<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
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
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Amount Proposed Maximum Amount of
Title of Each Class of to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Share Offering Price Fee
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value 1,492,500 $3.625(1) $5,410,312.50(1) $1,639.49
- ------------------------------------------------------------------------------------------------------------
Common Stock underlying Warrants 53,333 $3.75 $199,998.75 $60.61
- ------------------------------------------------------------------------------------------------------------
Common Stock underlying Warrants 45,000 $4.00 $180,000.00 $54.55
- ------------------------------------------------------------------------------------------------------------
Total $5,790,311.25
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TOTAL REGISTRATION FEE $1,755.00
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</TABLE>
(1) Estimated pursuant to Rule 457(c) solely for purposes of calculating
the registration fee based on the average of the high and low prices
of the Registrant's Common Stock as reported on the American Stock
Exchange on January 27, 1997.
--------------------------
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
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED JANUARY 31, 1997
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 January __, 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
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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
Market" 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,
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Series D Preferred Stock and Series F Preferred Stock. As of January 27, 1997,
Phoenix estimates that the conversion of each of the above series of Preferred
Stock will result in the issuance of an aggregate of approximately 7,098,069
shares of Common Stock. It is expected that such conversion, if it occurs,
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 (telephone: (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
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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 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.
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
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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
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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 and US One and
ICG, 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.
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<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 January 27, 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 7.7% 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
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<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
January 27, 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 13.6% 1,400,000 1,400,000 6.8%
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 20,573,702 shares of
Common Stock outstanding on January 22, 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.
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--------------------------
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
JANUARY , 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
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<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
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<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.
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<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 January 31,
1997.
PHOENIX NETWORK, INC.
By: /s/ Wallace M. Hammond
------------------------------------
Wallace M. Hammond
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Wallace M. Hammond and Jeffrey L.
Bailey, and each of them singly, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities (including his capacity as a
director and officer of Phoenix Network, Inc.), to sign any and all amendments
(including post-effective amendment) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each said attorney-in-fact and
agent, or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
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 January 31, 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>
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<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
</TABLE>
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<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 (contained on the signature pages)
</TABLE>
______________
* To be filed by Amendment.
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<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
January 31, 1997
