<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 25, 1997
REGISTRATION NO 333-30195
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4813 54-1708481
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
2070 CHAIN BRIDGE ROAD
SUITE 425
VIENNA, VIRGINIA 22182
(ADDRESS, INCLUDING ZIP CODE, OF PRINCIPAL EXECUTIVE OFFICES)
------------------
K. PAUL SINGH
2070 CHAIN BRIDGE ROAD
SUITE 425
VIENNA, VIRGINIA 22182
(NAME AND ADDRESS OF AGENT FOR SERVICE)
(703) 902-2800
(TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
WITH COPIES TO:
ELAM M. HITCHNER, III, ESQ. DAVID J. BEVERIDGE, ESQ.
JAMES D. EPSTEIN, ESQ. SHEARMAN & STERLING
PEPPER, HAMILTON & SCHEETZ LLP 599 LEXINGTON AVENUE
3000 TWO LOGAN SQUARE NEW YORK, NY 10022
PHILADELPHIA, PA 19103-2799 (212) 848-4000
(215) 981-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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, 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, please 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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 SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 25, 1997
PROSPECTUS
$125,000,000
[LOGO OF PRIMUS APPEARS HERE]
UNITS CONSISTING OF $ % SENIOR NOTES DUE 2004
AND WARRANTS TO PURCHASE SHARES OF COMMON STOCK
------------
Primus Telecommunications Group, Incorporated ("Primus" or the "Company") is
offering (the "Offering") units (the "Units") each consisting of $1,000
principal amount of % Senior Notes due 2004 (the "Notes") and Warrants
(each a "Warrant") to purchase shares (the "Warrant Shares") of its common
stock, par value $0.01 per share (the "Common Stock"). The Units, Notes and
Warrants are collectively referred to herein as the "Securities." The Notes and
Warrants will not be separately transferable until the Separation Date (as
defined), and the Warrants will not be exercisable until 180 days after the
Closing Date (as defined).
Interest on the Notes will be payable semi-annually in arrears on and
of each year, commencing on , 1998. The Notes will be redeemable at the
option of the Company at any time after , 2001, at the redemption prices
set forth herein, plus accrued and unpaid interest to the redemption date. In
addition, prior to , 2000 the Company may redeem up to 35% of the
aggregate principal amount of Notes at the redemption price set forth herein
plus accrued and unpaid interest through the redemption date with the net cash
proceeds of one or more Public Equity Offerings (as defined). The Notes will
not be subject to any mandatory sinking fund. In the event of a Change of
Control (as defined), holders of the Notes will have the right to require the
Company to purchase their Notes, in whole or in part, at a price equal to 101%
of the aggregate principal amount thereof, plus accrued and unpaid interest to
the date of purchase.
On the closing date, the Company will use a portion of the proceeds from the
Offering to purchase a portfolio of Pledged Securities (as defined), consisting
of U.S. government securities, which will be pledged as security for the first
six scheduled interest payments on the Notes.
The Notes will be unsecured (except as described above), rank senior in right
of payment to any future subordinated Indebtedness (as defined) of the Company
and pari passu in right of payment with all senior Indebtedness of the Company.
As of March 31, 1997, after giving effect to the Offering, the Company would
have had approximately $127.8 million of indebtedness. Because the Company is a
holding company that conducts its business through its subsidiaries, all
existing and future indebtedness and other liabilities and commitments of the
Company's subsidiaries, including trade payables, will be effectively senior to
the Notes. As of March 31, 1997, the Company's consolidated subsidiaries had
aggregate liabilities of approximately $72.7 million. See "Description of
Notes."
Each Warrant will entitle the holder thereof to purchase, on or after ,
1998, Warrant Shares at an exercise price of $ per share, subject to
adjustment in certain circumstances. The Warrants will, unless exercised,
automatically expire on , 2004. See "Description of Warrants" and "Shares
Eligible for Future Sale." Upon consummation of the Offering, the Warrants will
entitle the holders thereof to purchase, in the aggregate, approximately %
of the Common Stock of the Company on a fully-diluted basis, assuming exercise
of all outstanding options and warrants on the date of this Prospectus. The
Common Stock is listed on the Nasdaq National Market under the symbol "PRTL."
On July 24, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $8 3/4 per share.
------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE UNITS, SEE "RISK FACTORS" BEGINNING ON PAGE 10.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
Price to Discounts and Proceeds to
Investors(1) Commissions(2) Company(1)(3)
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<S> <C> <C> <C>
Per Unit............................. % % %
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Total................................ $ $ $
================================================================================
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance to the date of
delivery.
(2) The Company has agreed to indemnify the Underwriters against, and to
provide contribution with respect to, certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
------------
The Units offered by this Prospectus are offered by the Underwriters subject
to prior sale, withdrawal, cancellation or modification of the offer without
notice, to delivery to and acceptance by the Underwriters and to certain
further conditions. It is expected that delivery of the Units will be made at
the office of Lehman Brothers Inc., New York, New York or through the
facilities of The Depository Trust Company, on or about , 1997.
------------
LEHMAN BROTHERS DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1997
<PAGE>
[MAP SHOWING PRIMUS' INTELLIGENT GLOBAL NETWORK (OPERATIONAL AND PLANNED),
INCLUDING SWITCH LOCATIONS, POINTS OF PRESENCE AND FIBER LINKS BETWEEN SWITCH
LOCATIONS]
<PAGE>
In this Prospectus, unless otherwise specified or the context otherwise
requires, references to "dollars," "$" and "US $" are to United States
dollars, references to C$ are to Canadian dollars, and references to A$ are to
Australian dollars.
The Consolidated Financial Statements of the Company are presented in
accordance with United States generally accepted accounting principles, and
amounts originally measured in foreign currencies for all periods presented
have been translated into U.S. dollars in accordance with the methodology set
forth in Note 2 to the Consolidated Financial Statements of the Company.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information filed by the Company can be inspected and copied at public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; Seven World Trade Center, 13th Floor, New York, New
York 10048; and Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can be obtained from the Public Reference
Section of the Commission, Washington, D.C. 20549 at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding the Company. The address of such
Web site is http://www.sec.gov. The Common Stock is quoted on the Nasdaq
National Market, and copies of the reports, proxy statements and other
information filed by the Company with the Commission may also be inspected at
the offices of Nasdaq Operation, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act, with respect to the securities offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus,
which is part of the Registration Statement, omits certain information,
exhibits, schedules and undertakings set forth in the Registration Statement.
For further information pertaining to the Company and the securities offered
hereby, reference is made to such Registration Statement and the exhibits and
schedules thereto. Statements contained in the Prospectus as to any contracts,
agreements or other documents filed as an exhibit to the Registration
Statement are not necessarily complete, and in each instance reference is
hereby made to the copy of such contract, agreement or other document filed as
an exhibit to the Registration Statement for a full statement of the
provisions thereof, and each such statement in the Prospectus is qualified in
all respects by such reference.
The Registration Statement may be inspected without charge at the office of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of
the Registration Statement may be obtained from the Commission at prescribed
rates from the Public Reference Section of the Commission at such address, and
at the Commission's regional offices located at 7 World Trade Center, 13th
Floor, New York, New York 10048, and at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, registration
statements and certain other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are
publicly available through the Commission's site on the Internet's World Wide
Web, located at http://www.sec.gov. The Registration Statement, including all
exhibits thereto and amendments thereof, has been filed with the Commission
through EDGAR.
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, AT LEVELS WHICH MIGHT NOT OTHERWISE PREVAIL IN THE OPEN
MARKET. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR AND PURCHASE UNITS IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
ii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. As used in this Prospectus, except where the context
otherwise requires, the terms "Primus" and the "Company" refer to Primus
Telecommunications Group, Incorporated and all of its subsidiaries.
THE COMPANY
Primus is a multinational telecommunications company that focuses on the
provision of international and domestic long distance services. The Company
seeks to capitalize on the increasing business and residential demand for
international telecommunications services generated by the globalization of the
world's economies and the worldwide trend toward deregulation of the
telecommunications sector. The Company has targeted North America, Asia-Pacific
and Europe as its primary service regions (the "Targeted Regions"). The Company
currently provides services in the United States, Australia and the United
Kingdom (the "Operating Hubs"), which are the most deregulated countries within
the Targeted Regions and which serve as regional hubs for expansion into
additional markets within the Targeted Regions. As part of the execution of its
strategy, the Company also has expanded its operations to include Canada. The
Company expects to expand into additional markets as deregulation occurs and
the Company is permitted to offer a full range of switched public telephone
services in such markets. For the three months ended March 31, 1997 and the
twelve months ended December 31, 1996, the Company had net revenue of
approximately $59 million and pro forma net revenue of approximately $199
million, after giving pro forma effect to the Company's March 1996 acquisition
of Axicorp Pty., Ltd. ("Axicorp"), the fourth largest telecommunications
provider in Australia. The Company's Australian operations generated
approximately $46.9 million, or 79%, of the Company's net revenue for the three
months ended March 31, 1997, and approximately $177.6 million, or 89%, of the
Company's pro forma net revenue for the year ended December 31, 1996. The
Company has approximately 100,000 customers and, as of June 30, 1997, had 516
full-time employees.
The Company primarily targets, on a retail basis, small- and medium-sized
businesses with significant international long distance traffic and ethnic
residential customers and, on a wholesale basis, other telecommunications
carriers and resellers with international traffic. The Company provides a broad
array of competitively priced telecommunications services, including
international long distance to over 200 countries, domestic long distance, and
international and domestic private networks, as well as local switched and
cellular services in Australia, prepaid and calling cards in the United States,
Canada, the United Kingdom and Australia, and toll-free services in the United
States and Canada. The Company markets its services through a variety of sales
channels, including direct sales, independent agents, direct marketing and
associations.
The Company has constructed and is implementing an international
telecommunications network (the "Network") to reduce and control costs, improve
service reliability and increase flexibility to introduce new products and
services. Management believes that as the volume of telecommunications traffic
carried on the Network increases, the Company should improve its profitability
as it realizes economies of scale. Major components of the Network include the
following:
Switches. Since December 31, 1996, when the Company operated one
international gateway switch in Washington, D.C., the Company's Network has
grown to consist of eleven switches, including seven international gateway
switches (New York, Los Angeles, Washington, D.C., Toronto, Vancouver, London,
Sydney) and four domestic switches (Adelaide, Brisbane, Melbourne and Perth).
The Company's international gateway switches will serve as the base for the
global expansion of the Network into new countries as regulatory rules permit
the Company to compete in these new markets. By the end of 1998, the Company
intends to add up to three switches in the United States (expected to be
located in Chicago, Dallas and Miami), three
1
<PAGE>
switches in Europe (expected to be located in Frankfurt, Paris and Rome), one
switch in Mexico (Mexico City) and one switch in Japan (Tokyo), and
approximately 15 points of presence in other major metropolitan areas of the
Targeted Regions.
Transmission Capacity. The Company owns and leases transmission capacity
which connects its switches to each other and to the networks of other
international and domestic telecommunications carriers, including Minimum
Assignable Ownership Units ("MAOUs") in two undersea fiber optic cable systems,
which are TAT-12/TAT-13 and TPC-5, and Indefeasible Rights of Use ("IRUs") in
three undersea fiber optic cable systems, which are CANUS-1, CANTAT-3 and TAT-
12/TAT-13. During the first quarter of 1997, the Company's Los Angeles switch
was connected to its Network in Australia via a trans-Pacific undersea fiber
optic cable system. During the second quarter of 1997, the Company's New York
switch was connected to its London switch via trans-Atlantic undersea fiber
optic cable systems. This trans-Atlantic connection follows the December 1996
receipt by the Company of a full, facilities-based United Kingdom license
which, among other things, allows the Company to own the United Kingdom half of
international circuits. In July 1997, the Company became one of five licensed
carriers permitted to own and operate transmission facilities in Australia. The
Company expects to continue to acquire additional capacity on both existing and
future international fiber optic cable systems.
Foreign Carrier Agreements. In selected countries where competition with the
local Postal, Telephone and Telegraph Operator ("PTT") is limited or not
currently permitted, the Company has entered into foreign carrier agreements
with PTTs or other authorized service providers which permit the Company to
provide traffic into and receive return traffic from these countries. The
Company has existing foreign carrier agreements with the government-controlled
PTTs in India, Iran and Honduras and, in April 1997, entered into a foreign
carrier agreement with the Cyprus Telecommunications Authority ("CyTA") to
establish a direct, fiber optic connection with the Company's London switch for
international long distance primarily to countries in the Middle East. The
Company also has entered into foreign carrier agreements in Israel, Malaysia,
New Zealand and Sri Lanka which are expected to become effective by the end of
1997. The Company views foreign carrier agreements as viable means of
transmitting traffic to countries that have yet to become deregulated. The
Company intends to enter into several other foreign carrier agreements by the
end of 1998.
The Company's objective is to become a leading provider of international and
domestic long distance voice, data and value-added services to its target
customers. The Company's strategy to achieve this objective is to focus on
providing a full range of competitively priced, high-quality services in the
Targeted Regions. Key elements in the Company's strategy include:
. Focus on Customers with Significant International Long Distance
Usage. The Company's primary focus is providing telecommunications
services to small- and medium-sized businesses with significant
international long distance traffic and to ethnic residential customers
and, on a wholesale basis, to other telecommunications carriers and
resellers with international traffic. The Company believes that the
international long distance market offers an attractive business
opportunity given its size and, as compared to the domestic long
distance market, its higher revenue per minute, gross margin and
expected growth rate. Although the Company expects to obtain a
significant percentage of its revenues from offering international long
distance services, the Company currently generates, and expects to
continue to generate over the near term, a greater percentage of net
revenue from domestic long distance services in an effort to build
traffic volumes more quickly to achieve economies of scale.
. Pursue Early Entry into Selected Deregulating Markets. Primus seeks to
be an early entrant into selected overseas deregulating
telecommunications markets where it believes there is significant demand
for international long distance services, substantial growth and profit
potential, and the opportunity to establish a customer base and achieve
name recognition. The Company intends to use each Operating Hub as a
base to expand into deregulating markets within the Targeted Regions and
will focus its expansion efforts on major metropolitan areas with a high
concentration of target customers with international traffic. The
Company believes that management's international
2
<PAGE>
telecommunications experience will assist it in successfully identifying
and launching operations in deregulating markets.
. Implement Intelligent International Network. The Company expects that
the strategic development of the Network will lead to reduced
transmission and other operating costs as a percentage of net revenue,
reduced reliance on other carriers and more efficient network
utilization. The Network consists of (i) a global backbone network
connecting intelligent gateway switches in the Targeted Regions, (ii) a
domestic long distance network presence in each of the Operating Hubs
and certain additional countries within the Targeted Regions, and (iii)
a combination of owned and leased transmission facilities, resale
arrangements and foreign carrier agreements. In an effort to manage
transmission costs, the Company pursues a flexible approach with respect
to Network expansion. In most instances, the Company initially obtains
additional capacity on a variable cost, per-minute basis, next acquires
additional capacity on a fixed cost basis when traffic volumes make such
a commitment cost-effective, and ultimately purchases and operates its
own facilities only when traffic levels justify such investment.
. Deliver Quality Services at Competitive Prices. Management believes that
the Company delivers high-quality services at competitive prices and
provides a high level of customer service. The Company intends to
maintain a low-cost structure in order to offer its customers
international and domestic long distance services priced below that of
its major competitors. In addition, the Company intends to maintain
strong customer relationships through the use of trained and experienced
service representatives and the provision of customized billing
services.
. Provide a Comprehensive Package of Services. The Company seeks to
provide a comprehensive package of services to create "one-stop
shopping" for its targeted customers' telecommunications needs,
particularly for small- and medium-sized businesses and ethnic
residential customers that prefer a full service telecommunications
provider. The Company believes this approach strengthens its marketing
efforts and increases customer retention.
. Grow through Selected Acquisitions. As part of its business strategy,
the Company frequently evaluates potential acquisitions, joint ventures
and strategic alliances. The Company views acquisitions as a means to
enter additional markets and expand its operations within existing
markets. The Company's acquisition criteria include long-distance
service providers with an established customer base, complementary
operations, licenses to operate as an international carrier, an
experienced management team, and businesses in countries into which the
Company seeks to enter.
On April 8, 1997, the Company acquired selected assets of the Canadian long
distance provider, Cam-Net Communications Network, Inc. and its subsidiaries
("Cam-Net"), based in Vancouver, British Columbia, including its customer
base, customer contracts, customer billing and other back room support
systems, and accounts receivable, for C$6.75 million, or approximately US$5
million, in cash. As a result of this acquisition, the Company has a customer
and a sales and marketing presence in all major metropolitan areas throughout
Canada (including Vancouver, Montreal and Toronto), providing domestic and
international direct dial long-distance services to approximately 15,000
residential customers and 5,000 small- and medium-sized businesses.
In March 1996, the Company acquired Axicorp, the fourth largest
telecommunications provider in Australia. Axicorp has provided the Company
with early entry into the deregulating Australian telecommunications market
and serves as the Company's gateway to the Asia-Pacific region. The ongoing
transformation of Axicorp's strategy and operations to those of a facilities-
based carrier focused on the provision of international and domestic long
distance services is an example of the execution of the Company's business
strategy. Prior to the acquisition, Axicorp was a switchless reseller of long
distance, local switched and cellular services. Since the acquisition, the
Company has installed and begun carrying traffic on a five-switch network in
Australia, has leased fiber capacity connecting Australia and the United
States and, in July 1997, became one of five licensed carriers permitted to
own and operate transmission facilities in Australia. The Company expects
Australian gross
3
<PAGE>
margin to increase as it migrates existing business customer traffic onto the
Network. Primus has also increased Axicorp's focus on higher margin, higher
volume business customers with significant international long-distance traffic,
and, as a result, has increased Axicorp's direct sales force and reduced its
reliance on marketing through associations. For the three months ended March
31, 1997 and for the year ended December 31, 1996, the Company's Australian
operations generated net revenue of $46.9 million and pro forma net revenue of
$177.6 million, respectively. The Company acquired Axicorp for $5.7 million in
cash, including transaction costs, 455,000 shares of Series A Convertible
Preferred Stock (which were converted into 1,538,355 shares of Common Stock)
and seller financing consisting of two notes aggregating $8.1 million, on a
discounted basis.
In November 1996, the Company completed an initial public offering of its
Common Stock that generated net proceeds of approximately $54.4 million (the
"Initial Public Offering"). In July 1996, the Soros/Chatterjee Group (as
defined in "Certain Transactions") purchased an equity interest in the Company
for an aggregate purchase price of approximately $16.0 million (the "Private
Equity Sale") and, assuming the exercise on July 14, 1997 of all of their
outstanding warrants, collectively beneficially owns 13.3% of the Common Stock.
The net proceeds from the Initial Public Offering and the Private Equity Sale
are being used to expand the Company's Network and to fund operating losses,
working capital, and other general corporate purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Certain Transactions."
Primus was co-founded in 1994 by K. Paul Singh, its Chairman and Chief
Executive Officer, who formerly served as Vice President of Marketing for MCI.
Mr. Singh previously founded two other telecommunications companies, Overseas
Telecommunications, Inc. ("OTI") and the Cygnus Satellite Corporation
("Cygnus"), both of which focused on international telecommunications. OTI and
Cygnus were acquired by MCI and PanAmSat, respectively. The executive officers
of the Company and several of the other members of its management team have
substantial experience in the telecommunications and other related industries,
and have served in management positions with companies such as MCI, OTI, and
M/A Com (subsequently acquired by Hughes Network Systems, Inc.). See
"Management--Executive Officers, Directors and Key Employees."
The Company was incorporated in Delaware in February 1994. The executive
offices of the Company are located at 2070 Chain Bridge Road, Suite 425,
Vienna, Virginia 22182 and its telephone number is (703) 902-2800.
4
<PAGE>
THE OFFERING
UNITS:
Issuer........................ Primus Telecommunications Group, Incorporated.
Securities Offered............ Units, each consisting of $1,000 principal
amount % Senior Notes due 2004 and
Warrants to purchase shares of Common
Stock.
Separation Date............... The Notes and the Warrants will not be
separately transferable until the Separation
Date which will be the earliest of (a) ,
1998, (b) an Exercise Event (as defined), and
(c) such other date as Lehman Brothers Inc.
shall determine.
Use of Proceeds............... The net proceeds from the Offering are
estimated to be approximately $120 million.
Primus intends to apply the net proceeds to
purchase the Pledged Securities, to repay
certain indebtedness, to fund capital
expenditures and operating losses, for working
capital requirements, and for other general
corporate purposes, including potential
acquisitions, joint ventures and strategic
alliances. See "Use of Proceeds."
NOTES:
Maturity...................... , 2004.
Interest Payment Dates........ and , commencing on , 1998.
Ranking....................... The Notes will rank senior in right of payment
to any future subordinated Indebtedness of the
Company, and pari passu in right of payment
with all senior Indebtedness of the Company. As
of March 31, 1997, after giving effect to the
Offering, the Company would have had
approximately $127.8 million of Indebtedness.
Because the Company is a holding company that
conducts its business through its subsidiaries,
all existing and future Indebtedness and other
liabilities and commitments of the Company's
subsidiaries, including trade payables, will be
effectively senior to the Notes. As of March
31, 1997, the Company's consolidated
subsidiaries had aggregate liabilities of
approximately $72.7 million.
Security...................... The Indenture will require the Company to
purchase and pledge to the Trustee (as
defined), as security for the benefit of the
holders of the Notes, Pledged Securities
consisting of U.S. government securities in an
amount sufficient to provide for the payment in
full of the first six scheduled interest
payments due on the Notes. The Company expects
to use approximately $38.7 million of the net
proceeds of the Offering to acquire the Pledged
Securities. However, the precise amount of the
Pledged Securities to be acquired will depend
upon interest rates prevailing on the
5
<PAGE>
Closing Date. Assuming the first six scheduled
interest payments on the Notes are made in a
timely manner, all of the Pledged Securities
will be released from the Pledge Account and
the Notes will be unsecured. See "Description
of the Notes--Security."
Optional Redemption........... The Notes are not redeemable prior to ,
2001. Thereafter, the Notes will be redeemable,
in whole or in part, at the option of the
Company, at the redemption prices set forth
herein plus accrued and unpaid interest to the
applicable redemption date. In addition, prior
to , 2000, the Company may redeem up to 35%
of the originally issued principal amount of
Notes at the redemption price set forth herein
plus accrued and unpaid interest through the
redemption date with the net cash proceeds of
one or more Public Equity Offerings; provided,
however, that at least 65% of the originally
issued principal amount of the Notes remains
outstanding after the occurrence of such
redemption. See "Description of Notes--Optional
Redemption."
Change of Control............. Upon the occurrence of a Change of Control,
each holder of Notes will have the right to
require the Company to repurchase all or any
part of such holder's Notes at a purchase price
in cash equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to
the date of purchase. See "Description of
Notes--Repurchase of Notes Upon a Change of
Control."
Covenants..................... The Indenture pursuant to which the Notes will
be issued will contain certain covenants that,
among other things, limit the ability of the
Company and its Restricted Subsidiaries to
incur additional indebtedness and issue
preferred stock, pay dividends or make other
distributions, repurchase Capital Stock or
subordinated indebtedness or make certain other
Restricted Payments, create certain liens,
enter into certain transactions with
affiliates, sell assets, issue or sell Capital
Stock of the Company's Restricted Subsidiaries
or enter into certain mergers and
consolidations. See "Description of Notes--
Covenants."
WARRANTS:
Total Number of Warrants...... Warrants, which when exercised would
entitle the holders thereof to acquire an
aggregate of Warrant Shares representing
approximately % of the Common Stock on a
fully-diluted basis, subject to adjustment,
assuming exercise of all outstanding options
and warrants on the date of this Prospectus.
See "Description of Warrants" and "Shares
Eligible for Future Sale." The Warrants will be
issued pursuant to the Warrant Agreement.
Expiration Date............... , 2004.
Exercise...................... Each Warrant will entitle the holder thereof to
purchase shares of Common Stock at an
exercise price of $ per
6
<PAGE>
share. The number of shares of Common Stock for
which, and the price per share at which, a
Warrant is exercisable are subject to
adjustment upon the occurrence of certain
events as provided in the Warrant Agreement.
The Warrants will be exercisable on or after
, 1998. The Warrants may also be exercised
upon an Exercise Event pursuant to an effective
Demand Registration Statement.
Listing Requirements..........
The Common Stock is currently quoted on the
Nasdaq National Market under the symbol "PRTL."
Application will be made to have the Warrant
Shares quoted on the Nasdaq National Market.
Neither the Units, the Warrants nor the Notes
are expected to be quoted on Nasdaq or traded
on a national securities exchange.
Registration Rights...........
Pursuant to the Warrant Agreement, the Company
is required to file the Common Shelf
Registration Statement under the Securities Act
covering the issuance of shares of Common Stock
to the holders of the Warrants upon exercise of
the Warrants by the holders thereof and to use
its reasonable efforts to cause the Common
Shelf Registration Statement to be declared
effective on or before 180 days after the date
of this Prospectus and to remain effective,
subject to certain exceptions, until the
earlier of (i) such time as all Warrants have
been exercised and (ii) the Expiration Date.
Under certain circumstances, the Company will
be required to file a Demand Registration
Statement. See "Description of Warrants--
Registration Rights."
For additional information concerning the Notes and Warrants and the
definitions of certain capitalized terms used above, see "Description of
Units," "Description of Notes," "Description of Warrants" and "Description of
Capital Stock."
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE UNITS, SEE "RISK FACTORS" BEGINNING ON PAGE 10.
7
<PAGE>
SUMMARY UNAUDITED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table presents summary unaudited pro forma consolidated
financial and other data for the years ended December 31, 1995 and 1996 and the
three months ended March 31, 1996, adjusted to give effect to the acquisition
of Axicorp as if it had occurred on January 1, 1995, historical financial data
for the three months ended March 31, 1997 and certain actual balance sheet data
and balance sheet data as adjusted for the Offering, all of which have been
derived from and should be read in conjunction with the Company's Unaudited Pro
Forma Consolidated Statements of Operations and related notes thereto, the
Company's Consolidated Balance Sheets and Statement of Operations and related
notes thereto and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------------------- -------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............. $ 125,628 $ 199,340 $ 43,505 $ 59,036
Cost of revenue......... 114,639 182,601 39,284 55,034
------------ ------------ ----------- -----------
Gross margin.......... 10,989 16,739 4,221 4,002
Operating expenses:
Selling, general and
administrative....... 12,955 22,198 3,958 8,829
Depreciation and
amortization......... 1,842 2,464 526 797
------------ ------------ ----------- -----------
Total operating
expenses........... 14,797 24,662 4,484 9,626
------------ ------------ ----------- -----------
Loss from operations.... (3,808) (7,923) (263) (5,624)
Interest expense........ (885) (995) (235) (151)
Interest income......... 132 909 171 785
Other income (expense).. -- (345) (213) 119
------------ ------------ ----------- -----------
Loss before income
taxes.................. (4,561) (8,354) (540) (4,871)
Income taxes............ 124 477 648 36
------------ ------------ ----------- -----------
Net loss................ $ (4,685) $ (8,831) $ (1,188) $ (4,907)
============ ============ =========== ===========
Net loss per common and
common share
equivalent............. $ (0.41) $ (0.63) $ (0.10) $ (0.28)
============ ============ =========== ===========
Weighted average number
of common and common
share equivalents
outstanding............ 11,412 13,953 12,385 17,779
============ ============ =========== ===========
GEOGRAPHIC DATA:
Net revenue:
United States......... $ 1,167 $ 16,573 $ 1,856 $ 8,271
Australia............. 124,461 177,621 41,574 46,886
United Kingdom........ -- 5,146 75 3,879
------------ ------------ ----------- -----------
Total............... $ 125,628 $ 199,340 $ 43,505 $ 59,036
============ ============ =========== ===========
OTHER DATA:
EBITDA (1).............. $ (1,966) $ (5,459) $ 263 $ (4,827)
Capital expenditures
(actual) (2)........... $ 974 $ 15,959 $ 216 $ 9,141
Number of switches
(actual)............... 1 1 1 9 (3)
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...... $48,971 $119,971
Restricted cash........................................ -- 38,695
Working capital........................................ 21,347 141,347
Total assets........................................... 144,139 258,834
Total long-term obligations (including current
portion).............................................. 13,135 127,830
Stockholders' equity................................... 71,394 71,394
</TABLE>
- --------
(1) EBITDA consists of earnings (loss) before interest, income taxes,
depreciation, amortization and other income (expense). It is a measure
commonly used in the telecommunications industry and is presented to assist
in understanding the Company's operating results. Additionally, certain
covenants contained in the Indenture are based upon EBITDA. EBITDA is not
intended to represent cash flows for the period. See the Consolidated
Statement of Cash Flows contained elsewhere in the Prospectus.
(2) Capital expenditures include assets acquired through capital lease
financing and other debt.
(3) Excludes two additional switches now in operation.
(4) Adjusted to give effect to the Offering and the application of the net
proceeds thereof as if the Offering had occurred on March 31, 1997. For
purposes of this presentation, no value has been assigned to the Warrants.
Such value will be determined at the time of pricing of the Offering.
8
<PAGE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Prospectus that are not historical facts
are "forward-looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995), which can be identified by the use
of forward-looking terminology such as "believes", "expects", "may", "will",
"should", or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy that involve risks
and uncertainties. In addition, from time to time, the Company or its
representatives have made or may make forward-looking statements, orally or in
writing. Furthermore, such forward-looking statements may be included in, but
are not limited to, various filings made by the Company with the Commission,
or press releases or oral statements made by or with the approval of an
authorized executive officer of any of the Company.
Management wishes to caution the reader that the forward-looking statements
referred to above and contained herein in this Prospectus regarding matters
that are not historical facts involve predictions. No assurance can be given
that the future results will be achieved; actual events or results may differ
materially as a result of risks facing the Company. Such risks include, but
are not limited to, changes in business conditions, changes in the
telecommunications industry and the general economy, competition, changes in
service offerings, and risks associated with the Company's limited operating
history, entry into developing markets, managing rapid growth, international
operations, dependence on effective information systems, and development of
its network, as well as regulatory developments that could cause actual
results to vary materially from the future results indicated, expressed or
implied, in such forward-looking statements. See "Risk Factors."
9
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following risk factors,
in addition to the other information contained elsewhere in this Prospectus,
in evaluating whether to purchase the Units offered hereby.
SUBSTANTIAL INDEBTEDNESS; AND LIQUIDITY
The Company will have substantial indebtedness after the Offering. As of
March 31, 1997, on a pro forma basis after giving effect to the Offering and
the application of the net proceeds therefrom, the Company's total
indebtedness would have been approximately $127.8 million, its stockholders'
equity would have been approximately $71.4 million and the Company's total
assets would have been approximately $258.8 million, of which approximately
$20.5 million would have been intangible assets. For the year ended December
31, 1996 and the three months ended March 31, 1997, after giving pro forma
effect to the acquisition of Axicorp and this Offering, and the application of
the net proceeds therefrom, the Company's consolidated EBITDA would have been
approximately negative $5.5 million and negative $4.8 million, respectively,
and its earnings would have been insufficient to cover fixed charges by
approximately $8.6 million and $5.1 million, respectively. The Indenture
limits, but does not prohibit, the incurrence of additional indebtedness by
the Company and certain of its subsidiaries and does not limit the amount of
indebtedness incurred to finance the cost of telecommunications equipment. The
Company anticipates that it and its subsidiaries will incur additional
indebtedness in the future. See "Selected Financial Data," "Unaudited Pro
Forma Consolidated Statements of Operations," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Description of
Notes."
The level of the Company's indebtedness could have important consequences to
holders of the Notes, including the following: (i) the debt service
requirements of any additional indebtedness could make it more difficult for
the Company to make payments of interest on the Notes; (ii) the ability of the
Company to obtain any necessary financing in the future for working capital,
capital expenditures, debt service requirements or other purposes may be
limited; (iii) a substantial portion of the Company's cash flow from
operations, if any, must be dedicated to the payment of principal and interest
on its indebtedness and other obligations and will not be available for use in
its business; (iv) the Company's level of indebtedness could limit its
flexibility in planning for, or reacting to, changes in its business; (v) the
Company is more highly leveraged than some of its competitors, which may place
it at a competitive disadvantage; and (vi) the Company's high degree of
indebtedness will make it more vulnerable in the event of a downturn in its
business.
The Company must substantially increase its net cash flow in order to meet
its debt service obligations, and there can be no assurance that the Company
will be able to meet such obligations, including its obligations under the
Notes. If the Company is unable to generate sufficient cash flow or otherwise
obtain funds necessary to make required payments, or if it otherwise fails to
comply with the various covenants under its indebtedness, it would be in
default under the terms thereof, which would permit the holders of such
indebtedness to accelerate the maturity of such indebtedness and could cause
defaults under other indebtedness of the Company. Such defaults could result
in a default on the Notes and could delay or preclude payments of interest or
principal thereon and may cause the Warrants and Warrant Shares to have little
or no value.
HISTORICAL AND FUTURE OPERATING LOSSES; NEGATIVE EBITDA; AND NET LOSSES
Since inception through March 31, 1997, the Company had negative cash flow
from operating activities of $7.6 million and negative EBITDA of $13.6
million. In addition, the Company incurred net losses in 1995 and 1996, and in
the first quarter of 1997, of $2.4 million, $8.8 million and $4.9 million,
respectively, and had an accumulated deficit of approximately $16.7 million as
of March 31, 1997. Although the Company has experienced net revenue growth in
each of its last nine quarters, such growth should not be considered to be
indicative of future net revenue growth, if any. The Company expects to
continue to incur additional operating losses, negative EBITDA and negative
cash flow from operations as the Company expands its operations and continues
to build-out and upgrade the Network. There can be no assurance that the
Company's revenue will grow or be sustained in future periods or that the
Company will be able to achieve or sustain profitability or
10
<PAGE>
positive cash flow from operations in any future period. If the Company cannot
achieve and sustain operating profitability or positive cash flow from
operations, it may not be able to meet its debt service or working capital
requirements (including its obligations with respect to the Notes) and may
cause the Warrants and Warrant Shares to have little or no value. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
HOLDING COMPANY STRUCTURE; AND RELIANCE ON SUBSIDIARIES FOR DISTRIBUTIONS TO
REPAY NOTES
Primus is a holding company, the principal assets of which are its operating
subsidiaries in the United States, Canada, Australia and the United Kingdom.
As a holding company, the Company's internal sources of funds to meet its cash
needs, including payment of expenses and principal and interest on the Notes,
are dividends, intercompany loans and other permitted payments from its direct
and indirect subsidiaries, as well as its own credit arrangements. The
subsidiaries of the Company are legally distinct from the Company and have no
obligation, contingent or otherwise, to pay amounts due with respect to the
Notes or to make funds available for such payments and will not guarantee the
Notes. Additionally, many of the Company's subsidiaries are organized in
jurisdictions outside the United States. The ability of the Company's
operating subsidiaries to pay dividends, repay intercompany loans or make
other distributions to Primus may be restricted by, among other things, the
availability of funds, the terms of various credit arrangements entered into
by such operating subsidiaries, as well as statutory and other legal
restrictions, and such payments may have adverse tax consequences. The failure
to pay any such dividends, repay intercompany loans or make any such other
distributions would restrict Primus's ability to repay the Notes and its
ability to utilize cash flow from one subsidiary to cover shortfalls in
working capital at another subsidiary, could cause the Warrants and the
Warrant Shares to have little or no value, and could otherwise have a material
adverse effect upon the Company's business, financial condition and results of
operations.
Because the Company is a holding company that conducts its business through
its subsidiaries, claims of creditors of such subsidiaries will generally have
priority over the assets of such subsidiaries over the claims of the Company
and the holders of the Company's indebtedness. Accordingly, the Notes will be
effectively subordinated to all existing and future indebtedness and other
liabilities and commitments of the Company's subsidiaries, including trade
payables. As of March 31, 1997, the Company's consolidated subsidiaries had
aggregate liabilities of approximately $72.7 million. Any right of the Company
to receive assets of any subsidiary upon the liquidation or reorganization of
such subsidiary (and the consequent rights of the holders of the Notes to
participate in those assets) will be effectively subordinated to the claims of
such subsidiary's creditors, except to the extent that the Company is itself
recognized as a creditor, in which case the claims of the Company would still
be subordinate to any security in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by the Company. In
addition, holders of such indebtedness of the Company would have a claim on
the assets securing such indebtedness that is prior to the holders of the
Notes and would have a claim that is pari passu with the holders of the Notes
to the extent such security did not satisfy such indebtedness. The Company has
no significant assets other than the stock of its subsidiaries and it is
expected that the stock of the subsidiaries will be pledged to secure a credit
facility.
LIMITED OPERATING HISTORY; AND ENTRY INTO DEVELOPING MARKETS
The Company was founded in February 1994 and began generating operating
revenues in March 1995. Axicorp, the Company's principal operating subsidiary,
was acquired in March 1996. The Company has generated only limited net revenue
and has limited experience in operating its business. In addition, the Company
intends to enter markets where it has limited or no operating experience.
Furthermore, in many of the Company's target markets, the Company intends to
offer services that have previously been provided primarily by the local PTTs.
Accordingly, there can be no assurance that the Company's future operations
will generate operating or net income, and the Company's prospects must
therefore be considered in light of the risks, expenses, problems and delays
inherent in establishing a new business in a rapidly changing industry. See
"Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
11
<PAGE>
DEVELOPMENT OF THE NETWORK; AND MIGRATION OF TRAFFIC ONTO THE NETWORK
The Company has only recently begun operating the Network. The long-term
success of the Company is dependent upon its ability to design, implement,
operate, manage and maintain the Network, activities in which the Company has
limited experience, and its ability to generate and maintain traffic on the
Network. By expanding the Network, the Company will incur additional fixed
operating costs that typically are, particularly with respect to international
transmission lines, in excess of the revenue attributable to the transmission
capacity funded by such costs until the Company generates additional traffic
volume for such capacity. There can be no assurance that the Network can be
completed in a timely manner or operated efficiently. See "Business--Network."
Any failure by the Company to design, implement, operate, manage or maintain
the Network, or generate or maintain traffic, could have a material adverse
effect on the Company's business, results of operations and financial
condition. In addition, the Company intends to expand the Network as more
countries deregulate their telecommunications industries, which will require
the Company to acquire additional licenses and equipment. There can be no
assurance that the Company will be able to obtain the licenses or purchase the
necessary equipment on favorable terms or, if it does, that the development of
the Network in these countries will be successful. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations" and
"Business--Network."
To date, the Company's operation of the Network and the anticipated
operating improvements that are expected to result from the use of the Network
have been adversely affected by a slower than expected migration of the
Company's existing traffic in Australia from the Telstra Corporation Ltd.
("Telstra") network to the Company's Network. The Company has applied to
Telstra to convert approximately 120,000 existing telephone numbers from the
Telstra network to the Company's Network under the non-code access program
which is expected to be initiated by September 1997 and implemented over the
next 12 months. The rate at which these customer telephone numbers can be
processed and connected will significantly impact the Company's ability to
increase its gross margin percentages in Australia. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations."
MANAGING RAPID GROWTH
The Company's strategy of continuing its growth and expansion has placed,
and is expected to continue to place, a significant strain on the Company's
management, operational and financial resources and increased demands on its
systems and controls. The Company is continuing to develop the Network by
adding switches, cable and satellite facilities, expanding its operations
within North America, Australia and the United Kingdom, and expanding into
selected additional markets within the Targeted Regions when business and
regulatory conditions warrant. In order to manage its growth effectively, the
Company must continue to implement and improve its operational and financial
systems and controls, purchase and utilize other transmission facilities, and
expand, train and manage its employee base. Inaccuracies in the Company's
forecasts of traffic could result in insufficient or excessive transmission
facilities and disproportionate fixed expenses. There can be no assurance that
the Company will be able to develop a facilities-based network or expand
within its target markets at the rate presently planned by the Company, or
that the existing regulatory barriers to such expansion will be reduced or
eliminated. As the Company proceeds with its development, there will be
additional demands on the Company's customer support, billings systems and
support, sales and marketing and administrative resources and network
infrastructure. There can be no assurance that the Company's operating and
financial control systems and infrastructure will be adequate to maintain and
effectively manage future growth. The failure to continue to upgrade the
administrative, operating and financial control systems or the emergence of
unexpected expansion difficulties could materially adversely affect the
Company's business, results of operations and financial condition. See "--
Dependence on Effective Information Systems."
ACQUISITION RISKS
A key element of the Company's business strategy is to acquire businesses
and assets of businesses that are complementary to those of the Company, and a
major portion of the Company's growth in recent years has resulted from such
acquisitions. These acquisitions involve certain operational and financial
risks. Operational risks include the possibility that an acquisition does not
ultimately provide the benefits originally anticipated by the Company's
management, while the Company continues to incur operating expenses to provide
the services
12
<PAGE>
formerly provided by the acquired company. Financial risks involve the
incurrence of indebtedness by the Company in order to effect the acquisition
(subject to the limitations contained in the Indenture) and the consequent
need to service that indebtedness. In addition, the issuance of stock in
connection with acquisitions dilutes the voting power and may dilute certain
other interests of existing shareholders. In carrying out its acquisition
strategy, the Company attempts to minimize the risk of unexpected liabilities
and contingencies associated with acquired businesses through planning,
investigation and negotiation, but such unexpected liabilities may
nevertheless accompany acquisitions. There can be no assurance that the
Company will be successful in identifying attractive acquisition candidates,
completing and financing additional acquisitions on favorable terms, or
integrating the acquired businesses or assets into its own.
NEED FOR ADDITIONAL FINANCING
The Company believes that the net proceeds from the Offering, together with
its existing cash and available capital lease financing (subject to the
limitations contained in the Indenture) will be sufficient to fund the
Company's operating losses, debt service requirements, capital expenditures
(including the development of the Network as currently contemplated) and other
cash needs for its operations for approximately 18 to 24 months. If the
Company enters into a $50 million revolving line of credit (the "Senior Credit
Facility") as contemplated by a commitment letter dated July 14, 1997, (the
"Commitment Letter") received from Lehman Commercial Paper Inc ("LCPI"), an
affiliate of one of the underwriters, the Company believes it would have
sufficient funding to cover planned expansion of the Network and operating
losses until such time as the Company begins to generate operating income;
however, this is a forward looking statement and there can be no assurance in
this regard. There can be no assurance that the Company will obtain the Senior
Credit Facility on the terms set forth in the Commitment Letter, if at all.
See "Description of Senior Credit Commitment." Furthermore, there can be no
assurance that the Company would be able to obtain a substitute credit
facility or capital lease financing on commercially reasonable terms, if at
all. If the Company's plans or assumptions change (including those with
respect to the development of the Network, the level of its operations and its
operating cash flow), if its assumptions prove inaccurate, if it consummates
investments or acquisitions with companies that are complementary to the
Company's current operations or if it experiences unexpected costs or
competitive pressures, or if the net proceeds from the Offering, existing cash
and any other borrowings prove to be insufficient, the Company may need to
seek additional capital sooner than anticipated.
The Company may seek to raise such additional capital from public or private
equity or debt sources. The Indenture contains certain restrictive covenants
that will affect, and in many respects will significantly limit or prohibit,
among other things, the ability of the Company to incur additional
indebtedness and to create liens. See "Description of Notes--Covenants." There
can be no assurance that the Company will be able to raise such capital on
satisfactory terms or at all. If the Company is able to raise additional funds
through the incurrence of debt, and it does so, it would likely become subject
to additional restrictive financial covenants. If additional funds are raised
through the issuance of equity securities, the percentage ownership of the
Company's then current equity holders, including the ownership interests
represented by the Warrants and the Warrant Shares, would be reduced and, if
such equity securities take the form of preferred stock, the holders of such
preferred stock may have rights, preferences or privileges senior to those of
holders of Common Stock. In the event that the Company is unable to obtain
such additional capital or is unable to obtain such additional capital on
acceptable terms, the Company may be required to reduce the scope of its
expansion, which could adversely affect the Company's business, results of
operations and financial condition, its ability to compete, its ability to
meet its obligations on the Notes, and the value of the Warrants and the
Warrant Shares. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Description of Capital Stock--Preferred Stock."
INTENSE DOMESTIC AND INTERNATIONAL COMPETITION
The long distance telecommunications industry is intensely competitive and
is significantly influenced by the marketing and pricing decisions of the
larger industry participants. In deregulated countries, the industry has
relatively limited barriers to entry with numerous entities competing for the
same customers. Customers frequently change long distance providers in
response to the offering of lower rates or promotional incentives by
competitors. Generally, the Company's customers can switch carriers at any
time. The Company believes that
13
<PAGE>
competition in all of its markets is likely to increase and that competition
in non-United States markets is likely to become more similar to competition
in the United States market over time as such non-United States markets
continue to experience deregulatory influences. This increase in competition
could adversely affect net revenue per minute and gross margin as a percentage
of net revenue. In each of its Targeted Regions, the Company competes
primarily on the basis of price (particularly with respect to its sales to
other carriers), and also on the basis of customer service and its ability to
provide a variety of telecommunications products and services. Prices for long
distance calls in several of the markets in which the Company competes have
declined in recent years and are likely to continue to decrease. There can be
no assurance that the Company will be able to compete successfully in the
future.
Many of the Company's competitors are significantly larger, have
substantially greater financial, technical and marketing resources and larger
networks than the Company and a broader portfolio of services, control
transmission lines and have stronger name recognition and loyalty, as well as
long-standing relationships with the Company's target customers. In addition,
many of the Company's competitors enjoy economies of scale that can result in
a lower cost structure for transmission and related costs, which could cause
significant pricing pressures within the industry. Several long distance
carriers in the United States have introduced pricing strategies that provide
for fixed, low rates for calls within the United States. Such a strategy, if
widely adopted, could have an adverse effect on the Company's results of
operations and financial condition if increases in telecommunications usage do
not result or are insufficient to offset the effects of such price decreases.
