<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
(X) Preliminary Proxy Statement
( ) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Phoenix Network, Inc.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box)
(X) $125 per Exchange Act Rules 0 11(c)(1)(ii), 14a 6(i)(1), 14a 6(i)(2) or
Item 22(a)(2) of Schedule 14A.
( ) $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
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4. Date Filed:
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<PAGE> 2
PHOENIX NETWORK, INC.
1687 COLE BOULEVARD
GOLDEN, COLORADO 80401
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 26, 1996
TO THE STOCKHOLDERS OF PHOENIX NETWORK, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of PHOENIX
NETWORK, INC., a Delaware corporation (the "Company"), will be held on
Thursday, September 26, 1996 at 8:00 a.m. local time at 1687 Cole Boulevard,
Golden, Colorado 80401 for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve an 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 30,000,000 to 50,000,000.
3. To approve an amendment of the Company's 1989 Stock Option Plan to
increase the number of shares of the Company's Common Stock that may
be sold pursuant to such Plan from 3,500,000 to 5,000,000.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on August 28, 1996
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
Ernest J. Panasci
Secretary
Golden, Colorado
September 3, 1996
<PAGE> 3
PHOENIX NETWORK, INC.
1687 COLE BOULEVARD
GOLDEN, COLORADO 80401
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 26, 1996
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors
(the "Board") of Phoenix Network, Inc., a Delaware corporation ("Phoenix" or
the "Company"), for use at the Annual Meeting of Stockholders to be held on
September 26, 1996 at 8:00 a.m. (the "Annual Meeting"), or at any adjournment
or postponement thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting. The Annual Meeting will be held at 1687
Cole Boulevard, Golden, Colorado. The Company intends to mail this proxy
statement and accompanying proxy card on or about September 3, 1996 to all
stockholders entitled to notice of or to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies
including preparation, assembly, printing and mailing of this proxy statement,
the proxy and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of Common Stock
beneficially owned by others to forward to such beneficial owners. The Company
may reimburse persons representing beneficial owners of Common Stock for their
costs of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or
other regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock or any series of the Company's
Preferred Stock at the close of business on August 28, 1996 will be entitled to
notice of and/or to vote at the Annual Meeting. At the close of business on
July 31, 1996, the Company had outstanding and
1.
<PAGE> 4
entitled to vote 17,698,974 shares of Common Stock, 101,125 shares of Series A
Preferred Stock, 114,500 shares of Series B Preferred Stock, 1,000,000 shares
of the Series C Preferred Stock, 333,333 shares of Series D Preferred Stock, no
shares of Series E Preferred Stock and 1,176,056 shares of Series F Preferred
Stock.
Each holder of record of Common Stock on such date will be entitled to
one vote for each share held on all matters to be voted upon at the Annual
Meeting. Each holder of one share of Series A, Series B, Series D and Series F
Preferred Stock shall be entitled to 4.132, 6.667, 1.000 and 4.000 votes,
respectively, on an as-if-converted to Common Stock basis. The Company's
Series C Preferred Stock is non-voting. On all matters described in this Proxy
Statement, the Common Stock and Series A, B, D and F Preferred Stock will vote
together as a single class, except that, by the terms of the Company's Restated
Certificate of Incorporation and the Company's Certificate of Designation of
Preferences of the Series F Preferred Stock, the holders of the Series F
Preferred Stock, voting as a class, are entitled to elect two (2) directors so
long as at least 200,000 shares of the Series F Preferred Stock remains
outstanding, or, if fewer than 200,000 but more than 75,000 shares of the
Series F Preferred Stock remain outstanding, the holders of the Series F
Preferred Stock are entitled to elect one (1) director (each, a "Series F
Director"). The Company and the holders of the Series F Preferred Stock have
entered into a Stockholders Agreement regarding the exercise of the right to
elect Series F Directors and certain other matters, and, pursuant to such
Stockholders Agreement, the holders of the Series F Preferred Stock have
granted their irrevocable proxy to a representative (the "Series F
Representative") to act on their behalf with respect to election of the Series
F Directors. At the present time, Messrs. Max E. Thornhill and David Singleton
are the Series F Directors.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes will be counted
towards a quorum but, except with respect to Proposals 2 and 3, are not counted
for any purpose in determining whether a matter has been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of the Company at the Company's principal executive office, 1687
Cole Boulevard, Golden, Colorado 80401, a written notice of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
2.
<PAGE> 5
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1997 Annual Meeting of Stockholders must be received by the Company
not later than January 31, 1997, in order to be included in the proxy statement
and proxy relating to that Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
There are seven nominees for the seven Board positions authorized in
the Company's By-laws. Each director to be elected would hold office until the
next Annual Meeting of Stockholders and until his successor has been duly
elected and qualified, or until such director's earlier death, resignation,
disqualification or removal. Each nominee listed below is currently a director
of the Company. All of the current directors, other than Messrs. Singleton and
Thornhill, were previously elected by the stockholders. Messrs. Singleton and
Thornhill were elected to the Board by the other directors to fill new
directorships created by an amendment to the Company's By-laws, effective as of
October 31, 1995, which expanded the size of the Board from seven to nine
members, in connection with the issuance of the Series F Preferred Stock.
Effective as of the date of the Annual Meeting, the size of the Board is being
reduced by amendment to the By-laws to seven members. Messrs. Robert R. Curtis
and Sidney Kahn are resigning from the Board effective as of the date of the
Annual Meeting.
The holders of the Company's Common Stock and Preferred Stock, other
than the Series C Preferred Stock, are entitled to elect five nominees to the
Board of Directors. The holders of the Series F Preferred Stock are entitled
to elect two nominees to the Board of Directors. Messrs. John David Singleton
and Max E. Thornhill are the nominees for the Series F Directors. The Series F
Representative, who holds proxies previously granted to him to vote all shares
of Series F Preferred Stock in the election of Series F Directors, has
indicated his intention to elect Messrs. Singleton and Thornhill to the Board
of Directors, and, if the Series F Representative does vote such shares as
indicated, the election of Messrs. Singleton and Thornhill to the Board is
assured.
Shares represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the nominees named below, other than
Messrs. Singleton and Thornhill. In the event that any nominee should be
unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. Each person nominated for election has agreed to serve if elected and
management has no reason to believe that any nominee will be unable to serve.
Directors are elected by the holders of a plurality of the votes of
the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of such directors.
3.
<PAGE> 6
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF
EACH NAMED NOMINEE
NOMINEES
The names and certain biographical data of the nominees are set forth
below:
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE
<S> <C> <C>
Thomas H. Bell1,3 48 1985
James W. Gallaway2 56 1988
Wallace M. Hammond 50 1994
Merrill L. Magowan2,3 57 1990
Myron A. Wick III1 52 1992
John David Singleton4 56 1995
Max E. Thornhill4 64 1995
- -------------------
</TABLE>
1 Member of the Compensation Committee.
2 Member of the Audit Committee.
3 Member of the Nominating Committee.
4 Messrs. Singleton and Thornhill have been nominated or designated for
nomination for election to the Board by the Series F Representative.
The Series F Representative has indicated his intention to vote shares
of Series F Preferred Stock held by him or for which he holds proxies
in favor of electing Messrs. Singleton and Thornhill to the Board.
THOMAS H. BELL
Mr. Bell is the founder of the Company. He has served as the Chairman
of the Board of Phoenix since its inception under the name Phoenix Telcom, Inc.
in 1985, as the Company's Chief Executive Officer from 1985 to January 1992,
and as President of the Company from 1985 to September 1990. Mr. Bell is also
an independent consultant in the telecommunications industry.
JAMES W. GALLAWAY
Mr. Gallaway has served as a director of the Company since July 1988.
He was a founder, director from 1984 to 1988, and Vice President from 1983 to
1986, of Centex Telemanagement, Inc., a telecommunications company that resold
local telephone service. Since 1980, he has been President of Gallaway
Enterprises, Inc., a telecommunications company. From February 1988 through
December 1994, he served as a director and Vice President of StellarNet, Inc.,
an information management company in the health care industry. Mr. Gallaway is
a U.S. Marine Corps Reserve (Retired) Colonel.
4.
<PAGE> 7
WALLACE M. HAMMOND
Mr. Hammond joined the Company as Executive Vice President in February
1994. He was elected to the Company's Board of Directors and named President
and Chief Operating Officer of the Company in May 1994. Mr. Hammond was
elected Chief Executive Officer of the Company in December 1994. From 1992 to
1993, he was President and Chief Executive Officer of ANSCO & Associates, a
telephone engineering and plant construction company. From 1979 to 1992, he
was with BellSouth Communication Systems, Inc., a nationwide division of
BellSouth Corporation involved in the customer premises equipment after-market,
where he was promoted to Vice President-Operations in 1989.
MERRILL L. MAGOWAN
Mr. Magowan became a director of the Company in September 1990. Since
1982, Mr. Magowan has been a principal of S F Associates, a California
registered investment advisory firm (formerly known as Magowan Dirickson
Investment Company). He is also currently a director of Nordeman Grimm (since
1975), an executive search consulting firm. From 1968 to 1986, he was a
director of Safeway Stores, Inc., a retail grocery chain.
MYRON A. WICK III
Mr. Wick became a director of the Company in January 1992. Mr. Wick is
currently a managing director and founder of McGettigan, Wick & Co., Inc., a
merchant banking fund formed in 1988, and a general partner of Proactive
Investment Managers, L.P., a California limited partnership which is the
general partner of Proactive Partners, L.P., an investment partnership formed
in 1991. Mr. Wick is a director of Childrens Discovery Centers, Inc., Digital
Dictation, Inc., ModTech, Inc. and NDE Environmental, Inc., and Chairman of the
Board of Directors of Sonics Research Department and Wray-Tech Instruments,
Inc. From 1985 to 1988, Mr. Wick was Chief Operating Officer of California
Biotechnology, Inc. (recently renamed Scios Nova Inc.), a biotechnology
company.
JOHN DAVID SINGLETON
Mr. Singleton has served as a director of the Company since October
1995. He was a founding director of LDDS WorldCom, Inc., a long-distance
telecommunications company, and served as a director of that company from 1983
to 1992. He was a founding director, and currently serves as a director of, US
One. Mr. Singleton also serves as a director of Red Fox Environmental
Services. Mr. Singleton has worked in personal and small business financial
planning for 25 years and currently manages a private portfolio.
