As filed with the Securities and Exchange Commission on December 15, 2017
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 TELECOMMUNICATIONS INTERNATIONAL,CONNECT, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
58-2342021
(I.R.S.| Delaware | | 58-2342021 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. employer identification number) |
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 Telecommunications International,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
(Approximate date of commencement of proposed sale to the public)
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, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer (Do
| ☐ | Smaller reporting company | ☒ |
| (Do not check if smaller reporting company) | ☐ | Smaller reporting company | ⌧ |
| | Emerging growth company
| ☐ |
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 (1) | | Amount to be registered (1)(2) | | | Proposed maximum offering price per unit (1)(2) | | | Proposed maximum aggregate offering price (1)(2) | | | Amount of registration fee | |
| Common stock, par value $0.01 per share (4)(9) | | | | | | | | | | | | | |
| Preferred stock, par value $0.01 per share (5) (9) | | | | | | | | | | | | | |
| Debt Securities (6) (9) | | | | | | | | | | | | | |
| Warrants (7) (9) | | | | | | | | | | | | | |
| Units (8) (9) | | | | | | | | | | | | | | | | |
| Total | | | | | | | | | | $ | 100,000,000 | | | $ | 12,450.00 | (3) |
Title of each class of securities to be registered | Amount to be registered (1)
| Proposed maximum offering price per share (2)
| Proposed maximum aggregate offering price (2)
| Amount of registration fee |
| Common Stock, par value $0.01 per share (“Common Stock”)(3) | 1,523,812 | $3.58 | $5,455,247 | $680 |
______________________________
(1) | Not specified as to each class of securities to be registered pursuant to General Instruction II.D to Form S-3. |
(2) | The proposed maximum aggregate offering price per unit will be determined from time to time by the registrant in connection with the issuance by the registrant of the securities registered hereunder. |
(3) | Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”). |
(4) | Subject to note (9) below, there is being registered an indeterminate number of shares of common stock in connection with the offer and sale of common stock by the registrant. |
(5) | Subject to note (9) below, there is being registered an indeterminate number of shares of preferred stock. |
(6) | Subject to note (9) below, there is being registered an indeterminate principal amount of debt securities, excluding accrued interest and accrued amortization of discount, if any, to the date of delivery. |
(7) | Subject to note (9) below, there is being registered an indeterminate amount and number of warrants. The warrants may represent the rights to purchase shares of common stock, preferred stock or debt securities of the registrant. |
(8) | Subject to note (9) below, there is being registered an indeterminate number of units. Each unit will represent an interest in a combination of one or more of the securities registered hereunder. |
(9) | Subject to note (10) below, this registration statement also covers an indeterminate amount of securities as may be issued in exchange for, or upon conversion or exercise of, as the case may be, the shares of preferred stock or warrants registered hereunder. Any securities registered hereunder may be sold separately or as units with other securities registered hereunder. No separate consideration will be received for any securities registered hereunder that are issued in exchange for, or upon conversion of, as the case may be, the shares of preferred stock or warrants. |
(10) | In no event will the aggregate initial offering price of all securities issued from time to time pursuant to the prospectus contained in this registration statement exceed $100,000,000 or the equivalent thereof in one or more foreign currencies or foreign currency units. Such amount represents the offering price of any shares of common stock or preferred stock, the principal amount of any debt securities issued at their stated principal amount, the issue price rather than the principal amount of any debt securities issued at an original issue discount, the issue price of any warrants and the exercise price of any securities issuable upon the exercise of warrants. If any debt securities are issued at an original issue discount, then the offering price of such debt securities shall be equal to any such greater principal amount due at maturity, such aggregate principal amount not to exceed $100,000,000 less the value of securities previously issued hereunder. Any offering of securities denominated other than in United States dollars will be treated as the equivalent of United States dollars based on the exchange rate applicable to the purchase of such securities at the time of initial offering. The securities registered hereunder may be sold separately or as units with other securities registered hereunder. |
(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 of the high and low sales prices per share of our Common Stock as reported on The Nasdaq Global Market on July 16, 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. WeThe selling stockholders 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 is notneither Fusion nor the selling stockholders are soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
Subject to Completion, dated December 15, 2017July 20, 2018
FUSION TELECOMMUNICATIONS INTERNATIONAL,CONNECT, INC.
$100,000,000
1,523,812 shares of Common Stock
Preferred Stock
Debt Securities
Warrants
Units
WeThis prospectus covers the resale of a total of 1,523,812 shares of issued and outstanding common stock of Fusion Connect, Inc., par value $0.01 per share (the “Common Stock”), which may offer and sellbe offered from time to time up to $100,000,000by the selling stockholders identified elsewhere in this prospectus.
We are registering these shares of any combination ofCommon Stock for resale by the securities describedselling stockholders named in this prospectus, either individually or in units.their respective successors and permitted assigns, to fulfill our contractual obligation under stock purchase agreements between each of the selling stockholders and us, as described under the section entitled “Selling Stockholders.” We may also offer common stock upon conversion of preferred stock, common stock or preferred stock upon conversion of debt securities, or common stock, preferred stock or debt securities uponwill not receive any proceeds from the exercise of warrants. The specific termssale of these offeringsshares by the selling stockholders. These shares are being registered to permit the selling stockholders to sell shares from time to time, in amounts, at prices and securities will be set forth in one or more supplements to this prospectus. We will bear all expenseson terms determined at the time of registration incurred in connection withsale. The selling stockholders may sell these offerings. This prospectus provides a general description of the securities.
We may offer and sell the securitiesshares through ordinary brokerage transactions, directly to or through one or more underwriters, dealers, agents, or directly to purchasers,market makers for our shares of Common Stock or through any combination of these methods. If any underwriters, dealers or agents are involved in the sale of any of the securities, their names and any applicable purchase price, fee, commission or discount arrangement between or among them will be set forth, or will be calculable from the information set forth, in the applicable prospectus supplement. See the sectionother means described elsewhere in this prospectus entitled “About this Prospectus” andunder the caption “Plan of Distribution”Distribution.” The prices at which the selling stockholders 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 stockholders may offer these shares of Common Stock for more information. No securities may be sold without delivery of this prospectus and the applicable prospectus supplement describing the method and terms of the offering of such securities. The net proceeds we expect to receive from any such sale will also be included in the applicable prospectus supplement.
This prospectus describes some of the general terms that may apply to the securities and the general manner in which they may be offered. Each time we sell securities, we will provide a prospectus supplement that will contain specific information about the terms of the securities we are offering and the specific manner in which we will offer the securities. The prospectus supplement may add to, update or change the information in this prospectus. You should read this prospectus and any prospectus supplement carefully before you invest in our securities. This prospectus may not be used to sell securities unless accompanied by the applicable prospectus supplement.
Investing in our securities involves a high degree of risk. See “Risk Factors” at page 1 of this prospectus and in documents that we file with the Securities and Exchange Commission that are incorporated into this prospectus by reference, and the risks we describe in any accompanying supplement, for factors you should consider before buying our securities.
Our common stockCommon Stock is currently quoted on The Nasdaq CapitalGlobal Market and trades under the symbol “FSNN.” On December 11, 2017,July 19, 2018, the closing price offor our common stockCommon Stock on The Nasdaq CapitalGlobal Market was $3.96$3.82 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 7.
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 , 2017.__________, 2018.
TABLE OF CONTENTS
| | Page |
Risk Factors | 1 |
| About this Prospectus | 1 |
Where You Can Find More InformationCautionary Statement Regarding Forward-Looking Statements | 21 |
Information Incorporated by Reference | 2 |
Cautionary Statement on Forward Looking InformationProspectus Summary | 3 |
| About Fusion | 4 |
Recent Developments
| 54 |
| Risk Factors | 7 |
| Use of Proceeds | 520 |
The Securities We May OfferSelling Stockholders | 5 |
Description of Capital Stock | 6 |
Description of Debt Securities | 9 |
Description of Warrants | 16 |
Description of Units | 1920 |
| Plan of Distribution | 2022 |
Certain Provisions of Delaware Law and of Fusion’s Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws | 2223 |
| Validity of the Securities | 2325 |
| Experts | 2325 |
| Where You Can Find More Information | 26 |
| Information Incorporated By Reference | 26 |
| Limitation of Liability and SEC Position on Indemnification for Securities Act Liabilities | 2427 |
As permitted by the rules and regulations of the Securities and Exchange Commission (the “SEC”), the registration statement of which this prospectus forms a part includes additional information not contained in this prospectus. You may read the registration statement and the other reports filed by us with the SEC at the SEC’s website or at the SEC’s offices described below under the heading “Where You Can Find More Information.” Before investing in our securities, you should read this prospectus and any accompanying prospectus supplement, as well as the additional information describe under “Where You Can Find More Information” and “Information Incorporated by Reference.”
RISK FACTORS
Investing in our securities involves risk. Before making an investment decision, you should carefully consider the risks and other information that we include or incorporate by reference into this prospectus and any prospectus supplement. In particular, you should consider the risk factors under the heading “Risk Factors” included in our most recent Annual Report on Form 10-K, as revised or supplemented by our subsequent filings with the SEC, which are incorporated by reference into this prospectus. These risk factors may be amended, supplemented or superseded from time to time by other reports we file with the SEC in the future or by a prospectus supplement relating to a particular offering of our securities. The risks and uncertainties we have described are not the only ones facing our company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also affect our business operations. Additional risk factors may be included in a prospectus supplement relating to a particular offering of securities. If any of the risks or uncertainties described in our SEC filings or any prospectus supplement or any additional risks and uncertainties actually occur, our business, financial condition and results of operations could be materially and adversely affected. In that case, the trading price of our securities could decline and you might lose all or part of your investment.
ABOUT THIS PROSPECTUS
In this prospectus, unless the context otherwise requires, “Fusion,” the “Company,” “we,” “us,” and “our” are references to Fusion Telecommunications International,Connect, Inc. and its consolidated subsidiaries.
This prospectus is part of a registration statement that we filed with the SEC utilizingSEC. This prospectus does not contain all of the information included in the registration statement. For a “shelf”more complete understanding of the offering of the shares of Common Stock, you should refer to the registration or continuous offering process. Under the shelf registration or continuous offering process, westatement, including its exhibits. The selling stockholders may offer, from time to time the securitiessell up to 1,523,812 shares of our Common Stock (the “Shares”) as described in this prospectus with a total offering priceunder the caption “Plan of up to $100,000,000.Distribution.”
This prospectus provides you with a general description ofYou should rely only on the securities we may offer. Each time we offer securities, we will provide a prospectus supplement that will contain specific information about the terms of the offering. A prospectus supplement may include a discussion of risks or other special considerations applicable to us or the securities being offered. A prospectus supplement may also add, update or change information contained in this prospectus. If there is any inconsistency between the information in this prospectus andor any related prospectus supplement, you must rely onincluding the informationcontent of all documents now or in the prospectus supplement. Please carefully read bothfuture incorporated by reference into the registration statement of which this prospectus andforms a part. Neither we nor the related prospectus supplement inselling stockholders (nor any of our or their entirety together with additional information described under the heading “Where You Can Find More Information” in this prospectus. This prospectus may not be used to offer or sell any securities unless accompanied by a prospectus supplement.
Werespective affiliates) have not authorized anyone to provide you with any information different from thatother than the information contained in or incorporated by reference in this prospectus or in any accompanying prospectus supplement and in the documents incorporated by reference herein. Neither we nor the selling stockholders take noany responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is notNeither we nor the selling stockholders are making an offer of the shares of our Common Stock to sell, nor is it a solicitation of any offer to buy, the securitiesbe sold under this prospectus in any jurisdiction where thesuch 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 those documents,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,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 our 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:
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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 security. 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 | | 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 approximately 160,000 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 | | |
| | |
| Number Outstanding Prior to Offering: | | As of July 16, 2018, there were 78,419,272 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) 1,970,854 shares in the event of exercise of outstanding options at a weighted average price of $3.49 per share. |
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| Number Outstanding Subsequent to Offering: | | 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): | | FSNN |
| | |
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
MegaPath Acquisition
On June 15, 2018, Fusion completed its acquisition of MegaPath Holding Corporation, a Delaware corporation (“MegaPath”), pursuant to the Agreement and Plan of Merger (the “MegaPath Merger Agreement”), dated May 4, 2018, by and among Fusion, Fusion MPHC Acquisition Corp., a Delaware corporation (“MPHC Merger Sub”), 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. At the closing of the MegaPath acquisition (the “MegaPath Closing”), MPHC Merger Sub merged with and into MegaPath, with MegaPath surviving the merger (the “MegaPath Merger”), and it simultaneously changed its name to “Fusion MPHC Holding Corporation.”