The Company's competitors include, among others: AT&T, MCI, Sprint, WorldCom
Network Services, Inc. ("WorldCom"), Frontier Communications Services, Inc.
("Frontier"), and LCI International, Inc. ("LCI") in the United States;
Telstra, Optus Communications Pty. Limited ("Optus"), AAPT, World Exchange and
GlobalOne in Australia; British Telecommunications plc ("British Telecom"),
Mercury Communications ("Mercury"), AT&T, WorldCom, GlobalOne, and ACC
Corporation ("ACC") in the United Kingdom; and Stentor, AT&T Canada Long
Distance Services Co. ("AT&T LDS"), fONOROLA Inc. ("fONOROLA"), Sprint Canada
and ACC in Canada.
The Company also competes with numerous other long distance providers, some
of which focus their efforts on the same customers targeted by the Company. In
addition to these competitors, recent and pending deregulation in various
countries may encourage new entrants. For example, the number of competitors
is likely to increase as a result of the new competitive opportunities created
by the World Trade Organization ("WTO"). Under the terms of an agreement under
the WTO (the "WTO Agreement"), the United States and 68 other participating
countries have committed to open their telecommunications markets to
competition starting on January 1, 1998. Further, as a result of the recently
enacted Telecommunications Act of 1996 (the "1996 Telecommunications Act") in
the United States, once certain conditions are met, the Regional Bell
Operating Companies ("RBOCs") will be allowed to enter the domestic long
distance market, AT&T, MCI and other long distance carriers will be allowed to
enter the local telephone services market, and any entity (including cable
television companies and utilities) will be allowed to enter both the local
service and long distance telecommunications markets. Increased competition in
the United States as a result of the foregoing, and other competitive
developments, including entry by Internet service providers into the long
distance market, could have an adverse effect on the Company's business,
results of operations and financial condition. In addition, with the ongoing
deregulation of the Australian telecommunications market and the granting of
additional carrier licenses which began in July 1997, the Company could
experience additional competition in the Australian market from newly licensed
telecommunications carriers. This increased competition could adversely impact
the Company's ability to expand its customer base and achieve increased
revenue growth, and consequently, could have an adverse effect on the
Company's business, results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business--Competition" and "Business--Government Regulation."
DEPENDENCE ON TRANSMISSION FACILITIES-BASED CARRIERS
Telephone calls made by the Company's customers primarily are connected
through transmission lines that the Company leases under a variety of
arrangements with transmission facilities-based long distance carriers, many
of which are, or may become, competitors of the Company. The Company's ability
to maintain and expand
14
<PAGE>
its business is dependent upon whether the Company continues to maintain
favorable relationships with the transmission facilities-based carriers from
which the Company leases transmission lines. Although the Company believes
that its relationships with carriers generally are satisfactory, the
deterioration or termination of the Company's relationships with one or more
of these carriers could have a material adverse effect upon the Company's cost
structure, service quality, Network diversity, results of operations and
financial condition.
Presently, most transmission lines used by the Company are obtained on a
per-call (or usage) basis, subjecting the Company to the possibility of
unanticipated price increases and service cancellations. Currently, usage
rates generally are less than the rates the Company charges its customers for
connecting calls through these lines. To the extent these variable costs
increase, the Company may experience reduced or, in certain circumstances,
negative margins for some services. As its traffic volume increases between
particular international markets, the Company expects to cease using variable
usage arrangements and enter into fixed monthly or longer-term leasing
arrangements, subject to obtaining any requisite authority. To the extent the
Company does so, and incorrectly projects traffic volume in a particular
geographic area, the Company would experience higher fixed costs without the
increased revenue. Moreover, certain of the vendors from whom the Company
leases transmission lines, including RBOCs and other Local Exchange Carriers
("LECs") in the United States, currently are subject to tariff controls and
other price constraints which in the future may be changed. Regulatory
proposals are pending that may affect the prices charged by the RBOCs and
other LECs to the Company, which could have a material adverse effect on the
Company's margins, business, financial condition and results of operations.
See "--Potential Adverse Effects of Regulation" and "Business--Government
Regulation."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
A key component of the Company's strategy is its planned expansion in
international markets. In many international markets, the existing carrier
will control access to the local networks, enjoy better brand recognition and
brand and customer loyalty, and have significant operational economies,
including a larger backbone network and foreign carrier agreements with PTTs
and other service providers. Moreover, the incumbent may take many months to
allow competitors, including the Company, to interconnect to its switches
within the target market. Pursuit of international growth opportunities may
require significant investments for an extended period before returns, if any,
on such investments are realized. In addition, there can be no assurance that
the Company will be able to obtain the permits and operating licenses required
for it to operate, obtain access to local transmission facilities or to
market, sell and deliver competitive services in these markets.
In addition to the uncertainty as to the Company's ability to expand its
international presence, there are certain risks inherent in doing business on
an international level, such as unexpected changes in regulatory requirements,
tariffs, customs, duties and other trade barriers, difficulties in staffing
and managing foreign operations, problems in collecting accounts receivable,
political risks, fluctuations in currency exchange rates, foreign exchange
controls which restrict or prohibit repatriation of funds, technology export
and import restrictions or prohibitions, delays from customs brokers or
government agencies, seasonal reductions in business activity during the
summer months in Europe and certain other parts of the world, and potentially
adverse tax consequences resulting from operating in multiple jurisdictions
with different tax laws, which could materially adversely impact the Company's
international operations. A significant portion of the Company's net revenue
and expenses is denominated, and is expected to continue to be denominated, in
currencies other than United States dollars, and changes in exchange rates may
have a significant effect on the Company's results of operations. In addition,
the Company's business could be adversely affected by a reversal in the
current trend toward deregulation of telecommunications carriers. In Mexico,
and in certain other countries into which the Company may choose to expand in
the future, the Company may need to enter into a joint venture or other
strategic relationship with one or more third parties in order to conduct
successfully its operations (often with the PTT or other dominant carrier in a
developing country). There can be no assurance that such factors will not have
a material adverse effect on the Company's future operations and,
consequently, on the Company's business, results of operations and financial
condition, or that the Company will not have to modify its current business
practices.
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DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS
To complete its billing, the Company must record and process massive amounts
of data quickly and accurately. While the Company believes its management
information system is currently adequate, it will have to grow as the
Company's business expands and to change as new technological developments
occur. The Company believes that the successful implementation and integration
of new information systems and backroom support will be important to its
continued growth, its ability to monitor and control costs, to bill customers
accurately and in a timely fashion and to achieve operating efficiencies.
There can be no assurance that the Company will not encounter delays or cost-
overruns or suffer adverse consequences in implementing these systems. See
"Business--Management Information and Billing Systems." Any such delay or
other malfunction of the Company's management information systems could have a
material adverse effect on the Company's business, financial condition and
results of operations.
RISKS OF INDUSTRY CHANGES AFFECTING COMPETITIVENESS AND FINANCIAL RESULTS
The international telecommunications industry is changing rapidly due to
deregulation, privatization of PTTs, technological improvements, expansion of
telecommunications infrastructure and the globalization of the world's
economies. There can be no assurance that one or more of these factors will
not vary in a manner that could have a material adverse effect on the Company.
In addition, deregulation in any particular market may cause such market to
shift unpredictably. There can be no assurance that the Company will be able
to compete effectively or adjust its contemplated plan of development to meet
changing market conditions. See "--Potential Adverse Effects of Regulation."
The telecommunications industry generally is in a period of rapid
technological evolution, marked by the introduction of new product and service
offerings and increasing satellite and undersea cable transmission capacity
for services similar to those provided by the Company. Potential developments
that could adversely affect the Company if not anticipated or appropriately
responded to include improvements in transmission equipment, development of
switching technology allowing voice/data/video multimedia transmission
simultaneously and commercial availability of Internet-based domestic and
international switched voice/data/video services at prices lower than
comparable services offered by the Company. The Company's profitability will
depend on its ability to anticipate, access and adapt to rapid technological
changes and its ability to offer, on a timely and cost-effective basis,
services that meet evolving industry standards. There can be no assurance that
the Company will be able to access or adapt to such technological changes at a
competitive price, maintain competitive services or obtain new technologies on
a timely basis or on satisfactory terms. See "--Intense Domestic and
International Competition."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its management team and its key
technical, marketing and sales personnel, particularly those of K. Paul Singh,
its Chairman and Chief Executive Officer. The loss of services of one or more
of these key individuals, particularly Mr. Singh, could materially and
adversely affect the business of the Company and its future prospects. The
Company has entered into an employment agreement with Mr. Singh, which expires
on May 30, 1999. The Company does not maintain any key person life insurance
on the lives of any officer, director or key employee. The Company's future
success will also depend on its ability to attract and retain additional key
management and technical and sales personnel required in connection with the
growth and development of its business. Competition for qualified employees
and personnel in the telecommunications industry is intense, particularly in
non-U.S. markets and, from time to time, there are a limited number of persons
with knowledge of and experience in particular sectors of the
telecommunications industry. There can be no assurance that the Company will
be successful in attracting and retaining such executives and personnel. The
loss of the services of key personnel, or the inability to attract additional
qualified personnel, could have a material adverse effect on the Company's
results of operations, development efforts and ability to expand. See
"Management."
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POTENTIAL ADVERSE EFFECTS OF REGULATION
As a multinational telecommunications company, Primus is subject to varying
degrees of regulation in each of the jurisdictions in which it provides its
services. Local laws and regulations, and the interpretation of such laws and
regulations, differ significantly among the jurisdictions in which the Company
operates. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on the Company,
that domestic or international regulators or third parties will not raise
material issues with regard to the Company's compliance or noncompliance with
applicable regulations or that regulatory activities will not have a material
adverse effect on the Company. Certain risks regarding the regulatory framework
in the principal jurisdictions in which the Company provides its services are
briefly described below.
United States. In the United States, the provision of the Company's services
is subject to the provisions of the Communications Act of 1934, as amended by
the 1996 Telecommunications Act (the "Communications Act") and the Federal
Communications Commission (the "FCC") regulations thereunder, as well as the
applicable laws and regulations of the various states administered by the
relevant state public service commission ("PSC"). The recent trend in the
United States, for both federal and state regulation of telecommunications
service providers, has been in the direction of reduced regulation. Although
this trend facilitates market entry and competition by multiple providers, it
has also given AT&T, the largest international and domestic long distance
carrier in the United States, increased pricing and market entry flexibility
that has permitted it to compete more effectively with smaller carriers, such
as the Company. In addition, the recently enacted Communications Act has opened
the Company's United States market to increased competition. There can be no
assurance that future regulatory, judicial and legislative changes in the
United States will not result in a material adverse effect on the Company.
Despite recent trends toward deregulation, the FCC and relevant state PSCs
continue to exercise extensive authority to regulate ownership of transmission
facilities, provision of services and the terms and conditions under which the
Company's services are provided. In addition, the Company is required by
federal and state law and regulations to file tariffs listing the rates, terms
and conditions of the services it provides. Any failure to maintain proper
federal and state tariffs or certification or any finding by the federal or
state agencies that the Company is not operating under permissible terms and
conditions may result in an enforcement action or investigation, either of
which could have a material adverse effect on the Company.
To originate and terminate calls in connection with providing their services,
long distance carriers such as the Company must purchase "access" from the LECs
or Competitive Local Exchange Carriers ("CLECs"). Access charges represent a
significant portion of the Company's cost of revenue and, generally, such
access charges are regulated by the FCC. The FCC has recently reformed its
regulation of LEC access charges to better account for increasing levels of
local competition. Under the new rules, LECs will be permitted to allow certain
volume discounts in the pricing of access charges. While the import of these
new rules is not yet certain, it is possible that many long distance carriers,
including the Company, could be placed at a significant cost disadvantage to
larger competitors.
The FCC and certain state agencies also impose prior approval requirements on
transfers of control, including pro forma transfers of control resulting from
corporate reorganizations, and assignments of regulatory authorizations. Such
requirements may delay, prevent or deter a change in control of the Company.
The FCC has established and administered a variety of international service
regulations, including the International Settlements Policy ("ISP") which
governs the settlement between U.S. carriers and their foreign correspondents
of the cost of terminating traffic over each other's networks, the "benchmark"
accounting rates for such settlement and permissible exceptions to these
policies. The FCC could find that certain settlement rate terms of the
Company's foreign carrier agreements do not meet the ISP requirements, absent a
waiver. Although the FCC generally has not issued penalties in this area, it
could, among other things, issue a cease and desist order or impose fines if it
finds that these agreements conflict with the ISP. The Company does not believe
that any such fine or order would have a material adverse effect on the
Company. The FCC also regulates the nature and extent of foreign ownership in
radio licenses and foreign carrier affiliations of the Company.
Regulatory requirements pertinent to the Company's operations have recently
changed and will continue to change as a result of the WTO Agreement, federal
legislation, court decisions, and new and revised policies of
17
<PAGE>
the FCC and state public service commissions. In particular, the FCC continues
to refine its international service rules to promote competition, reflect and
encourage liberalization in foreign countries, and reduce international
accounting rates toward cost. Among other things, such changes may increase
competition, alter the ability of the Company to compete with other service
providers, to continue providing the same services, or to introduce services
currently planned for the future. The impact on the Company's operations of
any changes in applicable regulatory requirements cannot be predicted.
Canada. In Canada, telecommunications carriers are regulated generally by
the Canadian regulatory agency known as the Canadian Radio-television and
Telecommunications Commission ("CRTC"). The CRTC has enacted policies and
regulations that affect the Company's ability to successfully compete in the
Canadian marketplace. These policies and regulations include the establishment
of contribution charges (the equivalent of access charges in the U.S.),
deregulation of the international segment of the long-distance market,
limitations on switched hubbing, international simple resale ("ISR") and
foreign ownership rules for facilities-based carriers. Canada is expected to
eliminate many of these regulatory restrictions by October 1998. In addition,
Canada has committed in the WTO Agreement to eliminate barriers to
competition. Although these policies currently do not apply to resellers such
as the Company, this deregulatory trend will likely create new market
opportunities for telecommunications companies, thereby increasing competition
within Canada. However, there can be no assurance that any future changes in
or additions to law, regulations, government policy or administrative rulings
will not have a material adverse impact on the Company's competitive position,
growth and financial performance.
Australia. In Australia, the provision of the Company's services is subject
to federal regulation. Two primary instruments of regulation have been the
Telecommunications Act 1991 and federal regulation of anti-competitive
practices pursuant to the Trade Practices Act 1974 (the "Trade Practices
Act"). The regulatory climate changed in July 1997 with the implementation of
the Telecommunications Act 1997 (the "Telecom Act").
In connection with the Telecom Act, the Company became one of five licensed
carriers permitted to own and operate transmission facilities in Australia,
and it is expected that additional licenses will be issued. Under the new
regulatory framework, the Company does not require a carriage license in order
to supply carriage services to the public using network facilities owned by
another carrier. Instead, the Company must comply with legislated "service
provider" rules contained in the Telecom Act covering matters such as
compliance with the Telecom Act, operator services, regulation of access,
directory assistance, provision of information to allow maintenance of an
integrated public number database, and itemized billing.
Also, in connection with the Telecom Act, two federal regulatory authorities
now exercise control over a broad range of issues affecting the operation of
the Australian telecommunications industry. The Australian Communications
Authority ("the ACA") regulates matters including the licensing of carriers
and technical matters, and the Australian Competition and Consumer Commission
("the ACCC") has the role of promotion of competition and consumer protection.
The Company, as a licensed carrier, will be required to comply with its own
license and will be under the regulatory control of the ACA and the ACCC.
Anti-competitive practices will also continue to be regulated by the Trade
Practices Act. In July 1997 these regulations were strengthened to encourage
greater competition in the telecommunications industry. The Australian
Government has introduced these changes in the belief that they will achieve
the Government's long-term objective of an internationally competitive
telecommunications industry in Australia through full and open competition. In
addition, other federal legislation, various regulations pursuant to delegated
authority and legislation, ministerial declarations, codes, directions,
licenses, statements of Commonwealth Government policy and court decisions
affecting telecommunications carriers also apply to the Company. There can be
no assurance that future declarations, codes, directions, licenses,
regulations, and judicial and legislative changes will not have a material
adverse effect on the Company.
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<PAGE>
United Kingdom. In the United Kingdom, the provision of the Company's
services is subject to and affected by regulations introduced by the United
Kingdom telecommunications regulatory authority, the Office of
Telecommunications ("Oftel") under the Telecommunications Act of 1984 (the
"United Kingdom Telecommunications Act"). Since the break up of the United
Kingdom telecommunications duopoly consisting of British Telecom and Mercury
in 1991, it has been the stated goal of Oftel to create a competitive
marketplace from which detailed regulation could eventually be withdrawn. The
regulatory regime currently being introduced by Oftel has a direct and
material effect on the ability of the Company to conduct its business. Oftel
has imposed mandatory rate reductions on British Telecom in the past, which
reductions are expected to continue for the foreseeable future, and this has
had, and may continue to have, the effect of reducing the prices the Company
can charge its customers. Primus Telecommunications, Inc., a wholly-owned
subsidiary of the Company, holds a license to provide ISR services to all
international points from the United Kingdom and its subsidiary, Primus
Telecommunications Ltd., has recently been awarded a license to provide
international facilities-based voice services. There can be no assurance that
future changes in regulation and government will not have a material adverse
effect on the Company's business, results of operations and financial
condition.
Other Jurisdictions. The Company currently provides limited services in
Mexico and intends to expand its operations into other jurisdictions as such
markets deregulate and the Company is able to offer a full range of switched
public telephone services to its customers. In addition, in countries that
enact legislation intended to deregulate the telecommunications sector or that
have made commitments to open their markets to competition in the WTO
Agreement, there may be significant delays in the adoption of implementing
regulations and uncertainties as to the implementation of the deregulatory
programs which could delay or make more expensive the Company's entry into
such additional markets. The ability of the Company to enter a particular
market and provide telecommunications services, particularly in Mexico and
other developing countries, is dependent upon the extent to which the
regulations in a particular market permit new entrants. In some countries,
regulators may make subjective judgments in awarding licenses and permits,
without any legal recourse for unsuccessful applicants. In the event the
Company is able to gain entry to such a market, no assurances can be given
that the Company will be able to provide a full range of services in such
market, that it will not have to significantly modify its operations to comply
with changes in the regulatory environment in such market, or that any such
changes will not have a material adverse effect on the Company's business,
results of operations or financial condition.
CONTROL OF THE COMPANY
After completion of this Offering, but without giving effect to the exercise
in full of the Warrants, the executive officers and directors of the Company
will continue to beneficially own 5,402,585 shares of Common Stock,
representing 28.7% of the Common Stock, including options to purchase 646,896
shares of Common Stock exercisable on or prior to August 29, 1997. The
executive officers and directors have also been granted options to purchase an
additional 727,026 shares of Common Stock which vest after August 29, 1997. Of
these amounts, Mr. K. Paul Singh, the Company's Chairman and Chief Executive
Officer beneficially owns 4,497,730 shares of Common Stock, including options
to purchase 112,700 shares of Common Stock exercisable on or prior to August
29, 1997. In addition, Mr. Singh has also been granted options to purchase an
additional 225,400 shares which vest after August 29, 1997. The
Soros/Chatterjee Group beneficially owns 2,590,274 shares of Common Stock
(including shares of Common Stock which may be purchased upon exercise of
warrants which may occur within 60 days of the date of this Prospectus, and
assuming such warrants were exercised on July 14, 1997). As a result, if they
act as a group, the executive officers, directors and the Soros/Chatterjee
Group will exercise significant influence over such matters as the election of
the directors of the Company, amendments to the Company's charter, other
fundamental corporate transactions such as mergers, asset sales, and the sale
of the Company, and otherwise the direction of the Company's business and
affairs. See "Principal Stockholders" and "Description of Capital Stock."
ABSENCE OF A PRIOR PUBLIC MARKET
Prior to this Offering, there has been no public market for the Securities
(with the exception of the Warrant Shares) and there can be no assurance that
an active trading market will develop or be sustained in the future.
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<PAGE>
There may be significant volatility in the market price of the Securities due
to factors that may or may not relate to the Company's performance. The
Company does not intend to list any of the Securities (with the exception of
the Warrant Shares) on any securities exchange, and there can be no assurance
that a trading market for the Securities will develop and continue after this
Offering. The Underwriters have advised the Company that they currently intend
to make a market in the Securities but they are not obligated to do so and may
discontinue market making activities at any time. If a market for the
Securities were to develop, the Securities could trade at prices that may be
lower than the initial offering price and could be significantly affected by
various factors such as economic forecasts, financial market conditions,
acquisitions and quarterly variations in the Company's results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
The liquidity of, and trading market for, the Securities also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of the financial performance of, and prospects for, the Company.
See "Description of Notes" and "Description of Warrants."
DEVELOPMENT AND MAINTENANCE OF PUBLIC MARKET FOR COMMON STOCK; AND POSSIBLE
VOLATILITY OF STOCK PRICE
The Company completed its Initial Public Offering of Common Stock on
November 7, 1996, prior to which there had been no public market for the
Common Stock. There can be no assurance that an active trading market for the
Common Stock will develop or, if developed, will be maintained. Historically,
the market prices for securities of emerging companies in the
telecommunications industry have been highly volatile. The market price of the
Common Stock could be subject to significant fluctuations in response to
various factors and events, including the liquidity of the market for the
Common Stock, variations in the Company's quarterly operating results,
regulatory or other changes (both domestic and international) affecting the
telecommunications industry generally, announcements of business developments
by the Company or its competitors, the addition of customers in connection
with acquisitions, changes in the cost of long distance service or other
operating costs and changes in general market conditions.
CONSEQUENCE OF ORIGINAL ISSUE DISCOUNT
The Notes will be issued at a discount from their principal amount.
Consequently, purchasers of the Notes generally will be required to include
amounts in gross income for federal income tax purposes in advance of receipt
of the cash payments to which the income is attributable. See "Certain Federal
Income Tax Considerations" for a more detailed discussion of the federal
income tax consequences to purchasers of the Notes.
If a bankruptcy is commenced by or against the Company under the United
States Bankruptcy Code after the issuance of the Notes, the claim of a holder
of Notes with respect to the principal amount thereof may be limited to an
amount equal to the sum of (i) the initial offering price for the Notes and
(ii) that portion of the original issue discount that is not deemed to
constitute "unmatured interest" for purposes of the United States Bankruptcy
Code. Any original issue discount that was not amortized as of any such
bankruptcy filing would constitute "unmatured interest."
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and Amended and Restated By-Laws (the "By-
Laws") include certain provisions which may have the effect of delaying,
deterring or preventing a future takeover or change in control of the Company
unless such takeover or change in control is approved by the Company's Board
of Directors. Such provisions may also render the removal of directors and
management more difficult. Specifically, the Company's Certificate of
Incorporation or By-Laws provide for a classified Board of Directors serving
staggered three-year terms, restrictions on who may call a special meeting of
stockholders and a prohibition on stockholder action by written consent. In
addition,
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<PAGE>
the Company's Board of Directors has the authority to issue up to 2,000,000
additional shares of preferred stock (the "Preferred Stock") and to determine
the price, rights, preferences, and privileges of those shares without any
further vote or actions by the stockholders. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future. The
issuance of such additional shares of Preferred Stock, while potentially
providing desirable flexibility in connection with possible acquisitions and
serving other corporate purposes, could have the effect of making it more
difficult for a third party to acquire, or may discourage a third party from
attempting to acquire, a majority of the outstanding voting stock of the
Company. The Company has no present intention to issue such additional shares
of Preferred Stock. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law (the
"DGCL"), which will prohibit the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an interested
stockholder unless the business combination is approved in a prescribed
manner. The application of Section 203 also could have the effect of delaying
or preventing a change of control of the Company. Furthermore, certain
provisions of the Company's By-Laws, including provisions that provide that
the exact number of directors shall be determined by a majority of the Board
of Directors, that vacancies on the Board of Directors may be filled by a
majority vote of the directors then in office, though less than a quorum, and
that limit the ability of new majority stockholders to remove directors, all
of which may have the effect of delaying or preventing changes in control or
management of the Company, and which could adversely affect the market price
of the Company's Common Stock. Additionally, certain Federal regulations
require prior approval of certain transfers of control which could also have
the effect of delaying, deferring or preventing a change of control. Any
Change of Control (as defined) may require the Company to extend an offer to
redeem the Notes. See "Management--Classified Board of Directors,"
"Description of Capital Stock", "Business--Government Regulation," and
"Description of Notes--Repurchase of Notes Upon a Change of Control."
SHARES ELIGIBLE FOR FUTURE SALE
As of July 24, 1997, the Company had 6,127,621 shares of Common Stock
outstanding which are freely tradeable, and an additional 11,651,110 shares
which are eligible for public sale subject to the provisions of Rule 144
promulgated under the Securities Act. The volume limitations of Rule 144 will
apply to the sale of all of such shares held by affiliates of the Company.
Sales of substantial amounts of shares of Common Stock in the public market,
or even the potential for such sales, could adversely affect the prevailing
market price of the Common Stock and impair the Company's ability to raise
capital through the sale of equity securities. See "Principal Stockholders."
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RECENT QUARTERLY RESULTS
On July 16, 1997, the Company announced that net revenue for the three
months ended June 30, 1997 was $70.0 million as compared to $59.0 million for
the three months ended March 31, 1997, a 19% increase. Net revenue for the
three months ended June 30, 1997 was comprised of $47.1 million from
Australia, $18.3 million from North America, and $4.6 million from the United
Kingdom. The cost of revenue and gross margin for the three months ended June
30, 1997 were $64.1 million and $5.9 million, respectively.
Gross margin as a percentage of net revenue for the three months ended June
30, 1997 was 8.4% as compared to 6.8% for the three months ended March 31,
1997. Included in the results for the three months ended March 31, 1997 was an
uncollectible receivable of approximately $0.7 million, and excluding this
uncollectible receivable, the gross margin percentage for such period would
have been 8.0%. Additionally, gross margin, both in dollars and as a
percentage of net revenue, increased in the three months ended June 30, 1997
in each of its three Operating Hubs as compared to the gross margin for the
three months ended March 31, 1997.
The Company's operating loss and net loss for the three months ended June
30, 1997 were $(9.0) million and $(8.9) million, respectively. The loss per
share for the three months ended June 30, 1997 was $(0.50) calculated on the
basis of 17,778,731 weighted average common shares outstanding. For the three
months ended June 30, 1997, the Company's depreciation and amortization
expenses were $1.7 million and its EBITDA was negative $7.3 million. As of
June 30, 1997, the Company's cash and cash equivalents were $28.3 million.
USE OF PROCEEDS
The net proceeds from the Offering are estimated to be approximately $120
million, after deducting discounts and commissions, and estimated expenses
payable by the Company. The Company will use the net proceeds from the
Offering as follows: (i) approximately $38.7 million will be used to purchase
the Pledged Securities (as defined) which will serve as security for the Notes
and will be used to fund the first six scheduled interest payments on the
Notes; (ii) approximately $10.3 million will be used to repay certain existing
indebtedness of the Company having a weighted average rate of interest of 9.7%
per annum and stated maturity dates from February 1998 through May 1998; and
(iii) the balance will be used to fund capital expenditures, operating losses,
working capital requirements and general corporate purposes, including
potential acquisitions, joint ventures and strategic alliances. Pending use of
the net proceeds as set forth in clause (iii) above, the Company may invest
such funds in short-term, investment grade securities or shares of investment
companies investing primarily in such securities.
The Company anticipates aggregate capital expenditures of approximately $88
million in 1997 and 1998. Such capital expenditures will be primarily for
international and domestic switches and points of presence, international
fiber capacity and satellite earth station facilities for new and existing
routes and other transmission equipment and support systems. The Company
intends to add up to three switches in the United States (expected to be
located in Chicago, Dallas and Miami), three switches in Europe (expected to
be located in Frankfurt, Paris and Rome), one switch in Mexico (Mexico City)
and one switch in Japan (Tokyo), and approximately 15 points of presence in
other major metropolitan areas of the Targeted Regions, all by the end of
1998. The Company also expects to continue to acquire additional capacity on
both existing and future international fiber cable systems.
As part of its business strategy, the Company evaluates potential
acquisitions, joint ventures and strategic alliances. The Company has no
definitive agreement with respect to any acquisition, joint venture, or
strategic alliance, although from time to time it has discussions with other
companies and assesses opportunities on an on-going basis. A portion of the
net proceeds from the Offering may be used to fund any such acquisitions,
joint ventures and strategic alliances, subject to the terms of the Indenture.
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COMMON STOCK PRICE RANGE
Since completion of the Initial Public Offering on November 7, 1996, the
Common Stock has been traded on the Nasdaq National Market under the symbol
"PRTL." As of July 24, 1997, there were approximately 17,778,731 shares of
Common Stock outstanding. The following table sets forth, for each of the
periods indicated, the high and low sales prices per share of the Common Stock
as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996
4th Quarter (from November 7).............................. 14 5/8 10 3/8
YEAR ENDED DECEMBER 31, 1997
1st Quarter................................................ 17 7 3/8
2nd Quarter ............................................... 11 1/8 7 1/8
3rd Quarter (through July 24) ............................. 10 5/8 8 3/4
</TABLE>
On July 24, 1997, the last reported sale price of the Common Stock on the
Nasdaq National Market was $8 3/4 per share. See "Risk Factors--Development of
Public Market for Common Stock; and Possible Volatility of Stock Price."
DIVIDEND POLICY
To date, the Company has not paid any dividends on its capital stock. The
Company currently intends to retain any future earnings to fund operations and
the continued development of its business and, therefore, does not anticipate
paying any cash dividends on its Common Stock in the foreseeable future.
Future cash dividends, if any, will be determined by the Board of Directors,
and will be based upon the Company's earnings, capital requirements, financial
condition and other factors deemed relevant by the Board of Directors. Cash
distributions by the Company are restricted by covenants relating to the
Notes, and may also be restricted by covenants relating to any future
indebtedness.
23
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1997, the Company's actual
capitalization and capitalization as adjusted to give effect to the sale of
the Units offered hereby, less discounts, commissions, and estimated expenses
of the Offering payable by the Company, and the application of the estimated
net proceeds therefrom. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
Cash and cash equivalents.............................. $43,612 $119,971
Restricted cash........................................ -- 38,695
Short-term investments................................. 5,359 5,359
------- --------
Total cash, cash equivalents, restricted cash and
short-term investments............................ $48,971 $164,025
======= ========
Debt and capital lease obligations(2):
% Senior Notes due 2004............................. -- 125,000
Long-term obligations................................ 9,650 1,310
Capital lease obligations............................ 3,485 1,520
------- --------
Total debt and capital lease obligations........... 13,135 127,830
Stockholders' Equity:
Common Stock, $.01 par value--40,000,000 shares
authorized; 17,778,731 shares actual and as
adjusted, issued and outstanding.................... 178 178
Additional paid-in capital........................... 88,106 88,106
Accumulated deficit.................................. (16,674) (16,674)
Cumulative translation adjustment.................... (216) (216)
------- --------
Total stockholders' equity......................... 71,394 71,394
------- --------
Total capitalization............................... $84,529 $199,224
======= ========
</TABLE>
- --------
(1) For purposes of this presentation, no value has been assigned to the
Warrants. Such value will be determined at the time of the pricing of the
Offering.
(2) The Company has entered into a commitment letter with respect to a $50
million Senior Credit Facility. There can be no assurance that the Company
will obtain the Senior Credit Facility under the terms currently proposed,
if at all. See "Description of Senior Credit Commitment."
24
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and the notes thereto contained elsewhere herein and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The statement of operations data for the Company for the period
from the Company's inception on February 4, 1994 to December 31, 1994 and the
years ended December 31, 1995 and 1996, and the balance sheet data as of
December 31, 1994, 1995 and 1996, have been derived from the financial
statements of the Company which have been audited by Deloitte & Touche LLP,
independent auditors. The historical financial data for the Company for the
three months ended March 31, 1996 and 1997 have been derived from the
Company's unaudited financial statements which, in the opinion of management,
include all significant normal and recurring adjustments necessary for fair
presentation of the financial position and results of operations for such
unaudited period. The statements of operations data for Axicorp for the nine
month period ended March 31, 1995 and the twelve months ended March 31, 1996
have been derived from the financial statements of Axicorp, which have been
audited by Price Waterhouse, independent chartered accountants. The historical
financial data for Axicorp for the period from Axicorp's inception on
September 17, 1993 to June 30, 1994 has been derived from Axicorp's unaudited
financial statements which, in the opinion of management, include all
significant normal and recurring adjustments necessary for a fair presentation
of the financial position and results of operations for such unaudited period.
<TABLE>
<CAPTION>
AXICORP (THE PREDECESSOR) THE COMPANY
------------------------------- ------------------------------
PERIOD FROM NINE TWELVE PERIOD FROM
INCEPTION MONTHS MONTHS INCEPTION YEAR ENDED
THROUGH ENDED ENDED THROUGH DECEMBER 31,
JUNE 30, MARCH 31, MARCH 31, DECEMBER 31, -----------------
1994 1995 1996 1994 1995 1996
----------- --------- --------- ------------ ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue...................... $12,587 $44,797 $144,345 -- $ 1,167 $172,972
Cost of revenue.................. 11,366 40,405 131,712 -- 1,384 158,845
------- ------- -------- ------ ------- --------
Gross margin (deficit).......... 1,221 4,392 12,633 -- (217) 14,127
Operating expenses:
Selling, general and
administrative................. 1,313 4,277 11,558 557 2,024 20,114
Depreciation and amortization... 5 43 235 12 160 2,164
------- ------- -------- ------ ------- --------
Total operating expenses...... 1,318 4,320 11,793 569 2,184 22,278
------- ------- -------- ------ ------- --------
Income (loss) from operations.... (97) 72 840 (569) (2,401) (8,151)
Interest expense................. -- -- -- (13) (59) (857)
Interest income.................. -- 30 219 5 35 785
Other income (expense)........... -- -- -- -- -- (345)
------- ------- -------- ------ ------- --------
Income (loss) before income
taxes........................... (97) 102 1,059 (577) (2,425) (8,568)
Income taxes..................... -- 4 492 -- -- 196
------- ------- -------- ------ ------- --------
Net income (loss)................ $ (97) $ 98 $ 567 $ (577) $(2,425) $ (8,764)
======= ======= ======== ====== ======= ========
Net loss per common and common
share equivalents............... $(0.07) $ (0.22) $ (0.63)
====== ======= ========
Weighted average number of common
and common share equivalents
outstanding..................... 8,560 10,892 13,869
====== ======= ========
Ratio of earnings to fixed
charges(1)...................... -- -- --
====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
-----------------------
THREE MONTHS
ENDED
MARCH 31,
-----------------------
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue...................... $17,137 $59,036
Cost of revenue.................. 15,528 55,034
------- -------
Gross margin (deficit).......... 1,609 4,002
Operating expenses:
Selling, general and
administrative................. 1,874 8,829
Depreciation and amortization... 226 797
------- -------
Total operating expenses...... 2,100 9,626
------- -------
Income (loss) from operations.... (491) (5,624)
Interest expense................. (97) (151)
Interest income.................. 47 785
Other income (expense)........... (213) 119
------- -------
Income (loss) before income
taxes........................... (754) (4,871)
Income taxes..................... 367 36
------- -------
Net income (loss)................ $(1,121) $(4,907)
======= =======
Net loss per common and common
share equivalents............... $ (0.09) $ (0.28)
======= =======
Weighted average number of common
and common share equivalents
outstanding..................... 12,048 17,779
======= =======
Ratio of earnings to fixed
charges(1)...................... -- --
======= =======
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY
----------------------------------
DECEMBER 31,
---------------------- MARCH 31,
1994 1995 1996 1997
----- ------ -------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................... $ 221 $2,296 $ 60,599 $ 48,971
Working capital (deficit).................. (295) 1,295 39,282 21,347
Total assets............................... 487 5,042 140,560 144,139
Total long-term obligations (including
current portion).......................... 13 528 17,248 13,135
Stockholders' equity (deficit)............. (71) 2,562 76,440 71,394
</TABLE>
- -------
(1) The ratio of earnings to fixed charges is computed by dividing pretax
income from operations before fixed charges (other than capitalized
interest) by fixed charges. Fixed charges consist of interest charges,
whether expensed or capitalized, and that portion of rental expense the
Company believes to be representative of interest. For the years 1994,
1995, and 1996, and the three months ended March 31, 1996 and March 31,
1997, earnings were insufficient to cover fixed charges by $0.6 million,
$2.4 million, $8.6 million, $0.8 million and $5.1 million, respectively.
25
<PAGE>
UNAUDITED PROFORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The following unaudited pro forma consolidated statements of operations give
effect to the March 1, 1996 acquisition of Axicorp in each case as if it
occurred on January 1, 1996. The unaudited pro forma consolidated statement of
operations for the three months ended March 31, 1996 includes the operations
of the Company for the three months ended March 31, 1996, which includes the
results of operations of Axicorp since March 1, 1996 (the date of
acquisition), and the operations of Axicorp for the months of January and
February 1996. The unaudited pro forma consolidated statement of operations
for the year ended December 31, 1996 includes the operations of the Company
for the year ended December 31, 1996, which includes the results of operations
of Axicorp since March 1, 1996 (the date of acquisition), and the operations
of Axicorp for the months of January and February 1996.
The unaudited pro forma consolidated statements of operations are presented
for informational purposes only and are not necessarily indicative of the
results of operations that would have been achieved had the acquisition of
Axicorp been completed as of the beginning of the periods presented, nor are
they necessarily indicative of the Company's future results of operations. The
unaudited pro forma consolidated statements of operations should be read in
conjunction with the historical financial statements of the Company and
Axicorp, including the related notes thereto.
26
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP,
INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
THE RELATED TO
COMPANY(1) AXICORP(2) ACQUISITION(3) PRO FORMA
---------- ---------- -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net revenue.................... $17,137 $26,368 $ 0 $43,505
Cost of revenue................ 15,528 23,756 0 39,284
------- ------- ----- -------
Gross margin................. 1,609 2,612 0 4,221
Operating Expenses:
Selling, general and
administrative.............. 1,874 2,084 0 3,958
Depreciation and
amortization................ 226 48 252 526
------- ------- ----- -------
Total operating expenses... 2,100 2,132 252 4,484
------- ------- ----- -------
Income (loss) from operations.. (491) 480 (252) (263)
Interest expense............... (97) 0 (138) (235)
Interest income................ 47 124 0 171
Other income (expense)......... (213) 0 0 (213)
------- ------- ----- -------
Income (loss) before income
taxes......................... (754) 604 (390) (540)
Income taxes................... 367 281 0 648
------- ------- ----- -------
Net income (loss).............. $(1,121) $ 323 $(390) $(1,188)
======= ======= ===== =======
Net loss per common and common
share equivalents............. $ (0.09) $ (0.10)
======= =======
Weighted average number of
common and common share
equivalents outstanding....... 12,048 12,385
======= =======
</TABLE>
- --------
(1) Reflects the historical results of operations of the Company for the three
months ended March 31, 1996, including Axicorp's operations from March 1,
1996 (acquisition date) to March 31, 1996.
(2) Reflects the historical results of operations of Axicorp for the months of
January and February 1996.
(3) The pro forma adjustments to depreciation and amortization reflect the
following:
<TABLE>
<S> <C>
Increase in amortization of the excess of cost over fair value of net
assets acquired related to the purchase of Axicorp (computed using
the straight line method over thirty years--represents two months)... $100
Increase in amortization of the value associated with the customer
list acquired related to the purchase of Axicorp (computed using the
estimated run-off of the customer base (approximately five years)--
represents two months)............................................... 152
----
$252
====
The pro forma adjustment to increase interest expense relates to the
issuance of notes payable of $8,110 related to the acquisition of
Axicorp--represents two months......................................... $138
====
The pro forma adjustment to the income tax provision is zero as a
valuation reserve was applied in full to the tax benefit associated
with the pro forma net loss before income taxes.
</TABLE>
27
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP,
INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
THE RELATED TO
COMPANY(1) AXICORP(2) ACQUISITION(3) PRO FORMA
---------- ---------- -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net revenue.................... $172,972 $26,368 $ 0 $199,340
Cost of revenue................ 158,845 23,756 0 182,601
-------- ------- ----- --------
Gross margin................. 14,127 2,612 0 16,739
Operating Expenses:
Selling, general and
administrative.............. 20,114 2,084 0 22,198
Depreciation and
amortization................ 2,164 48 252 2,464
-------- ------- ----- --------
Total operating expenses... 22,278 2,132 252 24,662
-------- ------- ----- --------
Income (loss) from operations.. (8,151) 480 (252) (7,923)
Interest expense............... (857) 0 (138) (995)
Interest income................ 785 124 0 909
Other income (expense)......... (345) 0 0 (345)
-------- ------- ----- --------
Income (loss) before income
taxes......................... (8,568) 604 (390) (8,354)
Income taxes................... 196 281 0 477
-------- ------- ----- --------
Net income (loss).............. $ (8,764) $ 323 $(390) $ (8,831)
======== ======= ===== ========
Net loss per common and common
share equivalents............. $ (0.63) $ (0.63)
======== ========
Weighted average number of
common and common share
equivalents outstanding....... 13,869 13,953
======== ========
</TABLE>
- --------
(1) Reflects the historical results of operations of the Company for the year
ended December 31, 1996, including Axicorp's operations from March 1, 1996
(acquisition date) to December 31, 1996.
(2) Reflects the historical results of operations of Axicorp for the months of
January and February 1996.
(3) The pro forma adjustments to depreciation and amortization reflect the
following:
<TABLE>
<S> <C>
Increase in amortization of the excess of cost over fair value of net
assets acquired related to the purchase of Axicorp (computed using
the straight line method over thirty years--represents two months)... $100
Increase in amortization of the value associated with the customer
list acquired related to the purchase of Axicorp (computed using the
estimated run-off of the customer base (approximately five years)--
represents two months)............................................... 152
----
$252
====
The pro forma adjustment to increase interest expense relates to the
issuance of notes payable of $8,110 related to the acquisition of
Axicorp--represents two months......................................... $138
====
The pro forma adjustment to the income tax provision is zero as a
valuation reserve was applied in full to the tax benefit associated
with the pro forma net loss before income taxes.
</TABLE>
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto contained elsewhere in this Prospectus.
OVERVIEW
Primus is a multinational telecommunications company that focuses on the
provision of international and domestic long distance services. The Company
seeks to capitalize on the increasing business and residential demand for
international telecommunications services generated by the globalization of
the world's economies and the worldwide trend toward deregulation of the
telecommunications sector. The Company has targeted North America, Asia-
Pacific and Europe as its Targeted Regions. The Company currently provides
services in the United States, Australia and the United Kingdom, which are the
most deregulated countries within the Targeted Regions and which serve as
regional hubs for expansion into additional markets within the Targeted
Regions. As part of the execution of its strategy, the Company also has
expanded its operations to include Canada. In April 1997, the Company acquired
certain assets (including the customer base and accounts receivable) of the
Canadian long-distance provider, Cam-Net, based in Vancouver, Canada,
providing the Company with a customer and a sales and marketing presence
throughout Canada (including Vancouver, Montreal and Toronto) where it
operates as a switch-based reseller. In March 1997, the Company entered into a
foreign carrier agreement with CyTA to establish a direct, fiber-optic
connection with the Company's London switch for international long distance
primarily to countries in the Middle East. The Company also has entered into
foreign carrier agreements in Israel, Malaysia, New Zealand and Sri Lanka
which are expected to become effective by the end of 1997. The Company expects
to expand into additional markets as deregulation occurs and the Company is
permitted to offer a full range of switched public telephone services in such
markets.
The Company was founded in February 1994, and through the first half of 1995
was a development stage enterprise involved in various start-up activities,
including raising capital, obtaining licenses, acquiring equipment, leasing
space, developing markets and recruiting and training personnel. The Company
began generating revenue during March 1995. On March 1, 1996 the Company
acquired Axicorp, the fourth largest telecommunications provider in Australia.
The acquisition of Axicorp has had a material effect on the Company's results
of operations for the year ended December 31, 1996 and for the three months
ended March 31, 1997. The Company's Australian operations generated
approximately $46.9 million, or 79%, of the Company's net revenue for the
three months ended March 31, 1997, and approximately $177.6 million, or 89%,
of the Company's pro forma net revenue for the year ended December 31, 1996.
The acquisition of Axicorp furthers the Company's objectives by providing a
substantial customer base and significant hub location in the Asia-Pacific
market.
The Company continues to invest substantial resources to transform Axicorp's
strategy and operations to those of a facilities-based carrier focused on the
provision of international and domestic long distance services. Prior to the
acquisition, Axicorp was a switchless reseller of long distance, local and
cellular service. Since the acquisition, the Company has installed and begun
to carry traffic on a five-switch network in Australia, has leased fiber
capacity connecting Australia with the United States and, in July 1997, became
one of five licensed carriers permitted to own and operate transmission
facilities in Australia. In addition, the Company has focused on migrating
existing traffic onto the Company's Network while increasing the number of
higher-margin, higher-volume business customers with significant international
long distance traffic. As part of its focus on business customers, the Company
has increased Axicorp's direct sales force and reduced its reliance on
marketing through associations. The Company has experienced and expects to
continue to experience lower gross margin as a percentage of net revenue for
Axicorp's local switched and cellular services, as compared to long distance
services.
Net revenue is earned based on the number of minutes billable by the Company
and is recorded upon completion of a call, adjusted for sales allowances. The
Company generally prices its services at a savings compared to the major
carriers operating in the Targeted Regions. The Company's net revenue in the
United
29
<PAGE>
States is derived from carrying a mix of business, residential and wholesale
carrier long distance traffic. In Australia, net revenue is currently derived
from the provision of long distance, local and cellular services, primarily to
small- and medium- sized businesses. In the United Kingdom, net revenue is
derived from the provision of long distance services, primarily to ethnic
residential customers, as well as to small- and medium-sized businesses. In
Canada, primarily as a result of its April 1997 acquisition of selected assets
of Cam-Net, the Company is a switch based reseller providing long-distance
services to small- and medium-sized businesses and residential customers. The
Company expects to continue to generate net revenue from internal growth
through focused sales and marketing efforts on a retail basis toward small-
and medium-sized businesses with significant international long distance
traffic and ethnic residential customers and, on a wholesale basis, to other
telecommunications carriers and resellers with international traffic in the
Company's service areas.