MAX E. THORNHILL
Mr. Thornhill has served as a director of the Company since October
1995. He was a founding director of LDDS WorldCom, Inc. and served as a
director of that company from 1983
5.
<PAGE> 8
to September 1993. He was a founding director, and currently serves as a
director of, US One. Mr. Thornhill is currently engaged in real estate
development and oil and gas exploration and production.
EXECUTIVE OFFICERS
Set forth below is information regarding the executive officers of the
Company as of July 31, 1996.
<TABLE>
<CAPTION>
NAME POSITION AGE
<S> <C> <C>
Wallace M. Hammond President and Chief Executive Officer 50
Jeffrey L. Bailey Senior Vice President and Chief 43
Financial Officer
J. Rex Bell Vice President of Operations 41
Jon Beizer Vice President of Corporate Development 31
Paul C. Cissel Vice President of Sales and Marketing 39
</TABLE>
BACKGROUND OF EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
JEFFREY L. BAILEY
Mr. Bailey has been Senior Vice President and Chief Financial Officer
of the Company since March 1990. He is a Certified Public Accountant and, from
1985 to 1990, was a Senior Manager with Grant Thornton LLP, an accounting and
management consulting firm. From 1975 to 1985 he was with Arthur Young &
Company (now, Ernst & Young, L.L.P.).
J. REX BELL
Mr. Bell has been Vice President of Operations of the Company since
March 1991. From January 1990 to March 1991, he held the position of Director
of Marketing of the Company. Prior to joining the Company, Mr. Bell was a
Senior Telecommunications Consultant from 1984 to 1990 for two California
consulting firms, COMSUL, Ltd. and Robin & Dackerman, Inc. Between 1980 and
1984, he held management positions with MCI Communications and Cable and
Wireless, Ltd.
6.
<PAGE> 9
JON BEIZER
Mr. Beizer was promoted to Vice President of Corporate Development in
1995. Since joining the Company in July 1992, he has held various positions,
the last of which was Director of Marketing. Mr. Beizer holds an M.B.A. from
Stanford University, where he attended from 1990 to 1992. Mr. Beizer worked
from 1987 through 1990 as a consultant for Braxton Associates, a management
consulting firm specializing in corporate strategy.
PAUL C. CISSEL
Mr. Cissel was promoted to Vice President of Sales and Marketing in
November 1994. Between April 1994 and October 1994, Mr. Cissel served as the
manager of the Company's Boston sales office as an independent contractor. Mr.
Cissel was the founder and served as President of Communications and Business
Solutions, a communications management company and distributor of the Company's
products, between August 1992 and October 1994. Between May 1989 and June
1992, Mr. Cissel served as President and Chief Executive Officer of Titan
Software Corporation, an electronics company that developed software and
printed circuit board test devices.
Thomas H. Bell, a director of the Company, and J. Rex Bell, the
Company's Vice President of Operations, are brothers. With the exception of
that relationship, there are no other family relationships among officers or
directors of the Company.
BOARD COMMITTEES AND MEETINGS
During the year ended December 31, 1995, the Board of Directors met or
acted by written consent in lieu of a meeting a total of 12 times. The Board
has appointed an Audit Committee, a Compensation Committee and a Nominating
Committee.
The Audit Committee meets with the Company's independent auditors at
least annually to review the results of the annual audit and discuss the
financial statements. The Audit Committee also receives and considers the
auditors' comments as to controls, adequacy of staff and management performance
and procedures in connection with audit and financial controls. The Audit
Committee is composed of two directors, Messrs. Gallaway and Magowan, and met
twice during the year ended December 31, 1995.
The Compensation Committee makes recommendations concerning salaries
and incentive compensation, awards stock options to employees and consultants
under the Company's 1989 Stock Option Plan and performs all such other
functions regarding compensation as the Board may delegate. The Compensation
Committee is composed of two directors: Messrs. Bell and Wick. It met two
times during the year ended December 31, 1995.
The Nominating Committee interviews, evaluates, nominates and
recommends individuals for membership on the Company's Board of Directors and
nominates specific individuals to be
7.
<PAGE> 10
elected as officers of the Company by the Board of Directors. No procedure has
been established for the consideration of nominees recommended by stockholders.
The Nominating Committee is composed of two directors: Messrs. Magowan and
Bell. It met once during the year ended December 31, 1995.
During the fiscal year ended December 31, 1995, each director attended
at least 75% of the aggregate of the meetings of the Board and of the
committees on which he served, held during the period for which he was a Board
member, and, if applicable, a committee member.
PROPOSAL 2
APPROVAL OF INCREASE IN NUMBER
OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has adopted, subject to stockholder approval,
an amendment to the Company's Restated Certificate of Incorporation to increase
the Company's authorized number of shares of Common Stock from 30,000,000
shares to 50,000,000 shares.
The additional Common Stock to be authorized by adoption of the
amendment would have rights identical to the currently outstanding Common Stock
of the Company. Adoption of the proposed amendment and issuance of the Common
Stock would not affect the rights of the holders of currently outstanding
Common Stock and Preferred Stock of the Company, except for effects incidental
to increasing the number of shares of the Company's Common Stock outstanding,
such as dilution of the earnings per share and voting rights of current holders
of the Company's stock. If the amendment is adopted, it will become effective
upon filing of a Certificate of Amendment of the Company's Restated Certificate
of Incorporation with the Secretary of State of the State of Delaware.
In addition to the 17,698,974 shares of Common Stock outstanding at
July 31, 1996, the Board has reserved 2,583,453 shares for issuance upon
exercise of options and rights granted under the Company's stock option plans,
500,000 shares for issuance upon exercise of options granted outside of the
Company's stock option plans, 6,218,739 shares of Common Stock upon conversion
of outstanding shares of Preferred Stock and 1,102,805 shares of Common Stock
upon exercise of outstanding warrants.
Although at present the Board of Directors has no plans to issue the
additional shares of Common Stock, it desires to have such shares available to
provide additional flexibility to use its capital stock for business and
financial purposes in the future. The additional shares may be used, without
further stockholder approval, for various purposes including, without
limitation, raising capital, providing equity incentives to employees, officers
or directors, establishing strategic relationships with other companies and
expanding the Company's business or product lines through the acquisition of
other businesses or products.
8.
<PAGE> 11
The additional shares of Common Stock that would become available for
issuance if the proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. Although this proposal to increase the authorized
Common Stock has been prompted by business and financial considerations and not
by the threat of any hostile takeover attempt (nor is the Board currently aware
of any such attempts directed at the Company), nevertheless, stockholders
should be aware that approval of this proposal could facilitate future efforts
by the Company to deter or prevent changes in control of the Company, including
transactions in which the stockholders might otherwise receive a premium for
their shares over the then-current market prices.
Stockholders are requested in this Proposal 2 to approve an increase
in the number of authorized shares of Common Stock of the Company. The
affirmative vote of the holders of a majority of the shares of the Common
Stock, voting separately as a class, and of the Common Stock and the Preferred
Stock, voting as a class, present in person or represented by proxy and
entitled to vote at the Annual Meeting, will be required to approve this
amendment to the Company's Restated Certificate of Incorporation. As a result,
abstentions and broker non-votes will have the same effect as negative votes.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2
PROPOSAL 3
APPROVAL OF INCREASE IN NUMBER
OF SHARES OF COMMON STOCK THAT MAY BE SOLD
PURSUANT TO THE COMPANY'S 1989 STOCK OPTION PLAN
The Board of Directors has adopted, subject to stockholder approval,
an amendment to the Company's 1989 Stock Option Plan (the "Plan") to increase
the number of shares of Common Stock that may be sold pursuant to options
granted under the Plan from 3,500,000 shares to 5,000,000 shares.
The purpose of the Plan is to provide a means by which selected key
employees and consultants of the Company may purchase Common Stock. The
Company, by means of the Plan, seeks to secure and retain the services of
highly qualified individuals to serve as employees or consultants of the
Company, to retain the services of persons presently employed by or serving as
consultants to the Company, and to provide incentives for such persons to exert
maximum efforts for the success of the Company.
If the amendment to the Plan is approved, the additional shares
available for sale pursuant to options issued under the Plan may be used,
without further stockholder approval, to provide equity incentives to eligible
participants in accordance with the Plan's purpose and terms. The amendment,
if adopted, will become effective immediately.
9.
<PAGE> 12
Only key employees, directors who are also key employees and
consultants of the Company and its affiliates are eligible to receive options
under the Plan. The Plan is administered by the Company's Board of Directors
or, if the Board so designates, a committee of the Board. The Board has
designated a Compensation Committee to administer the Plan, and its present
members are Thomas H. Bell and Myron A. Wick III. Both of Messrs. Bell and
Wick are "disinterested persons" as that term is defined in applicable rules
under the Securities Exchange Act of 1934, as amended, and as required under
the Plan.
Options issued pursuant to the Plan may be "Incentive Stock Options"
as that term is defined in the Internal Revenue Code of 1986, as amended
("ISOs"), or options not qualifying as ISOs ("Non-qualified Options"). For an
option to qualify as an ISO, at all times beginning on the date of the option
grant and ending three months before the option is exercised (one year if the
optionee becomes disabled), the optionee must have been an employee of Phoenix
or a parent or subsidiary of Phoenix. In addition, the exercise price of ISOs
may not be less than 100% of the fair market value of the Common Stock subject
to such options on the date of grant. By the terms of the Plan, the exercise
price of Non-qualified Options may not be less than 85% of the fair market
value of the Common Stock subject to such options on the date of grant. As of
August 20, 1996, the closing price for shares of the Common Stock was $5.50.
Options are issued without cost to the participant at the time of
grant. ISOs may be granted to an eligible person under the Plan only if the
aggregate fair market value (determined at the time of grant) of Common Stock
subject to all ISOs which are exercisable for the first time by such optionee
during any calendar year under the Plan does not exceed $100,000.
Recipients of ISOs are not taxed at the time the options are granted.
