. The Board of Directors,
----------- ------------------------------------
by a vote of a majority of the whole Board, may from time to time designate
committees of the Board, with such lawfully delegable powers and duties as it
thereby confers, to serve at the pleasure of the Board and shall, for those
committees and any others provided for herein, elect a director or directors to
serve as the member or members, designating, if it desires, other directors as
alternate members who may replace any absent or disqualified member at any
meeting of the committee. Any committee so designated may exercise the power
and authority of the Board of Directors to declare a dividend, to authorize the
issuance of stock or to adopt a certificate of ownership and merger pursuant to
Section 253 of the Delaware General Corporation Law if the resolution which
designates the committee or a supplemental resolution of the Board of Directors
shall so provide. In the absence or disqualification of any member of any
committee and any alternate member in his place, the member or members of the
committee present at the meeting and not disqualified from voting, whether or
not he or she or they constitute a quorum, may by unanimous vote appoint another
member of the Board of Directors to act at the meeting in the place of the
absent or disqualified member.
Section 3.2 Conduct of Business. Each nominee may determine the procedural
----------- -------------------
rules for meeting and conducting its business and shall act in accordance
therewith, except as otherwise provided herein or required by law. Adequate
provision shall be made for notice to members of all meetings; one-third of the
authorized members shall constitute a quorum unless the committee shall consist
of one or two members, in which event one member shall constitute a quorum; and
all matters shall be determined by a majority vote of the members present.
Action may be taken by any committee without a meeting if all members thereof
consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of such committee.
ARTICLE IV
----------
OFFICERS
--------
Section 4.1 Generally. The officers of the Corporation shall consist of a
----------- ---------
President, one or more Vice Presidents, a Secretary and a Treasurer. The
Corporation may also have, at the discretion of the Board of Directors, a
Chairman of the Board and such other officers as may from time to time be
appointed by the Board of Directors. Officers shall be elected by the Board of
Directors, which shall consider that subject at its first meeting after every
annual meeting of stockholders. Each officer shall hold office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal. The Chairman of the Board, if there shall be such an officer, and the
President shall each be members of the Board of Directors. Any number of
offices may be held by the same person.
Section 4.2 Chairman of the Board. The Chairman of the Board, if there
----------- ---------------------
shall be such an officer, shall, if present, preside at all meetings of the
Board of Directors, and exercise and perform such other powers and duties as may
be from time to time assigned to him by the Board of Directors or prescribed by
these bylaws.
Section 4.3 President. The President shall be the chief executive officer
----------- ---------
of the Corporation. Subject to the provisions of these bylaws and to the
direction of the Board of Directors, he or she shall have the responsibility for
the general management and control of the business and affairs of the
Corporation and shall
6
<PAGE>
perform all duties and have all powers which are commonly incident to the office
of chief executive or which been delegated to him or her by the Board of
Directors. He or she shall have power to sign all stock certificates, contracts
and other instruments of the Corporation which are authorized and shall have
general supervision and direction of all of the other officers, employees and
agents of the Corporation.
Section 4.4 Vice President. Each Vice President shall have such powers
----------- --------------
and duties as may be delegated to him or her by the Board of Directors. One
Vice President shall be designated by the Board to perform the duties and
exercise the powers of the President in the event of the President's absence or
disability.
Section 4.5 Treasurer. Unless otherwise designated by the board of
----------- ---------
Directors, the Chief Financial Officer of the Corporation shall be the
Treasurer. The Treasurer shall have the responsibility for maintaining the
financial records of the Corporation and shall have custody of all monies and
securities of the Corporation. He or she shall
make such disbursements of the funds of the Corporation as are authorized and
shall render from time to time an account of all such transactions and of the
financial condition of the Corporation. The Treasurer shall also perform such
other duties as the Board of Directors may from time to time prescribe.
Section 4.6 Secretary. The Secretary shall issue all authorized notices
----------- ---------
for, and shall keep, or cause to be kept, minutes of all meetings of the
stockholders, the Board of Directors, and all committees of the Board of
Directors. He or she shall have charge of the corporate books and shall perform
such other duties as the Board of Directors may from time to time prescribe.
Section 4.7 Delegation of Authority. The Board of Directors may from time
----------- -----------------------
to time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.
Section 4.8 Removal. Any officer of the Corporation may be removed at any
----------- -------
time, with or without cause, by the Board of Directors.
Section 4.9 Action With Respect to Securities of Other Corporations.