At the MegaPath Closing, Fusion paid approximately $61.5 million of the $71.5 million purchase price in cash (the “Cash Consideration”), and approximately $10 million of the purchase price was paid in 1,679,144 shares of Fusion’s common stock, par value $0.01 per share (the “Stock Consideration”), issued to the former stockholders of MegaPath who are “Accredited Investors” as defined under Rule 501 of Regulation D promulgated under the Securities Act (the “MegaPath Stockholders”), at an agreed upon price of $5.775 per share, in accordance with the MegaPath Merger Agreement. Furthermore, $2,500,000 of the Cash Consideration was deposited into an escrow account with Citibank, N.A., as escrow agent, to be held for one (1) year to secure the indemnification obligations in favor of Fusion under the MegaPath Merger Agreement. The Cash Consideration, as well as certain expenses associated with the acquisition of MegaPath, was funded from approximately $62 million of borrowings under the First Lien Credit Facility (as defined below).
Birch Transaction and New Credit Facilities
On May 4, 2018 (the “Birch 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 Birch 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 required registration statement was declared effective by the SEC on July 11, 2018.
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 Fusion: 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 Fusion’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 Birch 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 Birch Closing Date, the maturity date of the Tranche B Term loan is five (5) years from the Birch Closing Date and the maturity date of the Second Lien Term Loan is five (5) years and six (6) months from the Birch 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. Fusion may prepay the Term Loans subject to specified notice and “make whole” applicable to that Term Loan.
At Fusion’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, Fusion 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.
On the Birch Closing Date, Fusion entered into and consummated the sale of an aggregate of 1,523,812 shares of Common Stock under common stock purchase agreements (the “Common Stock Purchase Agreements”) with each of the three selling stockholders. Specifically, Fusion issued and sold (i) 952,382 shares of Common Stock, for an aggregate purchase price of approximately $5,000,000, to North Haven Credit Partners II L.P., one of the lenders under the Second Lien Credit Facility (the “North Haven Shares”); (ii) 380,953 shares of Common Stock, for an aggregate purchase price of approximately $2,000,000, to Aetna Life Insurance Company (the “Aetna Shares”); and (iii) 190,477 shares of Common Stock, for an aggregate purchase price of approximately $1,000,000, to Backcast Credit Opportunities Fund I, L.P. (the “Backcast Shares” and with the North Haven Shares and the Aetna Shares, are collectively the “Shares” covered by this prospectus). Pursuant to the Common Stock Purchase Agreements, Fusion has agreed to file one or more registration statements under the Securities Act to register the resale of the Shares as promptly as reasonably practicable following the closing of the Birch Merger, and use all commercially reasonable efforts to effect such registration in no event later than 120 days following the Birch Closing Date (or 150 days in the event of a full review of such registration statement by the SEC).The registration statement of which this prospectus forms a part is the registration statement required bythe three Common Stock Purchase Agreements.Fusion has agreed to maintain the effectiveness of such registration statement until the second anniversary of the Birch Closing Date (unless the Shares are sold in their entirety or may be sold without restriction under Rule 144 of the Securities Act).
On the Birch 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 Birch 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.
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 July 13, 2018, we had approximately $646 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:
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limit our ability to obtain additional financing in the future for working capital, capital expenditures and acquisitions;
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make it more difficult to satisfy our obligations under the terms of our indebtedness;
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limit our ability to refinance our indebtedness on terms acceptable to us or at all;
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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;
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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;
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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
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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 prospectssoftware 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 61 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 and the MegaPath Merger, our ten largest customers by revenue accounted for approximately 4% of our proforma consolidated revenue in 2017. For the years ended December 31, 2017 and after giving effect to the Birch Merger and the MegaPath 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 sinceor 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 dates.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 acquisitions of Birch and MegaPath could impact or cause disruptions in our core business, the acquired Birch business and the acquired MegaPath business, which could have an adverse effect on our business, financial condition or results of operations.
The acquisitions of Birch andMegaPath could cause disruptions in our business, the acquired Birch business and the business of MegaPath, including:
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Fusion’s, Birch’s and MegaPath’s current and prospective customers and suppliers may experience uncertainty associated with the various mergers, including with respect to current or future business relationships with Fusion, Birch and MegaPath or the combined business and may attempt to negotiate changes in existing business;
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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 ability to retain and hire key employees and complete the integration of each of Birch and MegaPath;
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the acquisitions of Birch and MegaPath may give rise to potential liabilities; and
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the attention of Fusion’s management team may be directed toward the integration of each of Birch and MegaPath with Fusion and other transaction-related considerations and may be diverted from the day-to-day business operations of Fusion, Birch and MegaPath.
In connection with the acquisitions of Birch and MegaPath, we could also encounter additional transaction and integration-related costs or other factors such as the failure to realize all of the benefits anticipated from our acquisition of Birch or MegaPath.
The diversion of resources and management’s attention to the integration of Birch and MegaPath could adversely affect our day-to-day business.
While the integration of each of Birch and MegaPath 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 progresses 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, with limited exception, 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.
The indemnification provided by BCHI Holdings to Fusion regarding state tax matters may not be sufficient to cover the full amount owed and BCHI Holdings may not have the cash required to fund some or all of its indemnification obligations to Fusion arising under a separation agreement between Birch and its former chief executive officer.
Various Birch subsidiaries that became subsidiaries of Fusion as a result of the Birch Merger are involved in various tax audits and may have failed to file certain historical state tax filings. As a result of the Birch Merger, Fusion is responsible for any liabilities arising from these audits and late and/or missed filings. BCHI Holdings has entered into a letter agreement with Fusion under which it agreed, for a period of 24 months following the closing of the Birch Merger, to indemnify and hold harmless Fusion for and against any and all asserted and/or actual liabilities for unpaid state income tax and franchise fees and associated late fees, penalties and interest for 2017 and prior years; provided however, that Fusion shall bear the initial $1.0 million of any actual taxes (but not any late fees, penalties or interest on any such amounts). Amounts owed by BCHI Holdings under this tax 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 other types of state taxes or any federal tax liabilities, or (ii) the liabilities relating to the covered tax matters do not arise until after the 24 month indemnity period. Furthermore, if an indemnifiable tax 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 tax 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.
In addition to the foregoing tax indemnity side letter, BCHI Holdings entered into another letter agreement under the terms of which it has agreed to indemnify Birch for amounts owed by Birch under a separation agreement, as amended, between Birch and its former chief executive officer. Under the terms of this letter agreement, BCHI has agreed to remit funds sufficient to satisfy each payment to the former chief executive officer on or prior to the dates such payments are required to be made to the former chief executive officer by Birch. Under this indemnity arrangement, BCHI Holdings may settle amounts owed in shares of our Common Stock only if, after diligent efforts, it has been unable to secure the required cash. The value of the shares returned to Fusion in any such case would be determined on the same basis as described above in the case of the tax indemnity letter. If BCHI does not make the required payments when due or it settles these amounts in shares of our Common Stock, we may not have sufficient cash on-hand to cover the required payments.
Birch and MegaPath may have liabilities that are not known, probable or estimable at this time.
As a result of the Birch Merger and the MegaPath Merger, Birth and Megapath became subsidiaries of Fusion and remain subject to all of their 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 these companies. 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 or MegaPath that adversely affects us, such as unknown, unasserted or contingent liabilities and issues relating to compliance with applicable laws.
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, Birch and MegaPath, service existing customers of each company, 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 and/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 acquisitions 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 July 16, 2018, BCHI Holdings beneficially owned approximately 63.5% of our outstanding Common Stock. Accordingly, BCHI Holdings 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 BCHI Holdings and its 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:
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dividend and liquidation preferences;
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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 July 16, 2018, we had 78,419,272 shares of Common Stock outstanding and approximately 1,193,144 shares reserved for the exercise of outstanding warrants, and 1,970,854 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, 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:
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ability to obtain and retain securities analyst coverage;
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changes in securities analysts’ recommendations or estimates of our financial performance;
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changes in the market valuations of companies similar to us;
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announcements by our competitors of significant contracts, new offerings, acquisitions, commercial relationships, joint ventures, or capital commitments; and
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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 the Shares by the selling stockholders hereunder.
The selling stockholders will pay any underwriting discounts and commissions and any similar expenses it incurs in selling the Shares covered by this prospectus. We will bear all other costs, fees and expenses incurred in effecting the registration of the Shares 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 STOCKHOLDERS
Background of the Offering
On behalf of the selling stockholders named in the table below (including their respective successors or permitted assigns, who receive any of the Shares covered by this prospectus), we are registering, pursuant to the registration statement of which this prospectus forms a part, an aggregate of 1,523,812 shares of our issued and outstanding Common Stock, representing the Shares sold to the selling stockholders pursuant to the Common Stock Purchase Agreements.
When we refer to “selling stockholders” in this prospectus, we mean the stockholders listed in the table below, and any pledgees, donees, permitted transferees, assignees, successors and others who later come to hold any of the selling stockholders’ interests in the Shares other than through a public sale.
We are registering the resale of the Shares to fulfill our contractual obligation under the Common Stock Purchase Agreements with each of the selling stockholders. Under the terms of each of the Common Stock Purchase Agreements, we are obligated, among other things and subject to the conditions and exceptions contained therein, to file one or more registration statements under the Securities Act to register the resale of the Shares, and to use commercially reasonable efforts to cause such registration statement to be declared effective by the SEC as soon as reasonably practicable thereafter but in no event later than 120 days following the closing of the Birch Merger which occurred on May 4, 2018 (or 150 days in the event of a full review of the registration statement by the SEC). We have agreed to maintain the effectiveness of this resale registration statement until the second anniversary of the Birch Merger (unless the Shares are sold in their entirety or may be sold without restriction under Rule 144 of the Securities Act).
We are registering these Shares to permit the selling stockholders to offer such shares for resale from time to time. The selling stockholders may sell all, some or none of the Shares covered by this prospectus. Additional information relating to sales of the Shares offered by the selling stockholders is contained elsewhere in this prospectus under the caption “Plan of Distribution.”
Under the terms of each of the Common Stock Purchase Agreements, the selling stockholders have agreed, subject to certain exceptions, until November 1, 2018, not to, without the prior written consent of Fusion, offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, make any short sale or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock, including the Shares, or any securities convertible into, exercisable or exchangeable for or that represent the right to receive Common Stock, or enter into any swap, hedge or other transaction or transfer which could reasonably be expected to lead to or result in a transfer, sale or disposition of the foregoing (collectively, the “Lock-Up”).
The Shares 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 accounts of the various selling stockholders, subject to the Lock-Up. After the date of effectiveness of the registration statement of which this prospectus forms a part, the selling stockholders 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. Information about the selling stockholders 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 Stockholders
The following table sets forth as of the date of this prospectus the:
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names of the selling stockholders;
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amount of Common Stock owned beneficially by each of the selling stockholders;
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number of Shares that may be offered byeach of the selling stockholders pursuant to this prospectus;
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number of Shares to be owned byeach of the selling stockholders following sale of the Shares covered by this prospectus; and
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percentage of our Common Stock to be owned byeach of the selling stockholders following sale of the Shares 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 stockholders 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 stockholders identified in the following table may sell some or all of the Shares owned by them which are included in this prospectus, no estimate can be given as to the number of Shares available for resale hereby that will be held by the selling stockholders upon termination of this offering. We have, therefore, assumed for the purposes of the following table, that the selling stockholders will sell all of the Shares owned beneficially by them that are covered by this prospectus, but will not sell any other shares of our Common Stock that they presently own. 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 stockholders, 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 Stockholders | Number of Shares Owned Beneficially | Number of Shares Available Pursuant to this Prospectus | Number of Shares Owned After Offering | Percent of Class After Offering |
| | | | | |
| North Haven Credit Partners II L.P. (1) | 952,382 | 952,382 | -0- | - |
| Aetna Life Insurance Company (2) | 380,953 | 380,953 | -0- | - |
| Backcast Credit Opportunities Fund I, L.P. (3) | 190,477 | 190,477 | -0- | - |
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(1) North Haven Credit Partners II L.P. is one of the lenders under the Second Lien Credit Facility. The general partner of North Haven Credit Partners II L.P is MS Credit Partners GP L.P.; the general partner of MS Credit Partners GP L.P. is MS Credit Partners GP Inc., which is an indirectly wholly-owned subsidiary of Morgan Stanley. Each of MS Credit Partners GP L.P., MS Credit Partners GP Inc., and Morgan Stanley may be deemed to beneficially own the shares held by North Haven Credit Partners II L.P.