Upon exercise, the holder of an ISO will not recognize income if he or she does
not transfer the stock subject to such ISO within two years after the date of
the option grant or one year after option exercise. If the employee holds such
stock for two years from the date of grant of the ISO and one year from the
date the ISO was exercised, and if the stock is held for the long-term capital
gains holding period, the employee will recognize long-term capital gain income
in the year of sale of the stock in the amount of the sale price less the
exercise price of the ISOs. In the event a holder of ISOs disposes of the
stock received upon exercise of such ISOs within two years of the date of grant
of the ISOs or within one year of the date of their exercise (a "Disqualifying
Disposition"), such holder will recognize compensation income in the year of
such Disqualifying Disposition equal to the fair market value of such stock
over the exercise price of such ISOs.
Recipients of Non-qualified Options also are not taxed at the time the
options are granted, but the holder of Non-qualified Options recognizes
compensation income upon exercise of the options equal to the fair market value
of the stock received upon exercise over the exercise price.
Upon exercise of Non-qualified Options, or upon a Disqualifying
Disposition of stock received pursuant to the exercise of ISOs, the Company is
entitled to a compensation deduction equal to the amount of the income
includable on the holder's income tax return. The Company is not otherwise
entitled to any deductions with respect to ISOs or Non-qualified Options.
10.
<PAGE> 13
The term of options granted under the Plan may not exceed 10 years,
and, unless a particular option specifies otherwise, options terminate three
months after termination of the optionee's employment or consulting
relationship with the Company or its affiliate. The terms of an option may,
but need not, provide that such option may be exercised at any time within 12
months following termination on account of disability, or at any time within 18
months following the death of an optionee. Options granted under the Plan may
be subject to vesting requirements, as determined by the administrator of the
Plan.
As of July 31, 1996, the Board had issued total options under the Plan,
without regard to option exercises, for the purchase of 5,723,402(1) shares of
Common Stock, 3,800,126 of which were ISOs and 1,923,276 of which were
Non-qualified Options. The Company estimates that approximately 200 persons are
eligible to participate in the Plan. The following table sets forth the number
of options to purchase shares of Common Stock issued pursuant to the Plan for
certain persons and groups since the Plan's inception, without regard to option
exercises.
<TABLE>
<CAPTION>
NAME AND POSITION NUMBER OF
OR GROUP OPTIONS RECEIVED2,3
----------------- -------------------
<S> <C>
Wallace M. Hammond, President, Chief
Executive Officer, Director and
Nominee for Director 800,000
Jeffrey L. Bailey, Senior Vice President
and Chief Financial Officer 245,000
J. Rex Bell, Vice President of Operations 204,000
Jon Beizer, Vice President of Corporate
Development 192,000
Paul C. Cissel, Vice President of Sales
and Marketing 175,000
All current executive officers as a group 1,616,000
All current directors who are not
executive officers as a group 792,000
</TABLE>
________________________
1 Due to cancellations and expirations of options granted under the
Plan, options have been granted over the life of the Plan in excess
of the number of shares authorized for issuance under the Plan.
2 The Company has no plans to issue any further options in any
particular amounts under the Plan, but will continue to issue options
pursuant to the Plan from time to time.
11.
<PAGE> 14
3 No associate of any listed director, executive officer or nominee
holds any options issued under the Plan.
Stockholders are requested in this Proposal 3 to approve an amendment
to the Plan to increase the number of shares of Common Stock that may be sold
pursuant to options issued under the Plan. The affirmative vote of the holders
of a majority of the shares of the Common Stock and the Preferred Stock, voting
as a class, present in person or represented by proxy and entitled to vote at
the Annual Meeting, will be required to approve this amendment to the Plan. As
a result, abstentions and broker non-votes will have the same effect as
negative votes.
MANAGEMENT RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock and the various series of Preferred
Stock as of July 31, 1996(1) by: (i) each director and nominee for director;
(ii) each executive officer named in the Summary Compensation Table; (iii) all
executive officers and directors of the Company as a group; and (iv) all those
known by the Company to be beneficial owners of more than five percent (5%) of
any class of its voting securities.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP2
---------------------
NUMBER OF PERCENT OF
CLASS BENEFICIAL OWNER ADDRESS SHARES TOTAL
<S> <C> <C> <C>
Common Stock Thomas H. Bell3,4 1687 Cole Boulevard 3,238,056 17.75%
Golden, CO 80401
Common Stock Bell Non-Exempt 1687 Cole Boulevard 1,394,335 7.88%
Marital Trust Golden, CO 80401
Common Stock James W. Gallaway3 458,425 2.58%
Common Stock Jeffrey L. Bailey3 137,498 *
Common Stock Merrill L. Magowan3 120,445 *
Common Stock J. Rex Bell3 101,498 *
Common Stock Myron A. Wick III3,5,7,8 1687 Cole Boulevard 1,915,287 9.85%
Golden, CO 80401
Common Stock Sidney Kahn3 1687 Cole Boulevard 85,947 *
Golden, CO 80401
Common Stock Robert R. Curtis3,9 1687 Cole Boulevard 288,452 1.61%
Golden, CO 80401
</TABLE>
12.
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
Common Stock Wallace M. Hammond3 266,000 1.48%
Common Stock John David Singleton3 172,506 *
Common Stock Max E. Thornhill3 1687 Cole Boulevard 1,756,088 9.26%
Golden, CO 80401
Common Stock Paul C. Cissel3 72,112 *
Common Stock Judy Van Essen c/o 1687 Cole Boulevard 2,800,000 15.82%
Golden, CO 80401
Common Stock Jon D. Gruber3,5,6 50 Osgood Place 2,214,120 11.29%
San Francisco, CA 94133
Common Stock J. Patterson McBaine3,5,6 50 Osgood Place 2,191,224 11.18%
San Francisco, CA 94133
Common Stock Gruber & McBaine 50 Osgood Place 2,172,092 11.08%
Capital Management3,5,6 San Francisco, CA 94133
Common Stock Charles C. McGettigan3,5,7 50 Osgood Place 1,822,878 9.40%
San Francisco, CA 94133
Common Stock Proactive Investment 50 Osgood Place 1,582,948 8.27%
Managers, L.P.3,5 San Francisco, CA 94133
Common Stock Proactive Partners, L.P.3 50 Osgood Place 1,510,672 7.92%
San Francisco, CA 94133
Common Stock All executive officers
and directors as a
group10 (13 persons) 8,637,154 38.44%
Series A Preferred Merrill L. Magowan 1687 Cole Boulevard 10,000 9.89%
Golden, CO 80401
Series A Preferred Myron A. Wick III11,12 1687 Cole Boulevard 20,000 19.78%
Golden, CO 80401
Series A Preferred Jon D. Gruber13 50 Osgood Place 24,000 23.73%
San Francisco, CA 94133
Series A Preferred J. Patterson McBaine13 50 Osgood Place 21,000 20.77%
San Francisco, CA 94133
Series A Preferred McGettigan, Wick 50 Osgood Place 15,000 14.83%
Investments San Francisco, CA 94133
Series A Preferred Lagunitas Partners, L.P. 50 Osgood Place 20,000 19.78%
San Francisco, CA 94133
</TABLE>
13.
<PAGE> 16
<TABLE>
<S> <C> <C> <C>
Series A Preferred Benjamin F. Dillingham 1508 Smith Road 5,000 5.07%
Yuba City, CA 95993-7005
Series A Preferred Elizabeth D. Wick 444 South Beach Road 10,000 10.14%
Hobe Sound, FL 33455
Series A Preferred Walter D. Wick Trust c/o Winston Partners 5,000 5.07%
225 W. Washington St., # 1600
Chicago, IL 60606
Series A Preferred Myron A. Wick III Trust c/o Winston Partners 5,000 5.07%
225 W. Washington St., # 1600
Chicago, IL 60606
Series A Preferred Penelope DeYoung Trust c/o Winston Partners 5,000 5.07%
225 W. Washington St., # 1600
Chicago, IL 60606
Series A Preferred Jupiter Partners c/o John M. Bryan 10,000 10.14%
600 Montgomery St.
35th Floor
San Francisco, CA 94111
Series A Preferred All executive officers
and directors as a
group (13 persons) 30,000 29.67%
Series B Preferred Proactive Partners, L.P. 50 Osgood Place 50,000 43.67%
San Francisco, CA 94133
Series B Preferred Fremont Proactive 50 Osgood Place 7,500 6.55%
Partners, L.P. San Francisco, CA 94133
Series B Preferred Lagunitas Partners, L.P. 50 Osgood Place 35,000 30.57%
San Francisco, CA 94133
Series B Preferred BMA, Inc. 2001 Kirby Avenue 10,000 8.73%
Houston, TX 77019
Series B Preferred Myron A. Wick III14 1687 Cole Boulevard 57,500 50.22%
Golden, CO 80401
Series B Preferred All executive officers
and directors as a
group (13 persons) 57,500 50.22%
Series D Preferred Proactive Partners, L.P. 50 Osgood Place 333,333 100.00%
San Francisco, CA 94133
Series D Preferred Myron A. Wick III15 1687 Cole Boulevard 333,333 100.00%
Golden, CO 80401
</TABLE>
14.
<PAGE> 17
<TABLE>
<S> <C> <C> <C>
Series D Preferred All executive officers
and directors as a
group (13 persons) 333,333 100.00%
Series F Preferred Proactive Partners, L.P. 50 Osgood Place 126,456 10.75%
San Francisco, CA 94133
Series F Preferred Myron A. Wick III16 1687 Cole Boulevard 131,518 11.18%
Golden, CO 80401
Series F Preferred John David Singleton 30,095 2.56%
Series F Preferred Max E. Thornhill 1687 Cole Boulevard 285,000 24.23%
Golden, CO 80401
Series F Preferred All executive officers
and directors as a
group (13 persons) 446,613 37.98%
</TABLE>
________________________
1 In addition to 17,698,974 shares of Common Stock, at July 31, 1996, the
Company had 2,725,014 shares of Preferred Stock outstanding, of which
101,125 are shares of Series A Preferred Stock, 114,500 are shares of
Series B Preferred Stock, 1,000,000 are shares of Series C Preferred
Stock, 333,333 are shares of Series D Preferred Stock and 1,176,056 are
shares of Series F Preferred Stock. The Series C Preferred Stock is
nonvoting, except as required by law. The Series A Preferred Stock,
Series B Preferred Stock, Series D Preferred Stock and Series F
Preferred Stock vote together with the Common Stock as a single class on
an as-if-converted to Common Stock basis, except as required by law, the
Company's Restated Certificate of Incorporation or the Company's
Certificates of Designation of Preferences of Series A, Series B, Series
D and Series F Preferred Stock.
