<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1997
REGISTRATION NO. 333-20923
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
Amendment No. 1
to
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------
PHOENIX NETWORK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4813 84-0881154
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1687 COLE BOULEVARD
GOLDEN, CO 80401
(303) 205-3500
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
WALLACE M. HAMMOND
PRESIDENT
PHOENIX NETWORK, INC.
1687 COLE BOULEVARD
GOLDEN, CO 80401
(303) 205-3500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With Copies to:
ERNEST J. PANASCI, ESQ.
KEVIN G. O'CONNELL, ESQ.
FREEBORN & PETERS
950 17TH STREET, SUITE 2600
DENVER, COLORADO 80202
(303) 628-4200
(303) 628-4240 (FAX)
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. ( )
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. (x )
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of earlier
effective registration statement for the same offering. ( )
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of earlier effective registration
statement for the same offering. ( )
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.( )
<PAGE> 2
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 3
1,590,833 SHARES
PHOENIX NETWORK INC.
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
--------------------------
This Prospectus relates to the public offering, which is not being
underwritten, of 1,590,833 shares (the "Shares") of Common Stock of Phoenix
Network, Inc. ("Phoenix" or the "Company"). The Shares may be offered by
certain stockholders of the Company (the "Selling Stockholders") from time to
time in transactions on the American Stock Exchange, in negotiated transactions
or otherwise, at fixed prices which may be changed, at prices related to
prevailing market prices or at negotiated prices. See "Plan of Distribution."
The Selling Stockholders may effect such transactions by selling the Shares to
or through broker-dealers, and such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the Selling Stockholders
and/or the purchasers of the Shares for whom such broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker might be in excess of customary commissions). To the extent
required, the specific Shares to be sold, the names of the Selling
Stockholders, the public offering price, the names of any such agent, dealer or
underwriter, and any applicable commission or discount with respect to any
particular offer will be set forth in an accompanying Prospectus Supplement.
None of the proceeds from the sale of the Shares by the Selling
Stockholders will be received by the Company. The Company has agreed to bear
certain expenses (other than selling commissions and fees and expenses of
counsel and other advisors to the Selling Stockholders) in connection with the
registration of the Shares being offered by the Selling Stockholders.
INVESTMENTS IN THE SHARES INVOLVES SIGNIFICANT RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN EVALUATING AN INVESTMENT IN PHOENIX COMMON STOCK.
The Common Stock of the Company is traded on the American Stock
Exchange under the trading symbol "PHX."
--------------------------
The Selling Stockholders and any broker-dealers, agents or
underwriters that participate with the Selling Stockholders in the distribution
of the Shares may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act of 1933 (the "Securities Act"), and any commissions
received by them and any profit on the resale of the Shares purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
--------------------------
The date of this Prospectus is February 12, 1997
<PAGE> 4
AVAILABLE INFORMATION
Phoenix is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Copies of such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549 and at the following Regional
Offices of the SEC: CitiCorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material can be obtained at prescribed rates from
the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549. The Company's Common Stock is listed and traded on the American
Stock Exchange (the "AMEX"). Reports, proxy statements and other information
concerning Phoenix may be inspected at the offices of the AMEX, 86 Trinity
Place, New York, New York 10006.
Phoenix has filed with the SEC a registration statement on Form S-3
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of the Company's Common Stock being offered by this Prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted pursuant to the rules
and regulations of the SEC. Such additional information may be obtained from
the SEC's principal office in Washington, D.C. The SEC maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST FROM THE COMPANY. REQUESTS SHOULD BE DIRECTED TO PHOENIX NETWORK,
INC.'S PRINCIPAL EXECUTIVE OFFICES AT 1687 COLE BOULEVARD, GOLDEN, COLORADO
80401 ATTENTION: JEFFREY L. BAILEY, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER, TELEPHONE (303) 205-3500.
Phoenix will provide without charge to each person, upon the written
or oral request of any such person, a copy of any and all of the documents
referred to below which have been or may be incorporated herein by reference,
other than exhibits to such documents, unless such exhibits are specifically
incorporated herein by reference. Requests for such documents should be
directed to the person indicated in the immediately preceding paragraph.
The following documents previously filed by Phoenix with the SEC
pursuant to the Exchange Act are incorporated herein by reference:
(a) Phoenix's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, as amended on Form 10-K/A;
(b) Phoenix's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1996, June 30, 1996 and September 30, 1996;
and
(c) Phoenix's Current Reports on Form 8-K dated January 16,
1996, and October 8, 1996 and amendments to such Current Reports on
Form 8-K/A dated April 1, 1996 and December 6, 1996, respectively, and
Phoenix's Current Report on Form 8-K dated January 23, 1997.
(d) The description of Phoenix's Common Stock which is
contained in Phoenix's Registration Statement on Form 10, filed August
7, 1989 (File No. 0-17909) including any amendment or report filed for
the purpose of updating such description.
All documents filed by Phoenix pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the termination of
the offering of the Shares shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of filing of such documents.
Statements contained in this Prospectus or in any document incorporated into
this Prospectus by reference as to the contents of any contract or other
document referred
2
<PAGE> 5
to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that is deemed to be incorporated
herein by reference modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection
with the offering made hereby, and given or made, such information or
representations must not be relied upon as having been authorized by the
Company, any Selling Stockholder or by any other person. Neither the delivery
of this Prospectus nor any sale made thereunder shall, under any circumstances,
create any implication that information herein is correct as of any time
subsequent to the date hereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the Shares to any person or by anyone
in any jurisdiction in which such offer or solicitation may not lawfully be
made.
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act.
Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below.
Reference is made to the particular discussions set forth under "THE COMPANY."
In connection with forward-looking statements which appear in these
disclosures, prospective investors should carefully review the factors set
forth in this Prospectus under "RISK FACTORS--Possible Acquisitions; Need for
Additional Capital," "--Need to Successfully Integrate Acquisitions,"
"--Ability to Successfully Implement New Billing and Customer Care Platform,"
"--Reliance on Switching Service Providers; Risks Associated with Network
Deployment," "--Ability to Successfully Develop New Products and Enter New
Markets" and "-- Customer Attrition."
THE COMPANY
GENERAL
Phoenix is a facilities-based reseller of telecommunications services
which sells to residential accounts and small to medium-sized commercial
accounts. The Company signs up customers for long distance and other
telecommunications services and places them either on its own network or on the
network of the nation's largest facilities based carriers. In addition to
basic long distance service, Phoenix offers 800 numbers, calling cards,
conference calling, debit cards, private lines, dedicated circuits,
international callback and internet access.
During the latter half of 1995, Phoenix embarked on an acquisition
strategy with the stated goal of acquiring companies which could either add new
products to Phoenix's product portfolio or whose customer base and sales
organization would represent a profitable investment. During 1995, Phoenix
acquired Bright Telecom, L.P., a small international call-back provider and
Tele-Trend Communications, LLC, a Denver-based switchless reseller. During
1996, Phoenix acquired Automated Communications, Inc., a Denver
facilities-based reseller and AmeriConnect, Inc., an Overland Park-based
switchless reseller. Phoenix will continue to pursue acquisitions of companies
which could add profitable products or customer bases. To fund acquisitions,
Phoenix may incur additional indebtedness to banks and other financial
institutions and may issue, in public or private transactions, equity and debt
securities. If additional funds are raised by issuing equity securities
substantial dilution to Phoenix stockholders may result. The availability and
terms of any such financing will depend on market and other conditions, and
there can be no assurance that such additional financing will be available on
terms acceptable to Phoenix, if at all.
RECENT DEVELOPMENTS
The Company's board of directors has authorized the Company to seek
the conversion into Common Stock of all of the issued and outstanding shares of
the Company's Series A Preferred Stock, Series B Preferred Stock,
3
<PAGE> 6
Series D Preferred Stock and Series F Preferred Stock. As of February 10,
1997, certain holders of Series F Preferred Stock had converted their Series F
Preferred Stock into an aggregate of 2,576,415 shares of Common Stock. As of
February 10, 1997, Phoenix estimates that the conversion of the remaining
outstanding shares of each of the above series of Preferred Stock will result
in the issuance of an aggregate of approximately 4,536,089 shares of Common
Stock. It is expected that the remaining conversions, if they occur, will take
place in the first and/or second quarters of 1997.
In November 1996, Phoenix repurchased, for par value ($.001 per
share), all outstanding shares of the Company's Series C Preferred Stock.
In the fourth quarter of 1996, the Company incurred approximately
$900,000 in closing costs that related to the acquisition of AmeriConnect,
Inc., which was consummated on October 8, 1996, resulting primarily from
severance payments and fees paid to advisors.
The Company's executive offices are located at 1687 Cole Boulevard,
Golden, Colorado 80401, and its telephone number is (303) 205-3500.
RISK FACTORS
In evaluating Phoenix's business, prospective investors should
consider carefully the following considerations in addition to the other
information contained or incorporated by reference in this Prospectus.
This Prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act.
Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below as
well as those discussed in reports filed with the SEC by Phoenix.
Negative Cash Flow From Operations. For the year ended December
31, 1995 and the nine months ended September 30, 1996, the Company's
consolidated loss before interest expense, income taxes, depreciation and
amortization, loss on abandonment of fixed assets and relocation expense was
$148,000 and $498,000, respectively. The Company's ability to achieve positive
cash flow from operations will be dependent primarily upon the successful
implementation of the Company's business strategy, which relies largely upon
the Company's ability to increase cash flow through acquisitions and decrease
average line costs through deployment and loading a nation-wide long distance
network system (the "Network"), consisting of switching equipment in major
metropolitan areas and transmission facilities between these switches. Other
factors which are beyond the control of the Company, such as the future actions
of competitors and regulators, may also affect the Company's realization of the
benefits of its business strategy. There can be no assurance that the Company
will be successful in improving its cash flow.
History of Operating Losses. Phoenix has sustained operating
losses of $542,000, $1.9 million and $1.4 million for the years ended December
31, 1992, 1993 and 1995, respectively, and operating income of only $2,000 for
the year ended December 31, 1994. For the nine months ended September 30,
1995, Phoenix had operating income of $209,000. For the nine months ended
September 30, 1996, Phoenix had operating losses of $4.8 million. Phoenix
expects to continue to incur operating losses for the foreseeable future due to
the high amortization of goodwill charges resulting from acquisitions and other
factors. To finance its operations, Phoenix has a line of credit facility of
up to $10.0 million under the Amended and Restated Loan and Security Agreement
with Foothill Capital Corporation (the "Credit Facility") and may incur
additional indebtedness from time to time subject to restrictions in the Credit
Facility. If Phoenix cannot achieve operating profitability, it may have
difficulty in attracting equity capital or other financing, and the value of
its common stock may be adversely affected, which may limit the ability of
Phoenix to use its common stock to make future acquisitions. This, in turn,
could negatively affect Phoenix's ability to successfully implement its
business strategy.
Possible Volatility of Stock Price. The market price of
Phoenix's Common Stock has, in the past, fluctuated substantially over time and
may in the future be highly volatile. Factors such as the announcements of
rate changes for various carriers and/or vendors, including U.S. One
Communications Corp. ("US One"), ICG Telecom Group, Inc. ("ICG") and Comdisco
Network Services, a division of Comdisco, Inc. ("Comdisco"), technological
innovation or new products or service offerings by Phoenix or its competitors,
as well as market conditions in the telecommunications industry generally and
variations in Phoenix's operating results, could cause the market price of
Phoenix's Common
4
<PAGE> 7
Stock to fluctuate substantially. Because the public float for Phoenix's
Common Stock is small, additional volatility may be experienced.
Substantial Leverage. The Company may incur up to $10.0 million of
indebtedness under the Credit Facility and may incur additional indebtedness
from time to time subject to restrictions in the Credit Facility. The level of
the Company's indebtedness could have adverse consequences, including the
effect of such indebtedness on (i) the Company's ability to fund internally, or
obtain additional debt or equity financing in the future for, acquisitions,
working capital, operating losses, capital expenditures and other purposes;
(ii) the Company's flexibility in planning for or reacting to changes in its
business and market conditions; (iii) the Company's flexibility to compete with
less highly leveraged competitors, particularly in the area of price
competition and (iv) the Company's financial vulnerability in the event of a
downturn in its business or the general economy.
The Company's ability to satisfy its debt obligations will depend upon
its future operating performance, which will be affected by the successful
implementation of its business strategy and financial, business and other
factors, certain of which are beyond its control. If the Company's cash flow
and capital resources are insufficient to fund its debt service obligations,
the Company may be required to sell assets, obtain additional equity capital,
restructure its debt and/or reduce or delay capital expenditures. In such
event, the Company could face substantial liquidity problems, and there can be
no assurance as to the success of such measures or the proceeds which the
Company could realize therefrom.
Competition. The telecommunications services industry is highly
competitive and is significantly influenced by the marketing and pricing
decisions of the larger industry participants. It is characterized by low
barriers to entry (e.g., the major facilities-based carriers' bulk rate tariffs
are available to a wide range of potential market entrants), intense
competition for customers and high customer churn rates. Competition on the
basis of price, service offerings, and customer service is expected to
increase.
Furthermore, the 1996 Act can be expected to increase competition in
the domestic long distance market as the Regional Bell Operating Companies
("RBOCs") begin providing both in-region and out-of-region long distance
service. The RBOCs may build their own national networks, resell
telecommunications services of others, lease facilities from others or acquire
smaller domestic long distance service providers. To the extent that the RBOCs
enter the domestic long distance market by acquiring other long distance
providers, the domestic long distance service industry can be expected to
consolidate.
Certain of Phoenix's competitors are significantly larger, have
substantially greater financial, technical and marketing resources and larger
networks than Phoenix, control transmission lines and have long-standing
relationships with Phoenix's target customers. Phoenix competes with the same
facilities-based carriers from which Phoenix procures bulk-rate services.
Certain of Phoenix's competitors are able to provide services comparable to or
more extensive than Phoenix's at rates competitive with Phoenix's rates.
Additionally, Phoenix's strategy of deploying and loading a network can be
replicated by some of its competitors.
Phoenix competes with the principal long distance carriers, AT&T
Corporation ("AT&T"), MCI Communications Corp. ("MCI"), and Sprint Corporation
("Sprint") as well as with other major providers of long distance services,
including Frontier Communications (a subsidiary of Frontier Corporation), and
LDDS/WorldCom, Inc. and its subsidiaries, including WilTel ("LDDS/WorldCom").
Additionally, as a result of the Congress' recent enactment of the
Telecommunications Act of 1996 (the "1996 Act"), the nation's largest local
telephone companies (i.e., the RBOCs) and the General Telephone and Electronics
operating companies (collectively "GTE"), energy utilities, cable television
companies, competitive local exchange carriers ("CLECs") such as MFS
Communications Company, Inc., and other entities will also be allowed to
provide long distance service in the near future subject to various regulatory
requirements and safeguards. An increase in such competition could have a
material adverse effect on Phoenix's business, financial condition and results
of operations, including higher customer attrition.
There can be no assurance that Phoenix will be able to compete
successfully in the future. Phoenix intends to compete in the long distance
market and in the local market on the basis of price, service offerings and
customer service. Phoenix's ability to compete on the basis of price is
dependent on its ability to implement its Network and secure
5
<PAGE> 8
volume-discount pricing from vendor carriers and wholesale local access and
local dialtone providers. The same volume-discount pricing and Network
strategy that Phoenix utilizes is available to current and potential
competitors. Phoenix does not have proprietary contractual arrangements in
this regard. As a result, there are no substantial barriers to the entry of
additional competitors into the field. Furthermore, to the extent such
competitors acquire or develop facilities-based long distance and/or local
networks, such competitors may be able to offer rates as low as or lower than
those available from Phoenix.
Phoenix's competitors may reduce rates or offer incentives to existing
and potential customers of Phoenix, whether caused by general competitive
pressures or the entry of the RBOCs, GTE and other local exchange carriers
("LECs") into the long distance market. Phoenix has historically attracted
customers by pricing its services at a discount to the basic "1 plus" rates
offered by AT&T, MCI and Sprint. These and other large long distance providers
are offering an increasing number of flat rate and other rate plans in addition
to basic service, and these plans are likely to result in a reduction in the
number of long distance customers using basic "1 plus" rates. Because Phoenix
believes that to maintain its competitive position it must be able to reduce
its prices in order to maintain its relative price position in the market, a
decrease in the rates charged by others for long distance services could have a
material adverse effect on Phoenix's business, results of operations and
financial condition.
In addition, in certain instances LECs have been afforded a degree of
pricing flexibility in differentiating among markets and carriers in setting
access charges and other rates in areas where adequate competition has emerged.
As LECs become free to set rates and to provide discounts to high-volume
customers, the ability of competitors that are substantially larger than
Phoenix to obtain volume discounts for access and termination charges could
adversely affect Phoenix by reducing the operating costs of its larger
competitors relative to those of Phoenix. In particular, it is expected that
the largest players in the long distance market, such as AT&T, MCI, Sprint and
LDDS/WorldCom will be able to guarantee substantially larger volumes to LECs
than will Phoenix. As deregulation of the local exchange market occurs, LECs
may be willing to grant large interexchange carriers ("IXCs") significant
discounts in return for guarantees of volume. There can be no assurance that
Phoenix will be able to obtain similar discounts.
Phoenix intends to commence offering local dialtone service in 1997.
Phoenix expects to face intense competition from the RBOCs, which are the
principal current providers of local dialtone services, and from other
telecommunications services providers, including other long distance providers,
who may also enter the market.
Possible Acquisitions; Need for Additional Capital. As part of its
growth strategy, Phoenix intends to pursue acquisitions of companies which
could add profitable products or customer bases. With respect to any future
acquisition, there can be no assurance that Phoenix will be able to locate or
acquire suitable acquisition candidates, or that any companies or customer
bases which are acquired can be effectively and profitably integrated into
Phoenix. The success of Phoenix's acquisition strategy is dependent on a
number of factors, many of which are not in Phoenix's control, including (i)
Phoenix's ability to identify attractive acquisition candidates; (ii) Phoenix's
ability to negotiate terms to such acquisitions that are favorable to Phoenix;
(iii) the timely completion of any agreed upon acquisitions; (iv) the
successful integration of the acquired businesses into Phoenix's existing
business; and (v) the ability of Phoenix to retain the acquired customers and
sales personnel after completion of the acquisition. The ability of Phoenix to
transmit the long distance calls of customers of acquired businesses on
Phoenix's Network may be affected by the terms of existing agreements of such
acquired businesses with facilities-based carriers, which could limit the
economic benefit of the migration of this traffic volume to the Network while
such agreements are in effect. While Phoenix believes it can acquire companies
at favorable prices, there can be no assurance that Phoenix will be able to do
so or that intense competition for such companies will not develop among
certain of Phoenix's competitors. Additionally, although acquisitions will be
made with the intent of enhancing Phoenix's long-term profitability, they may
negatively impact Phoenix's operating results, particularly during the periods
immediately following the acquisition. To fund acquisitions, Phoenix may incur
additional indebtedness to banks and other financial institutions and may
issue, in public or private transactions, equity and debt securities. If
additional funds are raised by issuing equity securities, substantial dilution
to Phoenix stockholders may result. The availability and terms of any such
financing will depend on market and other conditions, and there can be no
assurance that such additional financing will be available on terms acceptable
to Phoenix, if at all.
Need to Successfully Integrate Acquisitions. Phoenix must be
able to rapidly and effectively integrate the businesses of acquired companies
with its own in order to successfully implement its acquisition strategy. The
6
<PAGE> 9
successful integration of acquired businesses is dependent on a number of
factors, including minimizing the costs of assimilating the operations and
personnel of the acquired business with Phoenix's, minimizing customer
attrition following the acquisition, avoiding disruption of Phoenix's ongoing
business, including the distraction of management from day-to-day operations,
maximizing the potential of any acquired products or services, eliminating
duplicative costs and maintaining uniform standards, controls, procedures and
policies. Phoenix will be required to assess and manage the obligations of
acquired companies, including contingent liabilities which may be difficult to
quantify. The management information systems ("MIS systems"), including the
billing systems, of the acquired companies may be different from those of
Phoenix's, may be subject to existing contracts with third party providers and
must be integrated into Phoenix's. To the extent Phoenix acquires businesses
in which its management has no prior experience, Phoenix may be dependent on
the management of the acquired business.
Management of Rapid Growth. Phoenix's strategy to grow through
acquisitions and enter new markets will place additional demands upon Phoenix's
management and its customer service, sales, marketing and administrative
resources. The growth of Phoenix will result in an increased level of
responsibility for both existing and new management personnel. Phoenix will be
required to implement and improve its operating and financial systems and
controls and to attract, retain, train and manage new employees. Phoenix's
management will be required to manage the day-to-day operations of Phoenix's
current long distance service while pursuing possible acquisitions and
developing and introducing new products and services. If Phoenix is unable to
meet the demands of expected growth, its operations and financial condition
could be materially adversely affected.
Ability to Successfully Implement New Billing and Customer Care
Platform. Primarily as a result of previous acquisitions, Phoenix currently
uses seven distinct billing systems. In addition, it is likely that any
businesses acquired pursuant to Phoenix's acquisition strategy will also have
partially or completely distinct billing systems. Phoenix is in the process of
implementing a new billing and customer care platform (the "New Billing and
Customer Care Platform") to replace the existing billing systems at a cost of
approximately $3.0 million, of which approximately $1.7 million has been
expended as of September 30, 1996. The New Billing and Customer Care Platform
is fully installed and in the process of being tested. Certain of Phoenix's
customers are expected to receive their bills from the New Billing and Customer
Care Platform in early 1997, with the rest of Phoenix's customers being phased
onto the New Billing and Customer Care Platform over 1997. There can be no
assurance that the New Billing and Customer Care Platform will be operational
when anticipated or will operate as expected, and any difficulties in operating
the New Billing and Customer Care Platform or integrating MIS systems could
adversely affect Phoenix's ability to generate timely billing information and
management reports.
Dependence on Independent Distributors. Like many other companies in
the telecommunications industry, Phoenix relies on independent distributors for
a significant percentage of its new business sales. While Phoenix devotes
significant resources on training and building relationships with these
distributors, they are independent contractors who, in some instances, also do
business with other telecommunications providers. Phoenix has only a limited
degree of control over the operations of these distributors and adherence by
the distributors to Company policies and procedures.
