Blueprint
Registration No.
333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FUSION CONNECT, INC.
(Exact name of registrant as specified in its charter)
Delaware
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58-2342021
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S. employer
identification number)
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420 Lexington Avenue, Suite 1718
New York, NY 10170
(212) 201-2400
(Address,
including zip code, and telephone number, including area code, of
registrant’s principal executive offices)
James P. Prenetta, Jr.
Executive Vice President and General Counsel
Fusion Connect, Inc.
420 Lexington Avenue, Suite 1718
New York, New York 10170
Telephone: (212) 201-2400
(Name,
address, including zip code, and telephone number, including area
code, of agent for service)
Copies to:
Merrill
B. Stone, Esq.
Kelley Drye & Warren LLP
101 Park Avenue
New York, New York 10178
Tel: (212)
808-7800
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration
Statement
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, please
check the following box. ☒
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 the 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 the
earlier effective registration statement for the same offering.
☐
If this
Form is a registration statement pursuant to General Instruction
I.D. or a post-effective amendment thereto that shall become
effective upon filing with the Commission pursuant to Rule 462(e)
under the Securities Act, check the following box. ☐
If this
Form is a post-effective amendment to a registration statement
filed pursuant to General Instruction I.D. filed to register
additional securities or additional classes of securities pursuant
to Rule 413(b) under the Securities Act, check the following
box. ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the
definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
Large
accelerated filer
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☐
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Accelerated
filer
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☐
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Non-accelerated
filer
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☐
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Smaller
reporting company
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☒
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(Do not check if
smaller reporting company)
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Emerging
growth company
|
☐
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 7(a)(2)(B) of Securities Act. ☐
CALCULATION OF REGISTRATION FEE
Title of each class of securities to be registered
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Amount to
be
registered (1)
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Proposed maximum
offering price per
unit
(2)
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Proposed maximum
aggregate offering
price
(2)
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Amount
of
registration fee
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Common Stock, par
value $0.01 per share (“Common Stock”)(3)
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12,474,078
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$4.23
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$52,765,349.94
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$6,570.00
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______________
(1)
Pursuant to Rule
416 under the Securities Act of 1933, there are also being
registered such additional number of shares as may be issuable as a
result of stock splits, dividends, reclassifications and similar
adjustment provisions applicable to the securities being
registered.
(2)
The proposed
maximum offering price per share and the proposed maximum aggregate
offering price for the secondary offering are estimated solely for
purpose of calculating the registration fee pursuant to Rule 457(c)
under the Securities Act of 1933, as amended (the “Securities
Act”), based on the average high and low prices per share of
the common stock as reported on The Nasdaq Global Market on May 31,
2018.
(3)
Consists of shares
of outstanding Common Stock.
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 this registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information in this prospectus is not complete and may be
changed. The selling stockholder may not sell or offer these
securities until the registration statement filed with the
Securities and Exchange Commission is declared effective. This
prospectus is not an offer to sell these securities and neither
Fusion nor the selling stockholder is soliciting an offer to buy
these securities in any state where the offer or sale is not
permitted.
PRELIMINARY PROSPECTUS
Subject to Completion, dated June 1, 2018
FUSION CONNECT, INC.
12,474,078 shares of Common Stock
This
prospectus covers the resale of a total of 12,474,078 shares of
issued and outstanding common stock of Fusion Connect, Inc., par
value $0.01 per share (the “Common Stock”), which may
be offered from time to time by the selling stockholder identified
elsewhere in this prospectus.
We are
registering these shares of Common Stock for resale by the selling
stockholder named in this prospectus, or its respective successors
and permitted assigns, to fulfill our contractual obligation under
a registration rights agreement between the selling stockholder and
us, as described under the section entitled “Selling
Stockholder.” We will not receive any proceeds from the sale
of these shares by the selling stockholder. These shares are being
registered to permit the selling stockholder to sell shares from
time to time, in amounts, at prices and on terms determined at the
time of sale. The selling stockholder may sell these shares through
ordinary brokerage transactions, directly to market makers for our
shares of Common Stock or through any other means described
elsewhere in this prospectus under the caption “Plan of
Distribution.” The prices at which the selling stockholder
may sell the shares of Common Stock will be determined by
prevailing market prices or through privately negotiated
transactions. We do not know when or in what amount the selling
stockholder may offer these shares of Common Stock for
sale.
Our
Common Stock is currently quoted on The Nasdaq Global Market and
trades under the symbol “FSNN.” On May 31, 2018, the
closing price for our Common Stock on The Nasdaq Global Market was
$3.91 per share.
This investment involves a high degree of risk. You should purchase
these securities only if you can afford a complete loss of your
investment. See “Risk Factors” beginning on page
12.
Neither the Securities and Exchange Commission (the
“SEC”) nor any state securities commission has approved
or disapproved of these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a
criminal offense.
The
date of this prospectus is __________, 2018.
TABLE OF CONTENTS
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Page
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About this Prospectus
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1
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Cautionary Statement Regarding Forward-Looking
Statements
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1
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Prospectus Summary
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2
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About Fusion
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3
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Recent Developments
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3
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Risk Factors
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6
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Use of Proceeds
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18
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Selling Stockholder
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18
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Plan of Distribution
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19
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Certain Provisions of Delaware Law and Fusion’s Amended and
Restated Certificate of Incorporation and Amended and Restated
Bylaws
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21
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Validity of the Securities
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23
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Experts
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23
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Where You Can Find More Information
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24
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Information Incorprated By Reference
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24
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Limitation of Liability and SEC Position on Indemnification for
Securities Act Liabilities
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25
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ABOUT THIS PROSPECTUS
In this
prospectus, unless the context otherwise requires,
“Fusion,” the “Company,” “we,”
“us,” and “our” are references to
Fusion Connect, Inc. and its consolidated
subsidiaries.
This
prospectus is part of a registration statement that we filed with
the SEC. This prospectus does not contain all of the information
included in the registration statement. For a more complete
understanding of the offering of the shares of Common Stock, you
should refer to the registration statement, including its exhibits.
The selling stockholder may from time to time sell up to 12,474,078
shares of our Common Stock as described in this prospectus under
the caption "Plan of Distribution."
You
should rely only on the information contained in this prospectus or
any related prospectus supplement, including the content of all
documents now or in the future incorporated by reference into the
registration statement of which this prospectus forms a part.
Neither we nor the selling stockholder (nor any of our or its
respective affiliates) has authorized anyone to provide you with
any information other than the information contained in or
incorporated by reference in this prospectus or in any prospectus
supplement and in the documents incorporated by reference herein.
We and the selling stockholder take no responsibility for, and can
provide no assurance as to the reliability of, any other
information that others may give you. Neither we nor the selling
stockholder is making an offer of the shares of our Common Stock to
be sold under this prospectus in any jurisdiction where such offer
or sale is not permitted. You should not assume that the
information contained in this prospectus or any related prospectus
supplement is accurate as of any date other than the date on the
front cover of this prospectus or the related prospectus
supplement, or that the information contained in any document
incorporated by reference is accurate as of any date other than the
date of the document incorporated by reference. Other than as
required by law or as explicitly set forth in this prospectus, we
undertake no obligation to publicly update or revise such
information, whether as a result of new information, future events
or any other reason.
This
prospectus contains forward-looking statements that are subject to
a number of risks and uncertainties, many of which are beyond our
control. See the sections entitled “Risk Factors” and
“Cautionary Statement Regarding Forward-Looking
Statements.”
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
The SEC
encourages companies to disclose forward-looking information so
that investors can better understand a company’s future
prospects and make informed investment decisions. Certain
statements contained in this prospectus regarding the
Company’s business and operations may include
“forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange
Act”). All statements in this prospectus, other than
statements of historical fact, which address activities, events or
developments that we expect or anticipate will or may occur in the
future, including such things as growth, future capital
expenditures, sales, business strategy and other similar matters
are forward-looking statements. In some cases you can identify
forward looking statements by terminology such as
“anticipates,” “expects,”
“intends,” “may,” “should,”
“plans,” “believes,”
“predicts,” “potential” or the negative of
these terms or other similar expressions or phrases. These
statements are only predictions. Actual events or results may
differ materially.
Although we believe
that the expectations reflected in the forward-looking statements
are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we,
nor any other person, assume responsibility for the accuracy and
completeness of the forward-looking statements. We are under
no obligation to update any of the forward-looking statements after
the date of this prospectus and any applicable prospectus
supplement to conform such statements to actual results or to
changes in our expectations.
Such
forward-looking statements are and will be subject to many risks,
uncertainties and factors relating to our operations and the
business environment that may cause our actual results to be
materially different from any future results, express or implied,
by such forward-looking statements. You are also urged to
carefully review and consider the various disclosures made by us
that attempt to advise interested parties of the factors that
affect our business, including, without limitation, the disclosures
made in our most recent Annual Report on Form 10-K, as amended or
supplemented, and our subsequent Quarterly Reports on Form 10-Q, as
well as any amendments thereto, and in out other filings under the
Exchange Act, as filed with the SEC and which are incorporated
herein by reference. Factors that could cause actual results to
differ from those contained in the forward-looking statements
include, but are not limited to:
●
our ability to
develop and market new products and services that meet customer
demands and generate acceptable margins;
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our ability to
negotiate and enter into acceptable contract terms with our
suppliers;
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our ability to
attract and retain qualified management and other
personnel;
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competition in the
industry in which we do business;
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failure of the
third-party communications networks on which we
depend;
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legislation or
regulatory environments, requirements or changes adversely
affecting the businesses in which we are engaged;
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our ability to
maintain adequate liquidity and produce sufficient cash flow to
fund our capital expenditures and debt service;
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our ability to
obtain capital to grow our business;
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technological
developments and changes in the industry;
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our ability to
complete acquisitions and to integrate any business or operation
acquired; and
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general economic
conditions.
In
light of the significant risks and uncertainties to which our
forward-looking statements are subject, you should not place undue
reliance on or regard these statements as a representation or
warranty by us or any other person that we will achieve our
objectives and plans in any specified time frame, or at
all. These forward-looking statements represent our estimates
and assumptions only as of the date of this prospectus regardless
of the time of delivery of this prospectus or any sale of our
Common Stock hereunder and, except as required by law, we undertake
no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events
or otherwise after the date of this prospectus. For all
forward-looking statements, we claim the protection of the safe
harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
PROSPECTUS SUMMARY
Because this is a summary, it does not contain all the information
about us that may be important to you and that you should consider
in making your investment decision. To understand this offering
fully, you should read this summary together with the additional
detailed information included elsewhere in this prospectus, or
incorporated by reference into this prospectus, including our
financial statements and the related notes. You should carefully
consider, among other things, the matters discussed herein under
“Risk Factors.”
As more fully described elsewhere in this prospectus, we have
incorporated certain reports and other information we previously
filed with the SEC into this prospectus. To the extent that this
prospectus includes information as of a later date than the
information incorporated by reference, the information in this
prospectus updates and supersedes such previous filed
information.
Our Company
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Fusion
Connect, Inc. (“Fusion”), through its various
subsidiaries (collectively, “we,” “us,”
“our” or the “Company”), offers a
comprehensive suite of cloud communications, cloud connectivity,
cloud infrastructure, cloud computing, managed cloud-based
applications solutions, and business services to small, medium and
large businesses. Our advanced, proprietary cloud services
platforms, as well as our state-of-the art switching systems, 100%
Internet Protocol-based network, that includes 31,000 route miles
of fiber, enable the integration of leading edge solutions in the
cloud, increasing customer collaboration and productivity by
seamlessly connecting employees, partners, customers and
vendors.
We are
focused on becoming our customers’ single source for
leveraging the increasing power of the cloud, providing a robust
package of what we believe to be the essential services that form
the foundation for their successful migration to, and efficient use
of, the cloud. Our core products and services include cloud
voice and unified communications as a service, or UCaaS, improving
communication and collaboration on virtually any device, virtually
anywhere, and cloud connectivity services, securely and reliably
connecting customers to the cloud with managed network solutions
that are designed to increase quality and optimize network
efficiency. Our cloud computing and infrastructure as a
service, or IaaS, solutions are designed to provide our larger
enterprise customers with a platform on which additional cloud
services can be layered. Complemented by software as a
service, or SaaS, solutions such as storage, security and business
continuity, our advanced cloud offerings include private and hybrid
cloud, storage, backup and recovery and secure file sharing that
allow our customers to experience the increased efficiencies and
agility delivered by the cloud. Our cloud-based services are
flexible, scalable and rapidly deployed, reducing our
customers’ cost of ownership while increasing their
productivity.
As a
result of our acquisition of a number of cloud services businesses
over the past five years, Fusion has expanded its business customer
base to over 150,000 customer accounts, increased its distribution
network to over 800 active distribution partners and added a
significant number of network facilities, points of presence and
fiber assets, thus expanding its geographic reach. Through these
acquisitions, we acquired advanced systems and infrastructure and
augmented our management team and employee base with talented,
experienced, well-trained professionals, and further developed a
strong platform for further acquisitions.
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Common
Stock
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Number Outstanding Prior to
Offering:
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As of May 30, 2018,
there were 76,583,701 shares of our Common Stock issued and
outstanding, without giving effect to the issuance of (a) 1,193,144
shares in the event of exercise of outstanding Common Stock
purchase warrants exercisable at prices ranging from $2.34 to
$12.75 per share, and (b) 1,996,770 shares in the event of exercise
of outstanding options at a weighted average price of $3.48 per
share.
