PHOENIX NETWORK INC, S-3/A, 1997-06-18

PHOENIX NETWORK INC
S-3/A, 1997-06-18
COMMUNICATIONS SERVICES, NEC

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1997
REGISTRATION NO. 333-26271

================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

------------------------------------

AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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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.
SLIVKA ROBINSON WATERS & O'DORISIO, P.C.
1099 18TH STREET, SUITE 2600
DENVER, COLORADO 80202
(303) 297-2600
(303) 297-2750 (FAX)

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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
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 JUNE 18, 1997

5,099,886 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 5,099,886 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 June __, 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: Jon Beizer, 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, 1996 as amended on Forms 10-K/A;

(b) Phoenix's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1996 as amended on Form 10-Q/A;

(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 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

<PAGE> 5
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 Merger with US ONE; Need for Additional
Capital," "--Possible Acquisitions; Need for Additional Capital," "--Need to
Successfully Integrate Mergers and Acquisitions," "--Management of Rapid
Growth," "--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 and Series D
Preferred Stock. As of March 31, 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 1,908,954 shares of Common Stock. It is expected that
such conversion, if it occurs, will take place in the second and/or third
quarters of 1997.

The Company experienced a loss of $2.3 million for the first quarter
ended March 31, 1997. Revenues decreased to $21,357,696 compared with revenues
of $27,336,312 for the comparable period of the prior year. The decrease was
primarily due to a 14.2% decrease in the average revenue per minute due to the
Company's customers utilizing more competitively priced services offered by the
Company over the past year. In addition, selling, general and administrative
expenses have increased as a percentage of revenue by 4.5% between first
quarter 1996 and first quarter 1997.

In April 1997, the Company filed a Summons and Complaint in the
Circuit Court for Palm Beach County, Florida against Alpha Digital Technology, a
former customer ("Alpha Digital"), seeking to recover for services rendered in
the amount of approximately $560,000. The Company plans to file a Summons and
Complaint in the Circuit Court for Hillsborough County, Florida against Classic
Personnel Services, Inc. d/b/a World Placement Services, a former customer
("World Placement"), seeking to recover for services rendered in the amount of
approximately $486,000. No revenue has been recorded related to these amounts.
To date, the Company has been unable to effectuate service of process on Alpha
Digital; efforts to do so are continuing. The Company has notified the vendor
that provided the underlying dedicated long distance services provided to Alpha
Digital and World Placement of the possibility of a claim. The Company has
alleged in the notice letter that the vendor failed to act properly with respect
to monitoring usage levels and notifying the Company of the heavy usage that
occurred on these two accounts. It is the Company's position that the vendor's
actions and omissions caused or contributed to the loss to which the Company is
exposed. The underlying vendor billed the Company approximately $510,000 for the
services provided to Alpha Digital and World Placement. This liability has not
been recorded by the Company. At this time it is unclear as to the ultimate
outcome of either of the two actions and the Company's discussions with the
vendor. If the Company is unable to recover in one or both of the actions and
is required to pay the vendor for the full amount billed by the vendor, its
operations and financial condition could be materially adversely affected.

The Company's executive offices are located at 1687 Cole Boulevard,
Golden, Colorado 80401 (telephone: (303) 205-3500.

<PAGE> 6
RISK FACTORS

In evaluating Phoenix's business, prospective investors should
consider carefully the following risk factors in addition to the other
information contained or incorporated by reference in this Prospectus.

Negative Cash Flow From Operations. For the years ended December 31,
1995 and 1996, the Company's consolidated loss before interest expense, income
taxes, depreciation and amortization, loss on abandonment of fixed assets,
aborted bond offering expenses and relocation expense was $148,000 and $5.1
million, 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 of 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 sustained operating losses of
$1.9 million, $1.4 million and $12.3 million in the years ended December 31,
1993, 1995 and 1996, respectively, and operating income of only $2,000 for the
year ended December 31, 1994. Phoenix expects to continue to incur operating
losses for the foreseeable future due to the high amortization of goodwill
charges resulting from acquisitions and increased competitiveness in the
telecommunications industry. Due to the increase in new competitors, the
overall decline in retail rates and price sensitivity in the telecommunications
industry, over the last two years, the Company's customer churn, bad debt, and
new customer acquisition costs have increased. Competitive pricing has resulted
in a decrease in the Company's average revenue per minute and lower gross
margins. In addition, while the Company's selling, general and administrative
expenses ("SG&A") have decreased in the first quarter of 1997 as compared to
the same period of the prior year, as a percentage of revenues SG&A have
increased. 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 US ONE Communications Corp.
(collectively with its subsidiaries, "US One") 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
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

<PAGE> 7
there can be no assurance as to the success of such measures or the proceeds
which the Company could realize therefrom.

Credit Facility Covenants. From time to time the Company has been,
and is currently, in violation of certain of its covenants in the Credit
Facility. The Company has received waivers of its violations of these covenants.
In the future, should the Company violate, or have a continuing violation of,
any of the covenants constituting an event of default under the Credit Facility,
there can be no assurance that it will receive a waiver of such violation. Under
the terms of the Credit Facility, upon the occurrence of an event of default,
the lender may, among other things, declare all amounts outstanding under the
Credit Facility immediately due and payable, cease advancing money or extending
credit to the Company and/or, during the continuance of an event of default,
increase the interest rate on amounts outstanding under the Credit Facility. If
the lender were to exercise certain of the remedies available to it upon an
event of default, the Company may need to obtain an alternate source of
financing. The availability and terms of any such financing will depend on
market and other conditions, and there can be no assurance that such alternate
financing will be available on terms acceptable to the Company, if at all. If
Phoenix is unable to meet its obligations under the Credit Facility, its
operations and financial condition could be materially adversely affected.

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 in the future.

Furthermore, the Telecommunications Act of 1996 (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 may
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 whom 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 Congress' recent enactment of 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 volume-discount
pricing from vendor carriers and wholesale local access and local dial tone
providers. The same volume-discount pricing that Phoenix utilizes is available
to current and potential competitors, and current and potential competitors
could lease or build networks in order to lower line costs. 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 dial tone 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

<PAGE> 8
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 dial tone service in 1997.
Phoenix expects to face intense competition from the RBOCs, which are the
principal current providers of local dial tone services, and from other
telecommunications services providers, including other long distance providers,
who may also enter the market.

Possible Merger with US One; Need for Additional Capital. Phoenix has
entered into a letter of intent to merge with US One, with Phoenix as the
surviving entity. See the Company's Current Report on Form 8-K, as filed with
the SEC on April 25, 1997, and the exhibits thereto. Stockholders of Phoenix
prior to the merger with US One (the "Merger") would own approximately 50% of
the surviving entity following the Merger. Accordingly, stockholders of Phoenix
would experience substantial dilution as to percentage ownership of the
surviving entity and may experience dilution as to share value.

The Merger, if consummated, will represent a strategic shift for the
Company, as the Company's Network would then consist primarily of owned switches
(most of which would be acquired in the Merger) and leased transmission
facilities. Originally, the Company had intended to deploy the Network relying
primarily on switching equipment leased from US One, together with leased
transmission facilities. Further, the Company presently anticipates that,
following the Merger, it may resell on a limited basis wholesale long distance
and local dial tone products in addition to offering its own retail products.
There can be no assurance that the Merger will be consummated, or that US One
can be effectively and profitably integrated into Phoenix.

Owning US One's switches, proprietary software and other assets would
substantially increase the Company's need for capital. To raise additional
required capital and to fund expenses of the Merger, 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, additional 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 the
Company will be able to generate or raise sufficient capital on terms acceptable
to it to enable the Company to implement its post-Merger business plan or pursue
additional revenue opportunities.

Furthermore, consummation of the Merger would subject the Company and
its stockholders to substantial additional risk factors associated with the
operation of US One's businesses and the implementation of US One's business
strategy. Although the Merger is intended to enhance Phoenix's long-term
profitability, the Merger may negatively impact Phoenix's operating results,
particularly during the periods immediately following consummation thereof.

US One was founded in 1994 and has no significant operating history.
Therefore, investors have limited financial information upon which to base an
evaluation of US One, and consequently, the Merger. Additionally, US One is
subject to all the risks inherent in the establishment of a new business
enterprise. US One, and the Company following the Merger, intend to use untested
approaches to market positioning in the telecommunications industry and new
configurations of existing technologies. There can be no assurance that such
approaches will be effective or that such configurations will function as
anticipated.

Possible Acquisitions; Need for Additional Capital. As part of its
growth strategy, Phoenix intends to pursue acquisitions of companies that 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 for

<PAGE> 9
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 Mergers and Acquisitions. Phoenix must
be able to rapidly and effectively integrate the businesses of merged and
acquired ("acquired") companies with its own in order to successfully implement
its business strategy. The 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 typically 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 merge with US One
and to grow through additional 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 and, if the Merger is
consummated, of US One's current businesses, 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, and expenditures to complete
the migration to the New Billing and Customer Care Platform are expected to be
approximately $1.0 million in 1997. The New Billing and Customer Care Platform
is fully installed and in the process of being tested. Certain of Phoenix's
customers are presently receiving their bills from the New Billing and Customer
Care Platform, and the rest of Phoenix's customers are expected to be phased
onto the New Billing and Customer Care Platform during 1997. There can be no
assurance that the New Billing and Customer Care Platform will be fully
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,

<PAGE> 10
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 has been 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. If
the Merger is consummated, Phoenix will own most or all of the switching
equipment necessary to fulfill its switching needs, and the Network will include
such owned switches. Until the Merger is consummated, and for the foreseeable
future if the Merger is not consummated, Phoenix will be reliant on switching
service providers to lease switching capacity to the Company. Phoenix has
entered into agreements with US One and another company for the use of their
long distance switches, only some of which have been deployed to date.