Reliance on Switching Service Providers; Risks Associated with Network
Deployment. A key component of Phoenix's business strategy is to lower its
line costs by deploying and loading the Network as an alternative to purchasing
bulk capacity from facilities-based carriers on a bundled basis. To implement
its strategy, Phoenix has entered into agreements with ICG and US One for use
of their long distance switches, some of which have been deployed and others of
which are currently being deployed, and with Comdisco and LDDS/WorldCom to
lease parts of their private line transmission networks. In order to maximize
the benefits of this strategy, Phoenix needs to maximize the amount of long
distance calls transmitted on Phoenix's Network and decrease the amount of its
customers' long distance calls that it transmits on the networks of third-party
carriers. Management of Phoenix has estimated that substantial cost savings
can be achieved as a result of moving call traffic On Network from being
handled solely by third-party carriers Off Network. The cost savings
estimates have been prepared solely by members of management of Phoenix. The
estimates make certain assumptions as to general industry and business
conditions, many of which are beyond the control of Phoenix. Investors are
cautioned that the actual cost savings realized by Phoenix may vary from the
estimates contained herein. There can be no assurance that unforeseen costs
and expenses or other factors will not offset the cost savings in whole or in
part.
Historically, Phoenix has provided long distance services to small
businesses by purchasing bulk-rate capacity
7
<PAGE> 10
from third-party carriers and transmitting its customers' long distance calls
over those carriers' networks. The success of Phoenix's strategy of deploying
its own network will be dependent on the ability of management of Phoenix to
deploy and load Phoenix's Network. Phoenix, and ACI, have collectively had
more than eight years of experience in operating owned switches, but, prior to
July 1996, Phoenix had no previous experience in operating leased switches such
as those being deployed by ICG and US One. US One is obligated to supply
Phoenix with network design engineering assistance and consultation, but this
obligation terminates in April 1998.
Phoenix's strategy of deploying its Network is based on third party
agreements. Currently, Phoenix has agreements with ICG, US One, Comdisco and
LDDS/WorldCom.
As of January 1, 1997, ICG had installed 17 switches. Pursuant to the
ICG Agreement, Phoenix has committed to lease switches from ICG in San
Francisco, and has the option to lease switches in any other city in which ICG
installs a switch. The ICG Agreement expires in December 1999. ICG has the
right to increase or decrease rates for services upon 60 days' prior written
notice, upon receipt of which Phoenix may either accept such rate change or
cancel the affected service without penalty.
As of January 1, 1997, US One had installed four switches and planned
to install ten more through October 1997. The US One Agreement requires Phoenix
to lease US One switches as they are installed in each of Denver, Chicago, New
York, Tampa, Los Angeles, Boston, Dallas, San Francisco, Minneapolis, Atlanta,
Seattle, Washington, D.C., Kansas City, Columbus, Philadelphia, Detroit, Miami
and Houston, unless, among certain other conditions, (i) US One does not
install one of its first 14 planned switches in accordance with the designated
switch implementation schedule, (ii) US One fails to raise $50.0 million in
debt or equity capital after January 3, 1996 and prior to May 31, 1997, (iii)
US One fails to raise a total of $150.0 million in debt or equity capital after
January 3, 1996 and prior to August 31, 1997, or (iv) Phoenix requests
services within a market and US One fails to deliver such service within 30
days of such request, in which case the Company may use an alternative switch
provider (such as ICG). Phoenix's agreement with US One expires in May 2003.
US One may increase the tariffs charged to Phoenix upon 60 days' notice,
subject to Phoenix's right to receive switching services from US One at a rate
that is not higher than the rate US One charges to any other entity purchasing
similar services from US One in the same service area.
US One experienced service difficulties in the initial phase of the
service cut over coincident with the transfer of long distance traffic from
Phoenix's switch to US One's switch in Denver. US One has stated that these
service difficulties arose principally as a result of US One's use of a newly
designed switch configuration and newly designed software. Because Phoenix's
long distance traffic originating in Denver could not be transferred in phases
to the US One switch, all of Phoenix's long distance traffic originating in
Denver had to be transferred all at once from Phoenix's Colorado Springs
switch to the US One Denver switch. In the two months following the cut over,
Phoenix lost approximately 14% of its customers in the Denver area, which
included both regular attrition and cut over-related difficulties. US One has
agreed to pay Phoenix $850,000 as compensation for the service difficulties
encountered with the Denver switch and as compensation for assistance provided
and to be provided by Phoenix in connection with the implementation of US One's
switch network. On the basis of subsequent switch implementations in Chicago,
New York City and Tampa by US One, the Company believes that the risks of
future service difficulties similar to those encountered with the Denver switch
are remote. However, there can be no assurance that similar service
difficulties will not arise in connection with future switch deployments, or
that any such service difficulties would not result in a loss of customers. In
addition, although US One has four switches installed and currently in use,
certain of the planned services (including inbound 800 and dedicated lines
services) are not yet available on such switches. Delays in the provision of
these services by US One could delay potential cost savings to Phoenix of using
US One switches.
While Phoenix has agreements to lease switches from both ICG and US
One, and believes there are alternatives available to it for leasing switches
from other providers, Phoenix is currently contractually obligated to lease
switches from US One as they are deployed, subject to certain conditions
described above. The ability of US One, as a new company, to execute its own
business plan will be dependent on the ability of US One to raise substantial
amounts of additional financing and on the success of US One's strategy to
enter the local dialtone service market. The failure of US One to perform its
obligations under the US One Agreement or execute its business plan could have
the effect of delaying the implementation of Phoenix's business strategy while
it seeks and implements alternatives, or causing Phoenix to modify its business
strategy.
8
<PAGE> 11
The Comdisco transmission lines are leased from other transmission
providers and are currently in place. The Comdisco Agreement expires in March
1999. Comdisco has the right to increase its monthly fees to Phoenix, upon 30
days' notice, due to any increase in the rates charged to Comdisco by the
underlying carriers from whom it leases transmission lines, provided that
Comdisco may not increase its aggregate fees to Phoenix by more than 10% per
year for the first two years of the term of the agreement. Although Phoenix
intends to utilize Comdisco's fixed-cost inter-machine trunk transmission lines
("IMTs") to interconnect a substantial number of its owned and/or leased
switches, there can be no assurance that capacity will be available on
Comdisco's IMTs. Although Phoenix believes that IMTs will continue to be
available from other sources, there can be no assurance that such IMTs will be
available at prices comparable to those available from Comdisco.
Ability to Successfully Develop New Products and Enter New Markets.
Phoenix believes that offering a full range of telecommunications products and
services will be crucial for it to remain competitive and attract and retain
customers. Phoenix's strategy includes offering local dialtone service, an
area in which Phoenix has no experience. Phoenix does not currently have a
detailed budget for implementing its local dialtone service and thus is not
able to estimate the incremental costs of providing this service. However, the
costs of providing the related increase in customer service support could be
substantial. Marketing costs are also likely to be significant, although
Phoenix plans to deploy its local access business in phases over time.
Phoenix is also seeking to increase the number of residential
customers it serves in the long distance market in order to optimize the use of
its Network. Residential customers have historically accounted for less than
5% of Phoenix's revenues. Attrition rates for residential customers in the
long distance industry are substantially higher than attrition rates for
business customers.
In addition, in pursuing its acquisition strategy Phoenix may acquire
companies with lines of businesses in which Phoenix has no experience. Entry
into new markets entails risks associated with the state of the market,
competition from companies in those markets and increased selling and marketing
expenses. There can be no assurance that Phoenix's new products or services
will improve its operating results.
Dependence on Service Providers. Presently, approximately 90% of the
long distance calls made by Phoenix's customers are transmitted entirely or
partially on the networks of facilities-based carriers that compete with
Phoenix, including LDDS/WorldCom, Sprint and Frontier. Until at least the
middle of 1998, when Phoenix's Network is expected to be fully deployed and
loaded, and even after such date with respect to at least 10% of Phoenix's
customer traffic which is expected to remain Off-Network and a portion of
Phoenix's On-Network traffic that is terminated through the networks of vendor
carriers, Phoenix will be dependent on its ability to obtain bulk-rate long
distance transmission capacity from such vendor carriers on a cost-effective
basis. Phoenix is vulnerable to changes in its arrangements with such
carriers, such as price increases and service cancellations. Phoenix's current
agreement with Sprint expires in September 1998 and requires Phoenix to pay
minimum usage fees of $20 million during the term of the contract, of which at
least $12 million must be spent in the first twelve months of the contract.
Phoenix's current agreement with LDDS/WorldCom, which became effective in
August 1996 and expires in May 1999, obligates Phoenix to pay minimum usage
fees of $15 million, $12 million and $9 million, respectively, during each of
the first three six-month periods of the agreement and $12 million during the
12-month period commencing February 1998. Phoenix's current agreement with
Frontier expires in March 1998 and requires Phoenix to pay minimum monthly
usage fees of $1 million for domestic calls (before discounts) and $200,000 for
international calls (after discounts). Phoenix has in certain instances in the
past failed to place calling traffic on the networks of vendor carriers
sufficient to meet minimum usage requirements. However, in all instances to
date where Phoenix has missed a minimum usage requirement and such miss
resulted in an obligation to pay a material sum to a vendor carrier, the vendor
carrier has waived the obligation or Phoenix has been reimbursed by a third
party for the amount of such material sum. Although Phoenix expects to be able
to meet its minimum usage requirements going forward, the minimum usage
requirements may, depending upon traffic volume, reduce the benefit to Phoenix
of the availability of the Network until the minimum requirements decrease per
the terms of the agreements or the agreements expire.
Phoenix is dependent on its facilities-based carriers, and in the
future will be dependent on switching service providers, such as ICG and US One,
to provide it promptly with the detailed information on which Phoenix bases
customer billings. Any failure of such carriers or switching service providers
to provide accurate information on a timely basis could have a material adverse
effect on Phoenix's ability to recover charges from its customers.
9
<PAGE> 12
Customer Attrition. The long distance industry is characterized
by a high level of customer attrition. Customer attrition is measured by the
number of customers who utilize Phoenix's service in a given month and do not
utilize Phoenix's services in the next succeeding month. Phoenix believes its
attrition rate is comparable to the attrition rates of long distance providers
of comparable size. Attrition in the long distance telecommunications industry
is generally attributable to a number of factors, including (i) marketing
initiatives of existing and new competitors as they engage in, among other
things, national advertising campaigns, telemarketing programs, and the
issuance of cash and other forms of customer "win back" initiatives and other
customer acquisition programs and (ii) termination of service for non-payment.
As Phoenix acquires residential customers both for long distance and future
local dialtone service, Phoenix's customer attrition rate is likely to
increase. An increase in Phoenix's customer attrition rate could have a
material adverse effect on Phoenix's business, financial condition and results
of operations.
Regulatory and Legislative Uncertainty. Federal and state
regulations, regulatory actions and court decisions have had, and may have in
the future, both positive and negative effects on Phoenix and its ability to
compete. Phoenix is subject to regulation by the Federal Communications
Commission (the "FCC") and by various state Public Utilities Commissions
("PUCs") as a nondominant IXC. Phoenix is required to file tariffs or obtain
other approvals in most of the states in which it operates. The large majority
of states require long distance service providers to apply for authority to
provide telecommunications services and to make filings regarding their
activities. Neither the FCC nor the state PUCs currently regulate Phoenix's
profit levels, but they often reserve the authority to do so. There can be no
assurance that future regulatory, judicial and legislative changes or other
activities will not have a material adverse effect on Phoenix or that
regulators or third parties will not raise material issues with regard to
Phoenix's compliance with applicable laws and regulations.
Phoenix has historically been required to file tariffs specifying the
rates, terms and conditions of its interstate and international services with
the FCC. On October 31, 1996, the FCC released an order which, among other
things, requires all nondominant IXCs to cancel their currently-filed tariffs
for interstate domestic services within nine months of the effective date of
the order and prohibits such tariff filings in the future. Although
information regarding the larger carriers' rate plans is expected to continue
to be available through other means, the elimination of the tariff requirement
may make Phoenix's pricing policies more difficult to benchmark against the
rates of the larger IXCs. Additionally, the elimination of tariff filings may
result in the need for Phoenix to formulate and execute bilateral agreements
with its customers, give notice to customers of any change in rates, terms and
conditions of service, and otherwise increase administrative costs. The
absence of an FCC tariff filing requirement may also result in consumers being
able to pursue remedies for disputes under state consumer protection and
contract laws in a manner currently precluded by the FCC's "filed-rate"
doctrine.
On October 15, 1996, a Federal appeals court issued a stay of
effectiveness of certain regulations adopted by the FCC in August 1996
regarding the prices that an incumbent LEC may charge incoming competitors for
interconnection, unbundled access to network elements, and resale of LEC
services. The stay had been sought by RBOCs, GTE and state regulatory
commissions as part of ongoing litigation challenging the regulations issued by
the FCC pursuant to the 1996 Act to implement competition in local exchange
markets. The stay will remain in effect until the case is decided by the
court, probably sometime in 1997. The effect of the stay is to create an
ambiguity of authority and further regulatory uncertainty concerning the rules
that will apply to the pricing policies of the incumbent LECs. In the absence
of effective FCC rules, the state PUCs, through the details of their
implementation of competition in their local exchange markets, may produce
results that are inconsistent with the FCC's uniform national model. Phoenix
cannot predict the impact of this litigation on its plans to offer local
dialtone service, beginning in the second half of 1997, or what further actions
the FCC may take in response to the ultimate outcome of the case.
Technological Change. The telecommunications industry has been
characterized by rapid technological change, frequent new service introductions
and evolving industry standards. Phoenix believes that its future success will
depend on its ability to anticipate such changes and to offer market responsive
services that meet these evolving industry standards on a timely basis. The
effect of technological change upon Phoenix's business cannot be predicted and
there can be no assurance that Phoenix will have sufficient resources to make
the investments necessary to acquire new technology or to introduce new
services to satisfy an expanded range of customer needs.
Dependence on Key Personnel. Phoenix believes that its success
depends, to a significant extent, on the efforts and abilities of its senior
management. Among others, the loss of Wallace M. Hammond, Phoenix's President
10
<PAGE> 13
and Chief Executive Officer, Jeffrey L. Bailey, Phoenix's Senior Vice President
and Chief Financial Officer, or Jon Beizer, Vice President of Corporate
Development, could have a material adverse effect on Phoenix. Phoenix is
currently interviewing candidates for the new position of Chief Operating
Officer and is seeking a Vice President of Sales and Marketing. Phoenix
believes that its success will depend in large part upon its ability to
attract, retain and motivate skilled employees and other senior management
personnel. Although Phoenix expects to continue to attract sufficient numbers
of such persons for the foreseeable future, there can be no assurance that
Phoenix will be able to do so. In addition, because Phoenix may acquire one or
more businesses in the future, Phoenix's success will be in part dependent upon
its ability to retain and integrate into its own operations personnel from
acquired entities who are necessary to the continued success or successful
integration of the acquired business.
Transactions with Related Parties; Potential Conflicts of Interest.
Phoenix and US One share common directors and stockholders. Mr. David
Singleton and Mr. Max E. Thornhill are directors of both Phoenix and US One and
beneficially own 173,236 and 1,671,318 shares, respectively, of Phoenix's
common stock on a fully diluted basis (assuming full conversion of preferred
stock). As a result, certain conflicts of interest may arise in the future in
connection with the implementation of Phoenix's agreement with US One and the
negotiation of any new agreements between Phoenix and US One.
Control by Officers and Directors. As of February 10, 1997, Phoenix's
executive officers and directors beneficially owned or controlled approximately
34% of the outstanding shares of Phoenix's Common Stock, on an as-if-converted
basis. The votes represented by the shares beneficially owned or controlled by
Phoenix's executive officers and directors could, if they were cast together,
potentially control the election of a majority of Phoenix's directors and the
outcome of most corporate actions requiring stockholder approval.
Investors who purchase Phoenix's Common Stock may be subject to
certain risks due to the concentrated ownership of Phoenix's Common Stock.
Such risks include: (i) the shares beneficially owned or controlled by
Phoenix's executive officers and directors could, if they were cast together,
delay, defer or prevent a change in control of Phoenix, such as an unsolicited
takeover, which might be beneficial to the stockholders, and (ii) due to the
substantial ownership or control of outstanding shares by Phoenix's executive
officers and directors and the potential adverse impact of such substantial
ownership or control on a change in control of Phoenix, it is less likely that
the prevailing market price of the outstanding shares of Phoenix's Common Stock
will reflect a "premium for control" than would be the case if ownership of the
outstanding shares were less concentrated.
Market Overhang. As part of this offering, the Selling Stockholders
may sell up to 1,590,833 shares, which represents approximately 6.9% of
Phoenix's total outstanding shares. Although 1,492,500 of the shares are
presently outstanding, the registration of these shares will have the
immediate effect of increasing the public float of Phoenix's stock. Such
increase may cause the market price of Phoenix's Common Stock to decline or
fluctuate significantly.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Shares
offered hereby although the Company will receive a total of $379,998.75 for
98,333 of the shares if Robert K. Fuchs and Nathan Low exercise their warrants
to acquire 24,583 and 73,750 shares, respectively. See "Selling Stockholders."
SELLING STOCKHOLDERS
The Selling Stockholders were issued securities in private placements
as summarized below:
Judy Van Essen was issued 2,800,000 shares of Common Stock as partial
consideration to Ms. Van Essen for the acquisition by the Company of Automated
Communications, Inc., a Colorado corporation, of which Ms. Van Essen was the
sole stockholder. In addition, in connection with the private placement of the
2,800,000 shares of Common Stock, the Company agreed to register 1,400,000 of
such shares.
Robert K. Fuchs, Lawrence Kobren, Jonathan Fuchs, Nathan Low and Malka
Fendrich (collectively, the "Sunrise Selling Stockholders") received from
Thomas H. Bell, Chairman of the Board of Directors of Phoenix, 18,825, 22,125,
2,000, 40,300 and 9,250 shares of Common Stock, respectively, and Mr. Fuchs and
Mr. Low were issued
11
<PAGE> 14
warrants by Phoenix (the "Warrants") to purchase 24,583 and 73,750 shares of
Common Stock, respectively, in settlement of a claim by Sunrise Financial
Group, Inc. against Thomas H. Bell and the Company. During 1993 and 1994,
Sunrise Financial Group, Inc. performed certain financial public relations
services for Phoenix. In addition, in connection with the private placement of
the securities described above, the Company agreed to register the shares of
Common Stock, and shares of Common Stock underlying the Warrants, issued to the
Sunrise Selling Stockholders.
In each case, the issuance of securities by Phoenix to the Selling
Stockholders was undertaken pursuant to Section 4(2) of the Securities Act.
The following table sets forth the names of the Selling Stockholders,
the number of shares of Common Stock owned beneficially by each of them as of
February 10, 1997, the number of shares which may be offered pursuant to this
Prospectus and the number of shares of Common Stock owned beneficially after
this offering assuming the sale of all of the Shares. This information is
based upon information provided by the Selling Stockholders. Because the
Selling Stockholders may offer all, some or none of their Common Stock, no
definitive estimate as to the number of shares thereof that will be held by the
Selling Stockholders after such offering can be provided.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After
Offering (1) Shares Offering (1) (3)
------------------------- Being -----------------------
Name Number Percent (2) Offered (3) Number Percent
- ---- --------- ----------- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
Judy Van Essen 2,800,000 12.1% 1,400,000 1,400,000 6.0%
Robert K. Fuchs (4) 43,408 * 43,408 0 0%
Lawrence Kobren 22,125 * 22,125 0 0%
Jonathan Fuchs 2,000 * 2,000 0 0%
Nathan Low (5) 114 ,050 * 114,050 0 0%
Malka Fendrich 9,250 * 9,250 0 0%
</TABLE>
- ----------------------------------
* Less than one percent
(1) Unless otherwise indicated below, the persons named in the table have
sole voting and investment power with respect to all shares
beneficially owned by them, subject to community property laws where
applicable.
(2) Applicable percentage of ownership is based on 23,152,035 shares of
Common Stock outstanding on February 10, 1997.
(3) Assumes the sale of all shares offered hereby.
(4) Includes immediately exercisable warrants to purchase 13,333 shares of
Common Stock at an exercise price of $3.75 per share and 11,250 shares
of Common Stock at an exercise price of $4.00 per share.
(5) Includes immediately exercisable warrants to purchase 40,000 shares of
Common Stock at an exercise price of $3.75 per share and 33,750 shares
of Common Stock at an exercise price of $4.00 per share.
PLAN OF DISTRIBUTION
The Shares offered hereby are being offered directly by the Selling
Stockholders. The Company will receive no proceeds from the sale of any of the
Shares. The sale of the Shares may be effected by the Selling Stockholders
from time to time in transactions on the American Stock Exchange, in negotiated
transactions or otherwise, at fixed prices which may be changed, at prices
related to prevailing market prices or at negotiated prices. The Selling
Stockholders may effect such transactions by selling the Shares to or through
broker-dealers, and such broker-dealers may receive
12
<PAGE> 15
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
At the time a particular offer of Shares is made, to the extent
required, a supplemental Prospectus will be distributed which will set forth
the number of Shares being offered and the terms of the offering including the
name or names of any underwriters, dealers or agents, the purchase price paid
by any underwriter for the Shares purchased from the Selling Stockholders, any
discounts, commissions and other items constituting compensation from the
Selling Stockholders and any discounts, commissions or discounts allowed or
reallowed or paid to dealers.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The Selling Stockholders and any broker-dealers, agents or
underwriters that participate with the Selling Stockholders in the distribution
of the Shares may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act, and any commissions received by them and any
profit on the sale of the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Act.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Shares may not simultaneously engage
in market making activities with respect to the Common Stock of the Company for
a period of two business days prior to the commencement of such distribution.
In addition and without limiting the foregoing, the Selling Stockholders will
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Rules l0b-6 and l0b-7,
which provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by the Selling Stockholders.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Freeborn & Peters, Denver, Colorado. A partner of such firm
serves as Secretary of the Company.
EXPERTS
The audited consolidated financial statements and supplemental
consolidated financial statements of the Company, the consolidated financial
statements of AmeriConnect, Inc., and the financial statements of Automated
Communication, Inc. as of December 31, 1994 and 1995, and for each of the three
years in the period ended December 31, 1995, which are included in the
Company's Annual Report on Form 10-K, Form 8-K dated January 16, 1996 as
amended April 1, 1996, Form 8-K dated October 8, 1996 as amended December 6,
1996, and Form 8-K dated January 23, 1997, have been incorporated herein by
reference in reliance on the reports of Grant Thornton LLP, independent
certified public accountants upon the authority of said firm as experts in
accounting and auditing.
13
<PAGE> 16
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information . . . . . . . . . . . . . 2
Incorporation of Certain Documents by
Reference . . . . . . . . . . . . . . . . . 2
Forward-Looking Statements . . . . . . . . . . 3
The Company . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . 4
Use of Proceeds . . . . . . . . . . . . . . . . 11
Selling Stockholders . . . . . . . . . . . . . 11
Plan of Distribution . . . . . . . . . . . . . 12
Legal Matters . . . . . . . . . . . . . . . . . 13
Experts . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
1,590,833 SHARES
PHOENIX NETWORK, INC.