2 This table is based upon information supplied by executive officers,
directors and principal stockholders and Schedules 13D and 13G filed
with the Securities and Exchange Commission (the "Commission"). Unless
otherwise indicated in the footnotes to this table and subject to
community property laws where applicable, each of the stockholders named
in this table has sole voting and investment power with respect to the
shares indicated as beneficially owned. Beneficial ownership of less
than 1% of a class of stock is indicated with an asterisk.
3 Includes shares of Common Stock which certain executive officers,
directors and principal stockholders of the Company have the right to
acquire within 60 days after the date of this table pursuant to
outstanding options and warrants as follows: Thomas H. Bell, 545,000
shares; James W. Gallaway, 87,875 shares; Jeffrey L. Bailey, 137,498
shares; Merrill L. Magowan, 79,125 shares; J. Rex Bell, 101,498 shares;
Myron A. Wick III, 428,557 shares; Robert R. Curtis, 255,312 shares;
Sidney Kahn, 9,447 shares; Wallace M. Hammond, 250,000 shares; John
David Singleton, 14,126 shares; Max Thornhill, 116,088 shares; Paul C.
Cissel, 70,312 shares; Charles C. McGettigan, 384,807 shares; Jon D.
Gruber, 219,008 shares; J. Patterson McBaine, 219,008 shares; Gruber &
McBaine Capital Management, 219,008 shares and Proactive Investment
Managers, L.P., 206,857 shares. Also includes shares of Common Stock
which certain executive officers, directors and principal stockholders
of the Company have the right to acquire within 60 days after the date
of this table pursuant to conversion of outstanding Series A, B, D and F
Preferred Stock as follows (on an as-if-converted to Common Stock
basis): Merrill L. Magowan, 41,320 shares; Myron A. Wick III, 1,325,398
shares; Robert R. Curtis, 20,730 shares; John David Singleton, 481,520
shares; Max Thornhill, 4,560,000 shares; Jon D. Gruber, 1,696,779
shares; J. Patterson McBaine, 1,684,383 shares; Gruber & McBaine Capital
Management, 1,680,251 shares; Charles C. McGettigan, 1,304,738 shares
and Proactive Investment Managers, L.P., 1,242,758 shares.
4 Includes 1,394,335 shares of Common Stock beneficially held in the name
of the Bell Non-Exempt Marital Trust of which Thomas H. Bell is a
trustee.
15.
<PAGE> 18
5 Includes 1,582,947 shares of Common Stock which the following entities
either own or have the right to acquire within 60 days after the date of
this table upon conversion of Series A, B, D or F Preferred Stock or
exercise of warrants held as follows: 1,510,672 shares held by Proactive
Partners, L.P., a California limited partnership ("PP"), the general
partner of which is Proactive Investment Managers, L.P., a California
limited partnership ("PIM"), of which Messrs. Gruber, McBaine,
McGettigan and Wick are general partners; and 72,275 shares held by
Fremont Proactive Partners, L.P., a California limited partnership
("FPP"), of which PIM is also the general partner.
6 Includes 589,132 shares of Common Stock which the following entities
either own or have the right to acquire within 60 days after the date of
this table upon conversion of Series A, B, D or F Preferred Stock or
exercise of warrants held as follows: 30,500 shares held by Gruber &
McBaine Capital Management, a California corporation ("GMCM"), of which
Messrs. Gruber and McBaine are the sole directors; 548,644 held by
Lagunitas Partners L.P., a California limited partnership, of which
Messrs. Gruber and McBaine and GMCM are general partners; 5,000 shares
held by GMJ Investments, L.P., a California limited partnership, of
which Messrs. Gruber and McBaine and GMCM are general partners; and
5,000 shares held by Lagunitas International, a Cayman Islands Limited
Partnership, of which GMCM is a general partner.
7 Includes 153,950 shares of Common Stock which could be acquired within
60 days of the date of this table upon exercise of warrants or
conversion of Series A Preferred Stock held by McGettigan, Wick & Co.,
Inc., a merchant banking fund of which Messrs. McGettigan and Wick are
Managing Directors, and 61,980 shares which could be acquired within 60
days of this table upon conversion of Series A Preferred Stock held by
McGettigan, Wick Investments, a partnership of which Messrs. McGettigan
and Wick are general partners.
8 Includes 48,659 shares of Common Stock which is owned or could be
acquired within 60 days of the date of this table upon conversion of
Series A Preferred Stock held by the Myron A. Wick III Trust for which
Mr. Wick is the trustee.
9 Includes 5,000 shares held by Mr. Curtis for the benefit of his minor
children.
10 Includes 7,846,079 shares of Common Stock which such persons have the
right to acquire within 60 days after the date of this table upon
conversion of Series A, B, D or F Preferred Stock and pursuant to
outstanding options and warrants.
11 Includes 15,000 shares of Series A Preferred Stock which is owned by
McGettigan, Wick Investments, a partnership of which Messrs. McGettigan
and Wick are general partners.
12 Includes 5,000 shares of Series A Preferred Stock which is owned by the
Myron A. Wick III Trust for which Mr. Wick is the trustee.
13 Includes 20,000 shares of Series A Preferred Stock owned by Lagunitas
Partners L.P.
14 Includes 50,000 shares of Series B Preferred Stock owned by PP and 7,500
shares of Series B Preferred Stock owned by FPP. Mr. Wick is a general
partner of PIM, which is the general partner of PP and FPP.
15 Includes 333,333 shares of Series D Preferred Stock owned by PP. Mr.
Wick is a general partner of PIM which the general partner of PP and
FPP.
16 Includes 126,456 shares of Series F Preferred Stock owned by PP and
5,062 shares of Series F Preferred Stock owned by FPP. Mr. Wick is a
general partner of PIM, which is the general partner of PP and FPP.
16.
<PAGE> 19
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934.
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent (10%) of a registered class of the Company's equity
securities, to file with the Commission initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than ten percent (10%)
stockholders are required by Commission regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and representations that no other reports
were required, during the fiscal year ended December 31, 1995, all Section
16(a) filing requirements applicable to its officers, directors and greater
than ten percent (10%) beneficial owners were complied with.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
No cash fees are paid to directors for serving on the Board. The
members of the Board are, however, eligible for reimbursement for their
expenses incurred in connection with attendance at Board meetings in accordance
with Company policy.
Each non-employee director of the Company also receives stock option
grants under the 1992 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan"). Only directors of the Company who are not employees of the
Company or any of its affiliates (a "non-employee director") are eligible to
receive options under the Directors' Plan. Options granted under the
Directors' Plan are intended by the Company not to qualify as ISOs.
Option grants under the Directors' Plan are non-discretionary. Each
person who is elected or appointed after January 4, 1993 to be a non-employee
director of the Company is automatically granted under the Directors' Plan an
option to purchase 10,000 shares of Common Stock of the Company. In addition,
on the first business day of each year thereafter, each non-employee director
of the Company is automatically granted under the Directors' Plan an option to
purchase shares of Common Stock (rounded to the nearest 100 shares) of the
Company equal to the Proration Factor (as hereinafter defined) multiplied by
the sum of (i) 10,000 shares of Common Stock of the Company and (ii) 2,500
shares of Common Stock of the Company multiplied by the number of full years
such non-employee director has served in such capacity. The "Proration
Factor" is a fraction, the numerator of which is the number of calendar days
during the preceding year on which such person served as a non-employee
director and the denominator of which is 365. No other options will be granted
under the Directors' Plan. The exercise price of an option granted under the
Directors' Plan is equal to the fair market value of the Common Stock subject
to the option on the date of grant. The number of options granted under the
Directors' Plan is subject to certain anti-dilution protections in favor of the
non-employee directors, and Options granted under the Directors' Plan expire
ten years from the date of grant. Options granted under
17.
<PAGE> 20
the Directors' Plan vest and become exercisable at the rate of one-sixteenth of
the shares subject to such options per quarter for sixteen quarters following
the date of grant. During 1995, options for 96,000 shares of Common Stock were
granted to non-employee directors with exercise prices ranging from $2.375 to
$3.625 per share. None of these options has been exercised as of the date
hereof.
Under the terms of a consulting agreement between the Company and
Robert R. Curtis, a current director of the Company, the Company paid Mr.
Curtis during 1995 twelve equal monthly payments of $15,000 each, to pay
accrued vacation and medical leave benefits (without regard to usual
limitations), to reimburse Mr. Curtis for legal costs reasonably incurred
negotiating his change in status from employee to consultant with the Company,
and to fully vest any options on Company stock held at December 31, 1994. In
exchange, Mr. Curtis held himself available during 1995 to serve as a
consultant to the Company, performing such services as the Company reasonably
requested.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows, for the fiscal years ended December 31,
1995, 1994 and 1993, compensation awarded or paid to, or earned by, the
Company's Chief Executive Officer, former Chief Executive Officer and each of
the four other most highly compensated executive officers at December 31, 1995
whose total annual salary and bonus was in excess of $100,000 for the year
ended December 31, 1995 (the "Named Executive Officers"):
18.
<PAGE> 21
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
------------------------ ----------
Securities
Underlying All Other
Name and Principal Salary1 Bonus Options/2 Compensation4
Position Year ($) ($) SARs (#) ($)
- ------------------------- ---- ------- ----- ---------- --------------
<S> <C> <C> <C> <C> <C>
Mr. Wallace M. Hammond3 1995 203,511 67,451 300,000 2,320
1994 127,885 300,000(2)
President and Chief
Executive Officer
Mr. Jeffrey L. Bailey 1995 129,219 15,193 50,000 2,320
Senior Vice President and 1994 120,573 500
Chief Financial Officer 1993 109,838 145,000(2) 700
Mr. Paul C. Cissel3 1995 125,001 25,000 20,438
Vice President of Sales and 1994 28,646 150,000
Marketing
Mr. J. Rex Bell 1995 117,657 15,193 50,000 2,320
Senior Vice President 1994 109,585
of Operations 1993 99,159 104,000(2)
- --------------------
</TABLE>
1 Includes amounts earned but deferred at the election of the
executives. As permitted by Commission rules, no amounts are shown
for certain perquisites, as such amounts do not exceed the lesser of
10% of bonus plus salary or $50,000.