In order to maximize the benefits of its Network strategy, Phoenix
needs to maximize the amount of long distance calls transmitted on its Network
and decrease the amount of long distance calls transmitted on the networks of
third-party carriers. Management of Phoenix has estimated, without third party
confirmation, that substantial cost savings can be achieved as a result of
moving call traffic onto the Network (i.e., routed by at least one
Company-controlled switch) ("On-Network") from being handled solely by
third-party carriers off of the Network ("Off-Network"). Management's estimates
make certain assumptions as to general industry and business conditions, many of
which are beyond the control of Phoenix. There can be no assurance that such
cost savings will be realized or that unforeseen costs and expenses or other
factors will not offset the cost savings in whole or in part.

Moreover, if the Merger is consummated, Phoenix's line costs will be
dependent on the total volume of traffic it is able to place on the Network, as
the operating costs of the Network will be charged based upon the Company's
minutes of use. If the Company is not able to generate sufficient traffic
volume, either internally or through resale of wholesale products, the Company's
operating results and competitive position may deteriorate. There can be no
assurance that the Company will be able to adequately load the Network to
achieve the anticipated cost savings.

Historically, Phoenix has provided long distance services to small
businesses by purchasing bulk-rate capacity 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 the Network. Phoenix
has had more than eight years of experience in operating owned switches, but,
prior to July 1996, Phoenix had no previous experience in operating switches
such as those being deployed by US One, either on a leased or owned basis. Under
the Company's agreement with 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 Network strategy is based upon third-party agreements with
Comdisco and, until the Merger is consummated, and if the Merger is not
consummated, with US One.

As of April 25, 1997, US One had installed eight switches over which
the Company is transmitting call traffic. Recently, US One has sought investors
or strategic partners to provide capital to complete the build-out of its
national switching and local dial tone service facilities. In order to conserve
cash and focus on its immediate strategic goal of implementing local dial tone
service, US One recently reduced its work force.

If the Merger is not consummated, or if the Company is not able to
raise additional operating capital following the Merger, the Company may be
unable to secure switching services at attractive prices in the markets in which
such services would be most beneficial to it, and the Company may be forced to
delay implementation of, or to modify, its Network strategy. There can be no
assurance that the Company will be able to secure switching services at
attractive prices in additional markets, or that the Company will be able to
accomplish its Network strategy so as to achieve the anticipated benefits
therefrom.

Further, 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

<PAGE> 11
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. On the basis of subsequent switch implementations 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 eight switches
installed and currently in use, certain of the planned services (including
inbound 800 and dedicated lines services) are not yet available on all of such
switches. Delays in the provision of these services by US One could delay
potential cost savings to Phoenix of using US One switches.

The Comdisco transmission lines are leased from other transmission
providers and are currently in place. Under the Company's Agreement with
Comdisco, 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 dial tone service, either
utilizing its own capabilities if the Merger is consummated, or reselling the
wholesale dial tone product of a switching service provider or other outside
vendor. In either event, local dial tone service is an area in which Phoenix has
no experience. The costs of providing such service and the related increased
customer service support and marketing costs could be substantial.

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 85% 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 Phoenix's Network
is fully deployed and loaded, and even thereafter 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

<PAGE> 12
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 other
vendors to provide it promptly with the detailed information on which Phoenix
bases customer billings. Any failure of such carriers or vendors to provide
accurate information on a timely basis could have a material adverse effect on
Phoenix's ability to recover charges from its customers.

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 dial tone
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 its own or resold local dial
tone service, or what further actions the FCC may take in response to the
ultimate outcome of the case.

<PAGE> 13
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
and Chief Executive Officer or Jon Beizer, Phoenix's Senior Vice President and
Chief Financial Officer, could have a material adverse effect on Phoenix.
Phoenix intends to announce in the next 60 days that it is naming a new Vice
President of Sales and Marketing, and the Company may interview candidates for a
new position of Chief Operating Officer. 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.
Until mid-April 1997, Messrs. Max E. Thornhill and David Singleton were
directors of both Phoenix and US One. Messrs. Thornhill and Singleton have
resigned from the Board of Directors of US One, but continue to own stock in
both companies. As a result, certain conflicts of interest may arise in the
future in connection with the implementation of Phoenix's agreements with US One
and the negotiation of any new agreements, including definitive agreements for
the Merger, between Phoenix and US One.

Control by Officers and Directors. As of December 31, 1996, Phoenix's
executive officers and directors beneficially owned or controlled approximately
25.6% of the outstanding shares of Phoenix's Common Stock, on a fully diluted
basis (assuming full conversion of preferred stock). 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, approve,
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 5,099,886 Shares, which represents approximately 19.3% of
Phoenix's total outstanding shares of Common Stock. Although 4,677,622 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 $1,266,672 for
422,224 of the Shares if the Selling Stockholders exercise their warrants to
acquire 422,224 Shares. The proceeds, if any, from the exercise of the warrants
will be added to the Company's working capital. See "Selling Stockholders."

<PAGE> 14
SELLING STOCKHOLDERS

The Selling Stockholders were issued shares of the Company's Series F
Preferred Stock and warrants (the "Warrants") to purchase shares of Common Stock
on October 20, 1995 in a private placement. Pursuant to the terms of the Series
F Preferred Stock, on December 14, 1996, each share of Series F Preferred Stock
was converted into 4.414 shares of Common Stock which included accrued but
unissued dividends payable in Common Stock on the Series F Preferred Stock.

In each case, the issuance of securities by Phoenix to the Selling
Stockholders was undertaken pursuant to Section 4(2) of the Securities Act and
under Regulation D promulgated thereunder.

In addition, in connection with the private placement of the Series F
Preferred Stock described above, the Company and each Selling Stockholder
entered into a stock purchase agreement (the "Stock Purchase Agreement")
providing, among other things, for the registration of the Common Stock issuable
upon conversion of the Series F Preferred Stock and for the registration of the
Common Stock underlying the Warrants.

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
April 7, 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. Except as provided below,
the Selling Stockholders have not held any positions or offices with, been
employed by, or otherwise had a material relationship with, the Company or any
of its predecessors or affiliates since April 1, 1994.

<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>
DL JSC Robert B. Mims IRA(4) 36,166 * 36,166 -- --
Gerald Acker(5) 12,132 * 12,132 -- --
Dennis C. Allen(5) 12,052 * 12,052 -- --
Jan B. Allen(5) 12,052 * 12,052 -- --
Carl J. Aycock(6) 48,140 * 48,140 -- --
Bailey Properties(5) 15,535 * 12,035 3,500 *
Tillman Branch(7) 24,264 * 24,264 -- --
Delaware Charter Guaranty & Trust
Co. Cust: Alan R. Brudos By
Hambrecht & Quist LLC per the
limited Power of Attorney(8) 4,818 * 4,818 -- --
Michael A. Burford(6) 49,053 * 49,053 -- --
Joseph Burnett MDPA Profit
Sharing Plan(6) 48,528 * 48,528 -- --
Joseph Burnett, MD(7) 24,264 * 24,264 -- --
Marion Van Cooley(7) 24,378 * 24,378 -- --
Danny M. Dunnaway Charitable
Remainder Unitrust(7) 24,383 * 24,383 -- --
Michael D. Easterly(9) 24,132 * 24,132 -- --
Fremont Proactive Partners, L.P.(7)(10) 74,345 * 24,343 50,002 *
John Harvey(5) 12,268 * 12,268 -- --
Randy Wallace(5) 12,268 * 12,268 -- --
Albert H. Hennington(7) 24,383 * 24,383 -- --
George P. Hennington(7) 24,264 * 24,264 -- --
T.W. Hickman, Jr. or Mac Hickman(5) 12,189 * 12,189 -- --
V. Jason Horrell(11) 15,170 * 9,703 5,467 *
</TABLE>

<PAGE> 15

<TABLE>
<S> <C> <C> <C> <C> <C>
JE & JW Hudson Rentals, Inc. Profit
Sharing Plan(6) 48,749 * 48,749 -- --
The Ingram Management Trust dtd
8/26/94 Doris S. Ingram Trustee(12) 40,151 * 29,351 10,800 *
Irby Construction Company(13) 245,321 * 245,321 -- --
Braxter P. Irby, Jr.(5) 12,035 * 12,035 -- --
Charles L. Irby(5)(14) 12,260 * 12,260 -- --
A. Percy Jerome(7) 24,378 * 24,378 -- --
Jupiter Partners(6) 103,917 * 48,298 55,619 *
James R. Justice(7) 24,800 * 24,259 541 *
Dan T. Keel, III(4) 36,188 * 36,188 -- --
James Dudley Keene & Slyvia Jane
Keene(5) 12,189 * 12,189 -- --
Kemp Real Estate Company(7) 24,529 * 24,529 -- --
R.L. Kemp, Jr.(7) 24,529 * 24,529 -- --
David H. Knapp Trustee or Lynda Knapp
Underwood Trustee for A. John Knapp,
Jr. Trust u/w/o Alfred Knapp dtd 9/9/89
ID #76-6059777(6) 48,223 * 48,223 -- --
Jacek M. Koson(7) 24,070 * 24,070 -- --
Lagunitas Partners, L.P.(15)(16) 526,069 2.0% 146,084 379,985 1.5%
Delaware Charter Guaranty & Trust Co.
Cust: Robert W. LeDoux by Hambrecht
& Quist LLC per the limited Power of
Attorney(8) 4,818 * 4,818 -- --
Frank L. Leggett, MD(6) 48,757 * 48,757 -- --
W. Mark Lewis(6) 49,062 * 49,062 -- --
Raymond James & Associates, Custodian
for John E. Lynch, IRA(5) 12,251 * 12,251 -- --
Lawrence A. Manica & Charla M
Manica JTWROS(5) 17,639 * 12,035 5,604 *
William P. Martin, Jr 8,903 * 8,903 -- --
Barbara H. Martin 2,225 * 2,225 -- --
William P. Martin, Sr.(7) 13,129 * 13,129 -- --
Jo Ann Maxwell Rogers(7) 24,524 * 24,524 -- --
Michael S. McCord(6) 204,225 * 48,519 155,706 *
Dale G. McGee(6) 48,691 * 48,691 -- --
Aaron P. Acker(7) 24,529 * 24,529 -- --
Mick Mithelavage(5) 13,934 * 12,132 1,802 *
Tom L. Moak(7) 24,529 * 24,529 -- --
Byron Fleet Morris(7) 29,520 * 24,520 5,000 *
Trust Mark National Bank Trustee for
Louis Mullen Profit Sharing Plan(7) 24,070 * 24,070 -- --
Louis Mullen(6) 48,140 * 48,140 -- --
Patsy T. Mullen(7) 24,070 * 24,070 -- --
Nicholson & Company, PA Profit
Sharing Plan(7) 24,502 * 24,502 -- --
Ronald B. Pruet, Jr.(7) 24,361 * 24,361 -- --
Ronny Robinson & Gayera L. Robinson(7) 24,343 * 24,343 -- --
C. Lanier Robinson, III(7) 24,224 * 24,224 -- --
Rowell Family Limited Partnership, James
A. Rowell, Jr.(17) 96,911 * 96,911 -- --
Charles A. Saenger(5) 12,052 * 12,052 -- --
Jill A. Saenger(5) 12,052 * 12,052 -- --
</TABLE>