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Number Outstanding
Subsequent to Offering:
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Assuming the
issuance of no additional shares, resale of the shares offered
hereby will have no effect on the number of shares of Common Stock
outstanding immediately following this offering.
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Trading Symbol (Nasdaq
Global):
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FSNN
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All
share amounts of Common Stock in this prospectus reflect a
1-for-1.5 reverse stock split implemented by Fusion on May 4,
2018.
ABOUT FUSION
Overview
Fusion,
through its various subsidiaries, offers a comprehensive suite of
cloud communications, cloud connectivity, cloud computing, managed
cloud-based applications and business service solutions to small,
medium and large businesses. Our advanced, proprietary cloud
services platform, as well as our state-of-the art switching
systems, 100% Internet Protocol-based network, that includes 31,000
route miles of fiber, enable the integration of leading edge
solutions in the cloud, increasing customer collaboration and
productivity by seamlessly connecting employees, partners,
customers and vendors.
We are
focused on becoming our customers’ single source for
leveraging the increasing power of the cloud, providing a robust
package of what we believe to be the essential services that form
the foundation for their successful migration to, and efficient use
of, the cloud. Our core products and services include cloud
voice and UCaaS, improving communication and collaboration on
virtually any device, virtually anywhere, and cloud connectivity
services, securely and reliably connecting customers to the cloud
with managed network solutions that are designed to increase
quality and optimize network efficiency. Our cloud computing
and IaaS solutions are designed to provide our larger enterprise
customers with a platform on which additional cloud services can be
layered. Complemented by our SaaS solutions such as storage,
security and business continuity, our advanced cloud offerings
include private and hybrid cloud, storage, backup and recovery and
secure file sharing that allow our customers to experience the
increased efficiencies and agility delivered by the cloud. Our
cloud-based services are flexible, scalable and rapidly deployed,
reducing our customers’ cost of ownership while increasing
their productivity.
Our
growth strategy is focused on marketing services to small and
mid-sized businesses, as well as larger enterprises, using both our
direct and partner distribution channels.
Corporate Information
Fusion
was incorporated in Delaware on September 17, 1997.
Fusion’s principal executive offices are located at 420
Lexington Avenue, Suite 1718, New York, New York 10170 and its
telephone number at this location is (212) 201-2400. We
maintain a website at www.fusionconnect.com.
Information contained on, or that can be accessed through, our
website is not part of this prospectus and should not be relied
upon.
RECENT DEVELOPMENTS
Birch Transaction and New Credit Facilities
On May
4, 2018 (the “Closing Date”), Fusion completed the
various transactions contemplated by the Agreement and Plan of
Merger, dated August 26, 2017, as amended (the “Birch Merger
Agreement”), by and among Fusion, Fusion BCHI Acquisition
LLC, a wholly-owned subsidiary of Fusion (“BCHI Merger
Sub”), and Birch Communications Holdings, Inc.
(“Birch”).
As
contemplated by the Birch Merger Agreement, on the Closing Date,
Birch merged with and into BCHI Merger Sub (the “Birch
Merger”), with BCHI Merger Sub surviving the Birch Merger as
a wholly-owned subsidiary of Fusion. The Birch Merger and other
transactions contemplated by the Birch Merger Agreement were
approved by the stockholders of Fusion at its annual meeting of
stockholders held on February 21, 2018 (the “Annual
Meeting”). At the closing of the Birch Merger, Fusion (i)
issued a total of 49,896,310 shares of Common Stock to BCHI
Holdings, LLC, a Georgia limited liability company (“BCHI
Holdings”), and (ii) Fusion entered into a registration
rights agreement with BCHI Holdings (the “Registration Rights
Agreement”) under which it agreed, among other things, to use
its reasonable best efforts to cause a resale registration
statement covering up to twenty five percent (25%) of these shares
of Common Stock to be filed with, and declared effective by, the
SEC within 120 days following the closing of the Birch Merger. The
registration statement of which this prospectus forms a part is the
registration statement required by that Registration Rights
Agreement. Under the Preferred Stock Purchase Agreement (as defined
below), Fusion agreed to file this registration statement within
five (5) business days after certain specified conditions were met,
with which Fusion is in compliance.
The
issuance of the 49,896,310 shares of Common Stock to BCHI Holdings
resulted in a change in control of Fusion. As a result, the Birch
Merger is being accounted for as a reverse acquisition and
recapitalization, with BCHI Holdings as the acquirer for accounting
purposes, and the historical financial statements of Birch have
become the historical financing statements of Fusion.
In
connection with the Birch Merger, (a) all shares of our
then-outstanding preferred stock were converted into shares of
Common Stock or cancelled; (b) we effected a 1 for 1.5 reverse
stock split of our Common Stock; (c) our certificate of
incorporation was amended and restated to, among other things, (i)
increase the number of authorized shares of our Common Stock to
150,000,000, and (ii) change our name to “Fusion Connect,
Inc.”; and (d) our Common Stock began trading on The Nasdaq
Global Market under our historical symbol “FSNN”. All
share amounts in this prospectus reflect the 1-for-1.5 reverse
stock split completed by Fusion on May 4, 2018.
As
required by the terms of a stockholders’ agreement executed
at the closing of the Birch Merger by and among Fusion, BCHI
Holdings and certain specified stockholders of Fusion (the
“Stockholders Agreement”), our board of directors
(“Board”) size was reduced to seven (7) and the
following individuals were appointed and elected as directors of
the Company: Matthew D. Rosen, Chairman of the Board; Holcombe T.
Green, Jr., Vice-Chairman of the Board Marvin S. Rosen; Holcombe
Green, III; Michael J. Del Giudice; Lewis W. Dickey, Jr.; and Rafe
de la Gueronniere. Biographical information relating to each of
these directors can be found in the Company’s Schedule 14F-1
filed with the SEC on April 2, 2018 and Current Report on Form 8-K
filed with the SEC on May 10, 2018.
In
order to finance the Birch Merger, on the Closing Date, Fusion
entered into (i) a $595 million first lien credit facility (the
“First Lien Credit Facility”), (ii) a $85 million
second lien credit facility (the “Second Lien Credit
Facility” and together with the First Lien Credit Facility,
the “Credit Facilities”)), and (iii) a $10.0 million
subordinated note (the “Subordinated Note”). The First
Lien Credit Facility consists of a $45 million Tranche A term loan
(the “Tranche A Term Loan”), a $510 million Tranche B
term loan (the “Tranche B Term Loan”) and a $40.0
million revolving credit facility (the “Revolver”). The
Tranche A Term Loan was issued with an original issue discount
(“OID”) of 0.5%. The Tranche B Term Loan was issued
with an OID of 4.0%, except for $170 million of the Tranche B Term
Loan made by one lender and certain of its affiliates, which was
issued with an OID of 9.0%. The Second Lien Credit Facility
consists solely of a term loan (the “Second Lien Term
Loan” and together with the Tranche A Term Loan and the
Tranche B Term Loan, collectively, the “Term Loans”)
and was issued with an OID of 4.0%. The maturity date of the
Tranche A Term Loan and the Revolver is four (4) years from the
Closing Date, the maturity date of the Tranche B Term loan is five
(5) years from the Closing Date and the maturity date of the Second
Lien Term Loan is five (5) years and six (6) months from the
Closing Date. The Tranche A Term Loan and the Tranche B Term Loan
are subject to specified quarterly amortization payments and each
of the Term Loans is subject to specified mandatory prepayment in
connection with certain asset sales, debt issuances and out of
excess cash flow, among other things, subject to certain
significant exceptions. The Company may prepay the Term Loans
subject to specified notice and “make whole” applicable
to that Term Loan.
At the
Company's election, borrowings under the First Lien Credit Facility
and the Second Lien Credit Facility may be made as either Base Rate
Loans or LIBOR Rate Loans (as such terms are defined in the
respective credit facility). The Base Rate Loans are subject to a
floor of 2.0% and the LIBOR Rate Loans are subject to a floor
of 1.00%.
All of
Fusion’s obligations under the First Lien Credit Facility and
the Second Lien Credit Facility are guaranteed by each of its US
subsidiaries and the guarantees by those US subsidiaries are
secured by a security interest in substantially all of the assets
(including the stock of all US subsidiaries) owned by them or
acquired in the future, subject to certain limitations and
restrictions).
Under
the terms of the Credit Facilities, the Company is subject to a
number of affirmative and negative covenants, including, but not
limited to, restrictions on paying indebtedness subordinate to its
obligations to the lenders, incurring additional indebtedness,
making capital expenditures, dividend payments and cash
distributions by subsidiaries. Furthermore, Fusion is required to
comply with various financial covenants, including net leverage
ratio, fixed charge coverage ratio and maximum levels of
consolidated capital expenditures; and its failure to comply with
any of the restrictive or financial covenants could result in an
event of default and accelerated demand for repayment of its
indebtedness.
In
addition, $62,000,000 of the Tranche B Term Loan has been deposited
in a deposit account with East West Bank, which account is subject
to the terms of a deposit account control agreement by and among
Fusion, East West Bank, and the administrative and collateral agent
for the First Lien Credit Facility. The amounts deposited in this
account must be used by us to pay the cash portion of the purchase
price for MegaPath Holding Corporation, a Delaware corporation
(“MegaPath”). (See “MegaPath Acquisition”
immediately below.) If the MegaPath Merger (as defined below) is
not completed by August 4, 2018, these funds must be used by us to
prepay the Tranche B Term Loan under the First Lien Credit
Agreement.
On the
Closing Date, Fusion also entered into a preferred stock purchase
agreement with Holcombe T. Green, Jr. (the “Preferred Stock
Purchase Agreement”) pursuant to which it issued and sold to
Mr. Green 15,000 shares (the “Series D Preferred
Shares”) of Series D Cumulative Preferred Stock, par value
$0.01 per share (the “Series D Preferred Stock”) of
Fusion, a newly designated series of Fusion Preferred Stock, for an
aggregate purchase price of $14,700,000. The Series D Preferred
Shares have a stated value of $15,000,000, and Fusion agreed to pay
Mr. Green a closing fee of $200,000 in connection with the closing
of such sale. The Series D Preferred Shares were sold in reliance
upon the exemptions from the registration requirements under the
Securities Act pursuant to Section 4(a)(2) thereunder. On the
Closing Date, Fusion filed a Certificate of Designations and
Preferences (the “Series D Certificate of
Designations”) of the Series D Preferred Stock with the
Secretary of State of the State of Delaware. The Series D
Certificate of Designations created, out of the authorized and
unissued shares of preferred stock of Fusion, the Series D
Preferred Stock, consisting of 100,000 shares, and established the
rights, preferences and privileges thereof.
MegaPath Acquisition
On the
Closing Date, Fusion and its wholly-owned subsidiary, Fusion MPHC
Acquisition Corp., a Delaware corporation (“MegaPath Merger
Sub”), entered into an Agreement and Plan of Merger (the
“MegaPath Merger Agreement”), with Megapath, and
Shareholder Representative Services LLC, a Colorado limited
liability company, solely in its capacity as the representative of
the stockholders and optionholders of MegaPath. The MegaPath Merger
Agreement provides, among other things, that upon the terms and
subject to the conditions set forth therein, MegaPath will merge
with and into MegaPath Merger Sub (the “MegaPath
Merger”), with MegaPath continuing as the surviving company
and as a wholly-owned subsidiary of Fusion. The purchase price for
MegaPath is $71,500,000 (the “Purchase Price”), up to
$10,000,000 of which may be paid by us, at our option, in shares of
our Common Stock. The Purchase Price is subject to a working
capital adjustment as well as a reduction for certain transaction
expenses and any outstanding indebtedness of MegaPath as of the
closing of the MegaPath Merger (the “MegaPath
Closing”), in each case, as provided in the MegaPath Merger
Agreement. At the MegaPath Closing, $2,500,000 of the Purchase
Price will be deposited in an escrow account held by Citibank,
N.A., as escrow agent, for one (1) year, to secure indemnification
obligations in favor of Fusion under the MegaPath Merger
Agreement.
Subject
to certain exceptions and limitations, either Fusion or MegaPath
may terminate the MegaPath Merger Agreement if the Megapath Merger
is not consummated by June 30, 2018. Fusion may also terminate the
Megapath Merger Agreement if holders of greater than one percent of
the MegaPath common stock and preferred stock (on an as-converted
basis) exercise dissenters’ rights in accordance with Section
262 of the Delaware General Corporation Law.
The
consummation of the MegaPath Merger is subject to customary
conditions, including the receipt of applicable regulatory
approvals. The MegaPath Merger is not contingent upon Fusion
raising any additional financing. As discussed above, Fusion will
use $62,000,000 of the funds borrowed
by it under the First Lien Credit Agreement to pay the cash
portion of the Purchase Price.
RISK FACTORS
An investment in our securities involves a high degree of risk.
Before making an investment decision you should carefully consider
the risk factors described below, together with all of the other
information included or incorporated by reference in this
prospectus, including, without limitation, the risk factors in the
section entitled “Item 1A. – Risk Factors” in our
most recent Annual Report on Form 10-K, as amended or supplemented,
which is on file with the SEC, in evaluating our future prospects.