2 Repriced options treated as new grants. The Company has not issued
any stock appreciation rights (SARs).
3 Mr. Hammond and Mr. Cissel were not employed by the Company before
1994, thus only 1995 and 1994 compensation is disclosed. The amounts
disclosed include compensation commencing in February 1994 for Mr.
Hammond, when he joined the Company as Executive Vice President, and
include compensation commencing in November 1994 for Mr. Cissel, when
he was hired as Vice President of Sales and Marketing. Mr. Hammond
19.
<PAGE> 22
was elected President and Chief Operating Officer of the Company in
May 1994 and Chief Executive Officer in December 1994.
4 In each case where a figure is listed, All Other Compensation includes
$500 in matching Section 401(k) plan contributions made by the
Company. The balance of the amount reported for each officer other
than Mr. Cissel represents a reimbursement of parking expenses. The
balance of the amount reported for Mr. Cissel represents commission
payments of $19,218 and reimbursement of parking expenses of $220.
EMPLOYMENT AGREEMENTS
Effective January 1, 1996, the Company and Mr. Hammond entered into a
new employment agreement with a term beginning January 1, 1996 and ending
December 31, 1998 which superseded the previous employment agreement between
the Company and Mr. Hammond. The new employment agreement provides for a
salary of $250,000 during 1996, $275,000 during 1997 and $300,000 during 1998
in exchange for Mr. Hammond's services to the Company as President and Chief
Executive Officer. The agreement further provides for an option grant of
200,000 shares of the Company's Common Stock vesting at the rate of 12,500
shares per calendar quarter and an annual bonus equal to 1% of the Company's
earnings before interest, taxes, depreciation and amortization. Under terms
of the employment agreement, should an acquisition of the Company or a similar
corporate event result in the termination of Mr. Hammond's employment with the
Company, any unvested options held by Mr. Hammond will immediately vest. In
the event Mr. Hammond is terminated without cause, the Company has agreed he
is to receive a severance amount equal to 18 months' salary and bonus. In the
event of an acquisition of the Company or a similar corporate event resulting
in the termination of his employment with the Company, the Company has agreed
to pay Mr. Hammond a severance amount equal to the salary he would have
received had he remained employed for the entire term of the employment
agreement. In either a termination of Mr. Hammond's employment without cause
or the termination of his employment in the event of an acquisition of the
Company (or similar corporate event), the Company has agreed to pay Mr.
Hammond's reasonable relocation expenses, not to exceed $20,000.
Effective January 1, 1995, the Company and Mr. Bailey entered into an
employment agreement for the 1995 calendar year providing for an annual salary
at least $127,200 and, in the event of an acquisition of the Company or a
similar corporate event which results in the termination by the Company or its
successor of Mr. Bailey's employment, the immediate vesting of all unvested
shares of the Company's stock subject to options held by Mr. Bailey and the
payment of a severance benefit in the amount of $127,200. In exchange for the
terms contained in the employment agreement, Mr. Bailey agreed to render
services to the Company as its Senior Vice President and Chief Financial
Officer. The Company has also agreed to pay on a quarterly basis a bonus equal
to 1% of the Company's pre-tax profit for that quarter. In the event Mr.
Bailey's employment is terminated without cause, the Company has agreed to pay
him the greater of one-half his annual salary or the balance of his annual
salary due under the employment agreement.
20.
<PAGE> 23
Effective January 1, 1995, the Company and Mr. Rex Bell entered into
an employment agreement for the 1995 calendar year providing for an annual
salary at least $116,600, and, in the event of an acquisition of the Company or
a similar corporate event resulting in the termination by the Company or its
successor of Mr. Rex Bell's employment, the immediate vesting of all unvested
shares of the Company's stock subject to options held by Mr. Rex Bell and the
payment of a severance benefit in the amount of $116,600. In exchange for the
terms contained in the employment agreement, Mr. Rex Bell has agreed to render
services to the Company as its Senior Vice President of Operations. The
Company has also agreed to pay Mr. Bell, on a quarterly basis, a bonus equal to
1% of the Company's pre-tax profit for that quarter. In the event Mr. Bell's
employment is terminated without cause, the Company has agreed to pay him the
greater of one-half his annual salary or the balance of his annual salary due
under the employment agreement.
Effective October 10, 1994, the Company and Mr. Cissel entered into an
employment agreement with a term ending October 9, 1995. In exchange for the
terms contained in the employment agreement, Mr. Cissel agreed to render
services to the Company as its Vice President of Sales and Marketing. Under
the employment agreement, Mr. Cissel is to be paid a salary at an annual rate
of $125,000 and a monthly bonus equal to 1% of new customer billings. Mr.
Cissel also received an option to purchase 150,000 shares of the Company's
Common Stock, which shares vest at the rate of 9,375 shares per quarter,
subject to immediate vesting upon an acquisition of the Company or similar
corporate event resulting in the termination of Mr. Cissel's employment. The
Company further agreed to reimburse up to $20,000 of rental expenses incurred
by Mr. Cissel prior to his establishing a permanent residence in San Francisco,
California. Should Mr. Cissel's employment with the Company be terminated
without cause during the term of the employment agreement, the Company has
agreed to pay him the greater of one-quarter of his annual salary under the
employment agreement or the balance of salary due to him had employment
continued for the remainder of its term.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1989
Stock Option Plan (the "1989 Plan"). As of July 31, 1996, options to purchase
a total of 2,233,053 shares had been granted and were outstanding under the
1989 Plan and no shares remained available for future grant thereunder.
The following tables show for the fiscal year ended December 31, 1995,
certain information regarding options granted to, exercised by, and held at
year end by the Named Executive Officers:
21.
<PAGE> 24
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants Potential
------------------------------------------------------------ Realizable Value at
Percentage Assumed Annual
Number of of Total Rates of Stock Price
Securities Options Appreciation
Underlying Granted to Exercise for Option Term2
Options Employees or Base Expira- ----------------------
Granted in Fiscal price tion
Name (#) 1995(1) ($/Sh) Date 5% ($) 10% ($)
- ------------------- ----------- ---------- -------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Wallace M. Hammond 200,000 27.9% 2.375 3/23/99 105,252 227,402
100,000 13.9% 3.125 3/23/99 60,110 128,394
Jeffrey L. Bailey 25,000 3.5% 2.375 3/23/99 13,156 28,425
25,000 3.5% 3.125 3/23/99 15,027 32,098
Paul C. Cissel 25,000 3.5% 3.125 3/23/99 15,027 32,098
J. Rex Bell 25,000 3.5% 2.375 3/23/99 13,156 28,425
25,000 3.5% 3.125 3/23/99 15,027 32,098
</TABLE>
____________________
1 Based on options to purchase 717,400 shares of the Company's Common
Stock granted in 1995.
2 The potential realizable value is based on the term of the option at
its time of grant (4.1 years for the option to purchase 200,000 shares
of the Company's Common Stock granted to Mr. Hammond and for the
initial options for 25,000 shares granted to Mr. Bailey and Mr. Bell
and 3.6 years for the option to purchase 100,000 shares of the
Company's Common Stock granted to Mr. Hammond and for the second
options for 25,000 shares granted to Mr. Bailey, Mr. Cissel and Mr.
Bell). The potential realizable value is calculated by assuming that
the stock price on the date of grant appreciates at the indicated
annual rate, compounded annually for the entire term of the option,
and that the option is exercised and the underlying shares of the
Company's Common Stock are sold on the last day of the option's term
for the appreciated stock price. These amounts represent certain
assumed rates of appreciation only, in accordance with the rules of
the SEC, and do not reflect the Company's estimate or projection of
future stock price performance. Actual gains, if any, are dependent
on the actual future performance of the Company's Common Stock and no
gain to the optionee is possible unless the stock price increases over
the option term, which will benefit all stockholders.
22.
<PAGE> 25
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995, AND
VALUE OF OPTIONS AT END OF FISCAL YEAR 1995
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-money
Options/SARs Options/SARs
Shares at End of at End of
Acquired Value Fiscal 1995 (#) Fiscal 1995 ($)2
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($)1 Unexercisable Unexercisable
- ------------------ ----------- --------- --------------- ----------------
<S> <C> <C> <C> <C>
Jeffrey L. Bailey -- -- 129,693/45,307 330,682/41,193
J. Rex Bell -- -- 94,123/44,877 237,310/40,065
Wallace M. Hammond -- -- 175,000/425,000 197,656/439,844
Paul C. Cissel -- -- 48,437/126,563 3,711/18,164
</TABLE>
_____________________________
1 Value realized is based on the fair market value of the Company's
Common Stock on the date of exercise minus the exercise price, without
taking into account any taxes which may be payable in connection with
the transaction, and does not necessarily indicate that the optionee
sold such stock.
2 Fair market value of the Company's Common Stock at December 31, 1995
($2.625) minus the exercise price of the options.
COMPENSATION COMMITTEE REPORT1
The Compensation Committee consists of Messrs. Thomas Bell and Wick,
both of whom are non-employee directors. Our Committee is responsible for
setting the Company's policies governing employee compensation, administering
the Company's employee benefit plans and determining the compensation of the
Company's executive officers. The Committee annually evaluates the
performance, and determines the compensation, of the Chief Executive Officer
and the other executive officers of the Company based upon a mix of the
achievement of corporate goals, individual performance and comparisons with
comparable companies. The Chief Executive Officer and other executive officers
are not present during the discussion of their compensation.
____________________
1 The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference in any
filing of the Company under the Securities Act of 1933, as amended (the
"1933 Act") or the 1934 Act, whether made before or after the date hereof
and irrespective of any general incorporation language in any such filing.
23.