13
<PAGE> 16
<TABLE>
<S> <C> <C> <C> <C> <C>
Leo C. Saenger, Jr. Revocable Living
Trust dtd 1/9/90 Leo C. Saenger, Jr.
Trustee(18)(19) 72,338 * 72,338 -- --
Leo C. Saenger, III Revocable Trust #1(5) 12,052 * 12,052 -- --
Sadac, Inc.(18) 72,338 * 72,338 -- --
Union Planters Bank, Custodian under
Agreement for Leo C. Saenger Family
Trust(20) 14,464 * 14,464 -- --
Robert Clayton Sansing TTEE U/A dtd
6/24/93 Rev. Trust(21) 116,476 * 116,476 -- --
David L Saulters Ex. Est. Vernon LaRue
Saulters(7) 24,264 * 24,264 -- --
Richard A. Shubert(20) 14,468 * 14,468 -- --
Joey Kim Sessums(5) 12,189 * 12,189 -- --
Frederick K. Shaftman(6) 48,462 * 48,462 -- --
Robert E. Simmons(7)(22) 29,529 * 24,529 5,000 *
Sims & Sims (A MS General
Partnership)(23) 65,854 * 65,854 -- --
J. David Singleton & Karen Elizabeth
Conerly Singleton Charitable
Trust(15)(24) 144,680 * 144,680 -- --
Janet Clare Smith(5) 12,052 * 12,052 -- --
William D. Sones(7) 24,378 * 24,378 -- --
Alva Terry Staples(6) 48,519 * 48,519 -- --
IRA of James H. Sturges(6)(25) 48,704 * 48,704 -- --
Bonnie P. Thornhill(26) 300,875 1.2% 300,875 -- --
Max E. Thornhill(27) 834,696 3.2% 830,415 4,281 *
Max E. & Bonnie P. Thornhill
Foundation(13)(28) 240,700 * 240,700 -- --
William R. Walker Profit Sharing Trust(20) 14,539 * 14,539 -- --
Thomas P. Weirich DDS, Inc. Profit
Sharing Plan for Employees(7) 14,200 * 9,543 4,657 *
Kary G. Whitehead MD(7) 24,524 * 24,524 -- --
Thomas B. Whitehead(7) 24,524 * 24,524 -- --
Edward H. Williford(5) 12,251 * 12,251 -- --
Herman T. Wilson(17) 96,800 * 96,800 -- --
Dennis William Patrick Hallahane(29) 12,029 * 12,029 -- --
Compass Investment Management
Limited(30) 16,843 * 16,843 -- --
John E. Hayes, Jr.(7) 24,070 * 24,070 -- --
Michael F. Lewis(7)(31) 24,070 * 24,070 -- --
Proactive Partners, L.P.(32) 1,408,447 5.3% 608,431 800,016 3.0%
Alan Zafran & Judy Lee Zafran, Trustees
for the Zafran Family 1995 Trust u/t/a
12/10/95(6) 48,484 * 48,484 -- --
The Stribling Family Trust(6) 48,757 * 48,757 -- --
Dott Dillard Cannon Living Trust(7) 24,529 * 24,529 -- --
Morgan Keegan and Co., Cust f/b/o
Donald V. Conerly, MD - IRA(7)(33) 24,352 * 24,352 -- --
Robert E. Hennington(6) 26,378 * 26,378 -- --
Roger S. Wirtz 22,378 * 22,378 -- --
</TABLE>
- ----------------------------------
* Less than one percent

(1) Unless otherwise indicated below, the persons named in the table have
sole voting and investment power with

<PAGE> 17
respect to all shares beneficially owned by them, subject to community
property laws where applicable.

(2) Applicable percentage of ownership is based on 25,914,745 shares of
Common Stock outstanding on April 25, 1997.

(3) Assumes the sale of all shares offered hereby.

(4) Includes 3,000 shares issuable pursuant to a currently exercisable
Warrant.

(5) Includes 1,000 shares issuable pursuant to a currently exercisable
Warrant.

(6) Includes 4,000 shares issuable pursuant to a currently exercisable
Warrant.

(7) Includes 2,000 shares issuable pursuant to a currently exercisable
Warrant.

(8) Includes 400 shares issuable pursuant to a currently exercisable
Warrant.

(9) Includes 2,001 shares issuable pursuant to a currently exercisable
Warrant.

(10) The general partner of Fremont Proactive Partners, L.P., a California
limited partnership, is Proactive Investment Managers, L.P., a
California limited partnership ("PIM") of which Mr. Charles C.
McGettigan, a Director of the Company, and Mr. Myron A. Wick, III, a
former Director of the Company, are general partners.

(11) Includes 800 shares issuable pursuant to a currently exercisable
Warrant.

(12) Includes 2,400 shares issuable pursuant to a currently exercisable
Warrant. M.D. Ingram, Trustee of The Ingram Management Trust dtd
8/26/94 Doris S. Ingram, is a Director of a privately held company of
which Mr. J. David Singleton, a Director of the Company, is also a
Director.

(13) Includes 20,000 shares issuable pursuant to a currently exercisable
Warrant.

(14) Excludes (i) 225,321 shares held by Irby Construction Company and (ii)
20,000 shares issuable pursuant to a currently exercisable Warrant held
by Irby Construction Company all of which are reported elsewhere on the
table above. Mr. Irby is the President of Irby Construction Company and
may be deemed to be the beneficial owner of the securities held by Irby
Construction Company. Mr. Irby is a Director of US ONE Communications
Corp. ("US One"). Messrs. Max E. Thornhill and J. David Singleton,
Directors of the Company, are stockholders of US One and were Directors
of US One until mid April, 1997. The Company has entered into a letter
of intent, dated April 21, 1997, to merge with US One, with the Company
as the surviving entity. See the Company's Current Report on Form 8-K,
as filed with the SEC on April 25, 1997, which is incorporated herein
by reference. Prior to the signing of the letter of intent, the Company
had entered into an agreement with US One for the use of its long
distance switches, only some of which have been deployed to date. See
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.

(15) Includes 12,000 shares issuable pursuant to a currently exercisable
Warrant.

(16) The general partners of Lagunitas Partners, L.P., a California limited
partnership, are Gruber & McBaine Capital Management, a California
corporation, and Messrs. Jon D. Gruber and J. Patterson McBaine.
Messrs. Gruber and McBaine are also general partners of PIM.

(17) Includes 8,000 shares issuable pursuant to a currently exercisable
Warrant.

(18) Includes 6,000 shares issuable pursuant to a currently exercisable
Warrant.

(19) Excludes (i) 66,338 shares held by Sadac, Inc. and (ii) 6,000 shares
issuable pursuant to a currently exercisable Warrant held by Sadac,
Inc. all of which are reported elsewhere on the table above. Mr.
Saenger is the President of Sadac, Inc. and may be deemed to be the
beneficial owner of the securities held by Sadac, Inc.

(20) Includes 1,200 shares issuable pursuant to a currently exercisable
Warrant.

(21) Includes 9,600 shares issuable pursuant to a currently exercisable
Warrant.

(22) Mr. Simmons is the son-in-law of Mr. Max E. Thornhill, a Director of
the Company.

(23) Includes 5,400 shares issuable pursuant to a currently exercisable
Warrant.

(24) Does not include (i) 3,000 shares of Common Stock and (ii) 4,281 shares
issuable pursuant to currently exercisable options held by Mr. J. David
Singleton. Mr. Singleton is a Director of the Company.

(25) Mr. Sturges is Chief Executive Officer and Chairman of the Board of US
One. Messrs. Max E. Thornhill and J. David Singleton, Directors of the
Company, are stockholders of US One and were Directors of US One until
mid April, 1997.The Company has entered into a letter of intent, dated
April 21, 1997, to merge with US One, with the Company as the surviving
entity. See the Company's Current Report on Form 8-K, as filed with the
SEC on April 25, 1997, which is incorporated herein by reference. Prior
to the signing of the letter of intent, the Company had entered into an
agreement with US One for the use of its long distance switches, only
some of which have been deployed to date. See the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.

(26) Includes 25,000 shares issuable pursuant to a currently exercisable
Warrant. Excludes (i) 761,415 shares held by Mr. Max E. Thornhill, (ii)
69,000 shares issuable pursuant to currently exercisable Warrants held
by Mr.