(2) Nebrodi Partners, LLC is the investment manager for Aetna Life Insurance Company and may be deemed to beneficially own the shares held by Aetna Life Insurance Company.
(3) Backcast Credit Opportunities GP, LLC is the general partner of Backcast Credit Opportunities Fund I, L.P., and BCO I, LLC is the manager of Backcast Credit Opportunities GP, LLC. Each of Backcast Credit Opportunities GP, LLC and BCO I, LLC may be deemed to beneficially own the shares held by Backcast Credit Opportunities Fund I, L.P.
PLAN OF DISTRIBUTION
We are registering for resale by the selling stockholders and certain of their transferees an aggregate of 1,523,812 shares of our issued and outstanding Common Stock. We will not receive any proceeds from the sale by the selling stockholders of these Shares. We will bear all fees and expenses incident to our obligation to register these Shares. If these Shares are sold through broker-dealers or agents, the selling stockholders will be responsible for any compensation to such broker-dealers or agents, including discounts or commissions.
Subect to the terms and conditions of the Lock-Up, the selling stockholders may sell their Shares by one or more of the following methods, without limitation:
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All or a portion of the Shares beneficially owned by the selling stockholders or their respective 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 hares 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.
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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.
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Some or all of the Shares may be sold through one or more broker-dealers or agents and may involve crosses, block transactions or hedging transactions. The selling stockholders 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 stockholders may also sell Shares short and deliver Shares to close out short positions or loan or pledge Shares to broker-dealers or agents that in turn may sell such shares.
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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 stockholders and may receive commissions from the purchasers of the Shares 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 stockholders have not made any arrangements with any broker-dealer or agent for the sale of their Shares.
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Some or all of the Shares may be distributed by the selling stockholders to their respective stockholders, partners or members.
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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.
Subject to the terms and conditions of the Lock-Up, the selling stockholders may pledge or grant a security interest in some or all of the Shares 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 from time to time pursuant to this prospectus or any amendment to this prospectus, amending, if necessary, the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.
In addition, any Shares 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. Subject to the terms and conditions of the Lock-Up, the selling stockholders may also transfer, devise or gift the Shares by other means not covered in this prospectus in which case the transferee, devisee or giftee will be the selling stockholders under this prospectus.
If required at the time a particular offering of the Shares 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 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 may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the Shares 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 stockholders will sell any or all of the Shares registered pursuant to the registration statement of which this prospectus forms a part.
The selling stockholders 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 by the selling stockholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the Shares to engage in market-making activities with respect to the Shares. All of the foregoing may affect the marketability of the Shares and the ability of any person or entity to engage in market-making activities with respect to the Shares.
The securities offered hereby have been issued to the selling stockholders in transactions exempt from the registration requirements under the Securities Act. We agreed pursuant to the Common Stock Purchase Agreements to register such securities under the Securities Act, and to keep the registration statement of which this prospectus is a part effective until the second anniversary of the Birch Merger (unless the Shares are sold in their entirety or may be sold without restriction under Rule 144).
We will bear all expenses of the registration of the Shares covered by this prospectus including, without limitation, SEC filing fees and expenses of compliance with the state securities of “blue sky” laws. The selling stockholders 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 stockholders, if any. We will indemnify the selling stockholders against liabilities, including some liabilities under the Securities Act, in accordance with the Common Stock Purchase Agreements or the selling stockholders will be entitled to contribution. We will be indemnified by the selling stockholders against civil liabilities, including liabilities under the Securities Act that may arise from any written information furnished to us by the selling stockholders for use in this prospectus, in accordance with Common Stock Purchase Agreements or will be entitled to contribution. Once sold under the registration statement of which this prospectus forms a part, the Shares will be freely tradable in the hands of persons other than our affiliates.
There can be no assurance that the selling stockholders will sell any or all of the Shares 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:
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a stockholder who owns 15% or more of our outstanding voting stock (otherwise known as an interested stockholder);
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an affiliate of an interested stockholder; or
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an associate of an interested stockholder;
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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:
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our Board approves either the business combination or the transaction that made the stockholder an interested stockholder, prior to the date of that transaction;
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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
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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, 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 Securities 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:
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Our Annual Report on Form 10-K for the fiscal year ended December 31, 20162017 filed with the SEC on March 21, 2017 and amended on April 11, 2017, April 28, 2017 and December 15, 2017;
22, 2018;
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Our Quarterly Report on Form 10-Q for the quarterperiod ended March 31, 20172018 filed with the SEC on May 12, 2017;15, 2018;
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Our Quarterly Report on Form 10-Q for the quarter ended June 30, 201714F-1 Information Statement filed with the SEC on August 14, 2017;April 3, 2018;
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Our QuarterlyCurrent Report on Form 10-Q for the quarter ended September 30, 20178-K dated January 24, 2018 filed with the SEC on November 13, 2017;January 29, 2018;
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Our Current Report on Form 8-K dated January 31, 2018 filed with the SEC on February 1, 2018;
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Our Current Report on Form 8-K dated February 5, 2018 filed with the SEC on February 6, 2018;
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Our Current Report on Form 8-K dated February 20, 2018 filed with the SEC on February 20, 2018;
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Our Current Report on Form 8-K dated February 21, 2018 filed with the SEC on February 21, 2017;2018;
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Our Current Report on Form 8-K/A8-K dated March 12, 2018 filed with the SEC on March 12, 2018;
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Our Current Report on Form 8-K dated April 4, 2018 filed with the SEC on April 17, 2017;
10, 2018;
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Our Current Report on Form 8-K dated April 26, 2018 filed with the SEC on AugustApril 30, 2017;2018;
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Our Definitive Proxy StatementCurrent Report on Form 8-K dated May 4, 2018 filed with the SEC on August 30, 2016;May 10, 2018;
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Our Preliminary Merger Proxy StatementCurrent Report on Form 8-K dated May 25, 2018 filed with the SEC on November 21, 2017; and
May 25, 2018;
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Our Current Report on Form 8-K dated June 12, 2018 filed with the SEC on June 14, 2018;
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Our Current Report on Form 8-K dated June 15, 2018 filed with the SEC on June 18, 2018;
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The description of our common stockCommon 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 by us with the SEC under Sectionpursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, on or after the date hereof and prior to the termination of any offering; provided, however, that we are not incorporating by reference any information furnished (but not filed) under either Item 2.02 or Item 7.01 of any Current Report on Form 8-K, and corresponding information furnished under Item 9.01 as an exhibit thereto.
Any statement contained in a document that is incorporated by reference will be modified or superseded for all purposes to the extent that a statement contained in this prospectus or any accompanying prospectus supplement, or in any other document that is subsequently filed with the SEC and incorporated into this prospectus by reference, modifies or is contrary to that previous statement. Any statement so modified or superseded will not be deemed a part of this prospectus or any accompanying prospectus supplement, except as so modified or superseded. Since information that we later file with the SEC will update and supersede previously incorporated information, you should look at all of the SEC filings that we incorporate by reference to determine if any of the statements in this prospectus or any accompanying prospectus supplement or in any documents previously incorporated by reference have been modified or superseded.
We make available, without charge, to each person, including any beneficial owner to whom a copy of this prospectus has been delivered, a copy of any and all of the documents referred to herein that are summarized in this prospectus. Such requests should be directed to:
Fusion Telecommunications International, Inc.
420 Lexington Avenue, Suite 1718
New York, New York 10170
Attention: Investor Relations
Telephone Number: (212) 201-2400
Exhibits to the filings will not be sent, however, unless those exhibits have specifically been incorporated by reference in this prospectus and any accompanying prospectus supplement.
These filings can also be obtained through the SEC as described above or, with respect to certain of these documents, at our web site at www.fusionconnect.com.
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
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 and Section 21E of 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 “may,” “expect,” “would,” “could,” “anticipate,” “intend,” “plan,” “estimate,” “predict,” or “continue” or the negative of these terms or other similar expression 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 statementsmade 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 Annual Report on Form 10-K for the year ended December 31, 2016 and other reports and documents we file with the SEC under the caption “Risk Factors.” 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; |
● | our ability to negotiate and enter into acceptable contract terms with our suppliers; |
● | our ability to attract and retain qualified management and other personnel; |
| competition in the industry in which we do business; |
| failure of the third-party communications networks on which we depend; |
| legislation or regulatory environments, requirements or changes adversely affecting the businesses in which we are engaged; |
| our ability to maintain adequate liquidity and produce sufficient cash flow to fund our capital expenditures and debt service; |
| our ability to obtain capital to grow our business; |
● | technological developments and changes in the industry; |
| our ability to complete acquisitions and to integrate any business or operation acquired; and |
| 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 securities 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.
ABOUT FUSION
Fusion, either directly or through its various subsidiaries, offers a comprehensive suite of cloud communications, cloud connectivity, cloud computing, and managed cloud-based applications solutions to small, medium and large businesses, and offers domestic and international voice services to communications carriers worldwide. Our advanced, proprietary cloud services platforms, as well as our state-of-the art switching systems, enable the integration of leading edge solutions in the cloud, increasing customer collaboration and productivity by seamlessly connecting employees, partners, customers and vendors. We currently operate our business in two distinct business segments: Business Services and Carrier Services.
In the Business Services segment, 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 Business Services products and services include cloud voice and unified communications, 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 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 solutions such as storage, security and business continuity, our advanced cloud offerings allow our larger enterprise 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
Through our Carrier Services segment, Fusion has agreements with approximately 270 carrier customers and vendors, and sells its voice services to other communications service providers throughout the world. Customers include U.S.-based carriers sending voice traffic to international destinations, and foreign carriers sending primarily voice over IP (“VoIP”) traffic to the U.S. and internationally. We also purchase domestic and international voice services from many of our Carrier Services customers. Our carrier-grade network, advanced switching platform and interconnections with global carriers on six continents also reduces the cost of global voice traffic and expands service delivery capabilities for our Business Services segment.
Our growth strategy is focused primarily on the higher margin Business Services segment and marketing to small and mid-sized businesses, as well as larger enterprises, using both our direct and partner distribution channels. This strategy has resulted in an increasing percentage of our total revenues being contributed by our Business Services segment.
Fusion was incorporated in Delaware on September 17, 1997. Our principal executive offices are located at 420 Lexington Avenue, Suite 1718, New York, New York 10170 and our telephone number 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.
RECENT DEVELOPMENTS
On August 26, 2017, Fusion and its wholly-owned subsidiary, Fusion BCHI Acquisition LLC, a Delaware limited liability company (“Merger Sub”), entered into an Agreement and Plan of Merger, as amended (the “Merger Agreement”) with Birch Communications Holdings, Inc., a Georgia corporation (“Birch”). The Merger Agreement provides, among other things, that upon the terms and conditions set forth therein, Birch will merge with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger.
