<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1995
or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition period from ---------- to -----------
Commission File No. 0-17909
PHOENIX NETWORK, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 84-0881154
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
550 California Street, 11th Floor, San Francisco, California 94104
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (415)399-3300
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.
(1) Yes X (2) No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares outstanding at
Class November 1, 1995
Common Stock, $.001 par value 14,450,510
<PAGE> 2
PHOENIX NETWORK, INC.
I N D E X
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated 3
Balance Sheets
Condensed Consolidated 5
Statements of Operations
Condensed Consolidated 6
Statements of Cash Flow
Notes to Condensed Consolidated 7
Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PHOENIX NETWORK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, 1994 September 30, 1995
----------------- ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ($326,000
restricted at December 31, 1994 and
none at September 30, 1995) $ 1,209,999 $ 9,525,552
Accounts receivable, net of
allowance for doubtful accounts
of $1,164,086 at December 31, 1994
and $968,232 at September 30, 1995 8,825,944 11,857,786
Deferred commissions 808,240 861,724
Other current assets 209,840 1,245,131
----------- -----------
Total current assets 11,054,023 23,490,193
Furniture, equipment and data processing
systems, at cost less accumulated
depreciation 1,430,467 1,729,803
Deferred commissions 789,726 718,487
Customer acquisition costs,
less accumulated amortization 203,483 2,481,455
Goodwill, less accumulated amortization -- 3,618,911
Other assets 312,155 98,816
----------- -----------
$13,789,854 $32,137,665
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
PHOENIX NETWORK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, 1994 September 30, 1995
----------------- ------------------
<S> <C> <C>
Current liabilities:
Note payable to finance company $ 2,553,103 $ 2,211,427
Accounts payable 7,980,517 9,670,323
Accrued liabilities 223,601 411,432
------------ ------------
Total current liabilities 10,757,221 12,293,182
Stockholders' equity:
Preferred stock, $.001 par value;
authorized, 5,000,000 shares;
issued and outstanding, 1,621,476 shares
at December 31, 1994 and 2,570,226
Shares at September 30, 1995 1,622 2,570
Common stock, $.001 par value
authorized, 30,000,000 shares;
issued and outstanding, 11,360,245 shares
at December 31, 1994 and 14,326,604
shares at September 30, 1995 11,360 14,327
Additional paid-in capital 10,525,800 26,826,916
Treasury stock - 1,300
shares at cost (2,522) (2,522)
Accumulated deficit
from May 1, 1989 (7,503,627) (6,996,808)
------------ ------------
Total stockholders' equity 3,032,633 19,844,483
------------ ------------
$ 13,789,854 $ 32,137,665
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
PHOENIX NETWORK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1994 1995 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 14,639,228 $ 15,008,217 $ 43,748,012 $ 42,691,679
Cost of revenues 9,952,825 10,042,860 30,603,142 29,103,710
------------ ------------ ------------ ------------
Gross profit 4,686,403 4,965,357 13,144,870 13,587,969
Operating expenses:
Selling, general &
administrative 4,363,519 4,329,554 13,275,968 12,245,250
Depreciation and amortization 155,569 346,114 481,224 620,142
------------ ------------ ------------ ------------
Total operating expenses 4,519,088 4,675,668 13,757,192 12,865,392
Income (loss) from operations 167,315 289,689 (612,322) 722,577
Interest income (expense) (107,738) (45,141) (305,358) (203,322)
------------ ------------ ------------ ------------
Net income (loss) 59,577 244,548 (917,680) 519,255
Preferred stock dividends (54,954) (155,465) (163,720) (282,355)
------------ ------------ ------------ ------------
Net income (loss) attributable
to common shares $ 4,623 $ 89,083 $ (1,081,400) $ 236,900
============ ============ ============ ============
Net income (loss) per common
share $ 0.00 $ 0.01 $ (0.10) $ 0.02
============ ============ ============ ============
Weighted average number
of shares outstanding 12,705,662 14,282,590 11,039,091 13,257,512
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
PHOENIX NETWORK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30,
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 40,613,569 $ 38,528,141
Interest received 5,891 24,959
Cash paid to suppliers and employees (39,845,957) (39,250,557)
Interest paid (308,849) (228,281)
------------ ------------
Net cash provided by (used in) operating activities 464,654 (925,738)
Cash flows from investing activities:
Purchases of furniture, equipment and
data processing systems (669,681) (493,334)
Acquisition of businesses and customer bases -- (6,216,294)
Acquisition of other assets (5,000) --
------------ ------------
Net cash used in investing activities (674,681) (6,709,628)
Cash flows from financing activities:
Payments on note payable to finance
company (538,355) (341,676)
Proceeds from exercise of common stock options and
warrants 359,983 371,921
Payments on capital lease obligations (15,519) --
Proceeds from issuance of preferred stock -- 9,520,655
Proceeds from issuance of common stock -- 6,400,019
------------ ------------
Net cash provided by (used in) financing activities (193,891) 15,950,919
------------ ------------
Net increase (decrease) in cash (403,918) 8,315,553
Cash at beginning of period 1,492,713 1,209,999
Cash at end of period $ 1,088,795 $ 9,525,552
============ ============
Reconciliation of net income (loss) to net cash provided by
(used in) operating activities:
Net income (loss) $ (917,680) $ 519,255
Adjustments
Provision for doubtful accounts 1,539,093 1,131,696
Depreciation and amortization 481,224 620,142
Changes in assets and liabilities
Accounts receivable (3,134,443) (4,163,538)
Deferred commissions 1,045,684 17,755
Other assets (116,209) (928,686)
Accounts payable and accrued expenses 1,566,985 1,877,638
------------ ------------
Net cash provided by (used in) operating activities $ 464,654 $ (925,738)
============ ============
Schedule of noncash financing activity
--------------------------------------
Conversion of preferred stock into common stock $ 27,472 $ 12,436
Conversion of stockholder's loan to preferred stock $ 558,930 --
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
PHOENIX NETWORK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. These statements should be read in conjunction with the financial
statements and notes thereto included in the Registrant's Form 10-K for year
ended December 31, 1994.
NOTE B - CAPITAL STOCK
In May 1995, the Company closed a private placement of its common stock which
raised $727,519, net of fees and expenses. The Company sold 385,000 units, at
$2.20 per unit, in an off-shore financing pursuant to Regulation S under the
Securities Act of 1933. A unit consists of one share of common stock and a five
year warrant for one half share of common stock. Two warrants can be exercised
to purchase one share of common stock at $2.20 per share. In connection with the
transaction, the placement agent was issued a five year warrant to purchase
38,500 units at $2.42 per unit. The Company closed another private placement of
its common stock under Regulation S in September 1995. In this transaction, the
Company sold 2,300,000 shares of common stock for $2.75 per share. Proceeds to
the Company, net of fees and expenses, were $5,672,500.
During the period July 1995 through October 1995, the Company raised
approximately $11,000,000, net of expenses, through a private placement of
1,106,700 shares of its Series F Preferred Stock at $10 per share. The shares
are entitled to 9% cumulative dividends, voting rights, demand registration
rights for the underlying common shares after six months and are convertible
initially into 4,426,800 shares of common stock, subject to anti-dilution
provisions. The holders of the Series F also received warrants for the purchase
of 442,680 shares of common stock with an exercise price of $3.00 per share
which expire in October 2000. The Series F shareholders have the right to place
two directors on the Company's board (the "Series F Directors") and the Company
is subject to certain covenants requiring it to obtain the consent of the Series
F Directors for certain transactions including mergers, acquisitions and
incurring additional indebtedness in excess of $20,000,000. As of September 30,
1995, the Company had received $9,520,655 in proceeds from the offering, net of
expenses.
NOTE C - ACQUISITIONS
In August 1995, the Company acquired substantially all the assets and
liabilities of Tele-Trend Communications LLC, a Denver-based reseller of long
distance service for cash in the amount of $4,430,631. The Company's
consolidated results of operations for the third quarter include those of
Tele-Trend from August 1, 1995, the effective date of the purchase transaction.
The allocation of the purchase price to the assets acquired and the liabilities
7
<PAGE> 8
assumed is subject to adjustment resulting from resolution of certain
contingencies. Phoenix acquired $1,201,461 of current assets, $152,126 of fixed
assets and $1,351,457 of current liabilities. The excess of the purchase price
over the value of the net assets acquired was allocated to the customer list
($681,308) which is amortized over four years using the sum of the years method
and to goodwill ($3,649,323) which is amortized over 20 years using the straight
line method. Certain management personnel of Tele-Trend have become employees of
Phoenix and will participate in an earn-out based upon the performance of their
division over the 14 month period from August 1995 through September 1996. Under
the earn-out arrangement, the employees would earn 1.5 times the increase in
billed revenue over that period.
The following condensed pro forma information presents the results of operation
of the Company as if the acquisition of Tele-Trend had occurred on January 1,
1994 and 1995, respectively. Amounts are in thousands, except per share amounts.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1994 1995 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 16,479 $ 15,647 $ 48,845 $ 47,561
Net income (loss) $ 339 $ 286 $ (288) $ 950
Net income (loss) attributable to common
shares $ 35 $ (28) $ (1,200) $ 11
Earnings (loss) per share $ 0.00 $ 0.00 $ (0.11) $ 0.00
</TABLE>
In addition to the acquisition discussed above, the Company acquired an
international call-back company in August 1995 for $300,000 in cash and the
assumption of net liabilities in the amount of $56,389. The Company also
acquired a customer base in August 1995 for $1,450,000 in cash. The cost of
these acquisitions was allocated to the customer lists ($1,513,330) which is
amortized over four years using the sum of the years method and to goodwill
($293,059) which is amortized over 20 years using the straight line method.
8
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
For the quarter ended September, 1995 revenues increased to $15,008,217 compared
with revenues of $14,639,228 for the comparable period of the prior year. The
2.5% increase in billed revenue was due to an increase in the total billed
minutes of usage to customers between periods. Billed minutes of usage increased
7.7% between periods primarily due to the acquisition of Tele-Trend which
accounted for 10.9% of total minutes billed in the quarter ended September 30,
1995. The average rate per minute of usage has declined between periods as a
result of the Company offering its customers more competitively priced services
over the past twelve months. The average per minute rate for the Company's
services decreased by 4.8% between periods. For the nine months ended September
30, 1995, revenues showed a slight decrease of 2.4% from the comparable period
of the prior year. Although minutes of usage billed to customers increased by
3.9% between periods, the average rate per minute decreased by 6.1% due to the
same reasons as the quarterly comparison.
Cost of revenues for the three months ended September 30, 1995 increased
slightly to $10,042,860 from $9,952,825 in the prior year's period which, as a
percentage of revenue, declined to 66.9% compared to 68.0% for the prior year's
period. For the nine month period, cost of revenues declined to 68.2% from 70.0%
The Company utilizes the services of AT&T, Sprint, WilTel and Allnet as its
primary carriers. The cost of service varies between carriers and,
correspondingly, the rate the Company charges its customer will vary depending
on which carrier the customer is placed for service. During 1994 and 1995, the
Company has been placing the majority of its new customers on the carriers
providing the most favorable rates to the Company. Additionally, the Company has
been able to negotiate improved rates with some of its carriers for a
significant portion of its traffic over the past year. As a result, the average
price per minute the Company pays for service has decreased by 6.3% and 8.5%
between the comparable three and nine month periods, respectively.
Selling, general and administrative (SG&A) expenses remained relatively constant
between periods in absolute dollars and decreased as a percentage of revenue
from 29.8% for the quarter ended September 30, 1994 compared to 28.8% for the
quarter ended September 30, 1995 due to higher revenues. For the nine month
periods, SG&A expenses decreased by $1,030,718 from 1994 to 1995. The decrease
between periods was due primarily to a decrease in commission expense between
periods. Commission expense for the nine months ended September 30, 1994
included $1,478,000 of expense related to a telemarketing program which was
discontinued in January 1994 for which there was no comparable charge in 1995.
9
<PAGE> 10
Depreciation and amortization expense increased between comparable three and
nine month periods due primarily to the amortization of the cost of business and
customer base acquisitions. Net interest expense decreased between periods due
to lower average outstanding borrowings under the Company's line of credit.
Liquidity and Capital Resources
The Company had a line of credit available through a finance company allowing
for borrowings of up to $7,000,000 based on the Company's trade receivables.
There was $2,211,000 outstanding under the line at September 30, 1995. In
October 1995, the Company completed negotiations to renew the agreement for a
three year period and increase the maximum borrowings to $10,000,000. As
discussed in Note B to the financial statements, the Company raised
approximately $16,700,000 in equity during the period July 1995 through October
1995. Proceeds from the financings were used to complete the acquisitions
described in Note C to the financial statements and to pay off the outstanding
borrowings under the line of credit in October 1995. The Company intents to use
the remaining proceeds from the financing to acquire additional businesses and
customer bases similar to those completed in the quarter ended September 30,
1995. The Company has no material capital expenditure commitments.
10
<PAGE> 11
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held an Annual Meeting of Stockholders on August 24, 1995.
The stockholders elected Board's nominees as Directors by the votes indicated:
Nominee Votes in Favor Votes Withheld
- ------- -------------- --------------
Thomas H. Bell 10,736,870 65,362
Robert R. Curtis 10,663,600 138,632
James W. Gallaway 10,728,900 73,332
Wallace M. Hammond 10,738,870 63,362
Sidney Kahn 10,739,900 62,332
Merrill L. Magowan 10,728,900 73,332
Myron A. Wick III 10,727,900 74,332
The amendment of the Company's Restated Certificate of Incorporation to increase
the number of shares of the Company's Common Stock authorized for issuance from
20,000,000 to 30,000,000 was approved with 10,372,309 votes in favor, 301,846
against and 125,077 abstentions.
Item 6 Exhibits and Reports on Form 8-K
(a) 10.1 Phoenix Network, Inc. Stockholders Agreement, dated October 20,
1995
10.2 Phoenix Network, Inc. Certificate of Designations of Series F
Preferred Stock
10.3 Phoenix Network, Inc. Series F Preferred Stock and Warrant
Purchase Agreement, dated October 20, 1995
10.4 Purchase Agreement
11 Statement of Computation of Per Share Earnings
(b) On September 12, 1995, the Company filed a report on Form 8-K under item 2.
Acquisition or Disposition of Assets, regarding the Company's
acquisition of substantially all the assets and liabilities of Tele-Trend
Communications LLC, a non-facilities based reseller of long distance service,
for cash in the amount of $4,430,631.
11
<PAGE> 12
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.
PHOENIX NETWORK, INC.
(Registrant)
Date 11/10/95 /s/ Wallace M. Hammond
-------------- ----------------------
Wallace M. Hammond
Chief Executive Officer
Date 11/10/95 /s/ Jeffrey L. Bailey
-------------- ---------------------
Jeffrey L. Bailey
Chief Financial Officer
(Chief Accounting Officer)
12
<PAGE> 13
PHOENIX NETWORK, INC.
INDEX TO EXHIBITS
10.1 Phoenix Network, Inc. Stockholders Agreement, dated October 20,
1995
10.2 Phoenix Network, Inc. Certificate of Designations of Series F
Preferred Stock
10.3 Phoenix Network, Inc. Series F Preferred Stock and Warrant
Purchase Agreement, dated October 20, 1995
10.4 Purchase Agreement
11 Statement of Computation of Per Share Earnings
27 Financial Data Schedule
13
<PAGE> 1
EXHIBIT 10.1
PHOENIX NETWORK, INC.
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT (this "Agreement"), dated as of
October 20, 1995, is entered into by and among PHOENIX NETWORK, INC., a
Delaware corporation (the "Company"), and each of the undersigned Holders.
Each of the capitalized terms used herein and not otherwise defined herein have
the meanings given such terms in the Series F Preferred Stock and Warrant
Purchase Agreement of even date herewith, by and among the Company and each of
the Purchasers named therein (the "Purchase Agreement").
SECTION 1. BOARD OF DIRECTORS.
(a) Composition. Immediately after the Closing (as defined in
Section 1(e) hereof) and so long as at least 200,000 Registrable Securities
remain outstanding, the Holders (as hereinafter defined) and the Company shall
take all action within their respective power, including but not limited to the
voting of capital stock of the Company, required to cause the Board of
Directors of the Company to include two Series F Directors (as hereinafter
defined). In the event there are less than 150,000 but at least 75,000
Registrable Securities outstanding, the Holders and the Company shall take all
action within their respective power, including but not limited to the voting
of capital stock of the Company, required to cause the Board of Directors of
the Company to include at all times one Series F Director. Each initial Series
F Director designated pursuant hereto agrees to proffer his resignation in the
event such initial Series F Director shall own beneficially (as determined
pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934,
as amended) less than 750,000 Registrable Securities. "Holder" means each
owner of Registrable Securities or securities convertible or exercisable for
Registrable Securities who is now or hereafter becomes a party to this
Agreement.
(b) By execution hereof, each Holder hereby agrees that the
initial Series F Directors shall be Max E. Thornhill and David Singleton.
(c) Inability of Directors to Serve. In the event that any Series
F Director is unable to serve, or once having commenced to serve, is removed or
withdraws from the Board of Directors of the Company (such a director, a
"Withdrawing Director"), the Withdrawing Director's replacement on such Board
of Directors (and, if applicable, any executive or similar committee thereof)
shall be designated (i) by the vote of both of the Series F Directors then in
office, if such designation takes place prior to the effective date of the
resignation of the Series F Director or (ii) if only one Series F Director
remains in office, then by such remaining Series F Director, in each case in
accordance with Section 223 of the General Corporation Law of the State of
Delaware.
(d) Failure to Designate a Director. In the event that a vacancy
exists in the office of Series F Director and such directorship is not filled
within 30 days pursuant to
1.
<PAGE> 2
Section 1(c), due notice thereof shall be delivered by the Company to the
Holders and such vacancy shall be filled by action of a majority in interest of
the Holders in accordance with the charter and by-laws of the Company.
(e) Voting of Capital Stock. Each of the Holders agrees that, to
the extent it holds any voting stock of the Company (or any stock that is
entitled to vote upon any particular matter, whether or not such stock is
generally entitled to voting rights), it will at all times vote such stock in
such a manner as to ensure that the terms and intention of this Agreement, the
certificate of incorporation, and the bylaws of the Company are carried out and
observed and to ensure that the certificate of incorporation and bylaws as in
effect on the date hereof do not, at any time hereafter, conflict in any
respect with the provisions of this Agreement. In addition, each of the
Holders agrees that it or he will not vote any voting capital stock of the
Company to cause the removal from the Board of Directors of the Company of any
directors serving pursuant to Section 1 hereof (a "Series F Director") except
with the written consent of such director, except to the extent such removal is
for cause. The Company agrees that it will not take any action, including any
amendment to its certificate of incorporation or bylaws, which would be
inconsistent with this Agreement.
(f) Proxy. Effective upon the Closing, each Holder hereby grants
to Max E. Thornhill, with full power of substitution, a proxy (the "Proxy") to
vote, with respect to the election of the Series F Directors, any capital stock
of the Company which such grantor is entitled to vote and to give written
consents in lieu of voting such capital stock with respect to such election.
The Proxy shall be irrevocable and shall survive the death, disability, or
incapacity of the grantor. After the Closing, Mr. Thornhill shall have the
right to vote or exercise (or refrain from voting or exercising) the Proxy at
any time and from time to time as he may elect in his sole discretion.
"Closing" means the closing of the sale of the Series F Preferred Stock to the
Purchasers pursuant to the Purchase Agreement.
(g) Other Activities. It is understood and accepted that the
initial Series F Directors and all of their respective Affiliates (as
hereinafter defined) have interests in other business ventures which may be
competitive with the activities of the Company and that, to the fullest extent
permitted by law, nothing in this Agreement shall limit the current or future
business activities of any of them or any of their respective Affiliates whether
or not such activities are competitive with those of the Company or any of its
subsidiaries. Except as expressly provided herein, nothing in this Agreement
shall limit the ability of any Holder to exercise its rights under this
Agreement or as a stockholder of the Company in accordance with its own best
judgment and applicable law. Nothing in this Agreement, express or implied,
shall relieve any officer or director, as such, of the Company of any fiduciary
duties they may have to the stockholders of the Company. "Affiliate" means,
with respect to any Person, any other Person who, directly or indirectly,
controls, is controlled by, or is under common control with that Person.
"Person" means any individual, partnership, joint venture, corporation, trust,
unincorporated organization, or other entity.
(g) Indemnification of Series F Directors. The Company and
each Holder agrees, severally and not jointly, to indemnify, reimburse, and
hold harmless to the fullest
2.
<PAGE> 3
extent permitted by law, each Series F Director against any and all losses,
claims, damages, liabilities, costs, and expenses (including, without
limitation, reasonable attorneys' fees and disbursements incurred in
investigating, preparing, or defending against any litigation, or
investigation or proceeding commenced or threatened, or any claim whatsoever)
arising from such Series F Director's serving in such capacity. In the event
of the death of any person having a right of indemnification under the
foregoing provisions, such right shall inure to the benefit of his or her
heirs, executors, administrators, and personal representatives. The rights
conferred above shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, by-law, resolution of stockholders
or directors, agreement, or otherwise.
SECTION 2. OTHER TRANSFER RESTRICTIONS.
(a) Restrictions. Other than (i) transfers to the public pursuant
to an effective registration statement filed pursuant to the Securities Act of
1933, as amended (the "Securities Act"), or (ii) sales to the public pursuant
to Rule 144, no Holder shall transfer any Registrable Securities or securities
convertible or exercisable for Registrable Securities, unless such Holder shall
cause the proposed transferee of such securities to agree, pursuant to a
written agreement reasonably satisfactory to the Company, to take and hold such
securities subject to the provisions and upon the conditions specified in this
Agreement.
(b) Legends. Each certificate evidencing Registrable Securities
or securities convertible or exercisable for Registrable Securities subject to
this Agreement and each certificate issued to any subsequent transferee of such
securities, shall be stamped or otherwise imprinted with a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
PROVISIONS REGARDING THE VOTING OF SUCH SECURITIES AND CERTAIN
TRANSFER RESTRICTIONS SET FORTH IN THE STOCKHOLDERS AGREEMENT DATED AS
OF OCTOBER ___, 1995, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY
AT ITS PRINCIPAL EXECUTIVE OFFICES.
(c) Termination of Certain Restrictions.
The legend required by Section 2(b) shall terminate as to any
securities (A) upon the termination of this Agreement or (B) upon the valid
transfer of such shares to a transferee who is not required to agree to take
and hold such shares subject to the provisions of Section 2(a) of this
Agreement. Whenever the legend requirements of Section 2(b) shall terminate as
to any securities, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate evidencing such securities
not bearing the restrictive legend set forth in Section 2(b) hereof.
3.
<PAGE> 4
(d) Nonconforming Transfers Void. Any purported transfer which
is not effected in compliance with the foregoing provisions of this Section 2
shall be void and of no force or effect whatsoever.
SECTION 3. TERMINATION.
The provisions of this Agreement shall terminate (i) as to any Holder
when such Holder is no longer the beneficial owner of any Registrable
Securities, (ii) as to all Holders when such Holders no longer have the right
to designate one or more Series F Directors or (iii) as to any Holder upon such
time as such Holder can sell their Registrable Securities under Rule 144 or
such Registrable Securities may be sold under a registration statement that has
been declared effective by the Securities and Exchange Commission.