<PAGE> 18
Thornhill, (iii) 4,281 shares issuable pursuant to currently
exercisable options held by Mr. Thornhill, (iv) 220,700 shares held by
the Max E. and Bonnie P. Thornhill Foundation and (v) 20,000 shares
issuable pursuant to a currently exercisable Warrant held by the Max E.
and Bonnie P. Thornhill Foundation, all of which are reported elsewhere
on the table above and all of which Mrs. Thornhill may be deemed to be
the beneficial owner. Mrs. Thornhill is the wife of Mr. Max E.
Thornhill, a Director of the Company.

(27) Includes (i) 69,000 shares issuable pursuant to a currently exercisable
Warrant and (ii) 4,281 shares issuable pursuant to currently
exercisable options held by Mr. Thornhill. Excludes (i) 275,875 shares
held by Mrs. Bonnie P. Thornhill, (ii) 25,000 shares issuable pursuant
to currently exercisable Warrants held by Mrs. Thornhill, (iii) 220,700
shares held by the Max E. and Bonnie P. Thornhill Foundation and (iv)
20,000 shares issuable pursuant to a currently exercisable Warrant held
by the Max E. and Bonnie P. Thornhill Foundation, all of which are
reported elsewhere on the table above and all of which Mr. Thornhill
may be deemed to be the beneficial owner. Mr. Thornhill is a Director
of the Company.

(28) Mr. Max E. Thornhill may be deemed to be the beneficial owner of the
securities held by the Max E. And Bonnie P. Thornhill Foundation.

(29) Includes 999 shares issuable pursuant to a currently exercisable
Warrant.

(30) Includes 1,399 shares issuable pursuant to a currently exercisable
Warrant.

(31) Mr. Lewis is a Director of a privately held company of which Mr. J.
David Singleton, a Director of the Company, is also a Director.

(32) Includes (i) 50,225 shares issuable pursuant to currently exercisable
Warrants, (ii) 333,350 shares issuable upon the conversion of 50,000
shares of the Company's Series B Preferred Stock, and (iii) 333,333
shares issuable upon the conversion of 333,333 shares of the Company's
Series D Preferred Stock. The general partner of Proactive Partners,
L.P., a California limited partnership, is PIM, of which Mr.
McGettigan, a Director of the Company, and Mr. Myron A. Wick, III, a
former Director of the Company, are general partners.

(33) Dr. Conerly is the brother-in-law of Mr. J. David Singleton, a Director
of the Company.

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 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 Securities 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

<PAGE> 19
foregoing, the Selling Stockholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which provisions may limit the timing of purchases and
sales of shares of the Company's Common Stock by the Selling Stockholders.

Any securities covered by this Prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under that Rule rather
than pursuant to his Prospectus.

There can be no assurance that the Selling Stockholders will sell any
or all of the Shares offered by them hereunder.

The Company has agreed to indemnify the Selling Stockholders against
certain civil liabilities, including certain liabilities under the Securities
Act, in connection with the sale of the Shares.

LEGAL MATTERS

The validity of the securities offered hereby will be passed upon for
the Company by Slivka Robinson Waters & O'Dorisio, P.C., Denver, Colorado. A
shareholder of such firm serves as Secretary of the Company.

EXPERTS

The audited consolidated financial statements as of December 31, 1995
and 1996 and for each of the three years in the period ended December 31, 1996,
which are included in the Company's Annual Report on Form 10-K and the audited
consolidated financial statements and supplemental consolidated financial
statements of the Company, and the consolidated financial statements of
AmeriConnect, 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
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.

<PAGE> 20
---------------------

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..................................................12
Plan of Distribution..................................................16
Legal Matters.........................................................17
Experts...............................................................17
</TABLE>

5,099,886 SHARES

PHOENIX NETWORK, INC.

COMMON STOCK

PROSPECTUS

____________ , 1997

<PAGE> 21
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 .................................................$3,485
Legal expenses* ......................................................10,000
Accounting fees and expenses*..........................................2,000
Miscellaneous* ........................................................2,000
Total.....................................................$17,485
</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 the 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
ByLaws 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> 22
(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 this 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> 23
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> 24
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 June 18, 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 June 18, 1997.

<TABLE>
<CAPTION>
Signature Title
--------- -----

<S> <C>
/s/ Wallace M. Hammond President, Chief Executive Officer
- ------------------------------------------- and Director
Wallace M. Hammond (Principal Executive Officer)

/s/ Jon Beizer Senior Vice President and Chief
- ------------------------------------------- Financial Officer
Jon Beizer (Principal Financial and Accounting Officer)
</TABLE>

II-4

<PAGE> 25

/s/ Thomas H. Bell* Director
- ------------------------------------------
Thomas H. Bell

/s/ James W. Gallaway* Director
- ------------------------------------------
James W. Gallaway

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>

- ------------------

* Signed by Jon Beizer pursuant to a power
of attorney that was previously filed

By: /s/ JON BEIZER
--------------------------------------
Jon Beizer
Attorney-in-fact

II-5

<PAGE> 26
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
4.1 Certificate of Incorporation of the Registrant as amended to date,
filed as an exhibit to the Registrant's Registration Statement on
Form S-3 filed April 29, 1997 (Registration No. 333-26023) is hereby
incorporated by reference.
4.2 Bylaws of the Registrant filed as an exhibit to the Registrant's
Registration Statement on Form S-3 filed January 31, 1997, and
amended on Form S-3/A on February 12, 1997 (Registration No.
333-20923) is hereby incorporated by reference.
4.3 Form of Phoenix Network, Inc. Series F Preferred Stock and Warrant
Purchase Agreement.
5.1 Opinion of Slivka Robinson Waters & O'Dorisio, P.C.
23.1 Consent of Slivka Robinson Waters & O'Dorisio, P.C. (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 4.3

PHOENIX NETWORK, INC.

____________________________________________________________

SERIES F PREFERRED STOCK
AND WARRANT PURCHASE AGREEMENT
____________________________________________________________

OCTOBER 20, 1995
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1 - PURCHASE AND SALE OF SERIES F PREFERRED STOCK AND WARRANTS . . . . . . . . . . . . . . . . . 1.
1.1 Commitment to Purchase Series F Preferred . . . . . . . . . . . . . . . . . . . . . . . 1.
1.2 Commitment to Purchase Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.

SECTION 2 - CLOSING DATE; DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2.1 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
2.3 Additional Closings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.

SECTION 3 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . 2.
3.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
3.2 Corporate Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
3.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
3.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
3.5 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
3.6 Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
3.7 Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
3.8 Other Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 4.

SECTION 4 - INVESTMENT REPRESENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
4.1 Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
4.2 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
4.3 Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
4.4 Access to Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
4.5 Investor Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.

SECTION 5 - CONDITIONS TO PURCHASERS' OBLIGATIONS AT CLOSING . . . . . . . . . . . . . . . . . . . . . . 6.
5.1 Representations and Warranties Correct . . . . . . . . . . . . . . . . . . . . . . . . . 6.
5.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
5.3 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
5.5 Proceedings and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
5.6 Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
5.7 Consents and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
5.8 No Material Judgment or Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
5.9 Certificate of Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
5.10 Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.

SECTION 6 - CONDITIONS TO COMPANY'S OBLIGATIONS AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . 8.
6.1 Representations Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
6.2 No Material Judgment or Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
</TABLE>

i
<PAGE> 3

<TABLE>
<S> <C>
6.3 Stockholders Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.

SECTION 7 - CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
7.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.

SECTION 8 - REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
8.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
8.2 Demand Registration and Dividend Registration . . . . . . . . . . . . . . . . . . . . . 9.
8.3 Registration of Dividend Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.
8.4 Further Limitations on Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . 11.
8.5 Piggyback Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.
8.6 Expenses of Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
8.7 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
8.8 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.
8.9 Information by Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.
8.10 Transfer of Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.

SECTION 9 - POST-CLOSING COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.
9.1 Reserve Sufficient Shares for the Conversion Shares and Warrant Shares . . . . . . . . . 15.
9.2 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.

SECTION 10 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.
10.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.
10.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.
10.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.
10.4 Entire Agreement; Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.
10.5 Effect of Amendment or Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.
10.6 Rights of Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.
10.7 Exculpation Among Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.
10.8 Notices, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.
10.9 Delays or Omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.
10.10 State Corporate Securities Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.
10.11 Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.
10.12 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.
10.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.
10.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.
</TABLE>

ii
<PAGE> 4

PHOENIX NETWORK, INC.
SERIES F PREFERRED STOCK
AND WARRANT PURCHASE AGREEMENT

THIS SERIES F PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
("Agreement") is made as of October 20, 1995, by and among PHOENIX NETWORK,
INC., a Delaware corporation (the "Company"), and the investors listed on the
Schedule of Purchasers attached hereto as Exhibit A (the "Purchasers").

In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:

SECTION 1

PURCHASE AND SALE OF SERIES F PREFERRED STOCK AND WARRANTS

1.1 COMMITMENT TO PURCHASE SERIES F PREFERRED. Subject to the
terms and conditions hereof, at the Closing (as hereinafter defined) the
Company agrees to issue and sell to each Purchaser, and each Purchaser agrees,
severally and not jointly, to purchase from the Company, the number of shares
(collectively, the "Shares") of Series F Preferred Stock, par value $0.01 per
share, of the Company (the "Series F Preferred"), specified opposite such
Purchaser's name on the Schedule of Purchasers attached hereto as Exhibit A,
for the cash purchase price of Ten Dollars ($10.00) per share.

1.2 COMMITMENT TO PURCHASE WARRANTS. The Company agrees to issue
and sell to each Purchaser, and each Purchaser agrees, severally and not
jointly, to purchase a warrant (collectively, the "Warrants"), substantially in
the form attached hereto as Exhibit B, to purchase the number of shares of
common stock of the Company, par value $.001 per share (the "Common Stock"),
set forth opposite such Purchaser's name on the Schedule of Purchasers attached
hereto as Exhibit A at a purchase price of $0.01 per share. The exercise price
of each Warrant shall be $3.00 per share of Common Stock represented by such
Warrant, as adjusted pursuant to the terms of such Warrant.