In particular, keep these risk factors in mind when you read
“forward-looking” statements elsewhere in this
prospectus. Forward-looking statements relate to our expectations
for future events and time periods. Generally, the words
“anticipates,” “expects,”
“intends,” “may,” “should,”
“plans,” “believes,”
“predicts,” “potential” and similar
expressions identify forward-looking statements. Forward-looking
statements involve risks and uncertainties, and future events and
circumstances could differ significantly from those anticipated in
the forward-looking statements. Any of the risks listed in our most
recent Annual Report on Form 10-K, as amended or
supplemented, or any other documents incorporated by
reference in this prospectus, or any of the following risks could
harm our business, operating results or financial condition and
could result in a complete loss of your investment in the Common
Stock sold under this prospectus. Additional risks and
uncertainties that are not yet identified or that we currently
think are immaterial may also harm our business and financial
condition in the future.
Risks Relating to Our Business
The amount of debt that we have outstanding could restrict our
activities or have a negative impact on our liquidity, our
business, financial condition or results of operation.
As of
May 15, 2018, we had approximately $650 million of indebtedness
outstanding. Our Credit Facilities contain various covenants that
limit our ability to engage in specified types of transactions. Our
overall leverage and the terms of our financing
arrangements:
●
limit our ability
to obtain additional financing in the future for working capital,
capital expenditures and acquisitions;
●
make it more
difficult to satisfy our obligations under the terms of our
indebtedness;
●
limit our ability
to refinance our indebtedness on terms acceptable to us or at
all;
●
limit our
flexibility to plan for and adjust to changing business and market
conditions in the industries in which we operate and increase our
vulnerability to general adverse economic and industry
conditions;
●
require us to
dedicate a substantial portion of our cash flow to make interest
and principal payments on our debt, thereby limiting the
availability of our cash flow to fund future acquisitions, working
capital, business activities, and other general corporate
requirements;
●
limit our ability
to obtain additional financing for working capital, to fund growth
or for general corporate purposes, even when necessary to maintain
adequate liquidity, particularly if any ratings assigned to our
debt securities by rating organizations were revised downward;
and
●
subject us to
higher levels of indebtedness than certain of our competitors,
which may cause a competitive disadvantage and may reduce our
flexibility in responding to increased competition.
Currently,
substantially all of the assets of Fusion and its US subsidiaries
are pledged as collateral under the Credit Facilities. The Credit
Facilities contain a number of affirmative and negative covenants,
including, but not limited to, restrictions on paying indebtedness
subordinate to its obligations to the lenders, incurring additional
indebtedness, making capital expenditures, dividend payments and
cash distributions by subsidiaries. Furthermore, Fusion is required
to comply with various financial covenants, including net leverage
ratio, fixed charge coverage ratio and maximum levels of
consolidated capital expenditures. Failure to comply with any of
the restrictive or financial covenants contained in the Credit
Facilities could result in an event of default and accelerated
demand for repayment of our outstanding debt. We do not have the
financial resources to repay our debt if it is
accelerated.
We have a history of operating losses and net losses. There can be
no assurance that we will ever achieve profitability or have
sufficient funds to execute our business strategy.
At
March 31, 2018, on a proforma combined basis, we had a
stockholders’ deficit of $122 million. In addition, for the
three months ended March 31, 2018, on a proforma combined basis, we
incurred net losses applicable to common stockholders of $16
million. On a proforma combined basis, our cash flows from
operations for the three months ended March 31, 2018 and the year
ended December 31, 2017 were not sufficient to support our capital
expenditure requirements and other obligations during such periods.
We may not be able to generate profits in the future and may not be
able to support our operations or otherwise establish a return on
invested capital. In addition, we may not have sufficient funds to
execute our business strategy, requiring us to raise additional
funds from the equity markets or other sources, resulting in
further dilution to our equity holders. These losses, among other
things, have had, and may continue to have, an adverse effect on
our working capital, total assets and stockholders’
equity.
Changes in technology and service offerings could affect our
ability to compete in the marketplace for cloud communications
services and business services.
Our
business is subject to rapid and significant changes in technology,
particularly in the emerging areas of cloud voice, UCaaS, cloud
connectivity, cloud storage and cloud computing. Our industry has
evolved significantly in these areas over the past few years, and
is expected to continue to evolve. Emerging technologies could lead
to the development of newer, more convenient, more cost-effective
or otherwise more attractive services than those we offer. In
addition, the preferences and requirements of business customers
are changing rapidly. Our ability to retain current customers and
attract new customers may be highly dependent on whether we choose
the technologies that will ultimately have the greatest customer
acceptance, are able to adopt these new technologies and offer
competitive new services when appropriate, or can compete
successfully against other service providers that use these new
technologies, many of whom are larger or possess greater financial
or technical resources than we do. The development, introduction
and marketing of such new services in response to new technologies
or new customer demands may require us to increase our capital
expenditures significantly. In addition, new technologies may be
protected by patents or other intellectual property laws and
therefore may only be available to our competitors and not to
us.
The cloud services and business services sectors are highly
competitive and we may be unable to compete
effectively.
The
cloud and business services sectors are highly competitive, rapidly
evolving and subject to constant technological change. In addition,
many of our current cloud and business services competitors are
significantly larger than us and have substantially greater market
presence than we do; greater financial, technical, operational and
marketing resources than us; and more experience than we have. In
the event that any competitor expends significant sales and
marketing resources in one or several markets where we compete with
them, we may not be able to compete successfully in those markets.
We also believe that competition will continue to increase, placing
downward pressure on prices. Such pressure could adversely affect
our gross margins if we are not able to reduce our costs
commensurate with the price reductions of our competitors. In
addition, the pace of technological change makes it impossible for
us to predict whether we will face new competitors using different
technologies to provide the same or similar services offered or
proposed to be offered by us. If our competitors were to provide
better and more cost effective services than we do, we may not be
able to increase our revenues or capture any significant market
share.
If we do not retain our executive officers and senior management,
or if we do not continue to attract and retain qualified personnel,
our ability to execute our business plan could be adversely
affected.
Our
existing executive officers and senior management have extensive
experience in the cloud services and communications industry, as
well as many years of working together as an integrated management
team directing our day-to-day operations. As a result, we are
dependent on those individuals and the loss of the services of one
or more of these individuals could impair our ability to execute
our strategy or achieve our business and financial
objectives.
We do
not have written employment agreements with any of our executive
officers or other members of our senior management team except for
Matthew D. Rosen, our Chief Executive Officer, and Kevin M. Dotts,
our Chief Financial Officer.
We face
competition for qualified personnel, including management,
technical, financial and sales personnel. If we are unable to
attract and retain experienced and motivated personnel, the growth
of our business or the effectiveness of our day-to-day operations
may be negatively impacted and we may not be able to further grow
our customer base or achieve our business or financial
objectives.
Our revenue growth is dependent upon our ability to build new
distribution relationships and to acquire new
customers.
Our
ability to grow through efficient and cost effective deployment of
our cloud and business services is, in part, dependent upon our
ability to continue to identify and contract with local, regional
and national entities that will assist in the distribution of our
products and services. If we are unable to identify, contract with
or maintain such distribution relationships, or if the efforts of
these agents are not successful, we may not grow the customer base
or achieve the revenue level currently envisioned and our results
of operations will be adversely impacted.
Our ability to grow our business is dependent upon market
developments, which may lead us to make expenditures that do not
result in increased revenue.
Our
purchase of network equipment and software will be based, in part,
upon our expectations concerning future revenue growth and market
developments. As we expand our network, we will be required to make
significant capital expenditures, including the purchase of
additional network equipment and software. To a lesser extent, our
fixed costs will also increase from the ownership and maintenance
of a greater amount of network equipment including our switching
systems, gateways, routers and other related systems. If our
service volume were to decrease, or fail to increase to the extent
expected or necessary to make efficient use of our network, our
costs as a percentage of revenue would increase
significantly.
We rely upon certain proprietary rights in our technology, systems
and business processes. If our protection of these rights were to
be compromised, it could negatively affect our ability to compete
or to achieve our projected business and financial
results.
Our
ability to compete depends, in part, upon our proprietary rights in
our technology, systems and business processes. In general, our
technology is based on the integration and use of publicly
available hardware components, and is therefore afforded little
protection under existing patent law. Some of our software and
systems, while developed by us, are generally not unique in such a
manner as to allow protection under existing patent law. As a
result, we generally rely on a combination of contractual
restrictions and the general protection afforded by copyright,
trademark and trade secret laws to establish and protect our
proprietary rights. Such limited protection could prove
insufficient and thereby subject us to increased competition or
impact the business or financial results of our
operations.
It is
the Company’s policy to require employees, consultants and,
when warranted, certain customers and vendors to execute
confidentiality agreements with us. These agreements provide that
confidential information developed or made known during the course
of the relationship must be kept confidential and not disclosed to
third parties except under certain limited circumstances. If such
arrangements were to prove ineffective in protecting our
confidential information, our business or financial performance
could be negatively impacted.
The
U.S. Patent and Trademark Office has granted Fusion federal
registration for 56 trademarks and one patent. Federal registration
of those trademarks will be effective for as long as we continue to
use them and renew their registrations. Federal registration for
the patent will continue for 20 years from the date of application,
or until 2028, so long as the maintenance fees are paid. The
Canadian Intellectual Property Office has granted Fusion
registration of one patent. Such registration will be effective for
20 years from the date of application, or until 2028, so long as
the maintenance fees are paid. We may register additional
trademarks, patents and other intellectual property rights in the
future, although there can be no assurance that our effort to
register these trademarks, patents or other intellectual property
rights will be successful. Fusion generally does not register any
of its copyrights with the U.S. Copyright Office, but relies on the
protection afforded to such copyrights by the U.S. Copyright Act,
which provides protection to authors of original works whether
published or unpublished and whether registered or
unregistered.
We earn revenue, incur costs and maintain cash balances in multiple
currencies, and currency fluctuations could adversely affect our
financial results.
We have
operations in Canada, where we earn revenue and incur costs in
Canadian Dollars. Doing business in Canada exposes us to foreign
currency risks in numerous areas, including revenue, purchases and
payroll. Certain of these currency exposures are naturally offset
because revenue and costs are both denominated in the same foreign
currency, and certain cash balances are held in U.S. Dollar
denominated accounts. However, due to the increasing size and
importance of our Canadian operations, fluctuations in foreign
currency exchange rates could materially impact our
results.
Our
cash position includes amounts denominated in both U.S Dollars and
Canadian Dollars. We manage our overall cash requirements
considering available funds from our subsidiaries and the cost
effectiveness with which these funds can be accessed. The
repatriation of cash balances from our subsidiaries outside the
U.S. could have adverse tax consequences and be limited by foreign
currency exchange controls. However, those balances are generally
available in the local jurisdiction without legal restrictions to
fund ordinary business operations. Any fluctuations in foreign
currency exchange rates could materially impact the availability
and amount of these funds available for transfer.
We are dependent upon our ability to obtain the necessary
regulatory approvals and licenses to enter new markets in which
such approvals are required. Such approvals may or may not occur as
planned and could be delayed.
Our
ability to enter into new markets may, in certain cases, rely upon
our ability to obtain licenses or other government approvals to
operate in those markets, our ability to establish good working
relationships with the relevant regulatory authorities in those
jurisdictions and/or our ability to interconnect to the networks of
other carriers and providers in those markets. If we are not able
to obtain or are delayed in obtaining any necessary licenses,
approvals or interconnections, our ability to enter these new
markets may be prevented or delayed.
If we are unable to manage our growth or implement our expansion
strategy, we may increase our costs without increasing our
revenue.
We may
not be able to expand our product offerings, customer base and
markets, or implement the other features of our business strategy
at the rate, or to the extent, presently planned. Our projected
growth will place a significant strain on our administrative,
operational and financial resources and may increase our costs. If
we are unable to successfully manage our future growth, continue to
upgrade our operating and financial control systems, recruit and
hire necessary personnel or effectively manage unexpected expansion
difficulties, we may not be able to maximize revenue or achieve
profitability.
Industry consolidation could make it more difficult for us to
compete.
Consolidation in
the communications and cloud services industry is occurring at a
rapid pace. Companies offering cloud voice, UCaaS, cloud
connectivity, SaaS, IaaS and other cloud services, as well as
business services, are consolidating. This consolidation
strengthens our competitors and poses increased competitive
challenges for us. In addition, there has been, and continues to
be, combinations between incumbent local exchange carriers
(“ILECs”)/interexchange carriers which provides the
ILECs with national and international networks and eliminated the
two most effective and well-financed opponents of the ILECs in
federal and state legislative and regulatory forums, potentially
reducing the availability of non-ILEC network
facilities.
We may
not be able to compete successfully with businesses that have
combined, or will combine, to produce companies with substantially
greater financial, technical, sales and marketing resources, or
with larger client bases, more extended networks or more
established relationships with vendors and distributors. If we were
to experience such heightened competitive pressures, there is a
risk that our revenues may not grow as expected and the value of
our Common Stock and other equity securities could
decline.
We rely on third party equipment suppliers who may not be able to
provide us the equipment necessary to deliver the services that we
seek to provide.
We are
dependent on third party equipment suppliers, including Cisco,
BroadSoft, Acme Packet and Sonus, for equipment, software and
hardware components. If these suppliers fail to continue product
development and research and development or fail to deliver quality
products or support services on a timely basis, or if we are unable
to develop alternative sources of supply if and as required, such a
failure could result in an inability to deliver the services that
we currently provide or intend to provide, and our financial
condition and results of operations may be adversely
affected.
A significant amount of our revenue is derived from a limited
number of customers, and any reduction in revenue from any of these
customers could have a material adverse effect on our
business.