SECTION 4. MISCELLANEOUS.
(a) Remedies. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement, and
to exercise all other rights granted by law or otherwise available to such
Persons.
(b) Amendments and Waivers. The provisions of this Agreement may
be amended or waived at any time by the written agreement of the Company and
Holders of at least two-thirds in interest of the Registrable Securities.
(c) Assignment. No Person may assign any of its rights or
obligations under this Agreement (except in connection with sales and transfers
of the securities which are subject to this Agreement or to a successor by
merger or similar succession to the business or assets of such Person).
(d) Notices. All notices, requests, consents, or other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given or delivered by any party (i) when
received by such party if delivered by hand, (ii) upon confirmation when
delivered by telecopy, (iii) within one day after being sent by recognized
overnight delivery service, or (iv) within five business days after being
mailed by first-class mail, postage prepaid, and in each case addressed as
follows:
(i) If to the Company:
Phoenix Network, Inc.
550 California Street, 11th Floor
San Francisco, CA 94104
Telecopy No.: (415) 399-3301
4.
<PAGE> 5
with a copy to:
David R. Lee, Esq.
Cooley Godward
3000 Sand Hill Road
Building 3, Suite 230
Menlo Park, CA 94025-7116
Telecopy No.: (415) 854-2691
(ii) If to the Max E. Thornhill:
Max E. Thornhill
504 South Jackson Street
Brookhaven, Mississippi 39601
Telecopy No.: (601) 833-9776
with a copy to:
Mary R. Korby, Esq.
Weil, Gotshal & Manges 100
Crescent Court, Suite 1300
Dallas, Texas 75201
Telecopy No.: (214) 746-7777
(iii) If to David Singleton:
David Singleton
412 1/2 South Jackson St.
Brookhaven, Mississippi 39601
(iv) If to any Holder other than the initial Series F
Directors, at his or its address set forth on such Holder's signature pages
hereto or, if not so set forth, as reflected in the Company's records.
Any party by written notice to the other parties pursuant to this
Section may change the address or the Persons to whom notices or copies thereof
shall be directed.
(e) Construction. This Agreement shall be construed and enforced
in accordance with and governed by the internal substantive laws of the State
of Delaware.
(f) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one instrument. Each
party shall receive a duplicate original of the counterpart copy or copies
executed by it and the Company.
5.
<PAGE> 6
(g) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
6.
<PAGE> 7
IN WITNESS WHEREOF, this Agreement has been executed and delivered as
of the date first set forth above.
PHOENIX NETWORK, INC.
By:
----------------------------------
Name:
---------------------------------
Title:
--------------------------------
HOLDERS:
---------------------------------------
MAX E. THORNHILL
---------------------------------------
DAVID SINGLETON
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
7.
<PAGE> 1
EXHIBIT 10.2
PHOENIX NETWORK, INC.
CERTIFICATE OF
DESIGNATIONS OF
SERIES F PREFERRED STOCK
-----------
The undersigned, WALLACE M. HAMMOND, the President of PHOENIX NETWORK,
INC., a Delaware corporation (the "Corporation"), the Restated Certificate of
Incorporation of which was filed in the office of the Secretary of State of the
State of Delaware on December 12, 1990, acting pursuant to Section 151 of the
General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY that at a
meeting of the Board of Directors of the Corporation duly convened and held on
September 29, 1995 the following resolution was adopted:
RESOLVED, that pursuant to Article IV of the Corporation's
Restated Certificate of Incorporation relating to the shares of the
Corporation, the Board of Directors hereby authorizes, fixes and
creates a series of Preferred Stock, par value $.01 per share, having
the following powers, preferences, designations, rights and other
characteristics:
A. One Million Two Hundred Thousand (1,200,000) of the authorized
shares of Preferred Stock are hereby designated "Series F Preferred Stock."
B. The rights, preferences, privileges, restrictions and other
matters relating to the Series F Preferred Stock are as follows:
1. RANKING. The Series F Preferred Stock shall rank as to
dividends and upon liquidation, dissolution or winding up of the Corporation (i)
on a parity with the Corporations's Series A Preferred and Series B Preferred
Stock and with any class or series of Preferred Stock which by its express terms
provides that it ranks on a parity with the Series F Preferred Stock
(collectively, the "Pari Passu Stock"), and (ii) prior to any class of common
equity of the Corporation and any other class or series of capital stock which
by its express terms provides that it ranks junior to the Series F Preferred
Stock or which does not expressly provide for any ranking as to dividends,
liquidation, dissolution or winding up (collectively, the "Junior Stock").
1.
<PAGE> 2
2. DIVIDENDS.
(a) The holders of Series F Preferred Stock shall
be entitled to receive cumulative dividends at the rate of nine percent (9%)
per annum per share (as adjusted for any combinations, consolidations, stock
distributions or dividends, stock splits, reverse stock splits or other similar
transactions with respect to such shares) payable, when, as and if declared by
the Board of Directors out of legally available funds therefor. Subject to
Section 2(b) below, such dividends shall be payable in cash annually on January
1st of each year (unless such day is not a business day, in which event on the
next succeeding business day) (each a "Dividend Payment Date"), commencing on
the next Dividend Payment Date succeeding the date of original issue of such
shares of Series F Preferred Stock, to holders of record as they appear on the
register of the Corporation for the Series F Preferred Stock on the 15th day
immediately preceding such Dividend Payment Date. Dividends on shares of
Series F Preferred Stock shall be computed on the basis of a 360-day year of
twelve 30-day months and shall accumulate from the date of original issue of
such shares. Any declaration of a dividend may be for a portion, or all, of
the then accumulated dividends. Any accumulated dividends that are not paid
will continue to cumulate in the manner described above.
(b) Solely at the option of the Corporation, dividends may
be paid, instead of in cash, on declaration of the Board of Directors, in shares
of the Corporation's common stock, par value $.001 per share (the "Common
Stock"), to the extent of legally available surplus of the Corporation, in
respect of any or all Dividend Payment Dates. The aggregate par value of Common
Stock issued in payment of any dividend shall be transferred from the legal
surplus of the Corporation to its capital at the time of such payment. If a
dividend is to be paid in Common Stock, the number of shares of Common Stock to
be issued in payment of the dividend with respect to each outstanding share of
Series F Preferred Stock shall be determined by dividing the amount of the
dividend to be paid with respect to such share of Series F Preferred Stock by an
amount equal to the Fair Market Value (as defined in Section 5(c) below) of the
Common Stock on the date such dividend is declared by the Board of Directors.
Any such shares distributed as a dividend shall first be registered on a
registration statement with the Securities and Exchange Commission (the "SEC")
and such registration statement shall have been declared effective by the SEC.
(c) No dividend or distribution in cash, shares of capital
stock or other property shall be paid or declared and set apart for payment on
any date on or in respect of (i) the Junior Stock (any such dividend or
distribution on such stock hereinafter referred to as a "Junior Stock
Distribution"), or (ii) any Pari Passu Stock (any such dividends or
distributions on such stock hereinafter referred to as a "Pari Passu Stock
Distribution"), unless, contemporaneously therewith or with respect to the
immediately preceding Dividend Payment Date for the Series F Preferred Stock, a
dividend or distribution is or was paid or declared and set apart for payment on
or in respect of the Series F Preferred Stock, payable at the rate set forth
herein and payable on a date no later than the payment date set forth for such
Junior Stock Distribution or Pari Passu Stock Distribution, as the case may be.
2.
<PAGE> 3
(d) In no event may the Corporation (i) make a Junior
Stock Distribution or a Pari Passu Stock Distribution while there are dividends
in arrears on the Series F Preferred Stock or (ii) redeem, purchase or
otherwise acquire for value any Junior Stock or Pari Passu Stock unless, prior
to or contemporaneously with such redemption, purchase or acquisition the
Series F Preferred Stock is redeemed in full (in the case of redemption,
purchase or acquisition of Junior Stock) or on a pro rata basis based on
liquidation preference (in the case of redemption, purchase or acquisition of
Pari Passu Stock).
3. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary, the holders
of the Series F Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Junior Stock, the amount of Ten Dollars
($10.00) per share in cash (as adjusted for any stock subdivisions,
combinations or consolidations or any stock distributions or dividends with
respect to such shares) plus an amount in cash equal to all accrued but unpaid
dividends (the "Liquidation Preference") on each share of Series F Preferred
Stock then held by them and no more. If upon the occurrence of such event, the
assets and funds thus distributed among the holders of the Series F Preferred
Stock and the Pari Passu Stock shall be insufficient to permit the payment to
such holders of their Liquidation Preference, then the entire assets and funds
of the Corporation legally available for distribution shall be distributed
among the holders of the Series F Preferred Stock and the Pari Passu Stock
ratably in accordance with the respective amounts which would be payable on
such shares if all amounts payable thereon were paid in full.
(b) After payment to the holders of the Series F
Preferred Stock of the Liquidation Preference, the entire remaining assets and
funds of the Corporation legally available for distribution, if any, shall be
distributed among the holders of the Junior Stock in accordance with the
corporation's Certificate of Incorporation or any other Certificate of
Designation with respect to the Preferred Stock.
(c) For the purposes of this Section 3, neither
the merger or the consolidation of the Corporation into or with another
corporation, nor the merger or consolidation of any other corporation into or
with the Corporation, nor the voluntary sale, conveyance, exchange, transfer or
other disposition (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Corporation, shall be deemed to be a voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation.
4. VOTING RIGHTS.
(a) Except as otherwise expressly provided herein
or as required by law, the Series F Preferred Stock shall vote together with
the Series A Preferred Stock, Series B Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and the Common Stock as a single class. The
holder of each share of Series F Preferred Stock shall be entitled to that
3.
<PAGE> 4
number of votes equal to the number of shares of Common Stock into which such
share could then be converted pursuant hereto and shall be entitled to notice
of all stockholders' meetings in accordance with the Bylaws of the Corporation.
(b) So long as at least Two Hundred Thousand
(200,000) shares of Series F Preferred Stock remain outstanding, the holders of
the Series F Preferred Stock then outstanding shall be entitled, voting
together as a class, to elect two (2) directors of the Corporation at each
election of directors. If there shall cease to be at least One Hundred Fifty
Thousand (150,000) shares of Series F Preferred Stock outstanding but there
shall remain at least Seventy Five Thousand (75,000) shares of such stock
outstanding, the holders of the Series F Preferred Stock then shall be entitled
voting as a class to elect one (1) director. Any vacancy occurring because of
the death, resignation or removal of a director elected by the holders of
Series F Preferred Stock shall be filled by the vote or written consent of the
holders of a majority of the shares of Series F Preferred Stock.
5. CONVERSION. The holders of the Series F Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series F
Preferred Stock shall be convertible, at the option of the holder thereof, or,
with respect to all of the Series F Preferred Stock, upon the vote or written
consent of the holders of at least sixty-six and two thirds percent (66 2/3%) in
interest of the Series F Preferred Stock, at any time after the date of issuance
of such shares, at the office of the Corporation or any transfer agent for such
stock, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing ten dollars ($10.00) (the "Original Issue Price")
plus all accrued and unpaid dividends, on each share of Series F Preferred Stock
by the then applicable Conversion Price (as hereinafter defined) in effect on
the date the certificate is surrendered for conversion. The price at which
shares of Common Stock shall be deliverable upon conversion (the "Conversion
Price") shall initially be two dollars and fifty cents ($2.50) per share of
Common Stock. Such initial Conversion Price shall be adjusted as hereinafter
provided.
(b) MECHANICS OF CONVERSION. Before any holder
of Series F Preferred Stock shall be entitled to convert the same into shares
of Common Stock, he shall surrender the certificate or certificates thereof,
duly endorsed, at the office of the Corporation or of any transfer agent for
such stock, and shall give written notice to the Corporation at such office
that he elects to convert the same and shall state therein the name or names in
which he wishes the certificate or certificates for shares of Common Stock to
be issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series F Preferred Stock, a
certificate or certificates for the number of shares of Common Stock to which
he shall be entitled as aforesaid. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of surrender
of the shares of Series F Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
4.
<PAGE> 5
(c) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING
ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of
this Section 5(c), the following definitions shall apply:
(1) "OPTIONS" shall mean rights,
options, or warrants to subscribe for, purchase or otherwise acquire either
Common Stock or Convertible Securities.
(2) "ORIGINAL ISSUE DATE" shall
mean the date on which a share of Series F Preferred Stock was first issued.
(3) "CONVERTIBLE SECURITIES"
shall mean any evidences of indebtedness, shares (other than Common Stock and
Series F Preferred Stock) or other securities convertible into or exchangeable
for Common Stock.
(4) "ADDITIONAL SHARES OF COMMON
STOCK" shall mean all shares of Common Stock issued (or, pursuant to Section
5(c)(iii), deemed to be issued) by the Corporation after the Original Issue
Date, other than shares of Common Stock issued or issuable:
(A) upon conversion of
shares of Series F Preferred Stock;
(B) to officers,
directors or employees of the Corporation, under a stock option plan approved by
the Board of Directors, to the extent such issuances do not exceed 15% of the
fully diluted Common Stock outstanding on the date of the original issue of
Series F Preferred Stock;
(C) as a dividend or
distribution on the Preferred Stock authorized and outstanding on the date
hereof in accordance with the terms of any applicable Certificate of
Designations; or
(D) for which
adjustment of the Conversion Price is made pursuant to Section 5(c)(vi).
(5) "FAIR MARKET VALUE" shall
mean the average closing price of the Company's Common Stock as listed on the
American Stock Exchange over the twenty (20) business days immediately preceding
the determination of Fair Market Value or in the event such Common Stock is not
listed on the American Stock Exchange then on any other recognized exchange
using the same twenty (20) day trading period or if not listed on any exchange,
then Fair Market Value shall be determined in good faith by the Board of
Directors of the Corporation.
(ii) NO ADJUSTMENT OF CONVERSION PRICE.
No adjustment in the Conversion Price of a particular share of Series F
Preferred Stock shall be made in respect
5.
<PAGE> 6
of the issuance of Additional Shares of Common Stock unless the consideration
per share for an Additional Share of Common Stock issued or deemed to be issued
by the Corporation is less than the Fair Market Value in effect on the date of
such issuance.
(iii) DEEMED ISSUE OF ADDITIONAL SHARES
OF COMMON STOCK. Subject to paragraph 5(c)(i)(4)(B) herein, in the event the
Corporation at any time or from time to time after the Original Issue Date shall
issue any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities then entitled to receive any
such Options or Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein designed to protect against dilution) of Common Stock issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the close
of business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Section 5(c)(v) hereof) of such Additional Shares of
Common Stock would be less than the Fair Market Value on the date of issuance,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(1) no further adjustments in
the Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(2) if such Options or
Convertible Securities by their terms provide, with the passage of time or
otherwise, for any increase in the consideration payable to the Corporation, or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange under
such Convertible Securities (provided, however, that no such adjustment of the
Conversion Price shall affect Common Stock previously issued upon conversion of
the Series F Preferred Stock);
(3) upon the expiration of any
such Options or any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Conversion Price computed
upon the original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(A) in the case of
Convertible Securities or Options for Common Stock the only Additional Shares of
Common Stock issued were the shares of Common Stock, if any, actually issued
upon the exercise of such Options or the conversion
6.
<PAGE> 7
or exchange of such Convertible Securities and the consideration received
therefor was the consideration actually received by the Corporation for the
issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue of all
such Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange, and
(B) in the case of
Options for Convertible Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued at the time of issue of
such Options and the consideration received by the Corporation for the
Additional Shares of Common Stock deemed to have been then issued was the
consideration actually received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration deemed to have been
received by the Corporation (determined pursuant to Section 5(c)(v)) upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(4) no readjustment pursuant to
clauses (2) or (3) above shall have the effect of increasing the Conversion
Price to an amount which exceeds the lower of (A) the Conversion Price on the
original adjustment date, or (B) the Conversion Price that would have resulted
from any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date;
(5) in the case of any Options
that expire by their terms not more than thirty (30) days after the date of
issue thereof, no adjustment of the Conversion Price shall be made, except as to
shares of Series F Preferred Stock converted in such period, until the
expiration or exercise of all such Options, whereupon such adjustment shall be
made in the same manner provided in clause (3) above; and
(6) if any such record date
shall have been fixed and such Options or Convertible Securities are not issued
on the date fixed thereof, the adjustment previously made in the Series F
Conversion Price which became effective on such record date shall be canceled as
of the close of business on such record date, and shall instead be made on the
actual date of issuance, if any.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation
shall issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section 5(c)(iii)) without
consideration or for a consideration per share less than the Fair Market Value
in effect on the date of and immediately prior to such issue, then and in such
event, such Conversion Price shall be adjusted, concurrently with such issue, to
the price (calculated to the nearest cent) determined by multiplying the
Conversion Price by a fraction (a) the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to the issuance of such
Additional Shares of Common Stock plus the number of shares of Common Stock
which the aggregate consideration for the total number of such Additional Shares
of Common Stock so issued would purchase at the Fair Market Value, and
7.
<PAGE> 8
(b) the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such Additional Shares of
Common Stock plus the number of such Additional Shares of common stock so
issued.
(v) DETERMINATION OF CONSIDERATION. For
purposes of this Section 5(c), the consideration received by the Corporation for
the issue of any Additional Shares of Common Stock shall be computed as follows:
(1) CASH AND PROPERTY. Such
consideration shall:
(A) insofar as it
consists of cash, be computed at the aggregate amount of cash received by the
Corporation excluding amounts paid or payable for accrued interest or accrued
dividends;
(B) insofar as it
consists of property other than cash, be computed at the fair value thereof at
the time of such issue, as determined in good faith by the Board of Directors;
and
(C) in the event
Additional Shares of Common Stock are issued together with other shares or
securities or other assets of the Corporation for consideration which covers
both, be the proportion of such consideration so received, computed as provided
in clauses (A) and (B) above, as determined in good faith by the Board of
Directors.
(2) OPTIONS AND CONVERTIBLE
SECURITIES. The consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been issued pursuant to Section
5(c)(iii), relating to Options and Convertible Securities, shall be determined
by dividing
(A) the total amount, if
any, received or receivable by the Corporation as consideration for the issue of
such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein designed to protect against
dilution) payable to the Corporation upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or in the case of Options
for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(B) the maximum number
of shares of Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein designed to protect against
dilution) issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(vi) ADJUSTMENTS FOR COMBINATIONS OR
SUBDIVISIONS OF COMMON STOCK. In the event the Corporation at any time or from
time to time after the Original Issue Date shall declare or pay any dividend on
the Junior Stock in Common Stock or
8.
<PAGE> 9
in any right to acquire Common Stock, or shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock (by stock split, reclassification or otherwise), or in the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
then the Conversion Price in effect immediately prior to such event shall,
concurrently with the effectiveness of such event, be proportionately decreased
or increased, as appropriate.
(d) REDEMPTION.
(i) RIGHT TO REDEEM AND VOLUNTARY
CONVERSION. Any or all of the outstanding shares of Series F Preferred Stock
shall be redeemable by the Corporation in the event that the market price of the
Corporation's outstanding Common Stock (as quoted on any national or regional
securities exchange or automated quotation system on which or through which the
Corporation's Common Stock is traded) has equaled or exceed for a period of at
least twenty (20) consecutive trading days 200% of the Conversion Price in
effect during such period. In the event that any holder of Series F Preferred
Stock has not responded to the Corporation's notice of redemption within ten
(10) days, then such Series F Preferred shall be deemed to be a voluntary
conversion of such Series F Preferred Stock into Common Stock by the holder
pursuant to Section 5(a) above.
(ii) MECHANICS OF REDEMPTION. Before
the Corporation shall be entitled to redeem any of the shares of Series F
Preferred Stock, it shall give written notice to each holder thereof whose
shares of Series F Preferred Stock are to be redeemed indicating the number of
shares of Series F Preferred Stock to be redeemed. Each holder thereof shall,
as soon as practicable thereafter, surrender its certificates for such shares,
duly endorsed, at the office of the Corporation or of any transfer agent for
such shares, at which time the Corporation shall pay to such holder the
Redemption Price (defined below) for each such share to be redeemed. The
Redemption Price shall be payable in cash or by check, which need not be
certified. Such redemption shall be deemed to have been made immediately prior
to the close of business on the date of tender of the Redemption Price for the
shares of Series F Preferred Stock to be redeemed.
(iii) REDEMPTION PRICE DEFINED. The
"Redemption Price" shall mean the Original Issue Price plus all accrued but
unpaid dividends on each share of Series F Preferred Stock to be redeemed.
(e) OTHER DISTRIBUTIONS. In the event the
Corporation shall at any time or from time to time make or issue, or fix a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the
Corporation or any of it subsidiaries other than Additional Shares of Common
Stock, then in each such event provision shall be made so that the holders of
Series F Preferred Stock shall receive, upon the conversion thereof, the
securities of the Corporation which they would have received had their stock
been converted into Common Stock on the date of such event.
9.
<PAGE> 10
(f) NO IMPAIRMENT. The Corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 5 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series F Preferred Stock against impairment.
(g) CERTIFICATES AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of the Conversion Price pursuant
to this Section 5, the Corporation shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series F Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series F Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of Series F Preferred Stock.
(h) NOTICES OF RECORD DATE. In the event of any
taking by the Corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive Additional
Shares of Common Stock, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property, or
to receive any other right, the Corporation shall mail to each holder of Series
F Preferred Stock at least twenty (20) days prior to the date specified therein,
a notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution, security or right, and the amount and
character of such dividend, distribution, security or right.
(i) ISSUE TAXES. The Corporation shall pay any
and all issue and other taxes that may be payable in respect of any issue or
delivery of shares of Common Stock on conversion of shares of Series F Preferred
Stock pursuant hereto; provided, however, that the Corporation shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such conversion.
(j) RESERVATION OF STOCK ISSUABLE UPON
CONVERSION. The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose
of effecting the conversion of the shares of the Series F Preferred Stock,
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series F
Preferred Stock; and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the Series F Preferred Stock, the Corporation will
take such corporate action as may, in the opinion of its counsel, be
10.
<PAGE> 11
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose, including, without
limitation, engaging in best efforts to obtain the requisite shareholder
approval of any necessary amendment to these Articles.
(k) FRACTIONAL SHARES. No fractional share shall
be issued upon the conversion of any share or shares of Series F Preferred
Stock. All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series F Preferred Stock by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a sum
in cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board of Directors of the
Corporation).
(l) NOTICES. Any notice required by the
provisions of this Section 4 to be given to the holders of shares of Series F
Preferred Stock shall be deemed given if deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his address
appearing on the books of the Corporation.