SECTION 2

CLOSING DATE; DELIVERY

2.1 CLOSING DATE. The closing for the purchase and sale of the
Shares and the Warrants (the "Closing") shall be held at the offices of Cooley
Godward Castro Huddleson & Tatum, One Maritime Plaza, Suite 2000, San
Francisco, California on October 20, 1995 at

1.
<PAGE> 5

10:00 a.m., or at such other time and place as the Company and a majority in
interest of the Purchasers mutually agree (the "Closing Date").

2.2 CLOSING. At the Closing, the Company will deliver to each
Purchaser certificates registered in the name of such Purchaser or its designee
representing the number of Shares purchased by such Purchaser and a Warrant to
purchase the number of shares of Common Stock set forth opposite such
Purchaser's name in the Schedule of Purchasers attached hereto as Exhibit A,
against payment of the applicable purchase price therefor in the amount
specified in the Schedule of Purchasers by check or wire transfer payable to
the order of the Company.

2.3 ADDITIONAL CLOSINGS. If less than all of the authorized
shares of Series F Preferred are purchased at the Closing, the Company may, at
any time until thirty (30) days after the Closing, sell and issue the balance
of the authorized but unissued Series F Preferred, under purchase agreements
substantially similar to this Agreement, at an additional closing or closings
(hereinafter the "Additional Closing") at the same price per share as the
Series F Preferred purchased and sold at the Closing. The purchasers of such
remaining Series F Preferred shall be deemed "Purchasers" and such shares of
Series F Preferred purchased by them shall be deemed "Series F Preferred" for
the purposes of this Agreement. The Additional Closings of the purchase and
sale of the Series F Preferred hereunder shall take place at such time and
place as the Company and the additional Purchasers may agree. In the event
that Additional Closings pursuant to this Agreement occur, the term "Closing"
with respect to such later sales of Series F Preferred shall refer to such
later closing or closings and the term "Closing Date" shall refer to the date
on which each such closing or Closings occur.

SECTION 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to each Purchaser as
follows:

3.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Delaware. The Company has all requisite corporate power to own and operate
its properties and assets and to carry on its business as presently conducted.
The Company is qualified to do business in all jurisdictions in which the
nature of the business conducted by it makes such qualification necessary.

3.2 CORPORATE POWER. The Company has all requisite legal and
corporate power and authority to execute and deliver this Agreement and the
Warrants, to perform its obligations under the terms of this Agreement and the
Warrants and to issue and sell the Shares, the shares of Common Stock issuable
upon conversion of the Shares (the "Conversion Shares"), the Warrants and the
shares of Common Stock issuable upon exercise of the Warrants (the "Warrant
Shares").

3.3 CAPITALIZATION. The authorized capital stock of the Company
consists of (i) 30,000,000 shares of Common Stock of which 14,246,954 shares
are issued and outstanding

2.
<PAGE> 6

as of the date hereof, and (ii) 5,000,000 shares of Preferred Stock consisting
of 300,000 authorized shares of Series A Preferred Stock of which 101,750
shares are issued and outstanding, 200,000 authorized shares of Series B
Preferred Stock of which 126,250 shares are issued and outstanding, 1,000,000
authorized shares of Series C Preferred Stock of which 1,000,000 shares are
issued and outstanding, 666,666 shares of Series D Preferred Stock of which
333,333 shares are issued and outstanding, 100,000 authorized shares of Series
E Preferred Stock of which 55,893 shares are issued and outstanding and
1,200,000 authorized shares of Series F Preferred Stock, _________ of which
will be issued and outstanding immediately after the Closing. Each share of
Series A Preferred Stock is convertible into 4.132 shares of Common Stock,
subject to certain antidilution provisions; each share of Series B Preferred
Stock is convertible into 6.667 shares of Common Stock, subject to certain
antidilution provisions; each share of Series C Preferred Stock is convertible
into two shares of Common Stock; each share of Series D Preferred is
convertible into one share of Common Stock and each share of Series E Preferred
Stock is convertible into four shares of Common Stock. All of the issued and
outstanding capital stock of the Company is duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights. Except for the
Preferred Stock, the Warrants and as set forth on Schedule 3.3 hereto, there
are no options, warrants, calls, subscriptions, conversion or other rights or
agreements obligating the Company to issue any shares of its capital stock or
any other securities. All of the outstanding shares of Common Stock (and
options and warrants to purchase Common Stock), Preferred Stock and other
outstanding securities of the Company have been duly and validly issued in
compliance with federal and state securities laws.

3.4 AUTHORIZATION. The execution, delivery and performance of
this Agreement by the Company and the consummation of the transactions
contemplated hereby (including the authorization, sale and issuance of the
Shares, the Conversion Shares, the Warrants and the Warrant Shares) and the
adoption, execution and filing of the Certificate of Designations for the
Series F Preferred with the Secretary of State of the State of Delaware, in the
form of Exhibit C hereto (the "Certificate of Designations"), have been duly
authorized by all necessary corporate action on the part of the Company. This
Agreement has been duly and validly executed and delivered by the Company.
This Agreement is, and the Warrants upon execution and delivery will be, the
legal, valid and binding obligations of the Company, enforceable in accordance
with their terms, subject to enforceability as to laws of general application
relating to bankruptcy, insolvency, the relief of debtors and to general
principles of equity. The Shares, the Conversion Shares and the Warrant
Shares, when issued in compliance with the provisions of this Agreement, will
be validly issued, fully paid and nonassessable, and will be free of any liens,
claims or encumbrances; provided, however, that the Shares, the Conversion
Shares and the Warrant Shares may be subject to restrictions on transfer under
state and/or federal securities laws as set forth herein. Neither the
issuance, sale or delivery of the Shares or the Warrants nor the issuance or
delivery of the Conversion Shares or the Warrant Shares is subject to any
preemptive right of stockholders of the Company or to any right of first
refusal or other right in favor of any person.

3.5 DISCLOSURE. The Company has previously delivered to each of
the Purchasers documents and other communications and information related to
the business of the Company. These documents have been prepared by the
management of the Company in a good faith effort

3.
<PAGE> 7

to describe the Company's business and markets. None of such documents, nor
any representation or warranty by the Company contained in this Agreement, nor
any other statement or certificate furnished or to be furnished to the
Purchasers pursuant hereto or in connection with the transactions contemplated
hereby by the Company (when read together) contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained therein or herein not misleading in
light of the circumstances under which they were made; except that no
representation whatsoever is made with respect to any projections that have
been or may be presented to any Purchaser.

3.6 VIOLATIONS. The Company is not in violation of, has not been
charged with violating, nor to the best of the Company's knowledge, is it under
investigation with respect to a possible violation of, any federal, state,
local or foreign law, statute, rule, governmental regulation, or order,
relating to the business and operations of the Company, to the extent such
violation would have a material adverse effect on the Company's business or
operations.

3.7 CONFLICTS. The execution and delivery of this Agreement and
the other documents to be executed and delivered in connection herewith do not,
and the fulfillment and compliance by the Company with the terms and conditions
hereof and thereof and the consummation of the transactions contemplated hereby
(including the issuance of the Shares, the Warrants, the Conversion Shares and
the Warrant Shares (collectively the "Securities")) will not (i) conflict with
any of the terms, conditions or provisions of the certificate of incorporation
or by-laws of the Company; (ii) violate any provisions of, or require any
consent, authorization or approval under, any law, rule or regulation or any
judicial decision, order, judgment, writ, injunction or decree applicable to,
or any governmental permit or license issued to, the Company; (iii) violate,
result in a breach of, or constitute a default under any of the terms,
conditions or provisions of any document, agreement or other instrument to
which the Company is a party or by which it or its properties are bound; or
(iv) result in the creation of any tax, charge, lien or encumbrance of any kind
whatsoever on any of the properties or assets of the Company.

3.8 OTHER REPRESENTATIONS AND WARRANTIES.

(a) The Company has filed all federal income tax returns
and all other federal and state tax returns which are required to have been
filed and has paid all taxes which are required to have been paid. The Company
has not been advised that any federal income tax returns of the Company have
been, or will be, examined or audited by the Internal Revenue Service.

(b) The Company is not in default or alleged default
under any lease, license, contract or agreement to which the Company is a party
or by which the Company is bound, to the extent such default would have a
material adverse effect on the Company's business or operations.

(c) The Company is not in default with respect to any
judgment, order, writ, injunction or decree of any court or governmental body
or entity, and the Company has complied with all laws, rules, regulations and
orders which are applicable to the Company or its business

4.
<PAGE> 8

as presently conducted, to the extent any such default or noncompliance would
have a material adverse effect on the Company's business or operations. The
Company has all necessary permits, licenses and other authorizations required
to conduct its business as conducted and proposed to be conducted. To the best
of the Company's knowledge, there is no existing law, rule, regulation or
order, and the Company after due inquiry is not aware of any proposed law,
rule, regulation or order, whether federal or state, which would prohibit or
restrict the Company from or otherwise materially adversely affect the Company
in, conducting its business in any jurisdiction in which it is now conducting
business or in which it proposes to conduct business.

(d) Except as set forth in Schedule 3.8(d) attached
hereto, no litigation, proceedings, investigations, arbitrations or claims are
pending or, to the best knowledge of the Company, threatened against the
Company, its officers or directors, or any of the Company's assets or
properties, or which question the validity of this Agreement or any action
taken or to be taken pursuant to or in connection with the provisions of this
Agreement, and the Company does not know of any basis for any such litigation,
proceedings, investigations, arbitrations or claims.