On the effective date of the Merger, the outstanding shares of common stock, par value $0.01 per share, of Birch (other than treasury shares or shares owned of record by any Birch subsidiary) will be cancelled and converted into the right to receive, in the aggregate, that number of shares of our common stock equal to three times the number of shares of (i) our common stock issued and outstanding immediately prior to the Effective Time (as defined in the Merger Agreement) (assuming the conversion of all outstanding preferred shares) plus (ii) shares of our common stock issuable upon the exercise of all in-the-money Fusion warrants (the “Merger Shares”). Pursuant to subscription agreements executed by each of the stockholders of Birch, the Merger Shares will be issued in the name of, and held by BCHI Holdings, LLC (“BCHI”), a limited liability company owned by the stockholders of Birch. On the closing date of the Merger, BCHI and Fusion will enter into a Registration Rights Agreement governing the registration rights of BCHI in respect of the Merger Shares and pursuant to which we will agree, among other things, to use our reasonable best efforts to cause a shelf registration statement covering the resale of the Merger Shares to be declared effective by the SEC within 120 days of the closing of the Merger.
At least 45 days before the closing of the Merger, the parties will give a written notice to each holder of Fusion’s existing preferred stock that such holders will have 15 days to convert their preferred stock into Fusion common stock. At the effective time of the Merger, any preferred shares that have not converted into our common stock will automatically terminate and be deemed cancelled without consideration.
Prior to the closing of the Merger, Fusion is obligated to use reasonable best efforts to cause the Merger Shares to be approved for listing on The NASDAQ Stock Market, LLC (“NASDAQ”), including, if necessary to comply with NASDAQ listing requirements, amending Fusion’s certificate of incorporation prior to the effective time of the Merger to effect a reverse stock split of the Fusion common stock to satisfy NASDAQ minimum price requirements. Closing of the Merger is subject to numerous preconditions, including Fusion obtaining financing for the transaction, which will be used to retire existing senior debt facilities at Birch and Fusion. Each of Fusion and Birch has agreed to use reasonable best efforts to cooperate and arrange and obtain the debt financing necessary to effect the required refinancing and to complete the transactions contemplated by the Merger Agreement.
Prior to the closing of the Merger, Birch is required to spin-off to the existing Birch stockholders, its consumer business, which consists of (i) the residential customer base, life line and consumer wireless business, and (ii) its single-line business customer base, in each case located in the United States and Canada. In addition, prior to the closing of the Merger, we are required to spin-off or otherwise exit our Carrier Services business segment.
On the effective date of the Merger, our certificate of incorporation will be amended and restated, which amendments will, 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”. From and after the effective time of the Merger, the size of our Board will be fixed at nine directors. Four directors, including at least one director who satisfies the NASDAQ listing standard’s independence requirements, will be nominated by a nominating committee comprised of our directors serving on the Board on the date of the nomination and four directors, including at least one that satisfies the NASDAQ listing standard’s independence requirements, will be nominated by BCHI. The ninth director, who must satisfy the NASDAQ listing standard’s independence requirements, will be nominated by BCHI, subject to the reasonable consent of the Fusion committee. Our Chief Executive Officer, Matthew D. Rosen will serve as the post-Merger Chairman of the Board, and Holcombe T. Green, Jr., a principal stockholder of Birch, will serve as the post-Merger Chairman of the Board. The other post-Merger Board members will be selected prior to closing of the Merger.
The terms of the Merger Agreement are such that the Merger, if consummated, will result in a change in control. As a result, the transaction will be accounted for as a reverse acquisition and recapitalization, with Birch as the acquirer for accounting purposes, and the historical financial statements of Birch will become our historical financial statements.
USE OF PROCEEDS
Unless we specify otherwise in a prospectus supplement, we intend to use the net proceeds from our sale of the securities pursuant to this prospectus for general corporate purposes, which may include, among other things, funding future acquisitions, capital expenditures and working capital. Pending such use, we may temporarily invest net proceeds in short-term, interest bearing, investment grade securities.
THE SECURITIES WE MAY OFFER
The descriptions of the securities contained in this prospectus summarize the material terms and provisions of the various types of securities that we may offer. The particular terms of the securities offered by any prospectus supplement will be described in that prospectus supplement. If indicated in a prospectus supplement, the terms of the securities may differ from the terms summarized below. The applicable prospectus supplement will also contain information, where applicable, about material U.S. federal income tax considerations relating to the securities, and the securities exchange, if any, on which the securities will be listed.
We may sell from time to time, in one or more offerings:
● | common stock; |
● | preferred stock; |
● | debt securities
warrants; or
|
● | units. |
If we issue securities at a discount from their original stated principal or liquidation amount, then, for purposes of calculating the total dollar amount of all securities issued under this prospectus, we will treat the initial offering pricefiling of the securities as the total original principal or liquidation amount of the securities.
This prospectus may not be used to sell securities unless it is accompanied by a prospectus supplement.
DESCRIPTION OF CAPITAL STOCK
The following is a summary of the terms of our common stock and preferred stock that we may issue from time to time pursuant to this prospectus. We may also create new series of preferred stock that may be issued pursuant to this prospectus. Common stock and preferred stock may be offered independently, with each other or together with other securities. When we offer common stock or preferred stock in the future, a prospectus supplement will explain the terms of any common stock and/or preferred stock to be issued.
The summary descriptions in this prospectus and any summary descriptions in the applicable prospectus supplement do not purport to be complete descriptions of the terms and conditions of any series of preferred stock and are qualified in their entirety by reference to the related certificates of designation pursuant to which each such series was created and issued and any other documents referenced in such summary descriptions and from which such summary descriptions are derived. We urge you to read the applicable certificates of designation, which have been or will be filed with the SEC on or before the time of any offering of preferred stock, because they, and not this description, will define the rights of holders of such securities.
General
We are currently authorized under our certificate of incorporation to issue 90,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share. As of December 11, 2017, there were:
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22,387,863 shares of common stock outstanding; and
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an aggregate of 5,045 shares of Series A-1, A-2 and A-4 preferred stock outstanding; and
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9,171 shares of Series B-2 preferred stock outstanding.
The following summary of the rights of our common stock and our preferred stock (including our Series A preferred stock and Series B preferred stock) does not purport to be complete. For more detailed information about the terms of our capital stock, please see our certificate of incorporation, as amended, including the certificate of designations for each of the Series A-1, A-2, A-4 and B-2 preferred stock (collectively, the "certificate of incorporation") and our bylaws.
Common Stock
Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Holders of our common stock are entitled to share in all dividends that our board of directors, in its discretion, declares from legally available funds. Our common stock has no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions associated with our common stock. We have received full payment for all outstanding shares of our common stock and cannot require our stockholders to make further payments on the stock. To the extent that additional shares of common stock may be issued in the future, the relative interests of the then existing stockholders may be diluted. The rights, preferences and privileges of our common stock are subject to the rights, preferences and privileges of holders of our issued and outstanding preferred stock, as described below.
Preferred Stock
Pursuant to our certificate of incorporation, our board of directors is authorized, without further approval of our stockholders subject to any limitations prescribed by law, to issue up to an aggregate of 10,000,000 shares of our preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions granted to or imposed upon the preferred stock, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences.
The rights of the holders of our common stock and Series A and Series B preferred stock (with the prior approval of the holders of a majority of the issued and outstanding shares of Series A and Series B preferred stock) will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. Our board of directors could authorize the issuance of shares of preferred stock with terms and conditions more favorable than our common stock, Series A and Series B preferred stock and with rights that could adversely affect the voting power or other rights of holders of our common stock, Series A and Series B preferred stock. Prior to the issuance of shares of each series of undesignated preferred stock, our board of directors is required by the Delaware General Corporation Law and our restated certificate of incorporation to adopt resolutions and to file a certificate of designations with the Secretary of State of Delaware fixing for each such series the designations, powers, preferences, rights, qualifications, limitations and restrictions of the shares of such series. If such new series of preferred stock has rights that are senior or equal to those of the Series A and Series B preferred stock with respect to dividends or liquidation proceeds, then the terms of such new series must be approved by holders of a majority of the issued and outstanding shares of Series A and Series B preferred. Issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of delaying, deferring or preventing a change in control of Fusion.
Series B-2 Convertible Preferred Stock
Between December 31, 2013 and January 31, 2014, we issued an aggregate of 22,838 shares of Series B-2 cumulative convertible preferred stock (the “Series B-2 preferred stock”). Each share of Series B-2 preferred stock has a stated value of $1,000; and is senior to all of the Series A preferred stock and common stock of the Company currently authorized for issuance. As of December 11, 2017, there were 9,171 shares of Series B-2 preferred stock oustanding.
Each share of Series B-2 preferred stock is convertible into shares of our common stock at a conversion price of $5.00 per share, subject to adjustment.Subject to the other terms of the Series B-2 preferred stock, the 9,171 shares of outstanding Series B-2 preferred stock are convertible into an aggregate of 1,834,200 shares of our common stock. In conjunction with the original issuance of the Series B-2 preferred stock, we also issued warrants to purchase shares of our common stock at an exercise price of $6.25 per share, as adjusted for stock splits, combinations and reclassifications. The remaining warrants may be exercised for five (5) years from the date of issuance. A registration statement was filed with, and declared effective by, the SEC registering the resale of the shares of our common stock issuable upon exercise of these warrants but at this time the prospectus included in such registration statement is not current.
As of January 1, 2016, we have the right to force the conversion of the Series B-2 preferred stock into common stock at a price of $5.00 per share; provided that the volume weighted average price of our common stock is at least $12.50 for ten (10) consecutive trading days. In addition, shares of our Series B-2 preferred stock bear a cumulative 6% annual dividend payable quarterly in arrears from March 31, 2014, in cash or shares of common stock, at our option. To date, all quarterly dividends on the Series B-2 preferred stock have been paid in shares of our common stock.
The consent of holders of a majority of the Series B-2 preferred stock is required in order to (a) amend our certificate of incorporation or bylaws to change any of the rights, preferences or privileges of the Series B-2 preferred stock to reduce the dividend rate, reduce the liquidation preference or make the Series B-2 preferred stock redeemable, (b) authorize, create or issue any shares of parity securities or senior securities, and (c) increase or decrease the number of shares of Series B-2 preferred stock.
The Series B-2 preferred stock will be converted into common stock or otherwise retired in connection with the Merger, see "Recent Developments."
Series A Preferred Stock
We have also issued shares of Series A preferred stock in four designated classes, as follows:
| Designation | | Number of Shares Authorized | | Number of Shares Outstanding | | Conversion Price |
| A-1 | | 3,875 | | 2,375 | | $72.94 |
| A-2 | | 3,375 | | 2,625 | | $36.25 |
| A-3 | | 700 | | 0 | | N/A
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| A-4 | | 45 | | 45 | | $34.50 |
Each “A” series of preferred stock (the “Series A preferred stock”) has a stated value of $1,000 per share and is entitled to cumulative dividends on the outstanding stated value of the preferred stock at the rate of eight percent (8%) per annum, payable in arrears, when and if declared by our board, in cash or, in certain instances, in shares of our common stock. To date, no dividends have been declared on any series of Series A preferred stock. Upon a liquidation of Fusion, and after the payment of all amounts due to creditors and senior preferred stock holders, the holders of Series A preferred stock are entitled to a liquidation preference equal to the greater of the stated value of the preferred stock and the amount the holders would have received had they converted their Series A preferred stock into common stock prior to liquidation.
Each share of Series A preferred stock may be converted (a) by the registered holder into shares of our common stock at the conversion price set forth in the above table, subject to adjustment, and (b) by us, in the event our common stock trades at an average price of at least 220% of the applicable conversion price over a ninety (90) day period.
The consent of holders of a majority of each class of our Series A preferred stock is required in order to (a) amend our certificate of incorporation or bylaws to change any of the rights, preferences or privileges of the preferred stock to reduce the dividend rate, reduce the liquidation preference or make the Series A preferred stock redeemable, (b) permit any subsidiary to issue or sell any of its securities (except to Fusion or a wholly-owned subsidiary) or sell any of their respective assets, other than at arms’ length at fair market value, (c) authorize, create or issue any shares of parity securities or senior securities, or (d) increase or decrease the number of shares of each series of our Series A preferred stock. The consent of holders of each class of Series A preferred stock was obtained in connection with the creation and sale of the Series B-2 preferred stock.
Each series of Series A preferred stock will be converted into common stock or otherwise retired in connection with the Merger, see "Recent Developments."