After
giving effect to the Birch Merger, our ten largest customers by
revenue accounted for approximately 4.5% of our proforma
consolidated revenue in 2017. For the years ended December 31, 2017
and after giving effect to the Birch Merger, no single customer
accounted for more than 10% of our proforma consolidated revenue or
accounts receivable. If any of our key
customers decides not to renew its contracts with us, or to renew
on less favorable terms, our business, revenue, reputation, and our
ability to obtain new customers could be adversely
affected.
Our rights to the use of fiber that is part of our network may be
affected by the ability to continue long term contracts and the
financial stability of our IRU fiber providers.
A
portion of our services are provided on network fiber facilities
licensed or leased from other network service providers through
indefeasible rights of use, or IRUs, or similar arrangements. The
facilities under these agreements have remaining terms generally
ranging from less than 1 year to 24 years. In these agreements, the
network owner is responsible for network maintenance for which we
pay such network owners. If our network provider under IRU
agreements has financial troubles, it could adversely affect our
costs, especially maintenance costs and ability to deliver service.
Also, if our network providers under IRU agreements are unable to
obtain and maintain necessary rights-of-way and access to pole
attachments for their fiber networks or if they fail to renew or
extend our IRUs, our operations may be interrupted and/or we could
incur material expenses if we were required to relocate to
alternative network assets.
Our ability to provide services is often dependent on our suppliers
and other service providers who may not prove to be
reliable.
A
majority of the voice calls made by our customers are connected
through other communication service providers, which provide us
with transmission capacity through a variety of arrangements. Our
ability to terminate voice traffic in our targeted markets is an
essential component of our ongoing operations. If we do not secure
or maintain operating and termination arrangements, our ability to
increase services to our existing markets and gain entry into new
markets will be limited. Therefore, our ability to maintain and
expand our business is dependent, in part, upon our ability to
maintain satisfactory relationships with other domestic service
providers, Internet service providers, international service
providers, fiber optic cable providers and other service providers,
many of which are our competitors, and upon our ability to obtain
the services on a cost effective basis. In addition, if a service
provider with whom we interconnect does not carry the traffic
routed to it, or does not provide the required bandwidth, we may be
forced to route our voice traffic to, or buy capacity from, a
different service provider on less advantageous terms, which could
reduce our profit margins or degrade our network service quality.
In the event network service quality is degraded, it may result in
a loss of customers. To the extent that any of these service
providers with whom we interconnect raises its rates, changes its
pricing structure or reduces the amount of bandwidth it will make
available to us, our revenues and profitability may be adversely
affected. Also, our revenues and profits may be adversely affected
if our suppliers experience financial difficulties that prevent or
impair their provision of the services we need.
Some of our services are dependent upon multiple service platforms,
network elements, and back-office systems that are reliant on third
party providers.
We have
deployed back-office systems and services platforms that enable us
to offer our customers a wide-array of services and features.
Sophisticated back office information and processing systems are
vital to our continued growth and our ability to continue to
monitor costs, invoice customers, provision customer orders, and
achieve operating efficiencies. Some of these systems are dependent
upon license agreements with third party vendors. These third party
vendors may cancel or refuse to renew some of these agreements, and
the cancellation or non-renewal of these agreements may harm our
ability to invoice customers and provide services
efficiently.
Our business could be materially and adversely affected in the
event of accusations of infringement of third-party intellectual
rights.
There
has been substantial litigation in the areas in which we operate
regarding intellectual property rights. Regardless of the merits,
accusations and lawsuits concerning claims of infringement or
misuse of another party’s proprietary rights may negatively
affect customer relationships, may divert management’s
attention away from other aspects of our operations and, upon
resolution may have a material adverse effect on our business,
results of operations, financial condition and cash
flows.
If we
were found to be infringing on the intellectual property rights of
a third party, we could be subject to liability for such
infringement, which could be material. We could also be prohibited
from selling certain services or required to redesign certain
services, each of which could have a material adverse effect on our
business and results of operations. These and other outcomes may
result in the loss of a substantial number of existing customers or
prevent our acquisition of new customers; cause us to pay license
fees for intellectual property we are found to have infringed;
cause our costs to increase; materially and adversely affect our
brand in the marketplace and cause a substantial loss of good will;
and cause us to cease certain services or offering certain
features.
Vulnerabilities to security breaches, cyber intrusions and other
malicious acts could adversely impact our business.
In the
current environment, there are numerous and evolving risks to
cybersecurity and privacy, including criminal hackers,
state-sponsored intrusions, industrial espionage, employee
malfeasance, and human or technological error. Computer hackers and
others routinely attempt to breach the security of technology
products, services, and systems such as ours, and those of
customers, third-party contractors and vendors.
Our
operations depend on our ability to protect our network from
interruption by damage from unauthorized entry, computer viruses or
other events beyond our control. In the past, we may have been
subject to malicious attacks including denial or disruption of
service (“DDOS”), and we may be subject to DDOS or
other malicious attacks in the future. We cannot assure you that
our backup systems, regular data backups, security protocols, DDOS
mitigation and other procedures that are currently in place, or
that may be in place in the future, will be adequate to prevent
significant damage, system failure or data loss. Critical to our
provision of service is the storage, processing, and transmission
of confidential and sensitive data. We store, process and transmit
a wide variety of confidential and sensitive information including
credit card, bank account and other financial information,
proprietary, trade secret or other data that may be protected by
intellectual property laws, customers' and employees' personally
identifiable information, as well as other sensitive information.
We, along with others in the industry, will be subject to cyber
threats and security breaches, given the nature of the information
we store, process and transmit.
Depending on the
evolving nature of cyber threats and the measures we may have to
implement to continue to maintain the security of our networks and
data, our profitability may be adversely impacted or we may have to
increase the price of our services which may make our offerings
less competitive with those of other service
providers.
If an
individual obtains unauthorized access to our network, or if our
network is penetrated, our service could be disrupted and sensitive
information could be lost, stolen or disclosed which could have a
variety of negative impacts, including legal liability,
investigations by law enforcement and regulatory agencies, and
exposure to fines or penalties, any of which could harm our
business reputation and have a material negative impact on our
business. In addition, to the extent we market our services as
compliant with particular laws governing data privacy and security,
such as HIPAA (Health Insurance Portability and Accountability
Act), GDPR (General Data Protection Regulation) and the
Gramm-Leach-Bliley Act, any security breach that exposes protected
information may make us susceptible to a number of claims related
to our marketing.
Many
governments have enacted laws requiring companies to notify
individuals of data security incidents involving certain types of
personal data. In addition, some of our customers contractually
require notification of any data security compromise. Security
compromises experienced by our competitors, by our customers or by
us may lead to public disclosures, which may lead to widespread
negative publicity. Any security compromise in our industry,
whether actual or perceived, could harm our reputation, erode
customer confidence in the effectiveness of our security measures,
negatively impact our ability to attract new customers, cause
existing customers to elect not to renew their contracts with us or
subject us to third-party lawsuits, regulatory fines or other
action or liability, which could materially and adversely affect
our business and operating results.
In
contracts with larger customers, we sometimes agree to assume
liability for security breaches in excess of the amount of
committed revenue from the contract. In addition, there can be no
assurance that any limitations of liability provisions in our
customer contracts for a security breach would be enforceable or
adequate or would otherwise protect us from any such liabilities or
damages with respect to any particular claim. We also cannot be
sure that our existing general liability insurance coverage and
coverage for errors or omissions will continue to be available on
acceptable terms or will be available in sufficient amounts to
cover one or more large claims, or that the insurer will not deny
coverage as to any future claim. The successful assertion of one or
more large claims against us that exceed available insurance
coverage, or the occurrence of changes in our insurance policies,
including premium increases or the imposition of large deductible
or co-insurance requirements, could have a material adverse effect
on our business, financial condition and operating
results.
Our ability to provide certain of our services and systems at
competitive prices is dependent on our ability to negotiate and
enforce favorable interconnection and other agreements with
ILECs.
Our
ability to continue to obtain favorable interconnection,
unbundling, service provisioning and pricing terms is dependent, in
part, on maintenance of interconnection agreements with ILECs. We
are party to one or more interconnection agreements in each state
and service territory in which we require such agreements. The
initial terms of many of our interconnection agreements have
expired, however, our interconnection agreements generally contain
an “evergreen” provision that allows the agreement to
continue in effect until terminated. ILECs also are making
available some facilities and services to competitors under
unregulated “commercial agreements” that are not
subject to the same requirements as interconnection agreements. The
largest ILECs are also attempting to eliminate mandatory
interconnection through FCC rulemaking, and replace regulated
interconnection arrangements with commercial negotiations. If we
were to receive a termination notice from an ILEC, we could
negotiate a new agreement or initiate an arbitration proceeding at
the relevant state commission before the agreement expired. In
addition, the Federal Communications Act of 1934, as amended (the
“Communications Act”) gives us the right to opt into
interconnection agreements which have been entered into by other
carriers, provided the agreement is still in effect and provided
that we adopt the entire agreement. We cannot assure you that we
will be able to successfully renegotiate these agreements or any
other interconnection agreement on terms favorable to us or at
all.
Local
telephone service competition depends on costbased and
nondiscriminatory interconnection with, and use of, ILEC
networks and facilities. Failure to achieve and maintain such
arrangements could have a material adverse effect on our ability to
provide competitive local telephone services. If we are unable to
renegotiate or enter into new agreements on acceptable terms, our
cost of doing business could increase and our ability to compete
could be impeded.
Due to their control of “last-mile” access to many of
our customers, if we experience difficulties in working with ILECs,
our ability to offer services on a timely and cost-effective basis
could be materially and adversely affected.
Our
business depends on our ability to interconnect with ILEC networks
and to lease from the ILECs certain essential network elements. We
obtain access to these network elements and services under terms
established in interconnection agreements, contract tariffs and
commercial arrangements that we have entered into with ILECs. Like
many competitive communications services providers, from time to
time, we may experience difficulties in working with ILECs with
respect to obtaining information about network facilities, ordering
and maintaining network elements and services, interconnecting with
ILEC networks and settling financial disputes. These difficulties
can impair our ability to provide service to customers on a timely
and competitive basis. If an ILEC refuses to cooperate or otherwise
fails to support our business needs for any other reason, including
labor shortages, work stoppages, cost-cutting initiatives or
disruption caused by mergers, other organizational changes or
terrorist attacks, our ability to offer services on a timely and
cost-effective basis can be materially and adversely
affected.
Additional taxation and government regulation of the cloud
communications industry may slow our growth, resulting in decreased
demand for our products and services and increased costs of doing
business.
As a
result of changes in regulatory policy, we could be forced to pay
additional taxes on the products and services we provide. We
structure our operations and our pricing based on assumptions about
various domestic and international tax laws, tax treaties and other
relevant laws. Taxation authorities or other regulatory authorities
might not reach the same conclusions about taxation that we have
reached in formulating our assumptions. We could suffer adverse tax
and other financial consequences if our assumptions about these
matters are incorrect or the relevant laws are changed or modified.
In the U.S., our products and services are subject to varying
degrees of federal, state and local regulation, including
regulation by the Federal Communications Commission
(“FCC”) and various state public utility commissions.
In Canada, our products and services are subject to varying degrees
of federal, provincial and local regulation, including regulation
by The Canadian Radio-television and Telecommunications
Commission. We may also be subject to similar regulation by other
foreign governments and their telecommunications and/or regulatory
agencies. While these regulatory agencies grant us the authority to
operate our business, they typically exercise minimal control over
the cloud services that we offer. However, they do require the
filing of various reports, compliance with public safety and
consumer protection standards and the payment of certain regulatory
fees and assessments.
We also hold various U.S. federal and state licenses authorizing us
to provide regulated interstate and intrastate telecommunications
services to our carrier and end-user customers, and we comply with
federal and state reporting, fee payment, tariffing and other
obligations with respect to these services. In contrast to the
typically lighter regulation of cloud services, described above,
telecommunications services in the U.S. are often subject to a more
formalized and aggressive regulatory regime. Even in jurisdictions
where we are primarily providing cloud or lightly regulated VoIP
services, we are regulated more pro-actively based upon the holding
of a license to provide telecommunications services. It is possible
that at some point we may be found not to have fully complied with
applicable federal and/or state licensing or compliance
requirements and, as a result, we may be subject to fines,
penalties or other enforcement consequences. In addition, following
the Birch Merger, our operations are subject to the requirements of
a Consent Decree established in 2016 between Birch Communications,
Inc. (“BCI”) and the FCC to settle allegations of
noncompliance by BCI and its operating subsidiaries. We may face
heightened regulatory scrutiny going forward as a result of the
Consent Decree and in the event that we are found to have violated
any of the specific laws and regulations implicated in the BCI
Consent Decree, it is possible that we will face escalated
penalties. Over time, it is possible that U.S. federal and/or state
regulation of telecommunications services may change and become
more burdensome, resulting in increased labor costs for compliance
management and/or increases in direct costs of operations,
including, e.g., increased
federal/state Universal Service Fund contributions or increased FCC
and state public utility commission regulatory assessments. In the
event that federal and/or state telecommunications regulation
becomes more robust in the future, it could provide the basis for
an increase in complaints filed against companies such as Fusion
pursuant to the Communications Act, and/or state laws and
regulations.
In addition to new regulations being adopted, existing laws may be
applied to the Internet and other services which are not regulated
today, which could hinder our future growth.
New
laws and regulations may be adopted that apply to the Internet and
new and existing laws and regulations may cover issues that
include: sales and other taxes; user privacy; pricing controls;
characteristics and quality of products and services; consumer
protection; cross-border commerce; copyright, trademark and patent
infringement; and other claims based on the nature and content of
Internet materials. Changes to existing laws or regulations or the
adoption of new laws or regulations could delay growth in demand
for our products and services or increase our costs and limit the
growth of our revenue.