(e) For at least the past twenty-four (24) months, the
Company has filed all proxy statements, schedules and reports required to be
filed by it with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). None of such
reports when filed contained any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements or facts contained
therein not misleading, except to the extent any such report was corrected by a
subsequently filed report. The Company has delivered to the Purchasers true,
complete and accurate copies of all Forms 10-K and 10-Q.

(f) Assuming the truth and accuracy of certain
representations and warranties of the Purchasers contained herein, the issuance
of the Shares and the Warrants by the Company to the Purchasers complies with
all federal and state securities laws and is not required to be registered
under the Securities Act of 1933, as amended (the "Securities Act"), or any
other state or federal securities laws.

SECTION 4

INVESTMENT REPRESENTATION

Each Purchaser hereby represents and warrants (with respect to itself
only) to the Company as follows:

4.1 EXPERIENCE. Purchaser is experienced in evaluating and
investing in companies such as the Company.

4.2 INVESTMENT. Purchaser is acquiring the Shares and the
Warrants for investment for its own account and not with a view to, or for
resale in connection with, any distribution thereof, and it has no present
intention of selling or distributing any of the Securities in any

5.
<PAGE> 9

transaction that would be in violation of the securities laws of the United
States of America or any state thereof, without prejudice, however, to such
Purchaser's right at all times to sell or otherwise dispose of all or any part
of said Securities pursuant to an effective registration statement under the
Securities Act and applicable state securities laws, or under an exemption from
such registration available under the Securities Act and applicable state
securities laws. Purchaser understands that the Securities have not been
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act that depends upon, among other
things, the bona fide nature of the investment intent as expressed herein.

4.3 RULE 144. Purchaser acknowledges that, because they have not
been registered under the Securities Act, the Securities may not be sold or
transferred unless subsequently registered under the Securities Act or an
exemption from such registration is available. Purchaser is aware of the
provisions of Rule 144 promulgated under the Securities Act which permits
limited resale of securities purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the
existence of a public market for the securities of the Company, the
availability of certain current public information about the Company, the
resale occurring not less than two years after a party has purchased and paid
for the security to be sold, the sale being through a "broker's transaction" or
in transactions directly with a "market maker" (as provided by Rule 144(f)) and
the number of shares being sold during any three-month period not exceeding
specified limitations (unless the sale is within the requirements of Rule
144(k)).

4.4 ACCESS TO DATA. Purchaser has been furnished with such
materials and has been given access to such information relating to the Company
as it or its professional advisor has requested and it has been afforded the
opportunity to ask questions regarding the Company and the Shares and Warrants,
all as it has found necessary to make an informed investment decision.

4.5 INVESTOR STATUS. Purchaser is either an "accredited investor"
within the meaning of Rule 501(a) of Regulation D as promulgated under the
Securities Act, or by reason of its business or financial experience, or the
business or financial experience of its professional advisor, it has the
capacity to protect its own interests in connection with this transaction, and
is able to bear the economic risk of losing its entire investment in the Shares
and the Warrants.

SECTION 5

CONDITIONS TO PURCHASERS' OBLIGATIONS AT CLOSING

The obligation of each Purchaser to purchase the Shares and the
Warrants at the Closing is subject to the fulfillment on or prior to the
Closing Date of the following conditions to the extent not waived by each
Purchaser:

5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations
and warranties made by the Company in Section 3 hereof shall be true, correct
and complete when made, and shall be true, correct and complete on the Closing
Date with same force and effect as if made on and as of the Closing Date.

6.
<PAGE> 10

5.2 COVENANTS. All covenants, agreements and conditions contained
in this Agreement to be performed by the Company on or prior to the Closing
Date shall have been performed or complied with in all respects.

5.3 COMPLIANCE CERTIFICATE. The Company shall have delivered to
the Purchasers a certificate, executed by the President of the Company, dated
the Closing Date, certifying to the fulfillment of the conditions specified in
Sections 5.1 and 5.2 of this Agreement.

5.4 OPINION OF COUNSEL. The Purchasers shall have received an
opinion of Cooley Godward Castro Huddleson & Tatum in substantially the form of
Exhibit C attached hereto.

5.5 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and their
counsel, and the Purchasers and their counsel shall have received all such
counterpart originals or certified or other copies of such documents as they
may reasonably request.

5.6 LAWS AND REGULATIONS. At the Closing, the purchase of the
Shares and the Warrants to be purchased by such Purchaser hereunder (i) shall
not be prohibited or enjoined (temporarily or permanently) by any applicable
law or governmental regulation of which the Company or a Purchaser is aware,
(ii) shall not subject such Purchaser to any penalty, or in its reasonable
judgment, other onerous condition under or pursuant to any applicable law or
governmental regulation and (iii) shall be permitted by the laws and
regulations of the jurisdictions to which such Purchaser is subject.

5.7 CONSENTS AND PERMITS. The Company shall have obtained all
consents, permits and authorizations, and made all filings and declarations
required in connection with the performance by the Company of the transactions
to be performed at or prior to the time of Closing by the Company pursuant to
this Agreement.

5.8 NO MATERIAL JUDGMENT OR ORDER. There shall not be any
judgment or order of a court or competent jurisdiction or any ruling of any
governmental agency which would prohibit the sale or issuance of the Shares and
the Warrants or subject the Company or such Purchaser to any material penalty
in the event of the sale or issuance of the Shares and the Warrants.

5.9 CERTIFICATE OF DESIGNATION. The Certificate of Designations
shall have been duly filed with the Secretary of State of the State of
Delaware.

5.10 STOCKHOLDERS AGREEMENT. The Stockholders Agreement shall have
been executed by the Company and each Purchaser.

7.
<PAGE> 11

SECTION 6

CONDITIONS TO COMPANY'S OBLIGATIONS AT CLOSING

The Company's obligation to sell the Shares and the Warrants at the
Closing is subject to the fulfillment on or prior to the Closing Date of the
following conditions to the extent not waived by the Company:

6.1 REPRESENTATIONS CORRECT. The representations made by each
Purchaser in Section 4 hereof shall be true, correct and complete when made,
and shall be true, correct and complete on the Closing Date with the same force
and effect as if made on and as of the Closing Date.

6.2 NO MATERIAL JUDGMENT OR ORDER. There shall not be any
judgment or order of a court of competent jurisdiction or any ruling of any
governmental agency which would prohibit the sale or issuance of the Shares or
the Warrants or subject the Company or any Purchaser to any material penalty in
the event of the sale or issuance of the Shares or the Warrants.

6.3 STOCKHOLDERS AGREEMENT. The Stockholders Agreement shall have
been executed by each Purchaser.

SECTION 7

CONFIDENTIALITY

7.1 CONFIDENTIALITY. Each Purchaser agrees that, except as
required by law or regulation or legal or judicial process upon the advice of
counsel, he or it will keep confidential and will not disclose or divulge any
confidential, proprietary or secret information (which information shall be so
identified at the time of disclosure thereof to each Purchaser) that such
Purchaser has obtained in connection with this investment or may obtain after
the date hereof relating to the Company unless such information is or becomes
publicly known or unless the Company gives its written consent to the
Purchaser's release of such information, except that no such written consent
shall be required (and Purchaser shall be free to release such information) if
such information is to be provided to Purchaser's lawyer, accountant, or to an
officer, director or partner of a Purchaser, provided that the Purchaser shall
inform the recipient of the confidential nature of such information, and shall
cause the recipient to treat the information as confidential.

SECTION 8

REGISTRATION RIGHTS

8.1 CERTAIN DEFINITIONS. As used in this Section 8, the following
terms shall have the following respective meanings:

8.
<PAGE> 12

"COMMISSION" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.

"HOLDER" shall mean any holder of outstanding Shares or
Warrants or Registrable Securities.

The terms "REGISTER", "REGISTERED" and "REGISTRATION" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement by the Commission.

"REGISTRABLE SECURITIES" means shares of the Company's Common
Stock (i) issued or issuable pursuant to the conversion of the Shares or
exercise of the Warrants or (ii) issued as a dividend or other distribution
with respect to, or in exchange or in replacement of, the Shares, the Warrant
Shares or such Common Stock, excluding in all cases, however (including
exclusion from the calculation of the number of outstanding Registrable
Securities), any Registrable Securities sold by a person in a transaction
registered under the Securities Act or a transaction pursuant to Rule 144, in
which his rights under this Section 8 are not transferred.

"REGISTRATION EXPENSES" shall mean all expenses incurred by
the Company in complying with Sections 8.2 hereof, including, without
limitation, all registration and filing fees, transfer taxes, fees of transfer
agents and registrars, fees and expenses of compliance with securities or blue
sky laws, fees of the National Association of Securities Dealers, Inc.,
printing expenses, messenger and delivery expenses, and fees and disbursements
of counsel for the Company, its independent certified public accountants,
underwriters (excluding discounts and commissions) and other persons retained
by the Company.

"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.

"SELLING EXPENSES" shall mean any fees of counsel for the
Holder, and all underwriting discounts and selling commissions applicable to
the sale of such Registrable Securities.