(m) ADJUSTMENTS. In case of any reorganization
or any reclassification of the capital stock of the Corporation, any
consolidation or merger of the Corporation with or into another corporation or
corporations, or the conveyance of all or substantially all of the assets of the
Corporation to another corporation, each share of Series F Preferred Stock shall
thereafter be convertible into the number of shares of stock or other securities
or property (including cash) to which a holder of the number of shares of Common
Stock deliverable upon conversion of such share of Series F Preferred Stock
would have been entitled upon the record date of (or date of, if no record date
is fixed) such reorganization, reclassification, consolidation, merger or
conveyance; and, in any case, appropriate adjustment (as determined by the Board
of Directors) shall be made in the application of the provisions herein set
forth with respect to the rights and interests thereafter of the holders of such
Series F Preferred Stock, to the end that the provisions set forth herein shall
thereafter be applicable, as nearly as equivalent as is practicable, in relation
to any shares of stock or the securities or property (including cash) thereafter
deliverable upon the conversion of the shares of such Series F Preferred Stock.
6. RESTRICTIONS AND LIMITATIONS. So long as at least
Two Hundred Thousand (200,000) shares of Series F Preferred Stock remain
outstanding, the Corporation shall not, without the vote or written consent by
the holders of not less than sixty-six and two thirds percent (66 2/3%) in
interest of the then outstanding shares of Series F Preferred Stock voting
together as a single class, amend, repeal or waive any provision of, or add any
provision to, the Corporation's Certificate of Incorporation or Bylaws if such
action would materially and adversely alter the preferences, rights, privileges
or powers of, or the restrictions provided for the benefit of, the Preferred
Stock.
11.
<PAGE> 12
7. AMENDMENT. Any term relating to the Series F
Preferred Stock may be amended only with the vote or written consent of holders
of not less than sixty-six and two thirds percent (66 2/3%) in interest of all
Series F Preferred Stock then outstanding. Any such amendment shall be binding
upon the Corporation and any holder of Series F Preferred Stock.
IN WITNESS WHEREOF, I have executed this Certificate this ____ day of
October, 1995.
----------------------------------
WALLACE M. HAMMOND
President
ATTEST:
- ---------------------------------------
DAVID R. LEE
Assistant Secretary
12.
<PAGE> 1
EXHIBIT 10.3
PHOENIX NETWORK, INC.
- -------------------------------------------------------------------------------
SERIES F PREFERRED STOCK
AND WARRANT PURCHASE AGREEMENT
- -------------------------------------------------------------------------------
OCTOBER 20, 1995
<PAGE> 2
PHOENIX NETWORK, INC.
SERIES F PREFERRED STOCK
AND WARRANT PURCHASE AGREEMENT
THIS SERIES F PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
("Agreement") is made as of October 20, 1995, by and among PHOENIX NETWORK,
INC., a Delaware corporation (the "Company"), and the investors listed on the
Schedule of Purchasers attached hereto as Exhibit A (the "Purchasers").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
SECTION 1
PURCHASE AND SALE OF SERIES F PREFERRED STOCK AND WARRANTS
1.1 COMMITMENT TO PURCHASE SERIES F PREFERRED. Subject to the
terms and conditions hereof, at the Closing (as hereinafter defined) the
Company agrees to issue and sell to each Purchaser, and each Purchaser agrees,
severally and not jointly, to purchase from the Company, the number of shares
(collectively, the "Shares") of Series F Preferred Stock, par value $0.01 per
share, of the Company (the "Series F Preferred"), specified opposite such
Purchaser's name on the Schedule of Purchasers attached hereto as Exhibit A,
for the cash purchase price of Ten Dollars ($10.00) per share.
1.2 COMMITMENT TO PURCHASE WARRANTS. The Company agrees to issue
and sell to each Purchaser, and each Purchaser agrees, severally and not
jointly, to purchase a warrant (collectively, the "Warrants"), substantially in
the form attached hereto as Exhibit B, to purchase the number of shares of
common stock of the Company, par value $.001 per share (the "Common Stock"),
set forth opposite such Purchaser's name on the Schedule of Purchasers attached
hereto as Exhibit A at a purchase price of $0.01 per share. The exercise price
of each Warrant shall be $3.00 per share of Common Stock represented by such
Warrant, as adjusted pursuant to the terms of such Warrant.
SECTION 2
CLOSING DATE; DELIVERY
2.1 CLOSING DATE. The closing for the purchase and sale of the
Shares and the Warrants (the "Closing") shall be held at the offices of Cooley
Godward Castro Huddleson & Tatum, One Maritime Plaza, Suite 2000, San Francisco,
California on October 20, 1995 at 10:00 a.m., or at such other time and place as
the Company and a majority in interest of the Purchasers mutually agree (the
"Closing Date").
1.
<PAGE> 3
2.2 CLOSING. At the Closing, the Company will deliver to each
Purchaser certificates registered in the name of such Purchaser or its designee
representing the number of Shares purchased by such Purchaser and a Warrant to
purchase the number of shares of Common Stock set forth opposite such
Purchaser's name in the Schedule of Purchasers attached hereto as Exhibit A,
against payment of the applicable purchase price therefor in the amount
specified in the Schedule of Purchasers by check or wire transfer payable to the
order of the Company.
2.3 ADDITIONAL CLOSINGS. If less than all of the authorized shares
of Series F Preferred are purchased at the Closing, the Company may, at any time
until thirty (30) days after the Closing, sell and issue the balance of the
authorized but unissued Series F Preferred, under purchase agreements
substantially similar to this Agreement, at an additional closing or closings
(hereinafter the "Additional Closing") at the same price per share as the Series
F Preferred purchased and sold at the Closing. The purchasers of such remaining
Series F Preferred shall be deemed "Purchasers" and such shares of Series F
Preferred purchased by them shall be deemed "Series F Preferred" for the
purposes of this Agreement. The Additional Closings of the purchase and sale of
the Series F Preferred hereunder shall take place at such time and place as the
Company and the additional Purchasers may agree. In the event that Additional
Closings pursuant to this Agreement occur, the term "Closing" with respect to
such later sales of Series F Preferred shall refer to such later closing or
closings and the term "Closing Date" shall refer to the date on which each such
closing or Closings occur.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Purchaser as
follows:
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Delaware. The Company has all requisite corporate power to own and operate
its properties and assets and to carry on its business as presently conducted.
The Company is qualified to do business in all jurisdictions in which the
nature of the business conducted by it makes such qualification necessary.
3.2 CORPORATE POWER. The Company has all requisite legal and
corporate power and authority to execute and deliver this Agreement and the
Warrants, to perform its obligations under the terms of this Agreement and the
Warrants and to issue and sell the Shares, the shares of Common Stock issuable
upon conversion of the Shares (the "Conversion Shares"), the Warrants and the
shares of Common Stock issuable upon exercise of the Warrants (the "Warrant
Shares").
3.3 CAPITALIZATION. The authorized capital stock of the Company
consists of (i) 30,000,000 shares of Common Stock of which 14,246,954 shares
are issued and outstanding as of the date hereof, and (ii) 5,000,000 shares of
Preferred Stock consisting of 300,000 authorized shares of Series A Preferred
Stock of which 101,750 shares are issued and outstanding, 200,000 authorized
shares of Series B Preferred Stock of which 126,250 shares are
2.
<PAGE> 4
issued and outstanding, 1,000,000 authorized shares of Series C Preferred Stock
of which 1,000,000 shares are issued and outstanding, 666,666 shares of Series D
Preferred Stock of which 333,333 shares are issued and outstanding, 100,000
authorized shares of Series E Preferred Stock of which 55,893 shares are issued
and outstanding and 1,200,000 authorized shares of Series F Preferred Stock,
_________ of which will be issued and outstanding immediately after the Closing.
Each share of Series A Preferred Stock is convertible into 4.132 shares of
Common Stock, subject to certain antidilution provisions; each share of Series B
Preferred Stock is convertible into 6.667 shares of Common Stock, subject to
certain antidilution provisions; each share of Series C Preferred Stock is
convertible into two shares of Common Stock; each share of Series D Preferred is
convertible into one share of Common Stock and each share of Series E Preferred
Stock is convertible into four shares of Common Stock. All of the issued and
outstanding capital stock of the Company is duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights. Except for the
Preferred Stock, the Warrants and as set forth on Schedule 3.3 hereto, there are
no options, warrants, calls, subscriptions, conversion or other rights or
agreements obligating the Company to issue any shares of its capital stock or
any other securities. All of the outstanding shares of Common Stock (and
options and warrants to purchase Common Stock), Preferred Stock and other
outstanding securities of the Company have been duly and validly issued in
compliance with federal and state securities laws.
3.4 AUTHORIZATION. The execution, delivery and performance of
this Agreement by the Company and the consummation of the transactions
contemplated hereby (including the authorization, sale and issuance of the
Shares, the Conversion Shares, the Warrants and the Warrant Shares) and the
adoption, execution and filing of the Certificate of Designations for the Series
F Preferred with the Secretary of State of the State of Delaware, in the form of
Exhibit C hereto (the "Certificate of Designations"), have been duly authorized
by all necessary corporate action on the part of the Company. This Agreement
has been duly and validly executed and delivered by the Company. This Agreement
is, and the Warrants upon execution and delivery will be, the legal, valid and
binding obligations of the Company, enforceable in accordance with their terms,
subject to enforceability as to laws of general application relating to
bankruptcy, insolvency, the relief of debtors and to general principles of
equity. The Shares, the Conversion Shares and the Warrant Shares, when issued
in compliance with the provisions of this Agreement, will be validly issued,
fully paid and nonassessable, and will be free of any liens, claims or
encumbrances; provided, however, that the Shares, the Conversion Shares and the
Warrant Shares may be subject to restrictions on transfer under state and/or
federal securities laws as set forth herein. Neither the issuance, sale or
delivery of the Shares or the Warrants nor the issuance or delivery of the
Conversion Shares or the Warrant Shares is subject to any preemptive right of
stockholders of the Company or to any right of first refusal or other right in
favor of any person.
3.5 DISCLOSURE. The Company has previously delivered to each of
the Purchasers documents and other communications and information related to
the business of the Company. These documents have been prepared by the
management of the Company in a good faith effort to describe the Company's
business and markets. None of such documents, nor any representation or
warranty by the Company contained in this Agreement, nor any other statement
3.
<PAGE> 5
or certificate furnished or to be furnished to the Purchasers pursuant hereto or
in connection with the transactions contemplated hereby by the Company (when
read together) contains or will contain any untrue statement of a material fact
or omits or will omit to state a material fact necessary to make the statements
contained therein or herein not misleading in light of the circumstances under
which they were made; except that no representation whatsoever is made with
respect to any projections that have been or may be presented to any Purchaser.
3.6 VIOLATIONS. The Company is not in violation of, has not been
charged with violating, nor to the best of the Company's knowledge, is it under
investigation with respect to a possible violation of, any federal, state,
local or foreign law, statute, rule, governmental regulation, or order,
relating to the business and operations of the Company, to the extent such
violation would have a material adverse effect on the Company's business or
operations.
3.7 CONFLICTS. The execution and delivery of this Agreement and
the other documents to be executed and delivered in connection herewith do not,
and the fulfillment and compliance by the Company with the terms and conditions
hereof and thereof and the consummation of the transactions contemplated hereby
(including the issuance of the Shares, the Warrants, the Conversion Shares and
the Warrant Shares (collectively the "Securities")) will not (i) conflict with
any of the terms, conditions or provisions of the certificate of incorporation
or by-laws of the Company; (ii) violate any provisions of, or require any
consent, authorization or approval under, any law, rule or regulation or any
judicial decision, order, judgment, writ, injunction or decree applicable to, or
any governmental permit or license issued to, the Company; (iii) violate, result
in a breach of, or constitute a default under any of the terms, conditions or
provisions of any document, agreement or other instrument to which the Company
is a party or by which it or its properties are bound; or (iv) result in the
creation of any tax, charge, lien or encumbrance of any kind whatsoever on any
of the properties or assets of the Company.
3.8 OTHER REPRESENTATIONS AND WARRANTIES.
(a) The Company has filed all federal income tax returns
and all other federal and state tax returns which are required to have been
filed and has paid all taxes which are required to have been paid. The Company
has not been advised that any federal income tax returns of the Company have
been, or will be, examined or audited by the Internal Revenue Service.
(b) The Company is not in default or alleged default
under any lease, license, contract or agreement to which the Company is a party
or by which the Company is bound, to the extent such default would have a
material adverse effect on the Company's business or operations.
(c) The Company is not in default with respect to any
judgment, order, writ, injunction or decree of any court or governmental body
or entity, and the Company has complied with all laws, rules, regulations and
orders which are applicable to the Company or its business as presently
conducted, to the extent any such default or noncompliance would have a
material adverse effect on the Company's business or operations. The Company
has all
4.
<PAGE> 6
necessary permits, licenses and other authorizations required to conduct its
business as conducted and proposed to be conducted. To the best of the
Company's knowledge, there is no existing law, rule, regulation or order, and
the Company after due inquiry is not aware of any proposed law, rule, regulation
or order, whether federal or state, which would prohibit or restrict the Company
from or otherwise materially adversely affect the Company in, conducting its
business in any jurisdiction in which it is now conducting business or in which
it proposes to conduct business.
(d) Except as set forth in Schedule 3.8(d) attached
hereto, no litigation, proceedings, investigations, arbitrations or claims are
pending or, to the best knowledge of the Company, threatened against the
Company, its officers or directors, or any of the Company's assets or
properties, or which question the validity of this Agreement or any action taken
or to be taken pursuant to or in connection with the provisions of this
Agreement, and the Company does not know of any basis for any such litigation,
proceedings, investigations, arbitrations or claims.
(e) For at least the past twenty-four (24) months, the
Company has filed all proxy statements, schedules and reports required to be
filed by it with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). None of such
reports when filed contained any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements or facts contained
therein not misleading, except to the extent any such report was corrected by a
subsequently filed report. The Company has delivered to the Purchasers true,
complete and accurate copies of all Forms 10-K and 10-Q.
(f) Assuming the truth and accuracy of certain
representations and warranties of the Purchasers contained herein, the issuance
of the Shares and the Warrants by the Company to the Purchasers complies with
all federal and state securities laws and is not required to be registered
under the Securities Act of 1933, as amended (the "Securities Act"), or any
other state or federal securities laws.
SECTION 4
INVESTMENT REPRESENTATION
Each Purchaser hereby represents and warrants (with respect to itself
only) to the Company as follows:
4.1 EXPERIENCE. Purchaser is experienced in evaluating and
investing in companies such as the Company.
4.2 INVESTMENT. Purchaser is acquiring the Shares and the Warrants
for investment for its own account and not with a view to, or for resale in
connection with, any distribution thereof, and it has no present intention of
selling or distributing any of the Securities in any transaction that would be
in violation of the securities laws of the United States of America or
5.
<PAGE> 7
any state thereof, without prejudice, however, to such Purchaser's right at all
times to sell or otherwise dispose of all or any part of said Securities
pursuant to an effective registration statement under the Securities Act and
applicable state securities laws, or under an exemption from such registration
available under the Securities Act and applicable state securities laws.
Purchaser understands that the Securities have not been registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act that depends upon, among other things, the bona
fide nature of the investment intent as expressed herein.
4.3 RULE 144. Purchaser acknowledges that, because they have not
been registered under the Securities Act, the Securities may not be sold or
transferred unless subsequently registered under the Securities Act or an
exemption from such registration is available. Purchaser is aware of the
provisions of Rule 144 promulgated under the Securities Act which permits
limited resale of securities purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the existence
of a public market for the securities of the Company, the availability of
certain current public information about the Company, the resale occurring not
less than two years after a party has purchased and paid for the security to be
sold, the sale being through a "broker's transaction" or in transactions
directly with a "market maker" (as provided by Rule 144(f)) and the number of
shares being sold during any three-month period not exceeding specified
limitations (unless the sale is within the requirements of Rule 144(k)).
4.4 ACCESS TO DATA. Purchaser has been furnished with such
materials and has been given access to such information relating to the Company
as it or its professional advisor has requested and it has been afforded the
opportunity to ask questions regarding the Company and the Shares and Warrants,
all as it has found necessary to make an informed investment decision.
4.5 INVESTOR STATUS. Purchaser is either an "accredited investor"
within the meaning of Rule 501(a) of Regulation D as promulgated under the
Securities Act, or by reason of its business or financial experience, or the
business or financial experience of its professional advisor, it has the
capacity to protect its own interests in connection with this transaction, and
is able to bear the economic risk of losing its entire investment in the Shares
and the Warrants.
SECTION 5
CONDITIONS TO PURCHASERS' OBLIGATIONS AT CLOSING
The obligation of each Purchaser to purchase the Shares and the
Warrants at the Closing is subject to the fulfillment on or prior to the
Closing Date of the following conditions to the extent not waived by each
Purchaser:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations
and warranties made by the Company in Section 3 hereof shall be true, correct
and complete when made, and shall be true, correct and complete on the Closing
Date with same force and effect as if made on and as of the Closing Date.
6.
<PAGE> 8
5.2 COVENANTS. All covenants, agreements and conditions contained
in this Agreement to be performed by the Company on or prior to the Closing
Date shall have been performed or complied with in all respects.
5.3 COMPLIANCE CERTIFICATE. The Company shall have delivered to
the Purchasers a certificate, executed by the President of the Company, dated
the Closing Date, certifying to the fulfillment of the conditions specified in
Sections 5.1 and 5.2 of this Agreement.
5.4 OPINION OF COUNSEL. The Purchasers shall have received an
opinion of Cooley Godward Castro Huddleson & Tatum in substantially the form of
Exhibit C attached hereto.
5.5 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and their
counsel, and the Purchasers and their counsel shall have received all such
counterpart originals or certified or other copies of such documents as they
may reasonably request.
5.6 LAWS AND REGULATIONS. At the Closing, the purchase of the
Shares and the Warrants to be purchased by such Purchaser hereunder (i) shall
not be prohibited or enjoined (temporarily or permanently) by any applicable
law or governmental regulation of which the Company or a Purchaser is aware,
(ii) shall not subject such Purchaser to any penalty, or in its reasonable
judgment, other onerous condition under or pursuant to any applicable law or
governmental regulation and (iii) shall be permitted by the laws and
regulations of the jurisdictions to which such Purchaser is subject.
5.7 CONSENTS AND PERMITS. The Company shall have obtained all
consents, permits and authorizations, and made all filings and declarations
required in connection with the performance by the Company of the transactions
to be performed at or prior to the time of Closing by the Company pursuant to
this Agreement.
5.8 NO MATERIAL JUDGMENT OR ORDER. There shall not be any
judgment or order of a court or competent jurisdiction or any ruling of any
governmental agency which would prohibit the sale or issuance of the Shares and
the Warrants or subject the Company or such Purchaser to any material penalty
in the event of the sale or issuance of the Shares and the Warrants.
5.9 CERTIFICATE OF DESIGNATION. The Certificate of Designations
shall have been duly filed with the Secretary of State of the State of
Delaware.
5.10 STOCKHOLDERS AGREEMENT. The Stockholders Agreement shall have
been executed by the Company and each Purchaser.
7.
<PAGE> 9
SECTION 6
CONDITIONS TO COMPANY'S OBLIGATIONS AT CLOSING
The Company's obligation to sell the Shares and the Warrants at the
Closing is subject to the fulfillment on or prior to the Closing Date of the
following conditions to the extent not waived by the Company:
6.1 REPRESENTATIONS CORRECT. The representations made by each
Purchaser in Section 4 hereof shall be true, correct and complete when made,
and shall be true, correct and complete on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
6.2 NO MATERIAL JUDGMENT OR ORDER. There shall not be any
judgment or order of a court of competent jurisdiction or any ruling of any
governmental agency which would prohibit the sale or issuance of the Shares or
the Warrants or subject the Company or any Purchaser to any material penalty in
the event of the sale or issuance of the Shares or the Warrants.
6.3 STOCKHOLDERS AGREEMENT. The Stockholders Agreement shall have
been executed by each Purchaser.
SECTION 7
CONFIDENTIALITY
7.1 CONFIDENTIALITY. Each Purchaser agrees that, except as
required by law or regulation or legal or judicial process upon the advice of
counsel, he or it will keep confidential and will not disclose or divulge any
confidential, proprietary or secret information (which information shall be so
identified at the time of disclosure thereof to each Purchaser) that such
Purchaser has obtained in connection with this investment or may obtain after
the date hereof relating to the Company unless such information is or becomes
publicly known or unless the Company gives its written consent to the
Purchaser's release of such information, except that no such written consent
shall be required (and Purchaser shall be free to release such information) if
such information is to be provided to Purchaser's lawyer, accountant, or to an
officer, director or partner of a Purchaser, provided that the Purchaser shall
inform the recipient of the confidential nature of such information, and shall
cause the recipient to treat the information as confidential.
SECTION 8
REGISTRATION RIGHTS
8.1 CERTAIN DEFINITIONS. As used in this Section 8, the following
terms shall have the following respective meanings:
8.
<PAGE> 10
"COMMISSION" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"HOLDER" shall mean any holder of outstanding Shares or
Warrants or Registrable Securities.
The terms "REGISTER", "REGISTERED" and "REGISTRATION" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement by the Commission.
"REGISTRABLE SECURITIES" means shares of the Company's Common
Stock (i) issued or issuable pursuant to the conversion of the Shares or
exercise of the Warrants or (ii) issued as a dividend or other distribution
with respect to, or in exchange or in replacement of, the Shares, the Warrant
Shares or such Common Stock, excluding in all cases, however (including
exclusion from the calculation of the number of outstanding Registrable
Securities), any Registrable Securities sold by a person in a transaction
registered under the Securities Act or a transaction pursuant to Rule 144, in
which his rights under this Section 8 are not transferred.
"REGISTRATION EXPENSES" shall mean all expenses incurred by
the Company in complying with Sections 8.2 hereof, including, without
limitation, all registration and filing fees, transfer taxes, fees of transfer
agents and registrars, fees and expenses of compliance with securities or blue
sky laws, fees of the National Association of Securities Dealers, Inc.,
printing expenses, messenger and delivery expenses, and fees and disbursements
of counsel for the Company, its independent certified public accountants,
underwriters (excluding discounts and commissions) and other persons retained
by the Company.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean any fees of counsel for the
Holder, and all underwriting discounts and selling commissions applicable to
the sale of such Registrable Securities.
8.2 DEMAND REGISTRATION AND DIVIDEND REGISTRATION.
(a) If at any time after six (6) months from the date
hereof, Holders in excess of fifty percent (50%) of the Registrable Securities
(an "Initiating Holder") request (a "Request") in writing that the Company
effect a registration, the Company will:
(1) give written notice of the proposed
registration to all other Holders within ten (10) days after a Request; and
9.
<PAGE> 11
(2) use its best efforts to effect as soon as
practicable (but in no event later than sixty (60) days after the Request),
such registration (including, without limitation causing a registration
statement with respect thereto to be declared effective and obtaining
appropriate qualifications under blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder
or Holders joining in such request as are specified in a written request
received by the Company within twenty (20) days after receipt of such written
notice from the Company;
provided, however, that the Company shall not be obligated to
take any action to effect any such registration (or any related qualification
or compliance) pursuant to this Section 8.2(a):
(i) in any particular jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance unless the
Company is already subject to service in such jurisdiction and except as may be
required by the Securities Act;
(ii) if prior to receiving the Request,
the Board of Directors had determined to effect a registered underwritten
public offering of the Company's securities for the Company's account and the
Company had taken substantial steps (including, but not limited to, selecting a
managing underwriter for such offering) and is proceeding with reasonable
diligence and in good faith to effect such offering, in which case the Company
may defer the filing (but not the preparation) of a registration statement for
the requested registration and any required qualification or compliance in
connection therewith for a period of ninety (90) days after the effective date
of the Company's registration statement, provided, however, a deferral for
effecting a registration pursuant to this Section 8.2(a)(ii) shall be lifted,
and the requested registration shall be effected, if the proposed registration
for the Company's account is abandoned; or
(iii) after the Company has effected three
registrations pursuant to this Section 8.2(a), and each such registration has
been declared or ordered effective and no stop order, injunction, or other
order is issued interfering with such registration.