Prices in the long distance industry in the United States and the United
Kingdom have declined in recent years and, as competition continues to
increase, the Company believes that prices are likely to continue to decrease.
Additionally, the Company believes that because deregulatory influences only
recently have begun to affect non-United States and non-United Kingdom
telecommunications markets, the deregulatory trend in such markets is expected
to result in greater competition which could adversely affect net revenue per
minute and gross margin as a percentage of net revenue. The Company believes,
however, that such decreases in prices will be at least partially offset by
increased telecommunications usage and decreased costs.
Cost of revenue is primarily comprised of costs incurred from other domestic
and foreign telecommunications carriers to access, transport and terminate
calls. The majority of the Company's cost of revenue is variable, based upon
the number of minutes of use, with transmission and termination costs being
the Company's most significant expense. As the Company increases the portion
of traffic transmitted over its own facilities, cost of revenue increasingly
will reflect lease and ownership costs of the Network. In order to manage such
costs, the Company pursues a flexible approach with respect to Network
expansion. In most instances, the Company initially obtains transmission
capacity on a variable-cost, per-minute leased basis, next acquires additional
capacity on a fixed-cost basis when traffic volume makes such a commitment
cost-effective, and ultimately purchases and operates its own facilities only
when traffic levels justify such investment. The Company also seeks to lower
its cost of revenue through (i) optimizing the routing of calls over the least
cost routing, (ii) increasing volumes on its fixed cost leased and owned
lines, thereby spreading the allocation of fixed costs over a larger number of
minutes, (iii) negotiating lower variable usage based costs with domestic and
foreign service providers and negotiating additional and lower cost foreign
carrier agreements with foreign PTTs and others, and (iv) continuing to expand
the Network when traffic volumes justify such investment. See "Risk Factors--
Managing Rapid Growth" and "Business--Network."
Typical of the long distance telecommunications industry, the Company
generally realizes a higher gross margin as a percentage of net revenue on its
international as compared to its domestic long distance services and expects
to realize a higher gross margin as a percentage of net revenue on its retail
(business and residential) services compared to those realized on its
wholesale services. In addition, the Company generally realizes a higher gross
margin as a percentage of net revenue on its long distance services as
compared to those realized on local switched and cellular services. Wholesale
services, which generate a lower gross margin as a percentage of net revenue
than retail services, are an important part of the Company's net revenue
because the additional traffic volume of such wholesale customers improves the
utilization of the Network and allows the Company to obtain greater volume
discounts from its suppliers than it otherwise would realize. The Company's
overall gross margin as a percentage of net revenue may fluctuate based on its
relative volumes of international versus domestic long distance services,
wholesale versus retail long distance services, and the proportion of traffic
carried on the Company's Network versus resale of other carriers' services.
Selling, general and administrative expenses are comprised primarily of
salaries and benefits, commissions, occupancy costs, sales and marketing
expenses, advertising and administrative costs. These expenses have been
30
<PAGE>
increasing over the past 18 months, which is consistent with the development
stage nature of the Company, expansion of the United States and United Kingdom
operations, and the transformation of Axicorp's operations. The Company
expects this trend to continue and believes that additional selling, general
and administrative expenses will be necessary to support the expansion of
sales and marketing efforts and operations in current markets as well as new
markets in the Targeted Region.
Since its inception, the Company has made, and expects to continue to make,
significant investments in the development of its operations in its Targeted
Regions and the development and expansion of the Network. The costs of
developing its operations and expanding the Network, including the purchase
and installation of switches, sales and marketing expenses and other
organizational costs, are significant. In addition, increased capital
investment activity in the future can be expected to affect the Company's
operating results in the near term due to increased depreciation charges and
interest expense in connection with borrowings to fund such expenditures,
which costs will be incurred in advance of the realization of the expected
improvements in operating results from such investments. Such costs and
investment activity have resulted in negative cash flows and operating losses
for the Company on an historical basis, which are expected to continue to
increase in the near future as the Company uses the proceeds of the Offering
to accelerate the expansion of its business and the build-out of the Network.
See "--Liquidity and Capital Resources" and "Use of Proceeds."
Although the Company's functional currency is the United States dollar, the
majority of the Company's net revenue is derived from its sales and operations
outside the United States. In the future, the Company expects to continue to
derive the majority of its net revenue and incur a significant portion of its
operating costs outside the United States and changes in exchange rates may
have a significant effect on the Company's results of operations. The Company
historically has not engaged in hedging transactions, and does not currently
contemplate engaging in hedging transactions to mitigate foreign exchange
risk. See "Risk Factors--Risk Associated with International Operations."
PRO FORMA RESULTS OF OPERATIONS
As a result of the Company's acquisition of Axicorp on March 1, 1996 and the
development stage nature of the Company in the first quarter of 1995, the
Company believes that a comparison of the historical results of operations for
the three month periods ended March 31, 1996 and 1997 and for the twelve
months ended December 31, 1995 and 1996 is not meaningful and that such
results are not necessarily indicative of results for any future period.
Accordingly, the historical results of operations are supplemented herein with
a more extensive discussion of the pro forma results of operations for the
three month period ended March 31, 1996 and for the twelve months ended
December 31, 1995 and 1996 and the pro forma quarterly results of operations
for each of the six quarters in the period ended March 31, 1997, which results
give effect to the acquisition of Axicorp as if it had occurred on January 1,
1995. A discussion of the Company's historical results of operations for the
three months ended March 31, 1996 and 1997, the period from inception
(February 4, 1994) through December 31, 1994, and the years ended December 31,
1995 and 1996 follow the discussion of the Company's pro forma results of
operations.
31
<PAGE>
Pro Forma Results of Operations for the Three Months Ended March 31, 1996
Compared to the Historical Results of Operations for the Three Months Ended
March 31, 1997
The following table presents certain items from the Company's Unaudited Pro
Forma Consolidated Statements of Operations:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------------------------------
1996 1997
--------------------- -----------------------
$ % $ %
---------- --------- ---------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
Net revenue:
North America and United
Kingdom....................... $ 1,931 4.4% $ 12,150 20.6%
Australia...................... 41,574 95.6 46,886 79.4
---------- -------- ---------- --------
Total net revenue............ 43,505 100.0 59,036 100.0
Cost of revenue:
North America and United
Kingdom....................... 2,448 126.8 11,445(1) 94.2
Australia...................... 36,836 88.6 43,589 93.0
---------- ----------
Total cost of revenue........ 39,284 90.3 55,034 93.2
---------- ----------
Gross margin:
North America and United
Kingdom....................... (517) (26.8) 705(1) 5.8
Australia...................... 4,738 11.4 3,297 7.0
---------- ----------
Gross margin, net............ 4,221 9.7 4,002 6.8
Operating expenses:
Selling, general and
administrative................ 3,958 9.1 8,829 15.0
Depreciation and amortization.. 526 1.2 797 1.3
---------- -------- ---------- --------
Total operating expenses..... 4,484 10.3 9,626 16.3
---------- -------- ---------- --------
Loss from operations............. (263) (0.6) (5,624) (9.5)
Interest expense................. (235) (0.5) (151) (0.3)
Interest income.................. 171 0.4 785 1.3
Other income (expense)........... (213) (0.5) 119 0.2
---------- -------- ---------- --------
Loss before income taxes......... (540) (1.2) (4,871) (8.3)
Income taxes..................... 648 1.5 36 0.0
---------- -------- ---------- --------
Net loss......................... $ (1,188) (2.7)% $ (4,907) (8.3)%
========== ======== ========== ========
</TABLE>
- --------
(1) Includes a one-time charge of $0.7 million resulting from non-payment of a
receivable due from a single customer.
Net revenue increased 36%, or $15.5 million, from $43.5 million for the
three months ended March 31, 1996 to $59.0 million for the three months ended
March 31, 1997. The Australian net revenue for the same period increased 13%,
or $5.3 million, from $41.6 million to $46.9 million. The increase was
attributable to growth in minutes of traffic primarily from business
customers. Non-Australian net revenue was $12.2 million for the three months
ended March 31, 1997 as compared to $1.9 million for the three months ended
March 31, 1996. The $10.3 million increase is attributable to a $3.8 million
increase in the United Kingdom, primarily reflecting additional residential
customers and traffic volumes resulting from the Company's marketing efforts
to ethnic residential customers, and a $6.5 million increase in the United
States resulting primarily from additional wholesale traffic volumes and, to a
lesser extent, from residential customers resulting from the ethnic marketing
programs and business customers following the Company's build-up of its direct
sales force. As the Company continues to build its sales and marketing staff,
establish additional carrier arrangements and expand its Network, the Company
expects the minutes of traffic and associated net revenue to continue to
increase.
32
<PAGE>
Cost of revenue increased 40.1%, or $15.7 million, from $39.3 million for
the three months ended March 31, 1996 to $55.0 million for the three months
ended March 31, 1997. The increase was a direct reflection of the increased
traffic the Company carried for customers. The Australian cost of revenue
increased 18.3%, or $6.8 million, from $36.8 million for the three months
ended March 31, 1996 to $43.6 million for the three months ended March 31,
1997 primarily as a result of an increased number of business customers and
associated traffic volumes. The Australian cost of revenue as a percentage of
Australian net revenue increased from 88.6% for three months ended March 31,
1996 to 93.0% for the three months ended March 31, 1997 primarily as the
result of a favorable settlement of claims against Telstra that generated a
one-time revenue gain of $1.0 million for the three months ended March 31,
1996. Excluding this one-time gain, the Australian cost of revenue as a
percentage of Australian net revenue would have been 90.8% for three months
ended March 31, 1996. Additionally, the Australian cost of revenue as a
percentage of net revenue was adversely affected in the quarters following the
three months ended March 31, 1996 by the lower tariff rate discounts
implemented by Telstra in March 1996. The non-Australian cost of revenue
increased $9.0 million from $2.4 million for the three months ended March 31,
1996 to $11.4 million for the three months ended March 31, 1997 as a result of
increased traffic volumes in the United States and United Kingdom. Non-
Australian cost of revenue as a percentage of non-Australian net revenue was
94.2% for the three months ended March 31, 1997 as compared to 126.8% for the
three months ended March 31, 1996 primarily as a result of the start-up nature
of the Company's network operations during early 1996 in the United States.
The non-Australian cost of revenue as a percentage of non-Australian net
revenue for the three months ended March 31, 1997 also was adversely affected
by $0.7 million resulting from a one-time, non-payment of a single customer
accounts receivable in the United States. Excluding the effect of this non-
payment, non-Australian cost of revenue as a percentage of non-Australian net
revenue would have been 88.4%. Most of the Company's costs of revenue are
variable. As the Company continues to expand its worldwide Network through
installation of switches, cable ownership and fixed circuit leases, and
migrates traffic onto its Network, the Company expects cost of revenue as a
percentage of net revenue to decrease.
Gross margin decreased 5%, or $0.2 million, from $4.2 million for the three
months ended March 31, 1996 to $4.0 million for the three months ended March
31, 1997. The Australian gross margin as a percentage of Australian net
revenue decreased from 11.4% to 7.0% for the three months ended March 31, 1996
as compared to the same period in 1997, primarily as a result of the favorable
settlement of claims against Telstra that occurred in the first quarter of
1996 and Telstra's reduction of tariff discounts beginning in March 1996.
Excluding the one-time gain, the Australian gross margin would have been 9.2%
for the three months ended March 31, 1996. The non-Australian operations
improved from a gross deficit of $0.5 million for the three months ended March
31, 1996 to a gross margin of $0.7 million for the three months ended March
31, 1997. The non-Australian gross margin for the three months ended March 31,
1997 was adversely affected by the non-payment of a $0.7 million accounts
receivable from one customer as discussed above. Excluding the effect of the
non-payment, non-Australian gross margin as a percentage of non-Australian net
revenue would have been 11.6% for the three months ended March 31, 1997 as
compared to 5.8%.
Selling, general and administrative expenses increased 123%, or $4.8
million, from $4.0 million for the three months ended March 31, 1996 to $8.8
million for the three months ended March 31, 1997. Selling, general and
administrative expenses for the Australian operations increased 53.8%, or $1.6
million, from $2.9 million for the three months ended March 31, 1996 to $4.5
million for the three months ended March 31, 1997, as a result of increased
salaries and benefits, expenses to support the continued build-out of the
Network and sales force required for continued growth, and the commencement of
a new residential marketing campaign. The Australian selling, general and
administrative expenses as a percentage of net revenue increased from 7% for
the three months ended March 31, 1996 to 10% for the same period in 1997. The
non-Australian operations account for the remaining increase of $3.2 million
which is due to the addition of employees in sales and marketing, network
operations, and customer service, along with increased marketing expenses
associated with ethnic marketing campaigns and the opening of direct sales
offices in New York and Los Angeles. The non-Australian selling, general and
administrative expenses as a percentage of non-Australian net revenue
decreased from 52.4% for the three months ended March 31, 1996 to 35.4% for
the three months ended March 31, 1997, as a result of these costs being spread
over an increasing revenue base.
33
<PAGE>
Depreciation and amortization increased 52%, or $0.3 million, from $0.5
million for the three months ended March 31, 1996 to $0.8 million for the
three months ended March 31, 1997. The increase reflects depreciation for
capital expenditures for network equipment associated with the Company's
continued network development.
Interest expense decreased 36% as a result of the partial repayment of
seller notes from the Australian acquisition and the capitalization of
interest associated with the construction of the Network.
Interest income increased from $0.2 million for the three months ended March
31, 1996 to $0.8 million for the three months ended March 31, 1997 as a result
of the interest earned on the cash balance generated from the Company's
initial public offering in November 1996.
Other income (expense) is comprised of a foreign currency transaction gain
of $0.1 million for the three months ended March 31, 1997 associated with the
debt related to the acquisition of Axicorp, which is denominated in Australian
dollars. Fluctuations in the currency exchange rates between the Australian
and United States dollar will cause currency transaction gains or losses which
will be recognized in the current period results of operations.
Income taxes are based on the income before taxes generated by the
operations in the United Kingdom and Australia. For the three months ended
March 31, 1996 and 1997, the provision for income taxes related primarily to
taxable income generated from the Company's Australian and United Kingdom
operations.
Pro Forma Results of Operations for the Year Ended December 31, 1996 Compared
to the Year Ended December 31, 1995
The following table presents certain items from the Company's Unaudited Pro
Forma Consolidated Statements of Operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1996
---------------------- ----------------------
$ % $ %
----------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
Net revenue:
North America and United
Kingdom....................... $ 1,167 0.9% $ 21,719 10.9%
Australia...................... 124,461 99.1 177,621 89.1
----------- -------- ----------- --------
Total net revenue............ 125,628 100.0 199,340 100.0
Cost of revenue:
North America and United
Kingdom....................... 1,384 118.6 21,198 97.6
Australia...................... 113,255 91.0 161,403 90.9
----------- -----------
Total cost of revenue........ 114,639 91.3 182,601 91.6
----------- -----------
Gross margin:
North America and United
Kingdom....................... (217) (18.6) 521 2.4
Australia...................... 11,206 9.0 16,218 9.1
----------- -----------
Total gross margin........... 10,989 8.7 16,739 8.4
Operating expenses:
Selling, general and
administrative................ 12,955 10.3 22,198 11.1
Depreciation and amortization.. 1,842 1.5 2,464 1.2
----------- -------- ----------- --------
Total operating expenses..... 14,797 11.8 24,662 12.4
----------- -------- ----------- --------
Loss from operations............. (3,808) (3.0) (7,923) (4.0)
Interest expense................. (885) (0.7) (995) (0.5)
Interest income.................. 132 0.1 909 0.5
Other income (expense)........... -- -- (345) 0.2
----------- -------- ----------- --------
Loss before income taxes......... (4,561) (3.6) (8,354) (4.2)
Income taxes..................... 124 0.1 477 0.2
----------- -------- ----------- --------
Net loss......................... $ (4,685) (3.7)% $ (8,831) (4.4)%
=========== ======== =========== ========
</TABLE>
34
<PAGE>
Net revenue increased 59%, or $73.7 million, from $125.6 million for the
year ended December 31, 1995 to $199.3 million for the year ended December 31,
1996. The Australian net revenue increased 43%, or $53.1 million, from $124.5
million to $177.6 million. The increase was attributable to an increase in
minutes of traffic from small- to medium-sized business customers, as well as
growth in the number of customers. Non-Australian net revenue was $21.7
million for the year ended December 31, 1996 as compared to net revenue of
$1.2 million for the year ended December 31, 1995. The $20.5 million increase
is the result of an increase of $15.4 million in the United States, primarily
associated with increased wholesale traffic volume and, to a lesser extent,
from consumer customers resulting from the ethnic marketing program and
business customers resulting from the Company's build-up of its direct sales
force, and an increase of $5.1 million in the United Kingdom associated with
the commencement of operations in late 1995.
Cost of revenue increased 59%, or $68.0 million, from $114.6 million for the
year ended December 31, 1995 to $182.6 million for the year ended December 31,
1996. The increase was the direct result of increased traffic volumes the
Company carried for its customers. The Australian cost of revenue increased
43%, or $48.1 million, from $113.3 million for the year ended December 31,
1995 to $161.4 million for the year ended December 31, 1996. The Australian
cost of revenue increase is primarily driven by an increased number of
business customers and associated traffic volumes. The Australian cost of
revenue as a percentage of Australian revenue was essentially flat and
reflects the continued resale of carrier services and lack of network
facilities. The non-Australian cost of revenue increased $19.8 million from
$1.4 million for the year ended December 31, 1995 to $21.2 million for the
year ended December 31, 1996, as a result of increased traffic volumes for
business, consumer, and wholesale customers in the United States and the
commencement of operations in the United Kingdom. Non-Australian cost of
revenue as a percentage of non-Australian net revenue was 97.6% in the year
ended December 31, 1996 versus 118.6% in the year ended December 31, 1995. The
non-Australian cost of revenue as a percentage of non-Australian net revenue
reflects the start up nature of network operations in the United States and
the United Kingdom, the absence of network facilities, traffic being carried
on more expensive carriers until adequate capacity on lower cost carriers
could be established, and lack of return traffic on newly initiated foreign
carrier agreements.
Gross margin increased 52%, or $5.7 million, from $11.0 million for the year
ended December 31, 1995 to $16.7 million for the year ended December 31, 1996.
The Australian gross margin as a percentage of Australian net revenue remained
constant for the years ended December 31, 1995 and 1996. The non-Australian
gross margin increased from a deficit of $(0.2) million for the year ended
December 31, 1995 to a gross margin of $0.5 million for the year ended
December 31, 1996.
Selling, general and administrative expenses increased 71%, or $9.2 million,
from $13.0 million for the year ended December 31, 1995 to $22.2 million for
the year ended December 31, 1996. The Australian operations increased selling,
general and administrative expenses by $2.5 million as a result of increased
salaries and benefits for additional sales and operations staff to support
construction of a new five city switched network. The Australian selling,
general and administrative expenses as a percentage of Australian net revenue
decreased from 9% to 8% for the years ended December 31, 1995 and 1996,
respectively. The non-Australian operations account for the remaining increase
of $6.7 million which is due to increased staffing in sales and marketing,
network operations, and customer service. The non-Australian selling, general
and administrative expenses as a percentage of non-Australian net revenue
decreased to 40% for the year ended December 31, 1996, from 173% for the year
ended December 31, 1995, as a result of these costs being spread over an
increasing revenue base.
Depreciation and amortization increased 34%, or $0.7 million, from $1.8
million for the year ended December 31, 1995 to $2.5 million for the year
ended December 31, 1996. The increase reflects depreciation for capital
expenditures for network equipment associated with the Company's network
construction.
Interest expense increased 12% as a result of additional capital leases to
finance network switching equipment.
35
<PAGE>
Interest income increased from $0.1 million for the year ended December 31,
1995 to $0.9 million for the year ended December 31, 1996 as a result of the
interest earned on the cash balance generated from the private placements in
February 1996 and July 1996, and the initial public offering in November 1996.
Other income (expense) is comprised of a foreign currency transaction loss
of $0.3 million for the year ended December 31, 1996 associated with the debt
related to the acquisition of Axicorp, which is denominated in Australian
dollars. Fluctuations in the currency exchange rates between the Australian
and United States dollar will cause currency transaction gains or losses which
are recognized in the current period results of operations.
Income taxes are based on the income before taxes generated primarily by the
operations in Australia.
Quarterly Results of Operations
The following table sets forth unaudited pro forma consolidated statement of
operations and other data for each of the six fiscal quarters through the
period ended March 31, 1997 and has been prepared assuming the March 1, 1996
acquisition of Axicorp occurred as of January 1, 1995. The pro forma quarterly
information has been derived from, and should be read in conjunction with, the
Consolidated Financial Statements of the Company, the Financial Statements of
Axicorp and the notes thereto included elsewhere in this Prospectus, and in
management's opinion, reflects all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information
for the quarters presented. The operating results for any quarter are not
necessarily indicative of results for any future period.
36
<PAGE>
COMBINED PREDECESSOR AND COMPANY
<TABLE>
<CAPTION>
QUARTER ENDED:
-----------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995(1) 1996(1) 1996 1996 1996 1997
------------ --------- -------- ------------- ------------ ---------
(DOLLAR AND MINUTE DATA IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenue:
North America and
United Kingdom........ $ 670 $1,931 $ 4,229 $ 6,468 $ 9,091 $12,150
Australia.............. 39,559 41,574 44,049 45,351 46,647 46,886
------- ------ ------- ------- ------- -------
Total net revenues... 40,229 43,505 48,278 51,819 55,738 59,036
Cost of revenue:
North American and
United Kingdom........ 880 2,448 4,516 5,968 8,265 11,445(2)
Australia.............. 36,250 36,836 40,118 41,242 43,207 43,589
------- ------ ------- ------- ------- -------
Total cost of
revenue............. 37,130 39,284 44,634 47,210 51,472 55,034
Gross margin:
North America and
United Kingdom........ (210) (517) (287) 500 826 705(2)
Australia.............. 3,309 4,738 3,931 4,109 3,440 3,297
------- ------ ------- ------- ------- -------
Total gross margin... 3,099 4,221 3,644 4,609 4,266 4,002
Operating expenses:
Selling, general and
administrative
expenses.............. 3,986 3,958 4,834 6,194 7,212 8,829
Depreciation and
amortization.......... 490 525 571 637 731 797
------- ------ ------- ------- ------- -------
Total operating
expenses............ 4,476 4,483 5,405 6,831 7,943 9,626
Operating loss.......... $(1,377) $ (262) $(1,761) $(2,222) $(3,677) $(5,624)
======= ====== ======= ======= ======= =======
Net revenue growth
percentage:
North America and
United Kingdom........ -- 188.2 % 119.0 % 52.9% 40.6% 33.6%
Australia.............. -- 5.1 % 6.0 % 3.0% 2.9% 0.5%
Total................ -- 8.1 % 11.0 % 7.3% 7.6% 5.9%
Australia (excluding
dealership and other
non-recurring
items)(3)............. -- 1.4 % 3.0 % 6.0% 3.4% 3.0%
Gross margin percentage:
North America and
United Kingdom........ (31.3)% (26.8)% (6.8)% 7.7% 9.1% 5.8%(2)
Australia.............. 8.4 % 11.4 % 8.9 % 9.1% 7.4% 7.0%
Total gross margin
percentage.......... 7.7 % 9.7 % 7.5 % 8.9% 7.7% 6.8%
Australia (excluding
dealership and other
non-recurring
items)(3)............. 7.3 % 7.2 % 5.1 % 5.3% 5.2% 5.8%
Selling, general and
administrative
expenses as a
percentage of net
revenue............... 9.9 % 9.1 % 10.0 % 12.0% 12.9% 15.0%
EBITDA(4)............... $ (887) $ 263 $(1,190) $(1,585) $(2,946) $(4,827)
Capital expenditures
(actual)(5)............ $ 205 $ 216 $ 3,767 $ 2,162 $ 9,814 $ 9,141
Number of switches
(actual)............... 1 1 1 1 1 9(6)
Full-time employees.....
* * * 285 315 369
Minutes of long distance
use:
International:
North America.......... * * * 9,199 12,160 17,693
Australia.............. * * * 1,967 1,876 2,384
United Kingdom......... * * * 1,713 3,192 4,253
------- ------- -------
Total minutes of long
distance use
(international)..... * * * 12,879 17,228 24,330
------- ------- -------
Domestic:
North America.......... * * * 3,972 5,533 6,346
Australia.............. * * * 56,932 58,336 59,481
United Kingdom......... * * * 1,512 3,051 4,533
------- ------- -------
Total minutes of long
distance use
(domestic).......... * * * 62,416 66,920 70,360
------- ------- -------
Total minutes of long
distance use........ * * * 75,295 84,148 94,690
======= ======= =======
</TABLE>
- --------
(1) Assuming the March 1, 1996 acquisition of Axicorp occurred as of the
beginning of the periods presented.
(2) Includes a one-time charge of $0.7 million resulting from non-payment of a
receivable due from a single customer. Excluding this charge, cost of
revenue, gross margin and gross margin percentage for North America and
the United Kingdom would have been $10.7 million, $1.4 million and 11.6%,
respectively.
(3) Excludes dealership revenue from discrete projects relating to marketing
and customer activities performed on behalf of Telstra, and non-recurring
settlements of claims against Telstra.
(4) EBITDA consists of earnings (loss) before interest, income taxes,
depreciation, amortization and other income (expense). It is a measure
commonly used in the telecommunications industry and is presented to
assist in understanding the Company's operating results. Additionally,
certain covenants contained in the Indenture are based upon EBITDA. EBITDA
is not intended to report cash flows for the period. See the Consolidated
Statement of Cash Flows contained elsewhere in the Prospectus.
(5) Capital expenditures include amounts acquired through capital lease
financing and other debt.
(6) Excludes two additional switches now in operation.
* Data not available.
37
<PAGE>
Quarterly net revenue increased from $40.2 million in the quarter ended
December 31, 1995 to $59.0 million in the quarter ended March 31, 1997. The
Australian net revenue growth in each quarter was due to an increase in
traffic volumes as a result of an increase in the number of small- to medium-
sized business customers. In addition, beginning in the quarter ended March
31, 1996, the Australian revenue included "dealership" revenue from marketing
and customer service activities provided on an outsourced basis by Axicorp to
Telstra. These revenues resulted from the performance of discrete projects,
and thus fluctuated significantly in each quarter. Excluding these dealership
revenues, the core Australian telephone business grew at an average rate of
approximately 3% per quarter. The lower growth rate in the quarter ended March
31, 1996 was a result of Axicorp management's focus on selling Axicorp to the
Company versus generating new sales. The lower sequential quarterly growth
rate in the quarter ended March 31, 1997 partially reflects reduced calling
volume from business customers during the summer months in January and
February in Australia. In addition, the Company's lower growth rate was a
result of its efforts to focus on moving current traffic onto the Company's
recently developed Network rather than generating new traffic which would not
have had direct access to the Company's Network until the Company realized the
benefits of deregulation beginning in July 1997. This quarter also includes,
however, beginning in March 1997, the impact of the Company's new residential
sales channel resulting from a campaign directed towards residential customers
who make a high volume of international calls. Revenue in the United Kingdom
and North America reflects increasing traffic volumes and number of customers
in those regions. In the United Kingdom, the revenue growth has been the
result of additional residential customers each quarter, and in North America,
additional wholesale, and, to a lesser extent, business and residential
traffic volumes.
Quarterly gross margin percentages have fluctuated during the six quarters
from a high of 9.7% in the quarter ended March 31, 1996 to 6.8% in the quarter
ended March 31, 1997. The historical gross margin percentages reflect the
Company's status as a "switchless" reseller and dependence upon other carriers
to switch and transport the Company's traffic. During this period, the Company
made significant investments in all three regions in switches and
international fiber cable capacity and in the construction of its own Network,
which is expected to produce higher overall gross margins as a percentage of
net revenue for the Company as traffic volumes and the proportion of on-
Network volume increases. In Australia, the Company's quarterly gross margins
during this period were favorably affected by dealership projects and non-
recurring contingency settlements that had a significantly higher gross margin
percentage than the Australian core telephone business. Excluding dealership
and non-recurring items, the Australian gross margins over the past four
quarters have been approximately 5%, increasing to 5.8% in the quarter ended
March 31, 1997 as a result of the Company beginning to carry traffic on its
Network in March 1997. The decrease in the Australian gross margin, adjusted
for dealership and non-recurring items, in the quarter ended June 30, 1996
versus the previous quarters is due to lower tariff rate discounts implemented
by Telstra in March 1996. The gross margin percentages in North America and
the United Kingdom during the six quarterly periods has steadily increased
from a negative 31.3% during the quarter ended December 31, 1995 to 5.8%
during the quarter ended March 31, 1997. This reflects the increasing volume
of traffic each quarter over which the fixed network costs can be spread, as
well as additional discounts received from underlying carriers on variable
costs due to the higher volumes. The gross margin in the quarter ended March
31, 1997 was also adversely affected by a $0.7 million charge for the non-
payment of a single customer accounts receivable. Excluding this charge, gross
margin percentages in North America and the United Kingdom operations would
have been 11.6%.
The Company's quarterly selling, general and administrative expenses have
trended upward during the six quarter period from $4.0 million in the quarter
ended December 31, 1995 to $8.8 million in the quarter ended March 31, 1997.
The quarterly selling, general and administrative expense increase is
reflective of the worldwide growth in the Company's operations, including
increased personnel costs for network operations staff in all three regions,
and additional costs, sales and marketing staffs and associated expenses.
Selling, general and administrative expenses increased as a percentage of net
revenue over the six quarter period due to substantial expenditures incurred
in developing the Network and sales forces necessary to generate increased
future revenues in all three regions. The Company's total full time employee
head count has increased from 285 at September 30, 1996 to 369 at March 31,
1997.
Quarterly depreciation and amortization reflects increases as a result of
the Company's substantial continued investment in fixed assets primarily
associated with the construction of the Network. This trend is expected to
38
<PAGE>
continue in the future as the Company continues to expand its network capacity
and scope into additional countries around the world.
HISTORICAL RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1997 Compared to the Three Months Ended
March 31, 1996
Net revenue increased $41.9 million, from $17.1 million for the three months
ended March 31, 1996 to $59.0 million for the three months ended March 31,
1997. Of the increase, $31.7 million was associated with the Company's
Australian operations, which were acquired on March 1, 1996, and reflects
increased revenue from business customers as well as new residential revenue.
The Company's operations reflect the impact of seasonality in the first
quarter as the result of reduced activity in the summer months in Australia.
The remaining $10.2 million is comprised of increases of $3.8 million in the
United Kingdom reflecting additional residential customers and traffic volumes
resulting from the Company's marketing efforts to ethnic residential
customers, and $6.4 million in the United States primarily from additional
wholesale traffic volumes, and to a lesser extent from residential customers
resulting from the ethnic marketing program and business customers resulting
from the Company's build-up of its direct sales marketing force.
Cost of revenue increased $39.5 million, from $15.5 million, or 91% of net
revenue, for the three months ended March 31, 1996 to $55.0 million, or 93% of
net revenue, for the three months ended March 31, 1997. The increase in the
cost of revenue is primarily attributable to the increased traffic volumes and
associated net revenue. The increase in the percentage of cost of revenue is
attributable to a full three months of Australian operations in the first
quarter of 1997 versus one month's activity in the first quarter of 1996,
which in Australia included non-recurring higher margin dealership revenues.
Additionally, the 1997 percentage was adversely affected by a one-time, non-
payment of a single customer accounts receivable in the United States
amounting to $0.7 million in the first quarter of 1997. Without this
occurrence, cost of revenue would have been 92% of net revenue. Most of the
Company's cost of revenue are variable. However, as the Company continues to
expand its worldwide network through installation of switches, cable ownership
and fixed circuit leases, the costs as a percentage of net revenue should
decrease.
Selling, general and administrative expenses increased from $1.9 million to
$8.8 million for the three months ended March 31, 1996 to March 31, 1997.
Approximately $3.7 million of the increase was attributable to a full quarter
of activity associated with the Company's Australian operations in the 1997
results versus only one month in the 1996 results, and the remaining $3.2
million related to increased staffing levels, increased sales and marketing
activity and network operations costs in non-Australian operations. The
Australian selling, general and administrative expense as a percentage of net
revenue was 10% for the three months ended March 31, 1997 compared to 6% for
the three months ended March 31, 1996. The increase reflects additional
staffing for direct sales, marketing and network operations as well as
advertising and promotion costs for a new residential marketing campaign
launched in Australia in February 1997. The non-Australian selling, general
and administrative costs as a percentage of non-Australian net revenue for the
three months ended March 31, 1997 was 35% compared to 17% for the three months
ended March 31, 1996. The increase is reflective of the growth in the direct
sales, marketing and network operations staff necessary to ensure and support
expected future net revenue. Total full time headcount increased to 369 at the
end of March 1997.
Depreciation and amortization increased from $0.2 million for the three
months ended March 31, 1996 to $0.8 million for the three months ended March
31, 1997. The majority of the increase is a result of the acquisition of the
Australian operations and is comprised of two additional months of asset
depreciation and amortization of goodwill and customer lists which totaled
$0.4 million. The remaining depreciation is related primarily to increased
depreciation expense for the Company as a result of additional capital
expenditures for switching and network equipment in North America, United
Kingdom and Australia.
Interest income for the three months ended March 31, 1997 is the result of
the investment of the net proceeds from the initial public offering in highly
liquid United States Federal Government backed obligations.
39
<PAGE>
Other income (expense) for the three months ended March 31, 1997 related to
foreign currency transaction gains on the Australian dollar-denominated debt
incurred by the Company payable to the sellers for its acquisition of Axicorp
as a result of a decline in the exchange rate of the Australian dollar against
the United States dollar during the period.
Income taxes were fully attributable to the operations in the United
Kingdom.
For the Year Ended December 31, 1996 as Compared to the Year Ended December
31, 1995
Net revenue increased $171.8 million, from $1.2 million for the year ended
December 31, 1995 to $173.0 million for the year ended December 31, 1996. Of
the increase, $151.3 million was associated with the Company's Australian
operations, which were acquired March 1, 1996, while the remaining $20.5
million of net revenue growth was associated primarily with the commencement
and expansion of the Company's operations in the United States and the United
Kingdom.
Cost of revenue increased $157.4 million, from $1.4 million for the year
ended December 31, 1995 to $158.8 million for the year ended December 31, 1996
as a direct result of the increased net revenue. Most of the Company's cost of
revenue are variable, since the Company had limited Network during this period
and functioned primarily as a switchless reseller. The cost of revenue in the
United States reflects the start-up nature of the network operations and
traffic being carried on more expensive carriers until adequate capacity on
lower cost carriers could be established.
Selling, general and administrative expenses increased $18.1 million, from
$2.0 million to $20.1 million for the year ended December 31, 1996 as compared
to the year ended December 31, 1995. Approximately $11.4 million of the
increase was attributable to the ten months of activity associated with the
Australian operations and the remaining $6.7 million related to the non-
Australia operations as a result of increased staffing levels, increased sales
and marketing activity and network operations costs. The Australian selling,
general and administrative expense as a percentage of net revenue was 7.5% for
the ten months ended December 31, 1996. The non-Australian selling, general
and administrative costs as a percentage of net revenue for the year ended
December 31, 1996 was 40% of net revenue which reflects the growth in the
infrastructure necessary to support future net revenues.
Depreciation and amortization increased from $0.2 million for the year ended
December 31, 1995 to $2.2 million for the year ended December 31, 1996. The
majority of the increase is a result of the acquisition of Axicorp and is
comprised of amortization of goodwill and the customer lists which totaled
$1.3 million. The remaining depreciation is related primarily to Axicorp's
assets and increased depreciation expense for the Company as a result of
additional capital expenditures for switching and network related equipment.
Other income (expense) for the year ended December 31, 1996 related to
foreign currency transaction losses on the Australian dollar-denominated debt
incurred by the Company payable to the sellers for its acquisition of Axicorp
as a result of the appreciation of the Australian dollar against the United
States dollar during the period.
Income taxes were primarily attributable to the operations of Axicorp for
the ten months from the date of purchase, and represents the amount of expense
for Australian taxes.
For the Year Ended December 31, 1995 Compared to the Period from Inception
(February 4, 1994) to December 31, 1994
Net revenue and cost of revenue in 1995 were $1.2 million and $1.4 million,
respectively. During the period ended December 31, 1994, the Company did not
have net revenue or cost of revenue as it was in the development stage and
involved in various start-up activities including raising capital, obtaining
licenses, acquiring equipment, leasing space, developing markets, and
recruiting and training personnel. In March 1995, the Company began generating
net revenue and associated cost of revenue.
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Gross deficit for 1995 was $0.2 million. As the Company began generating
revenue in 1995, there were fixed network costs that were not offset by the
net revenue generated.
Selling, general and administrative expenses increased from $0.6 million in
1994 to $2.0 million in 1995. The increase was primarily due to additional
costs incurred to support the formation of the Company's administrative,
management, sales and operations personnel.
Depreciation and amortization was $0.2 million in 1995. The depreciation and
amortization expense was directly related to the purchase of Network
equipment, including the Company's switch in Washington, D.C.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from net cash used in operating
activities; purchases of network equipment including switches, related
equipment, and international fiber cable capacity; and interest and principal
payments on outstanding indebtedness, including capital leases. The Company
has financed its growth through private placements, the Initial Public
Offering and capital lease financing.
Net cash provided by (used in) operating activities was $1.8 million for the
three months ended March 31, 1997, $(6.9) million for the year ended December
31, 1996, and $(2.0) million for the year ended December 31, 1995. The
increase in cash provided by operating activities for the three months ended
March 31, 1997 was primarily the result from an increase in accounts payable
associated with capital expenditures that are expected to be financed. The
increased cash usage for the years ended December 31, 1996 and 1995 was the
result of an increase in the net loss partially offset by increases in
accounts payable and accrued expenses.
Net cash provided by (used in) investing activities was $11.0 million for
the three months ended March 31, 1997, $(39.6) million for the year ended
December 31, 1996 and $(0.4) million for the year ended December 31, 1995.
Cash provided by investing activities for the three months ended March 31,
1997 was the result of the sale of investments of $19.8 million and capital
expenditures of $8.8 million primarily to expand the Network. The cash
utilized during the year ended December 31, 1996 includes $12.7 million for
capital expenditures to expand the Network and $1.7 million for the purchase
of Axicorp, net of cash acquired.
Net cash provided by (used in) financing activities was $(4.4) million for
the three months ended March 31, 1997, $79.5 million for the year ended
December 31, 1996 and $4.5 million for the year ended December 31, 1995. Net
cash used in financing activities for the three months ended March 31, 1997
resulted from payments on the Axicorp acquisition notes and payments related
to other obligations. In January 1996 and July 1996, the Company completed
private placements of Common Stock generating net proceeds of approximately
$4.7 million and $15.8 million, respectively. In November 1996, the Company
completed its Initial Public Offering of its Common Stock and generated net
proceeds of approximately $54.4 million.
The Company anticipates aggregate capital expenditures of approximately $88
million in 1997 and 1998. Such capital expenditures will be primarily for
international and domestic switches and points of presence, international
fiber capacity and satellite earth station facilities for new and existing
routes and other transmission equipment and support systems. The Company also
intends to add up to three switches in the United States (expected to be
located in Chicago, Dallas and Miami), three switches in Europe (expected to
be located in Frankfurt, Paris and Rome), one switch in Mexico (Mexico City)
and one switch in Japan (Tokyo), and approximately 15 points of presence in
other major metropolitan areas of the Targeted Regions, all by the end of
1998. The Company also expects to continue to acquire additional capacity on
both existing and future international fiber cable systems.
The Company believes that the net proceeds from the Offering, together with
its existing cash and available capital lease financing (subject to the
limitations contained in the Indenture) will be sufficient to fund the
Company's operating losses, debt service requirements, capital expenditures
(including the development of the Network as currently contemplated) and other
cash needs for its operations for approximately 18 to 24 months. If the
Company enters into the Senior Credit Facility, the Company believes it would
have sufficient funding to
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cover planned expansion of the Network and operating losses until such time as
the Company begins to generate operating income; however, this is a forward-
looking statement and there can be no assurance in this regard. There can be
no assurance that the Company will obtain the Senior Credit Facility on the
terms set forth in the Commitment Letter, if at all. See "Description of
Senior Credit Commitment." Furthermore, there can be no assurance that the
Company will be able to obtain a substitute credit facility or capital lease
financing on commercially reasonable terms, if at all. Moreover, the Company
may need to raise additional cash depending on the development of the Network
and the level of the Company's operations and its operating cash flow.
From time to time the Company evaluates acquisitions of businesses which
complement the business of the Company. Depending on the cash requirements of
potential transactions, the Company may finance such transactions with bank
borrowings, through other debt financing vehicles, or through the issuance of
capital stock. The Company, however, presently has no understanding,
commitment or agreement with respect to any acquisition. There can be no
assurance that if the Company were to pursue such an opportunity, any such
acquisition would occur or that the funds to finance any such acquisition
would be available on reasonable terms, if at all.
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BUSINESS
GENERAL
Primus is a multinational telecommunications company that focuses on the
provision of international and domestic long distance services. The Company
seeks to capitalize on the increasing business and residential demand for
international telecommunications services generated by the globalization of
the world's economies and the worldwide trend toward deregulation of the
telecommunications sector. The Company has targeted North America, Asia-
Pacific and Europe as its primary service regions. The Company currently
provides services in the United States, Australia and the United Kingdom,
which are the most deregulated countries within the Targeted Regions and which
serve as regional hubs for expansion into additional markets within the
Targeted Regions. As part of the execution of its strategy, the Company also
has expanded its operations to include Canada. The Company expects to expand
into additional markets as deregulation occurs and the Company is permitted to
offer a full range of switched public telephone services in such markets. For
the three months ended March 31, 1997 and the twelve months ended December 31,
1996, the Company had net revenue of approximately $59 million and pro forma
net revenue of approximately $199 million, after giving pro forma effect to
the Company's March 1996 acquisition of Axicorp, the fourth largest
telecommunications provider in Australia. The Company's Australian operations
generated approximately $46.9 million, or 79%, of the Company's net revenue
for the three months ended March 31, 1997, and approximately $177.6 million,
or 89%, of the Company's pro forma net revenue for the year ended December 31,
1996. The Company has approximately 100,000 customers and, as of June 30,
1997, had 516 full-time employees.
The Company primarily targets, on a retail basis, small- and medium-sized
businesses with significant international long distance traffic and ethnic
residential customers and, on a wholesale basis, other telecommunications
carriers and resellers with international traffic. The Company provides a
broad array of competitively priced telecommunications services, including
international long distance to over 200 countries, domestic long distance, and
international and domestic private networks, as well as local switched and
cellular services in Australia, prepaid and calling cards in the United
States, Canada, the United Kingdom and Australia, and toll-free services in
the United States and Canada. The Company markets its services through a
variety of sales channels, including direct sales, independent agents, direct
marketing and associations.
The Company has constructed and is implementing an international
telecommunications network to reduce and control costs, improve service
reliability and increase flexibility to introduce new products and services.
Management believes that as the volume of telecommunications traffic carried
on the Network increases, the Company should improve its profitability as it
realizes economies of scale. In July 1997, the Company became one of five
licensed carriers permitted to own and operate transmission facilities in
Australia. Major components of the Network include the following:
Switches. Since December 31, 1996, when the Company operated one
international gateway switch in Washington, D.C., the Company's Network has
grown to consist of eleven switches, including seven international gateway
switches (New York, Los Angeles, Washington, D.C., Toronto, Vancouver, London,
Sydney) and four domestic switches (Adelaide, Brisbane, Melbourne and Perth).
The Company's international gateway switches will serve as the base for its
global expansion of the Network into new countries as regulatory rules permit
the Company to compete in these new markets. By the end of 1998, the Company
intends to add up to three switches in the United States (expected to be
located in Chicago, Dallas and Miami), three switches in Europe (expected to
be located in Frankfurt, Paris and Rome), one switch in Mexico (Mexico City)
and one switch in Japan (Tokyo), and approximately 15 points of presence in
other major metropolitan areas of the Targeted Regions.
Transmission Capacity. The Company owns and leases transmission capacity
which connects its switches to each other and to the networks of other
international and domestic telecommunications carriers, including MAOUs in two
undersea fiber optic cable systems, which are TAT-12/TAT-13 and TPC-5, and
IRUs in three undersea fiber optic cable systems, which are CANUS-1, CANTAT-3
and TAT-12/TAT-13. During the first quarter of 1997, the Company's Los Angeles
switch was connected to its network in Australia via a trans-
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Pacific undersea fiber optic cable system. During the second quarter of 1997,
the Company's New York switch was connected to its London switch via trans-
Atlantic undersea fiber optic cable systems. This trans-Atlantic connection
follows the December 1996 receipt by the Company of a full, facilities-based
United Kingdom license which, among other things, allows the Company to own
the United Kingdom half of international circuits. In July 1997, the Company
became one of five licensed carrier's permitted to own and operate
transmission facilities in Australia. The Company expects to continue to
acquire additional capacity on both existing and future international fiber
optic cable systems.
Foreign Carrier Agreements. In selected countries where competition with the
local PTT is limited or not currently permitted, the Company has entered into
foreign carrier agreements with PTTs or other authorized service providers
which permit the Company to provide traffic into and receive return traffic
from these countries. The Company has existing foreign carrier agreements with
the government-controlled PTTs in India, Iran and Honduras and, in April 1997,
entered into a foreign carrier agreement with the CyTA to establish a direct,
fiber optic connection with the Company's London switch for international long
distance primarily to countries in the Middle East. The Company also has
entered into foreign carrier agreements in Israel, Malaysia, New Zealand and
Sri Lanka which are expected to become effective by the end of 1997. The
Company views foreign carrier agreements as viable means of transmitting
traffic to countries that have yet to become deregulated. The Company intends
to enter into several other foreign carrier agreements by the end of 1998.