<PAGE> 26
Our Committee attempts to design compensation policies that will
attract and retain the highest quality executives and will reward them for the
Company's progress towards its long-term goal of increasing corporate revenue
and attaining profitability in line with averages for companies within the
telecommunications industry. We consider a variety of factors, both personal
and corporate, in evaluating the Company's executive officers and making our
compensation decisions. These include the compensation paid by comparable
companies to individuals in comparable positions, the individual contributions
of each officer to the Company, and, most importantly, the progress of the
Company towards its long-term objectives. As the Company has progressed the
measures of this progress have changed, and we expect them to continue to
change.
The Compensation Committee has determined that the stock options
granted under the Company's 1989 Stock Option Plan, as amended, with an
exercise price at least equal to the fair market value of the Company's Common
Stock on the date of grant shall be treated as "performance-based
compensation." Compensation recognized by an Executive Officer as a result of
the exercise of such a stock option to be deductible by the Company.
EXECUTIVE OFFICER COMPENSATION
The Company's executive officer compensation program is comprised of
base salary, annual cash incentive compensation in the form of a bonus and
long-term incentive compensation in the form of stock option grants at current
market prices.
BASE SALARY
In establishing base salaries, the Committee first considers a number
of surveys of compensation levels at comparably-sized companies in comparable
industries, including companies in the telecommunications industries. The
companies included in the surveys are not necessarily the same as the companies
included in the market indices included in the performance graph in this Proxy
Statement.
Based on the data generated in the surveys, the Committee then sets a
target base salary level applicable to all executive officers. The Committee
then considers the level of responsibility, experience and contributions of
each executive officer. The Committee then sets each officer's base salary
taking into account the target salary and the Committee's evaluation of
individual performance.
ANNUAL CASH INCENTIVE BONUS
There were no formal cash incentive bonus programs in place for
executive officers during 1994 or 1995. Under the terms of the employment
agreements described above in "Compensation of Executive Officers," certain
officers are entitled to receive bonuses based on the Company's operating
results. As a result of the Company achieving profitable operating results in
the third and fourth quarter of 1994, executive officers received a total of
$60,000 in discretionary cash bonuses in 1995 related to the Company's 1994
performance. As a result of the Company
24.
<PAGE> 27
achieving profitable operating results in first, second and third quarters of
1995, executive officers received a total of $24,439 in cash bonuses in 1995
relating to the Company's 1995 performance.
STOCK OPTION GRANTS
The Company grants stock options to its executive officers in order to
provide long-term incentives to executive officers and align executive officer
and stockholder long-term interests by creating a direct link between executive
compensation and stockholder return. Stock options are granted at an option
price equal to the fair market value of the Company's Common Stock on the date
of grant. In order to facilitate long-term incentives through the option
grants, options are generally subject to ratable vesting over four years and
are exercisable through March 1999.
Executive officer awards are subjectively determined by the Committee
after considering stock option grant data taken from the compensation surveys
referred to above, as well as the level of responsibility, experience and
contributions of each executive officer. In determining the size of individual
grants, the Committee also considers the number of shares subject to options
previously granted to each executive officer, including the number of such
shares that have vested and that remain unvested.
CHIEF EXECUTIVE OFFICER COMPENSATION
Based upon a review of Mr. Hammond's performance as President and
Chief Operating Officer of the Company from May 1994, his past performance as
Executive Vice President of the Company and his former role as President and
Chief Executive Officer of ANSCO & Associates, a telephone engineering and
plant construction company from 1992 to 1993, and a review of other candidates,
the Company's Board of Directors offered and Mr. Hammond accepted the position
of Chief Executive Officer of the Company in December 1994. In determining Mr.
Hammond's compensation package for 1995, the Company also relied on a report
prepared by an independent executive compensation consulting firm which
examined compensation packages of Chief Executive Officers and Presidents of
comparable companies.
OPTION REPRICING
The Compensation Committee has from time to time approved the
repricing of option grants to employees, including executive officers, based
upon the Committee's determination of the value of the employee's contribution
to the Company. The intent of these repricings has been to align the option
exercise price with the fair market value of the underlying Common Stock as
determined by the marketplace.
Thomas H. Bell
Myron A. Wick III
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<PAGE> 28
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
AGREEMENT WITH THOMAS H. BELL
Thomas H. Bell, who is Chairman of the Board and a member of the
Company's Compensation Committee, was the Chief Executive Officer of the
Company from inception through January 1992 and of its predecessor from
inception to 1989. Mr. Bell was the Company's President from inception through
September 1990 and the President of its predecessor from 1985 to 1989. Under
the terms of an agreement between the Company and Mr. Bell, Mr. Bell is
enrolled in the Company's health benefits plan and the Company pays Mr. Bell's
premiums which amounted to $14,731 in 1995.
PERFORMANCE MEASUREMENT COMPARISON1
The following chart shows the CRSP Total Return Index for (i) the
Company's Common Stock, (ii) Nasdaq Stock Market (US Companies) and (iii)
Nasdaq Telecommunications Stocks. All values assume reinvestment of the full
amount of all dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN ON INVESTMENT2,3
<TABLE>
<CAPTION>
Measurement Period PHOENIX, NETWORK INC Nasdaq Stock Market Nasdaq Telecommunications Stock
------------------ -------------------- ------------------- -------------------------------
<S> <C> <C> <C>
12/31/90 100.0 100.0 100.0
12/31/91 139.0 160.5 137.9
12/31/92 61.0 186.8 169.4
12/31/93 366.1 214.5 261.2
12/31/94 128.8 209.7 215.9
12/31/95 196.6 296.6 250.1
</TABLE>
__________________________________
1 This Section is not "soliciting material," is not deemed filed with
the SEC and is not to be incorporated by reference in any filing of
the Company under the 1933 Act or the 1934 Act whether made before or
after the date hereof and irrespective of any general incorporation
language in any such filing.
2 The CRSP Total Return on investment (change in month end stock price
plus reinvested dividends) for the Company, the CRSP Total Return for
The NASDAQ Stock Market (US Companies) and the CRSP Total Return Index
for NASDAQ Telecommunications Stocks based on December 31, 1990 = 100.
3 The Company's common stock was traded in the over-the-counter market
from the Company's initial public offering in 1983 and was quoted on
the NASDAQ system under the Symbol "PHXN" from October 24, 1989
through October 4, 1993. On October 5, 1993, the Company changed its
listing to the American Stock Exchange and began trading under the
symbol "PHX". For purposes of the above chart, the index for all
series was set at 100 as of December 31, 1990.
26.
<PAGE> 29
CERTAIN TRANSACTIONS
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnity agreements with certain
officers and directors which provide, among other things, that the Company will
indemnify such officer or director, under the circumstances and to the extent
provided for therein, for expenses, damages, judgments, fines and settlements
he may be required to pay in actions or proceedings to which he is or may be
made a party by reason of his position as a director, officer or other agent of
the Company, and otherwise to the fullest extent permitted under Delaware law
and the Company's By-laws.
CHANGE OF CONTROL SEVERANCE PLAN
The Board of Directors has adopted a plan which is intended to provide
eligible employees with severance benefits in the event of the sale of the
Company or any similar corporate event which results in the employee's
involuntary termination of employment with the Company within a year after the
sale of the Company or similar corporate event. The amount of the severance
benefit is determined by the employee's position, title and level of
compensation, and generally will not exceed 4-6 months of compensation at the
rates in effect at the time of termination. Under the plan, stock options held
by terminated employees will accelerate and become fully vested and exercisable
as of the employee's termination. The plan does not cover temporary employees
or employees who have negotiated individual severance agreements with the
Company.
CBS AGREEMENT
On October 31, 1994, the Company entered into a letter agreement with
Communication and Business Solutions, Inc. ("CBS") and Paul C. Cissel in which
the parties agreed that the Company would purchase certain assets of CBS
associated with its customer base in exchange for payment of $330,000 in 12
equal monthly installments beginning in December of 1994. Under the letter
agreement, the purchase price was subject to adjustment based on the
performance of the purchased customer base. In 1995, payments totaling
$327,500 were made in respect of such agreement.
AGREEMENT WITH MR. CURTIS
Effective November 7, 1994, the Company and Mr. Curtis, a current
director of the Company, entered into a consulting agreement under which Mr.
Curtis agreed to resign as Chief Executive Officer of the Company, effective
January 1, 1995, in order to provide consulting services to the Company during
1995. In exchange for such agreement and services, the Company paid Mr. Curtis
during 1995 twelve equal monthly payments of $15,000 each, to pay accrued
vacation and medical leave benefits (without regard to usual limitations), to
reimburse Mr. Curtis for legal costs reasonably incurred negotiating his change
in status with
27.
<PAGE> 30
the Company, and to fully vest any options for Company Common Stock held by Mr.
Curtis at December 31, 1994.
ISSUANCE OF WARRANT
In August 1995, in exchange for services rendered in connection with
the Series F Preferred Stock financing, the Company issued to McGettigan, Wick
& Co., Inc. a warrant for 62,200 shares of the Company's Common Stock
exercisable until February 15, 1997 at a per share price of $2.50, payable in
cash or upon cancellation of Company indebtedness. McGettigan, Wick & Co., Inc.
is a merchant banking fund whose Managing Directors, Messrs. McGettigan and
Wick, and their affiliates, are greater than 5% stockholders in the Company.
Mr. Wick is a director of the Company.
ACQUISITION OF AUTOMATED COMMUNICATIONS, INC.
In January 1996, the Company acquired from Ms. Judy Van Essen all of
the outstanding shares of Automated Communications, Inc., a Golden, Colorado
facilities-based reseller of long distance service. Consideration for the
transaction was in the form of $4,000,000 in cash, 2,800,000 shares of the
Company's Common Stock valued at $10,500,000 and the issuance of a long-term
note in the amount of $1,300,000. As a result of the transaction and her
acquisition of 2,800,000 shares of the Company's Common Stock, Ms. Van Essen
held 15.82% of the Common Stock of the Company as of July 31, 1996.