COMMON STOCK
PROSPECTUS
FEBRUARY 12, 1997
<PAGE> 17
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemized statement of all estimated
expenses in connection with the issuance and distribution of the securities
being registered:
<TABLE>
<S> <C>
SEC registration fee . . . . . . . . . . . . . . . . . . . . . . . $ 1,755
Legal expenses* . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Accounting fees and expenses* . . . . . . . . . . . . . . . . . . . 5,000
Miscellaneous* . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $13,755
</TABLE>
______________________________
* Estimated
The Selling Stockholders will bear their own legal fees, sales
commissions and related sales expenses in connection with this offering, but
will not bear any of expenses listed above.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VI of the Registrant's Certificate of Incorporation ("Article
VI") is consistent with Section 102(b)(7) of the Delaware General Corporation
Law, which generally permits a company to include a provision limiting the
personal liability of a director in the company's certificate of incorporation.
With limitations, Article VI eliminates the personal liability of the
Registrant's directors to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director. However, Article VI does not
eliminate director liability: (i) for breaches of the duty of loyalty to the
Registrant or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) for
any transaction from which a director derives an improper personal benefit; and
(iv) under Section 174 of the Delaware General Corporation Law ("Section 174").
Section 174 makes directors personally liable for unlawful dividends and stock
repurchases or redemptions and expressly sets forth a negligence standard with
respect to such liability. While Article VI protects the directors from awards
for monetary damages for breaches of their duty of care, it does not eliminate
their duty of care. The limitations in Article VI have no effect on claims
arising under the federal securities laws.
With certain limitations, Article XI of the Registrant's By-Laws
("By-Laws Article XI") provides for indemnification of any of the Registrant's
past, present and future officers and directors against liabilities and
reasonable expenses incurred in any criminal or civil action by reason of such
person's being or having been an officer or director of the Registrant or of
any other corporation which such person serves as such at the request of the
Registrant. Indemnification under By-Laws Article XI is limited to officers
and directors who have acted in good faith and in a manner they reasonably
believed to be in the best interests of the Registrant. Any questions
regarding whether the officer or director has met the required standards of
conduct are to be answered by (i) a majority of disinterested directors, or
(ii) a written opinion of independent legal counsel selected by the Board.
Indemnification rights under By-Laws Article XI are non-exclusive. In the
event of an officer's or director's death, such person's indemnification rights
shall extend to his or her heirs and legal representatives. Rights under
By-Laws Article XI are separable, and if any part of that section is determined
to be invalid for any reason, all other parts remain in effect.
Under Section 145 of the Delaware General Corporation Law, directors
and officers, as well as other employees and individuals, may be indemnified
against expenses (including attorneys' fees), judgments, fines, amounts paid in
settlement in connection with specified actions, suits, or proceedings, whether
civil, criminal, administrative, or investigative (other than an action by or
in the right of the corporation -- a "derivative action") if they acted in good
faith and in a manner they reasonably believed to be in, or not opposed to,
the best interests of the corporation, and, with respect to criminal actions or
proceedings, had no reasonable cause to believe their conduct was unlawful. A
similar standard of care is applicable in the case of derivative actions,
except that indemnification only extends to expenses
II-1
<PAGE> 18
(including attorneys' fees) incurred in connection with the defense or
settlement of such an action, and the Delaware General Corporation Law requires
court approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation.
ITEM 16. EXHIBITS
The list of exhibits is incorporated herein by reference to the Index
to Exhibits immediately preceding the Exhibits to this Registration Statement.
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the Registration
Statement (or most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective Registration
Statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (a)(i) and (a)(ii)
do not apply if the Registration Statement is on Form S-3 or
Form S-8 and the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the issuer pursuant to section 13 or
section 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement;
(b) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof;
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
2. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the Registration Statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
3. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to
II-2
<PAGE> 19
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Golden, State of Colorado, on February 12,
1997.
PHOENIX NETWORK, INC.
By: /s/ Wallace M. Hammond
------------------------------------
Wallace M. Hammond
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on February 12, 1997.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Wallace M. Hammond President, Chief Executive Officer
- ---------------------------------------------- and Director
Wallace M. Hammond (Principal Executive Officer)
/s/ Jeffrey L. Bailey Senior Vice President and Chief
- ---------------------------------------------- Financial Officer
Jeffrey L. Bailey (Principal Financial
and Accounting Officer)
</TABLE>
II-4
<PAGE> 21
<TABLE>
<S> <C>
/s/ Thomas H. Bell* Director
- -------------------------------------------------
Thomas H. Bell
/s/ James W. Gallaway* Director
- -------------------------------------------------
James W. Gallaway
/s/ Merrill L. Magowan* Director
- -------------------------------------------------
Merrill L. Magowan
/s/ Charles C. McGettigan* Director
- -------------------------------------------------
Charles C. McGettigan
/s/ David Singleton* Director
- -------------------------------------------------
David Singleton
/s/ Max E. Thornhill* Director
- -------------------------------------------------
Max E. Thornhill
- ----------
* Signed by Jeffrey L. Bailey pursuant to a power
of attorney that was previously filed
By: /s/ Jeffrey L. Bailey
----------------------------------------------
Jeffrey L. Bailey
Attorney-in-fact
</TABLE>
II-5
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
2.1 Merger Agreement, dated January 16, 1996, filed as an exhibit to the
Registrant's current report on Form 8-K dated January 16, 1996
is hereby incorporated by reference.
4.1 Certificate of Incorporation of the Registrant as amended to date.
4.2 Bylaws of the Registrant.
5.1 Opinion of Freeborn & Peters
10.1 Settlement Agreement dated May 27, 1996
23.1 Consent of Freeborn & Peters (contained in Exhibit 5.1)
23.2 Consent of Grant Thornton LLP
24.1 Power of Attorney*
</TABLE>
______________
* Previously Filed.
II-6
<PAGE> 1
EXHIBIT 4.1
RESTATED CERTIFICATE OF INCORPORATION
OF
PHOENIX NETWORK, INC.
PHOENIX NETWORK, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: The Certificate of Incorporation of Phoenix Network, Inc. was
filed with the Secretary of State of Delaware on May 17, 1989.
SECOND: The Restated Certificate of Incorporation of Phoenix Network,
Inc. in the form attached hereto as Exhibit A, has been duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware by a majority of the directors and
stockholders of the Corporation.
THIRD: The Restated Certificate of Incorporation so adopted reads in
full as set forth in Exhibit A attached hereto and hereby incorporated by
reference.
IN WITNESS WHEREOF, Phoenix Network, Inc. has caused this certificate to
be signed by the President this 11th day of December, 1990.
PHOENIX NETWORK, INC.
By /s/ Marc L. Goyette
-------------------------------
Marc L. Goyette
President
ATTEST:
/s/ Kenneth L. Guernsey
- ---------------------------------
Kenneth L. Guernsey
Secretary
1.
<PAGE> 2
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
PHOENIX NETWORK, INC.
ARTICLE I
The name of the corporation (hereinafter called the "Corporation") is
Phoenix Network, Inc.
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is 229 South State Street, County of Kent, Dover, Delaware and the
name of the registered agent of the Corporation in the State of Delaware at
such address is The Prentice-Hall Corporation Systems, Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is Twenty-Five
Million (25,000,000) shares. Twenty Million (20,000,000) shares shall be
Common Stock, each having a par value of $0.001. Five Million (5,000,000)
shares shall be Preferred Stock, each having a par value of $0.001.
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, to fix or alter the
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), redemption price or
prices, and the liquidation preferences of any wholly unissued
2.
<PAGE> 3
series of Preferred Stock, and the number of shares constituting any such
series and the designation thereof, or any of them; and to increase or decrease
the number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
C. The relative rights, preferences, privileges, and restrictions
granted to or imposed upon the corporation's Common and Preferred or the holders
thereof are as follows:
1. Designation of Preferred Stock. Three Hundred Thousand
(300,000) of the authorized shares of Preferred Stock are hereby designated
"Series A Preferred Stock." The rights, preferences, privileges, restrictions
and other matters relating to the Three Hundred Thousand (300,000) shares of
Series A Preferred Stock are as set forth herein.
2. Dividends. In each fiscal year of the Corporation, the
holders of the Series A Preferred Stock shall be entitled to receive, before
any cash dividends shall be declared and paid upon or set aside for the Common
Stock in such fiscal year, a dividend at the rate of ninety cents ($0.90) per
share per annum (as adjusted for any combinations, consolidations, stock
distributions or stock dividends with respect to such shares), payable when, as
and if declared by the Board of Directors out of funds legally available
therefor. Such dividends shall be cumulative and shall accrue daily on each
share of Series A Preferred Stock whether or not declared. No dividends (other
than those payable solely in the Common Stock of the Corporation) shall be
declared or paid on any Common Stock of the Corporation until all accrued but
unpaid dividends on the Series A Preferred Stock shall have been declared and
paid or set apart.
3. Liquidation Preference.
i. In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, the holders of
the Series A Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock by reason of their ownership
thereof, the amount of ten dollars ($10.00) per share (as adjusted for any
combinations, consolidations, stock distributions or stock dividends with
respect to such shares) plus all accrued but unpaid dividends on such share for
each share of Series A Preferred Stock then held by them and no more. If upon
the occurrence of such event, the assets and funds thus distributed among the
holders of the Series A Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amount, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed among the holders
3.
<PAGE> 4
of the Series A Preferred Stock in proportion to the shares of Series A
Preferred Stock then held by them.
ii. After payment to the holders of the Series A
Preferred Stock of the amount set forth in subparagraph (a) above, the entire
remaining assets and funds of the Corporation legally available for
distribution, if any, shall be distributed among the holders of the Common
Stock in proportion to the shares of Common Stock then held by them.
(c) A consolidation or merger of the Corporation with
or into any other corporation or corporations, or a sale of all or
substantially all of the assets of the Corporation shall be deemed a
liquidation, dissolution or winding up within the meaning of this Section if
more than fifty percent (50%) of the surviving entity is not owned by persons
who were holders of capital stock or securities convertible into capital stock
of the Corporation immediately prior to such merger, consolidation or sale.
4. Voting Rights. Except as otherwise expressly provided
herein or as required by law, the Series A Preferred Stock shall vote together
with the Common Stock as a single class. The holder of each share of Series A
Preferred Stock shall be entitled to that number of votes equal to the number
of shares of Common Stock into which such share could then be converted and
shall be entitled to notice of all stockholders' meetings in accordance with
the Bylaws of the Corporation.
5. Conversion. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
iii. Right to Convert.
(1) Each share of Series A Preferred Stock shall
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share, at the office of the Corporation or any transfer
agent for such stock, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing ten dollars ($10.00) (the
"Original Issue Price") plus all declared but unpaid dividends on each share of
Series A Preferred Stock by the then applicable Conversion Price, determined as
hereinafter provided, in effect on the date the certificate is surrendered for
conversion. The price at which shares of Common Stock shall be deliverable
upon conversion (the "Conversion Price") shall initially be two dollars and
fifty cents ($2.50) per share of Common Stock. Such initial Conversion Price
shall be adjusted as hereinafter provided.
(b) Mechanics of Conversion. Before any holder of
Series A Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall
4.
<PAGE> 5
surrender the certificate or certificates thereof, duly endorsed, at the office
of the Corporation or of any transfer agent for such stock, and shall give
written notice to the Corporation at such office that he elects to convert the
same and shall state therein the name or names in which he wishes the
certificate or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of surrender of the
shares of Series A Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on such date.
(c) Adjustments to Conversion Price for Diluting
Issues.
(i) Special Definitions. For purposes of this
Section 5(c), the following definitions shall apply:
(a) 'Options' shall mean rights,
options, or warrants to subscribe for, purchase or otherwise acquire either
Common Stock or Convertible Securities.
(b) 'Original Issue Date' shall mean the
date on which a share of Series A Preferred Stock was first issued.
(c) 'Convertible Securities' shall mean
any evidences of indebtedness, shares (other than Common Stock and Series A
Preferred Stock) or other securities convertible into or exchangeable for
Common Stock.
(d) 'Additional Shares of Common Stock'
shall mean all shares of Common Stock issued (or, pursuant to Section
5(c)(iii), deemed to be issued) by the Corporation after the Original Issue
Date, other than shares of Common Stock issued or issuable:
(i) upon conversion of shares of
Series A Preferred Stock;
(ii) to officers, directors or
employees of, or consultants to, the Corporation, on terms approved by the
Board of Directors;
(iii) as a dividend or distribution on
Preferred
5.
<PAGE> 6
Stock; or
(iv) for which adjustment of the
Conversion Price is made pursuant to Section 5(c)(vi).
(E) in any transaction approved by the
Company's Board of Directors involving the acquisition of more than fifty
percent (50%) of the stock of another corporation or substantially all of the
assets of another corporation or business, whether by merger, exchange of
shares, purchase of assets, or otherwise.
(2) No Adjustment of Conversion Price. No
adjustment in the Conversion Price of a particular share of Series A Preferred
Stock shall be made in respect of the issuance of Additional Shares of Common
Stock unless the consideration per share for an Additional Share of Common
Stock issued or deemed to be issued by the Corporation is less than the
Conversion Price in effect on the date of, and immediately prior to such issue,
for such share of Series A Preferred Stock.
(3) Deemed Issue of Additional Shares of Common
Stock. Subject to paragraph 5(c)(i)(4)(B) herein, in the event the Corporation
at any time or from time to time after the Original Issue Date shall issue any
Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities then entitled to receive
any such Options or Convertible Securities, then the maximum number of shares
(as set forth in the instrument relating thereto without regard to any
provisions contained therein designed to protect against dilution) of Common
Stock issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as
of the time of such issue or, in case such a record date shall have been fixed,
as of the close of business on such record date, provided that Additional
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 5(c)(v) hereof) of such
Additional Shares of Common Stock would be less than the Conversion Price in
effect on the date of and immediately prior to such issue, or such record date,
as the case may be, and provided further that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(a) no further adjustments in the
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(b) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration
6.
<PAGE> 7
payable to the Corporation, or decrease in the number of shares of Common Stock
issuable, upon the exercise, conversion or exchange thereof, the Conversion
Price computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities (provided, however, that no such adjustment of the Conversion Price
shall affect Common Stock previously issued upon conversion of the Series A
Preferred Stock);
(c) upon the expiration of any such
Options or any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Series A Conversion Price
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon,
shall, upon such expiration, be recomputed as if:
(i) in the case of Convertible
Securities or Options for Common Stock the only Additional Shares of Common
issued were the shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if
any, actually received by the Corporation upon such conversion or exchange, and
(ii) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time of issue of such
Options and the consideration received by the Corporation for the Additional
Shares of Common Stock deemed to have been then issued was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration deemed to have been received by the
Corporation (determined pursuant to Section 5(c)(v)) upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(d) no readjustment pursuant to clauses
(2) or (3) above shall have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (A) the Conversion Price on the original
adjustment date, or (B) the Conversion Price that would have resulted from any
issuance of Additional Shares of Common Stock between the original adjustment
date and such readjustment date;
(e) in the case of any Options that
expire by their terms
7.
<PAGE> 8
not more than thirty (30) days after the date of issue thereof, no adjustment
of the Series A Conversion Price shall be made, except as to shares of Series A
Preferred Stock converted in such period, until the expiration or exercise of
all such Options, whereupon such adjustment shall be made in the same manner
provided in clause (3) above; and
(f) if any such record date shall have
been fixed and such Options or Convertible Securities are not issued on the
date fixed thereof, the adjustment previously made in the Series A Conversion
Price which became effective on such record date shall be cancelled as of the
close of business on such record date, and shall instead be made on the actual
date of issuance, if any.
(4) Adjustment of Conversion Price Upon
Issuance of Additional Shares of Common Stock. In the event the Corporation
shall issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section 5(c)(iii)) without
consideration or for a consideration per share less than the Conversion Price
in effect on the date of and immediately prior to such issue, then and in such
event, such Conversion Price shall be reduced, concurrently with such issue, to
a price (calculated to the nearest cent) determined by multiplying such
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding and the number of shares of Common Stock
issuable upon conversion of the shares of Series A Preferred Stock outstanding
immediately prior to such issue plus the number of shares of Common Stock that
the aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Conversion
Price, and the denominator of which shall be the number of shares of Common
Stock outstanding and the number of shares of Common Stock issuable upon
conversion of the shares of Series A Preferred Stock outstanding immediately
prior to such issue plus the number of such Additional Shares of Common Stock
so issued.
(5) Determination of Consideration. For
purposes of this Section 5(c), the consideration received by the Corporation
for the issue of any Additional Shares of Common Stock shall be computed as
follows:
(a) Cash and Property: Such consideration
shall:
(i) insofar as it consists of cash,
be computed at the aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
(ii) insofar as it consists of
property other than cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith
8.
<PAGE> 9
by the Board; and
(iii) in the event Additional Shares of
Common Stock are issued together with other shares or securities or other
assets of the Corporation for consideration which covers both, be the
proportion of such consideration so received, computed as provided in clauses
(A) and (B) above, as determined in good faith by the Board of Directors.
(b) Options and Convertible Securities.
The consideration per share received by the Corporation for Additional Shares
of Common Stock deemed to have been issued pursuant to Section 5(c)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
(i) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of
such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein designed to protect against
dilution) payable to the Corporation upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities by
(ii) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein designed to protect against dilution)
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.
(6) Adjustments for Combinations or Subdivisions
of Common Stock. In the event the Corporation at any time or from time to time
after the Original Issue Date shall declare or pay any dividend on the Common
Stock payable in Common Stock or in any right to acquire Common Stock, or shall
effect a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by stock split, reclassification or
otherwise), or in the event the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, then the Conversion Price in effect
immediately prior to such event shall, concurrently with the effectiveness of
such event, be proportionately decreased or increased, as appropriate.
(d) Redemption.
9.
<PAGE> 10
(i) Right to Redeem. Any or all of the
outstanding shares of Series A Preferred Stock shall be redeemable by the
Corporation in the event that (1) the market price of the Corporation's
outstanding Common Stock (as quoted on any national or regional securities
exchange or automated quotation system on which or through which the
Corporation's Common Stock is traded) has equaled or exceed for a period of at
least twenty (20) consecutive trading days 200% of the Conversion Price in
effect during such period and (2) the managing underwriter of a registered
public offering of the Corporation's Common Stock agrees to register and offer
at least 50% of the shares of Common Stock into which the then outstanding
Series A Preferred Stock is then convertible.
(ii) Mechanics of Redemption. Before the
Corporation shall be entitled to redeem any of the shares of Series A Preferred
Stock, it shall give written notice to each holder thereof whose shares of
Series A Preferred Stock are to be redeemed indicating the number of shares of
Series A Preferred Stock to be redeemed. Each holder thereof shall, as soon as
practicable thereafter, surrender its certificates for such shares, duly
endorsed, at the office of the Corporation or of any transfer agent for such
shares, at which time the Corporation shall pay to such holder the Redemption
Price (defined below) for each such share to be redeemed. The Redemption Price
shall be payable in cash or by check, which need not be certified. Such
redemption shall be deemed to have been made immediately prior to the close of
business on the date of tender of the Redemption Price for the shares of Series
A Preferred Stock to be redeemed.
(iii) Redemption Price Defined. The "Redemption
Price" shall mean the Original Issue Price plus all accrued but unpaid
dividends on each share of Series A Preferred Stock to be redeemed.
(e) Other Distributions. In the event the Corporation
shall at any time or from time to time make or issue, or fix a record date for
the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation or any of it
subsidiaries other than Additional Shares of Common Stock, then in each such
event provision shall be made so that the holders of Series A Preferred Stock
shall receive, upon the conversion thereof, the securities of the Corporation
which they would have received had their stock been converted into Common Stock
on the date of such event.
(f) No Impairment. The Corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 5 and in the taking of all such action as
may be necessary or
10.
<PAGE> 11
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(g) Certificates as to Adjustments. Upon the
occurrence of each adjustment or readjustment of the Conversion Price pursuant
to this Section 5, the Corporation shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Series A Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price at the time in effect,
and (iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of Series A
Preferred Stock.
(h) Notices of Record Date. In the event of any taking
by the Corporation of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive Additional
Shares of Common Stock, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property,
or to receive any other right, the Corporation shall mail to each holder of
Series A Preferred Stock at least twenty (20) days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution, security or right, and the
amount and character of such dividend, distribution, security or right.
(i) Issue Taxes. The Corporation shall pay any and all
issue and other taxes that may be payable in respect of any issue or delivery
of shares of Common Stock on conversion of shares of Series A Preferred Stock
pursuant hereto; provided, however, that the Corporation shall not be obligated
to pay any transfer taxes resulting from any transfer requested by any holder
in connection with any such conversion.
(j) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of
11.
<PAGE> 12
shares as shall be sufficient for such purpose, including, without limitation,
engaging in best efforts to obtain the requisite shareholder approval of any
necessary amendment to these Articles.
(k) Fractional Shares. No fractional share shall be
issued upon the conversion of any share or shares of Series A Preferred Stock.
All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series A Preferred Stock by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a sum
in cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board of Directors of the
Corporation).
(l) Notices. Any notice required by the provisions of
this Section 5 to be given to the holders of shares of Series A Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation.
(m) Adjustments. In case of any reorganization or any
reclassification of the capital stock of the Corporation, any consolidation or
merger of the Corporation with or into another corporation or corporations, or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation, each share of Series A Preferred Stock shall thereafter be
convertible into the number of shares of stock or other securities or property
(including cash) to which a holder of the number of shares of Common Stock
deliverable upon conversion of such share of Series A Preferred Stock would
have been entitled upon the record date of (or date of, if no record date is
fixed) such reorganization, reclassification, consolidation, merger or
conveyance; and, in any case, appropriate adjustment (as determined by the
Board of Directors) shall be made in the application of the provisions herein
set forth with respect to the rights and interests thereafter of the holders of
such Series A Preferred Stock, to the end that the provisions set forth herein
shall thereafter be applicable, as nearly as equivalent as is practicable, in
relation to any shares of stock or the securities or property (including cash)
thereafter deliverable upon the conversion of the shares of such Series A
Preferred Stock.
6. Restrictions and Limitations. So long as at least One
Hundred Thousand (100,000) shares of Series A Preferred Stock remain
outstanding, the Corporation shall not, without the vote or written consent by
the holders of not less than a majority of the then outstanding shares of
Series A Preferred Stock voting together as a single class, amend, repeal or
waive any provision of, or add any provision to, the Corporation's Articles of
Incorporation
12.
<PAGE> 13
or Bylaws if such action would materially and adversely alter the preferences,
rights, privileges or powers of, or the restrictions provided for the benefit
of, the Preferred Stock.