Subject to the foregoing clauses (i) through (iii), the
Company shall file a registration statement covering the Registrable Securities
so requested to be registered as soon as practicable (but in no event later
than thirty (30) days) after receipt of a Request.
(b) The Company may require, as a condition precedent to
its obligations under this Section 8.2, that all Holders participating in a
registration effected pursuant to this Section 8.2 so participate through a
single broker reasonably satisfactory to the Company.
10.
<PAGE> 12
(c) The Company may include securities for its own
account (or for the account of other stockholders) in such registration if the
number of Registrable Securities that would otherwise have been included by the
Holders in such registration and underwriting will not thereby be limited.
8.3 REGISTRATION OF DIVIDEND SHARES. No later than ten (10) days
prior to the payment of a dividend to holders of Series F Preferred in shares
of the Company's Common Stock (a "Dividend Payment Date"), the Company shall
effect a registration (including, without limitation causing a registration
statement with respect thereto to be declared effective and obtaining
appropriate qualification under blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other government requirements or regulations) to permit and
facilitate the distribution of any and all of the shares of Common Stock to be
distributed on such Dividend Payment Date.
8.4 FURTHER LIMITATIONS ON REGISTRATIONS. All Holders proposing
to distribute their securities through an underwriting effected pursuant to
Section 8.2 shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting by the Company. Notwithstanding Section 8.2(a), if the
Company and the underwriter determine that marketing factors require a
limitation of the number of shares to be underwritten in an offering pursuant to
Section 8.2(a), the underwriter may exclude some or all Registrable Securities
from any such registration and underwriting. In such case, the Company shall so
advise all Holders (except those Holders who have indicated to the Company their
decision not to distribute any of their Registrable Securities through such
underwriting), and the number of shares of Registrable Securities that may be
included in such registration and underwriting shall be allocated among such
Holders in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities owned by such Holders at the time of filing the
registration statement. No Registrable Securities excluded from any
underwriting pursuant to Section 8.2(a) by reason of the underwriter's marketing
limitation shall be included in such registration. If any Holder disapproves of
the terms of any such underwriting as a result of any such limitation imposed by
such underwriter, such person may elect to withdraw therefrom by written notice
to the Company and the underwriter. The Registrable Securities and/or other
securities so withdrawn from such underwriting shall also be withdrawn from such
registration; provided, however, that, if by the withdrawal of such Registrable
Securities a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the maximum of any limitation imposed by
the underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used above in determining the
underwriter limitation.
8.5 PIGGYBACK REGISTRATION.
(a) If, at any time or from time to time, the Company
shall determine to register any of its securities, either for its own account or
the account of a security holder or holders exercising their respective demand
registration rights, other than a registration relating
11.
<PAGE> 13
solely to employee benefit plans on Form S-8 or similar forms which may be
promulgated in the future or a registration on Form S-4 or similar forms which
may be promulgated in the future relating solely to Commission Rule 145 or a
similar transaction, the Company will (i) promptly give to each Holder written
notice thereof (which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable blue
sky or other state securities laws) and (ii) include in such registration (and
any related qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all Registrable Securities of such Holders as
specified in a written request or requests made within twenty (20) days after
receipt of such written notice from the Company.
(b) If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so indicate in the notice given pursuant to Section 8.5(a). In such event the
right of any Holder to registration pursuant to this Section 8.5 shall be
conditioned upon such Holder's agreeing to participate in such underwriting and
in the inclusion of such Holder's Registrable Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company and the
other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company or by other holders
exercising any demand registration rights. Notwithstanding any other provision
of this Section 8.5, if the underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the underwriter
may exclude some or all Registrable Securities or other securities from such
registration and underwriting (hereinafter an "Underwriter Cutback"). In the
event of an Underwriter Cutback, the Company shall so advise all Holders and the
other holders distributing their securities through such underwriting, and the
number of Registrable Securities and other securities that may be included in
the registration and underwriting shall be allocated among all holders thereof
(including those holders who are exercising their demand registration rights) on
the basis that the holders who are not Holders shall be cut back before any
cutback of Holders. If the limitation determined by the underwriter requires a
cut-back of the Holders, then the number of shares that may be included in the
Registration and underwriting shall be allocated among all Holders in
proportion, as nearly as practicable, to the respective amounts of securities
entitled to inclusion in such registration held by such Holders at the time of
filing the registration statement. If any Holder disapproves of the terms of
any such underwriting, such Holder may elect to withdraw therefrom by written
notice to the Company and the underwriter. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.
8.6 EXPENSES OF REGISTRATION. All Registration Expenses shall be
borne by the Company and all Selling Expenses shall be borne by the holders of
the securities so registered pro rata on the basis of the number of shares so
registered.
8.7 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to Sections 8.2,
8.3 or 8.5, the Company will keep each Holder advised in writing as to the
initiation of each registration (and any related
12.
<PAGE> 14
qualification and compliance) and as to the completion thereof. At its expense
the Company will use its best efforts to:
(a) Keep such registration (and any related qualification
or compliance) effective for a period of ninety (90) days or until the Holder
or Holders have completed the distribution described in the registration
statement relating thereto, whichever first occurs; and
(b) Furnish such number of prospectuses and other
documents incident thereto as a Holder from time to time may reasonably
request.
8.8 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its
officers, directors, partners and legal counsel, and each person controlling
such Holder, with respect to which registration, qualification or compliance
has been effected pursuant to Sections 8.2, 8.3 or 8.5, and each underwriter,
if any, and each person who controls any underwriter against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on (i) any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other similar
document (including any related registration statement, notification or the
like) incident to any such registration (or related qualification or
compliance) or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made, or (ii) any violation by the Company of any federal, state or common law
rule or regulation applicable to the Company in connection with any such
registration (or related qualification or compliance), and will reimburse each
such Holder, each of its officers, directors, partners and legal counsel, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, as incurred, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by such Holder or underwriter and stated to be
specifically for use therein.
(b) Each Holder will, if Registrable Securities held by
such Holder are included in the securities as to which such registration (or
related qualification or compliance) is being effected, indemnify the Company,
each of its directors and officers, each legal counsel and independent
accountant of the Company, each underwriter, if any, of the Company's
securities covered by such a registration statement (or related qualification or
compliance), each person who controls the Company or such underwriter within the
meaning of the Securities Act, and each other such Holder, each of its officers,
directors, and partners and each person controlling such Holder, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus,
offering circular or other similar document (or related qualification or
compliance documents), or any omission (or alleged
13.
<PAGE> 15
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and will reimburse the Company, such
Holders, such directors, officers, persons, underwriters or control persons for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, as
incurred, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by an instrument duly executed by such Holder and stated to be
specifically for use therein.
(c) Each party entitled to indemnification under this
Section 8.8 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has received written notice of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld). The Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnifying Party
shall bear the expense of such defense of the Indemnified Party if
representation of both parties by the same counsel would be inappropriate due
to actual or potential conflicts of interest. The failure of any Indemnified
Party to give notice as provided herein shall relieve the Indemnifying Party of
its obligations under this Section 8.8 only to the extent that such failure to
give notice shall materially adversely prejudice the Indemnifying Party in the
defense of any such claim or any such litigation. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
8.9 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration (or related qualification or
compliance) referred to in this Section 8.
8.10 TRANSFER OF REGISTRATION RIGHTS. The rights granted under
Sections 8.2, 8.3 and 8.5 may be assigned or otherwise conveyed by any Holder
to its stockholders, partners or former partners (or their estates), or to any
transferee who acquires shares of Registrable Securities; provided in each
case, that the Company is given written notice by such transferee at the time
of or within a reasonable time after said transfer, stating the name and
address of said transferee and said transferee's agreement to be bound by the
provisions of Section 8 of this Agreement.
14.
<PAGE> 16
SECTION 9
POST-CLOSING COVENANTS OF THE COMPANY
9.1 RESERVE SUFFICIENT SHARES FOR THE CONVERSION SHARES AND
WARRANT SHARES. The Company shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, for the purpose of
effecting the conversion of the Series F Preferred and the exercise of the
Warrants and otherwise complying with the terms of this Agreement, the Warrants
and the Certificate of Designations, such number of its duly authorized shares
of Common Stock as shall be sufficient to effect the conversion of the Series F
Preferred and the exercise of the Warrants from time to time outstanding or
otherwise to comply with the terms of this Agreement. If at any time the
number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of the Series F Preferred and the exercise
of the Warrants or otherwise to comply with the terms of this Agreement, the
Company will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such numbers of shares as
shall be sufficient for such purposes. The Company agrees to obtain any
authorization, consent, approval or other action by or make any filing with any
court or administrative body that may be required under applicable state
securities laws in connection with the issuance of shares of Common Stock upon
conversion of the Series F Preferred or exercise of the Warrants or the
issuance of the Dividend Shares.
9.2 NEGATIVE COVENANTS. So long as 240,000 shares of Registrable
Securities are outstanding, the Company agrees that it will not take any of the
following actions set forth below without the consent of each of the Series F
Directors (as defined in the Stockholders Agreement); provided, however, if
such directorships remain vacant for a period of 30 days following notice of
such vacancy to the holders of the Registrable Securities, then no consent
shall be required.
(a) LIMITATION ON ADDITIONAL INDEBTEDNESS. The Company
will not and will not permit any subsidiary to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable with respect to (collectively, "incur") any Indebtedness (as hereinafter
defined); provided, however, that the Company may incur up to an aggregate of
Twenty Million Dollars ($20,000,000) in Indebtedness. "Indebtedness" means (i)
any liability of the Company or any subsidiary (1) for borrowed money, or under
any reimbursement obligation relating to a letter of credit or a similar
instrument, (2) evidenced by a bond, note, debenture or similar instrument
(including a purchase money obligation), (3) for the balance deferred and
unpaid of the purchase price for any property (except for any such balance that
constitutes a trade payable in the ordinary course of business), or (4) for the
payment of money relating to a lease that is required to be classified as a
capital lease obligation in accordance with GAAP; and (ii) any liability of
others described in clause (i) that the Company or any subsidiary has
guaranteed, that is recourse to the Company or any subsidiary or that is
otherwise the legal liability of the Company or any subsidiary.
(b) LIMITATION ON SENIOR PREFERRED STOCK; PARI PASSU
STOCK; REDEEMABLE STOCK. The Company will not issue any Preferred Stock that
ranks prior to or on a parity with
15.
<PAGE> 17
the Series F Preferred as to dividends or upon liquidation, dissolution or
winding up of the Company, and the Company will not issue or permit any
subsidiary to issue any redeemable capital stock.
(c) LIMITATION ON REPURCHASE. Except as contemplated
hereby, the Company will not, and will not permit any subsidiary to, directly
or indirectly, purchase, redeem or otherwise acquire or retire for value any
capital stock of the Company or any of the Company's subsidiaries, other than
capital stock that is acquired pursuant to an employee stock repurchase program
or other employee stock repurchase rights held by the Company.
(d) LIMITATIONS ON ACQUISITIONS, MERGER OR SALE OF
SUBSTANTIALLY ALL ASSETS. The Company shall not and shall not permit any
subsidiary to acquire all or substantially all of the assets or capital stock
or voting securities of, or equity interests in, any other Person or to
consolidate with, merge with or into, or transfer, directly or indirectly by
lease, assignment, sale or otherwise, all or substantially all of its assets,
in one transaction or a series of related transactions to, any Person or to
enter into any agreement to do any of the foregoing. Notwithstanding the
foregoing, the consent of the Series F Directors shall not be required in (i)
any acquisition of assets with an aggregate purchase price of less than
$500,000 provided such acquisition is not part of a series of transactions
which would require consent hereunder or (ii) any transaction where the holders
of Series F Preferred receive securities of the acquiring corporation with
substantially identical terms to the Series F Preferred outstanding immediately
prior to the completion of the transaction. "Person" as used herein shall mean
any individual, partnership, joint venture, firm, corporation, association,
trust or other enterprise or any affiliate group of the foregoing.
SECTION 10
MISCELLANEOUS
10.1 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts between California residents entered into and to be performed
entirely within the State of California.
10.2 SURVIVAL. The representations, warranties, covenants and
agreements made by the parties herein shall survive any investigation made by
any Purchaser or the Company and shall survive the closing of the transactions
contemplated hereby indefinitely.
10.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
10.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or
16.
<PAGE> 18
in a particular instance and either retroactively or prospectively) with the
written consent of the Company and the holders of at least sixty-six and two
third percent (66 2/3%) in interest of the of the outstanding Registrable
Securities (including shares of Common Stock issuable upon conversion of the
Shares or exercise of the Warrants). Any amendment or waiver effected in
accordance with this section shall be binding upon each holder of any securities
purchased under this Agreement at the time outstanding (including securities
into which such securities have been converted), each future holder of all such
securities, and the Company.
10.5 EFFECT OF AMENDMENT OR WAIVER. Each Purchaser acknowledges
that by the operation of Section 10.4 hereof the holders of at least sixty-six
and two thirds percent (66 2/3%) in interest of the outstanding Registrable
Securities (including shares of Common Stock issuable upon conversion of the
Shares or exercise of the Warrants) will have the right and power to diminish
or eliminate all rights of such Purchaser under this Agreement.
10.6 RIGHTS OF PURCHASERS. Each holder of the Securities shall
have the absolute right to exercise or refrain from exercising any right or
rights that such holder may have by reason of this Agreement or such
Securities, including without limitation the right to consent to the waiver of
any obligation of the Company under this Agreement and to enter into an
agreement with the Company for the purpose of modifying this Agreement or any
agreement effecting any such modification, and such holder shall not incur any
liability to any other holder or holders of Securities with respect to
exercising or refraining from exercising any such right or rights.
10.7 EXCULPATION AMONG PURCHASERS. Except as set forth in Section
4.5, each Purchaser acknowledges that it is not relying upon any person, firm,
or corporation, other than the Company and its officers and directors, in
making its investment or decision to invest in the Company. Each Purchaser
agrees that no Purchaser nor the respective controlling person, officers,
directors, partners, agents, or employees of any Purchaser shall be liable for
any action heretofore or hereafter taken or omitted to be taken by any of them
in connection with the Shares.
10.8 NOTICES, ETC. All notices and other communications required
or permitted hereunder shall be in writing and shall be effective five (5) days
after mailed by first-class, registered, or certified mail, postage prepaid, or
upon delivery if delivered by hand or by messenger or a courier delivery
service or upon confirmation of receipt thereof if sent by facsimile or other
similar transmission, addressed (a) if to a Purchaser, at such Purchaser's
address set forth in the Schedule of Purchasers, or at such other address as
such Purchaser shall have furnished to the Company in writing, or (b) if to any
other holder of any Securities, at such address as such holder shall have
furnished the Company in writing, or, until any such holder so furnishes an
address to the Company, then to and at the address of the last holder of such
Securities who has so furnished an address to the Company, or (c) if to the
Company, (i) at the address set forth below or at such other address as the
Company shall have furnished to each Purchaser and each such other holder in
writing and (ii) with a copy to David R. Lee, Cooley Godward Castro Huddleson &
Tatum, One Maritime Plaza, Suite 2000, San Francisco, California 94111.
17.
<PAGE> 19
10.9 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Securities, upon any
breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of such holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereunder occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval
of any kind or character on the part of any holder of any breach or default
under this Agreement, or any waiver on the part of any holder of any provisions
or conditions of this Agreement, must be in writing and shall be effective only
to the extent specifically set forth in such writing. All remedies, either
under this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
10.10 STATE CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED OR REGISTERED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA NOR WITH THE
APPLICABLE AUTHORITIES OF ANY OTHER STATE AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION OR REGISTRATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH
QUALIFICATION OR REGISTRATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH
CONSIDERATION BY THE COMPANY AND NOTWITHSTANDING ANY OTHER PROVISION IN THIS
AGREEMENT, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION OR REGISTRATION BEING OBTAINED OR AN
EXEMPTION FROM SUCH QUALIFICATION OR REGISTRATION BEING AVAILABLE.
10.11 FINDERS' FEES. Each party represents that it has not retained
the services of any finder or broker, and that it neither is nor will be
obligated for any finders' fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of
a finders' fee (and the costs and expenses of defending against such liability
or asserted liability) for which the Purchaser or any of its officers,
partners, employees, or representatives is responsible. The Company agrees to
indemnify and hold harmless each Purchaser from any liability for any
commission or compensation in the nature of a finders' fee (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its officers, employees, or representatives is
responsible. Each party will indemnify the others for damages resulting from
claims arising from the non-payment or reporting of any brokers' or finders'
fees that should have been paid or reported by such party hereunder.
10.12 EXPENSES. Except where expressly provided otherwise, the
Company and each Purchaser shall bear its own expenses and legal fees incurred
on its behalf with respect to this Agreement and the transactions contemplated
hereby.
10.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the Purchasers,
each of which shall be
18.
<PAGE> 20
enforceable against the parties actually executing such counterparts, and all of
which together shall constitute one instrument.
10.14 SEVERABILITY. In the case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
19.
<PAGE> 21
The foregoing Series F Preferred Stock and Warrant Purchase Agreement
is hereby executed as of the date first above written.
PHOENIX NETWORK, INC. PURCHASER:
----------------------------
By: By:
----------------------------------- -------------------------------
Wallace M. Hammond
President and
Chief Executive Officer
ADDRESS:
550 California Street, 11th Floor
San Francisco, CA 94104
20.
<PAGE> 22
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PURCHASE WARRANTS WARRANT
PURCHASER SHARES PRICE PRICE
<S> <C> <C> <C> <C>
Aaron P. Acker 5,000 50,000
404 Sequoya Drive
Anniston, AL 36206
Mr. John Brickner 5,000 50,000
Brickner Family Ltd.
237 Sugarberry Circle
Houston, TX 77024
Mike Burford 10,000 100,000
4229 Choctow Trail
Anniston, AL 36206
Robert E. Hennington 10,000 100,000
P.O. Box 748
Madisonville, LA 70447
Mark Lewis 10,000 100,000
123 South Railroad Blvd.
Brookhaven, MS 39601
Mr. Gerald Acker 2,500 25,000
P.O. Box 157
Anniston, AL 36202
Mr. Carl Aycock 10,000 100,000
123 South Railroad Ave.
Brookhaven, MS 39601
Mr. Danny Dunnaway 5,000 50,000
123 South Railroad Avenue
Brookhaven, MS 39601
J.E. & J.W. Hudson Rentals 5,000 50,000
Mr. Woodley Hudson
South Prentis Shopping Center
Highway 42
Prentiss, MS 39474
Albert Hennington 5,000 50,000
1018 5th Street
Wesson, MS 39191
</TABLE>
1.
<PAGE> 23
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PURCHASE WARRANTS WARRANT
PURCHASER SHARES PRICE PRICE
<S> <C> <C> <C> <C>
T.W. Hickman, Jr. 2,500 25,000
817 Highway 51 South
Brookhaven, MS 39601
Jack Koson 5,000 50,000
P.O. Box 754
Avon, CO 81620
John E. Lynch 2,500 25,000
400 East Capitol St., #101
Jackson, MS 39201
Tom L. Moak 5,000 50,000
425 S. Jackson Street
Brookhaven, MS 39601
Ronald B. Pruet, Jr. 5,000 50,000
10817 Long Shadow Lane
Houston, TX 77024
James A. Rowell, Jr. 10,000 100,000
(via Smith Barney/Chemical)
PAR Minerals Corp.
220 Travis Street, Ste. 500
Shreveport, LA 71101
Robert C. Sansing 20,000 200,000
6200 Pensacola Blvd.
Pensacola, FL 32505
Robert E. Simmons 5,000 50,000
624 Briarwood Drive
Columbia, MS 39429
James H. Stribling, D.D.S. 10,000 100,000
517 S. Church Street
Brookhaven, MS 39601
Dr. Kary G. Whitehead, M.D. 5,000 50,000
4702 18th Avenue
Meridan, MS 39305
Sims & Sims 13,500 135,000
100 Sims Road
Hattiesburg, MS 39401
</TABLE>
2.
<PAGE> 24
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PURCHASE WARRANTS WARRANT
PURCHASER SHARES PRICE PRICE
<S> <C> <C> <C> <C>
Randy Wallace 5,000 50,000
& John Harvey
814 Main Street, Suite 303
Columbia, MS 39429
Nicholson & Co. 5,000 50,000
(via Smith Barney)
(see John Harvey)
George P. Hennington 5,000 50,000
430 South Jackson Street
Brookhaven, MS 39601
Tillman Branch 5,000 50,000
4306 Greenwood Avenue
Pascagoula, MS 39581
William P. Martin, Jr. & 5,000 50,000
William P. Martin, Sr.
76 Fairway Place
Hattiesburg, MS 39402
Dr. Steve Mills 5,000 50,000
1012 Biglane Drive
Brookhaven, MS 39601
Byron Fleet Morris 5,000 50,000
Fleet Morris Petroleum
615 Briarwood Drive
Columbia, MS 39429
Jo Ann Maxwell/Ron Roger 5,000 50,000
Jo Ann Rogers
0023 Shore Drive
Brookhaven, MS 39601
James H. Sturges 10,000 100,000
544 Pawnee Way
Madison, MS 39110
Max E. Thornhill 110,000 1,100,000
Max E. Thornhill 62,500 625,000
Bonnie P. Thornhill 62,500 625,000
</TABLE>
3.
<PAGE> 25
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PURCHASE WARRANTS WARRANT
PURCHASER SHARES PRICE PRICE
<S> <C> <C> <C> <C>
Max E. Thornhill 50,000 500,000
504 South Jackson Street
Brookhaven, MS 39601
Dr. Thomas B. Whitehead 5,000 50,000
709 Sumrall Road
Columbia, MS 39420
Charles Irby 2,500 25,000
(see Irby Construction)
Irby Construction 50,000 500,000
817 South State Street
Jackson, MS 39215-1819
Louis Mullen 15,000 150,000
Louis M. Mullen 5,000 50,000
Pat Mullen 5,000 50,000
119 Fontainbleu
Mandeville, LA 70471
Richard Price 50,000 500,000
1168 Old Sumrall Road
Columbia, MS 39429
Dr. Kim Sessums 2,500 25,000
1012 Biglane Drive
Brookhaven, MS 39601
Mr. Alva Terry Staples 10,000 100,000
1750 Ivy Street
Denver, CO 80220
Ed H. Willford 2,500 25,000
400 East Capital Street
Suite 101
Jackson, MS 39201
Robert L. Kemp, Jr. 5,000 50,000
(see Kemp Real Estate)
Kemp Real Estate Company 5,000 50,000
1445 Highway 98 East
Columbia, MS 39429
</TABLE>
4.