Common Stock Purchase Warrants
We have, from time to time, issued common stock purchase warrants, primarily in connection with prior offerings of our equity securities and our senior debt. The following table provides information concerning our common stock purchase warrants outstanding at December 11, 2017:
| Event Requiring Issuance | | Total Number of Shares Issuable upon Exercise of Warrants | | Term of Warrant | | Expiration Date | | Per Share Exercise Price (subject to adjustment) |
| Offering of Series B-2 preferred stock | | 1,701,180
| | 5 Years | | December 31, 2018 and January 24, 2019 | | $6.25 |
| July 2013 Offering of common stock and warrants | | 234,014
| | 5 Years | | Various dates through October 12, 2018 | | $5.45-8.50 |
| March 2013 Offering of common stock and warrants | | 401,944
| | 5 Years | | Various dates through July 18, 2018 | | $4.25-5.50 |
Stock Options
As of December 11, 2017, we had reserved 3,519,790 shares of our common stock for issuance under our equity compensation plans.
Our 2016 equity incentive plan reserves a number of shares of common stock equal to 10% of our common stock outstanding from time to time on a fully diluted basis, adjusted upward for the number of shares available for grant under our 2009 stock option plan plus the number of shares covered by options granted under our 2009 plan that expire without being exercised. The 2016 equity incentive plan provides for the grant of incentive stock options, stock appreciation rights, restricted stock, restricted stock units, stock grants, stock units, performance shares and performance share units to employees, officers, non-employee directors of, and consultants to, the Company. Options issued under our various plans typically vest in annual increments over a three or four year period, expire ten years from the date of grant and are issued at exercise prices no less than 100% of the fair market value at the time of grant.
Certificate of Incorporation and Bylaw Provisions
See “Certain Provisions of Delaware Law and Fusion’s Certificate of Incorporation and Bylaws—Anti-Takeover Provisions of Our Charter and Bylaws" for a description of provisions of our certificate of incorporation and bylaws which may have the effect of delaying changes in our control or management.
Listing
Our common stock is listed on The Nasdaq Capital Market under the trading symbol “FSNN”.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock and preferred 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.
DESCRIPTION OF DEBT SECURITIES
The following description is a general summary of the terms of the debt securities we may issue from time to time pursuant to this prospectus. When we offer debt securities in the future, a prospectus supplement will explain the particular terms of the securities and the extent to which these general provisions may apply. If any particular terms of a debt security described in the applicable prospectus supplement differ from any of the terms described in this prospectus, then the terms described in this prospectus will be deemed superseded by the terms set forth in that prospectus supplement.
As required by Federal law for all bonds and notes of companies that are publicly offered, any debt securities we issue will be governed by a document called an “indenture.” An indenture is a contract between us and a financial institution acting as trustee on behalf of the holders of the debt securities, and is subject to and governed by the Trust Indenture Act of 1939, as amended. The trustee has two main roles. First, the trustee can enforce holders’ rights against us if we default. There are some limitations on the extent to which the trustee acts on holders’ behalf, described in the second paragraph under “Description of Debt Securities—Events of Default.” Second, the trustee performs certain administrative duties, such as sending interest and principal payments to holders.
The summary descriptions in this prospectus and any summary descriptions in the applicable prospectus supplement do not purport to be complete descriptions of the terms and conditions of each debt security and are qualified in their entirety by reference to the related indenture and any other documents referenced in such summary descriptions and from which such summary descriptions are derived. The summary descriptions of the indenture contained in this prospectus are derived from an indenture, the form of which has been filed as an exhibit to the registration statement of which this prospectus forms a part. Any actual indenturepart and prior to effectiveness of such registration statement, until we enter into will likely be different from such formfile a post-effective amendment that indicates the termination of indenture. We urge you to read the applicable indenture,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 at the time of any offering of debt securities, because it, and not this description, will define the rights of holders of such debt securities.
If any debt securities we issue arethat is incorporated or deemed to be listed or quoted on a securities exchange or quotation system, the applicable prospectus supplement will so indicate.
We can issue an unlimited amount of debt securities under the indenture that may be in one or more series with the same or various maturities, at par, at a premium, or at a discount. We will set forth in a prospectus supplement (including any pricing supplement or term sheet) relating to any series of debt securities being offered, the aggregate principal amount and the following terms of the debt securities:
● | the title and ranking of the debt securities (including the terms of any subordination provisions); |
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| the price or prices (expressed as a percentage of the principal amount) at which we will sell the debt securities; |
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| any limit on the aggregate principal amount of the debt securities; |
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| the date or dates on which principal will be payable; |
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| the rate or rates (which may be fixed or variable) per annum or the method used to determine the rate or rates (including any commodity, commodity index, stock exchange index or financial index) at which the debt securities will bear interest, the date or dates from which interest will accrue, the date or dates on which interest will commence and be payable and any regular record date for the interest payable on any interest payment date; |
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| the place or places where principal of, and interest, if any, on the debt securities will be payable (and the method of such payment), where the securities of such series may be surrendered for registration of transfer or exchange, and where notices and demands to us in respect of the debt securities may be delivered; |
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| the period or periods within which, the price or prices at which and the terms and conditions upon which we may redeem the debt securities; |
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| any obligation we have to redeem or purchase the debt securities pursuant to any sinking fund or analogous provisions or at the option of a holder of debt securities and the period or periods within which, the price or prices at which and the terms and conditions upon which debt securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; |
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| the dates on which and the price or prices at which we will repurchase debt securities at the option of the holders of debt securities and other detailed terms and provisions of these repurchase obligations; |
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| the denominations in which the debt securities will be issued, if other than denominations of $1,000 and any integral multiple thereof; |
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| whether the debt securities will be issued in the form of certificated debt securities or global debt securities; |
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| the portion of principal amount of the debt securities payable upon declaration of acceleration of the maturity date, if other than the principal amount; |
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| the currency of denomination of the debt securities, which may be United States dollars or any foreign currency, and if such currency of denomination is a composite currency, the agency or organization, if any, responsible for overseeing such composite currency; |
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| the designation of the currency, currencies or currency units in which payment of principal of, premium and interest on the debt securities will be made; |
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| if payments of principal of, premium or interest on the debt securities will be made in one or more currencies or currency units other than that or those in which the debt securities are denominated, the manner in which the exchange rate with respect to these payments will be determined; |
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| the manner in which the amounts of payment of principal of, premium, if any, or interest on the debt securities will be determined, if these amounts may be determinedincorporated herein by reference to an index based on a currency or currencies other than that in which the debt securities are denominated or designated to be payable or by reference to a commodity, commodity index, stock exchange index or financial index; |
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| any provisions relating to any security provided for the debt securities; |
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| the provisions, if any, relating to conversion or exchange of any securities of such series, including, if applicable, the conversion or exchange price and period, provisions as to whether conversion or exchange will be mandatory, the events requiring an adjustment of the conversion or exchange price and provisions affecting conversion or exchange; |
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| any addition to, deletion of or change in the Events of Default described in this prospectus or in the indenture with respect to the debt securities and any change in the acceleration provisions described in this prospectus or in the indenture with respect to the debt securities; |
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| any addition to, deletion of or change in the covenants described in this prospectus or in the indenture with respect to the debt securities; |
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| any depositaries, interest rate calculation agents, exchange rate calculation agents or other agents with respect to the debt securities; and |
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| any other terms of the debt securities, which may supplement, modify or delete any provision of the indenture as it applies to that series, including any terms that may be required under applicable law or regulations or advisable in connection with the marketing of the debt securities. |
We may issue debt securities either separately, or together with, or upon the conversion or exercise of, or in exchange for, other securities described in this prospectus. Debt securities may be senior, senior subordinated or subordinated obligations and, unless otherwise specified in a supplement to this prospectus, the debt securities will be our direct, unsecured obligations and may be issued in one or more series. The debt securities may be secured or unsecured obligations. Unless the prospectus supplement states otherwise, principal, interest and premium, if any, will be paid by us in immediately available funds.
We may issue debt securities that provide for an amount less than their stated principal amount to be due and payable upon declaration of acceleration of their maturity pursuant to the terms of the indenture. We will provide the debt holder with information on the federal income tax considerations and other special considerations applicable to any of these debt securities in the applicable prospectus supplement.
If we denominate the purchase price of any of the debt securities in a foreign currency or currencies or a foreign currency unit or units, or if the principal of and any premium and interest on any series of debt securities is payable in a foreign currency or currencies or a foreign currency unit or units, we will provide the debt holder with information on the restrictions, elections, general tax considerations, specific terms and other information with respect to that issue of debt securities and such foreign currency or currencies or foreign currency unit or units in the applicable prospectus supplement.
The indenture may provide that any debt securities proposed to be sold pursuant to this prospectus and the applicable prospectus supplement relating to such debt securities (“offered debt securities”) and any debt securities issuable upon conversion or exchange of other offered securities (“underlying debt securities”) may be issued under the indenture in one or more series.
For purposes of this prospectus, any reference to the payment of principal of, or interest or premium, if any, on debt securities will include additional amounts if required by the terms of the debt securities.
Debt securities issued under an indenture, when a single trustee is acting for all debt securities issued under the indenture, are called the “indenture securities.” The indenture may also provideextent that there may be more than one trustee thereunder, each with respect to one or more different series of securities issued thereunder. At a time when two or more trustees are acting under an indenture, each with respect to only certain series, the term “indenture securities” means the one or more series of debt securities with respect to which each respective trustee is acting. In the event that there is more than one trustee under an indenture, the powers and trust obligations of each trustee described in this prospectus will extend only to the one or more series of indenture securities for which it is trustee. If two or more trustees are acting under an indenture, then the indenture securities for which each trustee is acting would be treated as if issued under separate indentures.
We have the ability to issue indenture securities with terms different from those of indenture securities previously issued and, without the consent of the holders thereof, to reopen a previous issue of a series of indenture securities and issue additional indenture securities of that series unless the reopening was restricted when that series was created.
Conversion and Exchange
If any debt securities are convertible into or exchangeable for other securities, the related prospectus supplement will explain the terms and conditions of the conversion or exchange, including the conversion price or exchange ratio (or the calculation method), the conversion or exchange period (or how the period will be determined), if conversion or exchange will be mandatory or at the option of the holder or us, provisions for adjusting the conversion price or the exchange ratio and provisions affecting conversion or exchangestatements in the event of the redemption of the underlying debt securities. These terms may also include provisions under which the numberlater-filed document modify or amount of other securities to be received by the holders of the debt securities upon conversion or exchange would be calculated according to the market price of the other securities as of a time stated in the prospectus supplement.
Payment and Paying Agentsreplace such earlier statements.
We will pay interest to the person listed in the applicable trustee’s records as the ownerdeliver without charge a copy of all of the debt securityinformation 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 close of business on a particular day in advance of each due date for interest, even if that person no longer owns the debt security on the interest due date. That day, often approximately two weeks in advance of the interest due date, is called the “record date.” Because we will pay all the interest for an interest period to the holders on the record date, holders buyingfollowing address and selling debt securities must work out between themselves the appropriate purchase price. The most common manner is to adjust the sales price of the debt securities to prorate interest fairly between buyer and seller based on their respective ownership periods within the particular interest period. This prorated interest amount is called “accrued interest.”number:
Philip D. Turits
Corporate Secretary
TransferFusion Connect, Inc.
420 Lexington Avenue, Suite 1718
Each debt security will be represented by either one or more global securities registered in the name of The Depository Trust Company, or the Depositary, or a nominee of the Depositary (we will refer to any debt security represented by a global debt security as a “book-entry debt security”), or a certificate issued in definitive registered form (we will refer to any debt security represented by a certificated security as a “certificated debt security”) as set forth in the applicable prospectus supplement. Except as set forth under the heading “Global Debt Securities and Book-Entry System” below, book-entry debt securities will not be issuable in certificated form.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 Certificated Debt Securities. www.fusionconnect.com. The registered debt holder may transfer or exchange certificated debt securities at any office we maintain forinformation on our website is neither incorporated into, nor a part of, this purposeprospectus and should not be considered in accordance withmaking a decision about the terms of the indenture. No service charge will be made for any transfer or exchange of certificated debt securities, but we may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection with a transfer or exchange. The registered debt holder may effect the transfer of certificated debt securities and the right to receive the principal of, premium and interest on certificated debt securities only by surrendering the certificate representing those certificated debt securities and either reissuance by us or the trustee of the certificate to the new holder or the issuance by us or the trustee of a new certificate to the new holder.