7. Amendment. Any term relating to the Series A Preferred
Stock may be amended only with the vote or written consent of holders of not
less than a majority of all Series A Preferred Stock then outstanding. Any
such amendment shall be binding upon the Corporation and any holder of Series A
Preferred Stock.
ARTICLE V
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors shall have the power to adopt, amend, repeal or
otherwise alter the bylaws without any action on the part of the stockholders;
provided, however, that any bylaws made by the Board of Directors and any and
all powers conferred by any of said bylaws may be amended, altered or repealed
by the stockholders.
ARTICLE VI
A director of the Corporation shall, to the full extent permitted by the
Delaware General Corporation Law, not be liable to the Corporation or its
stockholders for monetary damages for breach of his fiduciary duty as a
director.
13.
<PAGE> 14
CERTIFICATE OF
DESIGNATION OF
PREFERENCES OF
SERIES B PREFERRED STOCK
---------------
The undersigned, Thomas H. Bell, the Chief Executive Officer of Phoenix
Network, Inc., a Delaware corporation (the "Corporation"), the Certificate of
Incorporation of which was filed in the office of the Secretary of State the
State of Delaware on May 17, 1989, acting pursuant to Section 151 of the
General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: That at
a meeting of the Board of Directors of the Corporation duly convened and held
on December 20, 1991 the following resolution was adopted:
RESOLVED, that pursuant to Article IV of the Corporation's
Certificate of Incorporation relating to the shares of the Corporation,
the Board of Directors hereby authorizes, fixes and creates a series of
Preferred Stock having the following powers, preferences, designations,
rights and other characteristics:
A. Two Hundred Thousand (200,000) of the authorized shares of
Preferred Stock are hereby designated "Series B Preferred Stock."
B. The rights, preferences, privileges, restrictions and other
matters relating to the Two Hundred Thousand (200,000) shares of Series B
Preferred Stock are as follows:
1. Dividends. In each fiscal year of the Corporation, the holders
of the Series B Preferred Stock shall be entitled to receive, before any cash
dividends shall be declared and paid upon or set aside for the Common Stock in
such fiscal year, a dividend at the rate of ninety cents ($0.90) per share per
annum (as adjusted for any combinations, consolidations, stock distributions or
stock dividends with respect to such shares), payable when, as and if declared
by the Board of Directors out of funds legally available therefor. Such
dividends shall be cumulative and shall accrue daily on each share of Series B
Preferred Stock whether or not declared. No dividends (other than those
payable solely in the Common Stock of the Corporation) shall be declared or
paid on any Common Stock of the Corporation until all accrued but unpaid
dividends on the Series B Preferred Stock shall have been declared and paid or
set apart.
1.
<PAGE> 15
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, the holders of the Series
B Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock by reason of their ownership thereof, the amount of
ten dollars ($10.00) per share (as adjusted for any combinations,
consolidations, stock distributions or stock dividends with respect to such
shares) plus all accrued but unpaid dividends on such share for each share of
Series B Preferred Stock then held by them and no more. If upon the occurrence
of such event, the assets and funds thus distributed among the holders of the
Series B Preferred Stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amount, then the entire assets and
funds of the Corporation legally available for distribution shall be
distributed among the holders of the Series B Preferred Stock in proportion to
the shares of Series B Preferred Stock then held by them.
(b) After payment to the holders of the Series B Preferred
Stock of the amount set forth in subparagraph (a) above, the entire remaining
assets and funds of the Corporation legally available for distribution, if any,
shall be distributed among the holders of the Common Stock in proportion to the
shares of Common Stock then held by them.
(c) A consolidation or merger of the Corporation with or into
any other corporation or corporations, or a sale of all or substantially all of
the assets of the Corporation shall be deemed a liquidation, dissolution or
winding up within the meaning of this Section if more than fifty percent (50%)
of the surviving entity is not owned by persons who were holders of capital
stock or securities convertible into capital stock of the Corporation
immediately prior to such merger, consolidation or sale.
3. Voting Rights. Except as otherwise expressly provided herein or
as required by law, the Series B Preferred Stock shall vote together with the
Common Stock as a single class. The holder of each share of Series B Preferred
Stock shall be entitled to that number of votes equal to the number of shares
of Common Stock into which such share could then be converted and shall be
entitled to notice of all stockholders' meetings in accordance with the Bylaws
of the Corporation.
4. Conversion. The holders of the Series B Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable
2.
<PAGE> 16
shares of Common Stock as is determined by dividing ten dollars ($10.00) (the
"Original Issue Price") plus all declared but unpaid dividends on each share of
Series B Preferred Stock by the then applicable Conversion Price, determined as
hereinafter provided, in effect on the date the certificate is surrendered for
conversion. The price at which shares of Common Stock shall be deliverable
upon conversion (the "Conversion Price") shall initially be two dollars ($2.00)
per share of Common Stock. Such initial Conversion Price shall be adjusted as
hereinafter provided.
(b) Mechanics of Conversion. Before any holder of Series B
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates thereof, duly
endorsed, at the office of the Corporation or of any transfer agent for such
stock, and shall give written notice to the Corporation at such office that he
elects to convert the same and shall state therein the name or names in which
he wishes the certificate or certificates for shares of Common Stock to be
issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series B Preferred Stock, a
certificate or certificates for the number of shares of Common Stock to which
he shall be entitled as aforesaid. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of surrender
of the shares of Series B Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
(c) Adjustments to Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this Section
4(c), the following definitions shall apply:
(1) 'Options' shall mean rights, options, or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) 'Original Issue Date' shall mean the date on
which a share of Series B Preferred Stock was first issued.
(3) 'Convertible Securities' shall mean any
evidences of indebtedness, shares (other than Common Stock and Series B
Preferred Stock) or other securities convertible into or exchangeable for
Common Stock.
(4) 'Additional Shares of Common Stock' shall
mean all shares of Common Stock issued (or, pursuant to Section 4(c)(iii),
deemed to be issued) by the Corporation after the Original Issue Date, other
than shares of Common Stock issued or issuable:
(A) upon conversion of shares of Series
B Preferred Stock;
3.
<PAGE> 17
(B) to officers, directors or employees
of, or consultants to, the Corporation, on terms approved by the Board of
Directors;
(C) as a dividend or distribution on
Preferred Stock; or
(D) for which adjustment of the
Conversion Price is made pursuant to Section 4(c)(vi).
(E) in any transaction approved by the
Company's Board of Directors involving the acquisition of more than fifty
percent (50%) of the stock of another corporation or substantially all of the
assets of another corporation or business, whether by merger, exchange of
shares, purchase of assets, or otherwise.
(ii) No Adjustment of Conversion Price. No adjustment
in the Conversion Price of a particular share of Series B Preferred Stock shall
be made in respect of the issuance of Additional Shares of Common Stock unless
the consideration per share for an Additional Share of Common Stock issued or
deemed to be issued by the Corporation is less than the Conversion Price in
effect on the date of, and immediately prior to such issue, for such share of
Series B Preferred Stock.
(iii) Deemed Issue of Additional Shares of Common Stock.
Subject to paragraph 4(c)(i)(4)(B) herein, in the event the Corporation at any
time or from time to time after the Original Issue Date shall issue any Options
or Convertible Securities or shall fix a record date for the determination of
holders of any class of securities then entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
designed to protect against dilution) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Section 4(c)(v) hereof) of such Additional Shares of
Common Stock would be less than the Conversion Price in effect on the date of
and immediately prior to such issue, or such record date, as the case may be,
and provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(1) no further adjustments in the Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
4.
<PAGE> 18
(2) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities (provided, however, that no such adjustment of the
Conversion Price shall affect Common Stock previously issued upon conversion of
the Series B Preferred Stock);
(3) upon the expiration of any such Options or
any rights of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Series B Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(A) in the case of Convertible
Securities or Options for Common Stock the only Additional Shares of Common
issued were the shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if
any, actually received by the Corporation upon such conversion or exchange, and
(B) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time of issue of such
Options and the consideration received by the Corporation for the Additional
Shares of Common Stock deemed to have been then issued was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration deemed to have been received by the
Corporation (determined pursuant to Section 4(c)(v)) upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(4) no readjustment pursuant to clauses (2) or
(3) above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (A) the Conversion Price on the original adjustment
date, or (B) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date;
(5) in the case of any Options that expire by
their terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the Series B Conversion Price
5.
<PAGE> 19
shall be made, except as to shares of Series B Preferred Stock converted in
such period, until the expiration or exercise of all such Options, whereupon
such adjustment shall be made in the same manner provided in clause (3) above;
and
(6) if any such record date shall have been
fixed and such Options or Convertible Securities are not issued on the date
fixed thereof, the adjustment previously made in the Series B Conversion Price
which became effective on such record date shall be cancelled as of the close
of business on such record date, and shall instead be made on the actual date
of issuance, if any.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 4(c)(iii)) without consideration or for
a consideration per share less than the Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Conversion
Price shall be reduced, concurrently with such issue in order to increase the
number of shares of Common Stock into which the Series B Preferred Stock is
convertible, to a price equal to the consideration per share received by the
Corporation for such Additional Shares of Common Stock.
(v) Determination of Consideration. For purposes of
this Section 4(c), the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration
shall:
(A) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property
other than cash, be computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board; and
(C) in the event Additional Shares of
Common Stock are issued together with other shares or securities or other
assets of the Corporation for consideration which covers both, be the
proportion of such consideration so received, computed as provided in clauses
(A) and (B) above, as determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 4(c)(iii), relating
to Options and Convertible Securities, shall be
6.
<PAGE> 20
determined by dividing
(A) the total amount, if any, received
or receivable by the Corporation as consideration for the issue of such Options
or Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein designed to protect against dilution)
payable to the Corporation upon the exercise of such Options or the conversion
or exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities by
(B) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein designed to protect against dilution)
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.
(vi) Adjustments for Combinations or Subdivisions of
Common Stock. In the event the Corporation at any time or from time to time
after the Original Issue Date shall declare or pay any dividend on the Common
Stock payable in Common Stock or in any right to acquire Common Stock, or shall
effect a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by stock split, reclassification or
otherwise), or in the event the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, then the Conversion Price in effect
immediately prior to such event shall, concurrently with the effectiveness of
such event, be proportionately decreased or increased, as appropriate.
(d) Redemption.
(i) Right to Redeem. Any or all of the outstanding
shares of Series B Preferred Stock shall be redeemable by the Corporation in
the event that (1) the market price of the Corporation's outstanding Common
Stock (as quoted on any national or regional securities exchange or automated
quotation system on which or through which the Corporation's Common Stock is
traded) has equaled or exceed for a period of at least twenty (20) consecutive
trading days 200% of the Conversion Price in effect during such period and (2)
upon such time as such stock can be traded on a public market or sold pursuant
to Rule 144 or any other applicable rule of the Securities and Exchange
Commission.
(ii) Mechanics of Redemption. Before the Corporation
shall be entitled to redeem any of the shares of Series B Preferred Stock, it
shall give written notice to each holder thereof whose shares of Series B
Preferred Stock are to be redeemed indicating the number of shares of Series B
Preferred Stock to be redeemed. Each holder thereof shall, as soon as
practicable
7.
<PAGE> 21
thereafter, surrender its certificates for such shares, duly endorsed, at the
office of the Corporation or of any transfer agent for such shares, at which
time the Corporation shall pay to such holder the Redemption Price (defined
below) for each such share to be redeemed. The Redemption Price shall be
payable in cash or by check, which need not be certified. Such redemption
shall be deemed to have been made immediately prior to the close of business on
the date of tender of the Redemption Price for the shares of Series B Preferred
Stock to be redeemed.
(iii) Redemption Price Defined. The "Redemption
Price" shall mean the Original Issue Price plus all accrued but unpaid
dividends on each share of Series B Preferred Stock to be redeemed.
(e) Other Distributions. In the event the Corporation shall at
any time or from time to time make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation or any of it
subsidiaries other than Additional Shares of Common Stock, then in each such
event provision shall be made so that the holders of Series B Preferred Stock
shall receive, upon the conversion thereof, the securities of the Corporation
which they would have received had their stock been converted into Common Stock
on the date of such event.
(f) No Impairment. The Corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the
provisions of this Section 4 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series B Preferred Stock against impairment.
(g) Certificates as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this
Section 4, the Corporation shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Series B Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series B Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price at the time in effect,
and (iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of Series B
Preferred Stock.
(h) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
8.
<PAGE> 22
right convertible into or entitling the holder thereof to receive Additional
Shares of Common Stock, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property,
or to receive any other right, the Corporation shall mail to each holder of
Series B Preferred Stock at least twenty (20) days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution, security or right, and the
amount and character of such dividend, distribution, security or right.
(i) Issue Taxes. The Corporation shall pay any and all issue
and other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of shares of Series B Preferred Stock
pursuant hereto; provided, however, that the Corporation shall not be obligated
to pay any transfer taxes resulting from any transfer requested by any holder
in connection with any such conversion.
(j) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series B Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series B Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series B Preferred Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose, including, without limitation, engaging in best efforts to
obtain the requisite shareholder approval of any necessary amendment to these
Articles.
(k) Fractional Shares. No fractional share shall be issued
upon the conversion of any share or shares of Series B Preferred Stock. All
shares of Common Stock (including fractions thereof) issuable upon conversion
of more than one share of Series B Preferred Stock by a holder thereof shall be
aggregated for purposes of determining whether the conversion would result in
the issuance of any fractional share. If, after the aforementioned
aggregation, the conversion would result in the issuance of a fraction of a
share of Common Stock, the Corporation shall, in lieu of issuing any fractional
share, pay the holder otherwise entitled to such fraction a sum in cash equal
to the fair market value of such fraction on the date of conversion (as
determined in good faith by the Board of Directors of the Corporation).
(l) Notices. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series B Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation.
9.
<PAGE> 23
(m) Adjustments. In case of any reorganization or any
reclassification of the capital stock of the Corporation, any consolidation or
merger of the Corporation with or into another corporation or corporations, or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation, each share of Series B Preferred Stock shall thereafter be
convertible into the number of shares of stock or other securities or property
(including cash) to which a holder of the number of shares of Common Stock
deliverable upon conversion of such share of Series B Preferred Stock would
have been entitled upon the record date of (or date of, if no record date is
fixed) such reorganization, reclassification, consolidation, merger or
conveyance; and, in any case, appropriate adjustment (as determined by the
Board of Directors) shall be made in the application of the provisions herein
set forth with respect to the rights and interests thereafter of the holders of
such Series B Preferred Stock, to the end that the provisions set forth herein
shall thereafter be applicable, as nearly as equivalent as is practicable, in
relation to any shares of stock or the securities or property (including cash)
thereafter deliverable upon the conversion of the shares of such Series B
Preferred Stock.
5. Restrictions and Limitations. So long as at least One Hundred
Thousand (100,000) shares of Series B Preferred Stock remain outstanding, the
Corporation shall not, without the vote or written consent by the holders of
not less than a majority of the then outstanding shares of Series B Preferred
Stock voting together as a single class, amend, repeal or waive any provision
of, or add any provision to, the Corporation's Articles of Incorporation or
Bylaws if such action would materially and adversely alter the preferences,
rights, privileges or powers of, or the restrictions provided for the benefit
of, the Preferred Stock.
6. Amendment. Any term relating to the Series B Preferred Stock may
be amended only with the vote or written consent of holders of not less than a
majority of all Series B Preferred Stock then outstanding. Any such amendment
shall be binding upon the Corporation and any holder of Series B Preferred
Stock.
10.
<PAGE> 24
IN WITNESS WHEREOF, I have executed this Certificate this 23 day of
December, 1991.
/s/ Thomas H. Bell
------------------------------------
Thomas H. Bell
Chief Executive Officer
ATTEST:
/s/ Kenneth L. Guernsey
- ------------------------------
Kenneth L. Guernsey
Secretary
11.
<PAGE> 25
CERTIFICATE OF DESIGNATION
OF PREFERENCES OF
SERIES C PREFERRED STOCK
---------------
The undersigned, Robert R. Curtis, the Chief Executive Officer of
Phoenix Network, Inc., a Delaware corporation (the "Corporation"), the Restated
Certificate of Incorporation of which was filed in the office of the Secretary
of State the State of Delaware on December 12, 1990, acting pursuant to Section
151 of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY: That pursuant to an action by unanimous written consent of the Board
of Directors of the Corporation dated as of August 21, 1992 the following
resolution was adopted:
RESOLVED, that pursuant to Article IV of the Corporation's
Restated Certificate of Incorporation relating to the shares of the
Corporation, the Board of Directors hereby authorizes, fixes and creates
a series of Preferred Stock having the following powers, preferences,
designations, rights and other characteristics:
A. One Million (1,000,000) of the authorized shares of Preferred
Stock are hereby designated "Series C Preferred Stock."
B. The rights, preferences, privileges, restrictions and other
matters relating to the One Million (1,000,000) shares of Series C Preferred
Stock are as follows:
1. Dividends. In each fiscal year of the Corporation, the
holders of the Series C Preferred Stock shall be entitled to receive, before
any cash dividends shall be declared and paid upon or set aside for the Common
Stock in such fiscal year, but after any cash dividends shall be declared and
paid upon or set aside for the Series A or Series B Preferred Stock of the
Corporation in such fiscal year, a dividend for each share of Series C
Preferred Stock held equal to four percent (4%) per annum of the Original
Issuance Price (as defined in Section 4(a)), as adjusted for any combinations,
consolidations, stock distributions or stock dividends with respect to such
shares, payable when, as and if declared by the Board of Directors out of funds
legally available therefor. Such dividends shall be non-cumulative and shall
not accrue unless declared by the Board of Directors. No dividends (other than
those payable solely in the Common Stock of the Corporation)
1.
<PAGE> 26
shall be declared or paid on any Common Stock of the Corporation until
all accrued but unpaid dividends on the Series C Preferred Stock shall
have been declared and paid or set apart.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, the holders of
the Series C Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock by reason of their ownership
thereof, but subsequent to the distribution of any of the assets or surplus
funds of the Corporation to the holders of the Series A and Series B Preferred
Stock of the Corporation, an amount per share equal to the par value of the
Series C Preferred Stock (as adjusted for any combinations, consolidations,
stock distributions or stock dividends with respect to such shares) plus all
accrued but unpaid dividends on such share for each share of Series C Preferred
Stock then held by them and no more. If upon the occurrence of such event, the
assets and funds thus distributed among the holders of the Series C Preferred
Stock shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amount, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed among the
holders of the Series C Preferred Stock in proportion to the shares of Series C
Preferred Stock then held by them.
(b) After payment to the holders of the Series C
Preferred Stock of the amount set forth in subparagraph (a) above, the entire
remaining assets and funds of the Corporation legally available for
distribution, if any, shall be distributed among the holders of the Common
Stock in proportion to the shares of Common Stock then held by them.
(c) A consolidation or merger of the Corporation with
or into any other corporation or corporations, or a sale of all or
substantially all of the assets of the Corporation shall not be deemed a
liquidation, dissolution or winding up within the meaning of this Section.
3. Voting Rights. The Series C Preferred Stock shall be
nonvoting, but shall be entitled to notice of all stockholders' meetings in
accordance with the Bylaws of the Corporation.
4. Conversion. The holders of the Series C Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Subject to the terms and
conditions of the Agreement dated as of June 1, 1992 between Sprint
Communications Company L.P., a Delaware limited partnership, and the
Corporation (the "Agreement") (a copy of which is available for inspection at
the principal executive offices of the Corporation), which terms and conditions
include but are not limited to the delivery of a Notice of Default (as that
term is defined in the Agreement) prior to conversion, each share of
outstanding Series C Preferred Stock shall be convertible at the office of the
Corporation or any transfer agent for such stock into such number of fully paid
and
2.
<PAGE> 27
nonassessable shares of Common Stock as is determined by dividing the original
issuance price per share of the Series C Preferred Stock as calculated pursuant
to the Agreement (the "Original Issuance Price") plus all declared but unpaid
dividends on each share of the Series C Preferred Stock by the Series C
Conversion Price (as hereinafter defined) in effect on the date the certificate
is surrendered for conversion. The "Series C Conversion Price" shall initially
be one-half of the Original Issuance Price. Such Series C Conversion Price
shall be adjusted as hereinafter provided.
(b) Mechanics of Conversion. Before any holder of
Series C Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall surrender the certificate or certificates thereof, duly
endorsed, at the office of the Corporation or of any transfer agent for such
stock, and shall give written notice to the Corporation at such office that he
elects to convert the same and shall state therein the name or names in which
he wishes the certificate or certificates for shares of Common Stock to be
issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series C Preferred Stock, a
certificate or certificates for the number of shares of Common Stock to which
he shall be entitled as aforesaid. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of surrender
of the shares of Series C Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
(c) Adjustments for Combinations or Subdivisions of
Common Stock. In the event the Corporation at any time or from time to time
after the date on which a share of Series C Preferred Stock was first issued
shall declare or pay any dividend on the Common Stock payable in Common Stock
or in any right to acquire Common Stock, or shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock (by stock split, reclassification or otherwise), or in the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
then the Series C Conversion Price in effect immediately prior to such event
shall, concurrently with the effectiveness of such event, be proportionately
decreased or increased, as appropriate.
(d) Redemption. Neither the Corporation nor any holder
of the Series C Preferred Stock shall have the right to require the redemption
of any shares of the Series C Preferred Stock.
(e) No Impairment. The Corporation will not, by
amendment of its Restated Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series C Preferred Stock against
impairment.
3.
<PAGE> 28
(f) Certificates as to Adjustments. Upon the
occurrence of each adjustment or readjustment of the Series C Conversion Price
pursuant to this Section 4, the Corporation shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series C Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series C Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Series C Conversion Price at the time
in effect, and (iii) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of Series C Preferred Stock.
(g) Issue Taxes. The Corporation shall not pay any
issue or other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of shares of Series C Preferred Stock
pursuant hereto nor shall the Corporation shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.
(h) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series C Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series C Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series C Preferred Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose, including, without limitation, engaging in best efforts to
obtain the requisite shareholder approval of any necessary amendment to this
Certificate.
(i) Fractional Shares. No fractional share shall be
issued upon the conversion of any share or shares of Series C Preferred Stock.
All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series C Preferred Stock by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a sum
in cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board of Directors of the
Corporation).
(j) Notices. Any notice required by the provisions of
this Section 4 to be given to the holders of shares of Series C Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing
4.
<PAGE> 29
on the books of the Corporation.