Additional taxation and government regulation of fiber assets and
right of way may increase our cost of doing business.
The
provision of certain of our services relies upon our 100% Internet
Protocol-based network that includes 31,000 route miles of fiber.
These fiber assets occupy rights-of-way and other easements, many
of which are controlled by local and state governments. There may
be adoption of – or changes to – local and state laws
and regulations that affect these fiber assets in public
rights-of-way and easements and the effect of those new or revised
laws and regulations could be a greater regulatory burden upon the
fiber networks, resulting in higher costs for our operations and
delays in our ability to effectively manage and make modifications
to, including expansions of our networks.
In
addition, local governments may require us to obtain licenses,
permits, or franchises to use the public rights of way
necessary to install and operate our network. We may be subject to
numerous local regulations such as building codes, municipal
franchise requirements, and licensing. Such regulations vary on a
city-by-city and county-by-county basis and
can affect our provision of both network services and carrier
services. We also may be required to pay license or franchise fees
based on a percentage of gross revenues or a per linear foot basis
in various localities. In many markets, ILECs are not required to
pay these franchise fees or are permitted to pay fees that are
substantially lower than those required to be paid by us. To the
extent that our competitors do not pay the same level of fees that
we do, we could be at a competitive disadvantage.
Birch previously has been the subject of litigation and could be
the subject of additional legal actions and possible liabilities in
the future.
In the
course of normal business activities, Birch and its subsidiaries
have been the subject of civil litigation concerning various types
of matters including, for example, customer complaints, breach of
contract, billing and collection, employee claims, and intellectual
property. It is possible that we could be the subject of additional
litigation involving similar or different matters in the future.
For example, an individual or business could initiate litigation
involving similar actions or behavior for which Birch previously
was found liable, in the hopes of achieving a similarly favorable
outcome. Due to the inherently uncertain nature of litigation, it
is not possible to predict the likelihood, scope, or outcome of any
future litigation. If litigation is initiated and the outcome is
unfavorable to the Company we could be found liable for financial
or other penalties. Any such liabilities are not predictable and,
individually, or in the aggregate, could have a material adverse
impact on Fusion’s financial results.
Lingo may fail to perform under the Transition Services Agreement
that was entered into as part of the Birch Merger which could
affect our profitability and business.
In
connection with the Birch Merger, Birch spun off Lingo and Lingo
and Fusion entered into a transition services agreement, dated as
of May 4, 2018 (the “Transition Services Agreement”),
pursuant to which each of Fusion and Lingo agreed perform certain
services for the benefit of the other for a period of time after
the closing of the Birch Merger. If Lingo is unable or unwilling to
satisfy its payment or performance obligations under the Transition
Services Agreement, we could incur losses which could have an
adverse effect on our profitability and business. In addition, if
we do not have our own systems and services in place, or if we do
not have agreements in place with other service providers of these
services, or the cost of providing services to Lingo increase
substantially, the cost to comply with our obligation to provide
services under the Transition Services Agreement may be greater
than what is provided therein.
Risks Relating to Our Acquisition Activities
The acquisition of Birch and the MegaPath Merger could impact or
cause disruptions in our core business, the acquired Birch business
and the MegaPath business, which could have an adverse effect on
our business, financial condition or results of operations
following its completion.
The acquisition of Birch and
the announced
MegaPath Merger could cause disruption in our business, the
acquired Birch business and the business of MegaPath,
including:
●
Fusion’s,
Birch’s and MegaPath’s current and prospective
customers and suppliers may experience uncertainty associated with
the MegaPath Merger, including with respect to current or future
business relationships with Fusion, MegaPath or the combined
business and may attempt to negotiate changes in existing
business;
●
Fusion’s,
Birch’s and MegaPath’s employees may experience
uncertainty about their future roles with the combined company,
which may adversely affect Fusion’s and MegaPath’s
ability to retain and hire key employees and complete the
integration of Birch;
●
the acquisition of Birch and the MegaPath
Merger may give rise to potential liabilities; and
●
the attention of
Fusion’s management team and that of MegaPath may be directed
toward the completion and implementation of the MegaPath Merger and
transaction-related considerations and may be diverted from the
day-to-day business operations of the respective
companies.
In connection with the acquisition of Birch
and the MegaPath
Merger, we could also encounter additional transaction and
integration-related costs or other factors such as the failure to
realize all of the benefits anticipated in the acquisition of Birch
or the MegaPath Merger. Disruption to Fusion’s and
MegaPath’s business could be exacerbated by a delay in the
completion of the MegaPath Merger.
The diversion of resources and management’s attention to the
integration of Birch could adversely affect our day-to-day
business.
While
the integration of Birch is underway, it places a significant
burden on our management and internal resources and will continue
to do so for some time. The diversion of management’s
attention away from day-to-day business concerns and any
difficulties we encounter as the integration process continues
could adversely affect our financial results.
The indemnification provided by BCHI Holdings to Fusion regarding
various litigation matters and pending regulatory proceedings may
not be sufficient to cover the full amount owed.
As
a result of the Birch Merger, Birch and certain of its subsidiaries
that are involved in various litigation matters and pending
regulatory proceedings became subsidiaries of Fusion and, as a
result, Fusion is responsible for any liabilities arising from
those various matters. BCHI Holdings entered into a letter
agreement with Fusion under which it agreed, for a period of 18
months following the closing of the Birch Merger, to indemnify and
hold harmless Fusion for and against any and all losses in excess
of $500,000 that are related to, or arise from, certain specified
litigation and regulatory matters, subject to a maximum aggregate
liability of $25 million. Amounts owed by BCHI Holdings under
this indemnity may be paid in cash or shares of our Common Stock at
the option of BCHI Holdings, with such shares valued for this
purpose at the greater of (A) $3.00 or (B) the weighted average
daily closing bid price during a certain period prior to transfer.
The BCHI Holdings indemnification does not provide us protection if
(i) Birch and our other new subsidiaries have liabilities for
litigation or regulatory matters that are not specifically
enumerated in the indemnification letter, (ii) the liabilities
relating to the covered matters do not arise until after the 18
month indemnity period, or (iii) to the extent the aggregate
liability relating to such matters exceeds $25 million.
Furthermore, if an indemnifiable claim exists and BCHI Holdings
elects to pay Fusion with shares of our Common Stock, we may not
have sufficient cash on-hand to cover the required
payments. In addition, if the price of our Common Stock is
lower than $3.00 per share, then the indemnification payment in
shares will be less than the losses that we incur.
Birch may have liabilities that are not known, probable or
estimable at this time.
As a
result of the Birch Merger, Birch became a subsidiary of Fusion and
remains subject to all of its liabilities. There could be
unasserted claims or assessments, including failure to comply with
applicable communications laws, regulations, orders and consent
decrees that we failed or were unable to discover or identify in
the course of performing our due diligence investigation of Birch.
In addition, there may be liabilities that are neither probable nor
estimable at this time that may become probable or estimable in the
future. Any such liabilities, individually or in the aggregate,
could have a material adverse effect on our financial results. We
may learn additional information about Birch that adversely affects
us, such as unknown, unasserted or contingent liabilities and
issues relating to compliance with applicable laws.
The MegaPath Merger may not be completed within the expected
timeframe or at all, and the failure to complete the MegaPath
Merger may negatively affect the trading price of our Common Stock
and could adversely affect our future business and financial
results.
The
MegaPath Merger is subject to a number of risks and uncertainties,
including (1) Fusion and MegaPath may not obtain all necessary
regulatory approvals or such approvals may not be obtained in a
timely fashion; and (2) timely satisfaction of all other closing
conditions to the MegaPath Merger. The Company may also face
litigation in connection with the MegaPath Merger that could
prevent or materially delay its consummation or create additional
liabilities for the Company. Failure to complete the MegaPath
Merger or significant delays in its completion, could negatively
affect the trading price of our Common Stock, adversely affect our
future business and financial results and could result in our
failure to timely realize certain synergies relating to such
acquisition. Any delay or failure to consummate the MegaPath Merger
could also result in a negative reaction from the financial
markets, particularly if the current market price of our Common
Stock reflects market assumptions that the MegaPath Merger will be
completed, which could cause the value of your investment to
decline.
Existing stockholders will experience dilution if we elect to pay a
portion of the purchase price for MegaPath in shares of Common
Stock.
Under
the terms of the MegaPath Merger Agreement, we may pay up to $10.0
million of the Purchase Price in shares of our Common Stock.
Furthermore, we are required under the First Lien Credit Facility
to pay $10.0 million of the Purchase Price in shares of our Common
Stock. If the MegaPath Merger is consummated and we use our shares
of Common Stock as contemplated, there will be further dilution to
our existing stockholders. Our existing stockholders will have
lower equity participation in the combined company and, as a
result, reduced opportunity to participate in any future earnings
or growth of the combined company and future appreciation in the
value of our Common Stock than they have prior to completion of the
MegaPath Merger.
MegaPath
and its subsidiaries may have liabilities that are not known,
probable or estimable at this time.
MegaPath and its subsidiaries may have unasserted
claims or assessments, including failure to comply with
applicable communications laws, regulations and orders,
or other liabilities that we failed or
were unable to discover or identify in the course of performing our
due diligence investigations in connection with the MegaPath
Merger. In addition, there may be liabilities that are neither
probable nor estimable at this time that may become probable or
estimable in the future. Any such liabilities, individually or in
the aggregate, that are in excess of amounts for which Fusion has
been indemnified under the MegaPath Merger Agreement or which
become known after the period in which we have indemnification
rights, could have a material adverse effect on our financial
results. We may learn additional information about MegaPath that
adversely affects us, such as unknown, unasserted or contingent
liabilities and issues relating to compliance with applicable
laws. After the consummation of MegaPath Merger, we will be
responsible for all of the liabilities of MegaPath and its
subsidiaries.
We may not realize the revenue growth opportunities and cost
synergies that are anticipated from the Birch Merger or the
MegaPath Merger as we may experience difficulties in integrating
the three businesses.
The
benefits that are expected to result from the Birch Merger and the
MegaPath Merger will depend, in part, on our ability to realize the
anticipated revenue growth opportunities and cost synergies
projected to result from each of these mergers. Our success in
realizing these revenue growth opportunities and cost synergies,
and the timing of this realization, depends on the successful
integration of Birch and MegaPath. There is a significant degree of
difficulty and management distraction inherent in the process of
integrating an acquisition. The difficulty and risks could be
heightened when integrating multiple acquisitions within a short
period of time. The process of integrating operations could cause
an interruption of, or loss of momentum in, our core business, the
acquired Birch business and the business of MegaPath. Members of
our senior management may be required to devote considerable
amounts of time to this integration process, which will decrease
the time they will have to manage Fusion, service existing
customers, attract new customers, and develop new products or
strategies. If senior management is unable to effectively manage
the integration process, or if any significant business activities
are interrupted as a result of the integration process, our
business could suffer. There can be no assurance that we will
successfully or cost-effectively integrate Birch or MegaPath. The
failure to do so could have a material adverse effect on our
business, financial condition or results of
operations.
Even
if we are able to integrate Birch and MegaPath successfully, this
integration may not result in the realization of the full benefits
of the growth opportunities and cost synergies that we currently
project from these mergers, and we cannot guarantee that these
benefits will be achieved within anticipated timeframes or at all.
For example, we may not be able to eliminate duplicative costs.
Moreover, we may incur substantial expenses in connection with the
integration of Birch or MegaPath and the integration may take
longer that we anticipate. While it is anticipated that certain
expenses will be incurred to achieve cost synergies, such expenses
are difficult to estimate accurately, and may exceed current
estimates. Accordingly, the benefits from the planned acquisition
may be offset by costs incurred to, or delays in, integrating the
businesses.
Risks Related to Ownership of our Common Stock
Sales, or the availability for sale, of substantial amounts of our
Common Stock could adversely affect the value of our Common
Stock.
No
prediction can be made as to the effect, if any, that future sales
of our Common Stock, or the availability of Common Stock for future
sales, will have on the market price of our Common Stock. Sales of
substantial amounts of our Common Stock in the public market, and
the availability of shares for future sale, including shares of our
Common Stock issuable upon exercise of outstanding options to
acquire shares of our Common Stock, shares of our Common Stock that
may be issued in the future upon conversion of preferred stock and
shares covered by warrants, could adversely affect the prevailing
market price of our Common Stock. This in turn would adversely
affect the fair value of our Common Stock and could impair our
future ability to raise capital through an offering of our equity
securities.
Our Common Stock is concentrated in the hands of a few
stockholders, and their interests may not coincide with
yours.
As of
May 15, 2018, the selling stockholder beneficially owned
approximately 65.2% of our outstanding Common Stock. Accordingly,
the selling stockholder and its affiliates currently have the
ability to exercise significant influence over matters generally
requiring stockholder approval. These matters include the election
of directors and the approval of significant corporate
transactions, including potential mergers, consolidations or sales
of all or substantially all of our assets. Your interests as a
holder of our Common Stock may differ from the interests of the
selling stockholder and its respective affiliates.
Our Common Stock may become subject to the “penny
stock” rules of the SEC, which will make transactions in our
shares cumbersome and may reduce the value of an investment in our
shares.