<PAGE> 26
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PURCHASE WARRANTS WARRANT
PURCHASER SHARES PRICE PRICE
<S> <C> <C> <C> <C>
Ingram Management Trust 6,000 60,000
44 Tiburon Drive
Austin, TX 78738
Ms. Dott Cannon 5,000 50,000
1001 President
Tupelo, MS 38801
Steve McBride 5,000 50,000
327 North Jackson Street
Brookhaven, MS 39601
Robert Mims 10,000 100,000
4321 N. Honeysuckle Lane
Jackson, MS 39211
Mr. & Mrs. Ronny Robinson 5,000 50,000
805 Flag Chapel Road
Jackson, MS 39209
Donald V. Conerly 10,000 100,000
9 Granad Bayou Circle
Hattiesburg, MS 39402
Mr. A. Percy Jerome 5,000 50,000
P.O. Box 164
Wesson, MS 39191
FEDEX:
Bobbie Jerome
c/o
147 South Railroad Avenue
Brookhaven, MS 39601
Mr. Dennis Allen 7,500 75,000
4131 Madura Road
Gulf Breeze, FL 32561
Dr. Frank Leggett 20,000 200,000
109 General Robert Blunt Blvd.
Bassfield, MS 39421
William D. Sones 5,000 50,000
147 South Railroad Avenue
Brookhaven, MS 39601
</TABLE>
5.
<PAGE> 27
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PURCHASE WARRANTS WARRANT
PURCHASER SHARES PRICE PRICE
<S> <C> <C> <C> <C>
La Rue Saulters 5,000 50,000
1141 Pecan Drive
Prentiss, MS 39474
Mr. Marion Van Cooley 5,000 50,000
P.O. Box 178
Brookhaven, MS 39601
David Singleton & CRT 50,000 500,000
412 S. Jackson Street
Brookhaven, MS 39601
Special Mailing Instructs:
Mrs. Gloria Britt,
Trust Officer
State Bank & Trust Co.
147 South Railroad Ave.
Brookhaven, MS 39601
James D. Keene 2,500 25,000
904 S. Jackson St.
Brookhaven, MS 39601
Peter Mark 5,000 50,000
5847 San Felipe, Ste. 2930
Houston, TX 77057
Ray Cecrle, et al. 2,500 25,000
c/o Stifel Nicolous, Inc.
9393 W. 110th St.
Suite 450
Overland Park, KS 66210
O'Sullivan Trusts 10,000 100,000
(see John Knapp Andover grp)
Schubert Investments 3,000 30,000
(see John Knapp Andover grp)
John Knapp 10,000 100,000
David H. Knapp
Andover Group, Inc.
910 Travis, Suite 1905
Houston, TX 77002
</TABLE>
6.
<PAGE> 28
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PURCHASE WARRANTS WARRANT
PURCHASER SHARES PRICE PRICE
<S> <C> <C> <C> <C>
Herman T. Wilson, Jr. 10,000 100,000
2001 Kirby Drive
Suite 712
Houston, TX 77024
Mike McCord 10,000 100,000
McCord Investments
2001 Kirby Dr., Ste. 701
Houston, TX 77019
V. Jason Horrell 2,000 20,000
Bell South Comm Syst.
1936 Blue Hills Dr. N.E.
Roanoke, VA 24012
Dr. Thomas P. Weirch 1,000 10,000
4315 Gregory St.
Oklahoma City, OK 73120
Frederick K. Shaftman 10,000 100,000
Bell South Comm Syst.
1936 Blue Hills Dr. N.E.
Roanoke, VA 24012
Mick Mithelavage 2,500 25,000
4117 S.E. Paddock Drive
Lee's Summit, MO 64082
Jupiter Partners
(see Robert Ledoux)
Alan R. Brudos Pen. Plan
(see Robert Ledoux)
Robert Ledoux Pen. Plan 15,000 150,000
Bryan & Edwards
600 Montgomery Street
35th Floor
San Francisco, CA 94111
ProActive Partners 5,000 50,000
ProActive Partners 30,000 300,000
ProActive Partners 65,000 650,000
Dr. Joseph Burnett 10,000 100,000
Joe Burnett
</TABLE>
7.
<PAGE> 29
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PURCHASE WARRANTS WARRANT
PURCHASER SHARES PRICE PRICE
<S> <C> <C> <C> <C>
Joe Burnett TTEE
(Profit Sharing Plan)
1121 Mimosa Drive
Oxford, MS 38855
William R. Walker 3,000 30,000
Counseling and Education Ctr.
400 So. Highland
Memphis, TN 38111
William T. Fields, et al. 50,000 500,000
1114 Belledeer Drive
Tupelo, MS 38801
Sadac Inc. 15,000 150,000
c/o Leo C. Saenger Jr. Pres.
Union Planters National Bank 3,000 30,000
Custodian of Leo Saenger
family trust - #1400030005
6200 Poplar
Memphis, TN 38119-4713
Charles A. Saenger 2,500 25,000
Jill A. Saenger 2,500 25,000
Leo Christopher Saenger, III 2,500 25,000
Revocable Living Trust
dated 6/14/95
Leo C. Sanger, Jr. 15,000 150,000
11605 Studt Avenue, #102
St. Louis, MO 63141
11605 Studt Avenue, #102
St. Louis MO 63141
Revocable Living Trust
dated 1/9/90 for benefit of
Leo Saenger
Dean Witter CDL REF 1721-9
(rcv'd 9/13/95)
Morgan Keegan & Co.
(rcv'd 9/21/95)
</TABLE>
8.
<PAGE> 30
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PURCHASE WARRANTS WARRANT
PURCHASER SHARES PRICE PRICE
<S> <C> <C> <C> <C>
Lawrence Manica 2,500 25,000
c/o Stifel Nicolaus, Inc.
9393 W. 110th St.
Suite 450
Overland Park, KS 66210
Rick Justice 5,000 50,000
2667 S.W. Buena Vista
Buena Vista Drive
Portland, OR 97201
Richard Kreitler 10,000 100,000
Goldman, Sachs & Co.
2600 Ridge Road
Charlottesville, VA 22901
Allan Zafran 10,000 100,000
Goldman, Sachs & Co.
333 S. Grand Ave., 19th Fl.
Los Angeles, CA 90071
Ralph Barnes 5,000 50,000
P.O. Box 54246
Jackson, MS 39288-4246
Dennis W.P. Hallahane 5,000 50,000
Compass Investment Mgt.
Osprey House
78 Wigmore Street
London, W1H 9DQ
John Edward Hayes, Jr. 5,000 50,000
818 Kansas Avenue
Room 1100
Topeka, KS 66612
Dan T. Keel, Jr. M.D. 5,000 50,000
301 Highway 51 North
Suite 3-A
Brookhaven, MS 39601
Dan T. Keel III 5,000 50,000
Morgan Keegan & Co.
Credcent Center - Suite 921
6075 Poplar Avenue
Memphis, TN 38119
</TABLE>
9.
<PAGE> 31
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PURCHASE WARRANTS WARRANT
PURCHASER SHARES PRICE PRICE
<S> <C> <C> <C> <C>
Janet Smith 2,500 25,000
5014-B Wayneland Dr.
Jackson, MS 39211
Hal P. Bailey, Jr. 5,000 50,000
149 Cherokee Drive
Memphis, TN 38111-2605
Clifton B. Phillips 10,000 100,000
43 W. Galloway
Memphis, TN 38111
Michael R. Thomas 5,000 50,000
16 Highland Park
Tupelo, MS 38801
Mr. Michael D. Easterly 5,000 50,000
3060 Peach Tree Road, N.W.
Suite 1620
Atlanta, GA 30305
Dale G. McGee 10,000 100,000
4632 Woodmount Place
Memphis, TN 38117
Braxter P. Irby, M.D. 2,500 25,000
Brookhaven Internal Med.
513-C Brookman Drive
Brookhaven, MS 39601-2399
C. Lanier Robison, III 5,000 50,000
8676 Classic Drive
Memphis, TN 38125
Daniel S. Bowling, III 10,000 100,000
P.O. Box 37619
Jacksonville, FL 32236-7619
Michael F. Lewis 5,000 50,000
8029 Pebble Creek Lake Lane
Ponte Vedra Beach, FL 32082
=============================================================================
</TABLE>
10.
<PAGE> 32
EXHIBIT B
FORM OF WARRANT
<PAGE> 33
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO SALE
OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT
OR AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION.
Void after 5:00 p.m.
Pacific Time
October ____, 2000
PHOENIX NETWORK, INC.
WARRANT TO PURCHASE ___________ SHARES OF COMMON STOCK
THIS CERTIFIES THAT, for value received, ____________________ is
entitled to subscribe for and purchase _______________ shares (as adjusted
pursuant to Section 4 hereof, the "Shares") of the fully paid and nonassessable
Common Stock (as hereinafter defined) of PHOENIX NETWORK, INC., a Delaware
corporation (hereinafter called the "Company"), at a purchase price of three
dollars ($3.00) per share (as adjusted pursuant to Section 4 hereof) (the
"Warrant Price"), subject to the provisions and upon the terms and conditions
hereinafter set forth and set forth in the Preferred Stock and Warrant Purchase
Agreement dated October __, 1995 by and among the Company and the Purchasers
named therein (the "Purchase Agreement"). As used herein, the term "Common
Stock" shall mean the Company's presently authorized class of common stock, par
value $0.001 per share. The Company shall not create any class of common stock
which carries any rights to dividends or assets differing in any respect from
the rights of the Common Stock on the date hereof.
1. CONDITIONS TO EXERCISE.
(a) EXERCISABILITY. The purchase right represented by
this Warrant is exercisable, in whole or in part, at any time after the date
hereof until terminated pursuant to subsection (b) below.
(b) TERMINATION. This Warrant shall terminate at the
earlier of (i) 5:00 p.m., Pacific Time, on October ____, 2000, or (ii) 5:00
p.m., Pacific Time, on the day preceding the closing of the Company's sale of
all or substantially all of its assets to another entity that is not an
Affiliate (as defined in Rule 402 promulgated under the Securities Act of 1933,
as amended) or the acquisition of the Company by another entity that is not an
Affiliate by means of a merger
1.
<PAGE> 34
or consolidation resulting in the holders of more than 50% of the outstanding
Common Stock of the Company receiving securities or consideration issued, or
caused to be issued, by the acquiring entity. The Company agrees to give the
holder hereof thirty (30) days prior written notice of the anticipated date of
termination of this Warrant pursuant to subsection (b)(ii) above.
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject
to Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part, by the surrender of this
Warrant (with a duly executed notice of exercise in the form attached hereto as
Annex 1) at the principal office of the Company (as set forth in Section 12
below) and by the payment to the Company, by check or wire transfer or
cancellation of indebtedness, of an amount equal to the then applicable Warrant
Price per share multiplied by the number of Shares then being purchased. In the
event of any exercise of the rights represented by this Warrant, certificates
for the Shares of stock so purchased shall be in the name of, and delivered to,
the holder hereof, or as such holder may direct (subject to the restrictions
upon transfer contained herein and upon payment by such holder hereof of any
applicable transfer taxes). Such delivery shall be made within 10 days after
exercise of the Warrant and at the Company's expense and, unless this Warrant
has been fully exercised or expired, a new Warrant representing the portion of
the Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder hereof within 10 days after
exercise of the Warrant.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares which may
be issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable, and
free from all taxes, liens, and charges with respect to the issue thereof.
During the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved for
issuance upon exercise of the purchase rights evidenced by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant.
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number
and kind of securities purchasable upon the exercise of this Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) RECLASSIFICATION OF OUTSTANDING SECURITIES. In case
of any reclassification or change of outstanding securities of the class
issuable upon exercise of this Warrant (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), the Company shall execute a new
Warrant, providing that the holder of this Warrant shall have the right to
exercise such new Warrant upon payment of the then applicable Warrant Price and
procure upon such exercise in lieu of each share of Common Stock theretofore
issuable upon exercise of this Warrant the kind and amount of shares of stock,
other securities, money, and property receivable upon such reclassification or
change by a holder of one share of Common Stock. Such new Warrant shall provide
for
2.
<PAGE> 35
adjustments that shall be as nearly equivalent as may be practicable, as
determined by the Board of Directors of the Company in their good faith
discretion, to the adjustments (including adjustments in the Warrant Price)
provided for in this Section 4. The provisions of this subsection (a) shall
similarly apply to successive reclassifications or changes.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company
at any time while this Warrant remains outstanding and unexpired shall subdivide
or combine its Common Stock, the Warrant Price shall be proportionately
decreased in the case of a subdivision or increased in the case of a
combination.
(c) STOCK DIVIDENDS. If the Company at any time while
this Warrant is outstanding and unexpired shall pay a dividend with respect to
Common Stock payable in, or make any other distribution with respect to Common
Stock (except any distribution specifically provided for in the foregoing
subsection (a) or (b)) of, Common Stock, then the Warrant Price shall be
adjusted, from and after the date of determination of shareholders entitled to
receive such dividend or distribution, to that price determined by multiplying
the Warrant Price in effect immediately prior to such date of determination by a
fraction (a), the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution, and
(b) the denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
(d) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment
in the Warrant Price, the number of shares of Common Stock purchasable hereunder
shall be adjusted, to the nearest whole share, to the product obtained by
multiplying the number of shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall be
the Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Warrant Price immediately thereafter.
5. NOTICE OF ADJUSTMENTS. Whenever any Warrant Price shall be
adjusted pursuant to Section 4 hereof, the Company shall prepare a certificate
signed by its chief financial officer setting forth, in reasonable detail, the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated, and the Warrant Price and number of shares
issuable upon exercise of the Warrant after giving effect to such adjustment,
and shall cause copies of such certificate to be mailed (by certified or
registered mail, postage prepaid) to the holder of this Warrant as set forth in
Section 12 hereof.
6. FRACTIONAL SHARES. No fractional share of Common Stock will
be issued in connection with any exercise hereunder, but in lieu of such
fractional share the Company shall make a cash payment therefor upon the basis
of the fair market value of such Common Stock then in effect, as determined in
the good faith judgment of the Board of Directors.
3.
<PAGE> 36
7. COMPLIANCE WITH SECURITIES ACT; NON-TRANSFERABILITY OF
WARRANT; DISPOSITION OF SHARES OF COMMON STOCK.
(a) COMPLIANCE WITH SECURITIES ACT. The holder of this
Warrant, by acceptance hereof, agrees that this Warrant and the shares of Common
Stock to be issued upon exercise hereof are being acquired for investment and
that he will not offer, sell, or otherwise dispose of this Warrant or any shares
of Common Stock to be issued upon exercise hereof except under circumstances
which will not result in a violation of the Securities Act of 1933, as amended
(the "Act"). Upon exercise of this Warrant, the holder hereof shall confirm in
writing, in a form reasonably satisfactory to the Company, that the shares of
Common Stock so purchased are being acquired for investment and not with a view
toward distribution or resale. This Warrant and all shares of Common Stock
issued upon exercise of this Warrant (unless registered under the Act) shall be
stamped or imprinted with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT PURSUANT TO RULE
144 UNDER SAID ACT OR AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR
RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION."
(b) TRANSFERABILITY OF WARRANT. This Warrant may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws; provided such compliance shall be evidenced
prior to such transfer or assignment in a form reasonably acceptable to the
Company.
(c) DISPOSITION OF SHARES OF COMMON STOCK. With respect
to any offer, sale, or other disposition of any shares of Common Stock acquired
pursuant to the exercise of this Warrant prior to registration of such shares,
the holder hereof and each subsequent holder of this Warrant agrees to give
written notice to the Company prior thereto, describing briefly the manner
thereof, together with a written opinion of such holder's counsel, if requested
by the Company, to the effect that such offer, sale, or other disposition may be
effected without registration or qualification (under the Act as then in effect
or any federal or applicable state securities law then in effect) of such shares
of Common Stock and indicating whether or not under the Act certificates for
such shares of Common Stock to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on transferability in order to
ensure compliance with the Act. Promptly upon receiving such written notice and
satisfactory opinion, if so requested, the Company, as promptly as practicable,
shall notify such holder that such holder may sell or otherwise dispose of such
shares of Common Stock, all in accordance with the terms of the notice delivered
to the Company. If a determination has been made pursuant to this subsection
(c) that the opinion of counsel for the holder is not reasonably satisfactory to
4.
<PAGE> 37
the Company, the Company shall so notify the holder promptly after such
determination has been made. Notwithstanding the foregoing, such shares of
Common Stock may be offered, sold, or otherwise disposed of in accordance with
Rule 144 under the Act, provided that the Company shall have been furnished with
such information as the Company may request to provide a reasonable assurance
that the provisions of Rule 144 have been satisfied. Each certificate
representing the shares of Common Stock thus transferred (except a transfer
pursuant to Rule 144) shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with the Act, unless in the
aforesaid opinion of counsel for the holder, such legend is not required in
order to ensure compliance with the Act. The Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions.
8. REGISTRATION RIGHTS. The holder of this Warrant and any Shares
for which this Warrant is exercisable shall have the registration rights
provided for in the Purchase Agreement.
9. RIGHTS OF STOCKHOLDERS. Except as otherwise provided in the
Certificate of Designations of the Series F Preferred Stock of the Company, no
holder of the Warrant shall be entitled to vote or receive dividends or be
deemed the holder of Common Stock or any other securities of the Company which
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the holder of this
Warrant, as such, any of the rights of a stockholder of the Company or any right
to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised and the Shares purchasable upon the exercise
hereof shall have become deliverable, as provided herein.
10. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, or dilute or seek to dilute the effect of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company will take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of stock upon the exercise of this Warrant.
11. NOTICES OF RECORD DATE, ETC. In the event of:
(a) Any taking by the Company of a record of the holders
of any class of securities for the purpose of determining the holders thereof
who are entitled to receive any
5.
<PAGE> 38
dividend or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right (other than the issuance of Shares on
the exercise of this Warrant and other than issuances that will not result in an
adjustment in the Warrant Price) (a "Distribution");
(b) Any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, or any
transfer, lease or otherwise dispose of all or substantially all of the assets
of the Company to or consolidation or merger of the Company with or into any
other person (a "Reorganization"); or
(c) Any voluntary or involuntary dissolution, liquidation,
or winding up of the Company (a "Dissolution");
then and in each such event the Company will mail or
cause to be mailed to the holder of this Warrant a notice specifying (i) the
date of any such Distribution stating the amount and character of such
Distribution, or (ii) the date on which any Reorganization is to take place, and
the time, if any is to be fixed, as of which the holders of Common Stock shall
be entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such Reorganization, or (iii) the date of any such
Dissolution and the assets and other property that will be distributed pursuant
to such Dissolution and shall, in each case, set forth such facts relating
thereto as shall be reasonably necessary to indicate the effect of such action
on the Common Stock. Such notice shall be mailed at least 30 days prior to the
date therein specified.
12. ADDRESSES. Any notice required or permitted hereunder shall
be in writing and shall be mailed by registered or certified mail, postage
prepaid, or otherwise delivered by hand or by messenger, addressed to the
appropriate party as set forth below or at such other address as the Company or
the holder hereof shall have furnished to the other party.
If to the Company: Phoenix Network, Inc.
550 California Street, 11th Floor
San Francisco, CA 94104
Attn: Chief Financial Officer
With a copy to: David R. Lee, Esq.
Cooley Godward Castro
Huddleson & Tatum
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
6.
<PAGE> 39
If to the Holder:
-------------------------------
-------------------------------
-------------------------------
13. GOVERNING LAW. This Warrant shall be governed by and construed
in accordance with the laws of the State of California.
14. AMENDMENT. Certain rights of the holders of this Warrant are
set forth in the Purchase Agreement and may be amended in accordance with the
terms of the Purchase Agreement. The terms specifically set forth in this
Warrant may not be amended except with consent of the Company and the holders of
sixty-six and two-thirds percent (66 2/3%) in interest of the outstanding
Warrants.
Date of Grant: October ____, 1995
PHOENIX NETWORK, INC.
By:
-----------------------------------
Wallace M. Hammond
Chief Executive Officer
7.
<PAGE> 40
ANNEX 1
NOTICE OF EXERCISE
TO: PHOENIX NETWORK, INC.
1. The undersigned hereby elects to purchase ________ shares of
Common Stock of PHOENIX NETWORK, INC., pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full, together with all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing the
Shares in the name of the undersigned or in such other name as is specified
below:
-----------------------------------
(Name)
-----------------------------------
-----------------------------------
(Address)
-----------------------------------
(Signature)
- ---------------------------------------
(Date)
<PAGE> 41
EXHIBIT C
CERTIFICATE OF DESIGNATION OF PREFERENCES OF
SERIES F PREFERRED STOCK
<PAGE> 42
PHOENIX NETWORK, INC.
CERTIFICATE OF
DESIGNATIONS OF
SERIES F PREFERRED STOCK
-----------
The undersigned, WALLACE M. HAMMOND, the President of PHOENIX NETWORK,
INC., a Delaware corporation (the "Corporation"), the Restated Certificate of
Incorporation of which was filed in the office of the Secretary of State of the
State of Delaware on December 12, 1990, acting pursuant to Section 151 of the
General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY that at a
meeting of the Board of Directors of the Corporation duly convened and held on
September 29, 1995 the following resolution was adopted:
RESOLVED, that pursuant to Article IV of the Corporation's
Restated Certificate of Incorporation relating to the shares of the
Corporation, the Board of Directors hereby authorizes, fixes and
creates a series of Preferred Stock, par value $.01 per share, having
the following powers, preferences, designations, rights and other
characteristics:
A. One Million Two Hundred Thousand (1,200,000) of the authorized
shares of Preferred Stock are hereby designated "Series F Preferred Stock."
B. The rights, preferences, privileges, restrictions and other
matters relating to the Series F Preferred Stock are as follows:
1. RANKING. The Series F Preferred Stock shall rank as to
dividends and upon liquidation, dissolution or winding up of the Corporation (i)
on a parity with the Corporations's Series A Preferred and Series B Preferred
Stock and with any class or series of Preferred Stock which by its express terms
provides that it ranks on a parity with the Series F Preferred Stock
(collectively, the "Pari Passu Stock"), and (ii) prior to any class of common
equity of the Corporation and any other class or series of capital stock which
by its express terms provides that it ranks junior to the Series F Preferred
Stock or which does not expressly provide for any ranking as to dividends,
liquidation, dissolution or winding up (collectively, the "Junior Stock").
1.
<PAGE> 43
2. DIVIDENDS.
(a) The holders of Series F Preferred Stock shall
be entitled to receive cumulative dividends at the rate of nine percent (9%)
per annum per share (as adjusted for any combinations, consolidations, stock
distributions or dividends, stock splits, reverse stock splits or other similar
transactions with respect to such shares) payable, when, as and if declared by
the Board of Directors out of legally available funds therefor. Subject to
Section 2(b) below, such dividends shall be payable in cash annually on January
1st of each year (unless such day is not a business day, in which event on the
next succeeding business day) (each a "Dividend Payment Date"), commencing on
the next Dividend Payment Date succeeding the date of original issue of such
shares of Series F Preferred Stock, to holders of record as they appear on the
register of the Corporation for the Series F Preferred Stock on the 15th day
immediately preceding such Dividend Payment Date. Dividends on shares of
Series F Preferred Stock shall be computed on the basis of a 360-day year of
twelve 30-day months and shall accumulate from the date of original issue of
such shares. Any declaration of a dividend may be for a portion, or all, of
the then accumulated dividends. Any accumulated dividends that are not paid
will continue to cumulate in the manner described above.