(k) Adjustments. In case of any reorganization or any
reclassification of the capital stock of the Corporation, any consolidation or
merger of the Corporation with or into another corporation or corporations, or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation, each share of Series C Preferred Stock shall thereafter be
convertible into the number of shares of stock or other securities or property
(including cash) to which a holder of the number of shares of Common Stock
deliverable upon conversion of such share of Series C Preferred Stock would
have been entitled upon the record date of (or date of, if no record date is
fixed) such reorganization, reclassification, consolidation, merger or
conveyance; and, in any case, appropriate adjustment (as determined by the
Board of Directors) shall be made in the application of the provisions herein
set forth with respect to the rights and interests thereafter of the holders of
such Series C Preferred Stock, to the end that the provisions set forth herein
shall thereafter be applicable, as nearly as equivalent as is practicable, in
relation to any shares of stock or the securities or property (including cash)
thereafter deliverable upon the conversion of the shares of such Series C
Preferred Stock.
5. Restrictions and Limitations. So long as at least Fifty
Thousand (50,000) shares of Series C Preferred Stock remain outstanding, the
Corporation shall not, without the vote or written consent by the holders of
not less than a majority of the then outstanding shares of Series C Preferred
Stock voting together as a single class, amend, repeal or waive any provision
of, or add any provision to, the Corporation's Restated Certificate of
Incorporation or Bylaws if such action would materially and adversely alter the
preferences, rights, privileges or powers of, or the restrictions provided for
the benefit of, the Preferred Stock.
6. Amendment. Any term relating to the Series C Preferred
Stock may be amended only with the vote or written consent of holders of not
less than a majority of all Series C Preferred Stock then outstanding. Any
such amendment shall be binding upon the Corporation and any holder of Series C
Preferred Stock.
5.
<PAGE> 30
IN WITNESS WHEREOF, I have executed this Certificate this 3rd day of
November, 1992.
/s/ Robert R. Curtis
-------------------------------------
Robert R. Curtis
President and
Chief Executive Officer
ATTEST:
/s/ Kenneth L. Guernsey
- -----------------------------
Kenneth L. Guernsey
Secretary
6.
<PAGE> 31
CERTIFICATE OF DESIGNATION
OF PREFERENCES OF
SERIES D PREFERRED STOCK
---------------
The undersigned, Robert R. Curtis, the President and Chief Executive
Officer of Phoenix Network, Inc., a Delaware corporation (the "Corporation"),
the Restated Certificate of Incorporation of which was filed in the office of
the Secretary of State the State of Delaware on December 12, 1990, acting
pursuant to Section 151 of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY: That pursuant to an action by the Board of
Directors of the Corporation taken at a meeting of the Board of Directors on
December 14, 1992 the following resolution was adopted:
RESOLVED, that pursuant to Article IV of the Corporation's
Restated Certificate of Incorporation relating to the shares of the
Corporation, the Board of Directors hereby authorizes, fixes and creates
a series of Preferred Stock having the following powers, preferences,
designations, rights and other characteristics:
A. Six Hundred Sixty-six Thousand Six Hundred Sixty-six (666,666) of
the authorized shares of Preferred Stock are hereby designated "Series D
Preferred Stock."
B. The rights, preferences, privileges, restrictions and other
matters relating to the Six Hundred Sixty-six Thousand Six Hundred Sixty-six
(666,666) shares of Series D Preferred Stock are as follows:
1. Dividends. In each fiscal year of the Corporation, the
holders of the Series D Preferred Stock shall be entitled to receive, before
any cash dividends shall be declared and paid upon or set aside for the Common
Stock in such fiscal year, but after any cash dividends shall be declared and
paid upon or set aside for the Series A, Series B or Series C Preferred Stock
of the Corporation in such fiscal year, a dividend for each share of Series D
Preferred Stock held equal to six percent (6%) per annum of the Original
Issuance Price (as defined in Section 4(a)), as adjusted for any combinations,
consolidations, stock distributions or stock dividends with respect to such
shares, payable when, as and if declared by the Board of Directors out of funds
legally available therefor. Such dividends shall be non-cumulative and shall
not accrue unless declared by the Board of Directors. No dividends (other than
those payable solely in the Common Stock of the
1.
<PAGE> 32
Corporation) shall be declared or paid on any Common Stock of the Corporation
until all accrued but unpaid dividends on the Series D Preferred Stock shall
have been declared and paid or set apart.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, the holders of
the Series D Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock by reason of their ownership
thereof, but subsequent to the distribution of any of the assets or surplus
funds of the Corporation to the holders of the Series A, Series B and Series C
Preferred Stock of the Corporation, an amount per share equal to the Original
Issuance Price (as defined below) of the Series D Preferred Stock (as adjusted
for any combinations, consolidations, stock distributions or stock dividends
with respect to such shares) plus all accrued but unpaid dividends on such
share for each share of Series D Preferred Stock then held by them and no more.
If upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Series D Preferred Stock shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amount,
then the entire assets and funds of the Corporation legally available for
distribution shall be distributed among the holders of the Series D Preferred
Stock in proportion to the shares of Series D Preferred Stock then held by
them.
(b) After payment to the holders of the Series D
Preferred Stock of the amount set forth in subparagraph (a) above, the entire
remaining assets and funds of the Corporation legally available for
distribution, if any, shall be distributed among the holders of the Common
Stock in proportion to the shares of Common Stock then held by them.
(c) A consolidation or merger of the Corporation with
or into any other corporation or corporations, or a sale of all or
substantially all of the assets of the Corporation shall not be deemed a
liquidation, dissolution or winding up within the meaning of this Section.
3. Voting Rights. Except as otherwise expressly provided
herein or as required by law, the Series D Preferred Stock shall vote together
with the Common Stock as a single class. The holder of each share of Series D
Preferred Stock shall be entitled to that number of votes equal to the number
of shares of Common Stock into which such share could then be converted and
shall be entitled to notice of all stockholders' meetings in accordance with
the Bylaws of the Corporation.
4. Conversion. The holders of the Series D Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of outstanding Series
D Preferred Stock shall be convertible at the office of the Corporation or any
transfer agent for such stock into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing $1.50 (the "Original
Issuance Price") plus all declared but unpaid dividends on each share of the
Series D
2.
<PAGE> 33
Preferred Stock by the Series D Conversion Price (as hereinafter defined) in
effect on the date the certificate is surrendered for conversion. The "Series
D Conversion Price" shall initially be $1.50. Such Series D Conversion Price
shall be adjusted as hereinafter provided.
(b) Mechanics of Conversion. Before any holder of
Series D Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall surrender the certificate or certificates thereof, duly
endorsed, at the office of the Corporation or of any transfer agent for such
stock, and shall give written notice to the Corporation at such office that he
elects to convert the same and shall state therein the name or names in which
he wishes the certificate or certificates for shares of Common Stock to be
issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series D Preferred Stock, a
certificate or certificates for the number of shares of Common Stock to which
he shall be entitled as aforesaid. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of surrender
of the shares of Series D Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
(c) Adjustments for Combinations or Subdivisions of
Common Stock. In the event the Corporation at any time or from time to time
after the date on which a share of Series D Preferred Stock was first issued
shall declare or pay any dividend on the Common Stock payable in Common Stock
or in any right to acquire Common Stock, or shall effect a subdivision of the
outstanding shares of Common Stock into a greater number of shares of Common
Stock (by stock split, reclassification or otherwise), or in the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
then the Series D Conversion Price in effect immediately prior to such event
shall, concurrently with the effectiveness of such event, be proportionately
decreased or increased, as appropriate.
(d) Redemption. Neither the Corporation nor any holder
of the Series D Preferred Stock shall have the right to require the redemption
of any shares of the Series D Preferred Stock.
(e) No Impairment. The Corporation will not, by
amendment of its Restated Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series D Preferred Stock against
impairment.
(f) Certificates as to Adjustments. Upon the
occurrence of each adjustment or readjustment of the Series D Conversion Price
pursuant to this Section 4, the Corporation shall
3.
<PAGE> 34
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of Series D Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series D Preferred
Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (i) such adjustments and readjustments, (ii) the Series D
Conversion Price at the time in effect, and (iii) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of Series D Preferred Stock.
(g) Issue Taxes. The Corporation shall pay any issue
or other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of shares of Series D Preferred Stock
pursuant hereto, but the Corporation shall not be obligated to pay any transfer
taxes resulting from any transfer requested by any holder in connection with
any such conversion.
(h) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series D Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series D Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series D Preferred Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose, including, without limitation, engaging in best efforts to
obtain the requisite shareholder approval of any necessary amendment to this
Certificate.
(i) Fractional Shares. No fractional share shall be
issued upon the conversion of any share or shares of Series D Preferred Stock.
All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series D Preferred Stock by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a sum
in cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board of Directors of the
Corporation).
(j) Notices. Any notice required by the provisions of
this Section 4 to be given to the holders of shares of Series D Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation.
4.
<PAGE> 35
(k) Adjustments. In case of any reorganization or any
reclassification of the capital stock of the Corporation, any consolidation or
merger of the Corporation with or into another corporation or corporations, or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation, each share of Series D Preferred Stock shall thereafter be
convertible into the number of shares of stock or other securities or property
(including cash) to which a holder of the number of shares of Common Stock
deliverable upon conversion of such share of Series D Preferred Stock would
have been entitled upon the record date of (or date of, if no record date is
fixed) such reorganization, reclassification, consolidation, merger or
conveyance; and, in any case, appropriate adjustment (as determined by the
Board of Directors) shall be made in the application of the provisions herein
set forth with respect to the rights and interests thereafter of the holders of
such Series D Preferred Stock, to the end that the provisions set forth herein
shall thereafter be applicable, as nearly as equivalent as is practicable, in
relation to any shares of stock or the securities or property (including cash)
thereafter deliverable upon the conversion of the shares of such Series D
Preferred Stock.
5. Restrictions and Limitations. So long as at least One
Hundred Thousand (100,000) shares of Series D Preferred Stock remain
outstanding, the Corporation shall not, without the vote or written consent by
the holders of not less than a majority of the then outstanding shares of
Series D Preferred Stock voting together as a single class, amend, repeal or
waive any provision of, or add any provision to, the Corporation's Restated
Certificate of Incorporation or Bylaws if such action would materially and
adversely alter the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Preferred Stock.
6. Amendment. Any term relating to the Series D Preferred
Stock may be amended only with the vote or written consent of holders of not
less than a majority of all Series D Preferred Stock then outstanding. Any
such amendment shall be binding upon the Corporation and any holder of Series D
Preferred Stock.
5.
<PAGE> 36
IN WITNESS WHEREOF, I have executed this Certificate this 14th day of
December, 1992.
/s/ Robert R. Curtis
-------------------------------------
Robert R. Curtis
President and
Chief Executive Officer
ATTEST:
/s/ Kenneth L. Guernsey
- ----------------------------
Kenneth L. Guernsey
Secretary
6.
<PAGE> 37
CERTIFICATE OF
DESIGNATION OF
PREFERENCES OF
SERIES E PREFERRED STOCK
---------------
The undersigned, WALLACE M. HAMMOND, the President of PHOENIX NETWORK,
INC., a Delaware corporation (the "Corporation"), the Restated Certificate of
Incorporation of which was filed in the office of the Secretary of State of the
State of Delaware on December 12, 1990, acting pursuant to Section 151 of the
General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: That at
a meeting of the Board of Directors of the Corporation duly convened and held
on April 5, 1995 the following resolution was adopted:
RESOLVED, that pursuant to Article IV of the Corporation's
Restated Certificate of Incorporation relating to the shares of the
Corporation, the Board of Directors hereby authorizes, fixes and creates
a series of Preferred Stock having the following powers, preferences,
designations, rights and other characteristics:
A. Two Hundred Thousand (200,000) of the authorized shares of
Preferred Stock are hereby designated "Series E Preferred Stock."
B. The rights, preferences, privileges, restrictions and other
matters relating to the Two Hundred Thousand (200,000) shares of Series E
Preferred Stock are as follows:
1. DIVIDENDS. In each fiscal year of the Corporation, the
holders of the Series E Preferred Stock shall be entitled to receive, before
any cash dividends shall be declared and paid upon or set aside for the Common
Stock in such fiscal year, a dividend at the rate of ninety cents ($0.90) per
share per annum (as adjusted for any combinations, consolidations, stock
distributions or stock dividends with respect to such shares), payable when, as
and if declared by the Board of Directors out of funds legally available
therefor. Such dividends shall be cumulative and shall accrue daily on each
share of Series E Preferred Stock whether or not declared. No dividends (other
than those payable solely in the Common Stock of the Corporation) shall be
declared or paid on any Common Stock of the Corporation until all accrued but
unpaid dividends on the Series E Preferred Stock shall have been declared and
paid or set apart.
1.
<PAGE> 38
2. LIQUIDATION PREFERENCE.
(A) In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, the holders of
the Series E Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock by reason of their ownership
thereof, but subsequent to the distribution of any assets or surplus funds of
the Corporation to the holders of the Series A, Series B, Series C and Series D
Preferred Stock of the Corporation, the amount of ten dollars ($10.00) per
share (as adjusted for any combinations, consolidations, stock distributions or
stock dividends with respect to such shares) plus all accrued but unpaid
dividends on such share for each share of Series E Preferred Stock then held by
them and no more. If upon the occurrence of such event, the assets and funds
thus distributed among the holders of the Series E Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed among the holders of
the Series E Preferred Stock in proportion to the shares of Series E Preferred
Stock then held by them.
(B) After payment to the holders of the Series E
Preferred Stock of the amount set forth in subparagraph (a) above, the entire
remaining assets and funds of the Corporation legally available for
distribution, if any, shall be distributed among the holders of the Common
Stock in proportion to the shares of Common Stock then held by them.
(C) A consolidation or merger of the Corporation with
or into any other corporation or corporations, or a sale of all or
substantially all of the assets of the Corporation shall be deemed a
liquidation, dissolution or winding up within the meaning of this Section if
more than fifty percent (50%) of the surviving entity is not owned by persons
who were holders of capital stock or securities convertible into capital stock
of the Corporation immediately prior to such merger, consolidation or sale.
3. VOTING RIGHTS. Except as otherwise expressly provided
herein or as required by law, the Series E Preferred Stock shall vote together
with the Common Stock as a single class. The holder of each share of Series E
Preferred Stock shall be entitled to that number of votes equal to the number
of shares of Common Stock into which such share could then be converted and
shall be entitled to notice of all stockholders' meetings in accordance with
the Bylaws of the Corporation.
4. CONVERSION. The holders of the Series E Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(A) RIGHT TO CONVERT.
(I) Each share of Series E Preferred Stock shall
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share, at the office
2.
<PAGE> 39
of the Corporation or any transfer agent for such stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by
dividing ten dollars ($10.00) (the "Original Issue Price") plus all declared
but unpaid dividends on each share of Series E Preferred Stock by the then
applicable Conversion Price, determined as hereinafter provided, in effect on
the date the certificate is surrendered for conversion. The price at which
shares of Common Stock shall be deliverable upon conversion (the "Conversion
Price") shall initially be one dollar and seventy-five cents ($1.75) per share
of Common Stock. Such initial Conversion Price shall be adjusted as
hereinafter provided.
(B) MECHANICS OF CONVERSION. Before any holder of
Series E Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall surrender the certificate or certificates thereof, duly
endorsed, at the office of the Corporation or of any transfer agent for such
stock, and shall give written notice to the Corporation at such office that he
elects to convert the same and shall state therein the name or names in which
he wishes the certificate or certificates for shares of Common Stock to be
issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series E Preferred Stock, a
certificate or certificates for the number of shares of Common Stock to which
he shall be entitled as aforesaid. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of surrender
of the shares of Series E Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
(C) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING
ISSUES.
(I) SPECIAL DEFINITIONS. For purposes of this
Section 4(c), the following definitions shall apply:
(1) "OPTIONS" shall mean rights,
options, or warrants to subscribe for, purchase or otherwise acquire either
Common Stock or Convertible Securities.
(2) "ORIGINAL ISSUE DATE" shall mean the
date on which a share of Series E Preferred Stock was first issued.
(3) "CONVERTIBLE SECURITIES" shall mean
any evidences of indebtedness, shares (other than Common Stock and Series E
Preferred Stock) or other securities convertible into or exchangeable for
Common Stock.
(4) "ADDITIONAL SHARES OF COMMON STOCK"
shall mean all shares of Common Stock issued (or, pursuant to Section
4(c)(iii), deemed to be issued) by the Corporation after the Original Issue
Date, other than shares of Common Stock issued or issuable:
3.
<PAGE> 40
(A) upon conversion of shares of
Series E Preferred Stock;
(B) to officers, directors or
employees of, or consultants to, the Corporation, on terms approved by the
Board of Directors;
(C) as a dividend or distribution on
Preferred Stock; or
(D) for which adjustment of the
Conversion Price is made pursuant to Section 4(c)(vi).
(E) in any transaction approved by
the Company's Board of Directors involving the acquisition of more than fifty
percent (50%) of the stock of another corporation or substantially all of the
assets of another corporation or business, whether by merger, exchange of
shares, purchase of assets, or otherwise.
(II) No Adjustment of Conversion Price. No
adjustment in the Conversion Price of a particular share of Series E Preferred
Stock shall be made in respect of the issuance of Additional Shares of Common
Stock unless the consideration per share for an Additional Share of Common
Stock issued or deemed to be issued by the Corporation is less than the
Conversion Price in effect on the date of, and immediately prior to such issue,
for such share of Series E Preferred Stock.
(III) Deemed Issue of Additional Shares of Common
Stock. Subject to paragraph 4(c)(i)(4)(B) herein, in the event the Corporation
at any time or from time to time after the Original Issue Date shall issue any
Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities then entitled to receive
any such Options or Convertible Securities, then the maximum number of shares
(as set forth in the instrument relating thereto without regard to any
provisions contained therein designed to protect against dilution) of Common
Stock issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as
of the time of such issue or, in case such a record date shall have been fixed,
as of the close of business on such record date, provided that Additional
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 4(c)(v) hereof) of such
Additional Shares of Common Stock would be less than the Conversion Price in
effect on the date of and immediately prior to such issue, or such record date,
as the case may be, and provided further that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(1) no further adjustments in the
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the
4.
<PAGE> 41
exercise of such Options or conversion or exchange of such Convertible
Securities;
(2) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Corporation, or decrease in
the number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities (provided, however, that no such adjustment of the
Conversion Price shall affect Common Stock previously issued upon conversion of
the Series E Preferred Stock);
(3) upon the expiration of any such
Options or any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Series E Conversion Price
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon,
shall, upon such expiration, be recomputed as if:
(A) in the case of Convertible
Securities or Options for Common Stock the only Additional Shares of Common
issued were the shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if
any, actually received by the Corporation upon such conversion or exchange, and
(B) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time of issue of such
Options and the consideration received by the Corporation for the Additional
Shares of Common Stock deemed to have been then issued was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration deemed to have been received by the
Corporation (determined pursuant to Section 4(c)(v)) upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(4) no readjustment pursuant to clauses
(2) or (3) above shall have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (A) the Conversion Price on the original
adjustment date, or (B) the Conversion Price that would have resulted from any
issuance of Additional Shares of Common Stock between the original adjustment
date and such readjustment date;
5.
<PAGE> 42
(5) in the case of any Options that
expire by their terms not more than thirty (30) days after the date of issue
thereof, no adjustment of the Series E Conversion Price shall be made, except
as to shares of Series E Preferred Stock converted in such period, until the
expiration or exercise of all such Options, whereupon such adjustment shall be
made in the same manner provided in clause (3) above; and
(6) if any such record date shall have
been fixed and such Options or Convertible Securities are not issued on the
date fixed thereof, the adjustment previously made in the Series E Conversion
Price which became effective on such record date shall be cancelled as of the
close of business on such record date, and shall instead be made on the actual
date of issuance, if any.
(IV) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE
OF ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 4(c)(iii)) without consideration or for
a consideration per share less than the Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Conversion
Price shall be reduced, concurrently with such issue in order to increase the
number of shares of Common Stock into which the Series E Preferred Stock is
convertible, to a price equal to the consideration per share received by the
Corporation for such Additional Shares of Common Stock.
(V) DETERMINATION OF CONSIDERATION. For
purposes of this Section 4(c), the consideration received by the Corporation
for the issue of any Additional Shares of Common Stock shall be computed as
follows:
(1) CASH AND PROPERTY: Such
consideration shall:
(A) insofar as it consists of cash,
be computed at the aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of
property other than cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board; and
(C) in the event Additional Shares
of Common Stock are issued together with other shares or securities or other
assets of the Corporation for consideration which covers both, be the
proportion of such consideration so received, computed as provided in clauses
(A) and (B) above, as determined in good faith by the Board of Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES.
The
6.
<PAGE> 43
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 4(c)(iii), relating
to Options and Convertible Securities, shall be determined by dividing
(A) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of
such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein designed to protect against
dilution) payable to the Corporation upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities by
(B) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein designed to protect against dilution)
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.
(VI) ADJUSTMENTS FOR COMBINATIONS OR SUBDIVISIONS
OF COMMON STOCK. In the event the Corporation at any time or from time to time
after the Original Issue Date shall declare or pay any dividend on the Common
Stock payable in Common Stock or in any right to acquire Common Stock, or shall
effect a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by stock split, reclassification or
otherwise), or in the event the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, then the Conversion Price in effect
immediately prior to such event shall, concurrently with the effectiveness of
such event, be proportionately decreased or increased, as appropriate.
(D) REDEMPTION.
(I) RIGHT TO REDEEM. Any or all of the
outstanding shares of Series E Preferred Stock shall be redeemable by the
Corporation in the event that (1) the market price of the Corporation's
outstanding Common Stock (as quoted on any national or regional securities
exchange or automated quotation system on which or through which the
Corporation's Common Stock is traded) has equaled or exceed for a period of at
least twenty (20) consecutive trading days 200% of the Conversion Price in
effect during such period and (2) upon such time as such stock can be traded on
a public market or sold pursuant to Rule 144 or any other applicable rule of
the Securities and Exchange Commission.
(II) MECHANICS OF REDEMPTION. Before the
Corporation shall be entitled to redeem any of the shares of Series E Preferred
Stock, it shall give written notice to each holder thereof whose shares of
Series E Preferred Stock are to be redeemed indicating the number
7.
<PAGE> 44
of shares of Series E Preferred Stock to be redeemed. Each holder thereof
shall, as soon as practicable thereafter, surrender its certificates for such
shares, duly endorsed, at the office of the Corporation or of any transfer
agent for such shares, at which time the Corporation shall pay to such holder
the Redemption Price (defined below) for each such share to be redeemed. The
Redemption Price shall be payable in cash or by check, which need not be
certified. Such redemption shall be deemed to have been made immediately prior
to the close of business on the date of tender of the Redemption Price for the
shares of Series E Preferred Stock to be redeemed.
(III) REDEMPTION PRICE DEFINED. The "Redemption
Price" shall mean the Original Issue Price plus all accrued but unpaid
dividends on each share of Series E Preferred Stock to be redeemed.