If the
trading price of our Common Stock is less than $5.00 per share, our
Common Stock may be considered a "penny stock," and in such event
trading in our Common Stock would be subject to the requirements of
Rule 15g-9 under the Exchange Act. Under this rule, broker/dealers
who recommend low-priced securities to persons other than
established customers and accredited investors must satisfy special
sales practice requirements. The broker/dealer must make an
individualized written suitability determination for the purchaser
and receive the purchaser's written consent prior to the
transaction.
SEC
regulations also require additional disclosure in connection with
any trades involving a "penny stock," including the delivery, prior
to any penny stock transaction, of a disclosure schedule explaining
the penny stock market and its associated risks. These requirements
severely limit the liquidity of securities in the secondary market
because few brokers or dealers are likely to undertake these
compliance activities. In addition to the applicability of the
penny stock rules, other risks associated with trading in penny
stocks could also be price fluctuations and the lack of a liquid
market.
To
date, we have not been considered a “penny stock” due
to an exemption from Rule 15g-9 for companies with average annual
audited revenues for the prior three years of in excess of
$6,000,000 per year. However, should the exclusions from the
definition of a “penny stock” change, we may become
subject to rules applicable to “penny stocks” and the
market for our Common Stock may be adversely affected.
We are unlikely to pay cash dividends on our Common Stock in the
foreseeable future.
We have
never declared or paid any cash dividends on our Common Stock. We
intend to retain any future earnings to finance our operations and
expand our business and therefore do not expect to pay any cash
dividends in the foreseeable future. The payment of dividends is
also subject to provisions of Delaware law prohibiting the payment
of dividends except out of surplus and certain other limitations,
as well as the restrictions contained in the Credit
Facilities.
We could use preferred stock to fund operations or resist
takeovers, and the issuance of preferred stock may cause additional
dilution.
Our
amended and restate certificate of incorporation authorizes Fusion
to issue up to 10,000,000 shares of preferred stock, of which
15,000 shares of Series D Preferred Stock are currently issued and
outstanding. Our amended and restated certificate of incorporation
gives our Board the authority to issue preferred stock without any
further approval of our stockholders. We may issue additional
shares of preferred stock to raise money to finance our operations.
We may authorize the issuance of preferred stock in one or more
additional series. In addition, we may set the terms of preferred
stock, including:
●
dividend and
liquidation preferences;
●
other privileges
and rights of the shares of each authorized series.
The
issuance of large blocks of our preferred stock could have a
dilutive effect on our existing stockholders. It can also
negatively impact our existing stockholders’ liquidation
preferences. In addition, while we include preferred stock in our
capitalization to improve our financial flexibility, we could also
issue preferred stock to friendly third parties to preserve control
by present management. This could occur if we become subject to a
hostile takeover that could ultimately benefit our
stockholders.
Our use of equity to fund operations is dilutive to existing
stockholders and, depending upon the market price of our Common
Stock at the time of issuance, we may be required to issue shares
of Common Stock at depressed prices.
The use
of Fusion equity securities to fund operations is dilutive to our
existing stockholders. Unless we are able to generate substantial
revenues to fund our future operating expenses, we may be required
to fund our operations through the sale of additional equity
securities. Moreover, the dilutive effect on our stockholders
caused by the issuance of new equity is directly impacted by the
market price of our Common Stock at the time of issuance. If we are
required to issue equity securities at a time when the market price
for our Common Stock is depressed, we will need to issue more
shares than if the market price was higher, and the dilutive effect
on our stockholders will be greater.
The issuance of our Common Stock upon the exercise of options or
warrants may cause significant dilution to our stockholders and may
have an adverse impact on the market price of our Common
Stock.
As of
May 30, 2018, we had 76,583,701 Common Shares outstanding and
approximately, 1,193,144 shares reserved for the exercise of
outstanding warrants, and 1,996,770 shares reserved for the
exercise of outstanding stock options. The issuance of our shares
of our Common Stock upon the exercise of stock options or warrants
will increase the number of our publicly traded shares, which could
depress the market price of our Common Stock.
The
perceived risk of dilution may cause our common stockholders to
sell their shares, which would contribute to a downward movement in
the stock price of our Common Stock. Moreover, the perceived risk
of dilution and the resulting downward pressure on our Common Stock
price could encourage investors to engage in short sales of our
Common Stock. By increasing the number of shares offered for sale,
material amounts of short selling could further contribute to
progressive price declines in our Common Stock.
Our Common Stock is subject to price volatility unrelated to our
operations.
The
market price of our Common Stock has fluctuated substantially and
will likely continue to fluctuate due to a variety of factors,
including market perception of our ability to achieve our planned
growth, our ability to realize synergies from the Birch and
MegaPath transactions (if the MegaPath transaction is consummated),
quarterly operating results of other companies in our industry,
trading volume in our Common Stock, changes in general conditions
in the economy and the financial markets or other developments
affecting our competitors or us. In addition, the stock market is
subject to extreme price and volume fluctuations. This volatility
has had a significant effect on the market price of our Common
Stock and securities issued by many other companies for reasons
unrelated to operating performance.
In
addition, the market price of our Common Stock may continue to
fluctuate significantly in response to a number of other factors,
many of which are beyond our control including, but not limited to,
the following:
●
ability to obtain
and retain securities analyst coverage;
●
changes in
securities analysts’ recommendations or estimates of our
financial performance;
●
changes in the
market valuations of companies similar to us;
●
announcements by
our competitors of significant contracts, new offerings,
acquisitions, commercial relationships, joint ventures, or capital
commitments; and
●
failure to meet
analysts’ expectations regarding financial
performance.
Furthermore,
companies that have experienced volatility in the market price of
their stock have been subject to securities class action
litigation. A securities class action lawsuit against us,
regardless of its merit, could result in substantial costs and
divert the attention of our management from other business
concerns, which in turn could harm our business.
USE OF PROCEEDS
We will
not receive any proceeds from the sale of shares of Common Stock by
the selling stockholder hereunder.
The
selling stockholder will pay any underwriting discounts and
commissions and any similar expenses it incurs in selling shares of
Common Stock covered by this prospectus. We will bear all other
costs, fees and expenses incurred in effecting the registration of
the Common Stock covered by this prospectus. These may include,
without limitation, all registration and filing fees, printing fees
and fees and expenses of our counsel and accountants.
SELLING STOCKHOLDER
Background of the Offering
On
behalf of the selling stockholder named in the table below
(including its respective successors or permitted assigns, who
receive any of the shares of Common Stock covered by this
prospectus), we are registering, pursuant to the registration
statement of which this prospectus forms a part, 12,474,078 shares
of our issued and outstanding Common Stock.
When we
refer to “selling stockholder” in this prospectus, we
mean the stockholder listed in the table below, and any pledgees,
donees, permitted transferees, assignees, successors and others who
later come to hold any of the selling stockholder’s interest
in the shares of Common Stock other than through a public
sale.
We are
registering the shares of Common Stock to fulfill our contractual
obligation under the Registration Rights Agreement. Under the terms
of the Registration Rights Agreement, we are obligated, among other
things and subject to the conditions and exceptions contained
therein, to file this registration statement covering no greater
than 25% of the total number of shares acquired by the selling
stockholder in connection with the Birch Merger, and to use
reasonable best efforts to cause this registration statement to be
declared effective by the SEC within 120 days following the closing
of the Birch Merger, which closed on May 4, 2018. In addition,
Fusion has agreed to maintain the effectiveness of this resale
registration statement until the earlier of the sale of all of the
covered shares acquired by the selling stockholder in the Birch
Merger or the fifth anniversary of the effective date of this
registration statement. Under the Preferred Stock Purchase
Agreement, Fusion agreed to file this registration statement within
five (5) business days after certain specified conditions were met,
with which Fusion is in compliance.
We are
registering the shares to permit the selling stockholder to offer
these shares for resale from time to time. The selling stockholder
may sell all, some or none of the shares of Common Stock covered by
this prospectus. Additional information relating to sales of the
shares of Common Stock offered by the selling stockholder is
contained elsewhere in this prospectus under the caption
“Plan of Distribution.”
The
shares of Common Stock being offered under this prospectus may be
offered for sale from time to time during the period the
registration statement of which this prospectus forms a part
remains effective, by or for the account of the selling
stockholder. After the date of effectiveness of the registration
statement of which this prospectus forms a part, the selling
stockholder may have sold or transferred, in transactions covered
by this prospectus or in transactions exempt from the registration
requirements of the Securities Act, some or all of its shares of
Common Stock. Information about the selling stockholder may change
over time. Any changed information will be set forth in an
amendment to the registration statement or supplement to this
prospectus, to the extent required by law.
Selling Stockholder
The
following table sets forth as of the date of this prospectus
the:
●
name of the selling
stockholder;
●
amount of Common
Stock owned beneficially by the selling stockholder;
●
number of shares of
Common Stock that may be offered by the selling stockholder
pursuant to this prospectus;
●
number of shares of
Common Stock to be owned by the selling stockholder following sale
of the shares of Common Stock covered by this prospectus;
and
●
percentage of our
Common Stock to be owned by the selling stockholder following sale
of the shares of Common Stock covered by this
prospectus.
Beneficial
ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to
outstanding voting securities, as well as any voting securities
which the person has the right to acquire within 60 days, through
the conversion or exercise of any security or other right. The
information as to the number of shares of our Common Stock owned by
the selling stockholder is based upon our books and records, the
information provided by our transfer agent and other information
that we have determined to be reliable.
Because
the selling stockholder identified in the following table may sell
some or all of the shares of Common Stock owned by it which are
included in this prospectus, no estimate can be given as to the
number of shares of Common Stock available for resale hereby that
will be held by the selling stockholder upon termination of this
offering. We have, therefore, assumed for the purposes of the
following table, that the selling stockholder will sell all of the
shares of Common Stock owned beneficially by it that are covered by
this prospectus, but will not sell any other shares of our Common
Stock that it presently owns. Unless otherwise indicated in
footnotes, shares in the table refer to shares of outstanding
Common Stock. All of the shares reflected in the table under
“Number of Shares Available Pursuant to this
Prospectus” are owned directly by the named selling
stockholder, and we are advised that no other person (including any
person identified in the notes to the table) has any beneficial
interest therein.
Name of
Selling Stockholder
|
Number of
Shares Owned Beneficially
|
Number of
Shares Available Pursuant to this Prospectus
|
Number of
Shares Owned After Offering
|
Percent of
Class After Offering
|
|
|
|
|
|
BCHI Holdings, LLC
(1)
|
49,896,310
|
12,474,078
|
37,422,234
|
48.9%
|
____________________
(1)
Holcombe T. Green, Jr. is the managing member of BCHI Holdings, LLC
(“BCHI Holdings”). Mr. Holcombe has sole voting and
dispositive power of 29,836,676 shares of Common Stock on behalf of
himself and as trustee of (i) The Holcombe T. Green, Jr. 2013
Five-Year Annuity Trust, (ii) The HTG III 2015 Five-Year Annuity
Trust, (iii) The FHG 2015 Five-Year Annuity Trust, (iv) The FHG
2017 Two-Year Annuity Trust, (v) The FHG 2017 Four-Year Annuity
Trust, (vi) The HTG III 2017 Two-Year Annuity Trust, (vii) The HTG
III 2017 Four-Year Annuity Trust, (viii) The FHG 2018 Two-Year
Annuity Trust, (ix) The FHG 2018 Four-Year Annuity Trust and (x)
The FHG 2018 Five-Year Annuity Trust (collectively the
“Trusts”), each of which are members of BCHI Holdings.
As managing member of BCHI Holdings, Mr. Green has shared voting
and dispositive power over all additional shares owned by BCHI
Holdings. Mr. Green disclaims beneficial ownership over all such
shares except to the extent of the reporting person’s
pecuniary interest.
PLAN OF DISTRIBUTION
We
are registering for resale by the selling stockholder and certain
of its transferees 12,474,078 shares of our issued and outstanding
Common Stock. We will not receive any proceeds from the sale by the
selling stockholder of these shares of Common Stock. We will bear
all fees and expenses incident to our obligation to register these
shares of Common Stock. If these shares of Common Stock are sold
through broker-dealers or agents, the selling stockholder will be
responsible for any compensation to such broker-dealers or agents,
including discounts of commisions.
The
selling stockholder may sell its shares of Common Stock by one or
more of the following methods, without limitation:
●
All
or a portion of the shares of Common Stock beneficially owned by
the selling stockholder or its pledgees, donees, transferees or
successors in interest, may be sold on the OTC Bulletin Board
Market, any national securities exchange or quotation service on
which the shares of our Common Stock may be listed or quoted at the
time of sale, in the over-the-counter market, in privately
negotiated transactions, through the writing of options, whether
such options are listed on an options exchange or otherwise, short
sales or in a combination of such transactions.
●
Each
sale may be made at market price prevailing at the time of such
sale, at negotiated prices, at fixed prices or at carrying prices
determined at the time of sale.
●
Some
or all of the shares of Common Stock may be sold through one or
more broker-dealers or agents and may involve crosses, block
transactions or hedging transactions. The selling stockholder may
enter into hedging transactions with broker-dealers or agents,
which may in turn engage in short sales of the Common Stock in the
course of hedging in positions they assume. The selling stockholder
may also sell shares of Common Stock short and deliver shares of
Common Stock to close out short positions or loan or pledge shares
of Common Stock to broker-dealers or agents that in turn may sell
such shares.
●
In
connection with such sales through one or more broker-dealers or
agents, such broker-dealers or agents may receive compensation in
the form of discounts, concessions or commissions from the selling
stockholder and may receive commissions from the purchasers of the
shares of Common Stock for whom they act as broker-dealer or agent
or to whom they sell as principal (which discounts, concessions or
commissions as to particular broker-dealers or agents may be in
excess of those customary in the types of transaction involved).