PRIVATE PLACEMENT OF UNITS
On April 28, 1995, the Company sold 385,000 units at $2.20 per unit
for $847,000 in an offshore transaction pursuant to Regulation S of the
Securities Act of 1933, as amended. Each unit was comprised of one share of
the Company's Common Stock and a Warrant, exercisable until April 18, 2000,
which when combined with another Warrant, entitles the holder to purchase a
share of Common Stock for $2.20. Co-placement agents for the financing were
Oakes Fitzwilliams & Co. Limited and McGettigan, Wick & Co., Inc. A principal
of McGettigan, Wick & Co., Inc is a director of the Company. The co-placement
agents received a cash fee for their services in the financing equal to 10% of
the proceeds of the financing and a five-year warrant for 38,500 units at $2.64
per unit.
PREFERRED STOCK FINANCINGS
During the period July 1995 through October 1995, the Company raised
approximately $11,024,207, net of offering costs of $129,963, through a private
placement of 1,115,417 shares of its Series F Preferred Stock at a purchase
price of $10.00 per share. Additionally, the holder of the Company's Series E
Preferred Stock exchanged its shares of Series E Preferred Stock, plus
accumulated and unpaid dividends of $47,467, for 60,639 shares of Series F
Preferred Stock. The Series E Preferred Stock was held by Proactive Partners,
L.P. ("Proactive"), a beneficial owner of greater than 5% of the Company's
Common Stock. Mr.
28.
<PAGE> 31
Wick, a director of the Company, is a general partner of Proactive Investment
Managers, L.P., the general partner of Proactive.
In addition to the conversion of the outstanding Series E Preferred
Stock into Series F Preferred Stock, Proactive, Lagunitas Partners, L.P.
("Lagunitas") and Fremont Proactive Partners, L.P. ("Fremont") also purchased
65,817, 30,377 and 5,062 shares of Series F Preferred Stock, respectively.
Proactive, Lagunitas and Fremont and their affiliates are beneficial owners of
greater than 5% of the Company's Common Stock. Mr. Wick, a director of the
Company is a general partner of Proactive Investment Managers, L.P., the
general partner of Proactive, Lagunitas and Fremont. The Series F shares are
entitled to 9% cumulative dividends, voting rights, demand registration rights
for the underlying shares of Common Stock after six months and are convertible
initially into 4,704,224 shares of Common Stock, subject to anti-dilution
provisions. The holders of the Series F Preferred Stock also received warrants
for the purchase of 470,422 shares of Common Stock with an exercise price of
$3.00 per share which expire in October 2000. The Series F Preferred
stockholders have the right to place two directors on the Company's Board of
Directors (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. Currently, the Series F Directors are
Messrs. Singleton and Thornhill who were 0.97% and 9.26% beneficial owners of
the Company's Common Stock as of July 31, 1996, and who acquired their
interests in the Company as a result of the Series F Preferred Stock financing.
As of July 31, 1996, the outstanding shares of Series F Preferred Stock were
convertible into 4,704,224 shares of Common Stock.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Grant Thornton, L.L.P. as the
Company's independent auditors for the fiscal year ending December 31, 1996.
Grant Thornton, L.L.P. has audited the Company's financial statements since
1989. Representatives of Grant Thornton, L.L.P. are expected to be present at
the Annual Meeting, will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
29.
<PAGE> 32
By Order of the Board of Directors
Ernest J. Panasci
Secretary
September 3, 1996
A copy of the Company's Annual Report to the Commission on Form 10-K for the
fiscal year ended December 31, 1995, as amended by Amendment No. 1 thereto on
Form 10-K/A, is available without charge upon written request to: Corporate
Secretary, Phoenix Network, Inc.,1687 Cole Boulevard, Golden, Colorado 80401.
30.
<PAGE> 33
APPENDIX A
PHOENIX NETWORK, INC.
1989 STOCK OPTION PLAN
Adopted March 23, 1989 and
as Amended through March 25, 1993
1. PURPOSE.
(A) The purpose of the Plan is to provide a means by which
selected key employees and directors (if eligible under paragraph 4) of and
consultants to Phoenix Network, Inc., a Colorado corporation (the "Company"),
and its Affiliates, as defined in subparagraph l(b), may be given an
opportunity to purchase stock of the Company.
(B) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are
defined in Sections 425(e) and (f), respectively, of the Internal Revenue Code
of 1986, as amended from time to time (the "Code").
(C) The Company, by means of the Plan, seeks to retain the
services of persons now employed by or serving as consultants or directors to
the Company, to secure and retain the services of persons capable of filling
such positions, and to provide incentives for such persons to exert maximum
efforts for the success of the Company.
(D) The Company intends that the options issued under the Plan
shall, in the discretion of the Board of Directors of the Company (the "Board")
or any committee to which responsibility for administration of the Plan has
been delegated pursuant to subparagraph 2(c), be either incentive stock options
as that term is used in Section 422A of the Code ("Incentive Stock Options"),
or options which do not qualify as incentive stock options ("Supplemental Stock
Options"). All options shall be separately designated Incentive Stock Options
or Supplemental
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Stock Options at the time of grant, and in such form as issued pursuant to
paragraph 5, and a separate certificate or certificates shall be issued for
shares purchased on exercise of each type of option. An option designated as a
Supplemental Stock Option shall not be treated as an incentive stock option.
2. ADMINISTRATION.
(A) The Plan shall be administered by the Board unless and until
the Board delegates administration to a committee, as provided in subparagraph
2(c).
(B) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted options; when and how the option shall
be granted; whether the option will be an Incentive Stock Option or a
Supplemental Stock Option; the provisions of each option granted (which need
not be identical), including the time or times during the term of each option
within which all or portions of such option may be exercised; and the number of
shares for which an option shall be granted to each such person.
(2) To construe and interpret the Plan and options
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any option agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(3) To amend the Plan as provided in paragraph 10.
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<PAGE> 35
(4) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company.
(C) The Board may delegate administration of the Plan to a
committee composed of not fewer than two (2) members (the "Committee"), all of
the members of which Committee shall be disinterested persons, if required and
as defined by the provisions of subparagraph 2(d). If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board,
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan. Additionally, prior to the date of the first registration of an
equity security of the Company under Section 12 of the Securities Exchange Act
of 1934, as amended, and notwithstanding anything to the contrary contained
herein, the Board may delegate administration of the Plan to any person or
persons and the term "Committee" shall apply to any person or persons to whom
such authority has been delegated.
(D) The term "disinterested person," as used in this Plan, shall
mean a director: (i) who was not during the one (1) year prior to service as
an administrator of the Plan granted or awarded equity securities pursuant to
the Plan or any other plan of the Company or any of its affiliates entitling
the participants therein to acquire equity securities of the Company or any of
its affiliates except as permitted by Rule 16b-3(c)(2)(i) promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") ("Rule
16b-3(c)(2)(i)"); or (ii) who is otherwise considered to be a "disinterested
person" in accordance with Rule 16b-3(c)(2)(i), or any other applicable rules,
regulations or interpretations of the Securities and
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<PAGE> 36
Exchange Commission. Any such person shall otherwise comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act.
(E) Any requirement that an administrator of the Plan be a
"disinterested person" shall not apply if the Board or the Committee expressly
declares that such requirement shall not apply.
3. SHARES SUBJECT TO THE PLAN.
(A) Subject to the provisions of paragraph 9 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
options granted under the Plan shall not exceed in the aggregate three million
(3,000 000) shares of the Company's common stock. If any option granted under
the Plan shall for any reason expire or otherwise terminate without having been
exercised in full, the stock not purchased under such option shall again become
available for the Plan.
(B) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
(C) An Incentive Stock Option may be granted to an eligible person
under the Plan only if the aggregate fair market value (determined at the time
the option is granted) of the stock with respect to which incentive stock
options (as defined in the Code) granted after 1986 are exercisable for the
first time by such optionee during any calendar year under all incentive stock
option plans of the Company and its Affiliate does not exceed one hundred
thousand dollars ($100,000). Should it be determined that an option granted
under the Plan exceeds such maximum for any reason other than the failure of a
good faith attempt to value the stock subject to the option, such option shall
be considered a Supplemental Stock Option to the extent, but
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only to the extent, of such excess; provided, however, that should it be
determined that an entire option or any portion thereof does not quality for
treatment as an incentive stock option by reason of exceeding such maximum,
such option or the applicable portion shall be considered a Supplemental Stock
Option.
4. ELIGIBILITY.
(A) Incentive Stock Options may be granted only to key employees
(including officers) of the Company or its Affiliates. A director of the
Company shall not be eligible to receive Incentive Stock Options unless such
director is also a key employee of the Company or any Affiliate. Supplemental
Stock Options may be granted only to key employees (including officers) of,
directors of or consultants to the Company or its Affiliates.
(B) A director shall in no event be eligible for the benefits of
the Plan unless at the time discretion is exercised in the selection of the
director as a person to whom options may be granted, or in the determination of
the number of shares which may be covered by options granted to the director:
(i) the Board has delegated its discretionary authority over the Plan to a
Committee which consists solely of "disinterested persons" as defined in
subparagraph 2(d); or (ii) the Plan otherwise complies with the requirements of
Rule 16b-3 promulgated under the Exchange Act, as from time to time in effect.
The Board shall otherwise comply with the requirements of Rule 16b-3
promulgated under the Exchange Act, as from time to time in effect. This
subparagraph 4(b) shall not apply if the Board or Committee expressly declares
that such requirement shall not apply.
(C) No person shall be eligible for the grant of an option under
the Plan if, at the time of grant, such person owns (or is deemed to own
pursuant to Section 425(d) of the
A-5
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Code) stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of any of its Affiliates unless
the exercise price of such option is at least one hundred ten percent (110%) of
the fair market value of such stock at the date of grant and the term of the
option does not exceed five (5) years from the date of grant.
5. OPTION PROVISIONS.
Each option shall be in such form and shall contain such terms and
conditions as the Board or the Committee shall deem appropriate. The
provisions of separate options need not be identical, but each option shall
include (through incorporation of provisions hereof by reference in the option
or otherwise) the substance of each of the following provisions:
(A) The term of any option shall not be greater than ten (10)
years from the date it was granted.
(B) The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the fair market value of the stock
subject to the option on the date the option is granted. The exercise price of
each Supplemental Stock Option shall be not less than eighty-five percent (85
%) of the fair market value of the stock subject to the option on the date the
option is granted.