----------- -------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V
---------
STOCK
-----
Section 5.1 Certificates of Stock. Each stockholder shall be entitled to a
----------- ---------------------
certificate signed by, or in the name of the Corporation by, the President or a
Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer
or an Assistant Treasurer, certifying the number of shares owned by him or her.
Any of or all the signatures on the certificate may be facsimile.
Section 5.2 Transfers of Stock. Transfers of stock shall be made only upon
----------- ------------------
the transfer books of the Corporation kept at an office of the Corporation or by
transfer agents designated to transfer shares of the stock of the Corporation.
Except where a certificate is issued in accordance with Section 4 of Article V
of these bylaws, an outstanding certificate for the number of shares involved
shall be surrendered for cancellation before a new certificate is issued
therefor.
Section 5.3 Record Date. The Board of Directors may fix a record date,
----------- -----------
which shall not be more than sixty (60) nor fewer than ten (10) days before the
date of any meeting of stockholders, nor more than sixty (60)
7
<PAGE>
days prior to the time for the other action hereinafter described, as of which
there shall be determined the stockholders who are entitled: to notice of or to
vote at any meeting of stockholders or any adjournment thereof; to receive
payment of any dividend or other distribution or allotment of any rights; or to
exercise any rights with respect to any change, conversion or exchange of stock
or with respect to any other lawful action.
Section 5.4 Lost, Stolen or Destroyed Certificates. In the event of the
----------- --------------------------------------
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
Section 5.5 Regulations. The issue, transfer, conversion and registration
----------- -----------
of certificates of stock shall be governed by such other regulations as the
Board of Directors may establish.
ARTICLE VI
----------
NOTICES
-------
Section 6.1 Notices. Except as otherwise specifically provided
----------- -------
herein or required by law, all notices required to be given to any stockholder,
director, officer, employee or agent shall be in writing and may in every
instance be effectively given by hand delivery to the recipient thereof, by
depositing such notice in the mails, postage paid, or by sending such notice by
prepaid telegram, mailgram, telecopy or commercial courier service. Any such
notice shall be addressed to such stockholder, director, officer, employee or
agent at his or her last known address as the same appears on the books of the
Corporation. The time when such notice shall be deemed to be given shall be the
time such notice is received by such stockholder, director, officer, employee or
agent, or by any person accepting such notice on behalf of such person, if hand
delivered, or the time such notice is dispatched, if delivered through the mails
or be telegram or mailgram.
Section 6.2 Waivers. A written waiver of any notice, signed by a
----------- -------
stockholder, director, officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, director, officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
ARTICLE VII
-----------
MISCELLANEOUS
-------------
Section 7.1 Facsimile Signatures. In addition to the provisions for
----------- --------------------
use of facsimile signatures elsewhere specifically authorized in these bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Section 7.2 Corporate Seal. The Board of Directors may provide a
----------- --------------
suitable seal, containing the name of the Corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used by the
Treasurer or by an Assistant Secretary or Assistant Treasurer.
Section 7.3 Reliance Upon Books, Reports and Records. Each director,
----------- ----------------------------------------
each member of any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation, including reports made to the Corporation by any of its
officers, by an independent certified public accountant, or by an appraiser
selected with reasonable care.
8
<PAGE>
Section 7.4 Fiscal Year. The fiscal year of the Corporation shall
----------- -----------
shall be as fixed by the Board of Directors.
Section 7.5 Time Periods. In applying any provision of these bylaws
----------- ------------
which require that an act be done or not done a specified number of days prior
to an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
ARTICLE VIII
------------
INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
Section 8.1 Right to Indemnification. Each person who was or is made a
----------- ------------------------
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director, officer or employee of
the Corporation or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, or of a Partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer or employee or in any other capacity
while serving as a director, officer or employee, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by Delaware Law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said Law permitted the Corporation
to provide prior to such amendment) against all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties,
amounts paid or to be paid in settlement and amounts expended in seeking
indemnification granted to such person under applicable law, this bylaw or any
agreement with the Corporation) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer or employee and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
-------- -------
that, except as provided in Section 8.2 of this Article VIII, the Corporation
shall indemnify any such person seeking indemnity in connection with an action,
suit or proceeding (or part thereof) initiated by such person only if (a) such
indemnification is expressly required to be made by law, (b) the action, suit or
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation, (c) such indemnification is provided by the Corporation, in its
sole discretion, pursuant to the powers vested in the Corporation under the
Delaware General Corporation Law, or (d) the action, suit or proceeding (or part
thereof) is brought to establish or enforce a right to indemnification under an
indemnity agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law. Such right shall be a
contract right and shall include the right to be paid by the Corporation
expenses incurred in defending any such proceeding in advance of its final
disposition; provided,however, that, unless the Delaware General Corporation Law
----------------
then so prohibits,the payment of such expenses incurred by a director or officer
of the Corporation in his or her capacity as a director or officer (and not in
any other capacity in which service was or is tendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of such proceeding, shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director or officer is not entitled to be
indemnified under this Section or otherwise.