INDUSTRY OVERVIEW
General. The international long distance industry, which involves the
transmission of voice and data from the domestic telephone network of one
country to another, is undergoing a period of fundamental change that has
resulted, and is expected to continue to result, in significant growth in
usage of international telecommunications services. In 1995, the international
long distance industry accounted for $55 billion in revenues and 60 billion
minutes of use, up from $22 billion in revenues and 17 billion minutes of use
in 1986. Industry sources estimate that by the year 2000 this market will have
expanded to $78 billion in revenues and 117 billion minutes of use,
representing compound annual growth rates from 1995 of 7.2% and 14.3%,
respectively.
The Company believes the growth in international long distance services is
being driven by (i) increased demand for international telecommunications
services generated by the globalization of the world's economies and the
worldwide trend toward deregulation of the telecommunications sector, (ii)
declining prices and a wider choice of products and services driven by greater
competition resulting from privatization and deregulation, (iii) increased
telephone density and accessibility resulting from technological advances and
greater investment in telecommunications infrastructure, including deployment
of wireless networks, and (iv) increased international business and leisure
travel.
The competition spurred by privatization and deregulation, in addition to
resulting in a wider choice of products and services, has resulted in lower
prices. The Company believes, however, that the lower price environment
resulting from the increase in competition has been more than offset by cost
decreases, as well as an increase in telecommunications usage. For example,
based on FCC data for the period 1989 through 1995, per minute settlement
payments by United States-based carriers to foreign PTTs fell 31%, from $0.70
per minute to $0.48 per minute. Over this same period, however, per minute
international billed revenue fell only 11%, from $1.02 in 1989 to $0.91 in
1995. Therefore, gross profit per international minute (before local access
charges) grew from $0.32 in 1989 to $0.43 in 1995, a 34% increase. Although
there can be no assurances, the Company believes that as settlement rates and
costs for leased capacity continue to decline, international long distance
will continue to provide high revenue and gross profit per minute. See "Risk
Factors--Intense Domestic and International Competition."
Classification of Service Providers. International long distance carriers
generally can be categorized according to ownership and use of transmission
facilities and switches. Although no carrier utilizes exclusively owned
facilities for the transmission of all of its long distance traffic, carriers
vary from being primarily facilities-
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based (i.e. they own and operate their own land based or undersea cable and
switches) to those that are purely resellers of another carrier's transmission
network. Generally, the first-tier long distance companies (e.g., AT&T, MCI
and Sprint in the United States; British Telecom and Mercury in the United
Kingdom; Telstra and Optus in Australia; and Stentor in Canada) are
transmission facilities-based carriers that own and operate a domestic fiber-
based network. Second-tier long distance companies (e.g., Frontier and LCI in
the United States; WorldCom and ACC in the United Kingdom; AAPT in Australia;
and Call-Net and f ONOROLA in Canada) own switching facilities but generally
do not own cable transmission facilities. The third-tier of the market
consists of long distance companies that are generally switchless resellers
that rely on the transmission facilities of other carriers.
Regulatory and Competitive Environment. Prior to deregulation, the long
distance carriers in any particular country generally were government-owned
monopoly carriers, such as British Telecom in the United Kingdom, Telstra in
Australia and Telmex in Mexico. Deregulation of a particular
telecommunications market typically has begun with the introduction of a
second long distance carrier, followed by the authorization of multiple
carriers. In the United States, one of the first deregulated markets,
deregulation began in the 1960's with MCI's authorization to provide long
distance service and was followed in 1984 by AT&T's divestiture of the RBOCs
and, most recently, by the passage of the 1996 Telecommunications Act.
Deregulation has occurred elsewhere, such as in the United Kingdom, and is
being implemented in other countries, including Australia and Mexico. In
addition, the United States and 67 other countries participating in the
recently signed WTO Agreement are expected to open their telecommunications
markets starting January 1, 1998.
Call Dynamics. A long distance telephone call consists of three parts:
origination, transport and termination. Generally, a domestic long distance
call originates on a local exchange network and is transported to the network
of a long distance carrier. The call is then carried along the long distance
network to another local exchange network where the call is terminated. An
international long distance call is similar to a domestic long distance call,
but typically involves at least two long distance carriers: the first carrier
transports the call from the country of origination, and the second carrier
terminates the call in the country of termination. These long distance
telephone calls are classified as one of three types of traffic. A call made
from the United States to the United Kingdom is referred to as outbound
traffic for the U.S. carrier and inbound traffic for the United Kingdom
carrier. The third type of traffic, international transit traffic, originates
and terminates outside a particular country, but is transported through that
country on a carrier's network. Since most major international fiber optic
cable systems are connected to the United States, and international long
distance prices are substantially lower in the United States than in other
countries, a large volume of international transit traffic is routed through
the United States.
International calls are transported by land-based or undersea cable or by
microwave via satellites. A carrier can obtain voice circuits on cable systems
either through ownership or leases. Ownership in cables is acquired either
through IRUs or MAOUs. The fundamental difference between an IRU holder and an
owner of MAOUs is that the IRU holder is not entitled to participate in
management decisions relating to the cable system. Between two countries, a
carrier from each country owns a "half-circuit" of a cable, essentially
dividing the ownership of the cable into two equal components. Additionally,
any carrier generally may lease circuits on a cable from another carrier.
Unless a carrier owns a satellite, satellite circuits also must be leased from
one of several existing satellite systems.
Accounting Rate System. Under the accounting rate system (also known as the
settlement system), which is the traditional regulatory model, international
long distance traffic is exchanged under bilateral foreign carrier agreements
between carriers in two countries. Foreign carrier agreements generally are
three to five years in length and provide for the termination of traffic in,
and return traffic to, the carriers' respective countries at a negotiated
accounting rate, known as the Total Accounting Rate ("TAR"). In addition,
foreign carrier agreements provide for network coordination and accounting and
settlement procedures between the carriers. Both carriers are responsible for
their own costs and expenses related to operating their respective halves of
the end-to-end international connection.
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Settlement costs, which typically equal one-half of the TAR, are the fees
owed to another international carrier for transporting traffic on its
facilities. Settlement costs are reciprocal between each party to a foreign
carrier agreement at a negotiated rate (which must be the same for all U.S.-
based carriers, unless the FCC approves an exception). For example, if a
foreign carrier charges a U.S. carrier $0.30 per minute to terminate a call in
the foreign country, the U.S. carrier would charge the foreign carrier the same
$0.30 per minute to terminate a call in the United States. Additionally, the
TAR is the same for all carriers transporting traffic into a particular
country, but varies from country to country. The term "settlement costs" arises
because carriers essentially pay each other on a net basis determined by the
difference between inbound and outbound traffic between them. The following
chart illustrates an international long distance call using the settlement
system:
[GRAPH APPEARS HERE]
[TRADITIONAL METHOD OF TRANSPORTING INTERNATION TRAFFIC -- USING FOREIGN
CARRIER AGREEMENTS CHART APPEARS HERE]
Foreign carrier agreements typically provide that a carrier will return
terminating traffic ("return traffic") in proportion to the traffic it
receives. Return traffic generally is more profitable than outgoing traffic
because the settlement rate per minute is substantially greater than the
incremental cost of terminating a call in the country due to the lack of
marketing expense and billing costs, as well as the lower cost structure
associated with terminating calls in the United States. Generally, there is a
six-month lag between outbound traffic and the allocation of the corresponding
return traffic and, in certain instances, a minimum volume commitment must be
achieved before qualifying for receipt of return traffic.
Alternative Calling Procedures. As the international long distance market has
deregulated, long distance companies have devised alternative calling
procedures ("ACPs") in order to complete calls more economically than under the
accounting rate system. Some of the more significant ACPs include (i) transit,
(ii) refiling or "hubbing," (iii) international simple resale ("ISR"), and (iv)
call-back. The most common method is transit which allows traffic between two
countries to be carried through a third country on another carrier's network.
This procedure, which requires agreement among the particular long distance
companies and the countries involved, generally is used either for overflow
traffic during peak periods or where the direct circuit may not be available or
justified based on traffic volume. Refiling or "hubbing" of traffic, which
takes advantage of disparities in settlement rates between different countries,
allows traffic to a potential country to be treated as if it originated in
another country that enjoys lower settlement rates with the destination
country, thereby resulting in a lower overall costs on an end-to-end basis.
U.S. based carriers are beneficiaries of refiling on behalf of other carriers
because of low international rates. The difference between transit and refiling
is that, with respect to
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transit, the carrier in the destination country has a direct relationship with
the originating carrier, while with refiling, the carrier in the destination
country is likely not to even know the identity of the originating carrier.
The choice between transit and refiling is determined primarily by cost. With
ISR, a carrier may completely bypass the settlement system by connecting an
international leased line to the public switch telephone network ("PSTN") of a
foreign country or directly to a customer premise. ISR currently is allowed by
applicable regulatory authorities between a limited number of international
routes, including Canada-United Kingdom, United States-United Kingdom, United
States-Sweden and United Kingdom-Australia and is currently experiencing
increasing usage. Call-back avoids the high international rates in a
particular country of origin by providing dial tone in a second country with a
lower rate, typically the United States.
Industry Strategies. Strategies to provide international long distance
services are driven by the emergence of ACPs and the increased demand for
seamless services on a global basis. First-tier service providers primarily
utilize foreign carrier agreements in order to provide international service.
Second-tier carriers and new entrants primarily are utilizing ACPs and are
developing networks to compete with the first-tier carriers and gain market
share. In response, first-tier carriers have formed alliances to provide
seamless services and one-stop shopping on a global basis. Examples include
Global One (an alliance among Sprint, Deutsche Telekom, France Telecom and
others), Concert (an alliance between British Telecom and MCI) and
WorldPartners (an alliance among AT&T, Unisource and others). Certain new
entrants, including the Company, are establishing their own operations in
multiple countries and, to the extent required to serve other selected
markets, alliances or other arrangements with other carriers.
Description of Operating Markets. The following is a summary of the size,
growth prospects and competitive and regulatory environments of the domestic
and international long distance industries in the principal jurisdictions in
which the Company provides its services:
UNITED STATES. The United States long distance market is highly
deregulated and is the largest in the world. According to the FCC, in 1995
long distance telephone revenue was $72.5 billion, including $14.0 billion
from international services (representing 19.3% of the total market). AT&T has
remained the largest long distance carrier in the United States market, with
market share of 53.0%, while MCI and Sprint have market shares of 17.8% and
10.0%, respectively. AT&T, MCI and Sprint constitute what generally is
regarded as the first-tier in the United States long distance market. Other
large long distance companies with more limited ownership of transmission
capacity, such as WorldCom, Frontier and LCI, constitute the second-tier of
the industry. The remainder of the United States long distance market is
comprised of several hundred smaller companies, largely resellers, which are
known as third-tier carriers.
CANADA. The market for international and domestic long distance services
in Canada accounted for approximately C$8.0 billion in revenues. In Canada,
Stentor, a partnership of Canadian regional telephone companies, is the
largest provider of long distance services with a market share of
approximately 56%. Two types of long distance providers compete with Stentor.
The first, which includes AT&T LDS, f ONOROLA and Sprint Canada, own and
operate interexchange circuits and offer essentially the same services as
Stentor. The second type of competitor consists of other long distance
providers that lease but do not own interexchange circuits and sell their
services primarily to distinct niche markets, such as ethnic communities,
affinity associations or small business associations.
AUSTRALIA. In 1996, the market for international and domestic long
distance services in Australia accounted for approximately A$4.7 billion in
revenues. Telstra and Optus are classified as "carriers" because they can own
and operate local, national and international transmission networks. Telstra,
which is owned by the Australian government, is a traditional facilities-based
carrier with a market share of approximately 73.4% in 1995. In addition to the
Company and Optus, Telstra currently competes against switched-based resellers
such as AAPT, and several switchless resellers and call-back service
providers, including CorpTel. Australia has further deregulated its long-
distance market in recent legislation, which became effective in July 1997, by
allowing service providers other than Telstra and Optus to own domestic
transmission facilities and mandating Telstra to provide equal (non-code)
access to customers of select service providers such as the Company. As a
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result of this legislation, both the Company and AAPT are now licensed
carriers permitted to own and operate transmission facilities in Australia.
UNITED KINGDOM. Oftel estimates that the market for international and
domestic long distance services in the United Kingdom accounted for
approximately (Pounds)1.4 billion and (Pounds)2.1 billion in revenues,
respectively, for the fiscal year ended March 31, 1996. In the United Kingdom,
British Telecom historically has dominated the telecommunications market and
is the largest carrier. Mercury, which owns and operates interchange
transmission facilities, is the second largest carrier. The remainder of the
United Kingdom long distance market is comprised of an emerging market of
licensed telecommunications service providers, such as Energis, and switch-
based resellers, such as AT&T, WorldCom, MFS, ACC and Esprit.
MEXICO. The market for long distance voice and data telephone services in
Mexico accounted for approximately 29.7 billion pesos in 1996. As of January
1, 1997, the local and long distance market was opened to facilities-based
competition in Mexico. Mexico, however, imposes foreign ownership restrictions
that limit the ownership of facilities-based carriers by non-Mexican persons
to below 50%. The Mexican government has granted licenses to ten companies
(many of them affiliated with U.S.-based long distance carriers such as AT&T
and MCI) to operate as facilities-based long distance carriers. Resale of
basic switched voice long distance services, however, is still not allowed in
Mexico. Primus provides United States-Mexico cross border private line
services, but is prohibited by the private ownership limitations from
providing other services.
PRIMUS STRATEGY
The Company's objective is to become a leading provider of international and
domestic long distance voice, data and value-added services to its target
customers. The Company's strategy to achieve this objective is to focus on
providing a full range of competitively priced, high-quality services in the
Targeted Regions. Key elements in the Company's strategy include:
. Focus on Customers with Significant International Long Distance
Usage. The Company's primary focus is providing telecommunications
services to small- and medium-sized businesses with significant
international long distance traffic and to ethnic residential customers
and, on a wholesale basis, to other telecommunications carriers and
resellers with international traffic. The Company believes that the
international long distance market offers an attractive business
opportunity given its size and, as compared to the domestic long distance
market, its higher revenue per minute, gross margin and expected growth
rate. Although the Company expects to obtain a significant percentage of
its revenues from offering international long distance services, the
Company currently generates, and expects to continue to generate over the
near term, a greater percentage of net revenue from domestic long
distance services in an effort to build traffic volumes more quickly to
achieve economies of scale.
. Pursue Early Entry into Selected Deregulating Markets. Primus seeks to be
an early entrant into selected overseas deregulating telecommunications
markets where it believes there is significant demand for international
long distance services, substantial growth and profit potential, and the
opportunity to establish a customer base and achieve name recognition.
The Company intends to use each Operating Hub as a base to expand into
deregulating markets within the Targeted Regions and will focus its
expansion efforts on major metropolitan areas with a high concentration
of target customers with international traffic. The Company believes that
management's international telecommunications experience will assist it
in successfully identifying and launching operations in deregulating
markets.
. Implement Intelligent International Network. The Company expects that the
strategic development of the Network will lead to reduced transmission
and other operating costs as a percentage of net revenue, reduced
reliance on other carriers and more efficient network utilization. The
Network consists of (i) a global backbone network connecting intelligent
gateway switches in the Targeted Regions, (ii) a domestic long distance
network presence in each of the Operating Hubs and certain additional
countries within the Targeted Regions, and (iii) a combination of owned
and leased transmission facilities, resale arrangements and foreign
carrier agreements. In an effort to manage transmission costs, the
Company
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pursues a flexible approach with respect to Network expansion. In most
instances, the Company initially obtains additional capacity on a variable
cost, per-minute basis, next acquires additional capacity on a fixed cost
basis when traffic volumes make such a commitment cost-effective, and
ultimately purchases and operates its own facilities only when traffic
levels justify such investment.
. Deliver Quality Services at Competitive Prices. Management believes that
the Company delivers high-quality services at competitive prices and
provides a high level of customer service. The Company intends to
maintain a low-cost structure in order to offer its customers
international and domestic long distance services priced below that of
its major competitors. In addition, the Company intends to maintain
strong customer relationships through the use of trained and experienced
service representatives and the provision of customized billing services.
. Provide a Comprehensive Package of Services. The Company seeks to provide
a comprehensive package of services to create "one-stop shopping" for its
targeted customers' telecommunications needs, particularly for small- and
medium-sized businesses and ethnic residential customers that prefer a
full service telecommunications provider. The Company believes this
approach strengthens its marketing efforts and increases customer
retention.
. Grow through Selected Acquisitions. As part of its business strategy, the
Company frequently evaluates potential acquisitions, joint ventures and
strategic alliances. The Company views acquisitions as a means to enter
additional markets and expand its operations within existing markets. The
Company's acquisition criteria include long-distance service providers
with an established customer base, complementary operations, licenses to
operate as an international carrier, an experienced management team, and
businesses in countries into which the Company seeks to enter.
NETWORK
Network Design. Once completed, the Company's Network will consist of (i) a
global backbone network connecting intelligent gateway switches in the
Targeted Regions, (ii) a domestic long distance network presence within each
of the Operating Hubs and certain additional countries within the Targeted
Regions, and (iii) a combination of owned and leased transmission facilities,
resale arrangements and foreign carrier agreements.
The Company has targeted North America, Asia-Pacific and Europe for the
development of the Network. Within each of these Targeted Regions, the Company
has selected the United States (North America), Australia (Asia-Pacific) and
the United Kingdom (Europe) as regional hubs for expansion into additional
markets within the Targeted Regions. These countries were selected based on
their market size, potential growth and favorable regulatory environments. The
Company has a domestic presence within each of these countries and has begun
to construct its global backbone network by interconnecting these countries
via international gateway switches, and owned and leased transmission
facilities. The Company has an established customer base in Australia and is
in the process of building its customer base in major metropolitan areas in
the Targeted Regions, which will provide the Company with separate points of
originating traffic that experience peak network usage at different times of
the day, thereby allowing the Company to attain higher utilization of the
Network. The Company expects to expand into additional markets as deregulation
occurs and the Company is permitted to offer a full range of switched public
telephone services. For instance, the Company has used its U.S. operations to
initiate operations with and into Mexico, and recently, the Company has
expanded its operations in Canada by acquiring certain assets of Cam-Net. The
Company intends to use its United Kingdom operations to coordinate efforts to
enter other major metropolitan European markets in the European Union in
conjunction with the scheduled deregulation of the telecommunication industry
in certain European Union countries in 1998.
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The following chart illustrates an international long distance call using the
Network from the United States to another market where the Company has an
international gateway switch:
[GRAPH APPEARS HERE[
DIRECT METHOD OF TRANSPORTING INTERNATIONAL TRAFFIC -- PRIMUS CONNECTIONS
Network Implementation. Since December 31, 1996, when the Company operated
one international gateway switch in Washington, D.C., the Company's Network has
grown to eleven switches in 1997, including seven international gateway
switches (New York, Los Angeles, Washington, D.C., Toronto, Vancouver, London,
Sydney) and four domestic switches (Adelaide, Brisbane, Melbourne and Perth).
By the end of 1998, the Company intends to add up to three switches in the
United States (expected to be located in Chicago, Dallas and Miami), three
switches in Europe (expected to be located in Frankfurt, Paris and Rome), one
switch in Mexico (Mexico City) and one switch in Japan (Tokyo), and
approximately 15 points of presence in other major metropolitan areas of the
Targeted Regions. The Company's international gateway switches will serve as
the base for the Company's global expansion of the Network as more countries
deregulate their telecommunications industries. In addition, the Company owns
and leases transmission capacity connecting its switches with one another and
connecting its Network to the networks of other international and domestic
carriers, and has entered into foreign carrier agreements with PTTs and other
authorized service providers in other regions. The Company intends to install
additional points of presence and switches in major metropolitan areas of the
Targeted Regions as the traffic usage warrants the expenditure.
Each of the international gateway switches will be connected to the domestic
and international networks of both the Company and other carriers in a
particular market, allowing the Company to (i) provide seamless service, (ii)
package and market the voice and data services purchased from other carriers
under the "Primus" brand name, and (iii) divert a portion of that market's
U.S.-bound return traffic through the Company's switches in the United States.
In addition, until the Company's customer base grows and it penetrates other
deregulating telecommunications markets, the Company intends to transit a
significant portion of its traffic through the United States. Where the
Company's customer base has developed sufficient traffic, the Company has
purchased and leased transmission capacity to connect to its various switches.
Where traffic is light or moderate, the Company obtains capacity to transmit
traffic on a per-minute variable cost basis. When traffic volume increases and
such commitments are cost effective, the Company intends to either lease or
purchase lines on a monthly or longer term basis at a fixed cost and acquire
economic interests in transmission capacity through IRUs to international
points.
In countries with highly regulated markets and significant inbound traffic
from its customers and targeted customer segments, the Company intends to use
foreign carrier agreements when necessary. Assuming significant levels of
inbound and outbound traffic, foreign carrier agreements may allow the Company
to offer better value to customers calling these markets by improving the
Company's economics over these routes.
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UNITED STATES. In December 1996, the Network in the United States
consisted of one switch located in Washington, D.C. servicing a small number
of business customers. Since then, the Company's network in the United States
has expanded through the purchase of two new Northern Telecom international
gateway switches which were installed in Los Angeles for calls to the Asia-
Pacific region and the New York City area for calls to Europe. These switches
were interconnected via leased fiber optic lines within the United States, and
regional service has started in New York and Los Angeles. In the first quarter
of 1997, the Los Angeles switch was connected to Primus's network in Australia
via a trans-Pacific underseas fiber optic cable system. The New York switch
was connected to Primus's London switch during the second quarter of 1997 via
trans-Atlantic underseas fiber optic cable systems.
CANADA. In the first quarter of 1997, the Company furthered its
development of the Network in Canada by installing and activating its Siemen's
switch in Toronto. In April 1997, the Company acquired selected assets,
including the customer base and accounts receivable, of Cam-Net, expanding its
points of presence in Canada to include the Vancouver and Montreal
metropolitan areas.
AUSTRALIA. Following the acquisition of Axicorp in March 1996, the Company
has invested substantial resources to transform Axicorp's strategy and
operations to those of a facilities-based carrier focused on the provision of
international and domestic long distance services, including the acquisition
and installation of five Northern Telecom switches for use in Sydney,
Melbourne, Perth, Adelaide, and Brisbane (which became operational during the
first quarter of 1997), and has been focusing on increasing the number of
higher-margin, higher-volume business customers with significant international
long distance traffic. In the first quarter of 1997, Axicorp's switch was
connected to the Company's U.S. network through leased undersea trans-Pacific
fiber circuits. In July 1997, the Company became one of five licensed carriers
permitted to own and operate transmission facilities in Australia.
UNITED KINGDOM. The Company's start-up operation in the United Kingdom
initially provided services on a resale basis using a switch operated by
Telia, the monopoly carrier in Sweden. Recently, the Company purchased an AXE-
10 telephone switch from Ericsson which was installed in London, is
operational, and has begun carrying commercial traffic. In December 1996, the
Company's subsidiary Primus Telecommunications Ltd. was awarded a full
facilities-based telecommunication carrier license, pursuant to which the
Company may operate its own switches and own fiber optic cables. In addition,
the license allows direct access to certain satellite systems (INTELSAT,
EUTELSAT, and INMARSAT), and permits the Company to enter into direct foreign
carrier agreements with carriers in other countries. In 1997, the Company also
expects to develop its Network in the United Kingdom by securing additional
international fiber capacity to other European countries and the United
States.
OTHER REGIONS. In 1996, the Company entered into foreign carrier
agreements with PTTs in India, Iran and Honduras. In an effort to expand the
Network, the Company entered into a foreign carrier agreement in April 1997
with CyTA to establish a direct fiber-optic connection between the companies
for international long distance service. The new link will connect the
Company's international gateway switch in London with CyTA's gateway switch in
Cyprus which is linked to countries in the Middle East including Israel,
Syria, and Lebanon. The Company has also entered into foreign carrier
agreements in Israel, Malaysia, New Zealand and Sri Lanka which are expected
to become effective by the end of 1997. The Company views foreign carrier
agreements as viable means of transmitting traffic to countries that have yet
to become deregulated. The Company intends to enter into several other foreign
carrier agreements by the end of 1998.
FUTURE DEVELOPMENT OF THE NETWORK. In conjunction with the scheduled
deregulation of the telecommunication industry in certain European Union
countries in 1998, the Company intends to use its United Kingdom operations to
coordinate efforts to enter other major metropolitan European markets,
including those in Denmark, France, Germany, Ireland, Italy, Sweden and Spain.
In Mexico, the Company provides United States-Mexico cross border private line
services and, as deregulation occurs, the Company intends to add additional
services. In addition, as the telecommunications industry in Japan begins to
deregulate, the Company intends to apply for a license that will enable it to
operate as a carrier. By the end of 1998, the Company intends to add up
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to three switches in the United States (expected to be located in Chicago,
Dallas and Miami), three switches in Europe (expected to be located in
Frankfurt, Paris and Rome), one switch in Mexico (Mexico City) and one switch
in Japan (Tokyo), and approximately 15 points of presence in other major
metropolitan areas of the Targeted Regions. There can be no assurances that
Company will be able to obtain the necessary licenses or purchase the
necessary equipment on favorable terms, or if it does, that the development of
the Network in these regions will be successful.
Network Management and Control. The Company owns and operates a network
management control center (a "NMCC") in Sydney, Australia which is used to
monitor and control all switches and other transmission equipment used in its
Australia Network. This NMCC operates seven days a week, 24 hours per day, 365
days a year. In the United States, United Kingdom and Canada, the Company
currently monitors and controls each switch locally. The Company plans to use
a portion of the net proceeds of this Offering to build new NMCCs in London
and Vienna, Virginia, and to upgrade the existing Sydney NMCC. Each of the
NMCCs will be capable of monitoring and controlling the Network in all
regions.
SERVICES
Primus offers a broad array of telecommunications services through the
Network and through interconnection with the networks of other carriers. While
over time the Company intends to offer a broad range of bundled
telecommunication services, the availability of services within a particular
market will depend upon regulatory constraints and the availability of
services for resale. In order to create a global brand identity, the Company
operates under the name "Primus" in all of the Targeted Regions. In addition,
the Company operates under the name "Axicorp" in Australia.
The Company offers the following services in the United States, United
Kingdom, Australia and Canada:
. International and Domestic Long Distance. The Company provides
international long distance voice services to its customers to over 200
countries and provides domestic long distance voice services within each
of the Operating Hubs. On a market-by-market basis, access methods
required to originate a call vary according to regulatory requirements
and the existing domestic telecommunications infrastructure. In the
United States, access methods available to the Company's customers
include "1+", toll-free, dedicated (private line) and prefix code access.
In the United Kingdom, dedicated and prefix code access are used to
originate calls. In Australia, the Company currently is a reseller of
services provided by Telstra. Since the Company now operates its own
switches in Australia, its services can also be accessed through the use
of toll-free, dedicated and prefix code access. Pursuant to the Telecom
Act, the Australian long distance industry is undergoing deregulation
whereby in September 1997 equal (non-code) access is expected to be
available to service providers including the Company.
. Private Network Services. For business customers, the Company designs and
implements international private network services that may be used for
voice, data and video applications. These services are provided on a
turnkey basis whereby the Company installs and operates equipment
necessary to provide end-to-end services at the customer's premises. The
Company's Mexican operations consist exclusively of the provision of
private network services to selected multinational corporations.
. Prepaid and Calling Cards. The Company offers prepaid and calling cards
that may be used by customers for domestic and international telephone
calls within and from their home country. Recently, the Company has
introduced global prepaid and calling cards that enable customers to make
telephone calls in most major countries while they are outside their home
country. With the Company's prepaid card service, a customer purchases a
card that entitles the customer to make phone calls on the card up to
some monetary limit. The customer is provided an access number (local or
toll free phone number) and personal identification number ("PIN"). The
customer dials the access number that accesses the Company's switch and
an attached voice response unit. The unit confirms the authority of the
user to use the account by requiring the PIN to be entered and confirms
that a balance is available on the card. With the Company's calling card
service, the customer selects a PIN. The account is then billed by Primus
on a monthly basis as calls are made using the card.
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In addition, on a market-by-market basis, the Company provides on a stand
alone and/or bundled basis the following services which the Company expects to
introduce over time in all of its markets:
. Cellular and Local Switched Service. The Company provides cellular and
local service in Australia on a resale basis as part of its "one-stop
shopping" marketing approach, subject to commercial feasibility and
regulatory limitations. The Company is one of four national dealers
selling Telstra analog and digital cellular services in Australia and
currently provides local service in Australia. As regulatory rules
permit, the Company may offer cellular and local services on a resale
basis in other markets.
. Toll-free Services. The Company currently provides domestic and
international toll-free services in the United States, United Kingdom and
Canada and intends to offer such services in Australia.
. Data Services. The Company intends to offer Asynchronous Transfer Mode, a
transmission standard which utilizes statistical multiplexing technology
and frame relay and other data services in selected markets. Frame relay
enables multiple users to share communication bandwidth for enhanced data
transmission. The Company also expects to introduce Internet access
services.
. Value-Added Services. The Company intends to offer enhanced facsimile
services, audio and video conferencing, and voice-mail. The Company has
introduced enhanced facsimile services in Mexico, and video and audio
conferencing in the United States.
The Company strives to provide personalized customer service and believes
that the quality of its customer service is one of its competitive advantages.
The Company's larger customers are actively covered by dedicated account and
service representatives who seek to identify, prevent and solve problems. The
Company provides toll-free, 24-hour a day customer service in the United
States, Canada, the United Kingdom and Australia. As of June 30, 1997, the
Company employed 88 full-time customer service employees.
CUSTOMERS
The Company's primary focus is providing telecommunications services, on a
retail basis, to small- and medium-sized businesses with significant
international long distance traffic and ethnic residential customers and, on a
wholesale basis, to other carriers and resellers with international traffic.
During the Company's initial growth phase in each service market, however, the
Company expects that it will build revenue from a variety of customers with
either local or long distance (domestic or international) service needs. As of
June 30, 1997, the Company had 230 sales and marketing personnel operating in
17 offices.
Businesses. The Company's business sales and marketing efforts target small-
and medium-sized businesses with significant international long distance
traffic. The Company believes that these users are attracted to Primus
primarily due to its significant price savings compared to first-tier carriers
and, secondarily, its personalized approach to customer service and support,
including customized billing and bundled service offerings. The Company also
sells its services to large multinational corporations on an opportunistic
basis. As of June 30, 1997, the Company employed 133 full-time direct sales
representatives focused on the business market.
Residential Customers. The Company's residential sales and marketing
strategy targets ethnic residential customers who generate high international
traffic volumes. The Company believes that these consumers will be attracted
to Primus because of its significant price savings as compared to first-tier
carriers, simplified pricing structure, multilingual customer service and
support, and bundled service offerings. As of June 30, 1997, the Company
employed 74 full-time direct sales representatives focused on the ethnic
residential customers.
Telecommunications Carriers and Resellers. The Company competes for the
business of other telecommunications carriers and resellers primarily on the
basis of price and, to a lesser extent, service quality. The Company believes
that long distance services, when sold to telecommunications carriers and
other resellers, are, generally, a commodity product and therefore do not
benefit from special sales or promotional efforts. Sales to these other
carriers and resellers, however, help the Company maximize the use of the
Network and thereby minimize fixed costs per minute of use. As of June 30,
1997, the Company employed 8 direct sales professionals focused on
telecommunications carriers and resellers.
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SALES AND MARKETING
The Company markets its services through a variety of sales channels as
summarized below. The Company's use of these channels may vary from market to
market.
<TABLE>
<CAPTION>
AGENTS AND MEDIA
DIRECT INDEPENDENT AND
SALES SALES DIRECT
FORCE REPRESENTATIVES TELEMARKETING ASSOCIATIONS MAIL
------ --------------- ------------- ------------ ------
<S> <C> <C> <C> <C> <C>
Small/Medium Businesses.................. (SYMBOL (SYMBOL (SYMBOL (SYMBOL (SYMBOL
APPEARS APPEARS APPEARS APPEARS APPEARS
HERE) HERE) HERE) HERE) HERE)
Residential Customers.................... (SYMBOL (SYMBOL (SYMBOL (SYMBOL (SYMBOL
APPEARS APPEARS APPEARS APPEARS APPEARS
HERE) HERE) HERE) HERE) HERE)
Telecommunications
Carriers/Resellers...................... (SYMBOL
APPEARS
HERE)
Multinational Businesses................. (SYMBOL
APPEARS
HERE)
</TABLE>
Direct Sales Force. The Company's direct sales force is comprised of 133
full-time employees who focus on small- to medium-sized business customers
with substantial international telecommunications traffic or traffic
potential. The Company also employs 74 full-time direct sales representatives
focused on ethnic residential customers and 8 direct sales representatives who
exclusively sell wholesale services to other long distance carriers and
resellers. Direct sales personnel are compensated with a base salary plus
sales commissions.
The Company's direct sales efforts are organized around regional hubs
supported by sales offices. The Company currently has 17 sales offices,
including nine in the North America region (Washington, D.C., New York, Los
Angeles, Tampa, Toronto, Vancouver, Montreal, Ottawa and Mexico City), three
in Europe (London, Manchester and Glasgow), and five in the Asia-Pacific
region (Melbourne, Sydney, Adelaide, Brisbane, and Perth). The Company intends
to open additional offices in other major metropolitan areas. These targeted
metropolitan areas have a large number of small- and medium-sized businesses
and significant ethnic populations.
Agents and Independent Sales Representatives. The Company supplements its
direct sales efforts with a network of agents and independent sales
representatives. These agents and representatives, who typically focus on
small- and medium-sized businesses, as well as ethnic residential customers,
are paid commissions based on long distance revenue generated. Within major
metropolitan regions, the Company usually grants only nonexclusive sales
rights, requires its agents and representatives to maintain minimum quotas and
prohibits them from selling competitors' products.
Telemarketing. The Company employs 15 full-time telemarketing sales persons
to supplement sales efforts to ethnic residential customers and small- and
medium-sized business customers. From time to time, the Company also engages
outside telemarketing agents to supplement its internal telemarketing efforts.
Associations. Axicorp successfully markets telecommunications services in
Australia to members of trade and professional associations. Axicorp develops
tailored marketing materials jointly with each association, attends meetings
and trade shows, sponsors events and advertises in newsletters. These
associations receive a fee based on revenue generated by sales to its members.
The Company has started to employ similar marketing programs in the United
Kingdom and the United States and expects to do so in other markets as
appropriate.
Media and Direct Mail. The Company uses a variety of print, television and
radio to increase name recognition in new markets. The Company uses targeted
media and direct mail primarily to reach specific small business or consumer
groups. For example, the Company reaches ethnic residential customers by
advertising campaigns in ethnic newspapers, and on ethnic radio and television
programs.
MANAGEMENT INFORMATION AND BILLING SYSTEMS
The Company uses various management information, network and customer
billing systems in its different operating subsidiaries to support the
functions of network and traffic management, customer service and
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customer billing. For financial reporting, the Company utilizes a common
system in each of its markets. Management believes that its systems are
adequate to meet the Company's needs in the near term, but as the Company
continues to grow, it will invest additional capital to purchase hardware and
software, license more specialized software, increase capacity and link its
systems among different countries.
United States. In the United States, the Company operates systems for
billing and financial reporting. The Company uses a customer billing system
developed by Electronic Data Systems Inc. ("EDS"). Under an agreement with EDS
through the year 2000, EDS supplies, operates and maintains this system and is
responsible for providing back-up facilities and disaster recovery. The EDS
system is widely used in the telecommunications industry and has been
customized to meet the Company's specific needs. The Company direct bills its
business, resellers and the majority of its residential customers. The Company
also has capabilities established through suppliers to bill certain
residential customers through their respective LECs, which charge for the
Company's service in a monthly, all inclusive invoice. In addition, the
Company has developed a proprietary, local area network-based customer service
and support information system which is on-line with the EDS platform. The
Company believes that using an EDS billing platform ensures access to one of
the most technologically advanced and feature rich multi-functional platforms
in the industry. In addition to the billing capabilities, the platform
includes on-line customer service, fraud control and the ability to generate a
variety of reports.
Canada. In Canada, the Company utilizes an in-house proprietary system for
customer billing and customer service and support. The Company direct bills
its residential and business customers using calling data provided by the
switches.
Australia. In Australia, prior to its acquisition by the Company, Axicorp
had developed an in-house proprietary system for customer billing and customer
service and support. The Axicorp billing system is technologically advanced
and possesses features that allow Axicorp to provide its customers with a
single integrated invoice for long distance, local and cellular services. The
Company believes that it is the only provider in Australia with the capability
to provide its customers with such an integrated invoice. All customers are
billed directly by Axicorp.
United Kingdom. In the United Kingdom, the Company direct bills its
residential and business customers through an in-house billing system using
calling data provided by Telia, the Company's main network provider. The
Company has also entered into an agreement with an outside service bureau to
provide billing services with respect to the wholesale carrier and reseller
customers.
COMPETITION
The international telecommunications industry is highly competitive and
significantly affected by regulatory changes, marketing and pricing decisions
of the larger industry participants and the introduction of new services made
possible by technological advances. The Company believes that long distance
service providers compete on the basis of price, customer service, product
quality and breadth of services offered. Within each of its markets, the
Company faces numerous competitors and there are limited barriers to entry in
these markets. The Company believes that as international telecommunications
markets continue to deregulate, competition in these markets will increase,
similar to the competitive environment that has developed in the United States
following the AT&T divestiture in 1984. Prices for long distance calls in
several of the markets in which the Company competes have declined in recent
years and are likely to continue to decrease.
Many of the competitors are significantly larger, have substantially greater
financial, technical and marketing resources and larger networks than the
Company. These competitors include, among others, AT&T, MCI, Sprint, WorldCom,
Frontier and LCI in the United States; Telstra and Optus in Australia;
Stentor, Sprint Canada and AT&T LDS in Canada; and British Telecom, Mercury,
WorldCom and ACC in the United Kingdom. Additionally, many larger competitors
have formed global alliances, including WorldPartners (AT&T and others),
Concert (MCI and British Telecom) and Global One (Sprint, France Telecom,
Deutsche Telekom and others), in an attempt to capture market share on a
global basis.
Privatization and deregulation have had, and are expected to continue to
have, significant effects on competition in the industry. For example, as a
result of legislation recently enacted in the United States, RBOCs
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will be allowed to enter the long distance market, AT&T, MCI and other long
distance carriers will be allowed to enter the local telephone services
market, and cable television companies and utilities will be allowed to enter
both the local and long distance telecommunications markets. In addition,
competition has begun to increase in the European Union telecommunications
markets in anticipation of the scheduled 1998 deregulation of the
telecommunications industry in most European Union countries. This increase in
competition could adversely affect net revenue per minute and gross margin as
a percentage of net revenue.
The following is a brief summary of the competitive environment in each of
the principal jurisdictions in which the Company provides its services:
United States. In the United States, which is the most competitive and among
the most deregulated long distance markets in the world, competition is based
upon pricing, customer service, network quality and the ability to provide
value-added services. AT&T is the largest supplier of long distance services,
with MCI and Sprint being the next largest providers. In the future, under
provisions of recently enacted federal legislation, the Company anticipates
that it will also compete with RBOCS, LECs and Internet providers in providing
domestic and international long distance services.
Canada. The Canadian telecommunications market is highly competitive and is
dominated by a few established carriers whose marketing and pricing decisions
have a significant impact on the other industry participants including the
Company. The Company competes with facilities-based carriers, other resellers
and rebillers, primarily on the basis of price. The principal facilities-based
competitors include the Stentor group of companies, in particular, Bell
Canada, the dominant supplier of local and long-distance services in Canada,
AT&T LDS, Sprint Canada and f ONOROLA. The Company also competes with ACC
Canada, one of the large resellers. Based upon current market share estimates,
the Stentor Companies control approximately 70% of the entire Canadian long
distance market and approximately 66% of the business long distance market.
Australia. Australia is one of the most deregulated and competitive
telecommunications markets in the Asia-Pacific region. The Company's principal
competitors in Australia are Telstra, the dominant carrier, Optus, AAPT and
WXL, and a number of switchless resellers, including CorpTel. The Company
believes that, with service providers other than Telstra and Optus able to
operate as carriers, competition in Australia will increase. The Company
competes in Australia by offering a comprehensive menu of competitively-priced
products and services, including value-added services, and by providing
superior customer service and support.
United Kingdom. The Company's principal competitors in the United Kingdom
are British Telecom, the dominant supplier of telecommunications services in
the United Kingdom, and Mercury, a subsidiary of Cable & Wireless. The Company
also faces competition from licensed public telephone operators (which are
constructing their own facilities-based networks) such as Energis, Colt and
MFS, from cable companies such as Telewest and SBC CableComms, and from
switch-based resellers such as WorldCom, ACC and Esprit. Other U.S.-based
carriers also may enter the United Kingdom market. The Company competes in the
United Kingdom by offering competitively-priced bundled and stand-alone
services, personalized customer service and value-added services.
GOVERNMENT REGULATION
As a multinational telecommunications company, Primus is subject to varying
degrees of regulation in each of the jurisdictions in which it provides its
services. Local laws and regulations, and the interpretation of such laws and
regulations, differ significantly among the jurisdictions in which the Company
operates. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on the Company,
that domestic or international regulators or third parties will not raise
material issues with regard to the Company's compliance or noncompliance with
applicable regulations or that regulatory activities will not have a material
adverse effect on the Company. See "Risk Factors--Potential Adverse Effects of
Regulation." The regulatory framework in certain jurisdictions in which the
Company provides its services is briefly described below.
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United States. In the United States, the provision of the Company's services
is subject to the provisions of the Communications Act, the 1996
Telecommunications Act and the FCC regulations thereunder, as well as the
applicable laws and regulations of the various states and state regulatory
commissions. The FCC exercises jurisdiction over all facilities of, and
services offered by, telecommunications common carriers to the extent such
services involve jurisdictionally interstate communications, while state
regulatory authorities retain jurisdiction over jurisdictionally intrastate
communications.
As a carrier offering services to the public, the Company must comply with
the requirements of common carriage under the Communications Act, including
the offering of service on a non-discriminatory basis at just and reasonable
rates, and obtaining FCC approval prior to any assignment of authorizations or
any transfer of de jure or de facto control of the Company. The Company is
classified as a non-dominant common carrier for domestic service and is not
required to obtain specific prior FCC approval to initiate or expand domestic
interstate services. Pursuant to authority granted to the FCC in the 1996
Telecommunications Act, the FCC has issued an order eliminating the
requirement that non-dominant interexchange carriers, including the Company,
maintain tariffs for their interstate, domestic interexchange services on file
at the FCC. The FCC ruled that after a nine-month transition period, non-
dominant carriers like the Company need not file domestic interstate tariffs.
During such nine-month period, the Company may maintain its interstate tariff
filed pursuant to the FCC's earlier tariff filing rules. Non-dominant carriers
will be required, however, to provide rate and service information to
customers, as well as maintain price and service information to make such
information available on a timely basis to the FCC upon request. The FCC order
establishing de-tariffing has been appealed to the U.S. Court of Appeals for
the District of Columbia, and the FCC's order has been stayed pending
resolution of the appeal.
DOMESTIC SERVICE REGULATION. The 1996 Telecommunications Act is intended
to increase competition in the U.S. telecommunications markets. The
legislation opens the local services markets by requiring LECs to permit
interconnection to their networks and by establishing LEC obligations with
respect to unbundled access, resale, number portability, dialing parity,
access to rights-of-way, mutual compensation and other matters. In addition,
the legislation codifies the LECs' equal access and nondiscrimination
obligations and preempts inconsistent state regulation. The legislation also
contains special provisions that eliminate the restrictions on the RBOCs and
the GTE Operating Companies (the "GTOCs") from providing long distance
services. These new provisions permit an RBOC to enter the "out-of-region"
long distance market immediately upon the receipt of any state and/or federal
regulatory approvals otherwise applicable to the provision of long distance
service. These new provisions also permit an RBOC to enter the "in-region"
long distance market if it satisfies procedural and substantive requirements,
including obtaining FCC approval upon a showing that in certain situations
facilities-based competition is present in its market, and that it has entered
into interconnection agreements which satisfy a 14-point "checklist" of
competitive requirements. The GTOCs are permitted to enter the long distance
market as of the date of enactment of the 1996 Telecommunications Act, without
regard to limitations by region, although necessary regulatory approvals to
provide long distance services must be obtained, and the GTOCs are subject to
the provisions of the 1996 Telecommunications Act that impose interconnection
and other requirements on LECS. The 1996 Telecommunications Act also addresses
a wide range of other telecommunications issues that may potentially impact
the Company's operations. It is unknown at this time precisely the nature and
extent of the impact that the legislation will have on the Company. As
required by the legislation, the FCC has been conducting a large number of
proceedings to adopt rules and regulations to implement the new statutory
provisions and requirements. On August 1, 1996, the FCC adopted an
Interconnection Order implementing the requirements that incumbent LECs make
available to new entrants interconnection and unbundled network elements, and
offer retail services for resale at wholesale rates. The FCC is considering
several petitions for reconsideration of its order. The U.S. Court of Appeals
for the Eighth Circuit recently struck down portions of the FCC's order on the
grounds that the 1996 Telecommunications Act does not give the FCC
jurisdiction over intrastate issues, including local rates, and that certain
rules were contrary to Congressional intent. This ruling impacts those
companies seeking to provide local service in the United States. The decision
could also result in inconsistent regulation by state commissions and increase
the uncertainty concerning the impact of the 1996 Telecommunications Act on
the development of local competition.