(b) Solely at the option of the Corporation, dividends may
be paid, instead of in cash, on declaration of the Board of Directors, in shares
of the Corporation's common stock, par value $.001 per share (the "Common
Stock"), to the extent of legally available surplus of the Corporation, in
respect of any or all Dividend Payment Dates. The aggregate par value of Common
Stock issued in payment of any dividend shall be transferred from the legal
surplus of the Corporation to its capital at the time of such payment. If a
dividend is to be paid in Common Stock, the number of shares of Common Stock to
be issued in payment of the dividend with respect to each outstanding share of
Series F Preferred Stock shall be determined by dividing the amount of the
dividend to be paid with respect to such share of Series F Preferred Stock by an
amount equal to the Fair Market Value (as defined in Section 5(c) below) of the
Common Stock on the date such dividend is declared by the Board of Directors.
Any such shares distributed as a dividend shall first be registered on a
registration statement with the Securities and Exchange Commission (the "SEC")
and such registration statement shall have been declared effective by the SEC.
(c) No dividend or distribution in cash, shares of capital
stock or other property shall be paid or declared and set apart for payment on
any date on or in respect of (i) the Junior Stock (any such dividend or
distribution on such stock hereinafter referred to as a "Junior Stock
Distribution"), or (ii) any Pari Passu Stock (any such dividends or
distributions on such stock hereinafter referred to as a "Pari Passu Stock
Distribution"), unless, contemporaneously therewith or with respect to the
immediately preceding Dividend Payment Date for the Series F Preferred Stock, a
dividend or distribution is or was paid or declared and set apart for payment on
or in respect of the Series F Preferred Stock, payable at the rate set forth
herein and payable on a date no later than the payment date set forth for such
Junior Stock Distribution or Pari Passu Stock Distribution, as the case may be.
2.
<PAGE> 44
(d) In no event may the Corporation (i) make a Junior
Stock Distribution or a Pari Passu Stock Distribution while there are dividends
in arrears on the Series F Preferred Stock or (ii) redeem, purchase or
otherwise acquire for value any Junior Stock or Pari Passu Stock unless, prior
to or contemporaneously with such redemption, purchase or acquisition the
Series F Preferred Stock is redeemed in full (in the case of redemption,
purchase or acquisition of Junior Stock) or on a pro rata basis based on
liquidation preference (in the case of redemption, purchase or acquisition of
Pari Passu Stock).
3. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary, the holders
of the Series F Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Junior Stock, the amount of Ten Dollars
($10.00) per share in cash (as adjusted for any stock subdivisions,
combinations or consolidations or any stock distributions or dividends with
respect to such shares) plus an amount in cash equal to all accrued but unpaid
dividends (the "Liquidation Preference") on each share of Series F Preferred
Stock then held by them and no more. If upon the occurrence of such event, the
assets and funds thus distributed among the holders of the Series F Preferred
Stock and the Pari Passu Stock shall be insufficient to permit the payment to
such holders of their Liquidation Preference, then the entire assets and funds
of the Corporation legally available for distribution shall be distributed
among the holders of the Series F Preferred Stock and the Pari Passu Stock
ratably in accordance with the respective amounts which would be payable on
such shares if all amounts payable thereon were paid in full.
(b) After payment to the holders of the Series F
Preferred Stock of the Liquidation Preference, the entire remaining assets and
funds of the Corporation legally available for distribution, if any, shall be
distributed among the holders of the Junior Stock in accordance with the
corporation's Certificate of Incorporation or any other Certificate of
Designation with respect to the Preferred Stock.
(c) For the purposes of this Section 3, neither
the merger or the consolidation of the Corporation into or with another
corporation, nor the merger or consolidation of any other corporation into or
with the Corporation, nor the voluntary sale, conveyance, exchange, transfer or
other disposition (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Corporation, shall be deemed to be a voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation.
4. VOTING RIGHTS.
(a) Except as otherwise expressly provided herein
or as required by law, the Series F Preferred Stock shall vote together with
the Series A Preferred Stock, Series B Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and the Common Stock as a single class. The
holder of each share of Series F Preferred Stock shall be entitled to that
3.
<PAGE> 45
number of votes equal to the number of shares of Common Stock into which such
share could then be converted pursuant hereto and shall be entitled to notice
of all stockholders' meetings in accordance with the Bylaws of the Corporation.
(b) So long as at least Two Hundred Thousand
(200,000) shares of Series F Preferred Stock remain outstanding, the holders of
the Series F Preferred Stock then outstanding shall be entitled, voting
together as a class, to elect two (2) directors of the Corporation at each
election of directors. If there shall cease to be at least One Hundred Fifty
Thousand (150,000) shares of Series F Preferred Stock outstanding but there
shall remain at least Seventy Five Thousand (75,000) shares of such stock
outstanding, the holders of the Series F Preferred Stock then shall be entitled
voting as a class to elect one (1) director. Any vacancy occurring because of
the death, resignation or removal of a director elected by the holders of
Series F Preferred Stock shall be filled by the vote or written consent of the
holders of a majority of the shares of Series F Preferred Stock.
5. CONVERSION. The holders of the Series F Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series F
Preferred Stock shall be convertible, at the option of the holder thereof, or,
with respect to all of the Series F Preferred Stock, upon the vote or written
consent of the holders of at least sixty-six and two thirds percent (66 2/3%) in
interest of the Series F Preferred Stock, at any time after the date of issuance
of such shares, at the office of the Corporation or any transfer agent for such
stock, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing ten dollars ($10.00) (the "Original Issue Price")
plus all accrued and unpaid dividends, on each share of Series F Preferred Stock
by the then applicable Conversion Price (as hereinafter defined) in effect on
the date the certificate is surrendered for conversion. The price at which
shares of Common Stock shall be deliverable upon conversion (the "Conversion
Price") shall initially be two dollars and fifty cents ($2.50) per share of
Common Stock. Such initial Conversion Price shall be adjusted as hereinafter
provided.
(b) MECHANICS OF CONVERSION. Before any holder
of Series F Preferred Stock shall be entitled to convert the same into shares
of Common Stock, he shall surrender the certificate or certificates thereof,
duly endorsed, at the office of the Corporation or of any transfer agent for
such stock, and shall give written notice to the Corporation at such office
that he elects to convert the same and shall state therein the name or names in
which he wishes the certificate or certificates for shares of Common Stock to
be issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series F Preferred Stock, a
certificate or certificates for the number of shares of Common Stock to which
he shall be entitled as aforesaid. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of surrender
of the shares of Series F Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
4.
<PAGE> 46
(c) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING
ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of
this Section 5(c), the following definitions shall apply:
(1) "OPTIONS" shall mean rights,
options, or warrants to subscribe for, purchase or otherwise acquire either
Common Stock or Convertible Securities.
(2) "ORIGINAL ISSUE DATE" shall
mean the date on which a share of Series F Preferred Stock was first issued.
(3) "CONVERTIBLE SECURITIES"
shall mean any evidences of indebtedness, shares (other than Common Stock and
Series F Preferred Stock) or other securities convertible into or exchangeable
for Common Stock.
(4) "ADDITIONAL SHARES OF COMMON
STOCK" shall mean all shares of Common Stock issued (or, pursuant to Section
5(c)(iii), deemed to be issued) by the Corporation after the Original Issue
Date, other than shares of Common Stock issued or issuable:
(A) upon conversion of
shares of Series F Preferred Stock;
(B) to officers,
directors or employees of the Corporation, under a stock option plan approved by
the Board of Directors, to the extent such issuances do not exceed 15% of the
fully diluted Common Stock outstanding on the date of the original issue of
Series F Preferred Stock;
(C) as a dividend or
distribution on the Preferred Stock authorized and outstanding on the date
hereof in accordance with the terms of any applicable Certificate of
Designations; or
(D) for which
adjustment of the Conversion Price is made pursuant to Section 5(c)(vi).
(5) "FAIR MARKET VALUE" shall
mean the average closing price of the Company's Common Stock as listed on the
American Stock Exchange over the twenty (20) business days immediately preceding
the determination of Fair Market Value or in the event such Common Stock is not
listed on the American Stock Exchange then on any other recognized exchange
using the same twenty (20) day trading period or if not listed on any exchange,
then Fair Market Value shall be determined in good faith by the Board of
Directors of the Corporation.
(ii) NO ADJUSTMENT OF CONVERSION PRICE.
No adjustment in the Conversion Price of a particular share of Series F
Preferred Stock shall be made in respect
5.
<PAGE> 47
of the issuance of Additional Shares of Common Stock unless the consideration
per share for an Additional Share of Common Stock issued or deemed to be issued
by the Corporation is less than the Fair Market Value in effect on the date of
such issuance.
(iii) DEEMED ISSUE OF ADDITIONAL SHARES
OF COMMON STOCK. Subject to paragraph 5(c)(i)(4)(B) herein, in the event the
Corporation at any time or from time to time after the Original Issue Date shall
issue any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities then entitled to receive any
such Options or Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein designed to protect against dilution) of Common Stock issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the close
of business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Section 5(c)(v) hereof) of such Additional Shares of
Common Stock would be less than the Fair Market Value on the date of issuance,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(1) no further adjustments in
the Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(2) if such Options or
Convertible Securities by their terms provide, with the passage of time or
otherwise, for any increase in the consideration payable to the Corporation, or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange under
such Convertible Securities (provided, however, that no such adjustment of the
Conversion Price shall affect Common Stock previously issued upon conversion of
the Series F Preferred Stock);
(3) upon the expiration of any
such Options or any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Conversion Price computed
upon the original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(A) in the case of
Convertible Securities or Options for Common Stock the only Additional Shares of
Common Stock issued were the shares of Common Stock, if any, actually issued
upon the exercise of such Options or the conversion
6.
<PAGE> 48
or exchange of such Convertible Securities and the consideration received
therefor was the consideration actually received by the Corporation for the
issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue of all
such Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange, and
(B) in the case of
Options for Convertible Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued at the time of issue of
such Options and the consideration received by the Corporation for the
Additional Shares of Common Stock deemed to have been then issued was the
consideration actually received by the Corporation for the issue of all such
Options, whether or not exercised, plus the consideration deemed to have been
received by the Corporation (determined pursuant to Section 5(c)(v)) upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(4) no readjustment pursuant to
clauses (2) or (3) above shall have the effect of increasing the Conversion
Price to an amount which exceeds the lower of (A) the Conversion Price on the
original adjustment date, or (B) the Conversion Price that would have resulted
from any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date;
(5) in the case of any Options
that expire by their terms not more than thirty (30) days after the date of
issue thereof, no adjustment of the Conversion Price shall be made, except as to
shares of Series F Preferred Stock converted in such period, until the
expiration or exercise of all such Options, whereupon such adjustment shall be
made in the same manner provided in clause (3) above; and
(6) if any such record date
shall have been fixed and such Options or Convertible Securities are not issued
on the date fixed thereof, the adjustment previously made in the Series F
Conversion Price which became effective on such record date shall be canceled as
of the close of business on such record date, and shall instead be made on the
actual date of issuance, if any.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation
shall issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section 5(c)(iii)) without
consideration or for a consideration per share less than the Fair Market Value
in effect on the date of and immediately prior to such issue, then and in such
event, such Conversion Price shall be adjusted, concurrently with such issue, to
the price (calculated to the nearest cent) determined by multiplying the
Conversion Price by a fraction (a) the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to the issuance of such
Additional Shares of Common Stock plus the number of shares of Common Stock
which the aggregate consideration for the total number of such Additional Shares
of Common Stock so issued would purchase at the Fair Market Value, and
7.
<PAGE> 49
(b) the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance of such Additional Shares of
Common Stock plus the number of such Additional Shares of common stock so
issued.
(v) DETERMINATION OF CONSIDERATION. For
purposes of this Section 5(c), the consideration received by the Corporation for
the issue of any Additional Shares of Common Stock shall be computed as follows:
(1) CASH AND PROPERTY. Such
consideration shall:
(A) insofar as it
consists of cash, be computed at the aggregate amount of cash received by the
Corporation excluding amounts paid or payable for accrued interest or accrued
dividends;
(B) insofar as it
consists of property other than cash, be computed at the fair value thereof at
the time of such issue, as determined in good faith by the Board of Directors;
and
(C) in the event
Additional Shares of Common Stock are issued together with other shares or
securities or other assets of the Corporation for consideration which covers
both, be the proportion of such consideration so received, computed as provided
in clauses (A) and (B) above, as determined in good faith by the Board of
Directors.
(2) OPTIONS AND CONVERTIBLE
SECURITIES. The consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been issued pursuant to Section
5(c)(iii), relating to Options and Convertible Securities, shall be determined
by dividing
(A) the total amount, if
any, received or receivable by the Corporation as consideration for the issue of
such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein designed to protect against
dilution) payable to the Corporation upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or in the case of Options
for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(B) the maximum number
of shares of Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein designed to protect against
dilution) issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(vi) ADJUSTMENTS FOR COMBINATIONS OR
SUBDIVISIONS OF COMMON STOCK. In the event the Corporation at any time or from
time to time after the Original Issue Date shall declare or pay any dividend on
the Junior Stock in Common Stock or
8.
<PAGE> 50
in any right to acquire Common Stock, or shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock (by stock split, reclassification or otherwise), or in the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
then the Conversion Price in effect immediately prior to such event shall,
concurrently with the effectiveness of such event, be proportionately decreased
or increased, as appropriate.
(d) REDEMPTION.
(i) RIGHT TO REDEEM AND VOLUNTARY
CONVERSION. Any or all of the outstanding shares of Series F Preferred Stock
shall be redeemable by the Corporation in the event that the market price of the
Corporation's outstanding Common Stock (as quoted on any national or regional
securities exchange or automated quotation system on which or through which the
Corporation's Common Stock is traded) has equaled or exceed for a period of at
least twenty (20) consecutive trading days 200% of the Conversion Price in
effect during such period. In the event that any holder of Series F Preferred
Stock has not responded to the Corporation's notice of redemption within ten
(10) days, then such Series F Preferred shall be deemed to be a voluntary
conversion of such Series F Preferred Stock into Common Stock by the holder
pursuant to Section 5(a) above.
(ii) MECHANICS OF REDEMPTION. Before
the Corporation shall be entitled to redeem any of the shares of Series F
Preferred Stock, it shall give written notice to each holder thereof whose
shares of Series F Preferred Stock are to be redeemed indicating the number of
shares of Series F Preferred Stock to be redeemed. Each holder thereof shall,
as soon as practicable thereafter, surrender its certificates for such shares,
duly endorsed, at the office of the Corporation or of any transfer agent for
such shares, at which time the Corporation shall pay to such holder the
Redemption Price (defined below) for each such share to be redeemed. The
Redemption Price shall be payable in cash or by check, which need not be
certified. Such redemption shall be deemed to have been made immediately prior
to the close of business on the date of tender of the Redemption Price for the
shares of Series F Preferred Stock to be redeemed.
(iii) REDEMPTION PRICE DEFINED. The
"Redemption Price" shall mean the Original Issue Price plus all accrued but
unpaid dividends on each share of Series F Preferred Stock to be redeemed.
(e) OTHER DISTRIBUTIONS. In the event the
Corporation shall at any time or from time to time make or issue, or fix a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the
Corporation or any of it subsidiaries other than Additional Shares of Common
Stock, then in each such event provision shall be made so that the holders of
Series F Preferred Stock shall receive, upon the conversion thereof, the
securities of the Corporation which they would have received had their stock
been converted into Common Stock on the date of such event.
9.
<PAGE> 51
(f) NO IMPAIRMENT. The Corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 5 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series F Preferred Stock against impairment.
(g) CERTIFICATES AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of the Conversion Price pursuant
to this Section 5, the Corporation shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series F Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series F Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of Series F Preferred Stock.
(h) NOTICES OF RECORD DATE. In the event of any
taking by the Corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive Additional
Shares of Common Stock, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property, or
to receive any other right, the Corporation shall mail to each holder of Series
F Preferred Stock at least twenty (20) days prior to the date specified therein,
a notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution, security or right, and the amount and
character of such dividend, distribution, security or right.
(i) ISSUE TAXES. The Corporation shall pay any
and all issue and other taxes that may be payable in respect of any issue or
delivery of shares of Common Stock on conversion of shares of Series F Preferred
Stock pursuant hereto; provided, however, that the Corporation shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such conversion.
(j) RESERVATION OF STOCK ISSUABLE UPON
CONVERSION. The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose
of effecting the conversion of the shares of the Series F Preferred Stock,
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series F
Preferred Stock; and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the Series F Preferred Stock, the Corporation will
take such corporate action as may, in the opinion of its counsel, be
10.
<PAGE> 52
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose, including, without
limitation, engaging in best efforts to obtain the requisite shareholder
approval of any necessary amendment to these Articles.
(k) FRACTIONAL SHARES. No fractional share shall
be issued upon the conversion of any share or shares of Series F Preferred
Stock. All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series F Preferred Stock by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a sum
in cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board of Directors of the
Corporation).
(l) NOTICES. Any notice required by the
provisions of this Section 4 to be given to the holders of shares of Series F
Preferred Stock shall be deemed given if deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his address
appearing on the books of the Corporation.
(m) ADJUSTMENTS. In case of any reorganization
or any reclassification of the capital stock of the Corporation, any
consolidation or merger of the Corporation with or into another corporation or
corporations, or the conveyance of all or substantially all of the assets of the
Corporation to another corporation, each share of Series F Preferred Stock shall
thereafter be convertible into the number of shares of stock or other securities
or property (including cash) to which a holder of the number of shares of Common
Stock deliverable upon conversion of such share of Series F Preferred Stock
would have been entitled upon the record date of (or date of, if no record date
is fixed) such reorganization, reclassification, consolidation, merger or
conveyance; and, in any case, appropriate adjustment (as determined by the Board
of Directors) shall be made in the application of the provisions herein set
forth with respect to the rights and interests thereafter of the holders of such
Series F Preferred Stock, to the end that the provisions set forth herein shall
thereafter be applicable, as nearly as equivalent as is practicable, in relation
to any shares of stock or the securities or property (including cash) thereafter
deliverable upon the conversion of the shares of such Series F Preferred Stock.
6. RESTRICTIONS AND LIMITATIONS. So long as at least
Two Hundred Thousand (200,000) shares of Series F Preferred Stock remain
outstanding, the Corporation shall not, without the vote or written consent by
the holders of not less than sixty-six and two thirds percent (66 2/3%) in
interest of the then outstanding shares of Series F Preferred Stock voting
together as a single class, amend, repeal or waive any provision of, or add any
provision to, the Corporation's Certificate of Incorporation or Bylaws if such
action would materially and adversely alter the preferences, rights, privileges
or powers of, or the restrictions provided for the benefit of, the Preferred
Stock.
11.
<PAGE> 53
7. AMENDMENT. Any term relating to the Series F
Preferred Stock may be amended only with the vote or written consent of holders
of not less than sixty-six and two thirds percent (66 2/3%) in interest of all
Series F Preferred Stock then outstanding. Any such amendment shall be binding
upon the Corporation and any holder of Series F Preferred Stock.
IN WITNESS WHEREOF, I have executed this Certificate this ____ day of
October, 1995.
----------------------------------
WALLACE M. HAMMOND
President
ATTEST:
- ---------------------------------------
DAVID R. LEE
Assistant Secretary
12.
<PAGE> 54
SCHEDULE 3.8(d)
LITIGATION
On January 11, 1995, a company named Chester House Industries
apparently filed a complaint in the Supreme Court, State of New York, Chester
County, against the Company and NYNEX alleging breach of contract and seeking
$45,000 in damages. The Company received a Summons with notice from the court
in February which did not contain or explain the nature of the complaint. The
Company is unaware of who Chester House Industries is or the nature of the
complaint. Their lawyer listed in the complaint was not communicative during
telephone conversations with the Company. The Company has retained an attorney
in New York who tried to obtain a copy of the complaint and recently filed a
Notice of Motion to Dismiss the case based upon the plaintiff not serving the
complaint within twenty days after demand.
In late April of this year the Company received a compliant filed in
the U.S. District Court, Southern District of New York by Sunrise Financial
Group, Inc. ("Sunrise") against Thomas Bell and the Company. They allege that
Mr. Bell entered into an agreement with Sunrise to issue an option to purchase
125,000 shares of his personal Phoenix Network stock at $1.50 per share.
Sunrise alleges that they exercised that option and Mr. Bell refused to honor
the request. Their election to exercise would have resulted in a 98,214 net
share stock payment to Sunrise which was trading at $7.00 per share at the
time, they claim. Phoenix is included in the suit as a result of its failure
to register the shares. The Company has provided a copy of the complaint to
its counsel but has not taken any other action.
On September 21, 1995, Laurence Paradise, the Company's former Regional Vice
President of Sales, filed a complaint against the Company alleging claims for
breach of an implied employment contract to terminate only for good cause, and
failure to pay commissions. This action arises out of the Company's
termination of Mr. Paradise's employment on December 31, 1993, and the alleged
failure of the Company to pay override commissions during Mr. Paradise's
employment. The complaint seeks damages in an unspecified amount in excess of
the jurisdictional minimum of $25,000. The Company's response to the complaint
is due on October 31, 1995. The Company believes the action is without merit
and intends to vigorously defend against it.
<PAGE> 1
EXHIBIT 10.4
PURCHASE AGREEMENT
PURCHASE OF SHARES
THIS PURCHASE AGREEMENT is made as of the 18th day of September, 1995
by and between the purchaser, whose name and address are shown on the signature
page to this Purchase Agreement (the "Purchaser") and Phoenix Network, Inc., a
Delaware Corporation, with its principal offices at 550 California Avenue, San
Francisco, California 94104, United States of America (the "Company").
WHEREAS, the Company has duly authorized the issuance, sale and
delivery of up to 2,300,000 shares (the "Shares"), of its common stock, par
value $0.001 per share.
WHEREAS, the Shares are being offered and sold by the Company to
Purchaser in reliance upon and in conformity with an exemption from the
registration requirements of the United States Securities Act of 1933, as
amended (the "Securities Act") pursuant to Regulation S under the Securities Act
("Regulation S");
WHEREAS, the placement of the Shares has been arranged by Oakes,
Fitzwilliams & Co. S.A., ("OFCO") as placement agent, (the "Placement Agent")
pursuant to an agreement (the "Placement Agent Agreement") between the Company
and OFCO;
WHEREAS, the Company has prepared and Purchaser has received an
Offering Memorandum dated September 7, 1995 describing, among other things, the
Shares and providing material information about the Company and the terms of
the offering (the "Offering Memorandum");
WHEREAS, the Company wishes to offer and sell to Purchaser, and
Purchaser wishes to buy from the Company, the aggregate number of Shares set
opposite Purchaser's address on the signature page to this Purchase Agreement
for delivery in accordance with this Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Purchase Agreement, the undersigned agree as
follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE THE SHARES.