(E) OTHER DISTRIBUTIONS. In the event the Corporation
shall at any time or from time to time make or issue, or fix a record date for
the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation or any of it
subsidiaries other than Additional Shares of Common Stock, then in each such
event provision shall be made so that the holders of Series E Preferred Stock
shall receive, upon the conversion thereof, the securities of the Corporation
which they would have received had their stock been converted into Common Stock
on the date of such event.
(F) NO IMPAIRMENT. The Corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights of
the holders of the Series E Preferred Stock against impairment.
(G) CERTIFICATES AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of the Conversion Price pursuant
to this Section 4, the Corporation shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Series E Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series E Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price at the time in effect,
and (iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of Series E
Preferred Stock.
(H) NOTICES OF RECORD DATE. In the event of any taking
by the Corporation of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other
8.
<PAGE> 45
distribution, any security or right convertible into or entitling the holder
thereof to receive Additional Shares of Common Stock, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series E Preferred Stock at least twenty (20) days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution,
security or right, and the amount and character of such dividend, distribution,
security or right.
(I) ISSUE TAXES. The Corporation shall pay any and all
issue and other taxes that may be payable in respect of any issue or delivery
of shares of Common Stock on conversion of shares of Series E Preferred Stock
pursuant hereto; provided, however, that the Corporation shall not be obligated
to pay any transfer taxes resulting from any transfer requested by any holder
in connection with any such conversion.
(J) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series E Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series E Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series E Preferred Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose, including, without limitation, engaging in best efforts to
obtain the requisite shareholder approval of any necessary amendment to these
Articles.
(K) FRACTIONAL SHARES. No fractional share shall be
issued upon the conversion of any share or shares of Series E Preferred Stock.
All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series E Preferred Stock by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a sum
in cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board of Directors of the
Corporation).
(L) NOTICES. Any notice required by the provisions of
this Section 4 to be given to the holders of shares of Series E Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation.
(M) ADJUSTMENTS. In case of any reorganization or any
reclassification
9.
<PAGE> 46
of the capital stock of the Corporation, any consolidation or merger of the
Corporation with or into another corporation or corporations, or the conveyance
of all or substantially all of the assets of the Corporation to another
corporation, each share of Series E Preferred Stock shall thereafter be
convertible into the number of shares of stock or other securities or property
(including cash) to which a holder of the number of shares of Common Stock
deliverable upon conversion of such share of Series E Preferred Stock would
have been entitled upon the record date of (or date of, if no record date is
fixed) such reorganization, reclassification, consolidation, merger or
conveyance; and, in any case, appropriate adjustment (as determined by the
Board of Directors) shall be made in the application of the provisions herein
set forth with respect to the rights and interests thereafter of the holders of
such Series E Preferred Stock, to the end that the provisions set forth herein
shall thereafter be applicable, as nearly as equivalent as is practicable, in
relation to any shares of stock or the securities or property (including cash)
thereafter deliverable upon the conversion of the shares of such Series E
Preferred Stock.
5. RESTRICTIONS AND LIMITATIONS. So long as at least
Seventy-Five Thousand (75,000) shares of Series E Preferred Stock remain
outstanding, the Corporation shall not, without the vote or written consent by
the holders of not less than a majority of the then outstanding shares of
Series E Preferred Stock voting together as a single class, amend, repeal or
waive any provision of, or add any provision to, the Corporation's Articles of
Incorporation or Bylaws if such action would materially and adversely alter the
preferences, rights, privileges or powers of, or the restrictions provided for
the benefit of, the Preferred Stock.
6. AMENDMENT. Any term relating to the Series E Preferred
Stock may be amended only with the vote or written consent of holders of not
less than a majority of all Series E Preferred Stock then outstanding. Any
such amendment shall be binding upon the Corporation and any holder of Series E
Preferred Stock.
10.
<PAGE> 47
IN WITNESS WHEREOF, I have executed this Certificate this 6 day of
April, 1995.
/s/ Wallace M. Hammond
-------------------------------------
WALLACE M. HAMMOND
President
ATTEST:
/s/ Kenneth L. Guernsey
- ----------------------------
KENNETH L. GUERNSEY
Secretary
11.
<PAGE> 48
CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
PHOENIX NETWORK, INC.
PHOENIX NETWORK, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that the original Certificate of
Incorporation of Corporation was filed with the Delaware Secretary of State on
May 17, 1989. The Corporation further hereby certifies that:
1. The Board of Directors of the Corporation adopted resolutions to
amend paragraph A of Article IV of the Restated Certificate of Incorporation of
the Corporation to read in its entirety as follows:
"ARTICLE IV
A. This Corporation is authorized to issue two classes of
shares to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the Corporation is authorized
to issue is Thirty-Five Million (35,000,000) shares. Thirty Million
(30,000,000) shares shall be Common Stock, each having a par value of
$0.001. Five Million (5,000,000) shares shall be Preferred Stock, each
having a par value of $0.001."
II. Thereafter at the Corporation's Annual Meeting of Stockholders,
held August 24, 1995, the necessary number of shares as required by statute
were voted in favor of the amendment.
III. The aforesaid amendment was duly adopted in accordance with the
applicable provisions of Section 242 of the Delaware General Incorporation Law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of the Restated Certificate of Incorporation to be signed by Wallace
M. Hammond, President and Chief Executive Officer, and by Kenneth L. Guernsey,
Secretary, this 29th day of September, 1995.
PHOENIX NETWORK, INC.
/s/ Wallace M. Hammond
-----------------------------
Wallace M. Hammond
President & Chief Executive
Officer
ATTEST:
/s/ Kenneth L. Guernsey
- --------------------------
Kenneth L. Guernsey
Secretary
<PAGE> 49
PHOENIX NETWORK, INC.
CERTIFICATE OF
DESIGNATIONS OF
SERIES F PREFERRED STOCK
--------------------
The undersigned, WALLACE M. HAMMOND, the President of PHOENIX NETWORK,
INC., a Delaware corporation (the "Corporation"), the Restated Certificate of
Incorporation of which was filed in the office of the Secretary of State of the
State of Delaware on December 12, 1990, acting pursuant to Section 151 of the
General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY that at a
meeting of the Board of Directors of the Corporation duly convened and held on
September 29, 1995 the following resolution was adopted:
RESOLVED, that pursuant to Article IV of the Corporation's
Restated Certificate of Incorporation relating to the shares of the
Corporation, the Board of Directors hereby authorizes, fixes and
creates a series of Preferred Stock, par value $.01 per share, having
the following powers, preferences, designations, rights and other
characteristics:
A. One Million Two Hundred Thousand (1,200,000) of the authorized
shares of Preferred Stock are hereby designated "Series F Preferred Stock."
B. The rights, preferences, privileges, restrictions and other
matters relating to the Series F Preferred Stock are as follows:
1. RANKING. The Series F Preferred Stock shall rank as
to dividends and upon liquidation, dissolution or winding up of the Corporation
(i) on a parity with the Corporations's Series A Preferred and Series B
Preferred Stock and with any class or series of Preferred Stock which by its
express terms provides that it ranks on a parity with the Series F Preferred
Stock (collectively, the "Pari Passu Stock"), and (ii) prior to any class of
common equity of the Corporation and any other class or series of capital stock
which by its express terms provides that it ranks junior to the Series F
Preferred Stock or which does not expressly provide for any ranking as to
dividends, liquidation, dissolution or winding up (collectively, the "Junior
Stock").
1.
<PAGE> 50
2. DIVIDENDS.
(a) The holders of Series F Preferred Stock shall
be entitled to receive cumulative dividends at the rate of nine percent (9%)
per annum per share (as adjusted for any combinations, consolidations, stock
distributions or dividends, stock splits, reverse stock splits or other similar
transactions with respect to such shares) payable, when, as and if declared by
the Board of Directors out of legally available funds therefor. Subject to
Section 2(b) below, such dividends shall be payable in cash annually on January
1st of each year (unless such day is not a business day, in which event on the
next succeeding business day) (each a "Dividend Payment Date"), commencing on
the next Dividend Payment Date succeeding the date of original issue of such
shares of Series F Preferred Stock, to holders of record as they appear on the
register of the Corporation for the Series F Preferred Stock on the 15th day
immediately preceding such Dividend Payment Date. Dividends on shares of
Series F Preferred Stock shall be computed on the basis of a 360-day year of
twelve 30-day months and shall accumulate from the date of original issue of
such shares. Any declaration of a dividend may be for a portion, or all, of
the then accumulated dividends. Any accumulated dividends that are not paid
will continue to cumulate in the manner described above.
(b) Solely at the option of the Corporation, dividends
may be paid, instead of in cash, on declaration of the Board of Directors, in
shares of the Corporation's common stock, par value $.001 per share (the
"Common Stock"), to the extent of legally available surplus of the Corporation,
in respect of any or all Dividend Payment Dates. The aggregate par value of
Common Stock issued in payment of any dividend shall be transferred from the
legal surplus of the Corporation to its capital at the time of such payment.
If a dividend is to be paid in Common Stock, the number of shares of Common
Stock to be issued in payment of the dividend with respect to each outstanding
share of Series F Preferred Stock shall be determined by dividing the amount of
the dividend to be paid with respect to such share of Series F Preferred Stock
by an amount equal to the Fair Market Value (as defined in Section 5(c) below)
of the Common Stock on the date such dividend is declared by the Board of
Directors. Any such shares distributed as a dividend shall first be registered
on a registration statement with the Securities and Exchange Commission (the
"SEC") and such registration statement shall have been declared effective by
the SEC.
(c) No dividend or distribution in cash, shares of
capital stock or other property shall be paid or declared and set apart for
payment on any date on or in respect of (i) the Junior Stock (any such dividend
or distribution on such stock hereinafter referred to as a "Junior Stock
Distribution"), or (ii) any Pari Passu Stock (any such dividends or
distributions on such stock hereinafter referred to as a "Pari Passu Stock
Distribution"), unless, contemporaneously therewith or with respect to the
immediately preceding Dividend Payment Date for the Series F Preferred Stock, a
dividend or distribution is or was paid or declared and set apart for payment
on or in respect of the Series F Preferred Stock, payable at the rate set forth
herein and payable on a date no later than the payment date set forth for such
Junior Stock Distribution or Pari Passu Stock Distribution, as the case may be.
2.
<PAGE> 51
(d) In no event may the Corporation (i) make a Junior
Stock Distribution or a Pari Passu Stock Distribution while there are dividends
in arrears on the Series F Preferred Stock or (ii) redeem, purchase or
otherwise acquire for value any Junior Stock or Pari Passu Stock unless, prior
to or contemporaneously with such redemption, purchase or acquisition the
Series F Preferred Stock is redeemed in full (in the case of redemption,
purchase or acquisition of Junior Stock) or on a pro rata basis based on
liquidation preference (in the case of redemption, purchase or acquisition of
Pari Passu Stock).
3. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary, the holders
of the Series F Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Junior Stock, the amount of Ten Dollars
($10.00) per share in cash (as adjusted for any stock subdivisions,
combinations or consolidations or any stock distributions or dividends with
respect to such shares) plus an amount in cash equal to all accrued but unpaid
dividends (the "Liquidation Preference") on each share of Series F Preferred
Stock then held by them and no more. If upon the occurrence of such event, the
assets and funds thus distributed among the holders of the Series F Preferred
Stock and the Pari Passu Stock shall be insufficient to permit the payment to
such holders of their Liquidation Preference, then the entire assets and funds
of the Corporation legally available for distribution shall be distributed
among the holders of the Series F Preferred Stock and the Pari Passu Stock
ratably in accordance with the respective amounts which would be payable on
such shares if all amounts payable thereon were paid in full.
(b) After payment to the holders of the Series F
Preferred Stock of the Liquidation Preference, the entire remaining assets and
funds of the Corporation legally available for distribution, if any, shall be
distributed among the holders of the Junior Stock in accordance with the
corporation's Certificate of Incorporation or any other Certificate of
Designation with respect to the Preferred Stock.
(c) For the purposes of this Section 3, neither
the merger or the consolidation of the Corporation into or with another
corporation, nor the merger or consolidation of any other corporation into or
with the Corporation, nor the voluntary sale, conveyance, exchange, transfer or
other disposition (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Corporation, shall be deemed to be a voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation.
4. VOTING RIGHTS.
(a) Except as otherwise expressly provided herein
or as required by law, the Series F Preferred Stock shall vote together with
the Series A Preferred Stock, Series B Preferred
3.
<PAGE> 52
Stock, Series D Preferred Stock, Series E Preferred Stock and the Common Stock
as a single class. The holder of each share of Series F Preferred Stock shall
be entitled to that number of votes equal to the number of shares of Common
Stock into which such share could then be converted pursuant hereto and shall
be entitled to notice of all stockholders' meetings in accordance with the
Bylaws of the Corporation.
(b) So long as at least Two Hundred Thousand
(200,000) shares of Series F Preferred Stock remain outstanding, the holders of
the Series F Preferred Stock then outstanding shall be entitled, voting
together as a class, to elect two (2) directors of the Corporation at each
election of directors. If there shall cease to be at least One Hundred Fifty
Thousand (150,000) shares of Series F Preferred Stock outstanding but there
shall remain at least Seventy Five Thousand (75,000) shares of such stock
outstanding, the holders of the Series F Preferred Stock then shall be entitled
voting as a class to elect one (1) director. Any vacancy occurring because of
the death, resignation or removal of a director elected by the holders of
Series F Preferred Stock shall be filled by the vote or written consent of the
holders of a majority of the shares of Series F Preferred Stock.
5. CONVERSION. The holders of the Series F Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series F
Preferred Stock shall be convertible, at the option of the holder thereof, or,
with respect to all of the Series F Preferred Stock, upon the vote or written
consent of the holders of at least sixty-six and two thirds percent (66 2/3%)
in interest of the Series F Preferred Stock, at any time after the date of
issuance of such shares, at the office of the Corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing ten dollars ($10.00) (the "Original
Issue Price") plus all accrued and unpaid dividends, on each share of Series F
Preferred Stock by the then applicable Conversion Price (as hereinafter
defined) in effect on the date the certificate is surrendered for conversion.
The price at which shares of Common Stock shall be deliverable upon conversion
(the "Conversion Price") shall initially be two dollars and fifty cents ($2.50)
per share of Common Stock. Such initial Conversion Price shall be adjusted as
hereinafter provided.
(b) MECHANICS OF CONVERSION. Before any holder
of Series F Preferred Stock shall be entitled to convert the same into shares
of Common Stock, he shall surrender the certificate or certificates thereof,
duly endorsed, at the office of the Corporation or of any transfer agent for
such stock, and shall give written notice to the Corporation at such office
that he elects to convert the same and shall state therein the name or names in
which he wishes the certificate or certificates for shares of Common Stock to
be issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series F Preferred Stock, a
certificate or certificates for the number of shares of Common Stock to which
he shall be entitled as aforesaid. Such conversion shall be deemed to have
been made immediately prior to the close of business on
4.
<PAGE> 53
the date of surrender of the shares of Series F Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
(c) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes
of this Section 5(c), the following definitions shall apply:
(1) "OPTIONS" shall mean rights, options,
or warrants to subscribe for, purchase or otherwise acquire either Common Stock
or Convertible Securities.
(2) "ORIGINAL ISSUE DATE" shall mean the
date on which a share of Series F Preferred Stock was first issued.
(3) "CONVERTIBLE SECURITIES" shall mean any
evidences of indebtedness, shares (other than Common Stock and Series F
Preferred Stock) or other securities convertible into or exchangeable for
Common Stock.
(4) "ADDITIONAL SHARES OF COMMON STOCK"
shall mean all shares of Common Stock issued (or, pursuant to Section
5(c)(iii), deemed to be issued) by the Corporation after the Original Issue
Date, other than shares of Common Stock issued or issuable:
(A) upon conversion of shares of
Series F Preferred Stock;
(B) to officers, directors or
employees of the Corporation, under a stock option plan approved by the Board
of Directors, to the extent such issuances do not exceed 15% of the fully
diluted Common Stock outstanding on the date of the original issue of Series F
Preferred Stock;
(C) as a dividend or distribution
on the Preferred Stock authorized and outstanding on the date hereof in
accordance with the terms of any applicable Certificate of Designations; or
(D) for which adjustment of the
Conversion Price is made pursuant to Section 5(c)(vi).
(5) "FAIR MARKET VALUE" shall mean the
average closing price of the Company's Common Stock as listed on the American
Stock Exchange over the twenty (20) business days immediately preceding the
determination of Fair Market Value or in the event
5.
<PAGE> 54
such Common Stock is not listed on the American Stock Exchange then on any
other recognized exchange using the same twenty (20) day trading period or if
not listed on any exchange, then Fair Market Value shall be determined in good
faith by the Board of Directors of the Corporation.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No
adjustment in the Conversion Price of a particular share of Series F Preferred
Stock shall be made in respect of the issuance of Additional Shares of Common
Stock unless the consideration per share for an Additional Share of Common
Stock issued or deemed to be issued by the Corporation is less than the Fair
Market Value in effect on the date of such issuance.
(iii) DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK. Subject to paragraph 5(c)(i)(4)(B) herein, in the event the
Corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record date
for the determination of holders of any class of securities then entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein designed to protect against dilution) of Common
Stock issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as
of the time of such issue or, in case such a record date shall have been fixed,
as of the close of business on such record date, provided that Additional
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 5(c)(v) hereof) of such
Additional Shares of Common Stock would be less than the Fair Market Value on
the date of issuance, or such record date, as the case may be, and provided
further that in any such case in which Additional Shares of Common Stock are
deemed to be issued:
(1) no further adjustments in the
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(2) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Corporation, or decrease in
the number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities (provided, however, that no such adjustment of the
Conversion Price shall affect Common Stock previously issued upon conversion of
the Series F Preferred Stock);
(3) upon the expiration of any such
Options or any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised,
6.
<PAGE> 55
the Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed as if:
(A) in the case of Convertible
Securities or Options for Common Stock the only Additional Shares of Common
Stock issued were the shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if
any, actually received by the Corporation upon such conversion or exchange, and
(B) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time of issue of such
Options and the consideration received by the Corporation for the Additional
Shares of Common Stock deemed to have been then issued was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration deemed to have been received by the
Corporation (determined pursuant to Section 5(c)(v)) upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(4) no readjustment pursuant to clauses (2)
or (3) above shall have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (A) the Conversion Price on the original
adjustment date, or (B) the Conversion Price that would have resulted from any
issuance of Additional Shares of Common Stock between the original adjustment
date and such readjustment date;
(5) in the case of any Options that expire
by their terms not more than thirty (30) days after the date of issue thereof,
no adjustment of the Conversion Price shall be made, except as to shares of
Series F Preferred Stock converted in such period, until the expiration or
exercise of all such Options, whereupon such adjustment shall be made in the
same manner provided in clause (3) above; and
(6) if any such record date shall have been
fixed and such Options or Convertible Securities are not issued on the date
fixed thereof, the adjustment previously made in the Series F Conversion Price
which became effective on such record date shall be canceled as of the close of
business on such record date, and shall instead be made on the actual date of
issuance, if any.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation shall issue
Additional Shares
7.
<PAGE> 56
of Common Stock (including Additional Shares of Common Stock deemed to be
issued pursuant to Section 5(c)(iii)) without consideration or for a
consideration per share less than the Fair Market Value in effect on the date
of and immediately prior to such issue, then and in such event, such Conversion
Price shall be adjusted, concurrently with such issue, to the price (calculated
to the nearest cent) determined by multiplying the Conversion Price by a
fraction (a) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional Shares
of Common Stock plus the number of shares of Common Stock which the aggregate
consideration for the total number of such Additional Shares of Common Stock so
issued would purchase at the Fair Market Value, and (b) the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to the issuance of such Additional Shares of Common Stock plus the number
of such Additional Shares of common stock so issued.
(v) DETERMINATION OF CONSIDERATION. For purposes
of this Section 5(c), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as follows:
(1) CASH AND PROPERTY. Such consideration
shall:
(A) insofar as it consists of
cash, be computed at the aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of
property other than cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board of Directors; and
(C) in the event Additional Shares
of Common Stock are issued together with other shares or securities or other
assets of the Corporation for consideration which covers both, be the
proportion of such consideration so received, computed as provided in clauses
(A) and (B) above, as determined in good faith by the Board of Directors.
(2) OPTIONS AND CONVERTIBLE
SECURITIES. The consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been issued pursuant to
Section 5(c)(iii), relating to Options and Convertible Securities, shall be
determined by dividing
(A) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of
such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein designed to protect against
dilution) payable to the Corporation upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such
8.
<PAGE> 57
Options for Convertible Securities and the conversion or exchange of such
Convertible Securities by
(B) the maximum number of shares
of Common Stock (as set forth in the instruments relating thereto, without
regard to any provision contained therein designed to protect against dilution)
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.
(vi) ADJUSTMENTS FOR COMBINATIONS OR
SUBDIVISIONS OF COMMON STOCK. In the event the Corporation at any time or from
time to time after the Original Issue Date shall declare or pay any dividend on
the Junior Stock in Common Stock or in any right to acquire Common Stock, or
shall effect a subdivision of the outstanding shares of Common Stock into a
greater number of shares of Common Stock (by stock split, reclassification or
otherwise), or in the event the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, then the Conversion Price in effect
immediately prior to such event shall, concurrently with the effectiveness of
such event, be proportionately decreased or increased, as appropriate.
(d) REDEMPTION.
(i) RIGHT TO REDEEM AND VOLUNTARY CONVERSION.
Any or all of the outstanding shares of Series F Preferred Stock shall be
redeemable by the Corporation in the event that the market price of the
Corporation's outstanding Common Stock (as quoted on any national or regional
securities exchange or automated quotation system on which or through which the
Corporation's Common Stock is traded) has equaled or exceed for a period of at
least twenty (20) consecutive trading days 200% of the Conversion Price in
effect during such period. In the event that any holder of Series F Preferred
Stock has not responded to the Corporation's notice of redemption within ten
(10) days, then such Series F Preferred shall be deemed to be a voluntary
conversion of such Series F Preferred Stock into Common Stock by the holder
pursuant to Section 5(a) above.
(ii) MECHANICS OF REDEMPTION. Before the
Corporation shall be entitled to redeem any of the shares of Series F Preferred
Stock, it shall give written notice to each holder thereof whose shares of
Series F Preferred Stock are to be redeemed indicating the number of shares of
Series F Preferred Stock to be redeemed. Each holder thereof shall, as soon as
practicable thereafter, surrender its certificates for such shares, duly
endorsed, at the office of the Corporation or of any transfer agent for such
shares, at which time the Corporation shall pay to such holder the Redemption
Price (defined below) for each such share to be redeemed. The Redemption Price
shall be payable in cash or by check, which need not be certified. Such
redemption shall be deemed to have been made immediately prior to the close of
business on the date of tender of the Redemption Price for the shares of Series
F Preferred Stock to be redeemed.