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STATE REGULATION. The Company's intrastate long distance operations are
subject to various state laws and regulations including, in most
jurisdictions, certification and tariff filing requirements. The vast majority
of the states require the Company to apply for certification to provide
intrastate telecommunications services, or at least to register or to be found
exempt from regulation, before commencing intrastate service. Certificates of
authority can generally be conditioned, modified, canceled, terminated, or
revoked by state regulatory authorities for failure to comply with state law
and/or the rules, regulations. and policies of the state regulatory
authorities. Fines and other penalties also may be imposed for such
violations.
The Company has received the necessary certificate and tariff approvals to
provide intrastate long distance service in 45 states. Applications for
certification are pending or will be filed in 3 other states. Although the
Company intends and expects to obtain operating authority in each jurisdiction
in which operating authority is required, there can be no assurance that one
or more of these jurisdictions will not deny the Company's request for
operating authority. The Company monitors regulatory developments in all 50
states to ensure regulatory compliance. The Company provides interstate
service nationwide under FCC interstate tariffs. To the extent that any
incidental intrastate service is provided in any state where the Company has
not yet obtained any required certification, the state commissions in that
state may impose penalties for any such unauthorized provision of service.
PSCs also regulate access charges and other pricing for telecommunications
services within each state. The RBOCs and other local exchange carriers have
been seeking reduction of state regulatory requirements, including greater
pricing flexibility. This could adversely affect the Company in several ways.
If regulations are changed to allow variable pricing of access charges based
on volume, the Company could be placed at a competitive disadvantage over
larger long distance carriers. The Company also could face increased price
competition from the RBOCs and other local exchange carriers for intra-LATA
and inter-LATA long distance services, which competition may be increased by
the removal of former restrictions on long distance service offerings by the
RBOCs as a result of the 1996 Telecommunications Act.
INTERNATIONAL SERVICE REGULATION. International common carriers, such as
the Company, are required to obtain authority under Section 214 of the
Communications Act and file a tariff containing the rates, terms, and
conditions applicable to their services prior to initiating their
international telecommunications services. The Company has obtained all
required authorizations from the FCC to use, on a facilities and resale basis,
various transmission media for the provision of international switched
services and international private line services.
Non-dominant international carriers such as the Company must file their
international tariffs and any revisions thereto with one day's notice in lieu
of the 14-day notice previously required. The Company has filed international
tariffs for switched and private line services with the FCC. Additionally,
international telecommunications service providers are required to file copies
of their contracts with other carriers, including foreign carrier agreements,
with the FCC within 30 days of execution. The Company has filed each of its
foreign carrier agreements with the FCC. The FCC's rules also require the
Company to file periodically a variety of reports regarding its international
traffic flows and use of international facilities. The FCC has recently
proposed to reduce certain reporting requirements of common carriers, although
the Company is unable to predict the outcome of this proposal.
In addition to the general common carrier principles, the Company must
conduct its international business in compliance with the ISP which
establishes the permissible boundaries for U.S.-based carriers and their
foreign correspondents to settle the cost of terminating each other's traffic
over their respective networks. Unless prior approval is obtained, the amount
of payment or the "settlement rate" generally must be one-half of the
accounting rate. Carriers must obtain waivers of the FCC's rules if they wish
to vary the settlement rate from one-half of the accounting rate. The FCC
could find that certain settlement rate terms in certain of the Company's
foreign carrier agreements do not meet the ISP requirements, absent a waiver.
Although the FCC generally has not issued penalties in this area, it could,
among other things, issue a cease and desist order or impose fines if it finds
that these agreements conflict with the ISP. The Company does not believe that
any such fine or order would have a material adverse effect on the Company.
The ISP is also designed to eliminate foreign carriers' incentives and
opportunities to discriminate in their foreign carrier agreements among
different U.S.-based carriers through "whipsawing". Whipsawing refers to
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the practice of a foreign carrier favoring one U.S.-based carrier over another
in exchange for an accounting and/or other terms that benefits the foreign
carrier, but may otherwise be inconsistent with the U.S. public interest. Under
the ISP, U.S.-based carriers can only enter into foreign carrier agreements
that contain the same accounting rate offered to all U.S.-based carriers. When
a U.S.-based carrier negotiates an accounting rate with a foreign correspondent
that is lower than the accounting rate offered to another U.S.-based carrier
for the same service, the U.S.-based carrier with the lower rate must file a
waiver of notification letter with the FCC. If a U.S.-based carrier varies the
terms and conditions of its foreign carrier agreement in addition to lowering
the accounting rate, then the U.S.-based carrier must request a waiver of the
FCC's rules. Both the notification and the waiver requests are designed to
ensure that all U.S.-based carriers have an opportunity to compete for foreign
correspondent return traffic.
Among other efforts to prevent the practice of whipsawing and inequitable
treatment of similarly situated U.S.-based carriers, the FCC adopted the
principle of proportionate return to ensure that competing U.S.-based carriers
have roughly equitable opportunities to receive the return traffic that reduces
the marginal cost of providing international service. Consistent with its pro-
competition policies, the FCC prohibits U.S.-based carriers from bargaining for
special concessions from foreign partners.
The FCC continues to refine its international service rules, including ISP
requirements, to promote competition, reflect and encourage liberalization in
foreign countries and reduce accounting rates toward cost. In that regard, the
FCC has determined that it would permit U.S. carriers to enter into "flexible"
international termination arrangements where such arrangements promote
competition. Under this new policy, the FCC has allowed the Company to enter
into an alternative termination arrangement with its Australian subsidiary
Axicorp, which allows the Company and Axicorp to terminate each other's traffic
under favorable terms that deviate from the ISP.
FOREIGN OWNERSHIP AFFILIATIONS AND LIMITATIONS. The Communications Act
limits the ownership of an entity holding a common carrier radio license by
non-U.S. citizens, foreign corporations and foreign governments. The Company
does not currently hold any radio licenses. These ownership restrictions
currently do not apply to non-radio facilities, such as fiber optic cable. The
United States commitment in the WTO may effectively repeal the United States
foreign ownership requirements as of January 1, 1998 and legislation has been
proposed to amend the Communications Act to reflect relaxation of foreign
ownership limits. The FCC has also proposed new rules that will reflect the WTO
policies relating to the entry and participation of foreign entities in the
United States telecommunications market. Under existing rules, the FCC
scrutinizes ownership interests greater than 25%, or a controlling interest at
any level in a U.S. carrier by a dominant foreign carrier, to determine whether
the destination market of the foreign carrier offers "effective, competitive
opportunities" ("ECO"). The Commission imposes the same ECO test and
affiliation standard on U.S.-based carriers that invest in dominant foreign
carriers. The FCC may impose restrictions on affiliated carriers not meeting
the ECO test. FCC rules also require international carriers to notify the FCC
60 days in advance of an acquisition of a 10% or greater interest by a foreign
carrier in that U.S. carrier. The FCC has discretion to determine that unique
factors require application of the ECO test or a change in regulatory status of
the U.S. carrier even though the foreign carrier's interest is less than 25%.
The proposed new rules, if adopted, would eliminate the ECO test for foreign
carriers from WTO countries proposing to enter the U.S. market, establish
certain safeguards, and substantially relax the foreign ownership rules. The
effect on the Company of the WTO Agreement or other new legislation, or the
outcome of the FCC's rulemaking regarding implementing WTO regulations which
may become applicable to the Company, cannot be determined.
CHANGING UNITED STATES REGULATIONS. Regulation of the telecommunications
industry is changing rapidly. As mentioned, the FCC is considering a number of
international service issues in the context of several policy rule making
proceedings and in response to specific petitions and applications filed by
other international carriers. The FCC's resolution of some of these issues in
other proceedings may adversely affect the Company's international business
(by, for example, permitting larger carriers to take advantage of accounting
rate discounts for high traffic volumes). The Company is unable to predict how
the FCC will resolve the pending international policy issues or how such
resolution will affect its international business. There can be no assurance
that future regulatory changes will not have a material adverse impact on the
Company.
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Canada. In Canada, telecommunications carriers are regulated generally by the
CRTC which has enacted policies and regulations that include the establishment
of contribution charges (the equivalent of access charges in the U.S.),
deregulation of the international segment of the long-distance market,
limitations on switched hubbing, ISR and foreign ownership rules for
facilities-based carriers. Canada is expected to eliminate many of these
regulatory restrictions by October 1998. Teleglobe Canada, Inc. ("Teleglobe"),
which currently has a monopoly over international services until October 1,
1998, offers international carrier service on a nondiscriminatory basis to both
facilities-based carriers and resellers, who may have direct access to its
international gateways. The Company is not permitted to provide international
services other than transborder service to the United States. The Company also
is permitted to provide ISR of private leased lines to carry switched traffic
to certain countries, such as the United States, the United Kingdom, Australia,
New Zealand and Sweden on a reciprocal basis. Routing of basic intra-Canada
traffic or basic traffic destined to third countries through U.S. facilities
is, however, prohibited. Facilities-based long distance competition became a
reality in 1992, when the CRTC mandated interconnection of competitive
networks.
Despite these restrictions, Primus as a reseller is virtually unregulated by
the CRTC. In order to enter the Canadian resale market, resellers need only to
file a brief registration letter. Primus is a registered reseller in Canada
and, as such, is authorized to provide resold Canadian long distance service
without rate, price or tariff regulation, ownership limitations, or other
regulatory requirements.
As the global deregulatory trend continues, Canada is expected to deregulate
further as demonstrated by the recent adoption of several CRTC decisions to
open the local telecommunications market to competition. Although these
policies currently do not apply to foreign resellers such as the Company, this
deregulatory trend will likely create new market opportunities for the Company
to acquire facilities and expand its services as October 1998 approaches.
COMPETITION. Long distance competition has been in place in Canada since
1990 for long distance resellers and since 1992 for facilities-based carriers.
Since 1994, the ILECs have been required to provide "equal access" which
eliminated the need for customers of competitive long distance providers to
dial additional digits when placing long distance calls. In June 1992, the CRTC
issued its ground-breaking Telecom Decision CRTC 92-12 requiring the largest
telephone companies to interconnect their networks with their facilities-based
as well as resale competitors. The dominant Stentor group of companies,
including Bell Canada, offers both local and long distance services in the
respective regions of each of the group's member telephone companies. Other
nationwide providers are AT&T LDS, Sprint Canada and fONOROLA, Inc. Additional
long distance services competition is provided by a substantial resale long
distance industry in Canada. Although resellers such as the Company do not own
facilities, they are able to provide the same range of domestic services and
long distances as facilities-based carriers by leasing capacity and other
services from the facilities-based carriers.
The Canadian government had granted Teleglobe a 10-year exclusive monopoly
over international traffic, which Teleglobe advised the government should be
allowed to expire in April 1997. However, based on Canada's commitment in the
WTO Agreement on Telecommunications, Teleglobe's monopoly will extend until
October 1, 1998, whereupon an international license regime will be adopted. As
a result, private telecommunications operators such as Primus may be allowed to
provide international switched voice and other services.
FOREIGN OWNERSHIP RESTRICTIONS. As a result of legislation enacted in 1993,
foreign ownership restrictions are applicable to facilities-based carriers
(known as "Canadian carriers"), but not resellers such as Primus, which may be
wholly foreign-owned. Where applicable, the law limits direct foreign
investment in Canadian facilities-based carriers to 20%, and indirect
investment to 33 1/3%.
Under the implementing regulations, if nonvoting stock is utilized, foreign
investors could hold a majority of the equity in a Canadian carrier, so long as
the interest is carefully structured so that it would not be deemed to
otherwise convey control to non-Canadians. In order to maintain the requisite
"Canadian" status under the law, the non-Canadian investor must not have
"control in fact" of the carrier. Based on Canada's commitment
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in the WTO Agreement, the restriction on foreign investment in facilities-
based telecommunications service providers remains largely intact, but will be
eliminated as of October 1, 1998 for operations conducted under an
international submarine cable license and for certain satellites.
Australia. In Australia, the provision of the Company's services is subject
to federal regulation. Two primary instruments of regulation have been the
Telecommunications Act 1991 and federal regulation of anti-competitive
practices pursuant to the Trade Practices Act. The regulatory climate changed
in July 1997 with the implementation of the Telecom Act. These latest changes
to the regulatory framework have been described by the Australian Government
as the achievement of the Government's long-term objective of an
internationally competitive telecommunications industry in Australia through
full and open competition.
In connection with the Telecom Act, the Company became one of five licensed
carriers permitted to own and operate transmission facilities in Australia.
Under the new regulatory framework, the Company does not require a carriage
license in order to supply carriage services to the public using network
facilities owned by another carrier. Instead, with respect to carriage
services, the Company must comply with legislated "service provider" rules
contained in the Telecom Act covering matters such as compliance with the
Telecom Act, operator services, regulation of access, directory assistance,
provision of information to allow maintenance of an integrated public number
database, and itemized billing.
Also, in connection with the Telecom Act, two federal regulatory authorities
now exercise control over a broad range of issues affecting the operation of
the Australian telecommunications industry. The ACA is the authority
regulating matters including the licensing of carriers and technical matters,
and the ACCC has the role of promotion of competition and consumer protection.
The Company will be required to comply with the terms of its own license, will
be subject to the greater controls applicable to licensed facilities based
carriers and will be under the regulatory control of the ACA and the ACCC.
Anti-competitive practices will continue to be regulated by The Trade
Practices Act. These regulations were strengthened by the Telecom Act to
encourage greater competition in the telecommunications industry. In addition,
other federal legislation, various regulations pursuant to delegated authority
and legislation, ministerial declarations, codes, directions, licenses,
statements of Commonwealth Government policy and court decisions affecting
telecommunications carriers also apply to the Company. There can be no
assurance that future declarations, codes, directions, licenses, regulations,
and judicial and legislative changes will not have a material adverse effect
on the Company.
In the Australian context, a distinction is drawn in the Telecom Act between
carriers and other providers of telecommunications services. However
distinctions are no longer drawn between types of carriers such as fixed or
mobile. Carriers are the providers of telecommunications infrastructure and
carriage service providers extend service to the end-users. In practice, most
carriers are expected also to be carriage service providers. There is now no
limit to the number of carriers who may be licensed, and it is expected that
additional licenses will be granted. Under the Telecom Act, Telstra, Optus and
Vodafone Pty Ltd. ("Vodafone") have automatically remained as licensed
carriers. New carriers seeking a licence must provide an industry development
plan approved by the Australian Government. Carriers are licensed
individually, are subject to charges that are intended to cover the costs of
regulating the telecommunications industry, and are obliged to comply with
licence conditions (including obligations to comply with the Telecom Act, with
certain commitments made in their industry development plan and with the
telecommunications access regime and related facilities access obligations).
The Company has submitted its industry development plan to the Australian
Government. The plan includes relevant particulars of the carrier's strategic
commercial relationships, R&D activities, export development plans, and
arrangements aimed at encouraging employment in industries involved in the
manufacture, development or supply of facilities. A summary of the plan must
be made available to the public. Carriers must also meet the universal service
obligation, to assist in providing all Australians, particularly in remote
areas, with reasonable access to standard telephone services. The costs
required to be paid by the Company in connection with this obligation have not
yet been determined by the Australian government, but they are not expected to
be material.
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TARIFFS. The ACCC has access to various information on market conduct. The
ACCC's information gathering powers include a requirement on Telstra to
continue to file tariffs with the ACCC about its basic carriage services,
unless the ACCC exempts it from this obligation; an ability to direct any
carrier or carriage service provider with a substantial degree of market power
to file tariff information; and an ability to set rules regarding the way
carriers or carriage service providers keep records so that, e.g., information
is kept in a form that will assist the ACCC in determining terms and
conditions of access under the telecommunications access regime.
Tariff filing will essentially be an information gathering tool to
supplement the ACCC's general information gathering powers, and to assist in
identifying anti-competitive conduct such as predatory pricing and
preferential pricing to a related person. If, on the basis of the information
provided in a tariff filing, the ACCC forms the view that a carrier is
engaging in anti-competitive conduct, it may use its powers to stop that
conduct.
The ACCC may make tariff information publicly available if it is satisfied
there would be a public benefit (e.g., by enabling other industry players to
scrutinise the tariffs for anti-competitive purpose or effect, or to inform
the public). The ACCC will balance concerns about commercial confidentiality
and the promotion of competition against dealing with anti-competitive conduct
and informing the public.
FAIR TRADING PRACTICES. The ACCC will enforce legislation for the
promotion of competition and consumer protection, particularly rights of
access (including pricing for access) and interconnection. The ACCC will be
able to issue a competition notice to a carrier which has engaged in anti-
competitive conduct. Where a competition notice has been issued, the ACCC will
be able to seek pecuniary penalties, and other carriers will be able to seek
damages, if the carrier continues to engage in the specified conduct.
The Telecom Act package of legislation includes a telecommunications access
regime that provides a framework for regulating access rights for specific
carriage services and related services. The regime establishes mechanisms
within which the terms and conditions of access can be determined. The
Australian Government intends the access regime to reduce the power of Telstra
and Optus (as the former protected fixed line carriers) and other carriers who
may come to own or control important infrastructure or services necessary for
competition.
The regime establishes access rights through the declaration of services by
the ACCC. The ACCC may declare services to be the subject of regulated
access--either on the recommendation of the industry self-regulatory body or
where, following a public inquiry, the ACCC is satisfied that a declaration
would be in the long-term interests of end-users of telecommunications
services. Once a service is declared, carriers supplying that service are,
unless otherwise exempt, under an obligation to supply the declared service to
other carriers and service providers.
Access providers must comply with their access obligations on conditions
negotiated between the access provider and access seeker; as detailed in an
access undertaking; or as determined by the ACCC through arbitration.
It is expected that in many areas, the industry will negotiate, on a
multilateral basis, standard terms and conditions for access to declared
services. The access regime establishes a mechanism for the industry to
develop an access code containing model terms and conditions for access to
particular declared services. Once approved by the ACCC, those model terms and
conditions may be adopted in an undertaking by individual carriers who are
under an access obligation.
Carrier licence conditions will include an obligation to provide other
carriers with access to certain facilities and network information. A carrier
must provide other carriers with access to its facilities for the purpose of
enabling the other carriers to provide competitive facilities and competitive
carriage services or to establish their own facilities; to certain information
relating to the operation of its telecommunications network; and to its
infrastructure, including transmission towers, the sites of transmission
towers and underground facilities that are designed to hold lines, if
technically feasible.
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In July 1997, the Australian government mandated that Telstra provide access
to its facilities at specified rates to other service providers including the
Company. The Company is negotiating various access arrangements with Telstra
which will be substituted for the mandated arrangements.
FOREIGN OWNERSHIP LIMITATIONS. Foreign investment in Australia is
regulated by the Foreign Acquisitions and Takeovers Act 1975. Administration
of the Australian Government's policy on foreign investment is based on
guidelines published in 1992 providing for notification of proposals for the
establishment of new businesses involving total investment of at least A$10
million and proposals for the acquisition of existing business with total
assets valued at more than A$5 million. The Company notified the Australian
Government of its proposed acquisition of Axicorp in 1996 and was informed at
that time that there were no objections to the investment in terms of
Australia's foreign investment policy. There can be no assurance, however,
that additional foreign ownership restrictions will not be imposed on the
telecommunications industry or other foreign investors, including the Company,
in the future.
United Kingdom. In the United Kingdom, the provision of the Company's
services is subject to the provisions of the United Kingdom Telecommunications
Act. The Secretary of State for Trade and Industry, acting on the advice of
the United Kingdom Department of Trade and Industry (the "DTI"), is
responsible for granting UK telecommunications licenses, while the Director
General of Telecommunications (the "Director General") and Oftel are
responsible for enforcing the terms of such licenses. Oftel attempts to
promote effective competition both in networks and in services to redress
anti-competitive behavior. The Company is also subject to general European
Union law.
Until 1981, British Telecom was virtually the sole provider of public
telecommunications services throughout the United Kingdom. This virtual
monopoly ended when, in 1981, the British government granted Mercury a license
to run its own telecommunications system under the British Telecommunications
Act 1981. Both British Telecom and Mercury are licensed under the subsequent
United Kingdom Telecommunications Act to run transmission facilities-based
telecommunications systems and provide telecommunications services. In 1991,
the British government established a "multi-operator" policy to replace the
duopoly that had existed between British Telecom and Mercury. Under the multi-
operator policy, the DTI recommends the grant of a license to operate a
telecommunications network to any applicant that the DTI believes has a
reasonable business plan and where there are no other overriding
considerations not to grant such license. All public telecommunications
operators and international simple resellers operate under individual licenses
granted by the Secretary of State for Trade and Industry pursuant to the
United Kingdom Telecommunications Act. Any telecommunications system with
compatible equipment that is authorized to be run under an individual license
is permitted to interconnect to British Telecom's network. Under the terms of
British Telecom's license, it is required to allow any such licensed operator
to interconnect its system to British Telecom's system, unless it is not
reasonably practicable to do so (e.g., due to incompatible equipment).
The Company's subsidiary, Primus Telecommunications, Inc., holds an ISR
license that authorizes it to provide switched voice services over leased
private lines to all international points. In addition, the Company's
subsidiary, Primus Telecommunications Limited, has received a license from the
United Kingdom Secretary for Trade and Industry to provide international
facilities-based voice services to all international points from the United
Kingdom. This license also allows the holder to acquire ownership interests in
or construct the United Kingdom half circuit of any IRU as well as backhaul
facilities. The international facilities-based license together with the
international simple resale license authorize the provision of every voice and
data service, except the provision of broadcasting and mobile services. While
the international facilities-based license authorizes the Company to acquire
ownership interests in the United Kingdom half-circuit of international cables
as well as satellite space segment in order to provide satellite based
services, it is also necessary to apply for a Wireless Telegraphy Act 1949
License which authorizes the use of the spectrum.
TARIFFS. Telecommunications tariffs on operators in the United Kingdom
(excluding British Telecom) are generally not subject to prior review or
approval by regulatory authorities, although Oftel has historically imposed
price caps on British Telecom. The current price caps on British Telecom's 10
major retail services
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expire at the end of July 1997 and the revised price caps will apply effective
August 1, 1997. The current retail price cap on British Telecom requires
British Telecom to reduce prices on a basket of the 10 major retail services
by the Retail Price Index ("RPI") minus 7.5%. However, effective August 1,
1997, the number of retail services in the basket to which the price cap
applies has been reduced and applies to line rental, local, international and
operator assisted calls. British Telecom is required to reduce its pricing on
the revised basket by RPI minus 4.5%. However, this basket does not apply to
the 20% highest spending customers in respect of which Oftel has deemed the
market to be competitive. Oftel is considering whether it will be able to
police anti-competitive behavior effectively and is currently conducting a
price control review of the United Kingdom telecommunications industry. Key
elements of Oftel's final proposals in connection with this review include
terminating price controls on British Telecom in 2001, limiting increases in
telecommunications services charges for residential customers to the rate of
inflation, and continued regulation of access charges by British Telecom to
its competing telecommunications service providers. With respect to the
creation of a detailed effective regulatory regime for the future, Oftel has
published its proposals in July 1995 in a document entitled "Effective
Competition: Framework for Action." Key elements of Oftel's plans included (1)
moving to an incremental cost basis for interconnection charges from 1997, (2)
withdrawing from detailed setting of some interconnection charges, (3)
providing for industry-wide contribution to the cost of maintaining "universal
service," (4) eliminating access deficit charges, (5) moving towards pricing
based on capacity charging for interconnection services and (6) developing an
interconnection regime for service providers. There can be no assurances that
such proposals will be implemented, in whole or in part, in the time frame
specified.
Oftel has initiated five stages of consultation as to the pricing
methodology to be used to calculate British Telecom's costs of providing
interconnection services. Oftel's consultative document of March 1996
indicated that costs should be calculated on an incremental, as opposed to an
historical cost basis. That document identified two models--"top down"
developed by British Telecom and "bottom up" favored by a broader portion of
the industry. In May 1997 in what is expected to be the fifth and final
consultative document on this issue, Oftel set out its proposals to use
incremental costs calculated by means of a hybrid of the "top down" and
"bottom up" models. The interconnection charges calculated by means of this
hybrid model are due to become effective in October 1997. At present, British
Telecom charges for interconnection on a fully-allocated historic cost basis.
The forward-looking long run incremental cost basis that is to become
effective in October 1997, is expected by Oftel, but it is by no means
certain, to impose lower interconnection charges. There is a risk that if
agreement as to the costing methodology to be used by British Telecom is
further delayed or does not occur the matter will be referred to the
Monopolies and Mergers Commission. If so, this could mean that the
implementation of proper transparency and allocation of costs for operators
seeking interconnection with British Telecom could be further delayed.
FAIR TRADING PRACTICES. Oftel is the principal regulator of the
competitive aspects of the United Kingdom telecommunications industry. Oftel's
limited authority in this area is derived from the powers given to Oftel under
the United Kingdom Telecommunications Act and from the terms of the licenses
granted under the United Kingdom Telecommunications Act. Any dispute between
Oftel and a telecommunications service provider may be referred on appeal to
the United Kingdom Monopolies and Mergers Commission, which may conduct a
detailed and lengthy review of the facts surrounding such dispute.
Furthermore, Oftel has no authority to impose fines for a breach of the terms
of a license issued under the United Kingdom Telecommunications Act, and third
parties have no right to damages for a past breach. Oftel has expressed its
view that the current regulatory regime is both obscure and uncertain. Oftel
has, however, been successful in its efforts to introduce a general
competition provision into British Telecom's license and those of all other
Telecommunications Act licensees modeled on European law so as to better
police any potential anti-competitive conduct harmful to the Company. The Fair
Trading condition is already incorporated in all international facilities-
based licenses and will be incorporated in all international simple resale
licenses beginning in July 1997. There are no foreign ownership restrictions
that apply to telecommunication company licensing in the United Kingdom
although the DTI does have a discretion as to whether to award licenses on a
case by case basis. The Company is also subject to general European law,
which, among other things, prohibits certain anti-competitive agreements and
abuses of dominant market positions through Articles 85 and 86 of the Treaty
of Rome. The European Commission is
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entrusted with the principal enforcement powers under European Union
competition law. It has the power to impose fines of up to 10% of a group's
annual revenue in respect of breaches of Articles 85 and 86. In most cases
notification of potentially infringing agreements to the Commission under
Article 85 with a request for an exemption protects against the risk of fines
from the date of notification.
European Union. Finland, Sweden and the United Kingdom all enjoy competition
for telecommunications services generally and the Netherlands is due to
undergo deregulation in July 1997. Starting in January 1998, the remaining
member states of the European Union will be obligated to permit competition
for the provision of voice telephony services to the public which, to date,
have been reserved to the respective national monopoly carriers (the "Reserved
Services"), except that there are derogations of more than one year in
implementing competition in Ireland, Luxembourg, Greece and Portugal, and
Spain is due to undergo deregulation in December 1998. Applications to provide
Reserved Services in those member states where competition is required, may be
made currently, and it is expected that licenses will be granted to providers
which will become effective starting in January 1998. However, Austria has not
yet finalized its procedures for license applications to provide Reserved
Services. Non-Reserved Services, such as closed user group services and value-
added services, are already subject to competition throughout the European
Union, although in most member states it is necessary to file a registration
with the applicable regulatory authority for the provision of these non-
Reserved Services.
AXICORP
The Company acquired Axicorp, the fourth largest telecommunications provider
in Australia, in March 1996. Axicorp provides the Company early entry into the
deregulating Australian telecommunications market and serves as the Company's
gateway to the Asia-Pacific region. The Company believes that the ongoing
transformation of Axicorp's strategy and operations to a facilities-based
carrier focused on the provision of international and domestic long distance
services is an example of the execution of the Company's business model. For
the year ended December 31, 1996 and for the three months ended March 31,
1997, Axicorp generated net revenue of approximately $151.3 million and $46.9
million, respectively.
Axicorp began operations in September 1993 in order to capitalize on the
opportunities arising from the advent of the deregulation of the
telecommunications industry in Australia. Prior to the acquisition, Axicorp
pursued a strategy of reselling long distance, local switched and cellular
services at a discount to the prices charged by Telstra, the former monopoly
telecommunications provider in Australia. Axicorp originally marketed and sold
its services through sales agents to professional and trade associations. All
of Axicorp's billing and collection functions were conducted by Telstra.
Since acquiring Axicorp in March 1996, Primus has invested substantial
resources to transform Axicorp's strategy and operations to those of a
facilities-based carrier focused on the provision of international and
domestic long distance services. The Company has acquired and installed five
switches for use in Australia, which became operational during the first
quarter of 1997, has focused on increasing the number of higher-margin,
higher-volume business customers with significant international long distance
traffic and, in July 1997, became one of five licensed carriers permitted to
own and operate transmission facilities in Australia. As part of its
increasing focus on business customers, the Company has increased Axicorp's
direct sales force and reduced its reliance on marketing through associations.
Since January 1, 1997, the Company has increased Axicorp's direct sales force
by a total of 36 persons to 94 persons at May 31, 1997. In addition, Axicorp's
switch network has been integrated into the Network through leased undersea
trans-Pacific fiber optic cable systems. Additionally, the Company has
expanded Axicorp's service offerings in Australia, including prepaid and
calling cards.
The Company believes that the integration of Axicorp into the Company's
operations and strategy will be enhanced by certain Australian regulatory
changes that became effective in July 1997. Only Telstra, Optus, AAPT, the
Company and Vodafone are licensed as full service facilities-based carriers.
The Australian government, however, has begun implementing plans to deregulate
the Australian telecommunications market and it is expected that others will
be permitted to own transmission facilities. See "--Government Regulation."
65
<PAGE>
The Company acquired Axicorp for $5.7 million in cash, including transaction
costs, 455,000 shares of Series A Stock (which were converted into 1,538,355
shares of Common Stock upon the Initial Public Offering) and seller financing
recorded on a discounted basis (the "Seller Financing"), consisting of $4.1
million payable to Fujitsu Australia Limited and $4.0 million payable to the
individual stockholder sellers (of which $2.0 million was paid in February
1997). As security for payment of the Seller Financing, the sellers currently
have collateral security interests in all of the outstanding Axicorp shares,
13.3% as registered owner, which will be registered in the Company's name upon
payment of the Seller Financing, and 86.7% pursuant to a share mortgage. Upon
completion of the Offering, the Seller Financing will be repaid, the security
will be released, and Axicorp will become a wholly-owned subsidiary of the
Company.
EMPLOYEES
The following table summarizes the number of full-time employees of the
Company as of June 30, 1997, by region and classification:
<TABLE>
<CAPTION>
UNITED KINGDOM/ ASIA-
NORTH AMERICA EUROPE PACIFIC TOTAL
------------- --------------- ------- -----
<S> <C> <C> <C> <C>
Management and Administrative...... 47 7 21 75
Sales and Marketing................ 62 75 93 230
Customer Service and Support....... 32 19 37 88
Technical.......................... 48 12 63 123
--- --- --- ---
Total............................ 189 113 214 516
=== === === ===
</TABLE>
The Company never has experienced a work stoppage, and none of its employees
is represented by a labor union or covered by a collective bargaining
agreement. The Company considers its employee relations to be good.
PROPERTIES
The Company currently leases its corporate headquarters which is located in
Vienna, Virginia. Additionally, the Company also leases administrative and
sales office space in Washington D.C., New York, Los Angeles, Tampa, Mexico
City, Toronto, Melbourne, Sydney, Brisbane, Perth, Adelaide, and London. Total
leased space approximates 110,000 square feet and the total annual lease costs
are approximately $1.7 million. The operating leases expire at various times
through 2006.
Certain communications equipment which includes network switches and
transmission lines are leased through operating and capital leases.
Management believes that the Company's present administrative and sales
office facilities are adequate for its anticipated operations, and that
similar space can readily be obtained as needed. The Company believes the
current leased facilities to house the communications equipment is adequate.
However, as the Company's network of switches grows, the Company will have to
lease additional locations to house the new equipment.
LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incidental to the
conduct of its business. There is no pending legal proceeding to which the
Company is a party which the Company believes is likely to have a material
adverse effect on the Company's business, financial condition or results of
operations.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
YEAR OF EXPIRATION
NAME AGE POSITION OF TERM AS DIRECTOR
---- --- -------- -------------------
<C> <C> <S> <C>
K. Paul Singh(1)............ 46 Chairman of the Board of 1999
Directors, President,
and Chief Executive
Officer
Neil L. Hazard.............. 45 Executive Vice President N/A
and Chief Financial
Officer
John F. DePodesta........... 52 Executive Vice 1999
President, Law and
Regulatory Affairs, and
Director
George E. Mattos............ 47 Vice President of N/A
Operations
John Melick................. 38 Vice President of Sales N/A
and Marketing
Ravi Bhatia................. 48 Chief Operating Officer, N/A
Axicorp
Yousef Javadi............... 41 President and Chief N/A
Operating Officer of
Primus North America
Herman Fialkov(2)(3)........ 75 Director 2000
David E. Hershberg(2)....... 60 Director 2000
John Puente(1)(3)........... 67 Director 1998
Thomas R. Kloster........... 37 Corporate Controller N/A
Sim Thiam Soon.............. 43 General Manager of N/A
Operations, Axicorp
Ali Yazdanpanah............. 40 Managing Director, N/A
Primus U.K.
</TABLE>
- --------
(1) Member of Nominating Committee
(2) Member of Compensation Committee
(3) Member of Audit Committee
K. Paul Singh co-founded the Company in 1994 with Mr. DePodesta and serves
as its Chairman, President and Chief Executive Officer. From 1991 until he co-
founded the Company, he served as the Vice President of Global Product
Marketing for MCI. Prior to joining MCI, Mr. Singh was the Chairman and Chief
Executive Officer of OTI, a provider of private digital communications in over
26 countries which he founded in 1984 and was purchased by MCI in 1991. See
"Certain Transactions."
Neil L. Hazard joined the Company in 1996 as its Executive Vice President
and Chief Financial Officer. Prior to joining the Company, Mr. Hazard was
employed by MCI in several executive positions, most recently as its Director
of Corporate Accounting and Financial Reporting, responsible for consolidation
of MCI's financial results, external reporting to stockholders and SEC
reporting. Mr. Hazard served as acting Controller of MCI for six months and as
Director of Global Product Marketing. Prior to joining MCI in 1991, Mr. Hazard
served as the Chief Financial Officer of OTI.
John F. DePodesta co-founded the Company in 1994 with Mr. Singh, and serves
as a director and its Executive Vice President Law and Regulatory Affairs. In
addition to his position with the Company, Mr. DePodesta also currently serves
as the Senior Vice President, Law and Public Policy for Genesis Health
Ventures, Inc. and the Chairman of the Board of Iron Road Railways
Incorporated, which he co-founded in 1994. Additionally, since 1994 he has
been "of counsel" to the law firm of Pepper, Hamilton & Scheetz llp, where he
was previously a partner since 1979. Before joining Pepper, Hamilton & Scheetz
llp, Mr. DePodesta served as the General Counsel of Consolidated Rail
Corporation. See "Certain Transactions."
George E. Mattos joined the Company in 1994 as its Vice-President of
Operations. Prior to joining the Company, Mr. Mattos held several positions
with MCI for over 10 years, most recently as a Senior Manager responsible for
the development of a software monitoring system for customer service,
installation, operation and maintenance of MCI's international
telecommunications network. Mr. Mattos previously was part of MCI's
67
<PAGE>
switching and network intelligence facilities where be was responsible for
commencing switched voice service to various countries.
John Melick joined the Company in 1994 as its Vice President of Sales and
Marketing. Prior to joining the Company, he was a Senior Manager with MCI
responsible for the day-to-day management of its global product portfolio in
the Latin American and the Caribbean region. He joined MCI in 1991 at the time
of the acquisition of OTI where he managed the development of OTI's service
expansion into Mexico and Latin America.
Ravi Bhatia joined the Company in October 1995 as the Managing Director of
Primus Telecommunications Pty., Ltd. (Australia) and in March 1996 became the
Chief Operating Officer of Axicorp and as such is responsible for implementing
the Company's business strategy in Australia. Mr. Bhatia has over 26 years of
international experience in the telecommunications industry, which includes 9
years of employment with MCI in various sales and marketing positions. Most
recently, he served as the Director of Sales and Marketing for MCI in the
South Pacific Region, based in Sydney.
Yousef Javadi joined the Company in March 1997 as President and Chief
Operating Officer of Primus North America. Prior to joining the Company, Mr.
Javadi was Vice President of Business Development at GE America (a GE Capital
company). Prior to joining GE, Mr. Javadi served as Director of Global
Services at MCI from 1991 to 1995. From 1985-1991 he was at OTI as Vice
President of Sales and Marketing. Prior to OTI, Mr. Javadi worked at Hughes
Network Systems.
Herman Fialkov became a director of the Company in 1995. He is currently the
General Partner of PolyVentures Associates, L.P., a venture capital firm and
has been associated with various venture capital firms since 1968. Previously,
he was an officer and director of General Instrument Corporation which he
joined in 1960 as a result of its acquisition of General Transistor
Corporation, a company Mr. Fialkov founded.
David E. Hershberg became a director of the Company in 1995. Mr. Hershberg
is the founder, President and CEO of GlobeComm Systems, Inc., a system
integrator of satellite earth stations. From 1976 to 1994, Mr. Hershberg was
the President and Chief Executive Officer of Satellite Transmission Systems,
Inc., a global provider of satellite telecommunications equipment, and became
a Group President of California Microwave, Inc., a company that acquired
Satellite Transmission Systems, Inc.
John Puente became a director of the Company in 1995. From 1987 to 1995, he
was Chairman of the Board and CEO of Orion Network Systems, a satellite
telecommunications company. Mr. Puente is currently Chairman of the Board of
Telogy Networks, Inc., a privately-held company. Prior to joining Orion, Mr.
Puente was Vice Chairman of M/A-Com Inc., now known as Hughes Network Systems,
Inc., a diversified telecommunications and manufacturing company, which he
joined in 1978 when M/A-Com acquired Digital Communications Corporation, a
satellite terminal and packet switching manufacturer of which Mr. Puente was a
founder and Chief Executive Officer.
Thomas R. Kloster joined the Company in 1996 as its Corporate Controller.
Prior to joining the Company, Mr. Kloster was employed by MCI as Senior
Manager of Corporate Accounting and Reporting, responsible for various facets
of MCI's consolidation of financial results, external and internal reporting,
and accounting for ventures and emerging businesses. Prior to joining MCI in
1994, Mr. Kloster had been employed by Price Waterhouse LLP since 1988, most
recently serving as a Senior Manager.
Sim Thiam Soon joined the Company in 1996 as General Manager of Operations
of Axicorp. Mr. Sim co-founded Axicorp in 1993 and served as its General
Manager of Operations until joining the Company. Prior to co-founding Axicorp,
Mr. Sim had been a Manager with Paxus Australia since 1990.
Ali Yazdanpanah joined the Company in 1995, and is the Managing Director of
Primus U.K. Prior to joining the Company, Mr. Yazdanpanah was an independent
telecommunications consultant from 1992 to 1994, and from 1986 to 1991, he
served as Controller of OTI. Prior to OTI, Mr. Yazdanpanah was with Coopers
and Lybrand in their London office. He is both a Chartered Accountant and a
Certified Public Accountant.
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<PAGE>
CLASSIFIED BOARD OF DIRECTORS
Pursuant to the Company's By-Laws, the Board of Directors is divided into
three classes of directors each containing, as nearly as possible, an equal
number of directors. Directors within each class are elected to serve three-
year terms and approximately one-third of the directors sit for election at
each annual meeting of the Company's stockholders. A classified board of
directors may have the effect of deterring or delaying any attempt by any
group to obtain control of the Company by a proxy contest since such third
party would be required to have its nominees elected at two separate annual
meetings of the Board of Directors in order to elect a majority of the members
of the Board of Directors. Directors who are elected to fill a vacancy
(including vacancies created by an increase in the number of directors) must
be confirmed by the stockholders at the next annual meeting of stockholders
whether or not such director's term expires at such annual meeting. See
"Description of Capital Stock-Takeover Protection."
DIRECTOR COMPENSATION
The Company pays cash compensation to outside board members who are not
otherwise consultants to the Company. Each such board member is entitled to
receive $500 for each meeting of the Board of Directors, or any committee
thereof, attended by such board member in person or by telephone. The Company
also has adopted a Director Stock Option Plan under which options for up to a
total of 338,100 shares of Common Stock will be issued to those directors of
the Company that are not also employees of the Company. Under the Director
Stock Option Plan, each of the current non-employee directors has received
options with respect to a total of 50,715 shares at an exercise price of $2.96
per share.
COMMITTEES OF THE BOARD
The Company's Board of Directors has appointed an Audit Committee,
Nominating Committee and a Compensation Committee.
Audit Committee. The Audit Committee, which currently consists of Mr. Puente
and Mr. Fialkov, has the authority and responsibility to hire one or more
independent public accountants to audit the Company's books, records and
financial statements and to review the Company's systems of accounting
(including its systems of internal control), to discuss with such independent
public accountants the results of such audit and review; to conduct periodic
independent reviews of the systems of accounting (including systems of
internal control); and to make reports periodically to the Board of Directors
with respect to its findings.
Nominating Committee. The Nominating Committee, which currently consists of
Messrs. Puente (Chairman) and Singh, is responsible for selecting those
persons to be nominated to the Company's Board of Directors.
Compensation Committee. The Compensation Committee, which currently consists
of Messrs. Fialkov (Chairman) and Hershberg, is responsible for fixing the
compensation of the Chief Executive Officer and the other executive officers,
deciding other compensation matters such as those relating to the operation of
the Company's Employee Stock Option Plan and Director Stock Option Plan,
including the award of options under the Employee Stock Option Plan, and
approving certain aspects of the Company's management bonus plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee has any interlocking or
other relationship with the Company that would call into question his
independence with respect to his duties.
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended December 31, 1996
and 1995 certain compensation information with respect to the Company's Chief
Executive Officer and the other Company officers named therein.
69
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------- -----------------------------
AWARDS PAYOUTS
--------------------- -------
SECURITIES
OTHER UNDER-
ANNUAL RESTRICTED LYING ALL OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
(A) (B) (C) (D) (E) (F) (G) (H) (I)
- --------------------------- ---- ------- ------- ------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
K. Paul Singh--Chairman 1996 185,000 100,000 -- -- 338,100 -- --
of the Board of 1995 185,000(1) -- -- -- -- -- --
Directors, President
and Chief Executive
Officer
Neil L. Hazard-- 1996 118,461 60,000 -- -- 304,290 -- --
Executive Vice
President and Chief
Financial Officer
1995 -- -- -- -- -- -- --
Ravi Bhatia--Chief 1996 96,740 30,000 -- -- 33,810 -- --
Operating Officer--
Axicorp Pty., Ltd.
1995 21,580 -- -- -- 67,620 -- --
George E. Mattos--Vice 1996 89,615 25,000 -- -- -- -- --
President of Operations
1995 79,808 15,000 -- -- 111,573 -- --
John Melick--Vice 1996 101,538 10,000 -- -- -- -- --
President of Sales and
Marketing
1995 90,000 -- -- -- 114,954 -- --
</TABLE>
- --------
(1) Of this amount, payment of $77,200 was deferred and subsequently paid on
July 31, 1996.
STOCK PLANS
Employee Stock Option Plan. The Company established the Employee Stock
Option Plan for its employees and consultants on January 2, 1995. Recently,
the Board adopted and the stockholders approved an amendment to the Employee
Stock Option Plan that, among other things, increased the number of options
available for grant and expanded the category of plan participants. The
Employee Stock Option Plan provides for the grant to selected full and part-
time employees and consultants of the Company and its Subsidiaries who
contribute to the development and success of the Company and its Subsidiaries
of both "incentive stock options" within the meaning of Section 422 of the
Code ("ISOs") and options that are non-qualified for federal income tax
purposes ("NQSOs"); provided, however, that consultants are eligible for the
grant of NQSOs only. The total number of shares of Common Stock for which
options may be granted pursuant to the Employee Stock Option Plan is
3,690,500, of which 2,086,961 are available for future grants, subject to
certain adjustments reflecting changes in the Company's capitalization. No
individual may receive, over the term of the Employee Stock Option Plan,
Options for more than an aggregate of 25 percent of the shares authorized for
grant under the Employee Stock Option Plan. The Employee Stock Option Plan is
currently administered by the Compensation Committee of the Board which is
comprised of directors who are not also employees of the Company. The
Compensation Committee determines, among other things, which employees and
consultants will receive options under the Employee Stock Option Plan; the
time when options will be granted; the type of option (ISO or NQSO, or both)
to be granted, the number of shares subject to each option, the time or times
when the options will become exercisable and expire, and, subject to certain
conditions discussed below, the option price and duration of the option. Board
members administering the Employee Stock Option Plan may vote on any matters
affecting the administration of the Plan, except that no member may act upon
the granting of an option to himself or herself.
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<PAGE>
The exercise price of the options granted under the Employee Stock Option
Plan is determined by the Board of Directors, but may not be less than the
fair market value per share of the Common Stock on the date the option is
granted. If, however, an ISO is granted to any person who, at the time of the
grant, owns capital stock possessing more than 10% of the total combined
voting power of all classes of the Company's capital stock, then the exercise
price for such ISO may not be less than 110% of the fair market value per
share of the Common Stock on the date the option is granted. The Board of
Directors also determines the method of payment for the exercise of options
under the Employee Stock Option Plan, and may consist entirely of cash, check,
promissory notes or Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price. The Board of Directors, in
its sole discretion, may cooperate with an optionee to complete a cashless
exercise transaction.