(a) On the basis of the representations, warranties and agreements
contained in this Purchase Agreement but subject to the terms and conditions
set forth in this Purchase Agreement, the Company agrees to issue and sell to
Purchaser, and Purchase agrees to buy from the Company, on September 18, 1995
or on such other date as may be agreed upon by the Company and Purchaser (the
"Closing Date"), the aggregate number of Shares set out opposite Purchaser's
address on the signature page of this Purchase Agreement (the "Designated
Shares"). The price for the Designated Shares shall be $2.75 per Designated
Share, and Purchaser shall pay to the Company the aggregate amount set out
opposite Purchaser's address on the signature page to this Purchase Agreement
(the "Purchase Price"). Payment of the Purchase Price for the
1.
<PAGE> 2
Designated Shares shall be made by Purchaser to the Company on the Closing Date
by wire transfer of immediately available funds in United States Dollars to the
account of Phoenix Network Inc. at Union Bank, 350 California Street, San
Francisco, California 94104. Account Number: 7000139402. ABA Number: 121000496.
Attention Grace Huey (415/705-7177).
(b) The Company intends to offer and sell other Shares to other
investors (together with Purchaser, the "Purchasers") pursuant to separate
substantially identical purchase agreements (together with this Purchase
Agreement, the "Purchase Agreements").
(c) completion of the sale and purchase of the Shares (the
"Closing") shall take place at the offices of Oakes, Fitzwilliams & Co.
Limited, agent for Oakes, Fitzwilliams and Co. S.A. at Byron House, 7-9 St.
James's Street, London SW1A 1EE at 4:00 p.m. local time on the Closing Date.
At the Closing, the Company shall deliver to OFCO for the account of Purchaser,
one or more stock certificates representing the Shares registered in the name
of Purchaser or its nominee, against payment of the Purchase Price therefor in
immediately available funds to the account of the Company designated in section
1 (a) of this Purchase Agreement.
(d) In the event of any change in the issued and outstanding
Common Stock of the Company by reason of stock dividends, split-up or
combination of the Common Stock, reclassification of the capital stock of the
Company or recapitalization of the Company which occurs on or before the
Closing, the number of shares Common Stock to be delivered to Purchaser at the
Closing and the Purchase Price therefor shall be appropriately adjusted. In
addition, in the event that any cash dividends on the Common Stock of the
Company shall be payable to shareholders of record as of a record date that
falls on any date within the period on and from the time of execution of this
Purchase Agreement to and including the Closing Date, the price per Designated
Share payable by Purchaser shall be reduced by the amount of such cash dividend
per share of Common Stock.
(e) The obligation of Purchaser to purchase Designated Shares at
the Closing shall be conditional upon the delivery by the Company to OFCO, on
behalf of all the Purchasers, of:
(i) a written opinion of Cooley Godward Castro Huddleson
& Tatum, San Francisco, California, United States counsel to the Company, in
the form attached hereto as Schedule 1 dated the Closing Date; and
(ii) to the extent that the Closing Date shall be a date
other than the date of this Purchase Agreement, a certificate of an officer of
the Company as to the correctness in all material respects of the
representations and warranties of the Company contained in Section 2 of this
Purchase Agreement as of the Closing Date, in the form attached hereto as
Schedule 2 dated the Closing Date.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to Purchaser as follows:
2.
<PAGE> 3
2.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all the requisite corporate power and authority to
own and lease its properties and to conduct its business as presently conducted
and as described in the Offering Memorandum. The Company is duly qualified to
do business as a foreign corporation and is in good standing in every
jurisdiction where such qualification is required by controlling law and where
the failure to so qualify would have a material adverse effect on the Company
and its subsidiaries, taken as a whole. Each Principal Subsidiary (as defined
below) is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has all requisite
corporate power and authority to own and lease its properties and to conduct
its business as presently conducted and described in the Offering Memorandum.
Each Principal Subsidiary of the Company is duly qualified to do business as a
foreign corporation and is in good standing in every jurisdiction where such
qualification is required by controlling law and where the failure to so qualify
would have a material adverse effect on the Company and its subsidiaries, taken
as a whole. The principal subsidiaries of the Company (collectively, the
"Principal Subsidiaries") are:
Phoenix Telecom, Inc., a wholly owned subsidiary incorporated in Delaware and
Phoenix Network of New Hampshire, a wholly owned subsidiary incorporated in New
Hampshire.
2.2 AUTHORIZED CAPITAL STOCK. The authorized and outstanding
capital stock of the Company is as set out in the Offering Memorandum, and all
the issued shares of capital stock of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable. All of the
outstanding shares of capital stock of the Principal Subsidiaries have been
duly and validly authorized and issued and are fully paid and non-assessable.
All of the outstanding shares of capital stock of the Principal Subsidiaries
that are owned directly by the Company are owned by the Company free and clear
of any claim, lien, security interest, mortgage, pledge, charge or other
encumbrance of any nature whatsoever, except that:
All of the outstanding shares of capital stock of the Principal Subsidiaries
that are owned indirectly by the Company through a subsidiary, are owned by
such subsidiary free and clear of any claim, lien, security interest, mortgage,
pledge, charge or other encumbrance of any nature whatsoever. Except for the
capital stock of the subsidiaries of the Company listed in Schedule 2.2
attached hereto and as disclosed in the Offering Memorandum, the Company does
not own, directly or indirectly, any equity or debt securities of any other
company, corporation, partnership, joint venture or other entity.
2.3 DUE EXECUTION, DELIVERY AND PERFORMANCE OF THE PURCHASE
AGREEMENT. The execution, delivery and performance of the Purchase Agreements
by the Company (a) have been duly authorized by all requisite corporate action
of the Company, and (b) will not violate (i) the Certificate of Incorporation
or By-laws of the Company or (ii) any law applicable to the Company or any of
its subsidiaries or (iii) any provision of any indenture, mortgage, agreement,
contract or other instrument to which the Company or any of its Principal
Subsidiaries is bound or to which any of the properties or assets of the
Company or any of the Principal Subsidiaries are subject, or be in conflict
with, or result in a breach of or constitute (upon notice or lapse of
3.
<PAGE> 4
time or both) a default under any such indenture, mortgage, agreement, contract
or other instrument or result in the creation or imposition of any claim, lien,
security interest, mortgage, pledge, charge or other encumbrance of any nature
whatsoever upon any of the properties or assets of the Company or any of the
Principal Subsidiaries (except for such violation or conflict described in (b)
(iii) above which would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole). Upon execution and delivery by the
Company, the Purchase Agreements will constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as the enforceability thereof may be limited by
any applicable bankruptcy, insolvency, reorganization or other similar laws
relating to or affecting the enforcement of creditors' rights generally and by
general equitable principles, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
2.4 ISSUANCE AND DELIVERY OF THE SHARES. The offer, issuance,
sale and delivery of the Shares in accordance with the Purchase Agreements,
have been duly authorized by all requisite corporate action of the Company.
The Shares conform to the description of the Common Stock contained in the
Offering Memorandum and conform to the terms of the Common Stock contained in
the Company's Certificate of Incorporation. The Shares in the, as and when
issued and sold to Purchaser pursuant to this Purchase Agreement, and upon
receipt by the Company of the Purchase Price therefor, will be duly and validly
issued and outstanding, fully paid and non-assessable, will not be subject to
any pre-emptive or similar right, and Purchaser will receive good and valid
record title to the shares, free and clear of any claim, lien, security
interest, mortgage, pledge, charge or other encumbrance of any nature
whatsoever, except such as may have been created by Purchaser.
2.5 OFFERING MEMORANDUM.
(a) The Offering Memorandum, as of its date and at the
Closing Date, and any amendment thereof or supplement thereto, as of their
respective dates and the Closing Date, did not and will not as of such dates,
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make statements therein, in
light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not apply to any
statements or omissions relating to matters of foreign law or made in reliance
upon and in conformity with information furnished in writing to the Company
expressly for use therein by any broker-dealer participating in the offering as
a placement agent therefor.
(b) The documents attached as exhibits to the Offering
Memorandum, at the time they were filed with the United States Securities and
Exchange Commission (the "Commission"), complied in all material respects with
the requirements of the United States Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, and, when
read together with the other information in the Offering Memorandum, will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.
<PAGE> 5
(c) Except as otherwise disclosed in the Offering
Memorandum, the consolidated financial statements of the Company and its
subsidiaries included in the Offering Memorandum present fairly the
consolidated financial condition of the Company and its subsidiaries as of the
respective dates thereof and the consolidated results of operations of the
Company and its subsidiaries for the respective periods covered thereby, all in
conformity with accounting principles generally accepted in the United States
applied on a consistent basis throughout the entire periods involved.
2.6 LEGAL PROCEEDINGS. Except as otherwise described in the
Offering Memorandum, there are no actions, suits, investigations or proceedings
pending to which the Company or any of its subsidiaries is a party before or by
any court or governmental agency or body, which in the opinion of management of
the Company would result, individually or in the aggregate, in any material
adverse change in the financial condition or results of operations of the
Company and its subsidiaries, taken as a whole, or which would materially and
adversely affect the consolidated properties or assets thereof; and to the best
knowledge of the Company's management, no such actions, suits, investigations
or proceedings are threatened by any person, corporation or governmental agency
or body.
2.7 NO MATERIAL CHANGE. Except as disclosed in or contemplated by
the Offering Memorandum, there has been no material adverse change or, to the
best knowledge of the Company's management, any development which will result
in a material adverse change, in or affecting the business operations,
management, financial position, stockholders' equity or results of operations of
the Company and its subsidiaries since December 31, 1994.
2.8 PROPERTIES AND ASSETS. Each of the Company and each of the
Principal Subsidiaries has good and marketable title to all properties and
assets described in the Offering Memorandum as owned by it, free and clear of
all claims, liens, security interests, mortgages, pledges, charges or other
encumbrances of any nature whatsoever except as disclosed in the Offering
Memorandum or are not material to the business of the Company and its
subsidiaries, taken as a whole. Each of the Company and the Principal
Subsidiaries has valid, subsisting and enforceable leases for the properties
described in the Offering Memorandum as leased by it, with such exception as
are not material and do not materially interfere with the use made and proposed
to be made of such properties by the Company and such subsidiaries. Except as
otherwise disclosed in the Offering Memorandum, each of the Company and the
Principal Subsidiaries owns or possesses or is the valid licensee of all
patents, trademarks, service marks and trade names necessary to carry on its
business as described in the Offering Memorandum, and neither the Company nor
any such subsidiary has received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing which, if the
subject of an unfavorable decision, ruling or finding, would result,
individually or in the aggregate, in any material adverse change in, or
affecting the business, operations, financial position or business prospects of
the Company and its subsidiaries, taken as a whole.
2.9 COMPLIANCE WITH APPLICABLE REGULATIONS. Except as disclosed
in the Offering Memorandum, each of the Company and the Principal Subsidiaries
(a) has all governmental licenses, permits, consents, orders, approvals and
other authorizations necessary to carry on its
5.
<PAGE> 6
business as described in the Offering Memorandum (including, but not limited to,
any such licenses, permits, consents, orders, approvals and other authorizations
required by the United States Federal Communications Commission and the States
where it offers service, (b) complies in all material respects with, and
conducts its business in substantial conformity with (except for failures to
conform which would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole), all laws, regulations and orders applicable to
it or its business, and (c) complies in all material respects with, and conducts
its business in substantial conformity with (except failures to conform which
would not have a material adverse effect on the Company and its subsidiaries,
taken as a whole), all such licenses, permits, consents, orders, approvals,
authorizations issued by, and all agreements of the Company and/or any of the
Principal Subsidiaries with, any governmental agency or body having jurisdiction
over the Company and the Principal Subsidiaries.
2.10 INVESTMENT COMPANY ACT OF 1940. The Company is not an
"investment company" or an "affiliated person" of, or "promoter" or "principal"
for, an "investment company," as such terms are defined in the Investment
Company Act of 1940, as amended.
2.11 COMPLIANCE WITH REGULATION S. The Company is a "reporting
issuer" (as defined in Regulation S). The Company, its affiliates and any
person acting on behalf of, or as agent of, any of the foregoing, whether as
principal or agent, (a) has offered and sold the Units to the Purchasers only
in an "offshore transaction" (as defined in Regulation S), (b) has not engaged
with respect to the Securities in any "directed selling efforts" (as defined in
Regulation S), in or directed toward the United States, (c) has complied with
all "offering restrictions" (as defined in Regulation S) in respect of the
Securities, (d) has not delivered the Offering Memorandum or any revision or
amendment thereof or supplement thereto to any "U.S. person" (as defined in
Regulations S) (other than its professional advisers), (e) has not made any
offers or sales of any of the Units or any interest therein in the United
States or to, or for the account or benefit of, any "U.S. person" (as defined
in Regulation S), and (f) has not made any sales of any of the Units or any
interest therein to any person other than the Purchasers; provided, however,
that insofar as this representation and warranty involves any broker-dealer
participating in the offering, any affiliate of such broker-dealer or any
officer, director, employee or agent of such broker-dealer, to the extent such
broker-dealer is acting as placement agent for the offering of the Units, such
representation and warranty is made by the Company solely on the basis of and
in reliance upon the representations and warranties of such broker-dealer.
2.12 REPRESENTATION AND WARRANTIES AT THE CLOSING. Each of the
representations and warranties contained in this Section 2 is true and correct
in all material respects as of the date of this Purchase Agreement. The
Company will make the same representations and warranties at the Closing and
such representations and warranties when so made will be true and correct in
all material respects as of the Closing Date.
SECTION 3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby
covenants and agrees with Purchaser as follows:
6.
<PAGE> 7
(a) As soon as practicable after the date hereof, but not later
than three (3) business days prior to the Closing Date, the Company will
prepare and furnish to Purchaser the Offering Memorandum, which will be in
substantially the form of the Preliminary Offering Memorandum.
(b) The Company will make available to Purchaser prior to the
Closing Date the opportunity to ask questions and receive answers concerning
the terms and conditions of the offering of the Shares and to obtain any
additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to verify the accuracy of the
information furnished in accordance herewith.
(c) Within seven (7) business days after the Restricted Period (as
hereinafter defined) or at any time thereafter, the Company will deliver to
Purchaser or its nominee who is acting as custodian therefor or any subsequent
holder who has received a stock certificate representing the Shares which bears
the legend described in section 4.5 (a) of this Purchase Agreement (the
"Legended Stock Certificate"), without cost to such Purchaser or subsequent
holder, a substitute stock certificate without restrictive legend described in
section 4.5 (a) of this Purchase Agreement. The Company shall be required to
deliver such substitute stock certificate only upon surrender of the Legended
Stock Certificate which, in the case of any holder subsequent to Purchaser,
must be duly endorsed for transfer or surrender.
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER.
Purchaser hereby represents, warrants and covenants to the Company as follows:
4.1 COMPLIANCE WITH UNITED STATES SECURITIES LAWS. Purchaser
understands and acknowledges that (a) the Shares have not been and will not be
registered under the Securities Act, and may not be offered or sold in the
United States or to, or for the account or benefit of, any "U.S. person" (as
defined in Regulation S, which definition is set out in Schedule 3 hereto, a
"U.S. Person"), unless such securities are registered under the Securities Act
or such offer or sale is made pursuant to an exemption from the registration
requirements of the Securities Act, and (b) the Shares are being offered and
sold pursuant to the terms of Regulation S under the Securities Act, which
permits securities to be sold to non-U.S. Persons in "offshore transactions"
(as defined in Regulation S), subject to certain terms and conditions.
4.2 STATUS OF PURCHASER.
(a) Purchaser is purchasing the Designated Shares for its
own account or for persons or accounts as to which it exercises investment
discretion. Neither Purchaser nor such person or account is a U.S. Person.
Purchaser has executed this Purchase Agreement outside the United States. The
offer to Purchaser and sale of the Designated Shares has occurred outside the
United States.
(b) Purchaser (and any person or account on whose behalf
Purchaser is purchasing) is knowledgeable, sophisticated and experienced in
making, and is qualified to make, decisions with respect to investments in
restricted securities such as the Designated Shares and has requested,
received, reviewed and considered all information it deems relevant in making
7.
<PAGE> 8
a decision to execute this Purchase Agreement and to purchase the Designated
Shares. Purchaser acknowledges that it is capable of evaluating the merits and
risks of an investment in the Designated Shares.
(c) Purchaser acknowledges that the Company has made
available to Purchaser the opportunity to ask questions and receive answers
concerning the terms and conditions of the offering of the Shares and to obtain
any additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to verify the accuracy of the
information furnished in accordance herewith.
(d) Purchaser has agreed to purchase the Designated
Shares for investment purposes and not with a view to a distribution. To the
extent that the Shares are registered in the name of Purchaser's nominee,
Purchaser confirms that such nominee is acting as custodian for Purchaser of
such securities.
4.3 RESTRICTIONS ON RE-SALE.
(a) For a period of forty (40) days following the Closing
Date (the "Restricted Period"), Purchaser shall not engage in any activity for
the purpose of, or which may reasonably be expected to have the effect of,
conditioning the market in the United States for the Shares. Purchaser shall
not deliver the Preliminary Offering Memorandum, the Offering Memorandum or any
revision or amendment thereof or supplement thereto to any person (other than
its professional advisers).
(b) Purchaser understands that the Shares or any interest
therein are only transferable on the books and records of the Transfer Agent and
Registrar of the Common Stock of the Company and, with respect to the Warrants,
on the books and records of the Company. Purchaser further understands that the
Transfer Agent and Registrar will not register any transfer of the Shares, or
any interest therein and that the Company will not register any transfer of the
Shares or any interest therein which the Company in good faith believes violates
the restrictions set forth herein.
(c) Unless registered under the Securities Act, any
proposed offer, sale or transfer during the Restricted Period of any of the
Shares, or any interest therein shall be subject to the condition that
Purchaser must deliver to the Company (i) a written certification that neither
record nor beneficial ownership of the Shares, or any interest therein, as the
case may be, has been offered or sold in the United States or to, or for the
account or benefit of, any "U.S. person" (as defined in Regulation S), (ii) a
written certification of the proposed transferee that such transferee (or any
account for which such transferee is acquiring such Shares, or any interest
therein, as the case may be) is not a "U.S. person" (as defined in Regulation
S), that such transferee is acquiring such Shares, or such interest therein, as
the case may be, for such transferee's own account (or an account over which it
has investment discretion), and that such transferee is knowledgeable of and
agrees to be bound by the restrictions on re-sale set forth in this section and
Regulation S during the Restricted Period, and (iii) a written opinion of
United States counsel, in form and substance satisfactory to the Company, to
the effect that the offer,
8.
<PAGE> 9
sale and transfer of such Shares, or any interest therein, as the case may be,
are exempt from registration under the Securities Act.
(d) Purchaser will not, directly or indirectly,
voluntarily offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of) its
rights under this Purchase Agreement, the Shares any interest therein otherwise
than in compliance with the Securities Act, any applicable state securities or
blue sky laws and any applicable securities laws of jurisdictions outside the
United States, and the rules and regulations promulgated thereunder.
4.4 LEGENDS.
(a) Purchaser agrees for the duration of the Restricted
Period the stock certificates representing the Shares included in the
Designated Units and the stock certificates representing the Warrant Shares
issuable upon exercise of the Warrants included in the Designated Units shall
bear the legend set forth below:
"The shares of Common Stock represented by this stock
certificate have not been and will not be registered under the
Securities Act of 1933, as amended, of the United States of
America (the "Act") or any other securities laws and have been
issued in reliance upon the exemption from such registration
contained in Regulation S under the Act. The shares of Common
Stock represented by this stock certificate may not be
offered, sold or transferred in the United States or to, or
for the account or benefit of, any "U.S. person" (as defined
in Regulation S under the Act) prior to 40 days following the
date of the closing of the last Unit sold pursuant to the
Offering Memorandum dated September 7, 1995 unless registered
under the Act or an exemption from the registration
requirements of the Act is available."
4.5 RE-OFFERS BY PURCHASER IN THE UNITED STATES. If Purchaser
publicly re-offers all or any part of the Shares, Purchaser (and/or certain
persons who participate in any such re-offer) may be deemed, under certain
circumstances, to be an "underwriter" as defined in Section 2 (11) of the
Securities Act. If Purchaser plans to make any such re-offer, it will consult
with its counsel prior to any such re-offer in order to determine its
liabilities and obligations under this Purchase Agreement, the Securities Act
and any applicable state securities or blue sky laws.
4.6 DUE EXECUTION. Delivery and Performance of the Purchase
Agreement and Other Obligations. Purchaser has full right, power, authority
and capacity to enter into this Purchase Agreement and to consummate the
transaction contemplated hereby; if Purchaser is a company or corporation, the
execution, delivery and performance of this Purchase Agreement by Purchaser
have been duly authorized by all requisite corporate action of Purchaser. Upon
the execution and delivery of this Purchase Agreement by Purchaser, this
Purchase Agreement shall constitute the legal, valid and binding obligations of
Purchaser, except as the enforceability
9.
<PAGE> 10
thereof may be limited by any applicable bankruptcy, insolvency, reorganization
or other similar laws relating to or affecting the enforcement of creditors'
rights generally and by general equitable principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
4.7 AUTHORIZATION OF OFL TO ACCEPT DELIVERY OF THE DESIGNATED
SHARES. Purchaser has authorized OFCO, on behalf of Purchaser (a) to accept
delivery at the Closing on behalf of Purchaser during the Restricted Period,
(b) to hold the Designated Shares on behalf of Purchaser during the Restricted
Period, and (c) to obtain from the Company within seven (7) business days after
the Restricted Period a substitute stock certificate or certificates
representing the Shares without the restrictive legend described in Section 4.5
(a) of this Purchase Agreement.
4.8 REPRESENTATIONS AND WARRANTIES AT THE CLOSING. Each of the
representations and warranties contained in this Section 4 is true and correct
as of the date of this Purchase Agreement. Purchaser will make the same
representations and warranties on the Closing Date and such representations and
warranties when so made will be true and correct as of the Closing Date.
SECTION 5. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Notwithstanding any investigation made by either party to this
Purchase Agreement, all covenants, agreements, representations and warranties
made by the Company and Purchaser herein and in the Designated Shares delivered
pursuant hereto shall survive the execution of this Purchase Agreement, the
delivery to Purchaser of the Designated Shares and the receipt by the Company
of payment for the Designated Shares.
SECTION 6. NOTICES.
All notices, demands, consents or other communications under this
Purchase Agreement shall be given or made in writing and shall be delivered
personally, or sent by certified or registered airmail, postage prepaid, or
sent by facsimile transmission with a confirmation copy sent by mail as
aforesaid, and shall be deemed given when so personally delivered, or if mailed
as aforesaid, ten (10) days after the same shall have been posted or if sent by
facsimile, at the earlier of (i) as soon as written or telephonic confirmation
is received both from the party to whom it was sent that the message has been
received or (ii) ten (10) days after the confirmation is posted:
(a) if to the Company, at its address as set out at the head of
this Purchase Agreement, or at such address or addresses as may have been
furnished to Purchaser in writing by the Company;
(b) if to Purchaser, at its address as set out following
Purchaser's signature on the signature page to this Purchase Agreement, or at
such other address or addresses as may have been furnished to the Company in
writing by Purchaser; or
10.