(C) The purchase price of stock acquired pursuant to an option
shall be paid, to the extent permitted by applicable statutes and regulations,
either (i) in cash at the time the option is exercise, or (ii) at the
discretion of the Board or the Committee, either at the time of the grant or
exercise of the option, (A) by delivery to the Company of other common stock of
the Company, (B) according to a deferred payment or other arrangement (which
may include, without limiting the generality of the foregoing, the use of other
common stock of the Company)
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with the person to whom the option is granted or to whom the option is
transferred pursuant to subparagraph 5(d), or (C) in any other form of legal
consideration that may be acceptable to the Board or the Committee.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions
of the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(D) An option shall not be transferable except by will or by the
laws of descent and distribution, and shall be exercisable during the lifetime
of the person to whom the. option is granted only by such person.
(E) The total number of shares of stock subject to an option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). From time to time during each of such installment periods, the option
may be exercised with respect to some or all of the shares allotted to that
period, and/or with respect to some or all of the shares allotted to any prior
period as to which the option was not fully exercised. During the remainder of
the term of the option (if its term extends beyond the end of the installment
periods), the option may be exercised from time to time with respect to any
shares then remaining subject to the option. The provisions of this
subparagraph 5(e) are subject to any option provisions governing the minimum
number of shares as to which any option may be exercised.
(F) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 5(d), as a condition of exercising any
such option, (1) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience
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<PAGE> 40
in financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the option; and (2) to give written assurances satisfactory to the
Company stating that such person is acquiring the stock subject to the option
for such person's own account and not with any present intention of selling or
otherwise distributing the stock. These requirements, and any assurances given
pursuant to such requirements, shall be inoperative if (i) the issuance of the
shares upon the exercise of the option has been registered under a then
currently effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), or (ii), as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws.
(G) An option shall terminate shall terminate three (3) months
after termination of the optionee's employment or relationship as a consultant
or director with the Company or an Affiliate, unless (i) such termination is
due to such person's permanent and total disability, within the meaning of
Section 422A(c)(7) of the Code, in which case the option may, but need not,
provide that it may be exercised at any time within one (1) year following such
termination of employment or relationship as a consultant or director; or (ii)
the optionee dies while in the employ of or while serving as a consultant or
director to the Company or an Affiliate, or within not more than three (3)
months after termination of such relationship, in which case the option may,
but need not, provide that it may be exercised at any time within eighteen (18)
months following the death of the optionee by the person or persons to whom the
optionee's rights under
A-8
<PAGE> 41
such option pass by will or by the laws of descent and distribution; or (iii)
the option by its terms specifies either (a) that it shall terminate sooner
than three (3) months after termination of the optionee's employment or
relationship as a consultant or director, or (b) that it may be exercised more
than three (3) months after termination of the relationship with the Company or
an Affiliate. This subparagraph 5(g) shall not be construed to extend the term
of any option or to permit anyone to exercise the option after expiration of
its term, nor shall it be construed to increase the number of shares as to
which any option is exercisable from the amount exercisable on the date of
termination of the optionee's employment or relationship as a consultant or
director.
(H) The option may, but need not, include a provision whereby the
optionee may elect at any time during the term of his or her employment or
relationship as a consultant or director with the Company or any Affiliate to
exercise the option as to any part or all of the shares subject to the option
prior to the stated vesting date of the option or of any installment or
installments specified in the option. Any shares so purchased from any
unvested installment or option may be subject to a repurchase right in favor of
the Company or to any other restriction the Board or the Committee determines
to be appropriate.
(I) To the extent provided by the terms of an option, the optionee
may satisfy any federal, state or local tax withholding obligation relating to
the exercise of such option by any of the following means or by a combination
of such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold from the shares of the Common Stock otherwise issuable to the
participant as a result of the exercise of the stock option a number of shares
having a fair market value less than or equal to the amount of the withholding
tax obligation;
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or (3) delivering to the Company owned and unencumbered shares of the Common
Stock having a fair market value less than or equal to the amount of the
withholding tax obligation.
6. COVENANTS OF THE COMPANY.
(A) During the terms of the options granted under the Plan, the
Company shall keep available at all times the number of shares of stock
required to satisfy such options.
(B) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the options granted
under the Plan; provided, however, that this undertaking shall not require the
Company to register under the Securities Act either the Plan, any option
granted under the Plan or any stock issued or issuable pursuant to any such
option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such options unless and until such authority is
obtained.
7. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
8. MISCELLANEOUS.
(A) The Board or the Committee shall have the power to accelerate
the time during which an option may be exercised or the time during which an
option or any part thereof
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<PAGE> 43
will vest pursuant to subparagraph 5(e), notwithstanding the provisions in the
option stating the time during which it may be exercised or the time during
which it will vest.
(B) Neither an optionee nor any person to whom an option is
transferred under subparagraph 5(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
option unless and until such person has satisfied all requirements for exercise
of the option pursuant to its terms.
(C) Throughout the term of any option granted pursuant to the
Plan, the Company shall make available to the holder of such option, not later
than one hundred twenty (120) days after the close of each of the Company's
fiscal years during the option term, upon request, such financial and other
information regarding the Company as comprises the annual report to the
shareholders of the Company provided for in the bylaws of the Company.
(D) Nothing in the Plan or any instrument executed or option
granted pursuant thereto shall confer upon any eligible employee or optionee
any right to continue in the employ of the Company or any Affiliate (or to
continue acting as a consultant or director) or shall affect the right of the
Company or any Affiliate to terminate the employment or consulting relationship
or directorship of any eligible employee or optionee with or without cause.
9. ADJUSTMENTS UPON CHANGES IN STOCK.
(A) If any change is made in the stock subject to the Plan, or
subject to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or otherwise), the Plan and
outstanding options will be appropriately adjusted in the class(es) and maximum
number of
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<PAGE> 44
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding options.
(B) In the event of: (1) a merger or consolidation in which the
Company is not the surviving corporation or (2) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's common
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise then to the extent permitted by applicable law: (i) any surviving
corporation shall assume any options outstanding under the Plan or shall
substitute similar options for those outstanding under the Plan, or (ii) such
options shall continue in full force and effect. In the event any surviving
corporation refuses to assume or continue such options, or to substitute
similar options for those outstanding under the Plan, then, with respect to
options held by persons then performing services as employees or as consultants
or directors for the Company as the case may be, the time at which such options
may first be exercised shall be accelerated and the options terminated if not
exercised prior to such event. In the event of a dissolution or liquidation of
the Company, any options outstanding under the plan shall terminate if not
exercised prior to such event.
10. AMENDMENT OF THE PLAN.
(A) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in paragraph 9 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(1) Increase the number of shares reserved for options
under the Plan;
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<PAGE> 45
(2) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of
the Code); or
(3) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(B) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide optionees with
the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to incentive stock
options and/or to bring the Plan and/or incentive stock options granted under
it into compliance therewith.
(C) Rights and obligations under any option granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan unless (i) the Company requests the consent of the person to whom the
option was granted and (ii) such person consents in writing.
11. TERMINATION OR SUSPENSION OF THE PLAN.
(A) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate ten (10) years from the date
the Plan is adopted by the Board or approved by the shareholders of the
Company, whichever is earlier. No options may be granted under the Plan while
the Plan is suspended or after it is terminated.
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<PAGE> 46
(B) Rights and obligations under any option granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except with the consent of the person to whom the option was granted.
12. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
options granted under the Plan shall be exercised unless and until the Plan has
been approved by the vote of the holders of a majority of the outstanding
shares of the Company entitled to vote, or by the written consent of the
holders of the outstanding shares of the Company entitled to vote to the extent
necessary under applicable laws to obtain incentive stock option treatment
under Section 422A of the Code.
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<PAGE> 47
PHOENIX NETWORK, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 26, 1996
The undersigned hereby appoints Wallace M. Hammond and Jeffrey L. Bailey,
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of stock of Phoenix Network, Inc.
which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of Phoenix Network, Inc. to be held at 1687 Cole Boulevard,
Golden, Colorado 80401, on Thursday, September 26, 1996 at 8:00 a.m., and at
any and all continuations and adjournments thereof, with all powers that the
undersigned would possess if personally present, upon and in respect of the
following materials and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2, AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
Proposal 1: To elect directors to hold office until the next Annual Meeting of
Stockholders and until their successors are elected.
<TABLE>
<S> <C>
( ) FOR all nominees listed below ( ) WITHHOLD AUTHORITY to vote for all
(except as marked to the contrary below). nominees listed below.
</TABLE>
Nominees: Thomas H. Bell, James W. Gallaway, Wallace M. Hammond, Merrill L.
Magowan and Myron A. Wick III
To withhold authority to vote for any nominee(s), write the name(s) of such
nominee(s) below:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.
Proposal 2: To approve an 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 30,000,000 to 50,000,000.
( ) FOR ( ) AGAINST ( ) ABSTAIN
- --------------------------------------------------------------------------------
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 3.
Proposal 3: To approve an amendment of the Company's 1989 Stock Option Plan to
increase the number of shares of the Company's Common Stock that
may be sold pursuant to such Plan from 3,500,000 to 5,000,000.
( ) FOR ( ) AGAINST ( ) ABSTAIN
- --------------------------------------------------------------------------------
Please sign exactly as your name appears
in stockholder records. If the stock is
registered in the names of two or more
persons, each should sign. Executors,
administrators, trustees, guardians and
attorneys-in-fact should add their titles. If
signer is a corporation, please give full
corporate name and have a duly authorized
officer sign, stating title. If signee is a
partnership, please sign in partnership name
by authorized person.
Dated: ____________, 1996
----------------------------------------------
----------------------------------------------
Signature(s)
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
<PAGE> 48
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN
PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. A RETURN
ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES) IS
ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY
STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER,
THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE
AND YOU WISH TO VOTE AT THE MEETING, YOU MUST BRING TO THE MEETING A
LETTER FROM THE BROKER, BANK OR OTHER NOMINEE CONFIRMING YOUR BENEFICIAL
OWNERSHIP OF THE SHARES. ADDITIONALLY, IN ORDER TO VOTE AT THE MEETING,
YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