Options are not assignable or transferrable other than by will or the laws
of descent and distribution. In general, if an employee's employment with or a
consultants's engagement by the Company is terminated for any reason, such
employee's or consultant's options exercisable on the date of termination are
exercisable for three months following the date of termination. If the Board
of Directors makes a determination that a terminated employee or consultant
engaged in disloyalty to the Company, disclosed proprietary information, is
convicted of a felony, or breached the terms of a written confidentiality
agreement or non-competition agreement, all unexercised options held by such
employee or consultant terminate upon the earlier of the date of such
determination or the date of termination. If the employment or service of an
employee or consultant terminates because of disability or death, such
employee's or consultant's options that are exercisable on the date of
disability or death will remain exercisable for 12 months following the date
of disability or death; provided, however, that if a disabled employee or
consultant commences employment or service with a competitor of the Company
during that 12-month period, all options held by the employee or consultant
terminate immediately.
Options issued pursuant to the Employee Stock Option Plan outstanding on the
date of a "change in control" of the Company become immediately exercisable on
such date. A change in control for purposes of the Employee Stock Option Plan
includes the acquisition by any person or entity of the beneficial ownership
of 50% or more of the voting power of the Company's stock, the approval by the
Company's stockholders of a merger, reorganization or consolidation of the
Company in which the Company's stockholders do not own 50% or more of the
voting power of the stock of the entity surviving such a transaction, the
approval of the Company's stockholders of an agreement of sale of all or
substantially all of the Company's assets, and the acceptance by the Company's
stockholders of a share exchange in which the Company's stockholders do not
own 50% or more of the voting power of the stock of the entity surviving such
exchange.
There are no federal income tax consequences to the Company on the grant or
exercise of an ISO. If an employee disposes of stock acquired through the
exercise of an ISO within one year after the date such stock is acquired or
within two years after the grant of the ISO (a "Disqualifying Disposition"),
the Company will be entitled to a deduction in an amount equal to the
difference between the fair market value of such stock on the date it is
acquired and the exercise price of the ISO. There are no tax consequences to
the Company if an ISO lapses before exercise or is forfeited. The grant of a
NQSO has no immediate tax consequences to the Company. Upon the exercise of a
NQSO by an employee or consultant, the Company is entitled to a deduction in
an amount equal to the difference between the fair market value of the share
acquired through exercise of the NQSO and the exercise price of the NQSO.
There are no tax consequences to the Company if a NQSO lapses before exercise
or is forfeited.
An employee who receives an ISO is not subject to federal income tax on the
grant or exercise of the ISO; however, the difference between the option price
and the fair market value of the Common Stock received on the exercise of the
ISO ("ISO Stock") is an adjustment for purposes of the alternative minimum
tax. Upon the exercise of an ISO, an employee will have a basis in the ISO
Stock received equal to the amount paid. An employee will be subject to
capital gain or loss upon the sale of ISO Stock, unless such sale constitutes
a Disqualifying Disposition, equal to the difference between the amount
received for the stock and the employee's basis in such. The gain or loss will
be long- or short-term, depending on the length of time the ISO Stock was
71
<PAGE>
held prior to disposition. There are no tax consequences to an employee if an
ISO lapses before exercise or is forfeited.
In the event of a Disqualifying Disposition, an employee will be required to
recognize (1) taxable ordinary income in an amount equal to the difference
between the fair market value of the ISO Stock on the date of exercise of the
ISO and the exercise price; and (2) capital gain or loss (long- or short-term,
as the case may be) in an amount equal to the difference between (a) the
amount realized by the employee upon the Disqualifying Disposition and (b) the
exercise price paid by the employee for the stock, increased by the amount of
ordinary income recognized by the employee, if any. If the disposition
generates an allowable loss (e.g., a sale to an unrelated party not within 30
days of purchase of Common Stock), then the amount required to be recognized
by the employee as ordinary income will be limited to the excess, if any, of
the amount realized on the sale over the basis of the stock.
The Employee Stock Option Plan allows an employee or consultant to pay an
exercise price in cash or shares of the Company's Common Stock. If the
employee pays with shares of the Company's Common Stock that are already
owned, the basis of the newly acquired ISO Stock will depend on the tax
character and number of shares of the previously owned stock used as payment.
If an employee pays with shares acquired upon other than the exercise of an
ISO ("non-ISO Stock"), the transaction will be tax-free to the extent that the
number of shares received does not exceed the number of shares of non-ISO
Stock paid. The basis of the number of shares of newly acquired ISO Stock
which does not exceed the number of shares of non-ISO Stock paid will be equal
to the basis of the shares paid. The employee's holding period with respect to
such shares will include the holding period of the shares of non-ISO Stock
paid. To the extent that the employee receives more new shares than shares
surrendered, the "excess" shares of ISO Stock will take a zero basis. If an
employee exercises an ISO by using stock that is previously acquired ISO
Stock, however, certain special rules apply. If the employee has not held the
previously acquired ISO Stock for at least two years from the date of grant of
the related ISO and one year from the date the employee acquired the
previously acquired ISO Stock, the use of such ISO Stock to pay the exercise
price will constitute a Disqualifying Disposition and subject the employee to
income tax with respect to the ISO Stock as described above. In such
circumstances, the basis of the newly acquired ISO Stock will be equal to the
fair market value of the previously acquired ISO Stock used as payment.
The grant of a NQSO has no immediate tax consequences to an employee or
consultant. The exercise of a NQSO requires an employee or consultant to
include in gross income the amount by which the fair market value of the
acquired shares exceeds the exercise price on the exercise date. The Company
is required to withhold income and employment taxes from an employee's wages
on account of this income. The employee's or consultant's basis in the
acquired shares will be their fair market value on the date of exercise. Upon
a subsequent sale of such shares, the employee or consultant will recognize
capital gain or loss equal to the difference between the sales price and the
basis in the stock. The capital gain or loss will be long- or short-term,
depending on whether the employee or consultant has held the shares for more
than one year. There are no tax consequences to an employee or consultant if a
NQSO lapses before exercise or is forfeited. If an employee or consultant uses
previously owned Common Stock as payment for the exercise price of a NQSO, to
the extent the employee or consultant surrenders the same number of shares
received, the exchange is tax-free and the new shares will have a basis equal
to that of the shares surrendered. The holding period for the new shares will
include the period the employee or consultant held the surrendered shares. To
the extent the employee or consultant receives more new shares than shares
surrendered, the excess shares are treated as having been acquired for no
consideration and the fair market value of such excess shares is includible in
the employee's or consultant's income as compensation. The basis of the excess
shares is their fair market value at the time of receipt. If the previously
owned shares consist of ISO Stock for which the holding requirements were not
met such that their use as payment of the exercise price constituted a
Disqualifying Disposition, the employee will have the income tax consequences
described above.
The Board of Directors has authority to suspend, terminate or discontinue
the Employee Stock Option Plan or revise or amend it in any manner with
respect to options granted after the date of revision. No such revision,
however, can change the aggregate number of shares subject to the Employee
Stock Option Plan, change the
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<PAGE>
designation of employees eligible thereunder, or decrease the price at which
options may be granted. The Board may not grant any options under the Employee
Stock Option Plan after January 2, 2005.
Director Stock Option Plan. The Company also established a Director Stock
Option Plan on July 27, 1995. The purpose of the Director Stock Option Plan is
to encourage ownership in the Company by outside directors (present or future
incumbent directors who are not employees of the Company or any subsidiary)
whose services are considered essential to the Company's continued progress.
Options granted under the Director Stock Option Plan are NQSOS. The Director
Stock Option Plan is administered by a committee of the Board of Directors
consisting of those directors who are not eligible to receive grants
thereunder. The total number of shares of Common Stock for which options may
be granted pursuant to the Director Stock Option Plan is 338,100. On the
effective date of the Director Stock Option Plan or the first date thereafter
that any director becomes eligible to receive an award under the Director
Stock Option Plan, each eligible director will automatically receive an option
to purchase 50,715 shares of Common Stock, exercisable for 16,905 shares
immediately, and 16,905 on each of the next two anniversary dates of the grant
date. All options become immediately exercisable, however, upon the retirement
of a director in accordance with any mandatory retirement policy of the Board,
upon the death or permanent disability of a director, or if the Company merges
with another Company and is not the surviving corporation, the Company enters
into an agreement to sell or otherwise dispose of all or substantially all of
its assets, or any person or group acquires more than 20% of the Company's
outstanding voting stock.
The option price is the fair market value at the date on which an option is
granted. Payment for the exercise of options may consist of cash or Common
Stock. Options issued under the Director Stock Option Plan are not
transferrable other than by will or the laws of descent and distribution.
Options expire upon the earlier of five years from the date they were granted
or three years following either the retirement or resignation of the director,
the failure of the director to be re-elected, or the permanent disability or
death of the director. No options may be granted under the Director Stock
Option Plan after December 31, 2005.
The grant of a NQSO has no immediate tax consequences to the Company. Upon
the exercise of a NQSO by a director, the Company is entitled to a deduction
in an amount equal to the difference between the fair market value of the
share acquired through exercise of the NQSO and the exercise price of the
NQSO. There are no tax consequences to the Company if a NQSO lapses before
exercise or is forfeited.
The tax consequences to a director upon the grant and exercise of a NQSO,
and the sale of Common Stock acquired upon exercise thereof, are identical to
those described for NQSOs under "--Employee Stock Option Plan" above, except
that the Company has no withholding obligations upon the exercise of a NQSO by
a director.
Employee Stock Purchase Plan. Recently, the Board adopted and the
stockholders approved an Employee Stock Purchase Plan (the "ESP Plan"). The
ESP Plan provides employees with the right to purchase shares of Common Stock
through payroll deduction. A total of 2,000,000 shares of Common Stock are
available for purchase under the ESP Plan, subject to adjustment in the number
and price of shares of Common Stock available for purchase in the event the
outstanding shares of Common Stock are increased or decreased through stock
dividends, recapitalizations, reorganizations or similar changes. The Plan is
to be administered by the Board, which may delegate responsibility for such
administration to a committee of the Board (the "Committee"). Subject to the
terms of the ESP Plan, the Board or the Committee shall have authority to
interpret the ESP Plan, to prescribe, amend and rescind rules and regulations
relating to it, and to make all other determinations deemed necessary or
advisable in administering the ESP Plan.
An employee of a Participating Company is eligible to participate in the ESP
Plan if the employee, as of the last day of the month immediately preceding
the effective date of an election to purchase shares of Common Stock pursuant
to the ESP Plan: (1) has been employed on a full-time basis for at least six
consecutive months; or (2) has been employed on a part-time basis for at least
24 consecutive months. Presently, only employees of the Company residing in
the United States are eligible to participate in the ESP Plan. An employee is
considered to be a part-time employee if the employee is scheduled to work at
least 20 hours per week. Notwithstanding the
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foregoing, any employee who, after purchasing Common Stock under the ESP Plan,
would own five percent or more of the total combined voting power or value of
all classes of stock of the Company or any parent corporation or subsidiary
corporation thereof is not eligible to participate. Ownership of stock is
determined in accordance with the provisions of Section 424(d) of the Internal
Revenue Code. Further, an employee is not eligible to participate if such
participation would permit such employee's rights to purchase stock under all
employee stock purchase plans of the Participating Companies which meet the
requirements of section 423(b) of the Code to accrue at a rate which exceeds
$25,000 in fair market value (as determined pursuant to section 423(b)(8) of
the Code) for each calendar year in which such option is outstanding.
Eligible employees may elect to participate in the ESP Plan during an
offering which starts on the first day of each month beginning on or after
adoption of the ESP Plan by the Board ("Offering Commencement Date") and ends
on the last day of each month ("Offering Termination Date"). Shares will be
deemed to have been purchased on the Offering Termination Date. The purchase
price per share offered under the ESP Plan will be 85 percent of the lesser
of: (1) the fair market value per share on the Offering Commencement Date, or
if such date is not a trading day, then on the next trading day thereafter; or
(2) the fair market value per share on the Offering Termination Date, or if
such date is not a trading day, then on the next trading day thereafter.
An eligible employee who wishes to participate in the ESP Plan shall file an
election form with the Board or Committee at least 15 days before the Offering
Commencement Date for the first offering for which such election form is
effective, on which he may elect to have payroll deductions made from his
compensation on each regular payday during the time he is a participant in the
ESP Plan. All payroll deductions shall be credited to the participant's
account under the ESP Plan. A participant who is on an approved leave of
absence may authorize continuing payroll deductions.
If the total number of shares of Common Stock for which purchase rights are
exercised on any Offering Termination Date exceeds the maximum number of
shares of Common Stock available, the Board or Committee shall make a pro rata
allocation of shares available for delivery and distribution in as nearly a
uniform manner as practicable, and as it shall determine to be fair and
equitable, and the unapplied account balances shall be returned to
participants as soon as practicable following the Offering Termination Date.
A participant may discontinue his participation in the ESP Plan at any time,
but no other change can be made during an offering, including, but not limited
to, changes in the amount of payroll deductions for such offering. A
participant may change the amount of payroll deductions for subsequent
offerings by giving written notice of such change to the Board or Committee on
or before the 15th day of the month immediately preceding the Offering
Commencement Date for the offering for which such change is effective.
A participant may elect to withdraw the balance credited to the
participant's account by providing a termination form to the Board or the
Committee at any time before the Offering Termination Date applicable to any
offering. A participant may withdraw all, but not less than all, of the
amounts credited to the participant's account. All amounts credited to such
participant's account shall be paid as soon as practicable following the
Committee's receipt of the participant's termination form, and no further
payroll deductions will be made with respect to the participant. A participant
who elects to withdraw from an offering shall be deemed to have elected not to
participate in each of the four succeeding offerings following the date on
which the participant gives a termination form to the Committee.
Upon termination of a participant's employment for any reason other than
death, including termination due to disability or continuation of a leave of
absence beyond 90 days, all amounts credited to such participant's account
shall be returned to the participant. In the event of a participant's (1)
termination of employment due to death or (2) death after termination of
employment but before the participant's account has been returned, all amounts
credited to such participant's account shall be returned to the participant's
successor-in-interest. A participant who is on an approved leave of absence
shall remain eligible to participate in the ESP Plan until the end of the
first offering ending after commencement of such approved leave of absence. A
participant who has been on an approved leave of absence for more than 90 days
shall not be eligible to participate in any offering that begins on or after
the commencement of such approved leave of absence so long as such leave of
absence continues.
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All funds held or received by the Company under the ESP Plan may be used for
any corporate purpose until applied to the purchase of shares of Common Stock
or refunded to employees and shall not be segregated from the general assets
of the Company. Shares of Common Stock purchased under the ESP Plan will be
issued from the Company's treasury stock or from the Company's authorized but
unissued shares. The Participating Companies shall pay all fees and expenses
incurred (excluding individual Federal, state, local or other taxes) in
connection with the ESP Plan.
An employee's rights under the ESP Plan belong to the employee alone and may
not be transferred or assigned to any other person during the employee's
lifetime. After the shares of Common Stock have been issued under the ESP
Plan, such shares may be assigned or transferred the same as any other shares.
The Plan is not qualified under Section 401(a) of the Internal Revenue Code.
The Company generally will not be entitled to a deduction with respect to
stock purchased under the ESP Plan, unless the stock is disposed of less than
one year after the Common Stock is purchased by the employee, or less than two
years after each Offering Commencement Date.
Generally, no tax consequences arise at the time the participant purchases
shares of Common Stock. If a participant does not dispose of shares of Common
Stock purchased under the ESP Plan for at least one year after the date of
purchase and at least two years after the grant of the purchase right, he will
be deemed to have received compensation taxable as ordinary income for the
taxable year in which the disposition occurs in an amount equal to the lesser
of (a) the 15% discount originally allowed, or (b) the excess over the
purchase price of (i) the amount actually received for the shares if sold or
exchanged or (ii) the fair market value of the shares on the date of any other
termination of his ownership (such as by gift). The amount of such ordinary
income is then added to the participant's basis in his shares for purposes of
determining capital gain or loss.
If a participant disposes of shares of Common Stock purchased under the ESP
Plan less than one year after the date of purchase, or more than one year
after the date of purchase but within two years after the grant of the
purchase right, he will be deemed to have received compensation taxable as
ordinary income in the amount of the difference between the amount paid for
the shares and the value of the shares at the time of purchase. If the shares
are sold or exchanged, the amount of such ordinary income is added to the
participant's basis in his shares for purposes of determining capital gain or
loss. If a participant dies before disposing of the shares purchased under the
ESP Plan, he will be deemed to have realized compensation income taxable as
ordinary income in the taxable year closing with his death in an amount equal
to the lesser of clauses (a) and (b)(ii) as set forth in the immediately
preceding paragraph. He is deemed not to have realized any capital gain or
loss because of death.
The Board or the Committee shall have the right to amend, modify or
terminate the ESP Plan at any time without notice, provided that no employee's
then existing rights are adversely affected without his or her consent, and
provided further, that upon any amendment of the ESP Plan, stockholder
approval will be obtained if required by law.
EMPLOYMENT CONTRACT
The Company has entered into an employment agreement with Mr. Singh (the
"Singh Agreement"). The Singh Agreement is a five-year contract, with a term
beginning on June 1, 1994 and continuing until May 30, 1999, and from year to
year thereafter unless terminated. Under the terms of the Singh Agreement, Mr.
Singh is required to devote his full time efforts to the Company as Chairman
of the Board, President and CEO. The Company is required to compensate Mr.
Singh at an annual rate of $250,000 effective January 1, 1997 (which amount is
reviewed annually by the Board of Directors and is subject to increase at
their discretion). Mr. Singh agreed to defer payment of his base salary from
June 1, 1994 through May 31, 1995, which was subsequently paid to him on July
31, 1996. The Company is also obligated to (i) allow Mr. Singh to participate
in any bonus or incentive compensation plan approved for senior management of
the Company, (ii) provide life insurance in an amount equal to three times Mr.
Singh's base salary and disability insurance which provides monthly
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payments in an amount equal to one-twelfth of his then applicable base salary,
(iii) provide medical insurance, and (iv) pay up to $2,500 annually for Mr.
Singh's personal tax and financial planning services.
The Company may terminate the Singh Agreement at any time in the event of
his disability or for cause, each as defined in the Singh Agreement. Mr. Singh
may resign from the Company at any time without penalty (other than the non-
competition obligations discussed below). If the Company terminates the Singh
Agreement for disability or cause, the Company will have no further
obligations to Mr. Singh. If, however, the Company terminates the Singh
Agreement other than for disability or cause, the Company will have the
following obligations: (i) if the termination is after May 30, 1999, the
Company must pay Mr. Singh one-twelfth of his then applicable base salary as
severance pay; and (ii) if the termination is before June 1, 1999, the Company
must pay to Mr. Singh, as they become due, all amounts otherwise payable if he
had remained employed by the Company until June 1, 1999. If Mr. Singh resigns,
he may not directly or indirectly compete with the Company's business until
six months after his resignation. If the Company terminates Mr. Singh's
employment for any reason, Mr. Singh may not directly or indirectly compete
with the Company's business until six months after the final payment of any
amounts owed to him under the Singh Agreement become due.
CERTAIN TRANSACTIONS
PRIVATE EQUITY SALE
In July 1996, Primus completed the sale of 965,999 shares of Common Stock to
the (i) Quantum Industrial Partners LDC, the principal operating subsidiary of
Quantum Industrial Holdings Ltd., an investment fund advised by Soros Fund
Management, a private investment firm owned by Mr. George Soros, (ii) Winston
Partners II LDC, the principal operating subsidiary of Winston Partners II
Offshore Ltd., an investment fund advised by Chatterjee Management Company, a
private entity owned by Dr. Purnendu Chatterjee, (iii) Winston Partners II
LLC, an investment fund advised by Chatterjee Management Company and (iv) S-C
Phoenix Holdings, L.L.C., an investment vehicle owned by affiliates of Mr.
Soros and Dr. Chatterjee (collectively, the "Soros/Chatterjee Group"), for an
aggregate purchase price of approximately $8.0 million. The Soros/Chatterjee
Group also purchased, for an additional $8.0 million, the right to receive,
upon exercise, an indeterminate number of shares of Common Stock with a fair
market value of $10.0 million as of the date of exercise, plus up to 624,275
additional shares of Common Stock (the "Soros/Chatterjee Warrants"). The
Soros/Chatterjee Warrants are exercisable until July 31, 1999. The
Soros/Chatterjee Warrants are entitled to certain customary antidilution
protection in the event of stock splits, stock dividends, reorganizations and
other similar events.
The Soros/Chatterjee Group was granted registration rights pursuant to a
registration rights agreement with the Company (the "Registration Rights
Agreement"). Under the Registration Rights Agreement, the Soros/Chatterjee
Group is entitled to demand registration of its shares after July 31, 1998, a
maximum of three times, the third demand being available only if the
Soros/Chatterjee Group has not registered 80% of its shares of Common Stock
after the first demand registration. The Company is not required to effect any
demand registration within 180 days after the effective date of a previous
demand registration and may postpone, on one occasion in any 365-day period,
the filing or effectiveness of a registration statement for a demand
registration for up to 120 days under certain circumstances, including pending
material transactions or the filing by the Company of a registration statement
relating to the sale of shares for its own account. The Soros/Chatterjee Group
is also entitled to unlimited piggyback registrations. All such registrations
would be at the Company's expense, exclusive of underwriting discounts and
commissions, and legal fees (up to $25,000 for each such offering) incurred by
the holders of the registrable securities. The Company and the
Soros/Chatterjee Group have entered into customary indemnification and
contribution provisions.
Additionally, members of the Soros/Chatterjee Group are entitled to tagalong
rights to participate with Mr. Singh and members of his family in sales of
capital stock on the same terms and conditions as Mr. Singh and members of his
family. The Soros/Chatterjee Group shares are also subject to drag along
rights in the event holders of a majority of the Common Stock decide to sell
80% or more of the outstanding capital stock of the
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Company. The Securityholders Agreement provides that members of the
Soros/Chatterjee Group will not transfer shares of Common Stock to a company,
or any affiliate, that competes with the Company to a material extent in the
provision of telecommunications services in the United States, Australia, the
United Kingdom, France, Germany, Mexico, Canada, Italy or Hong Kong.
TELEGLOBE
The Company entered into an agreement in January 1996 with Teleglobe,
pursuant to which Teleglobe purchased 410,808 shares of Common Stock for a
total of $1,458,060. The equity investment was consummated in February 1996 as
was a loan by Teleglobe of $2.0 million to the Company. The loan, which bears
interest at 6.9% per annum (payable quarterly) and matures on February 9,
1998, is secured by all the assets of the Company, comprised principally of
the stock of the subsidiaries (65% of the stock of foreign subsidiaries was
pledged). The Company will prepay this balance of this loan with proceeds from
this Offering. Related to the Teleglobe investments, the Company and a number
of its subsidiaries have entered into trading agreements with Teleglobe with
respect to their respective service offerings. The parties have also agreed to
cooperate in an effort to maximize efficiencies with respect to network
facilities.
As part of the transaction, Teleglobe, the Company and Mr. Singh are parties
to a stockholders' agreement (the "Teleglobe Agreement") providing Teleglobe
the same consent, preemptive and registration rights as may be granted in the
future to other stockholders of an equal or lesser percentage ownership in the
Company, and participation and tag-along rights whereby Teleglobe is entitled
to sell its shares of Common Stock when certain other stockholders sell or
when the Company issues equity securities that would result in a change of
control of the Company. The Teleglobe Agreement also obligates Teleglobe to
sell its shares if certain other stockholders sell and specified conditions
are met, and grants the Company a right of first refusal upon a sale of the
Teleglobe-owned Common Stock to any competitor of the Company. Teleglobe
waived any preemptive rights and registration rights that arose as a result of
the Private Equity Sale.
NSI PRIVATE PLACEMENTS
In 1995 and 1996, the Company engaged Northeast Securities, Inc. ("NSI") to
serve as the placement agent for two private placements of the Company's
Common Stock. Mr. Andrew B. Krieger, a former director of Primus, served as a
broker-dealer in the private placements through an affiliation with NSI. In
connection with these offerings, the Company paid Mr. Krieger cash commissions
aggregating approximately $1.0 million. The Company also retained Krieger
Associates, of which Mr. Krieger is the President and Chief Executive Officer,
to perform certain financial and other consulting services and paid a total of
approximately $105,828 for the performance of such services during 1995 and
1996. In addition, in connection with these private placements, the Company
issued a total of 193,718 shares of Common Stock to Krieger Associates and Mr.
Krieger, and at the direction of Mr. Krieger issued a total of 74,003 shares
of Common Stock to other individuals associated with the transaction. The
Company also issued, in connection with these private placements, a total of
245,555 shares of Common Stock to NSI and certain of its employees associated
with the transactions.
LOAN FROM CHAIRMAN AND CHIEF EXECUTIVE OFFICER
In connection with the initial organization of the Company, K. Paul Singh,
the Company's Chairman of the Board and Chief Executive Officer, loaned the
Company approximately $320,000, accruing interest at a variable rate tied to
the prime rate. On March 31, 1995, the Company and Mr. Singh converted all
then outstanding principal and interest due ($350,000) into 555,559 shares of
Common Stock, at a price per share of $0.63, which shares were issued on such
date.
MANAGEMENT FEES
Prior to the Company's acquisition of Axicorp , Axicorp paid a management
fee based on a percentage of revenue to a company owned primarily by certain
officers of the Company, including Paul Keenan, Sim Thiam
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Soon and Peter Slaney. Mr. Keenan and Mr. Slaney are no longer employed by the
Company. Total management fees for the nine month period ended March 31, 1995,
and the twelve month period ended March 31, 1996 were $616,000 and $426,000,
respectively.
LEGAL SERVICES
From time to time, the Company has retained the law firm of Pepper, Hamilton
& Scheetz llp, of which John F. DePodesta, a director and an Executive Vice
President of the Company, is "of counsel," to perform legal services for the
Company.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information, as of June 30, 1997 (except as
otherwise noted), with respect to the beneficial ownership of shares of the
Common Stock by each person or group who is known to the Company to be the
beneficial owner of more than five percent of the outstanding Common Stock, by
each director or nominee for director, by each of the officers named on the
Summary Compensation Table, and by all directors and executive officers as a
group. Unless otherwise indicated, each person has sole voting power and sole
investment power.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP(2) OF CLASS
--------------------------------------- ----------------- --------
<S> <C> <C>
K. Paul Singh....................................... 4,497,730(3) 25.1%
Quantum Industrial Partners LDC..................... 796,950(4) 4.4%
c/o Curacao Corporation Company N.V.
Kaya Flamboyan 9
Willemstad, Curacao
Netherlands Antilles
S-C Phoenix Holdings, L.L.C. ....................... 478,169(5) 2.7%
c/o The Chatterjee Group
888 Seventh Avenue
New York, New York 10106
Winston Partners II LLC............................. 99,618(6) *
c/o Chatterjee Advisors LLC
c/o The Chatterjee Group
888 Seventh Avenue
New York, New York 10106
Winston Partners II LDC ............................ 215,537(7) 1.1%
c/o Curacao Corporation Company N.V.
Kaya Flamboyan 9
Willemstad, Curacao
Netherlands Antilles
John F. DePodesta................................... 319,690(8) 1.8%
Herman Fialkov...................................... 49,715(9) *
David E. Hershberg.................................. 42,262(10) *
John Puente......................................... 152,855(11) *
Neil L. Hazard...................................... 103,430(12) *
Ravi Bhatia......................................... 36,309(13) *
George E. Mattos.................................... 97,920(14) *
John Melick......................................... 99,674(15) *
All executive officers and directors as a group (10
people)............................................ 5,401,585(16) 28.7%
</TABLE>
- --------
* Less than 1% of the outstanding Common Stock.
(1) Except as otherwise indicated, the address of each person named in the
table is: c/o Primus Telecommunications Group, Incorporated, 2070 Chain
Bridge Road, Suite 425, Vienna, Virginia, 22182.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting or investment
power with respect to the shares beneficially owned. Shares of Common
Stock subject to options or warrants currently exercisable or exercisable
on or prior to August 29, 1997 are deemed outstanding for computing the
percentage ownership of the person holding such options or warrants, but
are not deemed outstanding for computing the percentage ownership of any
other person.
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(3) Includes 377,786 shares of Common Stock owned by Mr. Singh's spouse and
children, 500,000 shares of Common Stock held by a private foundation of
which Mr. Singh is the president and a director, and 396,828 shares of
Common Stock held of record by a series of revocable trusts of which Mr.
Singh is the trustee and pursuant to which Mr. Singh has sole voting
power and shared dispositive power. Also includes 112,700 shares of
Common Stock issuable upon the exercise of options granted to Mr. Singh
and exercisable on or prior to August 29, 1997.
(4) Based on an amended Schedule 13D dated June 1, 1997, Quantum Industrial
Partners LDC ("Quantum Industrial") has reported that it may be deemed to
be the beneficial owner of 652,050 shares of Common Stock. QIH Management
Investor, L.P., the sole general partner of which is QIH Management, Inc.
("QIH Management"), is vested with investment discretion with respect to
portfolio assets held for the account of Quantum Industrial. Mr. George
Soros, the sole shareholder of QIH Management, has entered into an
agreement with Soros Fund Management LLC, a Delaware limited liability
company ("SFM LLC"), pursuant to which Mr. Soros has, among other things,
agreed to use his best efforts to cause QIH Management to act at the
direction of SFM LLC (the "QIP Contract"). Mr. Soros is Chairman of SFM
LLC and as a result of such position and the QIP Contract, may be deemed
to be the beneficial owner of shares of Common Stock held for the account
of Quantum Industrial. Mr. Stanley F. Druckenmiller, the Lead Portfolio
Manager of SFM LLC, by virtue of such position and the QIP Contract, also
may be deemed to be the beneficial owner of the shares of Common Stock
held for the account of Quantum Industrial. Dr. Purnendu Chatterjee may
be deemed to be the beneficial owner of the shares of Common Stock held
for the account of Quantum Industrial by virtue of his position as a sub-
investment manager to Quantum Industrial with respect to its shares of
Common Stock. Excludes an indeterminate number of shares having a fair
market value of $5 million as of the date of exercise.
(5) Based on an amended Schedule 13D dated June 1, 1997, S-C Phoenix
Holdings, L.L.C. ("Phoenix Holdings") has reported that it may be deemed
to be the beneficial owner of 391,230 shares of Common Stock. According
to the Schedule 13D, George Soros and Winston Partners, L.P. are the
managing members of Phoenix Holdings with respect to its investment in
the shares of Common Stock, and as a result of their ability to exercise
investment discretion, each may be deemed to be a beneficial owner of the
shares of Common Stock. Dr. Chatterjee, who is the sole general partner
of Chatterjee Fund Management ("CFM"), and CFM, which is the sole general
partner of Winston Partners, L.P., each may be deemed to have beneficial
ownership in the shares of Common Stock held by Phoenix Holdings.
Excludes an indeterminate number of shares having a fair market value of
$3 million as of the date of exercise.
(6) Based on an amended Schedule 13D dated June 1, 1997, Winston Partners II
LLC ("Winston LLC") has reported that it may be deemed to be the
beneficial owner of 81,506 shares of Common Stock. According to the
Schedule 13D, Chatterjee Management Company ("Chatterjee Management"), an
entity over which Dr. Chatterjee may be deemed to have sole and ultimate
control, has investment discretion over the shares of Common Stock held
by Winston LLC, and as such may be deemed to have beneficial ownership
over such shares. In addition, Chatterjee Advisors LLC ("Chatterjee
Advisors"), which also may be deemed under the management and control of
Dr. Chatterjee, as manager of Winston LLC and by reason of its ability to
terminate the contract between Winston LLC and Chatterjee Management may
be deemed to be the beneficial owner of the shares of Common Stock held
by Winston LLC. Excludes an indeterminate number of shares having a fair
market value of $625,000 as of the date of exercise.
(7) Based on an amended Schedule 13D dated June 1, 1997, Winston Partners II
LDC ("Winston LDC") has reported that it may be deemed to be the
beneficial owner of 179,313 shares of Common Stock. According to the
Schedule 13D, Chatterjee Management has investment discretion over the
shares of Common Stock held by Winston LDC, and as such may be deemed to
have beneficial ownership over such shares. In addition, Chatterjee
Advisors, as manager of Winston LDC and by reason of its ability to
terminate the contract between Winston LDC and Chatterjee Management, may
be deemed to be the beneficial owner of the shares of Common Stock held
by Winston LDC. Excludes an indeterminate number of shares having a fair
market value of $1.375 million as of the date of exercise.
(8) Includes 101,430 shares of Common Stock issuable upon the exercise of
options granted to Mr. DePodesta and exercisable on or prior to August
29, 1997.
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(9) Includes 33,810 shares of Common Stock issuable upon the exercise of
options granted to Mr. Fialkov and exercisable on or prior to August 29,
1997.
(10) Includes 33,810 shares of Common Stock issuable upon the exercise of
options granted to Mr. Hershberg and exercisable on or prior to August
29, 1997 and 8,453 shares of Common Stock owned by a partnership of which
Mr. Hershberg is a general partner.
(11) Includes 33,810 shares of Common Stock issuable upon the exercise of
options granted to Mr. Puente and exercisable on or prior to August 29,
1997.
(12) Includes 101,430 shares of Common Stock issuable upon the exercise of
options granted to Mr. Hazard and exercisable on or prior to August 29,
1997.
(13) Includes 33,810 shares of Common Stock issuable upon the exercise of
options granted to Mr. Bhatia and exercisable on or prior to August 29,
1997.
(14) Includes 96,920 shares of Common Stock issuable upon the exercise of
options granted to Mr. Mattos and exercisable on or prior to August 29,
1997.
(15) Includes 99,174 shares of Common Stock issuable upon the exercise of
options granted to Mr. Melick and exercisable on or prior to August 29,
1997.
(16) Includes 646,896 shares of Common Stock issuable upon the exercise of
options granted to directors and executive officers and exercisable on or
prior to August 29, 1997.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue up to 40,000,000 shares of Common Stock,
par value $0.01 per share. As of July 24, 1997, the Company had 17,778,731
shares outstanding and 6,103,600 shares of Common Stock reserved for issuance
under the ESP Plan and the Company's 401(k) Plan and upon exercise of options
granted pursuant to the Employee Stock Option Plan and the Director Stock
Option Plan. An additional shares of Common Stock will be reserved for
issuance upon the exercise of the Warrants issued in this Offering at $ per
share. An additional 1,624,275 shares of Common Stock may be issued pursuant
to the Soros/Chatterjee Warrants assuming such warrants were exercised on July
14, 1997. The actual number of shares of Common Stock issuable under the
Soros/Chatterjee Warrants will be up to 624,275 shares, plus an indeterminate
number of shares of Common Stock having a fair market value of $10 million as
of the date of exercise. Holders of shares of Common Stock are entitled to one
vote per share on all matters to be voted upon by the stockholders. Subject to
such preferential rights of the issued and outstanding Series A Stock more
particularly described below, and such preferential rights as the Company's
Board of Directors may grant in connection with future issuances of Preferred
Stock, holders of shares of Common Stock are entitled to receive such
dividends as the Board of Directors may declare in its discretion out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of the Company, after payment of liabilities and any liquidation
preference on any shares of Preferred Stock then outstanding, the holders of
shares of Common Stock are entitled to a distribution of any remaining assets
of the Company. Holders of shares of Common Stock have no cumulative voting or
preemptive rights. All outstanding shares of Common Stock are, and the shares
of Common Stock offered hereby, when issued and paid for, will be, fully paid
and nonassessable.
PREFERRED STOCK
The Company's Board of Directors may determine the timing, series,
designation and number of shares of Other Preferred Stock to be issued, as
well as the rights, preferences and limitations of such shares, including
those related to voting power, redemption, conversion, dividend rights and
liquidation preferences. The issuance of Other Preferred Stock could adversely
affect the voting power of the holders of Common Stock of the Company or have
the effect of deterring or delaying any attempt by a person, entity or group
to obtain control of the Company. See "--Takeover Protection."
WARRANTS
The Soros/Chatterjee Warrants provide for the right to receive, upon
exercise, up to 624,275 shares of Common Stock plus an indeterminate number of
shares having a fair market value of $10 million as of the date of exercise.
Of the Soros/Chatterjee Warrants, warrants to purchase 338,100 shares of
Common Stock are currently exercisable, with the remainder being exercisable
on or after July 31, 1997 and until July 31, 1999. The Soros/Chatterjee
Warrants are entitled to certain customary antidilution protection in the
event of stock splits, stock dividends, reorganizations and other similar
events. The shares of Common Stock issued pursuant to the Soros/Chatterjee
Warrants are entitled to certain registration rights described below. See
"Certain Transactions--Private Equity Sale."
REGISTRATION RIGHTS
Soros/Chatterjee Group. Pursuant to a Registration Rights Agreement dated
July 31, 1996, the Soros/Chatterjee Group is entitled to demand registration
of its shares of Common Stock after July 31, 1998, up to three times, the
third demand being available only if the first two did not result in the
Soros/Chatterjee Group having registered 80% of its shares of Common Stock.
The Company is not required to effect any demand registration within 180 days
after the effective date of a previous demand registration and may postpone,
on one occasion in any 365-day period the filing or effectiveness of a
registration statement for a demand registration
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for up to 120 days under certain circumstances, including pending material
transactions or the filing by the Company of a registration statement relating
to the sale of shares for its own account. The Soros/Chatterjee Group is also
entitled to unlimited piggyback registrations. Such rights with respect to
this Offering have been waived. All such registrations would be at the
Company's expense, exclusive of underwriting discounts and commissions, and
legal fees (up to $25,000 for each such offering) incurred by the holders of
registrable securities. The Company and the Soros/Chatterjee Group have
entered into customary indemnification and contribution provisions.
Teleglobe. Under a stockholders' agreement between the Company, Mr. Singh
and Teleglobe, Teleglobe has the same consent, preemptive and registration
rights as may be granted in the future to other stockholders of an equal or
lesser percentage ownership in the Company. No such rights have been granted
to other stockholders other than in one instance in which Teleglobe waived its
rights. The stockholders' agreement also provides Teleglobe participation and
tag-along rights whereby Teleglobe is entitled to sell its shares of Common
Stock when certain other stockholders sell or when the Company issues equity
securities that would result in a change of control of the Company. The
agreement also obligates Teleglobe to sell its shares if certain other
stockholders sell and specified conditions are met, and grants the Company a
right of first refusal upon a sale of the Teleglobe-owned Common Stock to any
competitor of the Company.
Other Registration Rights. Pursuant to the terms of the private placements
of Common Stock through NSI as placement agent, purchasers of such shares in
each such private placement (an aggregate of 4,042,084 shares) are entitled to
demand registration of such shares on one occasion (or a total of two demand
registrations) and to piggyback registration rights.
TAKEOVER PROTECTION
The Company is subject to Section 203 of the DGCL which, subject to certain
exceptions, prohibits a Delaware corporation, the voting stock of which is
generally publicly traded (i.e., listed on a national securities exchange or
authorized for quotation on an inter-dealer quotation system of a registered
national securities association) or held of record by more than 2,000
stockholders, from engaging in any "business combination" (as defined below)
with any "interested stockholder" (as defined below) for a period of three
years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (x) by persons who are directors and also
officers, and (y) by 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 (iii) on or
subsequent to such date, the business combination is approved by the board of
directors and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least 66.3% of the
outstanding voting stock which is not owned by the interested stockholder.
Section 203 of the DGCL defines "business combination" to include: (i) any
merger or consolidation involving the corporation and the interested
stockholder; (ii) any sale, transfer, pledge or other disposition involving
the interested stockholder of 10% or more of the assets of the corporation;
(iii) subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to the
interested stockholder; (iv) any transaction involving the corporation which
has the effect of increasing the proportionate share of the stock of any class
or series of the corporation beneficially owned by the interested stockholder,
or (v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an "interested
stockholder" as any person who, together with any affiliates or associates of
such person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting stock of a Delaware corporation.
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Pursuant to the Company's Certificate of Incorporation, the Company's Board
of Directors is divided into three classes of directors each containing, as
nearly as possible, an equal number of directors. Directors within each class
are elected to serve three-year terms and approximately one-third of the
directors sit for election at each annual meeting of the Company's
stockholders. A classified board of directors may have the effect of deterring
or delaying any attempt by any group to obtain control of the Company by a
proxy contest since such third party would be required to have its nominees
elected at two separate annual meetings of the Board of Directors in order to
elect a majority of the members of the Board of Directors. Directors who are
elected to fill a vacancy (including vacancies created by an increase in the
number of directors) must be confirmed by the stockholders at the next annual
meeting of stockholders whether or not such director's term expires at such
annual meeting. In addition, the Company's Certificate of Incorporation
provides that stockholders may only act at stockholders' meetings and that
stockholders may not act by written consent.
The Company's By-Laws allow the Board of Directors to increase the number of
directors from time to time (though a decrease in the number of directors may
not have the effect of shortening the term of any incumbent director) and to
fill any vacancies on the Board of Directors, including vacancies resulting
from an increase in the number of directors. This provision is designed to
provide the Board of Directors with flexibility to deal with an attempted
hostile takeover by a stockholder who may acquire a majority voting interest
in the Company without paying a premium therefor. This provision allows the
Board of Directors to increase its size and prevent a "squeeze-out" of any
remaining minority interest soon after a new majority stockholder gains
control over the Company. Further, the By-Laws limit the new majority
stockholder's power to remove a current or all current directors before the
annual meeting in the absence of "cause." Cause for removal of a director is
limited to (i) a judicial determination that a director is of unsound mind,
(ii) a conviction of a director of an offense punishable by imprisonment for a
term of more than one year, (iii) a breach or failure by a director to perform
the statutory duties of said director's office if the breach or failure
constitutes self-dealing, willful misconduct or recklessness, or (iv) a
failure of a director, within 60 days after notice of his or her election, to
accept such office either in writing or by attending a meeting of the Board of
Directors and fulfilling such other requirements of qualification as the By-
Laws or Articles of Incorporation may provide.
Options under the Employee Stock Option Plan outstanding on the date of a
"change in control" of the Company become immediately exercisable on such
date. A change in control for purposes of this exercise right includes the
acquisition by any person or entity of the beneficial ownership of 50% or more
of the voting power of the Company's stock, the approval by the Company's
stockholders of a merger, reorganization or consolidation of the Company in
which the Company's stockholders do not own 50% or more of the voting power of
the stock of the entity surviving such a transaction, the approval of the
Company's stockholders of an agreement of sale of all or substantially all of
the Company's assets, and the acceptance by the Company's stockholders of a
share exchange in which the Company's stockholders do not own 50% or more of
the voting power of the stock of the entity surviving such exchange. See "Risk
Factors--Anti-Takeover Provisions."
FOREIGN OWNERSHIP RESTRICTIONS
The Company's Certificate of Incorporation, as amended, permits the Company
to limit the number of shares of capital stock which may be owned by non-U.S.
citizens or entities. Under the Certificate of Incorporation, the Board of
Directors is empowered to implement such limitations as it deems necessary.
Under the Communications Act, non-U.S. citizens or their representatives,
foreign governments or their representatives, or corporations organized under
the laws of a foreign country may not own, in the aggregate, more than 20% of
a common carrier radio licensee, or more than 25% of the parent of a common
carrier radio licensee if the FCC determines that the public interest would be
served by prohibiting such ownership. The Company does not hold any radio
licenses. See "Business--Government Regulation."
DIRECTOR LIABILITY
As permitted by Section 102(b)(7) of the DGCL, Article 11 of the Company's
Amended and Restated Certificate of Incorporation provides that no director of
the Company shall be liable to the Company for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of
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loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for the unlawful payment of dividends on or redemption of the
Company's capital stock, or (iv) for any transaction from which the director
derived an improper personal benefit.
LISTING
The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol "PRTL."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is StockTrans, Inc.
SHARES ELIGIBLE FOR FUTURE SALE
As of July 24, 1997, the Company had 17,778,731 shares of Common Stock
outstanding. Of these shares, 5,750,000 shares of Common Stock issued in the
Initial Public Offering and 377,621 shares of Common Stock sold by
stockholders pursuant to the exemption provided by Rule 144 under the
Securities Act are freely tradeable without restriction or further
registration, except for shares purchased by "affiliates" or "underwriters" of
the Company, as these terms are defined under the Securities Act, which may be
sold subject to the resale limitations of Rule 144 under the Securities Act
and the regulations promulgated thereunder. The remaining 11,651,110 shares of
Common Stock are restricted securities (the "Restricted Shares") and may not
be sold unless they are registered under the Securities Act or are sold
pursuant to an exemption from registration, such as the exemption provided by
Rule 144 under the Securities Act.
In general, Rule 144 allows a person who has beneficially owned Restricted
Shares for at least one year, including persons who may be deemed affiliates
of the Company, to sell, within any three-month period, up to the number of
Restricted Shares that does not exceed the greater of (i) one percent of the
then outstanding shares of Common Stock, and (ii) the average weekly trading
volume during the four calendar weeks preceding the date on which notice of
the sale is filed with the Commission. A person who is not deemed to have been
an affiliate of the Company at any time during the 90 days preceding a sale
and who has beneficially owned his or her Restricted Shares for at least two
years would be entitled to sell such Restricted Shares without regard to the
volume limitations described above and certain other conditions of Rule 144.
Under Rule 701, any employee, officer or director or consultant to the
Company who purchased shares pursuant to a written compensatory plan or
contract before the initial public offering, including the Employee Stock
Option Plan and the Director Stock Option Plan, who is not an affiliate of the
Company, is entitled to sell such shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permits affiliates to sell such shares without having to comply
with the Rule 144 period restrictions.
The Company intends to file one or more registration statements under the
Securities Act to register Common Stock to be issued pursuant to the exercise
of options, including options granted or to be granted under the Employee
Stock Option Plan and the Director Stock Option Plan and pursuant to the ESP
Plan.
The holders of approximately 5,041,270 shares of Common Stock, and the
holders of the Soros/Chatterjee Warrants and their permitted transferees, are
entitled to certain demand and piggyback registration rights in respect of
their shares of Common Stock. The holders of Units are also entitled to obtain
registration rights. See "Description of Capital Stock--Registration Rights."