8.2 DEMAND REGISTRATION AND DIVIDEND REGISTRATION.

(a) If at any time after six (6) months from the date
hereof, Holders in excess of fifty percent (50%) of the Registrable Securities
(an "Initiating Holder") request (a "Request") in writing that the Company
effect a registration, the Company will:

(1) give written notice of the proposed
registration to all other Holders within ten (10) days after a Request; and

9.
<PAGE> 13

(2) use its best efforts to effect as soon as
practicable (but in no event later than sixty (60) days after the Request),
such registration (including, without limitation causing a registration
statement with respect thereto to be declared effective and obtaining
appropriate qualifications under blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder
or Holders joining in such request as are specified in a written request
received by the Company within twenty (20) days after receipt of such written
notice from the Company;

provided, however, that the Company shall not be obligated to
take any action to effect any such registration (or any related qualification
or compliance) pursuant to this Section 8.2(a):

(i) in any particular jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance unless the
Company is already subject to service in such jurisdiction and except as may be
required by the Securities Act;

(ii) if prior to receiving the Request,
the Board of Directors had determined to effect a registered underwritten
public offering of the Company's securities for the Company's account and the
Company had taken substantial steps (including, but not limited to, selecting a
managing underwriter for such offering) and is proceeding with reasonable
diligence and in good faith to effect such offering, in which case the Company
may defer the filing (but not the preparation) of a registration statement for
the requested registration and any required qualification or compliance in
connection therewith for a period of ninety (90) days after the effective date
of the Company's registration statement, provided, however, a deferral for
effecting a registration pursuant to this Section 8.2(a)(ii) shall be lifted,
and the requested registration shall be effected, if the proposed registration
for the Company's account is abandoned; or

(iii) after the Company has effected three
registrations pursuant to this Section 8.2(a), and each such registration has
been declared or ordered effective and no stop order, injunction, or other
order is issued interfering with such registration.

Subject to the foregoing clauses (i) through (iii), the
Company shall file a registration statement covering the Registrable Securities
so requested to be registered as soon as practicable (but in no event later
than thirty (30) days) after receipt of a Request.

(b) The Company may require, as a condition precedent to
its obligations under this Section 8.2, that all Holders participating in a
registration effected pursuant to this Section 8.2 so participate through a
single broker reasonably satisfactory to the Company.

10.
<PAGE> 14

(c) The Company may include securities for its own
account (or for the account of other stockholders) in such registration if the
number of Registrable Securities that would otherwise have been included by the
Holders in such registration and underwriting will not thereby be limited.

8.3 REGISTRATION OF DIVIDEND SHARES. No later than ten (10) days
prior to the payment of a dividend to holders of Series F Preferred in shares
of the Company's Common Stock (a "Dividend Payment Date"), the Company shall
effect a registration (including, without limitation causing a registration
statement with respect thereto to be declared effective and obtaining
appropriate qualification under blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other government requirements or regulations) to permit and
facilitate the distribution of any and all of the shares of Common Stock to be
distributed on such Dividend Payment Date.

8.4 FURTHER LIMITATIONS ON REGISTRATIONS. All Holders proposing
to distribute their securities through an underwriting effected pursuant to
Section 8.2 shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting by the Company. Notwithstanding Section 8.2(a), if the
Company and the underwriter determine that marketing factors require a
limitation of the number of shares to be underwritten in an offering pursuant
to Section 8.2(a), the underwriter may exclude some or all Registrable
Securities from any such registration and underwriting. In such case, the
Company shall so advise all Holders (except those Holders who have indicated to
the Company their decision not to distribute any of their Registrable
Securities through such underwriting), and the number of shares of Registrable
Securities that may be included in such registration and underwriting shall be
allocated among such Holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities owned by such Holders at the time
of filing the registration statement. No Registrable Securities excluded from
any underwriting pursuant to Section 8.2(a) by reason of the underwriter's
marketing limitation shall be included in such registration. If any Holder
disapproves of the terms of any such underwriting as a result of any such
limitation imposed by such underwriter, such person may elect to withdraw
therefrom by written notice to the Company and the underwriter. The
Registrable Securities and/or other securities so withdrawn from such
underwriting shall also be withdrawn from such registration; provided, however,
that, if by the withdrawal of such Registrable Securities a greater number of
Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Registrable
Securities in the registration the right to include additional Registrable
Securities in the same proportion used above in determining the underwriter
limitation.

8.5 PIGGYBACK REGISTRATION.

(a) If, at any time or from time to time, the Company
shall determine to register any of its securities, either for its own account
or the account of a security holder or holders

11.
<PAGE> 15

exercising their respective demand registration rights, other than a
registration relating solely to employee benefit plans on Form S-8 or similar
forms which may be promulgated in the future or a registration on Form S-4 or
similar forms which may be promulgated in the future relating solely to
Commission Rule 145 or a similar transaction, the Company will (i) promptly
give to each Holder written notice thereof (which shall include a list of the
jurisdictions in which the Company intends to attempt to qualify such
securities under the applicable blue sky or other state securities laws) and
(ii) include in such registration (and any related qualification under blue sky
laws or other compliance), and in any underwriting involved therein, all
Registrable Securities of such Holders as specified in a written request or
requests made within twenty (20) days after receipt of such written notice from
the Company.

(b) If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company
shall so indicate in the notice given pursuant to Section 8.5(a). In such
event the right of any Holder to registration pursuant to this Section 8.5
shall be conditioned upon such Holder's agreeing to participate in such
underwriting and in the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company or by
other holders exercising any demand registration rights. Notwithstanding any
other provision of this Section 8.5, if the underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the underwriter may exclude some or all Registrable Securities or
other securities from such registration and underwriting (hereinafter an
"Underwriter Cutback"). In the event of an Underwriter Cutback, the Company
shall so advise all Holders and the other holders distributing their securities
through such underwriting, and the number of Registrable Securities and other
securities that may be included in the registration and underwriting shall be
allocated among all holders thereof (including those holders who are exercising
their demand registration rights) on the basis that the holders who are not
Holders shall be cut back before any cutback of Holders. If the limitation
determined by the underwriter requires a cut-back of the Holders, then the
number of shares that may be included in the Registration and underwriting
shall be allocated among all Holders in proportion, as nearly as practicable,
to the respective amounts of securities entitled to inclusion in such
registration held by such Holders at the time of filing the registration
statement. If any Holder disapproves of the terms of any such underwriting,
such Holder may elect to withdraw therefrom by written notice to the Company
and the underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.

8.6 EXPENSES OF REGISTRATION. All Registration Expenses shall be
borne by the Company and all Selling Expenses shall be borne by the holders of
the securities so registered pro rata on the basis of the number of shares so
registered.

8.7 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to Sections 8.2,
8.3 or 8.5, the Company will keep each Holder advised in writing as to the
initiation of each registration (and any related

12.
<PAGE> 16

qualification and compliance) and as to the completion thereof. At its expense
the Company will use its best efforts to:

(a) Keep such registration (and any related qualification
or compliance) effective for a period of ninety (90) days or until the Holder
or Holders have completed the distribution described in the registration
statement relating thereto, whichever first occurs; and

(b) Furnish such number of prospectuses and other
documents incident thereto as a Holder from time to time may reasonably
request.

8.8 INDEMNIFICATION.

(a) The Company will indemnify each Holder, each of its
officers, directors, partners and legal counsel, and each person controlling
such Holder, with respect to which registration, qualification or compliance
has been effected pursuant to Sections 8.2, 8.3 or 8.5, and each underwriter,
if any, and each person who controls any underwriter against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on (i) any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other similar
document (including any related registration statement, notification or the
like) incident to any such registration (or related qualification or
compliance) or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made, or (ii) any violation by the Company of any federal, state or common law
rule or regulation applicable to the Company in connection with any such
registration (or related qualification or compliance), and will reimburse each
such Holder, each of its officers, directors, partners and legal counsel, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, as incurred, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by such Holder or underwriter and stated to be
specifically for use therein.

(b) Each Holder will, if Registrable Securities held by
such Holder are included in the securities as to which such registration (or
related qualification or compliance) is being effected, indemnify the Company,
each of its directors and officers, each legal counsel and independent
accountant of the Company, each underwriter, if any, of the Company's
securities covered by such a registration statement (or related qualification
or compliance), each person who controls the Company or such underwriter within
the meaning of the Securities Act, and each other such Holder, each of its
officers, directors, and partners and each person controlling such Holder,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other similar document (or

13.
<PAGE> 17

related qualification or compliance documents), or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and will reimburse the Company, such
Holders, such directors, officers, persons, underwriters or control persons for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
as incurred, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein.

(c) Each party entitled to indemnification under this
Section 8.8 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has received written notice of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld). The Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnifying Party
shall bear the expense of such defense of the Indemnified Party if
representation of both parties by the same counsel would be inappropriate due
to actual or potential conflicts of interest. The failure of any Indemnified
Party to give notice as provided herein shall relieve the Indemnifying Party of
its obligations under this Section 8.8 only to the extent that such failure to
give notice shall materially adversely prejudice the Indemnifying Party in the
defense of any such claim or any such litigation. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.

8.9 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration (or related qualification or
compliance) referred to in this Section 8.

8.10 TRANSFER OF REGISTRATION RIGHTS. The rights granted under
Sections 8.2, 8.3 and 8.5 may be assigned or otherwise conveyed by any Holder
to its stockholders, partners or former partners (or their estates), or to any
transferee who acquires shares of Registrable Securities; provided in each
case, that the Company is given written notice by such transferee at the time
of or within a reasonable time after said transfer, stating the name and
address of said transferee and said transferee's agreement to be bound by the
provisions of Section 8 of this Agreement.

14.
<PAGE> 18

SECTION 9

POST-CLOSING COVENANTS OF THE COMPANY

9.1 RESERVE SUFFICIENT SHARES FOR THE CONVERSION SHARES AND
WARRANT SHARES. The Company shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, for the purpose of
effecting the conversion of the Series F Preferred and the exercise of the
Warrants and otherwise complying with the terms of this Agreement, the Warrants
and the Certificate of Designations, such number of its duly authorized shares
of Common Stock as shall be sufficient to effect the conversion of the Series F
Preferred and the exercise of the Warrants from time to time outstanding or
otherwise to comply with the terms of this Agreement. If at any time the
number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of the Series F Preferred and the exercise
of the Warrants or otherwise to comply with the terms of this Agreement, the
Company will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such numbers of shares as
shall be sufficient for such purposes. The Company agrees to obtain any
authorization, consent, approval or other action by or make any filing with any
court or administrative body that may be required under applicable state
securities laws in connection with the issuance of shares of Common Stock upon
conversion of the Series F Preferred or exercise of the Warrants or the
issuance of the Dividend Shares.