Any broker-dealer or agent participating in any such sale may be
deemed to be an “underwriter” within the meaning of the
Securities Act and will be required to deliver a copy of this
prospectus to any person who purchases any share of Common Stock
from or through such broker-dealer or agent. Any such underwritten
offering may be done on a firm commitment or best efforts basis. We
have been advised that, as of the date hereof, the selling
stockholder has not made any arrangements with any broker-dealer or
agent for the sale of its shares of Common Stock.
●
Some
or all of the shares of Common Stock may be distributed by the
selling stockholder to its members.
●
Such
sales of Common Stock may be conducted by any combination of these
methods of sale or may otherwise be conducted in any other manner
not prohibited by law.
The
selling stockholder may pledge or grant a security interest in some
or all of the shares of Common Stock owned by it and, if it
defaults in the performance of its secured obligations, the
pledgees or secured parties may offer and sell the shares of Common
Stock from time to time pursuant to this prospectus or any
amendment to this prospectus, amending, if necessary, the list of
selling stockholder(s) to include the pledgee, transferee or other
successors in interest as selling stockholder under this
prospectus.
The
selling stockholder and any broker-dealer participating in the
distribution of the shares of Common Stock may be deemed to be
“underwriters” within the meaning of the Securities Act
and any profits realized by the selling stockholder and any
commissions paid, or any discounts or concessions allowed to any
such broker-dealer may be deemed to be underwriting commissions or
discounts under the Securities Act. In addition, any shares of
Common Stock covered by this prospectus which qualify for sale
pursuant to Rule 144 of the Securities Act (“Rule 144”)
may be sold under Rule 144 rather than pursuant to this prospectus.
The selling stockholder may also transfer, devise or gift the
shares of Common Stock by other means not covered in this
prospectus in which case the transferee, devisee or giftee will be
the selling stockholder under this prospectus.
If
required at the time a particular offering of the shares of Common
Stock covered hereby is made, a prospectus supplement or, if
appropriate, a post-effective amendment to the registration
statement of which this prospectus forms a part, will be
distributed which will set forth the aggregate amount of shares of
Common Stock being offered and the terms of the offering, including
the name or names of any broker-deals or agents, any discounts,
commissions or concessions allowed or re-allowed or paid to
broker-dealers.
Under
the securities laws of some states, the shares of Common Stock may
be sold in such states only through registered or licensed brokers
or dealers. In addition, in some states the shares of Common Stock
may not be sold unless such shares have been registered or
qualified for sale in such state or an exemption from registration
or qualification is available and is complied with. There can be no
assurance that the selling stockholder will sell any or all of the
shares of Common Stock registered pursuant to the registration
statement of which this prospectus forms a part.
The
selling stockholder and any other person participating in such
distribution will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including,
without limitation, Regulation M of the Exchange Act, which may
limit the timing of purchases and sales of any of the shares of
Common Stock by the selling stockholder and any other participating
person. Regulation M may also restrict the ability of any person
engaged in the distribution of the shares of Common Stock to engage
in market-making activities with respect to the shares of Common
Stock. All of the foregoing may affect the marketability of the
shares of Common Stock and the ability of any person or entity to
engage in market-making activities with respect to the shares of
Common Stock.
The
securities offered hereby have been issued to the selling
stockholder in a transaction exempt from the registration
requirements under the Securities Act. We agreed pursuant to the
Registration Rights Agreement to register such securities under the
Securities Act, and to keep the registration statement of which
this prospectus is a part effective until the earlier of the sale
of all of the shares of Common Stock offered under this prospectus
or the fifth anniversary of the date of this
prospectus.
We will
bear all expenses of the registration of the shares of Common Stock
covered by this prospectus including, without limitation, SEC
filing fees and expenses of compliance with the state securities of
“blue sky” laws. The selling stockholder will pay all
underwriting discounts and selling commissions and expenses,
brokerage fees and transfer taxes, as well as the fees and
disbursements of counsel to and experts for the selling
stockholder, if any. We will indemnify the selling stockholder
against liabilities, including some liabilities under the
Securities Act, in accordance with the Registration Rights
Agreement or the selling stockholder will be entitled to
contribution. We will be indemnified by the selling stockholder
against civil liabilities, including liabilities under the
Securities Act that may arise from any written information
furnished to us by the selling stockholder for use in this
prospectus, in accordance with the related securities purchase
agreement or will be entitled to contribution. Once sold under the
registration statement of which this prospectus forms a part, the
shares of Common Stock will be freely tradable in the hands of
persons other than our affiliates.
There
can be no assurance that the selling stockholder will sell any or
all of the shares of Common Stock registered pursuant to the
registration statement of which this prospectus forms a
part.
Listing
Our
Common Stock is listed on The Nasdaq Global Market under the
trading symbol “FSNN.”
Transfer Agent and Registrar
The
transfer agent and registrar for our Common Stock is Continental
Stock Transfer & Trust Co., New York, New York. Its
address and telephone number are One State Street, 30th Floor, New
York, New York 10004 and (212) 509-4000, respectively.
CERTAIN PROVISIONS OF DELAWARE LAW AND FUSION’S AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED
BYLAWS
Anti-takeover Provisions of Our Charter and Amended and Restated
Bylaws
Our
amended and restated certificate of incorporation, our amended and
restated bylaws and the Delaware General Corporation Law (the
“DGCL”) contain provisions that could delay or make
more difficult an acquisition of control of the Company not
approved by our Board, whether by means of a tender offer, open
market purchases, proxy contests or otherwise. These provisions
have been implemented to enable us to develop our business in a
manner that will foster our long-term growth without disruption
caused by the threat of a takeover not deemed by our Board to be in
the best interest of our company and our stockholders. These
provisions could have the effect of discouraging third parties from
making proposals involving an acquisition or change of control of
our company even if such a proposal, if made, might be considered
desirable by a majority of our stockholders. These provisions may
also have the effect of making it more difficult for third parties
to cause the replacement of our current management without the
concurrence of our Board.
Set
forth below is a description of the provisions contained in our
amended and restated certificate of incorporation, amended and
restated bylaws and the DGCL that could impede or delay an
acquisition of control of the Company that our Board has not
approved. This description is intended as a summary only and is
qualified in its entirety by reference to our amended and restated
certificate of incorporation and amended and restated bylaws, which
are included as Exhibit 3.2 and Exhibit 3.4, respectively, to the
Company's Current Report on Form 8-K filed with the SEC on May 10,
2018.
Authorized But Unissued Preferred Stock
We are
currently authorized to issue a total of 10,000,000 shares of
preferred stock. Our amended and restated certificate of
incorporation provides that our Board may issue preferred stock by
resolutions, without any action of the stockholders. In the event
of a hostile takeover, our Board could potentially use this
preferred stock to preserve control.
Number of Directors
Our amended
and restated certificate of incorporation and amended and restated
by-laws provide that the number of directors shall be no less than
one and not more than nine, as fixed from time to time by
resolution of our Board, and subject to the terms of the
Stockholders Agreement which fixes the number of directors at
seven.
Filling Vacancies
Our amended
and restated by-laws establish that our Board shall be authorized
to fill any vacancies arising due to the death, resignation or
removal of any director. The Board is also authorized to fill
vacancies if the stockholders fail to elect the full authorized
number of directors to be elected at any annual or special meeting
of stockholders. Subject to the terms of the Stockholders
Agreement, vacancies on the Board may be filled by a majority of
the remaining directors then in office, even though less than a
quorum of the Board, or by a sole remaining director.
Board Action Without Meeting
Our
amended and restated bylaws provide that the Board may take action
without a meeting if all the members of the Board consent to the
action in writing or by electronic transmission. Board action
through consent allows the Board to make swift decisions, including
in the event that a hostile takeover threatens current
management.
No Cumulative Voting
Our
amended and restated bylaws provide that there is no right to
cumulate votes in the election of directors. This provision means
that the holders of a plurality of the shares voting for the
election of directors can elect all of the directors.
Non-cumulative voting makes it more difficult for an insurgent
minority stockholder to elect a person to the Board.
Stockholder Proposals
Except
to the extent required under applicable law, we are not required to
include on our proxy card, or describe in our proxy statement, any
information relating to any stockholder proposal and disseminated
in connection with any meeting of our stockholders.
Requirements for Advance Notification of Stockholder Meetings,
Nominations and Proposals
Our
amended and restated bylaws establish advance notice procedures
with respect to stockholder proposals and the nomination of
candidates for election as directors, other than nominations made
by or at the direction of the Board or a committee of the Board or
pursuant to the Stockholders Agreement. For any matter to be
“properly brought” before a meeting, a stockholder will
have to comply with advance notice requirements and provide us with
certain information. Additionally, subject to the rights, if any,
of the holders of any series of preferred stock, and subject to the
Stockholders Agreement (so long as it is in effect) vacancies and
newly created directorships may be filled only by a vote of a
majority of the directors then in office, even if less than a
quorum, and not by the stockholders. Our amended and restated
bylaws allow the Board or the chairman of the meeting to adopt such
rules and regulations for the conduct of meetings as it shall deem
appropriate which may have the effect of precluding the conduct of
certain business at a meeting if the rules and regulations are not
followed. These provisions may also defer, delay or discourage a
potential acquirer from conducting a solicitation of proxies to
elect the acquirer’s own slate of directors or otherwise
attempting to influence or obtain control of our
company.
Amendments to Our Amended and Restated Certificate of Incorporation
and Amended and Restated Bylaws
Our
amended and restated bylaws give both the directors and the
stockholders the power to adopt, alter or repeal our amended
and restated bylaws. Any adoption, alteration, amendment, change or
repeal of the bylaws by the stockholders requires an affirmative
vote by a majority of our Common Stock. Any bylaw that has been
adopted, amended, or repealed by the stockholders may be amended or
repealed by the Board, unless the resolution of the stockholders
adopting such by-laws expressly reserves to the stockholders the
right to amend or repeal it. Any proposal to amend, alter, change
or repeal any provision of our amended and restated certificate of
incorporation requires approval by the affirmative vote of a
majority of the voting power of all of the classes of our capital
stock entitled to vote on such amendment or repeal, voting together
as a single class, at a duly constituted meeting of stockholders
called expressly for that purpose.
Delaware Statutory Provisions
We are
subject to the provisions of Section 203 of the DGCL
regulating corporate takeovers. This section prevents Delaware
corporations, under certain circumstances, from engaging in a
“business combination” with:
●
a stockholder who
owns 15% or more of our outstanding voting stock (otherwise known
as an interested stockholder);
●
an affiliate of an
interested stockholder; or
●
an associate of an
interested stockholder;
●
for three years
following the date that the stockholder became an interested
stockholder. A “business combination” includes a merger
or sale of more than 10% of our assets.
However, the above
provisions of Section 203 do not apply if:
●
our Board approves
either the business combination or the transaction that made the
stockholder an interested stockholder, prior to the date of that
transaction;
●
after the
completion of the transaction that resulted in the stockholder
becoming an interested stockholder, that stockholder owned at least
85% of our voting stock outstanding at the time the transaction
commenced, excluding the shares owned by our officers and directors
and the shares contained in employee stock plans in which employee
participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a
tender or exchange offer; or
●
on or subsequent to
the date of the transaction, the business combination is approved
by our Board and authorized at a meeting of our stockholders by an
affirmative vote of at least two-thirds of the outstanding voting
stock not owned by the interested stockholder.
This
statute could prohibit or delay mergers or other change in control
attempts, and thus may discourage attempts to acquire
us.
VALIDITY OF THE SECURITIES
Kelley
Drye & Warren, LLP, New York, New York, will pass upon certain
legal matters relating to the validity of the issuance of the
shares of Common Stock, the resale of which is covered by this
prospectus.
EXPERTS
The
consolidated balance sheets of Fusion Connect, Inc. as of December
31, 2017 and 2016, and the related consolidated statement of
operations, changes in stockholders’ equity and cash flows
for each of the years in the two-year period ended December 31,
2017, have been audited by EisnerAmper LLP, independent registered
public accounting firm, as stated in their report which is
incorporated herein by reference. Such financial statements have
been incorporated herein by reference in reliance on the report of
such firm given upon their authority as experts in accounting and
auditing.
The
consolidated balance sheets of Birch Communications Holdings, Inc.
as of December 31, 2017 and 2016 and the related consolidated
statement of operations, changes in stockholders’ equity and
cash flows for each of the years in the two-year period ended
December 31, 2017, have been audited by McNair, McLemore,
Middlebrooks & Co., LLC, independent public accounting firm, as
stated in their report which is incorporated herein by reference.
Such financial statements have been incorporated herein by
reference in reliance on the report of such firm given upon their
authority as experts in accounting and auditing.
No
expert or counsel named in this prospectus as having prepared or
certified any part thereof or having given an opinion upon the
validity of the securities being registered or upon other legal
matters in connection with the registration or offering of our
Common Stock was employed on a contingency basis or had or is to
receive, in connection with the offering contemplated by this
prospectus, a substantial interest, directly or indirectly, in
us. Additionally, no such expert or counsel was connected with
us as a promoter, managing or principal underwriter, voting
trustee, director, officer or employee.