Prior to the completion of the Initial Public Offering in November 1996,
there was no public market for the securities of the Company. No predictions
can be made of the effect, if any, that the sale or availability for sale of
shares of additional Common Stock will have on the market price of the Common
Stock. Nevertheless, sales of a substantial number of such shares by
stockholders could have a negative impact on the market price of the Common
Stock.
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DESCRIPTION OF SENIOR CREDIT COMMITMENT
The Company has entered into the Commitment Letter with LCPI, an affiliate
of one of the underwriters, pursuant to which LCPI has indicated its
commitment, subject to the terms and conditions set forth in the Commitment
Letter (including the consummation of the Offering and the negotiation of
definitive loan documents), to provide to the Company the Senior Credit
Facility of initially $50 million to be used for working capital and other
purposes, including capital expenditures and permitted acquisitions. In the
event the Offering is not consummated (or until such time as the Offering is
consummated), the Commitment Letter contemplates that the size of the Senior
Credit Facility will be $31 million. There can be no assurance that the
Company will obtain the Credit Facility on the terms set forth in the
Commitment Letter, if at all. The following summary of the material provisions
of the Commitment Letter does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the Commitment Letter, a
copy of which is filed as an exhibit to the registration statement of which
this prospectus forms a part. Because the terms, conditions and covenants of
the Senior Credit Facility are subject to the negotiation, execution and
delivery of the definitive loan documents, certain of the actual terms,
conditions and covenants thereof may differ from that described below.
The Commitment Letter contemplates that the Senior Credit Facility will be
due and payable in full on the fifth anniversary of its closing, with
availability thereunder to be reduced in quarterly installments of $1.25
million in year three, $2.5 million in year four and $8.75 million in year
five. Amounts drawn under the Senior Credit Facility will bear interest, at
the Company's option, at either the Base Rate (as defined in the Commitment
Letter) or the Eurodollar Rate (as defined in the Commitment Letter), plus an
Applicable Margin (as defined in the Commitment Letter) which will be an
annual percentage rate (between 1.50% and 2.00% for the Base Rate borrowings
and between 2.50% and 3.00% for the Eurodollar Rate borrowings) which will
fluctuate based on the Company's Total Leverage Ratio (as defined in the
Commitment Letter).
The Commitment Letter contemplates that the Company will be required to
repay indebtedness outstanding under the Senior Credit Facility with the net
cash proceeds from sales of assets other than in the ordinary course of the
business and from certain issuances of debt by the Company or its
subsidiaries, and that the Company's obligations will be guaranteed by the
Company's domestic subsidiaries and foreign subsidiaries (subject to there not
being any adverse tax consequences), and will be secured by a first priority
lien on all domestic assets, as well as the assets of each foreign subsidiary
of Primus that is a borrower under the Credit Facility, and a first priority
pledge of the stock of the Company's domestic subsidiaries and foreign
subsidiaries (subject to there not being any adverse tax consequences).
The Commitment Letter also contemplates that the Senior Credit Facility will
contain a number of covenants, including, among others, covenants limiting the
ability of the Company and the Company's present and future subsidiaries to
incur debt, create liens, pay dividends, make distributions or stock
repurchases, make investments or capital expenditures, change their business,
engage in transactions with affiliates, sell assets and engage in mergers and
acquisitions. In addition, the Commitment Letter contemplates that the Senior
Credit Facility will contain affirmative covenants, including, among others,
covenants requiring compliance with laws, maintenance of corporate existence,
licenses and insurance, payment of taxes and performance of other material
obligations, and the delivery of financial and other information.
The Commitment Letter also contemplates that the Company will be required to
comply with certain financial tests and to maintain certain financial ratios
on a consolidated basis. The Company must: (i) maintain a Total Leverage Ratio
no greater than 7.0:1.0 beginning in 2000 and 5.0:1.0 in 2001 and thereafter;
(ii) maintain an Interest Coverage Ratio (as defined in the Commitment Letter)
no less than 2.0:1.0 beginning in 2000 and 3.0:1.0 in 2001 and thereafter;
(iii) have net revenue of at least $45 million, $56 million and $62.5 million
for the second, third and fourth quarters of 1997, respectively, and have net
revenue of at least $75 million, $81 million and $87.5 million for the first,
second and third quarters of 1998, respectively; and (iv) have EBITDA of at
least $2 million for the fourth quarter of 1998, and at least $3.125 million,
$3.75 million, $4.38 million and $5 million for the first, second, third and
fourth quarters of 1999, respectively.
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Failure to satisfy any of the financial covenants would constitute an event
of default under the Senior Credit Facility, notwithstanding the ability of
the Company to meet its debt service obligations. The Commitment Letter
contemplates that the Senior Credit Facility also will include other customary
events of default, including, without limitation, a cross-default to other
indebtedness, material undischarged judgments, bankruptcy and a change of
control.
DESCRIPTION OF UNITS
Each Unit consists of $1,000 principal amount of Notes and Warrants to
purchase shares of Common Stock of the Company. The issue price of a
Unit has been allocated $ to the Notes and $ to the Warrants. The Notes
and the Warrants will not be separately transferable until the Separation Date
which will be the earliest of (i) , 1998, (ii) an Exercise Event and
(iii) such other date as Lehman Brothers Inc. shall determine.
DESCRIPTION OF NOTES
The Notes will be issued pursuant to an Indenture, to be dated as of
, 1997 (the "Indenture"), between the Company, as issuer, and First
Union National Bank of Virginia, as Trustee (the "Trustee"). The Notes are
secured by the Pledged Securities pursuant to the Pledge Agreement between the
Company and the Trustee. The Indenture and the Pledge Agreement are subject
to, and governed by, the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The following summary of certain provisions of the Indenture
and the Pledge Agreement do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all the provisions of the
Indenture and the Pledge Agreement, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act.
Whenever particular Sections or defined terms of the Indenture not otherwise
defined herein are referred to, such Sections or defined terms are
incorporated herein by reference. A copy of the proposed forms of the
Indenture and the Pledge Agreement have been filed as exhibits to the
Registration Statement of which this Prospectus is a part and are available as
set forth under "Available Information." The definitions of certain terms used
in the following summary are set forth below under "--Certain Definitions."
GENERAL
The Notes will be senior obligations of the Company, limited to $125 million
aggregate principal amount, and will mature on , 2004. The Notes
bear interest at the rate of % per annum, payable semiannually on
and of each year, commencing , 1998 to the Person in
whose name the Note (or any predecessor Note) is registered at the close of
business on the preceding or , as the case may be.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company (which initially will be the corporate trust operations office of the
Trustee at NC 1153, 1525 West W.T. Harris Boulevard, Charlotte, North Carolina
28262); provided that, at the option of the Company, payment of interest may
be made by check mailed to the address of the holders as such address appears
in the Note Register. (Section 202)
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount at maturity and any integral
multiple thereof. See "Book-Entry; Delivery and Form." No service charge will
be made for any registration of transfer or exchange of Notes, but the Company
may require payment of a sum sufficient to cover any transfer tax or other
similar governmental charge payable in connection therewith. (Section 203)
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time or from time to time, on or after , 2001 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each holders' last address as it appears in the Note
Register, at the following Redemption Prices (expressed in percentages of
principal amount thereof), plus accrued and unpaid
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interest thereon to the Redemption Date (subject to the right of holders of
record on the relevant Regular Record Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date), if redeemed
during the 12-month period commencing on , of the years set forth
below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2001 %
2002 %
2003 (and thereafter) 100.00%
</TABLE>
Notwithstanding the foregoing, during the first 36 months after the date of
the Indenture, the Company may on any one or more occasions redeem up to 35%
of the originally issued principal amount of Notes at a redemption price of
% of the principal amount thereof, plus accrued and unpaid interest
thereon to the redemption date, with the Net Cash Proceeds of one or more
Public Equity Offerings; provided that at least 65% of the originally issued
principal amount of Notes remains outstanding immediately after the occurrence
of such redemption; and provided further that notice of such redemption shall
be given within 60 days of the closing of such Public Equity Offerings of
common stock of the Company. (Sections 203 and 1103)
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed
or, if the Notes are not listed on a national securities exchange, on a pro
rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate; provided that no Note of
$1,000 in principal amount at maturity or less shall be redeemed in part. If
any Note is to be redeemed in part only, the notice of redemption relating to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original Note.
SECURITY
The Indenture provides that upon the closing of the Offering, the Company
must purchase and pledge to the Trustee as security for the benefit of the
holders of the Notes the Pledged Securities in such amount as will be
sufficient upon scheduled interest and principal payments of such securities,
in the opinion of a nationally recognized firm of independent public
accountants selected by the Company, to provide for payment in full of the
first six scheduled interest payments due on the Notes. The Company expects to
use $38.7 million of the net proceeds of the Offering to acquire the Pledged
Securities; however, the precise amount of securities to be acquired will
depend upon the interest rates on Government Securities prevailing on the
Closing Date. See "Use of Proceeds." The Pledged Securities will be pledged by
the Company to the Trustee for the benefit of the holders of Notes pursuant to
the Pledge Agreement and will be held by the Trustee in the Pledge Account.
Pursuant to the Pledge Agreement, immediately prior to an interest payment
date on the Notes, the Company may either deposit with the Trustee from funds
otherwise available to the Company cash sufficient to pay the interest
scheduled to be paid on such date or the Company may direct the Trustee to
release from the Pledge Account proceeds sufficient to pay interest then due.
In the event that the Company exercises the former option, the Company may
thereafter direct the Trustee to release to the Company proceeds or Pledged
Securities from the Pledge Account in like amount. A failure by the Company to
pay interest on the Notes in a timely manner through the first six scheduled
interest payment dates will constitute an immediate Event of Default under the
Indenture, with no grace or cure period.
Interest earned on the Pledged Securities will be added to the Pledge
Account. In the event that the funds or Pledged Securities held in the Pledge
Account exceed the amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants selected by the Company, to
provide for payment in full of the first six scheduled interest payments due
on the Notes (or, in the event an interest payment or payments have been made,
an amount sufficient to provide for payment in full of any interest payments
remaining, up to and
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including the sixth scheduled interest payment) the Trustee will be permitted
to release to the Company at the Company's request any such excess amount.
The Notes are secured by a first priority security interest in the Pledged
Securities and in the Pledge Account and, accordingly, the Pledged Securities
and the Pledge Account will also secure repayment of the principal amount of
the Notes to the extent of such security.
Under the Pledge Agreement, assuming that the Company makes the first six
scheduled interest payments on the Notes in a timely manner, all of the
Pledged Securities will be released from the Pledge Account.
RANKING
The Indebtedness evidenced by the Notes will rank senior in right of payment
to any subordinated Indebtedness of the Company and pari passu in right of
payment with all other unsubordinated Indebtedness of the Company, including
trade payables. After giving pro forma effect to the offering of the Notes and
the application of the proceeds thereof, as of March 31, 1997, the Company (on
a consolidated basis) would have had approximately $127.8 million of
Indebtedness. Because the Company is a holding company that conducts its
business through its subsidiaries, all existing and future Indebtedness and
other liabilities and commitments of the Company's subsidiaries including
trade payables, will be effectively senior to the Notes. As of March 31, 1997,
the Company's consolidated subsidiaries had aggregate liabilities of
approximately $72.7 million.
COVENANTS
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes and Existing
Indebtedness); provided, however, that the Company may Incur Indebtedness, and
any Restricted Subsidiary may Incur Acquired Indebtedness, if immediately
thereafter the ratio of (i) the aggregate principal amount (or accreted value,
as the case may be) of Indebtedness of the Company and its Restricted
Subsidiaries on a consolidated basis outstanding as of the Transaction Date to
(ii) the Pro Forma Consolidated Cash Flow for the preceding two full fiscal
quarters multiplied by two, determined on a pro forma basis as if any such
Indebtedness had been Incurred and the proceeds thereof had been applied at
the beginning of such two fiscal quarters, would be greater than zero and less
than 5.0 to 1.
(b) Notwithstanding the foregoing, the Company and (except for Indebtedness
under subsections (v) and (vii) below) any Restricted Subsidiary may Incur
each and all of the following:
(i) Indebtedness, including Acquired Indebtedness and Indebtedness under
one or more Credit Facilities, in an aggregate principal amount at any one
time outstanding not to exceed $75 million, subject to any permanent
reductions required by any other terms of the Indenture;
(ii) Indebtedness (other than Acquired Indebtedness) Incurred to finance
the cost (including the cost of design, development, construction,
acquisition, installation or integration) of equipment used in the
telecommunications business or ownership rights with respect to
indefeasible rights of use or minimum investment units (or similar
ownership interests) in transnational fiber optic cable or other
transmission facilities, in each case purchased or leased by the Company or
a Restricted Subsidiary after the Closing Date;
(iii) Indebtedness of any Restricted Subsidiary to the Company or
Indebtedness of the Company or any Restricted Subsidiary to any other
Restricted Subsidiary; provided that any subsequent issuance or transfer of
any Capital Stock which results in any such Restricted Subsidiary ceasing
to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness not permitted by this clause (iii) (other than to the Company
or another Restricted Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness, and provided further that
Indebtedness of the Company to a Restricted Subsidiary must be subordinated
in right of payment to the Notes;
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(iv) Indebtedness of the Company or a Restricted Subsidiary issued in
exchange for, or the net proceeds of which are used to refinance or refund,
then outstanding Indebtedness of the Company or a Restricted Subsidiary,
other than Indebtedness Incurred under clauses (i), (iii), (v), (vi),
(viii) and (ix) of this paragraph, and any refinancings thereof in an
amount not to exceed the amount so refinanced or refunded (plus premiums,
accrued interest, and reasonable fees and expenses); provided that such new
Indebtedness shall only be permitted under this clause (iv) if (A) in case
the Notes are refinanced in part or the Indebtedness to be refinanced is
pari passu with the Notes, such new Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made pari passu
with, or subordinate in right of payment to, the remaining Notes, (B) in
case the Indebtedness to be refinanced is subordinated in right of payment
to the Notes, such new Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such new Indebtedness is issued
or remains outstanding, is expressly made subordinate in right of payment
to the Notes at least to the extent that the Indebtedness to be refinanced
is subordinated to the Notes and (C) such new Indebtedness, determined as
of the date of Incurrence of such new Indebtedness, does not mature prior
to the Stated Maturity of the Indebtedness to be refinanced or refunded,
and the Average Life of such new Indebtedness is at least equal to the
remaining Average Life of the Indebtedness to be refinanced or refunded;
and provided further that in no event may Indebtedness of the Company be
refinanced by means of any Indebtedness of any Restricted Subsidiary
pursuant to this clause (iv);
(v) Indebtedness of the Company not to exceed, at any one time
outstanding, 2.00 times the Net Cash Proceeds from the issuance and sale,
other than to a Subsidiary, of Common Stock (other than Redeemable Stock)
of the Company (less the amount of such proceeds used to make Restricted
Payments as provided in clause (C)(2) of the first paragraph or clause
(iii) or (iv) of the second paragraph of the "Limitation on Restricted
Payments" covenant); provided that such Indebtedness does not mature prior
to the Stated Maturity of the Notes and the Average Life of such
Indebtedness is longer than that of the Notes;
(vi) Indebtedness of the Company or any Restricted Subsidiary (A) in
respect of performance, surety or appeal bonds or letters of credit
supporting trade payables, in each case provided in the ordinary course of
business, (B) under Currency Agreements and Interest Rate Agreements;
provided that such agreements do not increase the Indebtedness of the
obligor outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates or interest rates or by reason of fees,
indemnities and compensation payable thereunder; and (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds
or performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred
in connection with the disposition of any business, assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness Incurred
by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition), in a
principal amount not to exceed the gross proceeds actually received by the
Company or any Restricted Subsidiary in connection with such disposition;
(vii) Indebtedness of the Company, to the extent that the net proceeds
thereof are promptly (A) used to repurchase Notes tendered in a Change of
Control Offer or (B) deposited to defease all of the Notes as described
below under "Defeasance or Covenant Defeasance of Indenture";
(viii) Indebtedness of a Restricted Subsidiary represented by a Guarantee
of the Notes permitted by and made in accordance with the "Limitation on
Issuances of Guarantees of Indebtedness by Restricted Subsidiaries"
covenant; and
(ix) Indebtedness of the Company or any Restricted Subsidiary under one
or more Credit Facilities, provided that if any Indebtedness is incurred
pursuant to this clause (ix), total Indebtedness under this clause (ix) and
clause (i) above does not exceed 65% of Eligible Accounts Receivable at any
one time outstanding.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included
in the determination of such particular amount shall not be included. For
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purposes of determining compliance with this "Limitation on Indebtedness"
covenant, (A) in the event that an item of Indebtedness meets the criteria of
more than one of the types of Indebtedness described in the above clauses, the
Company, in its sole discretion, shall classify such item of Indebtedness and
only be required to
include the amount and type of such Indebtedness in one of such clauses and
(B) the principal amount of Indebtedness issued at a price that is less than
the principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in conformity with GAAP. (Section 1011)
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) (A) declare or pay any dividend or make any
distribution in respect of the Company's Capital Stock to the holders thereof
(other than dividends or distributions payable solely in shares of Capital
Stock (other than Redeemable Stock) of the Company or in options, warrants or
other rights to acquire such shares of Capital Stock) or (B) declare or pay
any dividend or make any distribution in respect of the Capital Stock of any
Restricted Subsidiary to any Person other than dividends and distributions
payable to the Company or any Restricted Subsidiary or to all holders of
Capital Stock of such Restricted Subsidiary on a pro rata basis, (ii)
purchase, redeem, retire or otherwise acquire for value any shares of Capital
Stock of the Company (including options, warrants or other rights to acquire
such shares of Capital Stock) held by any Person or any shares of Capital
Stock of any Restricted Subsidiary (including options, warrants and other
rights to acquire such shares of Capital Stock) held by any Affiliate of the
Company (other than a wholly owned Restricted Subsidiary) or any holder (or
any Affiliate thereof) of 5% or more of the Company's Capital Stock, (iii)
make any voluntary or optional principal payment, or voluntary or optional
redemption, repurchase, defeasance, or other acquisition or retirement for
value, of Indebtedness of the Company that is subordinated in right of payment
to the Notes, or (iv) make any Investment, other than a Permitted Investment,
in any Person (such payments or any other actions described in clauses (i)
through (iv) being collectively "Restricted Payments") if, at the time of, and
after giving effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing;
(B) the Company could not Incur at least $1.00 of Indebtedness under the
first paragraph of the "Limitation on Indebtedness" covenant; or
(C) the aggregate amount expended for all Restricted Payments (the amount
so expended, if other than in cash, to be determined in good faith by the
Board of Directors, whose determination shall be conclusive and evidenced
by a Board Resolution) after the date of the Indenture shall exceed the sum
of (1) the remainder of (a) 100% of the aggregate amount of the
Consolidated Cash Flow (determined by excluding income resulting from
transfers of assets received by the Company or a Restricted Subsidiary from
an Unrestricted Subsidiary) accrued on a cumulative basis during the period
(taken as one accounting period) beginning on the first day of the last
fiscal quarter immediately preceding the Closing Date and ending on the
last day of the last fiscal quarter preceding the Transaction Date minus
(b) the product of 2.00 times cumulative Consolidated Fixed Charges accrued
on a cumulative basis during the period (taken as one accounting period)
beginning on the first day of the last fiscal quarter immediately preceding
the Closing Date and ending on the last day of the last fiscal quarter
preceding the Transaction Date plus (2) the aggregate Net Cash Proceeds
received by the Company after the Closing Date from the issuance and sale
permitted by the Indenture of its Capital Stock (other than Redeemable
Stock) to a Person who is not a Subsidiary of the Company (except to the
extent such Net Cash Proceeds are used to incur new Indebtedness
outstanding pursuant to clause (v) of the paragraph (b) of the "Limitation
on Indebtedness" covenant) plus (3) the aggregate Net Cash Proceeds
received after the date of the Indenture by the Company from the issuance
or sale of debt securities that have been converted into or exchanged for
Capital Stock of the Company (other than Redeemable Stock) together with
the aggregate cash received by the Company at the time of such conversion
or exchange plus (4) without duplication of any amount included in the
calculation of Consolidated Cash Flow, in the case of repayment of, or
return of capital in respect of, any Investment constituting a Restricted
Payment made after the Closing Date, an amount equal to the lesser of the
return
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of capital with respect to such Investment and the cost of such Investment,
in either case less the cost of the disposition of such Investment.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at
said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of payment
to the Notes including premium, if any, and accrued and unpaid interest, with
the proceeds of, or in exchange for, Indebtedness Incurred under clause (iv)
of paragraph (b) of the "Limitation on Indebtedness" covenant; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Company in
exchange for, or out of the proceeds of a substantially concurrent offering
of, shares of Capital Stock (other than Redeemable Stock) of the Company
(except to the extent such proceeds are used to incur new Indebtedness
outstanding pursuant to clause (v) of paragraph (b) of the "Limitation on
Indebtedness" covenant); (iv) the acquisition of Indebtedness of the Company
which is subordinated in right of payment to the Notes in exchange for, or out
of the proceeds of, a substantially concurrent offering of, shares of the
Capital Stock of the Company (other than Redeemable Stock) (except to the
extent such proceeds are used to incur new Indebtedness outstanding pursuant
to clause (v) of paragraph (b) of the "Limitation on Indebtedness" covenant);
(v) payments or distributions, to dissenting stockholders pursuant to
applicable law, pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the Indenture
applicable to mergers, consolidations and transfers of all or substantially
all of the property and assets of the Company; (vi) cash payments in lieu of
the issuance of fractional shares issued in connection with the exercise of
any of the Warrants; and (vii) other Restricted Payments not to exceed $2.5
million; provided that, except in the case of clause (i), no Default or Event
of Default shall have occurred and be continuing or occur as a consequence of
the actions or payments set forth therein. (Section 1012)
Each Restricted Payment permitted pursuant to the immediately preceding
paragraph (other than the Restricted Payment referred to in clause (ii)
thereof) and the Net Cash Proceeds from any issuance of Capital Stock referred
to in clauses (iii) and (iv), shall be included in calculating whether the
conditions of clause (C) of the first paragraph of this "Limitation on
Restricted Payments" covenant have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Capital Stock
of the Company are used for the redemption, repurchase or other acquisition of
the Notes, then the Net Cash Proceeds of such issuance shall be included in
clause (C) of the first paragraph of this "Limitation on Restricted Payments"
covenant only to the extent such proceeds are not used for such redemption,
repurchase or other acquisition of the Notes.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
So long as any of the Notes are outstanding, the Company will not, and will
not permit any Restricted Subsidiary to, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction of any
kind on the ability of any Restricted Subsidiary to (i) pay dividends or make
any other distributions permitted by applicable law on any Capital Stock of
such Restricted Subsidiary owned by the Company or any other Restricted
Subsidiary, (ii) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (iii) make loans or advances to the Company or any
other Restricted Subsidiary, or (iv) transfer any of its property or assets to
the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the encumbrances
and restrictions in any such extensions, refinancings, renewals or
replacements are no less favorable in any material respect to the holders than
those encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed or replaced; (ii) contained in the terms of any
Indebtedness or any agreement pursuant to which such Indebtedness was issued
if the encumbrance or restriction applies only in the event of a default with
respect to a financial covenant contained in such Indebtedness or agreement
and such encumbrance or restriction is not materially more disadvantageous to
the holders of the Notes than is customary in comparable financings (as
determined by the
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Company) and the Company determines that any such encumbrance or restriction
will not materially affect the Company's ability to make principal or interest
payments on the Notes; (iii) existing under or by reason of applicable law;
(iv) existing with respect to any Person or the property or assets of such
Person acquired by the Company or any Restricted Subsidiary, existing at the
time of such acquisition and not incurred in contemplation
thereof, which encumbrances or restrictions are not applicable to any Person
or the property or assets of any Person other than such Person or the property
or assets of such Person so acquired; (v) in the case of clause (iv) of the
first paragraph of this "Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant, (A) that restrict in a customary
manner the subletting, assignment or transfer of any property or asset that
is, or is subject to, a lease, purchase mortgage obligation, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or
Lien on, any property or assets of the Company or any Restricted Subsidiary
not otherwise prohibited by the Indenture or (C) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness, and that do
not, individually or in the aggregate, detract from the value of property or
assets of the Company or any Restricted Subsidiary in any manner material to
the Company or any Restricted Subsidiary; or (vi) with respect to a Restricted
Subsidiary and imposed pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock of,
or property and assets of, such Restricted Subsidiary. Nothing contained in
this "Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries" covenant shall prevent the Company or any Restricted
Subsidiary from (1) creating, incurring, assuming or suffering to exist any
Liens otherwise permitted in the "Limitation on Liens" covenant or (2)
restricting the sale or other disposition of property or assets of the Company
or any of its Restricted Subsidiaries that secure Indebtedness of the Company
or any of its Restricted Subsidiaries. (Section 1013)
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue, transfer, convey, sell, lease or otherwise
dispose of any shares of Capital Stock (including options, warrants or other
rights to purchase shares of such Capital Stock) of such or any other
Restricted Subsidiary to any Person (other than to the Company or a Restricted
Subsidiary) unless (A) the Net Cash Proceeds from such issuance, transfer,
conveyance, sale, lease or other disposition are applied in accordance with
the provisions of the "Limitation on Asset Sales" covenant, (B) immediately
after giving effect to such issuance, transfer, conveyance, sale, lease or
other disposition, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary, and (C) any Investment in such Person remaining after
giving effect to such issuance, transfer, conveyance, sale, lease or other
disposition would have been permitted to be made under the "Limitation on
Restricted Payments" covenant if made on the date of such issuance, transfer,
conveyance, sale, lease or other disposition (valued as provided in the
definition of "Investment"). (Section 1014)
Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 5% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary,
unless (i) such transaction or series of transactions is on terms no less
favorable to the Company or such Restricted Subsidiary than those that could
be obtained in a comparable arm's-length transaction with a Person that is not
such a holder or an Affiliate, (ii) if such transaction or series of
transactions involves aggregate consideration in excess of $2.0 million, then
such transaction or series of transactions is approved by a majority of the
Board of Directors of the Company, including the approval of a majority of the
independent, disinterested directors, and is evidenced by a resolution of the
Board of Directors of the Company, and (iii) if such transaction or series of
transactions involves aggregate consideration in excess of $10.0 million, then
the Company or such Restricted Subsidiary will deliver to the Trustee a
written opinion as to the fairness to the Company or such Restricted
Subsidiary of such transaction from a financial point of view from a
nationally recognized investment banking firm (or, if an investment banking
firm is generally not qualified to give such an opinion, by a nationally
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recognized appraisal firm or accounting firm). Any such transaction or series
of transactions shall be conclusively deemed to be on terms no less favorable
to the Company or such Restricted Subsidiary than those that could be obtained
in an arm's-length transaction if such transaction or transactions are
approved by a majority of the Board of Directors of the Company, including a
majority of the independent disinterested directors, and are evidenced by a
resolution of the Board of Directors of the Company.
The foregoing limitation does not limit, and will not apply to (i) any
transaction between the Company and any of its Restricted Subsidiaries or
between Restricted Subsidiaries; (ii) the payment of reasonable and customary
regular fees to directors of the Company who are not employees of the Company;
(iii) any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant; (iv) transactions provided for in the Employment
Agreements as in effect on the Closing Date; and (v) loans and advances to
employees of the Company not exceeding at any one time outstanding $1.0
million in the aggregate, in the ordinary course of business and in accordance
with past practice. (Section 1015)
Limitation on Liens
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, create, incur, assume or suffer to exist any
Lien (other than Permitted Liens) on any of its assets or properties of any
character (including, without limitation, licenses and trademarks), or any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without
making effective provision for all of the Notes and all other amounts due
under the Indenture to be directly secured equally and ratably with (or prior
to) the obligation or liability secured by such Lien. (Section 1016)
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to, make
any Asset Sale unless (i) the Company or the Restricted Subsidiary, as the
case may be, receives consideration at the time of such sale or other
disposition at least equal to the fair market value of the assets sold or
disposed of as determined by the good-faith judgment of the Board of Directors
evidenced by a Board Resolution and (ii) at least 85% of the consideration
received for such sale or other disposition consists of cash or cash
equivalents or the assumption of unsubordinated Indebtedness.
The Company shall, or shall cause the relevant Restricted Subsidiary to,
within 270 days after the date of receipt of the Net Cash Proceeds from an
Asset Sale (A), (i) apply an amount equal to such Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of the Company or Indebtedness
of any Restricted Subsidiary, in each case owing to a Person other than the
Company or any of its Restricted Subsidiaries or (B) invest an equal amount,
or the amount not so applied pursuant to clause (A) in property or assets of a
nature or type or that are used in a business (or in a company having property
and assets of a nature or type, or engaged in a business) similar or related
to the nature or type of the property and assets of, or the business of, the
Company and its Restricted Subsidiaries existing on the date of such
investment (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) and
(ii) apply (no later than the end of the 270-day period referred to above)
such excess Net Cash Proceeds (to the extent not applied pursuant to clause
(i)) as provided in the following paragraphs of this "Limitation on Asset
Sales" covenant. The amount of such Net Cash Proceeds required to be applied
(or to be committed to be applied) during such 270-day period referred to
above in the preceding sentence and not applied as so required by the end of
such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as
defined below) totals at least $10.0 million, the Company must, not later than
the thirtieth Business Day thereafter, make an offer (an "Excess Proceeds
Offer") to purchase from the holders on a pro rata basis an aggregate
principal amount of Notes equal to the Excess Proceeds on such date, at a
purchase price equal to 100% of the principal amount of the Notes, plus, in
each case, accrued and unpaid interest to the date of purchase (the "Excess
Proceeds Payment").
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The Company shall commence an Excess Proceeds Offer by mailing a notice to
the Trustee and each holder stating: (i) that the Excess Proceeds Offer is
being made pursuant to this "Limitation on Asset Sales" covenant and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date
such notice is mailed) (the "Excess Proceeds Payment Date"); (iii) that any
Note not tendered will continue to accrue interest pursuant to its terms; (iv)
that, unless the Company defaults in the payment of the Excess Proceeds
Payment, any Note accepted for payment pursuant to the Excess Proceeds Offer
shall cease to accrue interest on and after the Excess Proceeds Payment Date;
(v) that holders electing to have a Note purchased pursuant to the Excess
Proceeds Offer will be required to surrender the Note, together with the form
entitled "Option of the holder to Elect Purchase" on the reverse side of the
Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day immediately preceding the
Excess Proceeds Payment Date; (vi) that holders will be entitled to withdraw
their election if the Paying Agent receives, not later than the close of
business on the third Business Day immediately preceding the Excess Proceeds
Payment Date, a telegram, facsimile transmission or letter setting forth the
name of such holder, the principal amount of Notes delivered for purchase and
a statement that such holder is withdrawing his election to have such Notes
purchased; and (vii) that holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered; provided that each Note purchased and each new Note
issued shall be in a principal amount of $1,000 or integral multiples thereof.
On the Excess Proceeds Payment Date, the Company shall (i) accept for
payment on a pro rata basis Notes or portions thereof tendered pursuant to the
Excess Proceeds Offer; (ii) deposit with the Paying Agent money sufficient to
pay the purchase price of all Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee all Notes or portions
thereof so accepted together with an Officers' Certificate specifying the
Notes or portions thereof accepted for payment by the Company. The Paying
Agent shall promptly mail to the holders of Notes so accepted payment in an
amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of
the Excess Proceeds Offer as soon as practicable after the Excess Proceeds
Payment Date. For purposes of this "Limitation on Asset Sales" covenant, the
Trustee shall act as the Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that such Excess Proceeds are
received by the Company under this "Limitation on Asset Sales" covenant and
the Company is required to repurchase Notes as described above. (Section 1017)
Limitation on Issuances of Guarantees of Indebtedness by Restricted
Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company, other than Indebtedness under
Credit Facilities incurred under clauses (i) and (ix) in the "Limitation on
Indebtedness" covenant, unless (i) such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture to the Indenture providing for
a Guarantee of the Notes on terms substantially similar to the guarantee of
such Indebtedness, except that if such Indebtedness is by its express terms
subordinated in right of payment to the Notes, any such assumption, Guarantee
or other liability of such Restricted Subsidiary with respect to such
Indebtedness shall be subordinated in right of payment to such Restricted
Subsidiary's assumption, Guarantee of other liability with respect to the
Notes substantially to the same extent as such Indebtedness is subordinated to
the Notes and (ii) such Restricted Subsidiary waives, and will not in any
manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the
Company or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Guarantee.
Notwithstanding the foregoing, any Guarantee by a Restricted Subsidiary may
provide by its terms that it will be automatically and unconditionally
released and discharged upon (i) any sale, exchange or transfer, to any
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Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all of the
assets of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the guarantee
which resulted in the creation of such Guarantee, except a discharge or
release by or as a result of payment under such guarantee. (Section 1018)
Business of the Company; Restriction on Transfers of Existing Business
The Company will not, and will not permit any Restricted Subsidiary to, be
principally engaged in any business or activity other than a Permitted
Business. In addition, the Company and any Restricted Subsidiary will not be
permitted to, directly or indirectly, transfer to any Unrestricted Subsidiary
(i) any of the licenses, permits or authorizations used in the Permitted
Business of the Company and any Restricted Subsidiary on the Closing Date or
(ii) any material portion of the "property and equipment" (as such term is
used in the Company's consolidated financial statements) of the Company or any
Restricted Subsidiary used in the licensed service areas of the Company and
any Restricted Subsidiary as they exist on the Closing Date. (Section 1019)
Limitation on Investments in Unrestricted Subsidiaries
The Company will not make, and will not permit any of its Restricted
Subsidiaries to make, any Investments in Unrestricted Subsidiaries if, at the
time thereof, the aggregate amount of such Investments would exceed the amount
of Restricted Payments then permitted to be made pursuant to the "Limitation
on Restricted Payments" covenant. Any Investments in Unrestricted Subsidiaries
permitted to be made pursuant to this covenant (i) will be treated as the
making of a Restricted Payment in calculating the amount of Restricted
Payments made by the Company or a Subsidiary and (ii) may be made in cash or
property (if made in property, the Fair Market Value thereof as determined by
the Board of Directors of the Company (whose determination shall be conclusive
and evidenced by a Board Resolution) shall be deemed to be the amount of such
Investment for the purpose of clause (i)). (Section 1020)
Provision of Financial Statements and Reports
The Company will file on a timely basis with the Commission, to the extent
such filings are accepted by the Commission and whether or not the Company has
a class of securities registered under the Exchange Act, the annual reports,
quarterly reports and other documents that the Company would be required to
file if it were subject to Section 13 or 15 of the Exchange Act. All such
annual reports and quarterly reports shall include the geographic segment
financial information currently disclosed by the Company in its public filings
with the Commission. The Company will also be required (a) to file with the
Trustee, and provide to each holder, without cost to such holder, copies of
such reports and documents within 15 days after the date on which the Company
files such reports and documents with the Commission or the date on which the
Company would be required to file such reports and documents if the Company
were so required, and (b) if filing such reports and documents with the
Commission is not accepted by the Commission or is prohibited under the
Exchange Act, to supply at the Company's cost copies of such reports and
documents to any prospective holder promptly upon request. (Section 1009)
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder shall have the right
to require the Company to repurchase all or any part of its Notes at a
purchase price in cash pursuant to the offer described below (the "Change of
Control Offer") equal to 101% of the principal amount thereof, plus accrued
and unpaid interest to the date of purchase (subject to the right of holders
of record to receive interest on the relevant interest payment date) (the
"Change of Control Payment").
Within 30 days of the Change of Control, the Company will mail a notice to
the Trustee and each holder stating: (i) that a Change of Control has
occurred, that the Change of Control Offer is being made pursuant to
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this "Repurchase of Notes upon a Change of Control" covenant and that all
Notes validly tendered will be accepted for payment; (ii) the purchase price
and the date of purchase (which shall be a Business Day no earlier than 30
days nor later than 60 days from the date such notice is mailed) (the "Change
of Control Payment Date"); (iii) that any Note not tendered will continue to
accrue interest pursuant to its terms; (iv) that, unless the Company defaults
in the payment of the Change of Control Payment, any Note accepted for payment
pursuant
to the Change of Control Offer shall cease to accrue interest on and after the
Change of Control Payment Date; (v) that holders electing to have any Note or
portion thereof purchased pursuant to the Change of Control Offer will be
required to surrender such Note, together with the form entitled "Option of
the holder to Elect Purchase" on the reverse side of such Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the Business Day immediately preceding the Change of Control
Payment Date; (vi) that holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of
such holder, the principal amount of Notes delivered for purchase and a
statement that such holder is withdrawing his election to have such Notes
purchased; and (vii) that holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered; provided that each Note purchased and each new Note
issued shall be in a principal amount of $1,000 or integral multiples thereof.
On the Change of Control Payment Date, the Company shall: (i) accept for
payment Notes or portions thereof tendered pursuant to the Change of Control
Offer; (ii) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so accepted; and (iii) deliver, or
cause to be delivered, to the Trustee, all Notes or portions thereof so
accepted together with an Officers' Certificate specifying the Notes or
portions thereof accepted for payment by the Company. The Paying Agent shall
promptly mail, to the holders of Notes so accepted, payment in an amount equal
to the purchase price, and the Trustee shall promptly authenticate and mail to
such holders a new Note equal in principal amount to any unpurchased portion
of the Notes surrendered; provided that each Note purchased and each new Note
issued shall be in a principal amount of $1,000 or integral multiples thereof.
The Company will publicly announce the results of the Change of Control Offer
on or as soon as practicable after the Change of Control Payment Date. For
purposes of this "Repurchase of Notes upon a Change of Control" covenant, the
Trustee shall act as Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control occurs and
the Company is required to repurchase the Notes under this "Repurchase of
Notes Upon a Change of Control" covenant. (Section 1010)
If the Company is unable to repay all of its indebtedness that would
prohibit repurchase of the Notes or is unable to obtain the consents of the
holders of indebtedness, if any, of the Company outstanding at the time of a
Change of Control whose consent would be so required to permit the repurchase
of Notes, then the Company will have breached such covenant. This breach will
constitute an Event of Default under the Indenture if it continues for a
period of 30 consecutive days after written notice is given to the Company by
the Trustee or the holders of at least 25% in aggregate principal amount of
the Notes outstanding. In addition, the failure by the Company to repurchase
Notes at the conclusion of the Change of Control Offer will constitute an
Event of Default without any waiting period or notice requirements.
There can be no assurances that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well
as may be contained in other securities of the Company which might be
outstanding at the time). The above covenant requiring the Company to
repurchase the Notes will, unless the consents referred to above are obtained,
require the Company to repay all indebtedness then outstanding which by its
terms would prohibit such Note repurchase, either prior to or concurrently
with such Note repurchase.
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CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into the Company and the Company will not permit any
of its Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in the sale,
assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Company or the Company
and its Restricted Subsidiaries, taken as a whole, to any other Person or
Persons, unless: (i) the Company will be the continuing Person, or the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or that acquired or leased such property and assets of the
Company will be a corporation organized and validly existing under the laws of
the United States of America or any jurisdiction thereof and shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee,
all of the obligations of the Company with respect to the Notes and under the
Indenture; (ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction on a pro forma basis, the
Company, or any Person becoming the successor obligor of the Notes, shall have
a Consolidated Net Worth equal to or greater than the Consolidated Net Worth
of the Company immediately prior to such transaction; (iv) immediately after
giving effect to such transaction on a pro forma basis the Company, or any
Person becoming the successor obligor of the Notes, as the case may be, could
Incur at least $1.00 of Indebtedness under paragraph (a) of the "Limitation on
Indebtedness" covenant; and (v) the Company delivers to the Trustee an
Officers' Certificate (attaching the arithmetic computations to demonstrate
compliance with clauses (iii) and (iv)) and Opinion of Counsel, in each case
stating that such consolidation, merger or transfer and such supplemental
indenture complies with this provision and that all conditions precedent
provided for herein relating to such transaction have been complied with;
provided, however, that clauses (iii) and (iv) above do not apply if, in the
good faith determination of the Board of Directors of the Company, whose
determination shall be evidenced by a Board Resolution, the principal purpose
of such transaction is to change the state of incorporation of the Company;
and provided further that any such transaction shall not have as one of its
purposes the evasion of the foregoing limitations. (Section 801)
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of interest on the Notes when due and
payable as to any interest payment date falling on or prior to ,
2000, and any such failure continued for a period of 30 days as to any
interest payment date thereafter; (b) default in the payment of principal of
(or premium, if any, on) any Note when the same becomes due and payable at
maturity, upon acceleration, redemption or otherwise; (c) default in the
payment of principal or interest on Notes required to be purchased pursuant to
an Excess Proceeds Offer as described under "Limitation on Asset Sales" or
pursuant to a Change of Control Offer as described under "Repurchase of Notes
upon a Change of Control"; (d) failure to perform or comply with the
provisions described under "Consolidation, Merger and Sale of Assets"; (e)
default in the performance of or breach of any other covenant or agreement of
the Company in the Indenture or under the Notes and such default or breach
continues for a period of 30 consecutive days after written notice by the
Trustee or the holders of 25% or more in aggregate principal amount of the
Notes; (f) there occurs with respect to any issue or issues of Indebtedness of
the Company or any Restricted Subsidiary having an outstanding principal
amount of $5.0 million or more in the aggregate for all such issues of all
such Persons, whether such Indebtedness now exists or shall hereafter be
created, (I) an event of default that has caused the holder thereof to declare
such Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has not been
rescinded or annulled by the earlier of (x) the expiration of any applicable
grace period or (y) the thirtieth day after such default and/or (II) the
failure to make a principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made, waived or
extended by the earlier of (x) the expiration of any applicable grace period
or (y) the thirtieth day after such default; (g) any final judgment or order
(not covered by insurance)
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for the payment of money in excess of $5.0 million in the aggregate for all
such final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be rendered
against the Company or any Restricted Subsidiary and shall not be paid or
discharged, and there shall be any period of 30 consecutive days following
entry of the final judgment or order that causes the aggregate amount for all
such final judgments or orders outstanding and not paid or discharged against
all such Persons to exceed $5.0 million during which a stay of enforcement of
such final judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; (h) a court having jurisdiction in the premises enters
a decree or order for (A) relief in
respect of the Company or any of its Significant Subsidiaries in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, (B) appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company
or any of its Significant Subsidiaries or for all or substantially all of the
property and assets of the Company or any of its Significant Subsidiaries or
(C) the winding up or liquidation of the affairs of the Company or any of its
Significant Subsidiaries and, in each case, such decree or order shall remain
unstayed and in effect for a period of 30 consecutive days; (i) the Company or
any of its Significant Subsidiaries (A) commences a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an involuntary case
under any such law, (B) consents to the appointment of or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Company or any of its Significant Subsidiaries or for all or
substantially all of the property and assets of the Company or any of its
Significant Subsidiaries or (C) effects any general assignment for the benefit
of creditors; or (j) the Company asserts in writing that the Pledge Agreement
ceases to be in full force and effect before payment in full of the
obligations thereunder. (Section 501)
If an Event of Default (other than an Event of Default specified in clause
(h) or (i) above) occurs and is continuing under the Indenture, the Trustee or
the holders of at least 25% in aggregate principal amount of the Notes, then
outstanding, by written notice to the Company (and to the Trustee if such
notice is given by the holders), may, and the Trustee at the request of such
holders shall, declare the principal of, premium, if any, and accrued but
unpaid interest on the Notes to be immediately due and payable. Upon a
declaration of acceleration, such principal of, premium, if any, and accrued
interest shall be immediately due and payable. In the event of a declaration
of acceleration because an Event of Default set forth in clause (f) above has
occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (f) shall be remedied or cured by the
Company and/or the relevant Significant Subsidiaries or waived by the holders
of the relevant Indebtedness within 60 days after the declaration of
acceleration with respect thereto. If an Event of Default specified in clause
(h) or (i) above occurs, the principal of, premium, if any, and accrued
interest on the Notes then outstanding shall ipso facto become and be
immediately due and payable without any declaration or other act on the part
of the Trustee or any holder. The holders of at least a majority in principal
amount of the outstanding Notes by written notice to the Company and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and accrued and
unpaid interest on the Notes that have become due solely by such declaration
of acceleration, have been cured or waived and (ii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction. For
information as to the waiver of defaults, see "--Modification and Waiver."