Global Debt Securities and Book-Entry System. Each global debt security representing book-entry debt securities will be deposited with, or on behalf of, the Depositary, and registeredinvestment in the name of the Depositary or a nominee of the Depositary.
Covenants
We will set forth in the applicable prospectus supplement any restrictive covenants applicableShares offered for resale pursuant to any issue of debt securities.this prospectus.
No Protection In the Event of a Change of Control
Unless we state otherwise in the applicable prospectus supplement, the debt securities will not contain any provisions which may afford holders of the debt securities protection in the event we have a change in control or in the event of a highly leveraged transaction (whether or not such transaction results in a change in control) which could adversely affect holders of debt securities.
Consolidation, Merger and Sale of Assets
We may not consolidate with or merge with or into, or convey, transfer or lease all or substantially all of our properties and assets to any person (a “successor person”) unless:
| we are the surviving corporation or the successor person (if other than us) is a corporation organized and validly existing under the laws of any U.S. domestic jurisdiction and expressly assumes our obligations on the debt securities and under the indenture; and |
| immediately after giving effect to the transaction, no Default or Event of Default, shall have occurred and be continuing. |
Notwithstanding the above, any of our subsidiaries may consolidate with, merge into or transfer all or part of its properties to us.
Events of Default
Holders of debt securities of any series will have rights if an Event of Default occurs in respect of the debt securities of such series and is not cured, as described later in this subsection. The term “Event of Default” in respect of the debt securities of any series means any of the following:
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| default in the payment of any interest upon any debt security of that series when it becomes due and payable, and continuance of such default for a period of 30 days (unless the entire amount of the payment is deposited by us with the trustee or with a paying agent prior to the expiration of the 30-day period); |
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| default in the payment of principal of any debt security of that series at its maturity; |
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| default in the deposit of any sinking fund payment, when and as due; |
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| default in the performance or breach of any other covenant or warranty by us in the indenture (other than a covenant or warranty that has been included in the indenture solely for the benefit of a series of debt securities other than that series), which default continues uncured for a period of 90 days after we receive written notice from the trustee or the Company and the trustee receive written notice from the holders of not less than 25% in principal amount of the outstanding debt securities of that series as provided in the indenture; |
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| certain voluntary or involuntary events of bankruptcy, insolvency or reorganization of the Company; and |
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| any other Event of Default provided with respect to debt securities of that series that is described in the applicable prospectus supplement. |
No Event of Default with respect to a particular series of debt securities (except as to certain events of bankruptcy, insolvency or reorganization) necessarily constitutes an Event of Default with respect to any other series of debt securities. The occurrence of certain Events of Default or an acceleration under the indenture may constitute an event of default under certain indebtedness of ours or our subsidiaries outstanding from time to time.
If an Event of Default with respect to debt securities of any series at the time outstanding occurs and is continuing, then the trustee or the holders of not less than 25% in principal amount of the outstanding debt securities of that series may, by a notice in writing to us (and to the trustee if given by the holders), declare to be due and payable immediately the principal of (or, if the debt securities of that series are discount securities, that portion of the principal amount as may be specified in the terms of that series) and accrued and unpaid interest, if any, on all debt securities of that series. In the case of an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization, the principal (or such specified amount) of and accrued and unpaid interest, if any, on all outstanding debt securities will become and be immediately due and payable without any declaration or other act on the part of the trustee or any holder of outstanding debt securities. At any time after a declaration of acceleration with respect to debt securities of any series has been made, but before a judgment or decree for payment of the money due has been obtained by the trustee, the holders of a majority in principal amount of the outstanding debt securities of that series may rescind and annul the acceleration if all Events of Default, other than the non-payment of accelerated principal and interest, if any, with respect to debt securities of that series, have been cured or waived as provided in the indenture. We refer you to the prospectus supplement relating to any series of debt securities that are discount securities for the particular provisions relating to acceleration of a portion of the principal amount of such discount securities upon the occurrence of an Event of Default.
The indenture provides that the trustee will be under no obligation to exercise any of its rights or powers under the indenture unless the trustee receives indemnity satisfactory to it against any cost, liability or expense which might be incurred by it in exercising such right of power. Subject to certain rights of the trustee, the holders of a majority in principal amount of the outstanding debt securities of any series will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee with respect to the debt securities of that series.
No holder of any debt security of any series will have any right to institute any proceeding, judicial or otherwise, with respect to the indenture or for the appointment of a receiver or trustee, or for any remedy under the indenture, unless:
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| that holder has previously given to the trustee written notice of a continuing Event of Default with respect to debt securities of that series; and |
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| the holders of not less than 25% in principal amount of the outstanding debt securities of that series have made written request, and offered reasonable indemnity or security, to the trustee to institute the proceeding as trustee, and the trustee has not received from the holders of not less than a majority in principal amount of the outstanding debt securities of that series a direction inconsistent with that request and has failed to institute the proceeding within 60 days. |
Notwithstanding any other provision in the indenture, the holder of any debt security will have an absolute and unconditional right to receive payment of the principal of, premium and any interest on that debt security on or after the due dates expressed in that debt security and to institute suit for the enforcement of payment.
The indenture requires us, within 120 days after the end of our fiscal year, to furnish to the trustee a statement as to compliance with the indenture. If a Default or Event of Default occurs and is continuing with respect to the debt securities of any series and if it is known to a responsible officer of the trustee, the trustee shall mail to each securityholder of the debt securities of that series notice of a Default or Event of Default within 90 days after it occurs. The indenture provides that the trustee may withhold notice to the holders of debt securities of any series of any Default or Event of Default (except in payment on any debt securities of that series) with respect to debt securities of that series if the trustee determines in good faith that withholding notice is in the interest of the holders of those debt securities.
Modification or Waiver
We and the trustee may modify and amend the indenture or the debt securities of any series without the consent of any holder of any debt security:
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| to cure any ambiguity, defect or inconsistency; |
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| to comply with covenants in the indenture described above under the heading “Consolidation, Merger and Sale of Assets”; |
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| to provide for uncertificated securities in addition to or in place of certificated securities; |
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| to make any change that does not adversely affect the rights of any holder of debt securities; |
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| to provide for the issuance of and establish the form and terms and conditions of debt securities of any series as permitted by the indenture; |
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| to effect the appointment of a successor trustee with respect to the debt securities of any series and to add to or change any of the provisions of the indenture to provide for or facilitate administration by more than one trustee; or |
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| to comply with requirements of the SEC in order to effect or maintain the qualification of the indenture under the Trust Indenture Act. |
We may also modify and amend the indenture with the consent of the holders of at least a majority in principal amount of the outstanding debt securities of each series affected by the modifications or amendments. We may not make any modification or amendment without the consent of the holders of each affected debt security then outstanding if that amendment will:
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| reduce the amount of debt securities whose holders must consent to an amendment, supplement or waiver; |
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| reduce the rate of or extend the time for payment of interest (including default interest) on any debt security; |
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| reduce the principal of or premium on or change the fixed maturity of any debt security or reduce the amount of, or postpone the date fixed for, the payment of any sinking fund or analogous obligation with respect to any series of debt securities; |
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| reduce the principal amount of discount securities payable upon acceleration of maturity; |
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| waive a default in the payment of the principal of, premium or interest on any debt security (except a rescission of acceleration of the debt securities of any series by the holders of at least a majority in aggregate principal amount of the then outstanding debt securities of that series and a waiver of the payment default that resulted from such acceleration); |
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| make the principal of or premium or interest on any debt security payable in currency other than that stated in the debt security; |
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| make any change to certain provisions of the indenture relating to, among other things, the right of holders of debt securities to receive payment of the principal of, premium and interest on those debt securities and to institute suit for the enforcement of any such payment and to waivers or amendments; or |
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| waive a redemption payment with respect to any debt security. |
Except for certain specified provisions, the holders of at least a majority in principal amount of the outstanding debt securities of any series may on behalf of the holders of all debt securities of that series waive our compliance with provisions of the indenture. The holders of a majority in principal amount of the outstanding debt securities of any series may on behalf of the holders of all the debt securities of such series waive any past default under the indenture with respect to that series and its consequences, except a default in the payment of the principal of, premium or any interest on any debt security of that series; provided, however, that the holders of a majority in principal amount of the outstanding debt securities of any series may rescind an acceleration and its consequences, including any related payment default that resulted from the acceleration.
Defeasance of Debt Securities and Certain Covenants in Certain Circumstances
Legal Defeasance. The indenture provides that, unless otherwise provided by the terms of the applicable series of debt securities, we may be discharged from any and all obligations in respect of the debt securities of any series (subject to certain exceptions). We will be so discharged upon the deposit with the trustee, in trust, of money and/or U.S. government obligations or, in the case of debt securities denominated in a single currency other than U.S. Dollars, government obligations of the government that issued or caused to be issued such currency, that, through the payment of interest and principal in accordance with their terms, will provide money in an amount sufficient in the opinion of a nationally recognized firm of independent public accountants or investment bank to pay and discharge each installment of principal, premium and interest on and any mandatory sinking fund payments in respect of the debt securities of that series on the stated maturity of those payments in accordance with the terms of the indenture and those debt securities.
This discharge may occur only if, among other things, we have delivered to the trustee an opinion of counsel stating that we have received from, or there has been published by, the United States Internal Revenue Service a ruling or, since the date of execution of the indenture, there has been a change in the applicable United States federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the holders of the debt securities of that series will not recognize income, gain or loss for United States federal income tax purposes as a result of the deposit, defeasance and discharge and will be subject to United States federal income tax on the same amounts and in the same manner and at the same times as would have been the case if the deposit, defeasance and discharge had not occurred.
Defeasance of Certain Covenants. The indenture provides that, unless otherwise provided by the terms of the applicable series of debt securities, upon compliance with certain conditions:
●
| we may omit to comply with the covenant described under the heading “Consolidation, Merger and Sale of Assets” and certain other covenants set forth in the indenture, as well as any additional covenants which may be set forth in the applicable prospectus supplement; and |
●
| any omission to comply with those covenants will not constitute a Default or an Event of Default with respect to the debt securities of that series (“covenant defeasance”). |
The conditions include:
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| depositing with the trustee money and/or U.S. government obligations or, in the case of debt securities denominated in a single currency other than U.S. Dollars, government obligations of the government that issued or caused to be issued such currency, that, through the payment of interest and principal in accordance with their terms, will provide money in an amount sufficient in the opinion of a nationally recognized firm of independent public accountants or investment bank to pay and discharge each installment of principal of, premium and interest on and any mandatory sinking fund payments in respect of the debt securities of that series on the stated maturity of those payments in accordance with the terms of the indenture and those debt securities; and |
●
| delivering to the trustee an opinion of counsel to the effect that the holders of the debt securities of that series will not recognize income, gain or loss for United States Federal income tax purposes as a result of the deposit and related covenant defeasance and will be subject to United States Federal income tax on the same amounts and in the same manner and at the same times as would have been the case if the deposit and related covenant defeasance had not occurred. |
Trustee
We intend to name the indenture trustee for each series of indenture securities in the related prospectus supplement.
Certain Considerations Relating to Foreign Currencies
Debt securities denominated or payable in foreign currencies may entail significant risks. These risks include the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market. These risks will vary depending upon the currency or currencies involved and will be more fully described in the applicable prospectus supplement.
Governing Law
The indenture and the debt securities, including any claim or controversy arising out of or relating to the indenture or the securities, will be governed by the laws of the jurisdiction identified in the indenture and debt securities at the time of the transaction in which they are issued.