WHERE YOU CAN FIND MORE INFORMATION
We file
annual, quarterly and current reports, proxy and information
statements and other information with the SEC. You may read and
copy any reports, statements and other information, as well as the
registration statement of which this prospectus forms a part, at
the SEC’s public reference room at 100 F Street, NE, Room
1580, Washington, D.C. 20549. You may request copies of these
documents by writing to the SEC and paying the required fee for
copying. Please call the SEC at 1-800-SEC-0330 for more information
about the operation of the public reference room. The SEC also
maintains an Internet site that contains reports, proxy and
information statements and other information filed electronically
with the SEC. The address of that site is www.sec.gov. The information on
this website is not and should not be considered part of this
prospectus and is not incorporated by reference in this document,
other than that information specifically incorporated by reference
below. This website is and is only intended to be an inactive
textual reference.
Each
statement made in this prospectus or any prospectus supplement
concerning a document filed as an exhibit to the registration
statement of which this prospectus forms a part is qualified in its
entirety by reference to that exhibit for a complete description of
its provisions.
We make
available, free of charge, on or through our web site, copies of
our proxy statements, our annual reports on Form 10-K, our
quarterly reports on Form 10-Q, our current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Exchange Act as soon as reasonably
practicable after we electronically file them with, or furnish them
to, the SEC. We maintain a web site at www.fusionconnect.com.
The information contained on our web site is not part of this
prospectus, any prospectus supplement or the registration statement
of which this prospectus forms a part.
INFORMATION INCORPORATED BY REFERENCE
The SEC
allows us to incorporate information into this prospectus “by
reference,” which means that we can disclose important
information to you by referring you to another document that we
file separately with the SEC. The information incorporated by
reference is deemed to be part of this prospectus, except for any
information superseded by information contained directly in this
prospectus. These documents contain important information
about us and our financial condition, business and
results.
We
specifically incorporate by reference into this prospectus the
documents listed below that have previously been filed with the
SEC:
●
Our Annual Report
on Form 10-K for the fiscal year ended December 31, 2017 filed
with the SEC on March 22, 2018;
●
Our Form 14F-1
Information Statement filed with the SEC on April 3,
2018;
●
Our Current Report
on Form 8-K dated January 24, 2018 filed with the SEC on January
29, 2018;
●
Our Current Report
on Form 8-K dated January 31, 2018 filed with the SEC on February
1, 2018;
●
Our Current Report
on Form 8-K dated February 5, 2018 filed with the SEC on February
6, 2018;
●
Our Current Report
on Form 8-K dated February 20, 2018 filed with the SEC on February
20, 2018;
●
Our Current Report
on Form 8-K dated February 21, 2018 filed with the SEC on February
21, 2018;
●
Our Current Report
on Form 8-K dated March 12, 2018 filed with the SEC on March 12,
2018;
●
Our Current Report
on Form 8-K dated April 4, 2018 filed with the SEC on April 10,
2018;
●
Our Current Report
on Form 8-K dated April 26, 2018 filed with the SEC on April 30,
2018;
●
Our Current Report
on Form 8-K dated May 4, 2018 filed with the SEC on May 10,
2018;
●
Our Current Report
on Form 8-K dated May 25, 2018 filed with the SEC on May 25,
2018;
●
The description of
our Common Stock set forth in the Registration Statement on Form
8-A filed with the SEC on June 3, 2014, and any other amendment or
report filed for the purpose of updating such
description.
We also incorporate by reference any future
filings (other than current reports furnished under Item 2.02 or
Item 7.01 of Form 8-K and exhibits filed on such form that are
related to such items unless such Form 8-K expressly provides to
the contrary) made with the SEC pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act, including those made after the
date of the initial filing of the registration statement of which
this prospectus forms a part and prior to effectiveness of such
registration statement, until we file a post-effective amendment
that indicates the termination of the offering of the Common Stock
made by this prospectus, which will become a part of this
prospectus from the date that such documents are filed with the
SEC. Information in such future filings updates and supplements the
information provided in this prospectus. Any statements in any such
future filings will automatically be deemed to modify and supersede
any information in any document we previously filed with the SEC
that is incorporated or deemed to be incorporated herein by
reference to the extent that statements in the later-filed document
modify or replace such earlier statements.
We will
deliver without charge a copy of all of the information
incorporated by reference in this prospectus to each person
receiving a copy of this prospectus. If you need an additional copy
of these documents, or if you would like to receive a copy of the
other items referenced above, you may request copies, at no cost,
by writing or telephoning us at the following address and
number:
Philip
D. Turits
Corporate
Secretary
Fusion
Connect, Inc.
420
Lexington Avenue, Suite
1718
New
York, New York 10170
(212)
201-2400
Copies
of our SEC filings and other information about us are also
available free of charge on our website at www.fusionconnect.com.
The information on our website is neither incorporated into, nor a
part of, this prospectus and should not be considered in making a
decision about the investment in the shares of our Common Stock
offered for resale pursuant to this prospectus.
No
dealer, sales representative or any other person has been
authorized to give any information or to make any representations
other than those contained in or incorporated by reference into
this prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by
us. This prospectus does not constitute an offer of any securities
other than those to which it relates or an offer to sell, or a
solicitation of any offer to buy, to any person in any jurisdiction
where such an offer or solicitation would be unlawful. Neither the
delivery of this prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that the information
set forth herein is correct as of any time subsequent to the date
hereof.
LIMITATION OF LIABILITY AND SEC POSITION ON
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our
amended and restated certificate of incorporation contains certain
provisions permitted under Delaware law relating to liability of
directors. The provisions eliminate director’s liability
for monetary damages for a breach of fiduciary duty, except in
circumstances involving wrongful acts, such as a breach of a
director’s duty of loyalty or acts or omissions that involve
intentional misconduct or a knowing violation of law. These
provisions may have the effect of reducing the likelihood of
derivative litigation against our directors and may discourage or
deter stockholders or management from bringing a lawsuit against
our directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited the Company
and our stockholders. We believe that these provisions are
necessary to attract and retain qualified persons to serve as
directors and officers of the Company.
Insofar
as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has
been informed that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is
therefore unenforceable.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14.
Other
Expenses of Issuance and Distribution.
The
following table sets forth the expenses payable by the registrant
in connection with the registration of the securities being
registered hereby. All such expenses are estimates except for
the SEC registration fee. These expenses will be borne by the
registrant.
Item
|
|
SEC registration
fee
|
$6,570
|
Printing and
engraving expenses
|
5,000
|
Legal fees and
expenses
|
40,000
|
Accounting fees and
expenses
|
15,000
|
Transfer agent and
registrar fees and expenses
|
3,000
|
Miscellaneous
|
5,000
|
Total
|
$74,570
|
Item 15.
Indemnification
of Directors and Officers.
Section 145 of
the General Corporation Law of Delaware allows a corporation to
indemnify any person who was or is a party, or is threatened to be
made a party to any threatened, pending, or completed action, suit
or proceeding. This applies whether the matter is civil, criminal,
administrative or investigative (other than an action by or in the
right of the corporation) because he or she is or was a director,
officer, employee or agent of the corporation.
A
corporation may indemnify against expenses, including
attorney’s fees, and against judgments, fines and amounts
paid in settlement as part of this suit or proceeding. This applies
only if the person indemnified acted in good faith and in a manner
he or she reasonably believed to be in the best interest of the
corporation and with respect to any criminal action or proceeding,
the person had no reasonable cause to believe his or her conduct
was unlawful.
In the
case of an action by or in the name of the corporation, no
indemnification of expenses may be made for any claim, issue or
matter as to which the person has been found to be liable to the
corporation. The exception is if the court in which this action was
brought determines that the person is reasonably entitled to
indemnity for expenses which the court deems proper.
Section 145 of
the General Corporation Law of Delaware further provides that if a
director, officer, employee or agent of the corporation has been
successful on the merits or otherwise in the defense of any action,
suit, claim or proceeding described above, he or she will be
indemnified for expenses, including attorney’s fees, actually
and reasonably incurred by him or her.
We have
obtained a policy of directors’ and officers’ liability
insurance that insures our directors and officers against the cost
of defense.
We
believe that the foregoing policies and provisions of our second
amended and restated certificate of incorporation and our amended
and restated bylaws are necessary to attract and retain qualified
officers and directors. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted or
required with respect to our directors, officers or control
persons, in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a
claim for indemnification against these liabilities, other than the
payment by Fusion in the successful defense of any action, suit or
proceeding, is asserted, Fusion 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
indemnification by it is against public policy. Fusion will be
governed by the final adjudication of this issue.
Item 16.
Exhibits
and Financial Statement Schedules.
INDEX TO EXHIBITS
Exhibit Number
|
|
Description
|
|
|
Registration Rights Agreement, dated as of May 4, 2018, by and
between the Registrant and BCHI Holdings, LLC (incorporated herein
by reference to Exhibit 10.2 of the Registrant’s Current
Report on Form 8-K, dated as of May 10, 2018, File No.
001-32421)
|
|
|
Opinion and Consent of Kelley Drye & Warren LLP
(*)
|
|
|
Consent of EisnerAmper LLP (*)
|
|
|
Consent of McNair, McLemore, Middlebrooks & Co., LLC
(*)
|
|
|
Consent of Kelley Drye & Warren LLP (* Included in Exhibit
5.1)
|
|
|
Power of Attorney (* included on the signature page)
|
______________
* Filed
herewith
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
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(i)
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To
include any prospectus required by section 10(a)(3) of the
Securities Act;
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(ii)
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To
reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the 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)
(§230.424(b) of this chapter) if, in the aggregate, the
changes in volume and price represent no more than 20% change in
the maximum aggregate offering price set forth in the
“Calculation of Registration Fee” table in the
effective registration statement.
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(iii)
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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;
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(2)
That, for the purpose of determining any liability under the
Securities Act, 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.
(3) 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.
(4)
That, for the purpose of determining liability under the Securities
Act of 1933 to any purchaser:
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(i)
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If
the registrant is relying on Rule 430B:
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A)
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Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall
be deemed to be part of the registration statement as of the date
the filed prospectus was deemed part of and included in the
registration statement; and
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(B)
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Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5),
or (b)(7) as part of a registration statement in reliance on Rule
430B relating to an offering made pursuant to Rule 415(a)(1)(i),
(vii), or (x) for the purpose of providing the information required
by section 10(a) of the Securities Act shall be deemed to be part
of and included in the registration statement as of the earlier of
the date such form of prospectus is first used after effectiveness
or the date of the first contract of sale of securities in the
offering described in the prospectus. As provided in Rule 430B, for
liability purposes of the issuer and any person that is at that
date an underwriter, such date shall be deemed to be a new
effective date of the registration statement relating to the
securities in the registration statement to which that prospectus
relates, and the offering of such securities at that time shall be
deemed to be the initial bona
fide offering thereof. Provided, however, that no statement
made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such effective
date, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the
registration statement or made in any such document immediately
prior to such effective date; or
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(ii)
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If the
registrant is subject to Rule 430C, each prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating to an
offering, other than registration statements relying on Rule 430B
or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as
of the date it is first used after effectiveness. Provided, however, that no statement
made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of
first use.
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(5)
That, for the purpose of determining liability of the registrant
under the Securities Act of 1933 to any purchaser in the initial
distribution of the securities:
The undersigned registrant undertakes that in a primary offering of
securities of the undersigned registrant pursuant to this
Registration Statement, regardless of the underwriting method used
to sell the securities to the purchaser, if the securities are
offered or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities
to such purchaser:
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(i)
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Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
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(ii)
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Any
free writing prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by the
undersigned registrant;
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(iii)
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The
portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and
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(iv)
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Any
other communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
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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 Section 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.
Insofar
as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to 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 SEC such indemnification is against public policy as expressed
in the Securities 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 Securities Act and will be governed by the final adjudication
of such issue.
The
undersigned registrant hereby undertakes that:
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(i)
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For
purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
a part of this registration statement in reliance on Rule 430A and
contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be a part of this registration statement as of the
time it was declared effective.
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(ii)
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For the
purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of
prospectus 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.
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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 New York,
State of New York, on June 1, 2018.
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FUSION CONNECT, INC.
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By:
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/s/
Matthew D. Rosen
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Matthew
D. Rosen, Chief Executive Officer
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By:
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/s/
Kevin M. Dotts
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Kevin
M. Dotts, Executive Vice President, Chief Financial Officer and
Principal Accounting Officer
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KNOW ALL PERSONS BY
THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of James P. Prenetta, Jr. and
Philip D. Turits as the person's true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for
the person and in the person's name, place and stead, in any and
all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and any
additional registration statements filed pursuant to Rule 462(b)
under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent, full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in connection therewith, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming
that each said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant
to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in
the capacities and on the dates indicated.
Signature
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Title
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Date
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/s/
Matthew D. Rosen
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Chairman
of the Board of Directors and Chief Executive Officer
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June 1,
2018
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Matthew
D. Rosen
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/s/
Holcombe T. Green, Jr.
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Vice
Chairman of the Board of Directors
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June 1,
2018
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Holcombe
T. Green, Jr.
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/s/
Marvin S. Rosen
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Director
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June 1,
2018 |
Marvin
S. Rosen
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/s/
Holcombe T. Green, III
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Director
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June 1,
2018 |
Holcombe
T. Green, III
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/s/
Lewis W. Dickey, Jr.
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Director
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June 1,
2018 |
Lewis
W. Dickey, Jr.
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/s/
Rafe de la Gueronniere
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Director
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June 1,
2018 |
Rafe de
la Gueronniere
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/s/
Michael J. Del Giudice
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Director
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June 1,
2018 |
Michael
J. Del Giudice
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