Section 8.2 Right of Claimant to Bring Suit. If a claim under Section
----------- -------------------------------
1 of this Article VIII is not paid in full by the Corporation within ninety (90)
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if such suit is not frivolous or brought in bad
faith, the claimant shall be entitled to be paid also the expense of prosecuting
such claim. The burden of proving such claim shall be on the claimant. It
shall be a defense to any such action (other then an action brought to enforce a
claim for expenses incurred in defending any
9
<PAGE>
proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to this Corporation) that the claimant has not met the
standards of conduct which make it permissible under the Delaware General
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant has not met the applicable standard of
conduct.
Section 8.3 Non-Exclusivity of Rights. The rights conferred on any
----------- -------------------------
person in Sections 1 and 2 shall not be exclusive of any other right which such
persons may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 8.4 Indemnification Contracts. The Board of Directors is
----------- -------------------------
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in this
Article VIII.
Section 8.5 Insurance. The Corporation shall maintain insurance to
----------- ---------
the extent reasonably available, at its expense, to protect itself and any such
director, officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the Delaware
General Corporation law.
Section 8.6 Effect of Amendment. Any amendment, repeal or
----------- -------------------
modification of any provision of this Article VIII by the stockholders and the
directors of the Corporation shall not adversely affect any right or protection
of a director or officer of the Corporation existing at the time of such
amendment, repeal or modification.
ARTICLE IX
----------
AMENDMENTS
----------
Section 9.1 Amendment of Bylaws. The Board of Directors is expressly
----------- -------------------
empowered to adopt, amend or repeal Bylaws of the Corporation. Any adoption,
amendment or repeal of Bylaws of the Corporation by the Board of Directors shall
require the approval of a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any resolution providing for adoption, amendment or repeal is
presented to the Board). The stockholder shall also have power to adopt, amend
or repeal the Bylaws of the Corporation.
10
<PAGE>
<TABLE>
<CAPTION>
PACIFIC GATEWAY EXCHANGE,INC.
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(in thousands, except net income per share)
Three months
Ended March 31,
-----------------------
1997 1996
------- ------
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
<S> <C> <C>
Average shares outstanding 18,938 14,100
Add:
Common stock equivalent of stock
options and warrants 599 200
------ ------
19,537 14,300
====== ======
Net income 2,462 366
====== ======
Primary net income per share 0.13 0.03
====== ======
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
ASSUMING FULL DILUTION:
Average shares outstanding 18,938 14,100
Add:
Common stock equivalent of stock
options and warrants
540 200
------ ------
19,478 14,300
====== ======
Net income 2,462 366
====== ======
Fully diluted net income per share 0.13 0.03
====== ======
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF PACIFIC GATEWAY EXCHANGE, INC.
Jurisdiction of
Name Organization
---- ---------------
Pacific Gateway Exchange (U.K.) Limited............ United Kingdom
Pacific Gateway Exchange (Cyprus) Limited.......... Republic of Cyprus
Pacific Gateway Exchange New Zealand Limited....... New Zealand
- ----------------------
Pursuant to Item 601(b)(21)(ii) of Regulation S-K, names of particular
subsidiaries have been omitted as the unnamed subsidiaries, considered in the
aggregate as a single subsidiary, would not constitute a "significant
subsidiary" (as defined in Rule 1-02 (w) of Regulation S-K) as of March 31,
1997.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 34,530
<SECURITIES> 0
<RECEIVABLES> 31,934
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 68,603
<PP&E> 40,721
<DEPRECIATION> 4,552
<TOTAL-ASSETS> 105,420
<CURRENT-LIABILITIES> 39,116
<BONDS> 353
0
0
<COMMON> 54,898
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 105,420
<SALES> 51,451
<TOTAL-REVENUES> 51,451
<CGS> 43,141
<TOTAL-COSTS> 43,141
<OTHER-EXPENSES> 3,825
<LOSS-PROVISION> 853
<INTEREST-EXPENSE> (488)
<INCOME-PRETAX> 4,120
<INCOME-TAX> 1658
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,462
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0
</TABLE>