9.
<PAGE> 58
(iii) REDEMPTION PRICE DEFINED. The
"Redemption Price" shall mean the Original Issue Price plus all accrued but
unpaid dividends on each share of Series F Preferred Stock to be redeemed.
(e) OTHER DISTRIBUTIONS. In the event the Corporation
shall at any time or from time to time make or issue, or fix a record date for
the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation or any of it
subsidiaries other than Additional Shares of Common Stock, then in each such
event provision shall be made so that the holders of Series F Preferred Stock
shall receive, upon the conversion thereof, the securities of the Corporation
which they would have received had their stock been converted into Common Stock
on the date of such event.
(f) NO IMPAIRMENT. The Corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 5 and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights of
the holders of the Series F Preferred Stock against impairment.
(g) CERTIFICATES AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of the Conversion Price pursuant
to this Section 5, the Corporation shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Series F Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series F Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price at the time in effect,
and (iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of Series F
Preferred Stock.
(h) NOTICES OF RECORD DATE. In the event of any
taking by the Corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend) or other distribution, any security
or right convertible into or entitling the holder thereof to receive Additional
Shares of Common Stock, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property,
or to receive any other right, the Corporation shall mail to each holder of
Series F Preferred Stock at least twenty (20) days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution, security or right, and the
amount and character of such dividend, distribution, security or right.
10.
<PAGE> 59
(i) ISSUE TAXES. The Corporation shall pay any and
all issue and other taxes that may be payable in respect of any issue or
delivery of shares of Common Stock on conversion of shares of Series F
Preferred Stock pursuant hereto; provided, however, that the Corporation shall
not be obligated to pay any transfer taxes resulting from any transfer
requested by any holder in connection with any such conversion.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION.
The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series F Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of the Series F Preferred
Stock; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series F Preferred Stock, the Corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose, including, without limitation,
engaging in best efforts to obtain the requisite shareholder approval of any
necessary amendment to these Articles.
(k) FRACTIONAL SHARES. No fractional share shall be
issued upon the conversion of any share or shares of Series F Preferred Stock.
All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series F Preferred Stock by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a sum
in cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board of Directors of the
Corporation).
(l) NOTICES. Any notice required by the provisions
of this Section 4 to be given to the holders of shares of Series F Preferred
Stock shall be deemed given if deposited in the United States mail, postage
prepaid, and addressed to each holder of record at his address appearing on the
books of the Corporation.
(m) ADJUSTMENTS. In case of any reorganization
or any reclassification of the capital stock of the Corporation, any
consolidation or merger of the Corporation with or into another corporation or
corporations, or the conveyance of all or substantially all of the assets of
the Corporation to another corporation, each share of Series F Preferred Stock
shall thereafter be convertible into the number of shares of stock or other
securities or property (including cash) to which a holder of the number of
shares of Common Stock deliverable upon conversion of such share of Series F
Preferred Stock would have been entitled upon the record date of (or date of,
if no record date is fixed) such reorganization, reclassification,
consolidation, merger or conveyance; and, in any case, appropriate adjustment
(as determined by the Board of Directors) shall be made in the
11.
<PAGE> 60
application of the provisions herein set forth with respect to the rights and
interests thereafter of the holders of such Series F Preferred Stock, to the
end that the provisions set forth herein shall thereafter be applicable, as
nearly as equivalent as is practicable, in relation to any shares of stock or
the securities or property (including cash) thereafter deliverable upon the
conversion of the shares of such Series F Preferred Stock.
6. RESTRICTIONS AND LIMITATIONS. So long as at least
Two Hundred Thousand (200,000) shares of Series F Preferred Stock remain
outstanding, the Corporation shall not, without the vote or written consent by
the holders of not less than sixty-six and two thirds percent (66 2/3%) in
interest of the then outstanding shares of Series F Preferred Stock voting
together as a single class, amend, repeal or waive any provision of, or add any
provision to, the Corporation's Certificate of Incorporation or Bylaws if such
action would materially and adversely alter the preferences, rights, privileges
or powers of, or the restrictions provided for the benefit of, the Preferred
Stock.
7. AMENDMENT. Any term relating to the Series F
Preferred Stock may be amended only with the vote or written consent of holders
of not less than sixty-six and two thirds percent (66 2/3%) in interest of all
Series F Preferred Stock then outstanding. Any such amendment shall be binding
upon the Corporation and any holder of Series F Preferred Stock.
IN WITNESS WHEREOF,I have executed this Certificate this 3rd day of
October, 1995.
/s/ Wallace M. Hammond
---------------------------
WALLACE M. HAMMOND
President
ATTEST:
/s/ Kenneth L. Guernsey
- ----------------------------------
KENNETH L. GUERNSEY
Secretary
12.
<PAGE> 61
CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
PHOENIX NETWORK, INC.
PHOENIX NETWORK, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that:
1. The Board of Directors of the Corporation adopted resolutions
to amend paragraph A of Article IV of the Restated Certificate of Incorporation
of the Corporation to read in its entirety as follows:
"A. This corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the Corporation is
authorized to issue is Fifty-Five Million (55,000,000) shares. Fifty
Million (50,000,000) shares shall be Common Stock, each having a par
value of $0.001. Five Million (5,000,000) shares shall be Preferred
Stock, each having a par value of $0.001."
II. Thereafter at the Corporation's Annual Meeting of
Stockholders, held September 26, 1996 the necessary number of shares as
required by statute were voted in favor of the amendment.
III. The aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the Delaware General Incorporation
Law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of the Restated Certificate of Incorporation to be signed by Wallace
M. Hammond, President and Chief Executive Officer, and by Ernest J. Panasci,
Secretary, this 1st day of October, 1996.
PHOENIX NETWORK, INC.
/s/ Wallace M. Hammond
----------------------------
Wallace M. Hammond
President & CEO
ATTEST:
/s/ Ernest J. Panasci
- ------------------------
Ernest J. Panasci
Secretary
<PAGE> 1
EXHIBIT 4.2
BYLAWS
OF
PHOENIX NETWORK, INC.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office . . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Corporate Seal . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III
Stockholders' Meetings . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 4. Place of Meetings . . . . . . . . . . . . . . . . . . . . 1
Section 5. Annual Meeting . . . . . . . . . . . . . . . . . . . . . 1
Section 6. Special Meetings . . . . . . . . . . . . . . . . . . . . 2
Section 7. Notice of Meetings . . . . . . . . . . . . . . . . . . . 2
Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 9. Adjournment and Notice of Adjourned Meetings . . . . . . 3
Section 10. Voting Rights . . . . . . . . . . . . . . . . . . . . . . 3
Section 11. Joint Owners of Stock . . . . . . . . . . . . . . . . . . 3
Section 12. List of Stockholders . . . . . . . . . . . . . . . . . . 4
Section 13. Action without Meeting . . . . . . . . . . . . . . . . . 4
Section 14. Organization . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 15. Number and Term of Office . . . . . . . . . . . . . . . . 4
Section 16. Powers . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 17. Newly Created Directorships and Vacancies . . . . . . . . 5
Section 18. Resignation . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 19. Removal . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 20. Meetings . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 21. Quorum and Voting . . . . . . . . . . . . . . . . . . . . 6
Section 22. Action without Meeting . . . . . . . . . . . . . . . . . 7
Section 23. Fees and Compensation . . . . . . . . . . . . . . . . . . 7
Section 24. Committees . . . . . . . . . . . . . . . . . . . . . . . 7
Section 25. Organization . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V
Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 26. Officers Designated . . . . . . . . . . . . . . . . . . . 9
Section 27. Tenure and Duties of Officers . . . . . . . . . . . . . . 9
Section 28. Resignations . . . . . . . . . . . . . . . . . . . . . . 11
Section 29. Removal . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VI
Execution of Corporate Instruments and Voting . . . . . . . . . . . . 11
Section 30. Execution of Corporate Instruments . . . . . . . . . . . 11
Section 31. Voting of Securities Owned by the Corporation . . . . . . 12
ARTICLE VII
Shares of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 32. Form and Execution of Certificates . . . . . . . . . . . 12
Section 33. Lost Certificates . . . . . . . . . . . . . . . . . . . . 12
Section 34. Transfers . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 35. Fixing Record Dates . . . . . . . . . . . . . . . . . . . 13
Section 36. Registered Stockholders . . . . . . . . . . . . . . . . . 13
ARTICLE VIII
Other Securities of the Corporation . . . . . . . . . . . . . . . . . 13
Section 37. Execution of Other Securities . . . . . . . . . . . . . . 13
ARTICLE IX
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 38. Declaration of Dividends . . . . . . . . . . . . . . . . 14
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 39. Dividend Reserve . . . . . . . . . . . . . . . . . . . . 14
ARTICLE X
Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 40. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE XI
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 41. Indemnification of Officers, Directors, Employees and Other
Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE XII
Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 42. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE XIII
Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 43. Amendments . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
iii
<PAGE> 5
BYLAWS
OF
PHOENIX NETWORK, INC.
(a Delaware corporation)
ARTICLE I
Offices
Section 1. Registered Office. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent.
Section 2. Other Offices. The corporation shall also have and maintain
an office or principal place of business in Golden, Colorado, at such place as
may be fixed by the Board of Directors, and may also have offices at such other
places, both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
Corporate Seal
Section 3. Corporate Seal. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate Seal
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
Stockholders' Meetings
Section 4. Place of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
Section 5. Annual Meeting. The annual meeting of the stockholders of
the corporation for the purpose of election of Directors and for such other
business as may lawfully come
1
<PAGE> 6
before it shall be held on such date and at such time as may be designated from
time to time by the Board of Directors.
Section 6. Special Meetings. Special meetings of the stockholders of
the corporation may be called, for any purpose or purposes, by the Chairman of
the Board of Directors, the President or Vice President or the Board of
Directors at any time. Upon written request of any stockholder or stockholders
holding in the aggregate ten percent (10%) of the voting power of all
stockholders delivered in person or sent by registered mail to the President or
Secretary, the Secretary shall call a special meeting of stockholders to be
held at the office of the corporation required to be maintained pursuant to
Section 2 hereof at such time as the Secretary may fix, such meeting to be held
not less than ten (10) nor more than sixty (60) days after the receipt of such
request, and if the Secretary shall neglect or refuse to call such meeting,
within seven (7) days after the receipt of such request, the stockholder making
such request may do so.
Section 7. Notice of Meetings. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of
stockholders shall be given not less than ten (10) nor more than sixty (60)
days before the date of the meeting to each stockholder entitled to vote at
such meeting, such notice to specify the place, date and hour and purpose or
purposes of the meeting. Notice of the time, place and purpose of any meeting
of stockholders may be waived in writing, signed by the person entitled to
notice thereof, either before or after such meeting, and will be waived by any
stockholder by his attendance thereat in person or by proxy, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Any stockholder so waiving notice
of such meeting shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. Any shares, the voting of
which at said meeting has been enjoined, or which for any reason cannot be
lawfully voted at such meeting, shall not be counted to determine a quorum at
such meeting. In the absence of a quorum any meeting of stockholders may be
adjourned, from time to time, by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all action taken
2
<PAGE> 7
by the holders of a majority of the voting power represented at any meeting at
which a quorum is present shall be valid and binding upon the corporation.
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting
of stockholders, whether annual or special, may be adjourned from time to time
by the vote of a majority of the shares, the holders of which are present
either in person or by proxy. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 10. Voting Rights. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the
stock records of the corporation on the record date, as provided in Section 12
of these Bylaws, shall be entitled to vote at any meeting of stockholders.
Every person entitled to vote or execute consents shall have the right to do so
either in person or by an agent or agents authorized by a written proxy
executed by such person or his duly authorized agent, which proxy shall be
filed with the Secretary at or before the meeting at which it is to be used.
An agent so appointed need not be a stockholder. No proxy shall be voted on
after three (3) years from its date of creation unless the proxy provides for a
longer period. All elections of Directors shall be by written ballot, unless
otherwise provided in the Certificate of Incorporation.
Section 11. Joint Owners of Stock. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety, or otherwise, or if two (2) or more persons have the
same fiduciary relationship respecting the same shares, unless the Secretary is
given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following effect:
(a) if only one (1) votes, his act binds all; (b) if more than one (1) votes,
the act of the majority so voting binds all; (c) if more than one (1) votes,
but the vote is evenly split on any particular matter, each faction may vote
the securities in question proportionally, or may apply to the Delaware Court
of Chancery for relief as provided in the General Corporation Law of Delaware,
Section 217(b). If the instrument filed with the Secretary shows that any such
tenancy is held in unequal interests, a majority or even-split for the purpose
of this subsection (c) shall be a majority or even-split in interest.
3
<PAGE> 8
Section 12. List of Stockholders. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 13. Action without Meeting. Unless otherwise provided in the
Certificate of Incorporation, any action required by statute to be taken at any
annual or special meeting of the stockholders, or any action which may be taken
at any annual or special meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of out-
standing stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Section 14. Organization. At every meeting of stockholders, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or, if the President is absent, the most senior Vice
President present, or in the absence of any such officer, a chairman of the
meeting chosen by a majority in interest of the stockholders entitled to vote,
present in person or by proxy, shall act as chairman. The Secretary, or, in
his absence, an Assistant Secretary directed to do so by the President, shall
act as secretary of the meeting.
ARTICLE IV
Directors
Section 15. Number and Term of Office. The number of Directors which
shall constitute the whole of the Board of Directors shall be seven (7).
Except as provided in Section 17, the Directors shall be elected by the
stockholders at their annual meeting in each year and shall hold office until
the next annual meeting and until their successors shall be duly elected and
qualified. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the Directors shall not have
been elected at an annual
4
<PAGE> 9
meeting, they may be elected as soon thereafter as convenient at a special
meeting of the stockholders called for that purpose in the manner provided in
these Bylaws.
Section 16. Powers. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
Section 17. Newly Created Directorships and Vacancies. Except as
otherwise provided in the Certificate of Incorporation, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or the failure of stockholders at any meeting of
stockholders at which directors are to be elected (including any meeting
referred to in Section 20 below) to elect the number of directors then
constituting the whole Board of Directors, or other cause, shall be filled
solely by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum of the Board of Directors. Any director
elected in accordance with the preceding sentence shall hold office until such
director's successor shall have been elected and qualified. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
Section 18. Resignation. Any Director may resign at any time by
delivering his written resignation to the Secretary, such resignation to
specify whether it will be effective at a particular time, upon receipt by the
Secretary or at the pleasure of the Board of Directors. If no such
specification is made, it shall be deemed effective at the pleasure of the
Board of Directors.
Section 19. Removal. At a special meeting of stockholders called for
the purpose in the manner herein- above provided, the Board of Directors, or
any individual Director, may be removed from office, with or without cause, and
a new Director or Directors elected by a vote of stockholders holding a
majority of the outstanding shares entitled to vote at an election of
Directors.
Section 20. Meetings.
(a) Annual Meetings. The annual meeting of the Board of
Directors shall be held immediately after the annual meeting of stockholders
and at the place where such meeting is held. No notice of an annual meeting of
the Board of Directors shall be necessary and such meeting shall be held for
the purpose of electing officers and transacting such other business as may
lawfully come before it.
(b) Regular Meetings. Except as hereinafter otherwise
provided, regular
5
<PAGE> 10
meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the
State of Delaware which has been designated by resolution of the Board of
Directors or the written consent of all Directors.
(c) Special Meetings. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board of Directors, President or a majority of
the Directors.
(d) Telephone Meetings. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
a meeting by such means shall constitute presence in person at such meeting.
(e) Notice of Meetings. Written notice of the time and place
of all regular and special meetings of the Board of Directors shall be given at
least one (1) day before the date of the meeting. Notice of any meeting may be
waived in writing at any time before or after the meeting and will be waived by
any Director by attendance thereat, except when the Director attends the
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called
or convened.
(f) Waiver of Notice. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either
before or after the meeting, each of the Directors not present shall sign a
written waiver of notice, or a consent to holding such meeting, or an approval
of the minutes thereof. All such waivers, consents or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Section 21. Quorum and Voting.
(a) Quorum. Unless the Certificate of Incorporation requires
a greater number, a quorum of the Board of Directors shall consist of a
majority of the exact number of Directors fixed from time to time in accordance
with Section 15 of these Bylaws, but not less than one (1); provided, however,
at any meeting whether a quorum be present or otherwise, a majority of the
Directors present may adjourn from time to time until the time fixed for the
6
<PAGE> 11
next regular meeting of the Board of Directors, without notice other than by
announcement at the meeting.
(b) Majority Vote. At each meeting of the Board of Directors at
which a quorum is present all questions and business shall be determined by a
vote of a majority of the Directors present, unless a different vote be
required by law, the Certificate of Incorporation or these Bylaws.
Section 22. Action without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and
such writing or writings are filed with the minutes of proceedings of the Board
of Directors or committee.
Section 23. Fees and Compensation. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors or any meeting of a committee of Directors.
Nothing herein contained shall be construed to preclude any Director from
serving the corporation in any other capacity as an officer, agent, employee,
or otherwise and receiving compensation therefor.
Section 24. Committees.
(a) Executive Committee. The Board of Directors may by
resolution passed by a majority of the whole Board of Directors, appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and
specifically granted by the Board of Directors, shall have and may exercise
when the Board of Directors is not in session all powers of the Board of
Directors in the management of the business and affairs of the corporation,
including, without limitation, the power and authority to declare a dividend or
to authorize the issuance of stock, except such committee shall not have the
power or authority to amend the Certificate of Incorporation, to adopt an
agreement of merger or consolidation, to recommend to the stockholders the
sale, lease or exchange of all or substantially all of the corporation's
property and assets, to recommend to the stockholders of the corporation a
dissolution of the corporation or a revocation of a dissolution or to amend
these Bylaws.
(b) Other Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, from time to
time appoint such other
7
<PAGE> 12
committees as may be permitted by law. Such other committees appointed by the
Board of Directors shall consist of one (1) or more members of the Board of
Directors, and shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committees, but in no
event shall such committee have the powers denied to the Executive Committee in
these Bylaws.
(c) Term. The members of all committees of the Board of
Directors shall serve a term coexistent with that of the Board of Directors
which shall have appointed such committee. The Board of Directors, subject to
the provisions of subsections (a) or (b) of this Section 24, may at any time
increase or decrease the number of members of a committee or terminate the
existence of a committee. The membership of a committee member shall terminate
on the date of his death or voluntary resignation. The Board of Directors may
at any time for any reason remove any individual committee member and the Board
of Directors may fill any committee vacancy created by death, resignation,
removal or increase in the number of members of the committee. The Board of
Directors may designate one or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) Meetings. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 24 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at the principal office of the corporation
required to be maintained pursuant to Section 2 hereof, or at any place which
has been designated from time to time by resolution of such committee or by
written consent of all members thereof, and may be called by any Director who
is a member of such committee, upon written notice to the members of such
committee of the time and place of such special meeting given in the manner
provided for the giving of written notice to members of the Board of Directors
of the time and place of special meetings of the Board of Directors. Notice of
any special meeting of any committee may be waived in writing at any time
before or after the meeting and will be waived by any Director by attendance
thereat, except when the Director attends such special meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened. A
majority of the authorized number of members of any such committee shall
constitute a quorum for the transaction of business, and the act of a majority
of those present
8
<PAGE> 13
at any meeting at which a quorum is present shall be the act of such committee.
Section 25. Organization. At every meeting of the Directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the Directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
Officers
Section 26. Officers Designated. The officers of the corporation shall
be the President, the Secretary and the Chief Financial Officer, all of whom
shall be elected at the annual meeting of the Board of Directors. The Board of
Directors may also appoint, at its discretion, a Chairman of the Board, one or
more Vice Presidents, one or more assistant secretaries, one or more assistant
treasurers and such other officers and agents with such powers and duties as it
shall deem necessary. The order of the seniority of the Vice Presidents shall
be in the order of their nomination, unless otherwise determined by the Board
of Directors. The Board of Directors may assign such additional titles to one
or more of the officers as it shall deem appropriate. Any one person may hold
any number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the
officers of the corporation shall be fixed by or in the manner designated by
the Board of Directors.
Section 27. Tenure and Duties of Officers.
(a) General. All officers shall hold office at the pleasure
of the Board of Directors and until their successors shall have been duly
elected and qualified, unless sooner removed. Any officer elected or appointed
by the Board of Directors may be removed at any time by the Board of Directors.
If the office of any officer becomes vacant for any reason, the vacancy may be
filled by the Board of Directors.
(b) Duties of Chairman of the Board of Directors. The
Chairman of the Board of Directors, when present, shall preside at all meetings
of the stockholders and the Board of Directors. The Chairman of the Board of
Directors shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
9
<PAGE> 14
(c) Duties of President. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is
present. The President shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the business and
officers of the corporation, unless a Chairman of the Board of Directors has
been appointed, in which case such Chairman shall be the chief executive
officer. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(d) Duties of Vice Presidents. The Vice Presidents, in the
order of their seniority, may assume and perform the duties of the President in
the absence or disability of the President or whenever the office of President
is vacant. The Vice Presidents shall perform other duties commonly incident to
their office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
(e) Duties of Secretary. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors, and shall record
all acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders, and of all meetings of the Board of Directors and any
committee thereof requiring notice. The Secretary shall perform all other
duties given him in these Bylaws and other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time. The President may
direct any Assistant Secretary to assume and perform the duties of the
Secretary in the absence or disability of the Secretary, and each Assistant
Secretary shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.
(f) Duties of Chief Financial Officer. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner, and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board
of Directors or the President. The Chief Financial Officer, subject to the
order of the Board of Directors, shall have the custody of all funds and
securities of the corporation. The Chief Financial Officer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct any assistant financial
officer to assume and perform the duties of the Chief Financial Officer in the
absence or disability of the Chief Financial Officer, and each assistant
financial officer shall perform other duties commonly incident to his office
and shall also perform such other
10
<PAGE> 15
duties and have such other powers as the Board of Directors or the President
shall designate from time to time.
Section 28. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective.
Section 29. Removal. Any officer may be removed from office at any
time, either with or without cause, by the vote or written consent of a
majority of the Directors in office at the time, or by any committee or
superior officers upon whom such power of removal may have been conferred by
the Board of Directors.