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of shares of our common stock, shares of our preferred stock or debt securities. The following description is a general summary of the terms of the warrants we may issue from time to time pursuant to this prospectus. When we offer warrants in the future, a prospectus supplement will explain the particular terms of the securities and the extent to which these general provisions may apply. If any particular terms of a warrant described in the applicable prospectus supplement differ from any of the terms described in this prospectus, then the terms described in this prospectus will be deemed superseded by the terms set forth in that prospectus supplement.
Warrants may be issued independently or together with other securities and may be attached to or separate from any offered securities. Each series of warrants will be issued under a separate warrant agreement to be entered into between us and a bank or trust company, as warrant agent. The warrant agent will act solely as our agent in connection with the warrants and will not have any obligation or relationship of agency or trust for or with any holders or beneficial owners of warrants.
The summary descriptions in this prospectus and any summary descriptions in the applicable prospectus supplement do not purport to be complete descriptions of the terms and conditions of each warrant and are qualified in their entirety by reference to the related warrant agreement, warrant certificate and any other documents referenced in such summary descriptions and from which such summary descriptions are derived. We urge you to read the applicable warrant agreement and related warrant certificate, which will be filed with the SEC at the time of any offering of warrants, because they, and not this description, will define the rights of holders of such warrants.
If any warrants we issue are to be listed or quoted on a securities exchange or quotation system, the applicable prospectus supplement will so indicate.
Stock Warrants
The prospectus supplement relating to a particular issue of warrants to issue shares of our common stock or shares of our preferred stock will describe the terms of the common share warrants and preferred share warrants, including the following:
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| the title of the warrants; |
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| the offering price for the warrants, if any; |
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| the aggregate number of the warrants; |
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| the designation and terms of the shares of common stock or shares of preferred stock that may be purchased upon exercise of the warrants; |
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| the terms for changes or adjustments to the exercise price of the warrants; |
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| if applicable, the designation and terms of the securities that the warrants are issued with and the number of warrants issued with each security; |
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| if applicable, the date from and after which the warrants and any securities issued with the warrants will be separately transferable; |
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| the number of shares of common stock or shares of preferred stock that may be purchased upon exercise of a warrant and the price at which the shares may be purchased upon exercise; |
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| the dates on which the right to exercise the warrants commence and expire; |
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| if applicable, the minimum or maximum amount of the warrants that may be exercised at any one time; |
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| the currency or currency units in which the offering price, if any, and the exercise price are payable; |
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| if applicable, a discussion of material United States Federal income tax considerations; |
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| anti-dilution provisions of the warrants, if any; |
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| redemption or call provisions, if any, applicable to the warrants; |
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| any additional terms of the warrants, including terms, procedures and limitations relating to the exchange and exercise of the warrants; and |
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| any other information we think is important about the warrants. |
The exercise price payable and the number of shares of common stock or preferred stock purchasable upon the exercise of each equity warrant will be subject to adjustment in certain events, including the issuance of a stock dividend to holders of common stock or preferred stock or a stock split, reverse stock split, combination, subdivision or reclassification of common stock or preferred stock. In lieu of adjusting the number of shares of common stock or preferred stock purchasable upon exercise of each equity warrant, we may elect to adjust the number of equity warrants. No adjustments in the number of shares purchasable upon exercise of the equity warrants will be required until cumulative adjustments require an adjustment of at least 1% thereof. We may, at our option, reduce the exercise price at any time. No fractional shares will be issued upon exercise of equity warrants, but we will pay the cash value of any fractional shares otherwise issuable or, alternatively, round up fractional shares to the nearest whole share. Notwithstanding the foregoing, in case of any consolidation, merger, or sale or conveyance of our property in its entirety or substantially in its entirety, the holder of each outstanding equity warrant shall have the right to the kind and amount of shares of stock and other securities and property, including cash, receivable by a holder of the number of shares of common stock or preferred stock into which the equity warrant was exercisable immediately prior to such transaction.
Debt Warrants
The prospectus supplement relating to a particular issue of warrants to issue debt securities will describe the terms of those warrants, including the following:
● | the title of the warrants; |
● | the offering price for the warrants, if any; |
● | the aggregate number of the warrants; |
● | the designation and terms of the debt securities purchasable upon exercise of the warrants; |
● | the terms for changes or adjustments to the exercise price of the warrants; |
● | if applicable, the designation and terms of the debt securities that the warrants are issued with and the number of warrants issued with each debt security; |
● | if applicable, the date from and after which the warrants and any debt securities issued with them will be separately transferable; |
● | the principal amount of debt securities that may be purchased upon exercise of a warrant and the price at which the debt securities may be purchased upon exercise; |
● | the dates on which the right to exercise the warrants will commence and expire; |
● | if applicable, the minimum or maximum amount of the warrants that may be exercised at any one time; |
● | whether the warrants represented by the warrant certificates or debt securities that may be issued upon exercise of the warrants will be issued in registered or bearer form; |
● | information relating to book-entry procedures, if any; |
● | the currency or currency units in which the offering price, if any, and the exercise price are payable; |
● | if applicable, a discussion of material United States federal income tax considerations; |
● | anti-dilution provisions of the warrants, if any; |
● | redemption or call provisions, if any, applicable to the warrants; |
● | any additional terms of the warrants, including terms, procedures and limitations relating to the exchange and exercise of the warrants; and |
● | any other information we think is important about the warrants. |
Exercise of Warrants
Each warrant will entitle the holder to purchase for cash such principal amount of securities or shares of stock at such exercise price as shall in each case be set forth in, or be determinable as set forth in, the prospectus supplement relating to the warrants offered thereby. Warrants may be exercised at any time up to the close of business on the expiration date set forth in the prospectus supplement relating to the warrants offered thereby. After the close of business on the expiration date, unexercised warrants will become void.
The warrants may be exercised as set forth in the prospectus supplement relating to the warrants offered. Upon receipt of payment and the warrant certificate properly completed and duly executed at the corporate trust office of the warrant agentdealer, sales representative or any other office indicated in the prospectus supplement, we will, as soon as practicable, forward the securities purchasable upon such exercise. If less than all of the warrants represented by such warrant certificate are exercised, a new warrant certificate will be issued for the remaining warrants.
Until a holder exercises the warrantsperson has been authorized to purchase our shares of common stock, shares of preferred stock or debt securities, the holder will not havegive any rights as a holder of our shares of common stock, shares of preferred stock or debt securities, as the case may be, by virtue of ownership of warrants.
Enforceability of Rights by Holders of Warrants
Each warrant agent will act solely as our agent under the applicable warrant agreement and will not assume any obligation or relationship of agency or trust with any holder of any warrant. A single bank or trust company may act as warrant agent for more than one issue of warrants. A warrant agent will have no duty or responsibility in case of any default by us under the applicable warrant agreement or warrant, including any duty or responsibility to initiate any proceedings at law or otherwise,information or to make any demand upon us. Any holder of a warrant may, without the consent of the related warrant agentrepresentations other than those contained in or the holder of any other warrant, enforceincorporated by appropriate legal action its right to exercise, and receive the securities purchasable upon exercise of, its warrants.
DESCRIPTION OF UNITS
We may issue units consisting of any combination of the other types of securities offered underreference into this prospectus in one or more series. We may evidence each series of units by unit certificates that we will issue under a separate agreement. We may enter into unit agreements with a unit agent; and, if we do so, each unit agent willgiven or made, such information or representation must not be a bank or trust company that we select and we will indicate the name and address of the unit agent in the applicablerelied upon as having been authorized by us. This prospectus supplement relating to a particular series of units.
The following description, together with the additional information included in any applicable prospectus supplement, summarizes the general features of the units that we may offer under this prospectus. You should read any prospectus supplement that we may authorize to be provided to you related to the series of units being offered, as well as the complete version of any unit agreement containing the terms of the units that we may enter into. Specific unit agreements, if any, will contain additional important terms and provisions and we will file as an exhibit to the registration statement of which this prospectus is a part, or will incorporate by reference from another report that we file with the SEC, the form of each unit agreement relating to units offered under this prospectus that we enter into.
If we offer any units, certain terms of that series of units will be described in the applicable prospectus supplement, including, without limitation, the following, as applicable:
● | the title of the series of units; |
● | identification and description of the separate constituent securities comprising the units; |
● | the price or prices at which the units will be issued; |
● | the date, if any, on and after which the constituent securities comprising the units will be separately transferable; |
● | a discussion of certain United States Federal income tax considerations applicable to the units; and |
● | any other terms of the units and their constituent securities. |
Issuance in Series
We may issue units in such amounts and in such numerous distinct series as we determine.
Enforceability of Rights by Holders of Units
Each unit agent will act solely as our agent under the applicable unit agreement and will not assume any obligation or relationship of agency or trust with any holder of any unit. A single bank or trust company may act as unit agent for more than one series of units. A unit agent will have no duty or responsibility in case of any default by us under the applicable unit agreement or unit, including any duty or responsibility to initiate any proceedings at law or otherwise, or to make any demand upon us. Any holder of a unit may, without the consent of the related unit agent or the holder of any other unit, enforce by appropriate legal action its rights as holder under any security included in the unit.
We, and any unit agent and any of their agents, may treat the registered holder of any unit certificate as an absolute owner of the units evidenced by that certificate for any purpose and as the person entitled to exercise the rights attaching to the units so requested, despite any notice to the contrary.
PLAN OF DISTRIBUTION
We may sell the securities covered by this prospectus from time to time in one or more offerings. Registration of the securities does not mean, however, that those securities will necessarily be offered or sold.
We may sell the securities separately or together:
● | through one or more underwriters or dealers in a public offering and sale by them; |
● | directly to investors, including our affiliates and stockholders, or in a rights offering; |
● | through any combination of any of these methods of sale. |
We may sell the securities from time to time:
● | in one or more transactions at a fixed price or prices, which may be changed from time to time; |
● | at market prices prevailing at the times of sale; |
● | in "at the market offerings," within the meaning of Rule 415(a)(4) of the Securities Act, to or through a sales agent or market maker or into an existing trading market, on an exchange or otherwise; |
● | at prices related to such prevailing market prices; or |
Each time we sell securities covered by this prospectus, we will describe the method of distribution of the securities and the terms of the offering in the prospectus supplement. Any discounts or concessions allowed or re-allowed or paid to dealers may be changed from time to time.
We may engage in at-the-market offerings intoconstitute an existing trading market in accordance with Rule 415(a)(4) under the Securities Act, and we may also sell securities through a rights offering, forward contracts or similar arrangements. In any distribution of subscription rights to stockholders, if all of the underlying securities are not subscribed for, we may then sell the unsubscribed securities directly to third parties or may engage the services of one or more underwriters, dealers or agents, including standby underwriters, to sell unsubscribed securities to third parties.
If underwriters are used in the saleoffer of any securities the securities may be acquired by the underwriters for their own account and may be resold from timeother than those to time in onewhich it relates or more transactions described above. The securities may be either offeredan offer to the public through underwriting syndicates represented by managing underwriters,sell, or directly by underwriters. Generally, the underwriters' obligations to purchase the securities will be subject to conditions precedent and the underwriters will be obligated to purchase all of the securities if they purchase any of the securities. We may use underwriters with whom we have a material relationship. We will describe in the prospectus supplement, naming the underwriter, the naturesolicitation of any offer to buy, to any person in any jurisdiction where such relationship.
We may designate agents to sellan offer or solicitation would be unlawful. Neither the securities. Unless otherwise specified in connection withdelivery of this prospectus nor any particular sale of securities,made hereunder shall, under any circumstances, create an implication that the agents will agree to use their best efforts to solicit purchases for the period of their appointment.
We may authorize underwriters, dealers or agents to solicit offers by certain purchasers to purchase the securities from us at the public offering priceinformation set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery on a specified date in the future. The contracts will be subject only to those conditions set forth in the prospectus supplement, and the prospectus supplement will set forth any commissions we pay for solicitation of these contracts.
We may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If the applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use securities pledged by us or borrowed from us or others to settle those sales or to close out any related open borrowings of stock, and may use securities received from us in settlement of those derivatives to close out any related open borrowings of stock. The third party in such sale transactions will be an underwriter and will be identified in the applicable prospectus supplement or in a post-effective amendment.