<PAGE> 11
(c) if to any transferee or transferees of Purchaser, at such
address or addressees as shall have been furnished to the Company at the time
of the transfer or transfers, or at such other address or addresses as may have
been furnished by such transferee or transferees to the Company in writing.
SECTION 7. AMENDMENT.
No amendment, interpretation or waiver of any of the provisions of
this Purchase Agreement shall be effective unless made in writing and signed by
the parties to this Purchase Agreement.
SECTION 8. HEADINGS.
The headings of the sections and sub-sections of this Purchase
Agreement are used for convenience only and shall not affect the meaning or
interpretation of the contents of this Purchase Agreement.
SECTION 9. ENFORCEMENT.
The failure to enforce or to require the performance at any time of
any of the provisions of this Purchase Agreement shall in no way be construed
to be a waiver of such provisions, and shall not affect either the validity of
this Purchase Agreement or any part hereof or the right of any party thereafter
to enforce each and every provision in accordance with the terms of this
Purchase Agreement.
SECTION 10. GOVERNING LAW.
This Purchase Agreement and the relationships of the parties in
connection with the subject matter of the Purchase Agreement shall be governed
by and determined in accordance with the substantive laws of the State of
California, in the United States of America, applicable to agreements made and
to be performed entirely therein.
SECTION 11. SEVERABILITY.
If any provision of this Purchase Agreement is held to be invalid or
unenforceable by any judgement of a tribunal of competent jurisdiction, the
remainder of the Purchase Agreement shall not be affected by such judgement,
and the Purchase Agreement shall be carried out as nearly as possible according
to its original terms and intent.
SECTION 12. COUNTERPARTS.
This Purchase Agreement may be executed in counterparts, all of which
shall constitute one agreement, and each such counterpart shall be deemed to
have been made, executed and delivered on the date set out at the head of this
Purchase Agreement without regard to the dates or times when such counterparts
may actually have been made, executed or delivered.
11.
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be executed by their duly authorized representatives as of the day
and year first above written.
PHOENIX NETWORK, INC. PURCHASER'S NAME
By:
-------------------------------- ------------------------------------
Name:
------------------------------ ------------------------------------
Title:
----------------------------- ------------------------------------
Duly executed by:
------------------------------------
Title:
Aggregate number of
Designated Shares: PURCHASER'S ADDRESS:
------------------------------------
- ----------------------------------- ------------------------------------
------------------------------------
Total purchase price
- ----------------------------------- ------------------------------------
Stock certificate resignation instructions:
Name of Holder:
----------------------------------------------------------------
Address of Holder:
--------------------------------------------------------------
- --------------------------------------------------------------------------------
12.
<PAGE> 13
SCHEDULE 1
TO THE
PURCHASE AGREEMENT
FORM OF LEGAL OPINION
OF COUNSEL TO THE COMPANY
(_____), 1995
To each of the Purchasers
Listed on Schedule A hereto
Gentlemen:
We have acted as counsel to Phoenix Network, Inc., a Delaware
corporation (the "Company"), in connection with the issuance and sale by the
Company to the purchasers listed on Schedule A hereto (the "Purchasers"), of an
aggregate of ____________ Shares (the "Shares"), of the Company's common stock,
par value $.001 per share (the "Common Stock") between the Company and the
Purchasers each dated as of ___________, 199__ (the "Purchase Agreements").
This opinion is furnished to you pursuant to section 1 (e) (i) of the Purchase
Agreements. Capitalized terms used and not otherwise defined herein have the
respective meanings ascribed to such terms in the Purchase Agreements.
We have participated in the preparation of the Offering Memorandum
dated (XXX) (the "Offering Memorandum"), have examined executed counterparts of
each Purchase Agreement, have examined the proceedings of the Company in
connection with the approval thereof and the authorization of the transactions
contemplated thereby and have further examined such corporate records and
documents of the Company and certificates of officers of the Company and public
officials as we have deemed relevant and necessary to enable us to render this
opinion.
For the purpose of our opinions set forth below, to the extent they
are qualified by "to our knowledge," we have not conducted any independent
inquiry other than (i) a review of those documents which we have deemed
relevant and necessary as a basis for the opinion expressed herein, and (ii)
discussions with officers of the Company and the Principal Subsidiaries.
However, nothing has come to our attention in the course of our representation
of the Company as described above which would cause us to believe that the
opinions expressed herein are inaccurate. In addition, opinions given "to our
knowledge" are based on the actual knowledge of lawyers in our firm who have
devoted substantive attention to the representation of the Company.
We have relied on the accuracy of certain representations and
warranties of the Company and the Purchasers contained in the Purchase
Agreements and have relied upon such records, documents and certificates with
respect to the accuracy of certain factual matters without
1.
<PAGE> 14
independent verification of the matters covered thereby. In our examination of
such records, documents and certificates, we have assumed the authenticity of
all documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified or photostatic copies of original
documents, the authenticity of the originals of such latter documents, and the
accuracy of the statements contained in such certificates.
We express our opinion solely as to the laws of the general corporate
laws of the State of California, the general corporate laws of the State of
Delaware and the laws of the United States. For Principal Subsidiaries that
are incorporated in jurisdictions other than California or Delaware, for the
purpose of our opinion in the first sentence of paragraph 4 below, we have
relied solely on our review of the certificates of incorporation of such
Principal Subsidiaries and on certificates of good standing for the appropriate
governmental authorities in those jurisdictions. For the purpose of our
opinion in paragraph 2 and the second sentence of paragraph 4 below, we have
relied solely on the certificate (the "Officers' Certificate") of officers of
the Company as to certain matters of fact, a copy of which is attached hereto
as Schedule B, and on certificates of good standing from the appropriate
governmental authorities in the specified jurisdictions.
Based upon the foregoing and in reliance thereon, we are of the
opinion that:
1. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to own and lease its properties and to
conduct its business as presently conducted and as described in the Offering
Memorandum.
2. The Company is duly qualified to do business as a foreign
corporation and is in good standing in every jurisdiction indicated in the
Officer's Certificate where it is stated to have significant contacts and where
the failure to so qualify would have a material adverse effect on the Company
and its subsidiaries, taken as a whole.
3. To our knowledge, the authorized and outstanding capital stock
of the Company is as set out in the Offering Memorandum.
4. Each of the Principal Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own and lease its properties and to conduct its business as
presently conducted and as described in the Offering Memorandum. Each
Principal Subsidiary is duly qualified to do business as a foreign corporation
and is in good standing in every jurisdiction indicated in the Officer's
Certificate where it is stated to have significant contact and where the
failure to so qualify would have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
5. To our knowledge, all of the outstanding shares of capital
stock of the Principal Subsidiaries that are owned directly by the Company are
owned by the company, free and clear of any claim, lien, security interest,
mortgage, pledge, charge, encumbrance or other restriction
2.
<PAGE> 15
of any nature whatsoever, except as disclosed in the Offering Memorandum or as
described in the Purchase Agreements. To our knowledge, all of the outstanding
shares of capital stock of the Principal Subsidiaries that are owned indirectly
by the Company through a subsidiary, are owned by such a subsidiary, free and
clear of any claim, lien, security interest, mortgage, pledge, charge,
encumbrance or other restriction of any nature whatsoever.
6. The Company has the corporate power and authority to authorize
the issuance, sale and delivery of, and to issue, sell and deliver, the Units
on the terms and conditions set forth in the Purchase Agreements, free of any
pre-emptive rights. To our knowledge, no consent or approval by the
stockholders of the Company is required to be obtained by the Company for the
consummation of the issuance, sale and delivery of the Units by the Company to
the Purchasers pursuant to the Purchase Agreements or the Warrant Shares
pursuant to the terms of the Warrants.
7. The Securities comprising the Units conform to the description
thereof contained in the Offering Memorandum and the Shares and the Warrant
Shares conform to the terms of the Common Stock contained in the Company's
Certificate of Incorporation.
8. The offer, issuance, sale and delivery of the Units to the
Purchasers pursuant to the Purchase Agreements have been duly authorized by all
necessary corporate action on the part of the Company. The Shares, as and when
issued and delivered to the Purchasers pursuant to the Purchase Agreements, and
upon receipt by the Company of the payment by the Purchasers of the purchase
price therefor, will be validly issued and outstanding, fully paid and
non-assessable, will not be subject to any pre-emptive or similar right, and
the Purchasers will receive valid and marketable title to the Shares, free of
any adverse claim, assuming that such Purchasers have no notice of any adverse
claim, except such as may have been created by the Purchasers in respect of the
Shares purchased by such Purchasers and except for restrictions on transfer
imposed by the Securities Act. The Warrants have been duly and validly
executed and delivered by the Company and constitute the valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as the enforceability thereof
may be limited by any applicable bankruptcy, insolvency, reorganization or
other similar laws relating to or affecting the enforcement of creditors'
rights generally and by general equitable principles, regardless of whether
such enforceability is considered in a proceeding in equity or at law.
9. The Warrant Shares have been duly and validly authorized and
reserved for issuance. The Warrant Shares, as and when issued and delivered in
accordance with the terms of the Warrants, and upon receipt by the Company of
the exercise price therefor, will be duly and validly issued and outstanding,
fully paid and non-assessable, and will not be subject to any pre-emptive or
similar right.
10. The Purchase Agreements have been duly authorized, executed
and delivered by the Company and, assuming due execution and delivery thereof
by the Purchasers, constitute valid and legally binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, except as the enforceability thereof may be limited by
3.
<PAGE> 16
any applicable bankruptcy, insolvency, reorganization or other similar laws
relating to or affecting the enforcement of creditors' rights generally and by
general equitable principles, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
11. The execution, delivery and performance of the Purchase
Agreements by the Company does not, and the issuance sale and delivery by the
Company to the Purchasers of the Units and Warrant Shares will not, result in a
breach or violation by the Company of, or constitute a default by the Company
under, (a) the Company's Certificate of Incorporation or By-laws or (b) to our
knowledge, any statute of law applicable to the Company or any of the Principal
Subsidiaries or any order, rule or regulation applicable to the Company or any
of the Principal Subsidiaries of any court, governmental agency or body having
jurisdiction over the Company, any such Principal Subsidiary or any of their
respective properties.
12. To our knowledge, the execution, delivery and performance of
the Purchase Agreements by the Company does not, and the issuance, sale and
delivery by the Company to the Purchasers of the Units and the Warrant shares
will not, violate or conflict with or result in a breach of or constitute a
default (or an event which might, with the passage of time or the giving of
notice, or both, constitute a default) under, or result in the creation or
imposition of any claim, lien, security interest, mortgage, pledge, charge or
other encumbrance of any nature upon any of the properties or assets of the
Company or any of the Principal Subsidiaries pursuant to the terms of, any
indenture, mortgage, agreement, contract, deed of trust, promissory note, or
other agreement or instrument to which the Company or any of the Principal
Subsidiaries is a party or by which any of them is bound or to which any of the
properties or the Company of any of the Principal Subsidiaries is subject.
13. To our knowledge, except as disclosed in, or by information
incorporated by reference in, the Offering Memorandum, there are no actions,
suits, investigations of proceedings pending to which the Company or any of its
subsidiaries is a party, before or by any court or governmental agency or body
in which in our opinion would result, individually or in the aggregate, in any
material adverse change in the financial conditions or results of operations of
the Company and its subsidiaries, taken as a whole, or which would materially
and adversely affect the properties or assets thereof, taken as a whole; and no
such actions, suits, investigations or proceedings are threatened by any
person, corporation or governmental agency or body.
14. No consent, approval, authorization or order of, or
registration or qualification with, any court or governmental agency or body or
national securities exchange, and which has not been made or obtained by the
Company, is required to be obtained by the Company for the issuance, sale or
delivery of the Units to the Purchasers pursuant to the Purchase Agreements or
the Warrant Shares pursuant to the terms of the Warrants.
15. The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended.
4.
<PAGE> 17
The foregoing opinions are subject to the following qualification:
a. We express no opinion as to the enforceability of any
disclaimer, limitation of liability, release or legal or equitable discharge of
any defence, provision for liquidated damages, waiver of a constitutional,
statutory or common law right, consent to jurisdiction or provision releasing
or indemnifying a party against liability for its own wrongful or negligent
acts.
This opinion is rendered solely of the benefit of the Purchasers with
respect to the Units issued, sold and delivered under the Purchase Agreements
and is not to be used, circulated, quoted or referred to, or otherwise relied
upon by any person, without our prior written consent.
Very truly yours,
5.
<PAGE> 18
SCHEDULE 2
TO THE
PURCHASE AGREEMENT
CERTIFICATE OF THE COMPANY
The undersigned, Wallace Hammond, Chief Executive Officer of Phoenix
Network, Inc., (the "Company") does hereby certify that the representations and
warranties of the Company as set out in Section 2 of the Purchase Agreements
each dated as of ____________, 199__ by and between the Company and the
Purchasers named therein, are true and correct in all material respects on and
as of the date hereof with the same effect as though such representations and
warranties had been made on and as of the date hereof, except to the extent
that such representations and warranties expressly relate to an earlier date.
DATED this __________ day of _____________, 199_____
--------------------------------
Wallace Hammond
Chief Executive Officer
1.
<PAGE> 19
SCHEDULE 2.2
TO THE
PURCHASE AGREEMENT
SUBSIDIARIES OF THE COMPANY
Phoenix Telecom, Inc. a wholly owned subsidiary incorporated in Delaware.
Phoenix Network of New Hampshire, a wholly owned subsidiary incorporated in New
Hampshire.
1.
<PAGE> 20
SCHEDULE 3
TO THE
PURCHASE AGREEMENT
DEFINITION OF U.S. PERSON UNDER REGULATION S
1. U.S. Person
(a) "U.S. person" means:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or
incorporated under the laws of the United States;
(iii) Any estate of which any executor or administrator is
a U.S. person;
(iv) Any trust of which any trustee is a U.S. person;
(v) Any agency or branch of a foreign entity located in
the United States;
(vi) Any non-discretionary account or similar account
(other than an estate or trust) held by a dealer or
other fiduciary for the benefit or account of a U.S.
person;
(vii) Any discretionary account or similar account (other
than an estate or trust) held by a dealer other
fiduciary, organized, incorporated, or (if an
individual) resident in the United States; and
(viii) Any partnership or corporation if: (A) organized or
incorporated under the laws of any foreign
jurisdiction; and (B) formed by a U.S. person
principally for the purpose of investing in
securities not registered under the Securities Act,
unless it is organized or incorporated, and owned, by
accredited investors (as defined in Rule 501 (a) of
the Securities Act) who are not natural persons,
estates or trusts.
(b) Notwithstanding paragraph (1) (a) of this rule, any
discretionary account or similar account (other than and
estate or trust) held for the benefit or account of a non-U.S.
person by a dealer or other professional fiduciary organized,
incorporated, or (if an individual) resident in the United
States shall not be deemed a "U.S. person."
1.
<PAGE> 21
(c) Notwithstanding paragraph (1) (a), any estate of which any
professional fiduciary acting as executor or administrator is
a U.S. person shall not be deemed a U.S. person if:
(i) An executor or administrator of the estate who is not
a U.S. person has sole or shared investment
discretion with respect to the assets of the estate;
and
(ii) The estate is governed by foreign law.
(d) Notwithstanding paragraph (1) (a), any trust of which any
professional fiduciary acting as a trustee is a U.S. person
shall not be deemed a U.S. person if a trustee who is not a
U.S. person has sole or shared investment discretion with
respect to the trust assets, and no beneficiary of the trust
(and no settlor if the trust is revocable) is a U.S. person.
(e) Notwithstanding paragraph (1) (a), an employee benefit plan
established and administered in accordance with the law of a
country other than the United States and customary practices
and documentation of such country shall not be deemed a U.S.
person.
(f) Notwithstanding paragraph (1) (a), any agency or branch of a
U.S. person located outside the United States shall not be
deemed a "U.S. person" if:
(i) The agency or branch operates for valid business
reasons; and
(ii) The agency or branch is engaged in the business of
insurance or banking and is subject to substantive
insurance or banking regulation, respectively, in the
jurisdiction where located.
(g) The International Monetary Fund, the International Bank for
Reconstruction and Development, the International American
Development Bank, the Asian Development Bank, the African
Development Bank, the United Nations, and their agencies,
affiliates and pension plans and any other similar
international organizations, their agencies, affiliates and
pension plans shall not be deemed "U.S. persons."
2. United States. "United States" means the United States of America,
its territories and possessions, any State of the United States, and
the District of Columbia.
2.
<PAGE> 22
SCHEDULE A
TO THE
PURCHASE AGREEMENT
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PURCHASE PRICE
<S> <C> <C>
Chemical Bank 30,000 $82,500
4 New York Plaza
New York, New York 64634
Further Bank of Bermuda
(Isle of Man) Ltd.
A/C 100400002
As for Register
(Ground Floor, Receive Window)
Daly & Co. 109,000 $299,750
M&T Trust Co.
P.O. Box 1377
Buffalo, NY 14240
Duncan John LLoyd Fitzwilliams 12,000 $33,000
Fisher's Copse House
Bradfield, Berks RG7 6LN
James Glynn West 23,000 $63,250
Orchard House
Eastling
Nr. Faversham
Kent, England ME13 0AZ
Wood Gundy London Limited 200,000 $550,000
Cotton's Centre
Cottons Lane
London, England SE1 2QA
Benin Limited 11,000 $30,250
PO Box 472
St Peter's House
Le Bordage
St Peter Port
Guernsey GY1 6AX
</TABLE>
1.
<PAGE> 23
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PURCHASE PRICE
<S> <C> <C>
John Edward Morrell 10,000 $27,500
51 Talbot Road
London,England W.2 5.JJ
Hamish Moir MacKenzie 5,000 $13,750
11 Dealty Road
London, England SW15 6NL
Juliet MacKenzie 5,000 $13,750
11 Dealty Road
London, England SW15 6NL
Morton Associates 200,000 $550,000
5th Floor, Byron House
7-9 St James's St.
London, England SW1A 1EE
R.H.G. Williams 10,000 $27,500
C/O Oakes, Fitzwilliams & Co. Ltd.
Byron House
7-9 St James's St.
London, England SW1A 1EE
Weng Fook Co. Ltd. 150,000 $412,500
Room 906
Takshing House
20 Des Voeux Road
Central, Hong Kong
Cudd & Co. 415,000 $1,141,250
U.S. Custodian:
Chase Manhattan Bank N.A.
1 Chase Manhattan Plaza
New York, NY 10081
Cudd & Co. 145,000 $398,750
U.S. Custodian:
Chase Manhattan Bank N.A.
1 Chase Manhattan Plaza
New York, NY 10081
</TABLE>
2.
<PAGE> 24
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PURCHASE PRICE
<S> <C> <C>
Oakes Fitzwilliams Executive 3,000 $8,250
Death Benefit & Retirement
Scheme No.2 (DJLF)
Byron House
7-9 St. James's Street
London, England SW1A 1EE
TEPE & Co. 181,000 $497,750
15 Broad Street
New York, NY 10005
Spear Leeds & Kellogg 60,000 $165,000
120 Broadway
New York, NY 10271
USA
Attn: Ms. Pamela Simons
For A/C 49 WN 5519
Oakes, Fitzwilliams & Co. Ltd. 273,000 $750,750
A/C Client
Byron House
7-9 St. James's St.
London England SW1A 1EE
Tuvalu Limited 11,000 $30,250
PO Box 472
St Peter's House
Le Bordage
St Peter Port
Guernsey GY1 6AX
Oakes, Fitzwilliams & Co. Ltd. 32,000 $88,000
A/C Client
Byron House
7-9 St. James's St.
London, England SW1A 1EE
Solar Group S.A. 200,000 $550,000
14 Camden North
Paget
Bermuda DV-03
</TABLE>
3.
<PAGE> 25
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PURCHASE PRICE
<S> <C> <C>
Willbro Nominees Limited 90,000 $247,500
PO Box 515
6 Broadgate
London, England EC2M 2RP
Royal Skandia Life Assurance Ltd. 100,000 $275,000
Skandia House
Finch Road
Douglas
Isle of Man
Oakes, Fitzwilliams & Co. Ltd. 25,000 $68,750
A/C Client
Byron House
7-9 St. James's St.
London, England SW1A 1EE
2,300,000 $6,325,000
</TABLE>
4.
<PAGE> 1
Exhibit 11
PHOENIX NETWORK, INC.
Statement of Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
9/30/94 9/30/95 9/30/94 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Primary
- -------
Net income (loss) $ 59,577 $ 244,548 $ (917,680) $ 519,255
Preferred stock dividend (54,954) (155,465) (163,720) (282,355)
------------ ------------ ------------ ------------
Adjusted net income (loss) $ 4,623 $ 89,083 $ (1,081,400) $ 236,900
============ ============ ============ ============
Weighted average number
of common shares outstanding 11,157,946 12,741,596 11,039,091 11,999,319
Dilution from assumed exercise of
options and warrants using the
treasury stock method 1,547,716 1,540,994 -- 1,258,193
------------ ------------ ------------ ------------
Total weighted average shares 12,705,662 14,282,590 11,039,091 13,257,512
============ ============ ============ ============
Net income (loss) per common share $ 0.00 $ 0.01 $ (0.10) $ 0.02
============ ============ ============ ============
Fully Diluted
- -------------
Net income (loss) $ 59,577 $ 244,548 $ (917,680) $ 519,255
============ ============ ============ ============
Weighted average number of
shares outstanding:
Primary 12,705,662 14,282,590 11,039,091 13,257,512
Convertible preferred stock
conversion 1,738,372 4,364,759 1,700,154 2,633,186
Dilution from assumed exercise of
options and warrants using the
treasury stock method -- -- 1,624,999 --
------------ ------------ ------------ ------------
Total 14,444,034 18,647,349 14,364,244 15,890,698
============ ============ ============ ============
Net income (loss) per common and
common equivalent share $ 0.00 $ 0.01 $ (0.06) $ 0.03
============ ============ ============ ============
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 9,525,552
<SECURITIES> 0
<RECEIVABLES> 12,826,018
<ALLOWANCES> 968,232
<INVENTORY> 0
<CURRENT-ASSETS> 23,490,193
<PP&E> 2,897,327
<DEPRECIATION> 1,167,524
<TOTAL-ASSETS> 32,137,665
<CURRENT-LIABILITIES> 12,293,182
<BONDS> 0
<COMMON> 14,327
0
2,570
<OTHER-SE> 19,827,586
<TOTAL-LIABILITY-AND-EQUITY> 32,137,665
<SALES> 42,691,679
<TOTAL-REVENUES> 42,691,679
<CGS> 0
<TOTAL-COSTS> 29,103,710
<OTHER-EXPENSES> 11,733,696
<LOSS-PROVISION> 1,131,696
<INTEREST-EXPENSE> 203,322
<INCOME-PRETAX> 519,255
<INCOME-TAX> 0
<INCOME-CONTINUING> 519,255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 519,255
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