ARTICLE VI
Execution of Corporate Instruments and Voting
of Securities Owned by the Corporation
Section 30. Execution of Corporate Instruments. The Board of Directors
may, in its discretion, determine the method and designate the signatory
officer or officers, or other person or persons, to execute on behalf of the
corporation any corporate instrument or document, or to sign on behalf of the
corporation the corporate name without limitation, or to enter into contracts
on behalf of the corporation, except where otherwise provided by law or these
Bylaws, and such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of
Directors or otherwise required by law, promissory notes, deeds of trust,
mortgages and other evidences of indebtedness of the corporation, and other
corporate instruments or documents requiring the corporate seal, and
certificates of shares of stock owned by the corporation, shall be executed,
signed or endorsed by the Chairman of the Board of Directors, or the President
or any Vice President, and by the Secretary or Chief Financial Officer or any
Assistant Secretary or Assistant Chief Financial Officer. All other
instruments and documents requiring the corporate signature, but not requiring
the corporate seal, may be executed as aforesaid or in such other manner as may
be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on
funds to the credit of the corporation or in special accounts of the
corporation shall be signed by such person or persons as the Board of Directors
shall authorize so to do.
11
<PAGE> 16
Section 31. Voting of Securities Owned by the Corporation. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the President, or any Vice
President.
ARTICLE VII
Shares of Stock
Section 32. Form and Execution of Certificates. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the
name of the corporation by the Chairman of the Board of Directors, or the
President or any Vice President and by the Chief Financial Officer or assistant
financial officer or the Secretary or Assistant Secretary, certifying the
number of shares owned by him in the corporation. Where such certificate is
countersigned by a transfer agent other than the corporation or its employee,
or by a registrar other than the corporation or its employee, any other
signature on the certificate may be a facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued with the same
effect as if he were such officer, transfer agent, or registrar at the date of
issue.
Section 33. Lost Certificates. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
Section 34. Transfers. Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in person
or by attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
12
<PAGE> 17
Section 35. Fixing Record Dates. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action. If no record date is fixed: (a) the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held; (b) the record
date for determining stockholders entitled to express consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is necessary, shall be the day on which the first written consent is
expressed; and (c) the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 36. Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
Other Securities of the Corporation
Section 37. Execution of Other Securities. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates,
may be signed by the Chairman of the Board of Directors, the President or any
Vice President, or such other person as may be authorized by the Board of
Directors, and the corporate seal impressed thereon or a facsimile of such seal
imprinted thereon and attested by the signature of the Secretary or an
Assistant Secretary, or the Chief Financial Officer or an assistant financial
officer; provided, however, that where any such bond, debenture or other
corporate security shall be authenticated by the manual signature of a trustee
under an indenture pursuant to which such bond, debenture or other corporate
security shall be issued, the signatures of the persons signing and attesting
the corporate seal on such bond, debenture or other corporate security may be
the imprinted
13
<PAGE> 18
facsimile of the signatures of such persons. Interest coupons appertaining to
any such bond, debenture or other corporate security, authenticated by a
trustee as aforesaid, shall be signed by the Chief Financial Officer or an
assistant financial officer of the corporation or such other person as may be
authorized by the Board of Directors, or bear imprinted thereon the facsimile
signature of such person. In case any officer who shall have signed or
attested any bond, debenture or other corporate security, or whose facsimile
signature shall appear thereon or on any such interest coupon, shall have
ceased to be such officer before the bond, debenture or other corporate
security so signed or attested shall have been delivered, such bond, debenture
or other corporate security nevertheless may be adopted by the corporation and
issued and delivered as though the person who signed the same or whose
facsimile signature shall have been used thereon had not ceased to be such
officer of the corporation.
ARTICLE IX
Dividends
Section 38. Declaration of Dividends. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to
law at any regular or special meeting. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation.
Section 39. Dividend Reserve. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
Fiscal Year
Section 40. Fiscal Year. Unless otherwise fixed by resolution of the
Board of Directors, the fiscal year of the corporation shall end on the last
day of April.
14
<PAGE> 19
ARTICLE XI
Indemnification
Section 41. Indemnification of Officers, Directors, Employees and Other
Agents.
(a) Directors and Officers. The corporation shall indemnify
its Directors and executive officers to the fullest extent permitted by the
Delaware General Corporation Law.
(b) Employees and Other Agents. The corporation shall have
power to indemnify its other officers, employees and other agents as set forth
in the Delaware General Corporation Law.
(c) Good Faith.
(1) For purposes of any determination under this Bylaw,
to the fullest extent permitted by the Delaware General Corporation Law, a
Director or executive officer shall be deemed to have acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe that his conduct was
unlawful, if his action is based on the records or books of account of the
corporation or another enterprise, or on information supplied to him by the
officers of the corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the corporation or another
enterprise or on information or records given or reports made to the
corporation or another enterprise by an independent certified public accountant
or by an appraiser or other expert selected with reasonable care by the
corporation or another enterprise.
(2) The termination of any proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal proceeding, that he had reasonable cause to believe that his conduct
was unlawful.
(3) The provisions of this paragraph (c) shall not be
deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth
by the Delaware General Corporation Law.
(d) Expenses. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all
expenses incurred by any Director or executive officer in connection with such
proceeding upon receipt of an undertaking by or on
15
<PAGE> 20
behalf of such person to repay said amounts if it should be determined
ultimately that such person is not entitled to be indemnified under this Bylaw
or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation if a
determination is reasonably and promptly made (1) by the Board of Directors by
a majority vote of a quorum consisting of Directors who were not parties to the
proceeding, or (2) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested Directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision making party at the time
such determination is made demonstrate clearly and convincingly that such
person acted in bad faith or in a manner that such person did not believe to be
in or not opposed to the best interests of the corporation.
(e) Enforcement. Without the necessity of entering into an
express contract, all rights to indemnification and advances under this Bylaw
shall be deemed to be contractual rights and be effective to the same extent
and as if provided for in a contract between the corporation and the Director
or executive officer who serves in such capacity at any time while this Bylaw
and other relevant provisions of the Delaware General Corporation Law and other
applicable law, if any, are in effect. Any right to indemnification or
advances granted by this Bylaw to a Director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made
within ninety (90) days of request therefor. The claimant in such enforcement
action, if successful in whole or in part, shall be entitled to be paid also
the expense of prosecuting his claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
connection with any proceeding in advance of its final disposition when the
required undertaking has been tendered to the corporation) that the claimant
has not met the standards of conduct which make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. The claimant in such enforcement action shall bear the
burden of proving that the claimant has met the applicable standard of conduct
set forth in the Delaware General Corporation Law.
(f) Non-Exclusivity of Rights. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office. The
corporation is specifically authorized to enter into individual contracts with
any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent permitted by the Delaware
General Corporation Law.
16
<PAGE> 21
(g) Survival of Rights. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a Director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(h) Insurance. To the fullest extent permitted by the
Delaware General Corporation Law, the corporation, upon approval by the Board
of Directors, may purchase insurance on behalf of any person required or
permitted to be indemnified pursuant to this Bylaw.
(i) Amendments. Any repeal or modification of this Bylaw
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(j) Savings Clause. If this Bylaw or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each agent to the full extent
permitted by any applicable portion of this Bylaw that shall not have been
invalidated, or by any other applicable law.
(k) Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed
and shall include, without limitation, the investigation, preparation,
prosecution, defense, settlement and appeal of any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative.
(2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(3) The term "the corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Bylaw with respect to
17
<PAGE> 22
the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(4) References to a "director," "officer," "employee,"
or "agent" of the corporation shall include, without limitation, situations
where such person is serving at the request of the corporation as a director,
officer, employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references
to "serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties
on, or involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries; and a
person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Bylaw.
ARTICLE XII
Notices
Section 42. Notices.
(a) Notice to Stockholders. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) Notice to Directors. Any notice required to be given to
any Director may be given by the method stated in subsection (a), or by
telegram, except that such notice other than one which is delivered personally
shall be sent to such address as such Director shall have filed in writing with
the Secretary, or, in the absence of such filing, to the last known post office
address of such Director.
(c) Address Unknown. If no address of a stockholder or
Director be known, notice may be sent to the office of the corporation required
to be maintained pursuant to Section 2 hereof.
(d) Affidavit of Mailing. An affidavit of mailing, executed
by a duly
18
<PAGE> 23
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
Director or Directors, to whom any such notice or notices was or were given,
and the time and method of giving the same, shall be conclusive evidence of the
statements therein contained.
(e) Time Notices Deemed Given. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing
and all notices given by telegram shall be deemed to have been given as at the
sending time recorded by the telegraph company transmitting the notices.
(f) Methods of Notice. It shall not be necessary that the
same method of giving notice be employed in respect of all Directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or
others.
(g) Failure to Receive Notice. The period or limitation of
time within which any stockholder may exercise any option or right, or enjoy
any privilege or benefit, or be required to act, or within which any Director
may exercise any power or right, or enjoy any privilege, pursuant to any notice
sent him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such Director to receive such
notice.
(h) Notice to Person with Whom Communication Is Unlawful.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by
the corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
ARTICLE XIII
Amendments
Section 43. Amendments. These Bylaws may be repealed, altered or
amended or new
19
<PAGE> 24
Bylaws adopted by the stockholders. The Board of Directors shall also have the
authority, if such authority is conferred upon the Board of Directors by the
Certificate of Incorporation, to repeal, alter or amend these Bylaws or adopt
new Bylaws (including, without limitation, the amendment of any Bylaw setting
forth the number of directors who shall constitute the whole Board of
Directors) subject to the power of the stockholders to change or repeal such
Bylaws and provided that the Board of Directors shall not make or alter any
Bylaws fixing the qualifications, classifications, term of office or
compensation of directors.
20
<PAGE> 1
EXHIBIT 5.1
<TABLE>
<S> <C> <C>
LAW OFFICES OF
FREEBORN & PETERS
SUITE 3000 SUITE 2600 SUITE 311
311 SOUTH WACKER DRIVE 950 SEVENTEENTH STREET 215 EAST ADAMS
CHICAGO, ILLINOIS 60606-6677 DENVER, COLORADO 80202-2826 SPRINGFIELD ILLINOIS 62701-1122
(312) 360-6000 (303) 628-4200 (217) 535-1060
</TABLE>
---------------
February 12, 1997
Phoenix Network, Inc.
1687 Cole Boulevard
Golden, CO 80401
Re: Registration Statement on Form S-3, File No. 333-20923
Ladies and Gentlemen:
We have acted as counsel to Phoenix Network, Inc., a Delaware corporation
(the "Corporation"), in connection with the preparation and filing of the
Registration Statement on Form S-3, File No. 333-20923, with the United States
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Registration Statement"), pertaining to the registration by the
Corporation of shares (the "Shares") of its Common Stock (the "Common Stock"),
par value $.001 per share, described on the cover page of such Registration
Statement. Terms not otherwise defined herein shall have the same meaning
ascribed to them in the Registration Statement or the Accord (hereinafter
defined).
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this Opinion
Letter is subject to and should be read in conjunction therewith. The law
covered by the opinions expressed herein is limited to the Laws of the State of
Delaware for the limited purpose of the organization, power and authority of
corporations and the Laws of the State of Colorado and the United States of
America. In addition, as to any facts material to this opinion, we have
relied, among other sources listed in the Accord, on factual representations
made by the Corporation in the Registration Statement.
Based on the foregoing, we are of the opinion that:
1. The Corporation (a) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and (b)
has requisite corporate power and authority to carry on its business as
described in the Registration Statement.
<PAGE> 2
Phoenix Network, Inc.
February 12, 1997
Page 2
2. The shares of Common Stock to be issued pursuant to the Warrants
have been duly and validly authorized for issuance and, when delivered by
authorized officers of the Corporation pursuant to the Warrants, such shares
will be validly issued, fully paid and non-assessable. The currently
outstanding shares of Common Stock being registered for resale pursuant to the
Registration Statement have been duly and validly issued to the Selling
Stockholders and such Shares are fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the section
entitled "Legal Matters" in the Registration Statement.
The opinions set forth above are subject to the General Qualifications
and are provided to you and may be relied upon by you only in connection with
the Registration Statement and as legal opinions only and not as a guarantee or
warranty of the matters discussed herein.
This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose.
Very truly yours,
/s/ Freeborn & Peters
FREEBORN & PETERS
<PAGE> 1
EXHIBIT 10.1
SETTLEMENT AGREEMENT
AGREEMENT ("Agreement"), dated as of May 22, 1996, by and between
Sunrise Financial Group, Inc., having an address at 135 E. 57th Street, New
York, New York 10022 (referred to herein as "Sunrise"), Thomas Bell, having an
address at 510 Biscayne Drive, San Rafael, California 94901 (referred to herein
as "Bell") and Phoenix Network, Inc., having an address at 550 California
Street, San Francisco, California 94104 (referred to herein as "Phoenix").
W I T N E S S E T H:
WHEREAS, Sunrise and Bell are parties to an agreement, dated March 10,
1993, whereby, inter alia, Bell granted Sunrise the option to purchase from
Bell up to 125,000 shares of common stock, par value $.001 per share of Phoenix
("Common Stock"), at an exercise price of $1.50 per share;
WHEREAS, Sunrise and Phoenix are parties to an agreement, dated March
10, 1993, whereby, inter alia. Sunrise agreed to perform certain financial
public relations services for Phoenix (the "Service Agreement");
WHEREAS, in November 1993, Phoenix granted Sunrise warrants to purchase
50,000 shares of Common Stock at $7.00 per share (the "Warrants")'
WHEREAS, in July 1993, Phoenix granted Sunrise warrants to purchase
53,333 shares of Common Stock at $3.75 per share (the "Teton Warrants");
WHEREAS, the Service Agreement terminated on or about September 6, 1994;
WHEREAS, Sunrise commenced an action against Bell and Phoenix in the
United States District Court, Souther District of New York, 95 Civ. 2702 (PKL)
on or about April 6, 1995 (the "Litigation"); and
WHEREAS, the parties desire to settle the litigation;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants made herein, and other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereby agree as follows:
1. Within fourteen days following the execution of this Agreement,
Bell will tender to Phoenix's transfer agent, Chemical-Mellon (the "Agent"),
certificates representing 92,500 (ninety-two thousand, five hundred) shares of
Common Stock registered in Bell's name and bearing a restrictive legend (the
"Shares"), together with stock powers executed in blank with signatures
guaranteed, for transfer to the following individuals in the amounts set forth
opposite
<PAGE> 2
their respective names:
<TABLE>
<CAPTION>
Name No. of Shares
---- -------------
<S> <C>
Nathan A. Low 40,300
Robert K. Fuchs 18,825
Lawrence Kobren 22,125
Malka Fendrich 9,250
John Fuchs 2,000
</TABLE>
2. Promptly following notification from the Agent that the transfers
contemplated by Section 1 have been registered on the books of Phoenix and
certificates representing the Shares have been issued as set forth above,
Phoenix shall undertake, at its expense, to register the Shares, the shares
underlying the Warrants and the shares underlying the Teton Warrants for sale
to the public on Form S-3 (or another form, as Phoenix may in its discretion
determine, if Phoenix is not able for any reason to use Form S-3 to register
the Shares or any other such shares), in accordance with applicable Federal and
state laws and regulations, with a view to expediting the effective date of the
registration statement. Sunrise shall, and shall cause each of the transferees
named in Section 1 to, comply promptly with all requests for information from
Phoenix and otherwise cooperate with Phoenix to the fullest extent, as
necessary for Phoenix to perform its obligations under this Section 2.
3. Sunrise hereby represents and warrants to Phoenix that it does
not have the Warrants or the Teton Warrants in its possession and has not
transferred, assigned or conveyed any of the Warrants, the Teton Warrants or
any interest in either thereof, to any person or entity. Sunrise hereby
authorizes Phoenix and the Agent to cancel the Warrants and the Teton Warrants
on the books of Phoenix and, within fourteen days following the cancellation of
all such warrants on the books of Phoenix, Phoenix shall issue, or cause to be
issued, in substitution therefor, warrants of like tenor, expiring on the same
date as the Warrants and the Teton Warrants, respectively, for the purchase of
an equivalent number of shares of Common Stock at an exercise price of $4.00
per share in the case of the Warrants (the "Replacement Warrants"), and at the
original exercise price of $3.75, in the case of the Teton Warrants (the "New
Teton Warrants"), to the following persons in the amounts set forth opposite
their respective names:
<TABLE>
<CAPTION>
Name No. of Replacement Warrants
---- ---------------------------
<S> <C>
Nathan A. Low 33,750
Robert K. Fuchs 11,250
Trilogy Group, Inc. 3,700
Robert Spitalnic 1,250
</TABLE>
<TABLE>
<CAPTION>
Name No. of New Teton Warrants
---- -------------------------
<S> <C>
Nathan Low 40,000
Robert K. Fuchs 13,333
</TABLE>
Sunrise shall bear all transfer, income and other taxes due or to become due in
connection with
-2-
<PAGE> 3
the issuance of the Replacement Warrants and the New Teton Warrants, and shall
otherwise indemnify and hold Phoenix harmless from and against all loss,
liability, costs and expense, including attorneys' fees and disbursements,
suffered or incurred by Phoenix in connection therewith or with any breach of
the representation and warranty with respect to the Warrants or the Teton
Warrants made herein or otherwise on behalf of Sunrise.
4. In consideration of the foregoing, Sunrise hereby releases and
forever discharges Bell, Phoenix and their respective shareholders, directors,
officers, employees, agents, successors, assigns, heirs, representatives and
affiliates (all such persons and entities being collectively referred to as the
"Phoenix Related Persons"), of and from any and all causes of action, claims,
demands and remedies of whatsoever kind and nature that Sunrise has or may in
the future have against Bell, Phoenix or any Phoenix Related Persons in any
manner on account of, arising out of or related to any event, occurrence,
relationship or agreement through the date hereof; provided, however, that such
release and discharge shall not operate to release or discharge any cause of
action, claim, demand or remedy against Bell, Phoenix or the Phoenix Related
Persons arising our of or related to the performance of their respective
obligations under this Agreement.
5. In consideration of the foregoing, Phoenix and Bell hereby
release and forever discharge Sunrise and its shareholders, directors,
officers, employees, agents, successors, assigns and affiliates (all such
persons and entities being collectively referred to as the "Sunrise Related
Persons"), of and from any and all causes of action, claims, demands and
remedies of whatsoever kind and nature that Phoenix or Bell has or may in the
future have against Sunrise or any Sunrise Related Persons in any manner on
account of, arising out of or related to any event, occurrence, relationship or
agreement through the date hereof; provided, however, that such release and
discharge shall not operate to release or discharge any cause of action, claim,
demand, or remedy against Sunrise or the Sunrise Related Persons arising out of
or related to the performance of their respective obligations under this
Agreement.
6. Simultaneously herewith, Sunrise or its counsel will execute a
stipulation discontinuing the Litigation with prejudice substantially in the
form annexed hereto as Exhibit A.
7. Any notice, request, demand or other communication required or
permitted under this Agreement shall be given in writing and shall be delivered
or sent by registered or certified mail, return receipt requested in a prepaid
envelope, by overnight mail or courier, or by facsimile transmission, to the
addresses set forth below are at such other address as such party shall
hereafter specify in accordance with this Section:
Sunrise Financial Group, Inc.
135 E. 57th Street, 11th Floor
New York, NY 10022
-3-
<PAGE> 4
Thomas Bell
510 Biscayne Drive
San Rafael, California 94901
Phoenix Network, Inc.
550 California Street
San Francisco, California 94104
Attention:
Such notice or other communication shall be deemed to have been given (a) when
delivered, if sent by registered or certified mail or delivered personally or
by facsimile transmission, or (b) on the second following business day, if sent
by overnight mail or overnight courier.
8. Each part of this Agreement is intended to be severable. If any
term, covenant, condition or provision of this Agreement is unlawful, invalid
or unenforceable, such illegality, invalidity or unenforceability shall not
affect the remaining provisions of this Agreement, which shall remain in full
force and effect and shall be binding upon the parties.
9. The headings of the Sections of this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provision thereof.
10. This Agreement shall be construed, and the rights and obligations
of the parties under the Agreement shall be determined, in accordance with the
laws of the State of New York applicable to agreements made and fully to be
performed therein by residents thereof.
11. This Agreement may not be assigned by any party without the
express prior written consent of the other parties, which consent shall not be
unreasonably withheld. This Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the parties.
12. This Agreement constitutes the entire agreement between the
parties pertaining to the subject matter hereof and supersedes any and all
prior agreements, representations and understandings of the parties, written or
oral. The terms of this Agreement shall not be modified or amended except by a
writing signed by each of the parties.
13. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
14. No waiver by either party of the other party's breach of any
term, covenant or condition contained in this Agreement shall be deemed a
waiver of any subsequent breach of the same or any other term, covenant or
condition of this Agreement.
-4-
<PAGE> 5
15. Time is of the essence with respect to the parties' obligations
under this Agreement.
16. If any dispute should arise in connection with this Agreement or
the transactions contemplated hereby, it shall be settled by arbitration in New
York City before a single arbitrator designated by the American Arbitration
Association in accordance with the Rules of the American Arbitration
Association then and there obtaining. The cost of any arbitration proceedings
and the prevailing party's attorneys' fees shall be borne by the party against
whom an award is made. The decision of the arbitrator shall be binding and
conclusive upon the parties.
IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Agreement as of the date first above written.
SUNRISE FINANCIAL GROUP, INC.
By: /s/ Nathan A. Low
----------------------------------
Nathan A. Low
Title: President
THOMAS BELL
/s/ Thomas Bell
----------------------------------
PHOENIX NETWORK, INC.
By: /s/ Wallace Hammond
-------------------------------
Wallace Hammond
Chief Executive Officer
By: /s/ Jeffrey Bailey
-------------------------------
Jeffrey Bailey
Chief Financial Officer
-5-
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated March 28, 1996 accompanying the consolidated
financial statements of Phoenix Network, Inc. and subsidiaries appearing in the
1995 Annual Report of the Company to its stockholders and accompanying the
schedule included in the Annual Report on Form 10-K for the year ended December
31, 1995. We have issued our reports dated March 28, 1996 (except for note A,
as to which the date is October 8, 1996) accompanying the consolidated
financial statements and supplemental consolidated financial statements of
Phoenix Network, Inc. and subsidiaries appearing in the Company's Form 8-K
dated January 23, 1997. We have issued our reports dated March 6, 1996
accompanying the financial statements of Automated Communications, Inc.
appearing in Phoenix Network, Inc.'s Form 8-K dated January 16, 1996 as amended
April 1, 1996. We have issued our reports dated February 16, 1996 accompanying
the consolidated financial statements of Americonnect, Inc. and subsidiaries
appearing in Phoenix Network, Inc.'s Form 8-K dated October 8, 1996 as amended
December 6, 1996, and Form 8-K dated January 23, 1997. We consent to the
incorporation by reference in the Registration Statement of the aforementioned
reports and to the use of our name as it appears under the caption "Experts."
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
San Francisco, California
February 12, 1997