Underwriters, dealers and agents may be entitled to indemnification by us against certain civil liabilities, including liabilities under the Securities Act, or to contribution with respect to payments made by the underwriters, dealers or agents, under agreements between us and the underwriters, dealers and agents.
We may grant underwriters who participate in the distribution of securities an option to purchase additional securities to cover over-allotments, if any, in connection with the distribution.
Underwriters, dealers or agents may receive compensation in the form of discounts, concessions or commissions from us or our purchasers,herein is correct as their agents in connection with the sale of securities. These underwriters, dealers or agents may be considered to be underwriters under the Securities Act. As a result, discounts, commissions or profits on resale received by the underwriters, dealers or agents may be treated as underwriting discounts and commissions. The prospectus supplement will identify any such underwriter, dealer or agent and describe any compensation received by them from us. Any initial public offering price and any discounts or concessions allowed or re-allowed or paid to dealers may be changed from time to time.
Any common stock sold pursuant to a prospectus supplement will be listed for trading on The Nasdaq Capital Market.
Any underwriter may engage in over-allotment transactions, stabilizing transactions, short-covering transactions and penalty bids in accordance with Regulation M under the Exchange Act. Over-allotment involves sales in excess of the offering size, which create a short position. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Short covering transactions involve purchases of the securities in the open market after the distribution is completed to cover short positions. Penalty bids permit the underwriters to reclaim a selling concession from a dealer when the securities originally sold by the dealer are purchased in a covering transaction to cover short positions. Those activities may cause the price of the securities to be higher than it would otherwise be. If commenced, the underwriters may discontinue any of the activities at any time. We make no representation or prediction as to the direction or magnitude of any effect that such transactions may have on the price of the securities. For a description of these activities, see the information under the heading "Underwriting" or "Plan of Distribution" in the applicable prospectus supplement.
Underwriters, broker-dealers or agents who may become involved in the sale of the common stock may engage in transactions with and perform other services for us in the ordinary course of their business for which they receive compensation.
CERTAIN PROVISIONS OF DELAWARE LAW AND FUSION’S CERTIFICATE OF INCORPORATION AND BYLAWS
Anti-takeover Provisions of Our Charter and Bylaws
Our certificate of incorporation, our bylaws and the Delaware General Corporation Law contain provisions that could delay or make more difficult an acquisition of control of the Company not approved by our board of directors, 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 of directors 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 of directors.
Set forth below is a description of the provisions contained in our certificate of incorporation, bylaws and Delaware General Corporation Law that could impede or delay an acquisition of control of our company that our board of directors has not approved. This description is intended as a summary only and is qualified in its entirety by reference to our certificate of incorporation and bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part.
Authorized But Unissued Preferred Stock
We are currently authorized to issue a total of 10,000,000 shares of preferred stock. Our 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 certificate of incorporation and by-laws provide that the number of directors shall be no less than one, as fixed from time to time by resolution of our board.
Filling Vacancies
Our 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. 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 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 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 of directors.
Stockholder Proposals
Except to the extent required under applicable laws, 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 stockholders.
Amendments to Certificate of Incorporation and Bylaws
Our certificate of incorporation gives both the directors and the stockholders the power to adopt, alter or repeal our bylaws. Any adoption, alteration, amendment, change or repeal of the bylaws requires an affirmative vote by a majority of the outstanding stock of the corporation. 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 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 Delaware General Corporation Law regulating corporate takeovers. This section prevents Delaware corporations, under certain circumstances, from engaging in a “business combination” with:
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a stockholder who owns 15% or more of our outstanding voting stock (otherwise known as an interested stockholder);
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an affiliate of an interested stockholder; or
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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 of directors 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 of directors 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
Steven I. Weinberger, P.A., Boca Raton, Florida, will pass upon certain legal matters relating to the issuance and sale of the securities. Additional legal matters may be passed upon for us, or any underwriters, dealers, or agents, by counsel that we will name in the applicable prospectus supplement.
EXPERTS
The consolidated balance sheets of Fusion Telecommunications International, Inc. as of December 31, 2016 and 2015, 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, 2016, 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 balance sheets of Apptix, Inc. as of September 30, 2016 and December 31, 2015, and the related statements of operations, changes in stockholder’s equity, and cash flows for the period from January 1, 2016 through September 30, 2016 and the year ended December 31, 2015, 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.
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, 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.
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.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 (other than underwriting discounts and commissions).hereby. All such expenses are estimates except for the SEC registration fee. These expenses will be borne by the registrant.
| Item | | Company Expense | |
| SEC registration fee | | $ | 12,450.00 | |
| Printing and engraving expenses | | | * | |
| Legal fees and expenses | | | * | |
| Accounting fees and expenses | | | * | |
| Transfer agent and registrar fees and expenses | | | | |
| Miscellaneous | | | * | |
| Total | | $ | 12,450.00 | |
| Item | |
| SEC registration fee | $680 |
| Printing and engraving expenses | 5,000 |
| Legal fees and expenses | 10,000 |
| Accounting fees and expenses | 15,000 |
| Transfer agent and registrar fees and expenses | 3,000 |
| Miscellaneous | 4,320 |
| Total | $38,000 |
(*) These fees will be dependent on the number and amount of offerings under this regiatration statement and, therefore, cannot be estimated at this time. In accordance with Rule 430B, additional information regarding estimated fees and expenses will be provided at the time information as to an offering is included in a prospectus supplement.
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, controlling Fusion pursuant to the foregoing provisions, Fusion 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. 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.
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 restated certificate of incorporation and our 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.
Item 16. Exhibits and Financial Statement Schedules.
The list of exhibits in the Index to Exhibits to this registration statement is incorporated herein by reference.INDEX TO EXHIBITS
| Exhibit Number | | Description |
| | Form of Stock Purchase Agreement, dated May 4, 2018, by and between Fusion Connect, Inc. and each of North Haven Credit Partners II L.P., Aetna Life Insurance Company, and Backcast Credit Opportunities Fund I, L.P. (incorporatedherein by reference to Exhibit 10.21 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) |
| 24.1 | | Power of Attorney (* included on the signature page) |
______________
* Filed herewith
Item 17. Undertakings.
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:
| | (i) | To include any prospectus required by section 10(a)(3) of the Securities Act; |
| | (ii) | 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. |
| | (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
Provided, however, that paragraphs (1)(i), (1)(ii) and (1)(iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to section 13 or section 15(d) of the Exchange Act that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
(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:
| | (i) | If the registrant is relying on Rule 430B: |
| | A)(A) | 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 |
| | (B) | 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 |
| | (ii) | 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. |
(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:
| | (i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
| | (ii) | 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; |
| | (iii) | 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 |
| | (iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
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:
| | (i) | 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. |
| | (ii) | 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. |
The undersigned registrant hereby undertakes that, if and when applicable, to file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the SEC under Section 305(b)(2) of the Act.
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 December 15, 2017.July 20, 2018.
| | FUSION TELECOMMUNICATIONS INTERNATIONAL,CONNECT, INC. | |
| | | | |
| | By: | /s/ Matthew D. Rosen | |
| | | Matthew D. Rosen, Chief Executive Officer | |
| | |
| |
| | By: | /s/ Michael R. BauerKevin M. Dotts | |
| | | Michael R. Bauer,Kevin M. Dotts, Executive Vice President, Chief Financial Officer and Principal Financial Officer | |
| | | |
| By: | /s/ Lisa Taranto | |
| | Lisa Taranto, Vice President – Finance and Principal Accounting Officer | |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gordon Hutchins, Jr., andeach 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 all 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 | | Title | | Date |
| | | | | |
/s/ Marvin S.Matthew D. Rosen | | Chairman of the Board of Directors | | |
| | | | |
| | | | |
/s/ Matthew D. Rosen
| | Chief Executive Officer, Principal Executive Officer and Director
| | July 20, 2018 |
| Matthew D. Rosen | | | | |
| | | | | |
/s/ Philip D. Turits Holcombe T. Green, Jr. | | Secretary, Treasurer and Director
| | July 20, 2018 |
Philip D. Turits | | | | |
| | | | |
/s/ Jack Rosen
| | | | |
| Holcombe T. Green, Jr. | | | | |
| | | | | |
/s/ Paul C. O'Brien
Marvin S. Rosen | | | | July 20, 2018 |
| | | | |
| | | | |
/s/ Michael J. Del Giudice
| | | | |
Michael J. Del GiudiceMarvin S. Rosen | | | | |
| | | | | |
/s/ Larry Blum
Holcombe T. Green, III | | | | July 20, 2018 |
| Holcombe T. Green, III | | | | |
| | | | | |
/s/ William Rubin
Lewis W. Dickey, Jr. | | | | July 20, 2018 |
| Lewis W. Dickey, Jr. | | | | |
| | | | |
| /s/ Rafe de la Gueronniere | | Director | | July 20, 2018 |
| Rafe de la Gueronniere | | | | |
| | | | |
| /s/ Michael J. Del Giudice | | Director | | July 20, 2018 |
| Michael J. Del Giudice | | | | |
INDEX TO EXHIBITS
Exhibit Number
| | Description
|
1.1 | | Form of Underwriting Agreement++ |
3.1.1 | | Certificate of Incorporation (1) |
3.1.2 | | Amendment to Certificate of Incorporation (2) |
3.1.3 | | Certificate of Designation of the Rights and Preferences of the Series A-1 Preferred Stock, as amended (3) |
3.1.4 | | Certificate of Designation of the Rights and Preferences of the Series A-2 Preferred Stock, as amended (4) |
3.1.5 | | Certificate of Designation of the Rights and Preferences of the Series A-4 Preferred Stock, as amended (5) |
3.1.6 | | Certificate of Designations of Preferences, Rights and Limitations of Series B-2 Senior Cumulative Convertible Preferred Stock (6) |
3.1.7 | | Certificate of Elimination of Series A Convertible Redeemable Preferred Stock, Series B Convertible Redeemable Preferred Stock, Series C Convertible Redeemable Preferred Stock, Series A-3 Cumulative Convertible Preferred Stock and Series B-1 Cumulative Convertible Preferred Stock (*) |
3.2 | | Bylaws (8) |
4.1 | | Specimen common stock certificate(++) |
4.2 | | Form of certificate of designations with respect to any preferred stock issued hereunder and the related form of preferred stock certificate++ |
4.3 | | Form of warrant agreement and warrant++ |
4.4 | | Form of unit agreement++ |
4.5 | | Form of indenture to be entered into between the registrant and a trustee acceptable to the registrant. (7) |
4.6 | | Form of debt security++ |
5.1 | | Opinion and Consent of Steven I. Weinberger, P.A. (*) |
23.1 | | Consent of EisnerAmper LLP (*) |
23.3 | | Consent of Steven I. Weinberger, P.A. (* Included in Exhibit 5.1) |
24.1 | | Power of Attorney (included on the signature page) |
25.1 | | Statement of Eligibility of Trustee on Form T-1 under the Trust Indenture Act of 1939.** |
______________
(1)
Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (SEC File No. 33-120412) filed on November 12, 2004.
(2)
Incorporated by reference to Exhibit 10.59 to the Quarterly Report on Form 10-Q filed on November 14, 2016.
(3)
Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on December 15, 2006, as amended by Exhibit 3.1(i) to the Current Report on Form 8-K filed on April 2, 2014.
(4)
Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on May 10, 2007, as amended by Exhibit 3.1(j) to the Current Report on Form 8-K filed on April 2, 2014.
(5)
Identical to Exhibit 10.3 to the Current Report on Form 8-K filed on May 10, 2007 and incorporated by reference, as amended by Exhibit 3.1(k) to the Current Report on Form 8-K filed on April 2, 2014.
(6)
Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K/A filed on January 7, 2014.
(7)
Incorporated by reference to Exhibit 4.5 to the Registration Statement on Form S-3 (SEC File No. 333-203359) filed on April 10, 2015.
(8)
Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (SEC File No. 33-120412) filed on November 12, 2004.
* Filed herewith
** To be filed separately pursuant to Section 305(b)(2) of the Trust Indenture Act of 1939, as amended, and the appropriate rules thereunder.
++ To be filed, if necessary by amendment or incorporation by reference in connection with the offering of the securities.
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