9.2 NEGATIVE COVENANTS. So long as 240,000 shares of Registrable
Securities are outstanding, the Company agrees that it will not take any of the
following actions set forth below without the consent of each of the Series F
Directors (as defined in the Stockholders Agreement); provided, however, if
such directorships remain vacant for a period of 30 days following notice of
such vacancy to the holders of the Registrable Securities, then no consent
shall be required.

(a) LIMITATION ON ADDITIONAL INDEBTEDNESS. The Company
will not and will not permit any subsidiary to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable with respect to (collectively, "incur") any Indebtedness (as hereinafter
defined); provided, however, that the Company may incur up to an aggregate of
Twenty Million Dollars ($20,000,000) in Indebtedness. "Indebtedness" means (i)
any liability of the Company or any subsidiary (1) for borrowed money, or under
any reimbursement obligation relating to a letter of credit or a similar
instrument, (2) evidenced by a bond, note, debenture or similar instrument
(including a purchase money obligation), (3) for the balance deferred and
unpaid of the purchase price for any property (except for any such balance that
constitutes a trade payable in the ordinary course of business), or (4) for the
payment of money relating to a lease that is required to be classified as a
capital lease obligation in accordance with GAAP; and (ii) any liability of
others described in clause (i) that the Company or any subsidiary has
guaranteed, that is recourse to the Company or any subsidiary or that is
otherwise the legal liability of the Company or any subsidiary.

(b) LIMITATION ON SENIOR PREFERRED STOCK; PARI PASSU
STOCK; REDEEMABLE STOCK. The Company will not issue any Preferred Stock that
ranks prior to or on a parity with

15.
<PAGE> 19

the Series F Preferred as to dividends or upon liquidation, dissolution or
winding up of the Company, and the Company will not issue or permit any
subsidiary to issue any redeemable capital stock.

(c) LIMITATION ON REPURCHASE. Except as contemplated
hereby, the Company will not, and will not permit any subsidiary to, directly
or indirectly, purchase, redeem or otherwise acquire or retire for value any
capital stock of the Company or any of the Company's subsidiaries, other than
capital stock that is acquired pursuant to an employee stock repurchase program
or other employee stock repurchase rights held by the Company.

(d) LIMITATIONS ON ACQUISITIONS, MERGER OR SALE OF
SUBSTANTIALLY ALL ASSETS. The Company shall not and shall not permit any
subsidiary to acquire all or substantially all of the assets or capital stock
or voting securities of, or equity interests in, any other Person or to
consolidate with, merge with or into, or transfer, directly or indirectly by
lease, assignment, sale or otherwise, all or substantially all of its assets,
in one transaction or a series of related transactions to, any Person or to
enter into any agreement to do any of the foregoing. Notwithstanding the
foregoing, the consent of the Series F Directors shall not be required in (i)
any acquisition of assets with an aggregate purchase price of less than
$500,000 provided such acquisition is not part of a series of transactions
which would require consent hereunder or (ii) any transaction where the holders
of Series F Preferred receive securities of the acquiring corporation with
substantially identical terms to the Series F Preferred outstanding immediately
prior to the completion of the transaction. "Person" as used herein shall mean
any individual, partnership, joint venture, firm, corporation, association,
trust or other enterprise or any affiliate group of the foregoing.

SECTION 10

MISCELLANEOUS

10.1 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts between California residents entered into and to be performed
entirely within the State of California.

10.2 SURVIVAL. The representations, warranties, covenants and
agreements made by the parties herein shall survive any investigation made by
any Purchaser or the Company and shall survive the closing of the transactions
contemplated hereby indefinitely.

10.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.

10.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof. Any term of this Agreement may be

16.
<PAGE> 20

amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively) with the written consent of the Company and the holders of at
least sixty-six and two third percent (66 2/3%) in interest of the of the
outstanding Registrable Securities (including shares of Common Stock issuable
upon conversion of the Shares or exercise of the Warrants). Any amendment or
waiver effected in accordance with this section shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities have been converted), each
future holder of all such securities, and the Company.

10.5 EFFECT OF AMENDMENT OR WAIVER. Each Purchaser acknowledges
that by the operation of Section 10.4 hereof the holders of at least sixty-six
and two thirds percent (66 2/3%) in interest of the outstanding Registrable
Securities (including shares of Common Stock issuable upon conversion of the
Shares or exercise of the Warrants) will have the right and power to diminish
or eliminate all rights of such Purchaser under this Agreement.

10.6 RIGHTS OF PURCHASERS. Each holder of the Securities shall
have the absolute right to exercise or refrain from exercising any right or
rights that such holder may have by reason of this Agreement or such
Securities, including without limitation the right to consent to the waiver of
any obligation of the Company under this Agreement and to enter into an
agreement with the Company for the purpose of modifying this Agreement or any
agreement effecting any such modification, and such holder shall not incur any
liability to any other holder or holders of Securities with respect to
exercising or refraining from exercising any such right or rights.

10.7 EXCULPATION AMONG PURCHASERS. Except as set forth in Section
4.5, each Purchaser acknowledges that it is not relying upon any person, firm,
or corporation, other than the Company and its officers and directors, in
making its investment or decision to invest in the Company. Each Purchaser
agrees that no Purchaser nor the respective controlling person, officers,
directors, partners, agents, or employees of any Purchaser shall be liable for
any action heretofore or hereafter taken or omitted to be taken by any of them
in connection with the Shares.

10.8 NOTICES, ETC. All notices and other communications required
or permitted hereunder shall be in writing and shall be effective five (5) days
after mailed by first-class, registered, or certified mail, postage prepaid, or
upon delivery if delivered by hand or by messenger or a courier delivery
service or upon confirmation of receipt thereof if sent by facsimile or other
similar transmission, addressed (a) if to a Purchaser, at such Purchaser's
address set forth in the Schedule of Purchasers, or at such other address as
such Purchaser shall have furnished to the Company in writing, or (b) if to any
other holder of any Securities, at such address as such holder shall have
furnished the Company in writing, or, until any such holder so furnishes an
address to the Company, then to and at the address of the last holder of such
Securities who has so furnished an address to the Company, or (c) if to the
Company, (i) at the address set forth below or at such other address as the
Company shall have furnished to each Purchaser and each such other holder in
writing and (ii) with a copy to David R. Lee, Cooley Godward Castro Huddleson &
Tatum, One Maritime Plaza, Suite 2000, San Francisco, California 94111.

17.
<PAGE> 21

10.9 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Securities, upon any
breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of such holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereunder occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval
of any kind or character on the part of any holder of any breach or default
under this Agreement, or any waiver on the part of any holder of any provisions
or conditions of this Agreement, must be in writing and shall be effective only
to the extent specifically set forth in such writing. All remedies, either
under this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.

10.10 STATE CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED OR REGISTERED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA NOR WITH THE
APPLICABLE AUTHORITIES OF ANY OTHER STATE AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION OR REGISTRATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH
QUALIFICATION OR REGISTRATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH
CONSIDERATION BY THE COMPANY AND NOTWITHSTANDING ANY OTHER PROVISION IN THIS
AGREEMENT, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION OR REGISTRATION BEING OBTAINED OR AN
EXEMPTION FROM SUCH QUALIFICATION OR REGISTRATION BEING AVAILABLE.

10.11 FINDERS' FEES. Each party represents that it has not retained
the services of any finder or broker, and that it neither is nor will be
obligated for any finders' fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of
a finders' fee (and the costs and expenses of defending against such liability
or asserted liability) for which the Purchaser or any of its officers,
partners, employees, or representatives is responsible. The Company agrees to
indemnify and hold harmless each Purchaser from any liability for any
commission or compensation in the nature of a finders' fee (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its officers, employees, or representatives is
responsible. Each party will indemnify the others for damages resulting from
claims arising from the non-payment or reporting of any brokers' or finders'
fees that should have been paid or reported by such party hereunder.

10.12 EXPENSES. Except where expressly provided otherwise, the
Company and each Purchaser shall bear its own expenses and legal fees incurred
on its behalf with respect to this Agreement and the transactions contemplated
hereby.

18.
<PAGE> 22

10.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the Purchasers,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.

10.14 SEVERABILITY. In the case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.

19.
<PAGE> 23

The foregoing Series F Preferred Stock and Warrant Purchase Agreement
is hereby executed as of the date first above written.

PHOENIX NETWORK, INC. PURCHASER:

-------------------------------

By: By:
--------------------------------------- ----------------------------
Wallace M. Hammond
President and
Chief Executive Officer

ADDRESS:

550 California Street, 11th Floor
San Francisco, CA 94104

20.

<PAGE> 1
EXHIBIT 5.1

[SLIVKA ROBINSON WATERS & O'DORISIO LETTERHEAD]

June 17, 1997

Phoenix Network, Inc.
1687 Cole Boulevard
Golden, CO 80401

Re: Registration Statement on Form S-3, File No. 333-26271

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. 333-26271, 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.
June 17, 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/ Slivka Robinson Waters & O'Dorisio, P.C.
SLIVKA ROBINSON WATERS & O'DORISIO, P.C.

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

We have issued our reports dated March 12, 1997, accompanying the consolidated
financial statements of Phoenix Network, Inc. and subsidiaries appearing in the
1996 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, 1996. We have issued our reports dated March 28, 1996 (except for note A,
as to which the date is October 8, 1996) accompanying the 1995 consolidated
financial statements and supplemental consolidated financial statements of
Phoenix Network, Inc. and subsidiaries and our report dated February 16, 1996
accompanying the 1995 consolidated financial statements of AmeriConnect, Inc.
and subsidiaries appearing in the Company's Form 8-K dated January 23, 1997.
We consent to the incorporation by reference in the Form S-3 Registration
Statement (File No. 333-26271) 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

Denver, Colorado
June 16, 1997