(Section 502)
The holders of at least a majority in aggregate principal amount of the
outstanding Notes may 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. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in good faith
may be unduly prejudicial to the rights of holders of Notes not joining in the
giving of such direction and may take any other action it deems proper that is
not inconsistent with any such direction received from holders of Notes. No
holder may pursue any remedy with respect to the Indenture or the Notes
unless: (i) the holder gives the Trustee written notice of a continuing Event
of Default; (ii) the holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the Trustee to pursue the remedy;
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(iii) such holder or holders offer the Trustee indemnity satisfactory to the
Trustee against any costs, liability or expense; (iv) the Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period, the holders of a
majority in aggregate principal amount of the outstanding Notes do not give
the Trustee a direction that is inconsistent with the request. However, such
limitations do not apply to the right of any holder of a Note to receive
payment of the principal of, premium, if any, or interest on, such Note or to
bring suit for the enforcement of any such payment, on or after the due date
expressed in the Notes, which right shall not be impaired or affected without
the consent of the holder. (Sections 507 and 508)
The Indenture will require certain officers of the Company to certify, on or
before a date not more than 120 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and the Company's
performance under the Indenture and that the Company has fulfilled all
obligations thereunder or, if there has been a default in the fulfillment of
any such obligation, specifying each such default and the nature and status
thereof. The Company will also be obligated to notify the Trustee of any
default or defaults in the performance of any covenants or agreements under
the Indenture. (Section 1008)
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company upon the Notes discharged with respect to the
outstanding Notes ("defeasance"). Such defeasance means that the Company will
be deemed to have paid and discharged the entire Indebtedness represented by
the outstanding Notes and to have satisfied all its other obligations under
such Notes and the Indenture insofar as such Notes are concerned except for
(i) the rights of holders of outstanding Notes to receive payments (solely
from monies deposited in trust) in respect of the principal of, premium, if
any, and interest on such Notes when such payments are due, (ii) the Company's
obligations to issue temporary Notes, register the transfer or exchange of any
Notes, replace mutilated, destroyed, lost or stolen Notes, maintain an office
or agency for payments in respect of the Notes and segregate and hold such
payments in trust, (iii) the rights, powers, trusts, duties and immunities of
the Trustee and (iv) the defeasance provisions of the Indenture. In addition,
the Company may, at its option and at any time, elect to have the obligations
of the Company released with respect to certain covenants set forth in the
Indenture, and any omission to comply with such obligations will not
constitute a Default or an Event of Default with respect to the Notes
("covenant defeasance"). (Sections 1301, 1302, and 1303)
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit or cause to be deposited with the Trustee, as
trust funds in trust, specifically pledged as security for, and dedicated
solely to, the benefit of the holders of the Notes, cash in United States
dollars, U.S. Government Obligations (as defined in the Indenture), or a
combination thereof, in such amounts as will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants, to pay and
discharge the principal of, premium, if any, and interest on the outstanding
Notes on the Stated Maturity (or upon redemption, if applicable) of such
principal, premium, if any, or installment of interest; (ii) no Default or
Event of Default with respect to the Notes will have occurred and be
continuing on the date of such deposit or, insofar as an event of bankruptcy
under clause (x) of "Events of Default" above is concerned, at any time during
the period ending on the 123rd day after the date of such deposit; (iii) such
defeasance or covenant defeasance will not result in a breach or violation of,
or constitute a default under any material agreement or instrument (other than
the Indenture) to which the Company is a party or by which it is bound; (iv)
in the case of defeasance, the Company shall have delivered to the Trustee an
Opinion of Counsel stating that the Company has received from, or there has
been published by, the Internal Revenue Service a ruling, or since 1997,
there has been a change in applicable federal income tax law, in either case
to the effect that, and based thereon such opinion shall confirm that, the
holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred; (v) in
the case of covenant defeasance, the Company shall have delivered to the
Trustee an Opinion of Counsel to the effect that the holders of the Notes
outstanding will not recognize income, gain or loss for federal income tax
purposes as a result of such covenant
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defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
covenant defeasance had not occurred; and (vi) the Company shall have
delivered to the Trustee an Officer's Certificate and an Opinion of Counsel,
each stating that all conditions precedent provided for relating to either the
defeasance or the covenant defeasance, as the case may be, have been complied
with. (Section 1304)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding Notes;
provided, however, that no such modification or amendment may, without the
consent of each holder affected thereby, (i) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (ii) reduce the
principal amount of, or premium, if any, or interest on any Note or extend the
time for payment of interest on any Note, (iii) change the place or currency
of payment of principal of, or premium, if any, or interest on any Note, (iv)
impair the right of any holder of the Notes to receive payment of, principal
of and interest on such holder's Notes on or after the due dates therefor or
to institute suit for the enforcement of any payment on or after the Stated
Maturity (or, in the case of a redemption, on or after the Redemption Date) of
any Note, (v) reduce the above-stated percentage of outstanding Notes the
consent of whose holders is necessary to modify or amend the Indenture, (vi)
waive a default in the payment of principal of, premium, if any, or accrued
and unpaid interest on the Notes, (vii) modify any provisions of any
Guarantees in a manner adverse to the holders or (viii) reduce the percentage
or aggregate principal amount of outstanding Notes the consent of whose
holders is necessary for waiver of compliance with certain provisions of the
Indenture or for waiver of certain defaults.
GOVERNING LAW AND SUBMISSION TO JURISDICTION
The Notes and the Indenture will be governed by the laws of the State of New
York. The Company will submit to the jurisdiction of the U.S. federal and New
York state courts located in the Borough of Manhattan, City and State of New
York for purposes of all legal actions and proceedings instituted in
connection with the Notes and the Indenture.
CURRENCY INDEMNITY
U.S. dollars are the sole currency of account and payment for all sums
payable by the Company under or in connection with the Notes, including
damages. Any amount received or recovered in a currency other than
dollars (whether as a result of, or of the enforcement of, a judgment or order
of a court of any jurisdiction, in the winding-up or dissolution of the
Company or otherwise) by any holder of a Note in respect of any sum expressed
to be due to it from the Company shall only constitute a discharge to the
Company to the extent of the dollar amount which the recipient is able to
purchase with the amount so received or recovered in that other currency on
the date of that receipt or recovery (or, if it is not practicable to make
that purchase on that date, on the first date on which it is practicable to do
so). If that dollar amount is less than the dollar amount expressed to be due
to the recipient under any Note, the Company shall indemnify the recipient
against any loss sustained by it as a result. In any event, the Company shall
indemnify the recipient against the cost of making any such purchase. For the
purposes of this paragraph, it will be sufficient for the holder of a Note to
certify in a satisfactory manner (indicating the sources of information used)
that it would have suffered a loss had an actual purchase of dollars been made
with the amount so received in that other currency on the date of receipt or
recovery (or, if a purchase of dollars on such date had not been practicable,
on the first date on which it would have been practicable, it being required
that the need for a change of date be certified in the manner mentioned
above). These indemnities constitute a separate and independent obligation
from the Company's other obligations, shall give rise to a separate and
independent cause of action, shall apply irrespective of any indulgence
granted by any holder of a Note and shall continue in full force and effect
despite any other judgment, order, claim or proof for a liquidated amount in
respect of any sum due under any Note.
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CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuers, to obtain payment of claims in
certain cases or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if the Trustee acquires any conflicting
interest, it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue or resign.
The holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other
capitalized term used herein for which no definition is provided.
"Acquired Indebtedness" is defined to mean Indebtedness of a Person existing
at the time such Person becomes a Restricted Subsidiary or assumed in
connection with an Asset Acquisition by the Company or a Restricted Subsidiary
and not incurred in connection with, or in anticipation of, such Person
becoming a Restricted Subsidiary or such Asset Acquisition; provided that
Indebtedness of such Person which is redeemed, defeased, retired or otherwise
repaid at the time of or immediately upon the consummation of the transactions
by which such Person becomes a Restricted Subsidiary or such Asset Acquisition
shall not be Indebtedness.
"Affiliate" is defined to mean, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any Person, is defined to
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through
the ownership of voting securities, by contract or otherwise. For purposes of
the Indenture "Affiliate" shall be deemed to include Mr. K. Paul Singh.
"Asset Acquisition" is defined to mean (i) an investment by the Company or
any of its Restricted Subsidiaries in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or shall be merged
into or consolidated with the Company or any of its Restricted Subsidiaries or
(ii) an acquisition by the Company or any of its Restricted Subsidiaries of
the property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or
line of business of such Person.
"Asset Disposition" is defined to mean the sale or other disposition by the
Company or any of its Restricted Subsidiaries (other than to the Company or
another Restricted Subsidiary of the Company) of (i) all or substantially all
of the Capital Stock of any Restricted Subsidiary of the Company or (ii) all
or substantially all of the assets that constitute a division or line of
business of the Company or any of its Restricted Subsidiaries.
"Asset Sale" is defined to mean any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback transactions) in
one transaction or a series of related transactions by the Company or any of
its Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any
Subsidiary, (ii) all or substantially all of the property and assets of an
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operating unit or business of the Company or any of its Restricted
Subsidiaries or (iii) any other property and assets of the Company or any of
its Restricted Subsidiaries outside the ordinary course of business of the
Company or such Restricted Subsidiary and, in each case, that is not governed
by the provisions of the Indenture applicable to mergers, consolidations and
sales of assets of the Company and which, in the case of any of clause (i),
(ii) or (iii) above, whether in one transaction or a series of related
transactions, (a) have a fair market value in excess of $1.0 million or (b)
are for net proceeds in excess of $1.0 million; provided that sales or other
dispositions of inventory, receivables and other current assets in the
ordinary course of business shall not be included within the meaning of "Asset
Sale."
"Average Life" is defined to mean, at any date of determination with respect
to any debt security, the quotient obtained by dividing (i) the sum of the
products of (a) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security and
(b) the amount of such principal payment by (ii) the sum of all such principal
payments.
"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, whether now
outstanding or issued after the date of the Indenture, including, without
limitation, all Common Stock and Preferred Stock.
"Capitalized Lease" is defined to mean, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in
conformity with GAAP, is required to be capitalized on the balance sheet of
such Person; and "Capitalized Lease Obligation" is defined to mean the
discounted present value of the rental obligations under such lease.
"Change of Control" is defined to mean such time as (i) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange
Act) becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of more than 50% of the total voting power of the then
outstanding Voting Stock of the Company on a fully diluted basis; (ii)
individuals who at the beginning of any period of two consecutive calendar
years constituted the Board of Directors (together with any directors who are
members of the Board of Directors on the date hereof and any new directors
whose election by the Board of Directors or whose nomination for election by
the Company's stockholders was approved by a vote of at least two-thirds of
the members of the Board of Directors then still in office who either were
members of the Board of Directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the members of such board of directors then
in office; (iii) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole to any such "person" or "group" (other than to
the Company or a Restricted Subsidiary); (iv) the merger or consolidation of
the Company with or into another corporation or the merger of another
corporation with or into the Company with the effect that immediately after
such transaction any such "person" or "group" of persons or entities shall
have become the beneficial owner of securities of the surviving corporation of
such merger or consolidation representing a majority of the total voting power
of the then outstanding Voting Stock of the surviving corporation; or (v) the
adoption of a plan relating to the liquidation or dissolution of the Company.
"Closing Date" is defined to mean the date on which the Notes are originally
issued under the Indenture.
"Common Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's common stock, whether now
outstanding or issued after the date of the Indenture, including, without
limitation, all series and classes of such common stock.
"Consolidated Cash Flow" is defined to mean, for any period, the sum of the
amounts for such period of (i) Consolidated Net Income, (ii) Consolidated
Interest Expense, (iii) income taxes, to the extent such amount was deducted
in calculating Consolidated Net Income (other than income taxes (either
positive or negative)
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attributable to extraordinary and non-recurring gains or losses or sales of
assets), (iv) depreciation expense, to the extent such amount was deducted in
calculating Consolidated Net Income, (v) amortization expense, to the extent
such amount was deducted in calculating Consolidated Net Income, and (vi) all
other non-cash items reducing Consolidated Net Income (excluding any non-cash
charge to the extent that it represents an accrual of or reserve for cash
charges in any future period), less all non-cash items increasing Consolidated
Net Income, all as determined on a consolidated basis for the Company and its
Restricted Subsidiaries in conformity with GAAP.
"Consolidated Fixed Charges" is defined to mean, for any period,
Consolidated Interest Expense plus dividends declared and payable on Preferred
Stock.
"Consolidated Interest Expense" is defined to mean, for any period, the
aggregate amount of interest in respect of Indebtedness (including capitalized
interest, amortization of original issue discount on any Indebtedness and the
interest portion of any deferred payment obligation, calculated in accordance
with the effective interest method of accounting; all commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing; the net costs associated with Interest Rate Agreements;
and interest on Indebtedness that is Guaranteed or secured by the Company or
any of its Restricted Subsidiaries) and all but the principal component of
rentals in respect of Capitalized Lease Obligations paid, accrued or scheduled
to be paid or to be accrued by the Company and its Restricted Subsidiaries
during such period.
"Consolidated Net Income" is defined to mean, for any period, the aggregate
net income (or loss) of the Company and its Restricted Subsidiaries for such
period determined in conformity with GAAP; provided that the following items
shall be excluded in computing Consolidated Net Income (without duplication):
(i) solely for the purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described above, the net income
(or loss) of any Person accrued prior to the date it becomes a Restricted
Subsidiary or is merged into or consolidated with the Company or any of its
Restricted Subsidiaries or all or substantially all of the property and assets
of such Person are acquired by the Company or any of its Restricted
Subsidiaries; (ii) any gains or losses (on an after-tax basis) attributable to
Asset Sales; (iii) except for purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described above, any amount paid
or accrued as dividends on Preferred Stock of the Company or Preferred Stock
of any Restricted Subsidiary owned by Persons other than the Company and any
of its Restricted Subsidiaries; (iv) all extraordinary gains and extraordinary
losses; and (v) the net income (or loss) of any Person (other than net income
(or loss) attributable to a Restricted Subsidiary) in which any Person (other
than the Company or any of its Restricted Subsidiaries) has a joint interest,
except to the extent of the amount of dividends or other distributions
actually paid to the Company or any of its Restricted Subsidiaries by such
other Person during such period.
"Consolidated Net Worth" is defined to mean, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company and its Restricted
Subsidiaries (which shall be as of a date not more than 90 days prior to the
date of such computation), less any amounts attributable to Redeemable Stock
or any equity security convertible into or exchangeable for Indebtedness, the
cost of treasury stock and the principal amount of any promissory notes
receivable from the sale of the Capital Stock of the Company or any of its
Restricted Subsidiaries, each item to be determined in conformity with GAAP
(excluding the effects of foreign currency exchange adjustments under
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 52).
"Credit Facilities" is defined to mean, with respect to the Company, one or
more debt facilities or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
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"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement and any other arrangement and agreement designed to
provide protection against fluctuations in currency values.
"Default" is defined to mean any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Eligible Accounts Receivable" is defined to mean the accounts receivables
(net of any reserves and allowances for doubtful accounts in accordance with
GAAP) of any Person that are not more than 60 days past their due date and
that were entered into in the ordinary course of business on normal payment
terms as shown on the most recent consolidated balance sheet of such Person
filed with the Commission, all in accordance with GAAP.
"Eligible Institution" is defined to mean a commercial banking institution
that has combined capital and surplus of not less than $500 million or its
equivalent in foriegn currency, whose debt is rated "A-3" or higher or "A-" or
higher according to Moody's Investors Services, Inc. or Standard & Poor's
Ratings Group (or such similar equivalent rating by at least one "nationally
recognized statistical rating organization" (as defined in Rule 436 under the
Securities Act) respectively, at the time as of which any investment or
rollover therein is made.
"Employment Agreements" is defined to mean the employment agreements between
the Company and Mr. K. Paul Singh, dated June 1994.
"Existing Indebtedness" is defined to mean Indebtedness outstanding on the
date of the Indenture.
"Fair Market Value" is defined to mean, with respect to any asset or
property, the sale value that would be obtained in an arm's length transaction
between an informed and willing seller under no compulsion to sell and an
informed and willing buyer.
"GAAP" is defined to mean generally accepted accounting principles in the
United States of America as in effect from time to time, including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved
by a significant segment of the accounting profession.
"Government Securities" is defined to mean direct obligations of, or
obligations guaranteed by, the United States of America for the payment of
which obligations or guarantee the full faith and credit of the United States
is pledged.
"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness or other obligation of the payment thereof or to protect
such obligee against loss in respect thereof (in whole or in part); provided
that the term "Guarantee" shall not include endorsements for collection or
deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
"Incur" is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with
respect to, or become responsible for, the payment of, contingently or
otherwise, such Indebtedness, including an Incurrence of Indebtedness by
reason of the acquisition of more than 50% of the Capital Stock of any Person;
provided that neither the accrual of interest nor the accretion of original
issue discount shall be considered an Incurrence of Indebtedness.
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"Indebtedness" is defined to mean, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the date of placing
such property in service or taking delivery and title thereto or the
completion of such services, except Trade Payables, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and
(B) the amount of such Indebtedness, (vii) all Indebtedness of other Persons
Guaranteed by such Person to the extent such Indebtedness is Guaranteed by
such Person, (viii) the maximum fixed redemption or repurchase price of
Redeemable Stock of such Person at the time of determination and (ix) to the
extent not otherwise included in this definition, obligations under Currency
Agreements and Interest Rate Agreements. The amount of Indebtedness of any
Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the contingency
giving rise to the obligation, provided (i) that the amount outstanding at any
time of any Indebtedness issued with original issue discount is the face
amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP and (ii) that Indebtedness shall not include any
liability for federal, state, local or other taxes.
"Interest Rate Agreement" is defined to mean interest rate swap agreements,
interest rate cap agreements, interest rate insurance, and other arrangements
and agreements designed to provide protection against fluctuations in interest
rates.
"Investment" in any Person is defined to mean any direct or indirect
advance, loan or other extension of credit (including, without limitation, by
way of Guarantee or similar arrangement; but excluding advances to customers
in the ordinary course of business that are, in conformity with GAAP, recorded
as accounts receivable on the balance sheet of the Company or its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
bonds, notes, debentures or other similar instruments issued by, such Person.
For purposes of the definition of "Unrestricted Subsidiary", the "Limitation
on Restricted Payments" covenant and the "Limitation on Issuance and Sale of
Capital Stock of Restricted Subsidiaries" covenant described above, (i)
"Investment" shall include (a) the fair market value of the assets (net of
liabilities) of any Restricted Subsidiary of the Company at the time that such
Restricted Subsidiary of the Company is designated an Unrestricted Subsidiary
and shall exclude the fair market value of the assets (net of liabilities) of
any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary of the Company and (b) the fair market
value, in the case of a sale of Capital Stock in accordance with the
"Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant such that a Person no longer constitutes a Restricted
Subsidiary, of the remaining assets (net of liabilities) of such Person after
such sale, and shall exclude the fair market value of the assets (net of
liabilities) of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary of the Company and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
by the Board of Directors in good faith.
"Lien" is defined to mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale with recourse against the seller or any Affiliate of the
seller, or any agreement to give any security interest).
"Marketable Securities" is defined to mean: (i) Government Securities which
have a remaining weighted average life to maturity of not more than one year
from the date of Investment therein; (ii) any time deposit
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account, money market deposit and certificate of deposit maturing not more
than 180 days after the date of acquisition issued by, or time deposit of, an
Eligible Institution; (iii) commercial paper maturing not more than 90 days
after the date of acquisition issued by a corporation (other than an Affiliate
of the Company) with a rating, at the time as of which any investment therein
is made, of "P-1" or higher according to Moody's Investors Service, Inc., "A-
1" or higher according to Standard & Poor's Rating Group (or such similar
equivalent rating by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act)); (iv) any
banker's acceptance or money market deposit accounts issued or offered by an
Eligible Institution; (v) repurchase obligations with a term of not more than
7 days for Government Securities entered into with an Eligible Institution;
and (vi) any fund investing exclusively in investments of the types described
in clauses (i) through (v) above.
"Net Cash Proceeds" is defined to mean, (a) with respect to any Asset Sale,
the proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary of the Company) and proceeds from the conversion of
other property received when converted to cash or cash equivalents, net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of counsel and investment bankers) related to such Asset Sale, (ii) provisions
for all taxes (whether or not such taxes will actually be paid or are payable)
as a result of such Asset Sale without regard to the consolidated results of
operations of the Company and its Restricted Subsidiaries, taken as a whole,
(iii) payments made to repay Indebtedness or any other obligation outstanding
at the time of such Asset Sale that either (A) is secured by a Lien on the
property or assets sold or (B) is required to be paid as a result of such sale
and (iv) appropriate amounts to be provided by the Company or any Restricted
Subsidiary of the Company as a reserve against any liabilities associated with
such Asset Sale, including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental matters
and liabilities under any indemnification obligations associated with such
Asset Sale, all as determined in conformity with GAAP and (b) with respect to
any issuance or sale of Capital Stock, the proceeds of such issuance or sale
in the form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal,
but not interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary of the Company) and
proceeds from the conversion of other property received when converted to cash
or cash equivalents, net of attorney's fees, accountants' fees, underwriters'
or placement agents' fees, discounts or commissions and brokerage, consultant
and other fees incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.
"Permitted Business" is defined to mean any business involving voice, data
and other telecommunications services.
"Permitted Investment" is defined to mean (i) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment, become
a Restricted Subsidiary or be merged or consolidated with or into or transfer
or convey all or substantially all its assets to, the Company or a Restricted
Subsidiary; (ii) any Investment in Marketable Securities or Pledged
Securities; (iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP; (iv) loans or advances to employees made in the
ordinary course of business in accordance with past practice of the Company or
its Restricted Subsidiaries and that do not in the aggregate exceed $1.0
million at any time outstanding; (v) stock, obligations or securities received
in satisfaction of judgments; (vi) Investments in any Person received as
consideration for Asset Sales to the extent permitted under the "Limitation on
Asset Sales" covenant; and (vii) Investments in any Person at any one time
outstanding (measured on the date each such Investment was made without giving
effect to subsequent changes in value) in an aggregate amount not to exceed
5.0% of the Company's total consolidated assets.
"Permitted Liens" is defined to mean (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted
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and for which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made; (ii) statutory Liens of
landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other similar Liens arising in the ordinary course of business
and with respect to amounts not yet delinquent or being contested in good
faith by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made; (iii) Liens
incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security; (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights-of-way,
municipal and zoning ordinances and similar charges, encumbrances, title
defects or other irregularities that do not materially interfere with the
ordinary course of business of the Company or any of its Restricted
Subsidiaries; (vi) Liens (including extensions and renewals thereof) upon real
or personal property purchased or leased after the Closing Date; provided that
(a) such Lien is created solely for the purpose of securing Indebtedness
Incurred in compliance with the "Limitation on Indebtedness" covenant (1) to
finance the cost (including the cost of design, development, construction,
acquisition, installation or integration) of the item of property or assets
subject thereto and such Lien is created prior to, at the time of or within
six months after the later of the acquisition, the completion of construction
or the commencement of full operation of such property or (2) to refinance any
Indebtedness previously so secured, (b) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such cost and (c)
any such Lien shall not extend to or cover any property or assets other than
such item of property or assets and any improvements on such item; (vii)
leases or subleases granted to others that do not materially interfere with
the ordinary course of business of the Company and its Restricted
Subsidiaries, taken as a whole; (viii) Liens encumbering property or assets
under construction arising from progress or partial payments by a customer of
the Company or its Restricted Subsidiaries relating to such property or
assets; (ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xi) Liens on property
of, or on shares of stock or Indebtedness of, any corporation existing at the
time such corporation becomes, or becomes a part of, any Restricted
Subsidiary; provided that such Liens do not extend to or cover any property or
assets of the Company or any Restricted Subsidiary other than the property or
assets acquired and were not created in contemplation of such transaction;
(xii) Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens
arising from the rendering of a final judgment or order against the Company or
any Restricted Subsidiary of the Company that does not give rise to an Event
of Default; (xiv) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof; (xv) Liens in favor
of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods; (xvi)
Liens encumbering customary initial deposits and margin deposits and other
Liens that are either within the general parameters customary in the industry
or incurred in the ordinary course of business, in each case, securing
Indebtedness under Interest Rate Agreements and Currency Agreements; (xvii)
Liens arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business in accordance with
the past practices of the Company and its Restricted Subsidiaries prior to the
Closing Date; (xxviii) Liens existing on the Closing Date or securing the
Notes or any Guarantee of the Notes; (xxix) Liens granted after the Closing
Date on any assets or Capital Stock of the Company or its Restricted
Subsidiaries created in favor of the holders; (xxx) Liens securing
Indebtedness which is incurred to refinance secured Indebtedness which is
permitted to be Incurred under clause (iv) of paragraph (b) of the "Limitation
on Indebtedness" covenant; provided that such Liens do not extend to or cover
any property or assets of the Company or any Restricted Subsidiary other than
the property or assets securing the Indebtedness being refinanced; and (xxxi)
Liens securing Indebtedness under Credit Facilities incurred in compliance
with clauses (i) and (ix) of paragraph (b) of the "Limitation on Indebtedness"
covenant.
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"Pledge Account" is defined to mean an account established with the Trustee
pursuant to the terms of the Pledge Agreement for the deposit of the Pledged
Securities purchased by the Company with a portion of the net proceeds from
the Offering.
"Pledge Agreement" is defined to mean the Collateral Pledge and Security
Agreement, dated as of the date of the Indenture, by and between the Trustee
and the Company, governing the disbursement of funds from the Pledge Account.
"Pledged Securities" is defined to mean the securities purchased by the
Company with a portion of the net proceeds from the Offering, which shall
consist of Government Securities, to be deposited in the Pledge Account.
"Preferred Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of such Person's preferred or
preference stock, whether now outstanding or issued after the date of the
Indenture, including, without limitation, all series and classes of such
preferred or preference stock.
"Pro Forma Consolidated Cash Flow" is defined to mean, for any period, the
Consolidated Cash Flow of the Company for such period calculated on a pro
forma basis to give effect to any Asset Disposition or Asset Acquisition not
in the ordinary course of business (including acquisitions of other Persons by
merger, consolidation or purchase of Capital Stock) during such period as if
such Asset Disposition or Asset Acquisition had taken place on the first day
of such period.
"Public Equity Offering" is defined to mean an underwritten primary public
offering of Common Stock of the Company pursuant to an effective registration
statement under the Securities Act.
"Purchase Money Obligations" is defined to mean, with respect to each
Person, obligations, other than those under Capitalized Leases, Incurred or
assumed in the ordinary course of business in connection with the purchase of
property to be used in the business of such Person.
"Redeemable Stock" is defined to mean any class or series of Capital Stock
of any Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the Notes, (ii) redeemable at the option of
the holder of such class or series of Capital Stock at any time prior to the
Stated Maturity of the Notes or (iii) convertible into or exchangeable for
Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Notes; provided that
any Capital Stock that would not constitute Redeemable Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the Stated Maturity of the Notes
shall not constitute Redeemable Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions contained in "Limitation
on Asset Sales" and "Repurchase of Notes upon a Change of Control" covenants
described above and such Capital Stock specifically provides that such Person
will not repurchase or redeem any such stock pursuant to such provision prior
to the Company's repurchase of such Notes as are required to be repurchased
pursuant to the "Limitation on Asset Sales" and "Repurchase of Notes upon a
Change of Control" covenants described above.
"Restricted Subsidiary" is defined to mean any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Significant Subsidiary" is defined to mean, at any date of determination,
any Subsidiary of the Company that, together with its Subsidiaries, (i) for
the most recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company or (ii) as of the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of the
Company, all as set forth on the most recently available consolidated
financial statements of the Company for such fiscal year.
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"Stated Maturity" is defined to mean, (i) with respect to any debt security,
the date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii)
with respect to any scheduled installment of principal of or interest on any
debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
"Subsidiary" is defined to mean, with respect to any Person, any
corporation, association or other business entity of which more than 50% of
the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Trade Payables" is defined to mean any accounts payable or any other
indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by the Company or any of its Restricted Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods and
services.
"Transaction Date" is defined to mean, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted
Payment, the date such Restricted Payment is to be made.
"Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Restricted Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, the Company or any Restricted Subsidiary; provided that
either (A) the Subsidiary to be so designated has total assets of $1,000 or
less, (B) if such Subsidiary has assets greater than $1,000, that such
designation would be permitted under the "Limitation on Restricted Payments"
covenant described above, or (C) such Subsidiary is not liable, directly or
indirectly, with respect to any Indebtedness other than Unrestricted
Subsidiary Indebtedness. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary of the Company; provided that
immediately after giving effect to such designation (x) the Company could
Incur $1.00 of additional Indebtedness under the first paragraph of the
"Limitation on Indebtedness" covenant described above and (y) no Default or
Event of Default shall have occurred and be continuing. Any such designation
by the Board of Directors shall be evidenced to the Trustee by promptly filing
with the Trustee a copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Unrestricted Subsidiary Indebtedness" is defined to mean Indebtedness of
any Unrestricted Subsidiary (i) as to which neither the Company nor any
Subsidiary is directly or indirectly liable (by virtue of the Company or any
such Subsidiary being the primary obligor on, guarantor of, or otherwise
liable in any respect to, such Indebtedness), and (ii) which, upon the
occurrence of a default with respect thereto, does not result in, or permit
any holder of any Indebtedness of the Company or any Subsidiary to declare, a
default on such Indebtedness of the Company or any Subsidiary or cause the
payment thereof to be accelerated or payable prior to its Stated Maturity.
"U.S. Subsidiary" is defined to mean any corporation or other entity
incorporated or organized under the laws of the United States or any state
thereof.
"Voting Stock" is defined to mean with respect to any Person, Capital Stock
of any class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned," with respect to any Subsidiary, is defined to mean a
Subsidiary of the Company if all of the outstanding Capital Stock in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned by the Company or one
or more Wholly Owned Subsidiaries of the Company.
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DESCRIPTION OF WARRANTS
The Warrants will be issued pursuant to a warrant agreement (the "Warrant
Agreement") between the Company and First Union National Bank of Virginia, as
Warrant Agent (the "Warrant Agent"). The following summary of certain
provisions of the Warrant Agreement does not purport to be complete and is
qualified in its entirety by reference to the Warrants and the Warrant
Agreement, including the definitions therein of certain terms used below.
Capitalized terms used in this Description of Warrants and not otherwise
defined herein have the meanings ascribed to such terms in the Warrant
Agreement. A copy of the proposed form of the Warrant Agreement has been filed
as an exhibit to the Registration Statement of which this Prospectus is a part
and is available as set forth under "Available Information."
GENERAL
Each Warrant, when exercised, will entitle the holder thereof to receive
fully paid and non-assessable shares of Common Stock of the Company (the
"Warrant Shares") at an exercise price of $ per share (the "Exercise
Price"). The Exercise Price and the number of shares of Common Stock issuable
upon exercise of a Warrant are both subject to adjustment in certain
circumstances described below. The Warrants will be exercisable to purchase an
aggregate of shares of Common Stock representing, (on a fully diluted
basis, assuming all outstanding options and warrants are exercised on the date
of this Prospectus) approximately % of the shares of Common Stock to be
outstanding upon consummation of the offering of the Units. See "Shares
Eligible for Future Sale."
The Warrants may be exercised at any time six months after the Closing Date;
provided, however, that in such case, holders of Warrants will be able to
exercise their Warrants only if the Common Shelf Registration Statement (as
defined below) relating to the Common Stock underlying the Warrants is
effective or the exercise of such Warrants is exempt from the registration
requirements of the Securities Act, and such securities are qualified for sale
or exempt from qualification under the applicable securities laws of the
states or other jurisdictions in which such holders reside. The Warrants may
also be exercised upon an Exercise Event pursuant to an effective Demand
Registration Statement (as defined below). Unless earlier exercised, the
Warrants will expire on , 2004 (the "Expiration Date"). The Company will
give notice of expiration not less than 90 nor more than 120 days prior to the
Expiration Date to the registered holders of the then outstanding Warrants. If
the Company fails to give such notice, the Warrants will nevertheless expire
and become void on the Expiration Date. The Warrants will not trade separately
from the Notes until the Separation Date.
In order to exercise all or any of the Warrants, the holder thereof is
required to surrender to the Warrant Agent the related registered certificate
issued by the Company representing the Warrants (the "Warrant Certificate")
with the accompanying form of election to purchase properly completed and
executed, and to pay in full the Exercise Price for each share of Common Stock
or other securities issuable upon exercise of such Warrants. The Exercise
Price may be paid (i) in cash or by certified or official bank check or by
wire transfer to an account designated by the Company for such purpose or (ii)
without the payment of cash, by reducing the number of shares of Common Stock
that would be obtainable upon the exercise of a Warrant and payment of the
Exercise Price in cash so as to yield a number of shares of Common Stock upon
the exercise of such Warrant equal to the product of (a) the number of shares
of Common Stock for which such Warrant is exercisable as of the date of
exercise (if the Exercise Price were being paid in cash) and (b) the Cashless
Exercise Ratio (the "Cashless Exercise"). The "Cashless Exercise Ratio" shall
equal a fraction, the numerator of which is the excess of the Current Market
Value per share of Common Stock on the Exercise Date over the Exercise Price
per share as of the Exercise Date and the denominator of which is the Current
Market Value per share of the Common Stock on the Exercise Date. Upon
surrender of a Warrant Certificate representing more than one Warrant in
connection with the holder's option to elect a Cashless Exercise, the number
of shares of Common Stock deliverable upon a Cashless Exercise shall be equal
to the number of shares of Common Stock issuable upon the exercise of Warrants
that the holder specifies are to be exercised pursuant to a Cashless Exercise
multiplied by the Cashless Exercise Ratio. All provisions of the Warrant
Agreement shall be applicable with respect to a surrender of a Warrant
Certificate pursuant to a Cashless Exercise for less than the full number of
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Warrants represented thereby. Upon surrender of the Warrant Certificate and
payment of the Exercise Price, the Company will deliver or cause to be
delivered to or upon the written order of such holder, a stock certificate
representing shares of Common Stock of the Company for each Warrant
evidenced by such Warrant Certificate, subject to adjustment as described
herein. If less than all of the Warrants evidenced by a Warrant Certificate
are to be exercised, a new Warrant Certificate will be issued for the
remaining number of Warrants. No fractional shares of Common Stock will be
issued upon exercise of the Warrants. The Company will pay to the holder of
the Warrant at the time of exercise an amount in cash equal to the Current
Market Value (as defined below) of any such fractional share of Common Stock.
The holders of unexercised Warrants are not entitled, by virtue of being
such holders, to receive dividends, to vote, to consent, to exercise any
preemptive rights or to receive notice as stockholders of the Company in
respect of any stockholders meeting for the election of directors of the
Company or any other purpose, or to exercise any other rights whatsoever as
stockholders of the Company.
No service charge will be made for registration of transfer or exchange upon
surrender of any Warrant Certificate at the office of the Warrant Agent
maintained for that purpose. The Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration or transfer or exchange of Warrant
Certificates.
In the event a bankruptcy or reorganization is commenced by or against the
Company, a bankruptcy court may hold that unexercised Warrants are executory
contracts which may be subject to rejection by the Company with approval of
the bankruptcy court. As a result, holders of the Warrants may not, even if
sufficient funds are available, be entitled to receive any consideration or
may receive an amount less than they would be entitled to receive if they had
exercised their Warrants prior to the commencement of any such bankruptcy or
reorganization.
NOTWITHSTANDING THE FOREGOING, THE EXERCISE OF THE WARRANTS (AND THE
OWNERSHIP OF COMMON STOCK ISSUABLE UPON THE EXERCISE THEREOF) MAY BE LIMITED
BY THE COMPANY IN ORDER TO ENSURE COMPLIANCE WITH THE FCC'S RULES AND THE
WARRANTS WILL NOT BE EXERCISABLE BY ANY HOLDER IF SUCH EXERCISE WOULD CAUSE
THE COMPANY TO BE IN VIOLATION OF THE COMMUNICATIONS ACT OR THE FCC'S RULES,
REGULATIONS OR POLICIES. SEE "RISK FACTORS--POTENTIAL ADVERSE EFFECTS OF
REGULATION."
ADJUSTMENTS
The number of shares of Common Stock of the Company issuable upon the exercise
of the Warrants and the Exercise Price will be subject to adjustment in
certain circumstances, including:
(i) the payment by the Company of dividends and other distributions on
its Common Stock payable in Common Stock or other equity interests of the
Company;
(ii) subdivisions, combinations and certain reclassifications of the
Common Stock of the Company;
(iii) the issuance to all holders of Common Stock of rights, options or
warrants entitling them to subscribe for additional shares of Common Stock,
or of securities convertible into or exercisable or exchangeable for
additional shares of Common Stock at an offering price (or with an initial
conversion, exercise or exchange price plus such offering price) which is
less than the current market value per share of Common Stock;
(iv) the distribution to all holders of Common Stock of any assets of the
Company (including cash), debt securities of the Company or any rights or
warrants to purchase any securities (excluding those rights and warrants
referred to in clause (iii) above and cash dividends and other cash
distributions from current or retained earnings);
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(v) the issuance of shares of Common Stock for a consideration per share
which is less than the Current Market Value per share of Common Stock; and
(vi) the issuance of securities convertible into or exercisable or
exchangeable for Common Stock for a conversion, exercise or exchange price
per share which is less than the Current Market Value per share of Common
Stock.
The events described in clauses (v) and (vi) above are subject to certain
exceptions described in the Warrant Agreement, including, without limitation,
certain bona fide public offerings and private placements and certain
issuances of Common Stock pursuant to employee stock incentive plans.
No adjustment in the Exercise Price will be required unless and until such
adjustment would result, either by itself or with other adjustments not
previously made, in an increase or decrease of at least 1% in the Exercise
Price or the number of shares of Common Stock issuable upon exercise of
Warrants immediately prior to the making of such adjustment; provided,
however, that any adjustment that is not made as a result of this paragraph
will be carried forward and taken into account in any subsequent adjustment.
In addition, the Company may at any time reduce the Exercise Price (but not to
an amount that is less than the par value of the Common Stock) for any period
of time (but not less than 20 business days) as deemed appropriate by the
Board of Directors of the Company.
In case of certain consolidations or mergers of the Company, or the sale of
all or substantially all of the assets of the Company to another Person, each
Warrant will thereafter be exercisable for the right to receive the kind and
amount of shares of stock or other securities or property to which such holder
would have been entitled as a result of such consolidation, merger or sale had
the Warrants been exercised immediately prior thereto. However, if (i) the
Company consolidates, merges or sells all or substantially all of its assets
to another person and, in connection therewith, the consideration payable to
the holders of Common Stock in exchange for their shares is payable solely in
cash or (ii) there is a dissolution, liquidation or winding-up of the Company,
then the holders of the Warrants will be entitled to receive distributions on
an equal basis with the holders of Common Stock or other securities issuable
upon exercise of the Warrants, as if the Warrants had been exercised
immediately prior to such event, less the Exercise Price. Upon receipt of such
payment, if any, the Warrants will expire and the rights of holders thereof
will cease. In the case of any such consolidation, merger or sale of assets,
the surviving or acquiring person and, in the event of any dissolution,
liquidation or winding-up of the Company, the Company must deposit promptly
with the Warrant Agent the funds, if any, required to pay the holders of the
Warrants. After such funds and the surrendered Warrant Certificates are
received, the Warrant Agent is required to deliver a check in such amount as
is appropriate (or, in the case of consideration other than cash, such other
consideration as is appropriate) to such Persons as it may be directed in
writing by the holders surrendering such Warrants.
In the event of a taxable distribution to holders of Common Stock of the
Company which results in an adjustment to the number of shares of Common Stock
or other consideration for which a Warrant may be exercised, the holders of
the Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend. See
"Certain Federal Income Tax Considerations--Tax Treatment of the Warrants."
RESERVATION OF SHARES
The Company has authorized and will reserve for issuance such number of
shares of Common Stock as will be issuable upon the exercise of all
outstanding Warrants. Such shares of Common Stock, when issued and paid for in
accordance with the Warrant Agreement, will be duly and validly issued, fully
paid and nonassessable, free of preemptive rights and free from all taxes,
liens, charges and security interests.
PROVISION OF FINANCIAL STATEMENTS AND REPORTS
The Company will be required (a) to provide to each holder, without cost to
such holder, copies of such annual and quarterly reports and documents that
the Company files with the Commission, (to the extent such
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filings are accepted by the Commission and whether or not the Company has a
class of securities registered under the Exchange Act) or that the Company
would be required to file were it subject to Section 13 or 15 of the Exchange
Act, within 15 days after the date of such filing or the date on which the
Company would be required to file such reports or documents, and all such
annual reports or quarterly reports shall include the geographic segment
financial information currently disclosed by the Company in its public filings
with the Commission, and (b) if filing such reports and documents with the
Commission is not accepted by the Commission or is prohibited under the
Exchange Act, to supply at the Company's cost copies of such reports and
documents to any prospective holder promptly upon request.
AMENDMENT
Any amendment or supplement to the Warrant Agreement that has an adverse
effect on the interests of the holders of the Warrants will require the
written consent of the holders of a majority of the then outstanding Warrants
(excluding any Warrants held by the Company or any of its Affiliates).
Notwithstanding the foregoing, from time to time, the Company and the Warrant
Agent, without the consent of the holders of the Warrants, may amend or
supplement the Warrant Agreement for certain purposes, including to cure any
ambiguities, defects or inconsistencies or to make any change that does not
adversely affect the rights of any holder. The consent of
each holder of the Warrants affected will be required for any amendment
pursuant to which the Exercise Price would be increased or the number of
shares of Common Stock issuable upon exercise of the Warrants would be
decreased (other than pursuant to adjustments provided for in the Warrant
Agreement) or the exercise period with respect to the Warrants would be
shortened.
REGISTRATION RIGHTS
Registration of Underlying Common Stock
The Company is required under the Warrant Agreement to file a shelf
registration statement under the Securities Act covering the issuance of
shares of Common Stock to the holders of the Warrants upon exercise of the
Warrants by the holders thereof (the "Common Shelf Registration Statement")
and to use its reasonable efforts to cause the Common Shelf Registration
Statement to be declared effective on or before 180 days after the Closing
Date and to remain effective until the earlier of (i) such time as all
Warrants have been exercised and (ii) the Expiration Date.
During any consecutive 365-day period, the Company shall be entitled to
suspend the availability of the Common Shelf Registration Statement for up to
two 45 consecutive-day periods (except for the 45 consecutive-day period
immediately prior to the Expiration Date) if the Board of Directors determines
in the exercise of its reasonable judgment that there is a valid business
purpose for such suspension and provides notice that such determination was
made to the holders of the Warrants; provided, however, that in no event shall
the Company be required to disclose the business purpose for such suspension
if the Company determines in good faith that such business purpose must remain
confidential. There can be no assurance that the Company will be able to file,
cause to be declared effective, or keep a registration statement continuously
effective until all of the Warrants have been exercised or have expired.
Demand Registration Rights
Upon the occurrence of an Exercise Event, the Holders of at least 25% of the
Warrants will be entitled to require the Company to use its best efforts to
effect one registration under the Securities Act in respect of an underwritten
sale of Warrant Shares (a "Demand Registration"), subject to certain
limitations, unless an exemption from the registration requirements of the
Securities Act is then available for the sale of such Warrant Shares. Upon a
demand, the Company will prepare, file and use its best efforts to cause to be
effective within 120 days of such demand a registration statement in respect
of all Warrant Shares (a "Demand Registration Statement"); provided that in
lieu of filing such registration statement the Company may make an offer to
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purchase all of the Warrant Shares underlying Warrants being offered in the
Demand Registration at the Current Market Value.
"Current Market Value" per share of Common Stock or any other security at
any date is defined to mean: (i) if the security is not registered under the
Exchange Act, (a) the value of the security, determined in good faith by the
Board and certified in a board resolution, based on the most recently
completed arm's-length transaction between the Company and a Person other than
an Affiiliate of the Company, the closing of which occurred on such date or
within the six-month period preceding such date, or (b) if no such transaction
shall have occurred on such date or within such six-month period, the value of
the security as determined by an Independent Financial Expert (as defined in
the Warrant Agreement); or (ii) if the security is registered under the
Exchange Act, the average of the last reported sale price of the Common Stock
(or the equivalent in an over-the-counter market) for each Business Day (as
defined in the Warrant Agreement) during the period commencing 15 Business
Days before such date and ending on the date one day prior to such date, or if
the security has been registered under the Exchange Act for less than 15
consecutive Business Days before such date, the average of the daily closing
bid prices (or such equivalent) for all of the Business Days before such date
for which daily closing bid prices are available (provided, however, that if
the closing bid price is not determinable for at least 10 Business Days in
such period, the "Current Market Value" of the security shall be determined as
if the security were not registered under the Exchange Act).
"Exercise Event" is defined to mean, with respect to each Warrant as to
which such event is applicable, the earlier of: (i) a Change of Control and
(ii) any date when the Company (A) consolidates or merges into or with another
Person (but only where holders of Common Stock receive consideration in
exchange for all or part of such Common Stock other than common stock in the
surviving Person) if the Common Stock (or other securities) thereafter
issuable upon exercise of the Warrants is not registered under the Exchange
Act or (B) sells all or substantially all of its assets to another Person if
the Common Stock (or other securities) thereafter issuable upon exercise of
the Warrants is not registered under the Exchange Act; provided, that the
events in (A) and (B) will not be deemed to have occurred if the consideration
for the Common Stock in either such transaction consists solely of cash.
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BOOK-ENTRY, DELIVERY AND FORM
GENERAL
The Units, Notes or Warrants will initially be issued in the form of one or
more fully registered Units in global form ("Global Units"), each comprised of
one or more Notes in global form ("Global Notes") and one or more Warrants in
global form ("Global Warrants"). Units, Notes and Warrants issued in
certificated fully registered form are referred to herein as "Certificated
Units," "Certificated Notes" and "Certificated Warrants," respectively, and
collectively as "Certificated Securities" and Global Units, Global Notes and
Global Warrants are collectively referred to herein as "Global Securities."
Upon issuance of the Global Securities, the Depositary or its nominee will
credit, on its book-entry registration and transfer system, the number of
Units represented by such Global Securities to the accounts of institutions
that have accounts with the Depositary or its nominee ("participants"). The
accounts to be credited shall be designated by the Underwriters. Ownership of
beneficial interests in the Global Securities will be limited to participants
or persons that may hold interests through participants. Ownership of
beneficial interest in such Global Securities will be shown on, and the
transfer of that ownership will be effected only through, records maintained
by the Depositary or its nominee (with respect to participants' interests) for
such Global Securities,
or by participants or persons that hold interests through participants (with
respect to beneficial interests of persons other than participants). The laws
of some jurisdictions may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and laws
may impair the ability to transfer or pledge beneficial interests in the
Global Securities.
So long as the Depositary, or its nominee, is the registered holder of any
Global Securities, the Depositary or such nominee, as the case may be, will be
considered the sole legal owner and holder of such Units, Notes or Warrants,
as the case may be, represented by such Global Securities for all purposes
under the Indenture and the Warrant Agreement and the Units, Notes and
Warrants, as the case may be. Except as set forth below, owners of beneficial
interests in Global Securities will not be entitled to have such Global
Securities or any Units, Notes or Warrants represented thereby registered in
their names, will not receive or be entitled to receive physical delivery or
Certificated Securities in exchange therefor and will not be considered to be
the owners or holders of such Global Securities or any Units, Notes or
Warrants represented thereby for any purpose under the Units, Notes or
Warrants or the Indenture or the Warrant Agreement. The Company understands
that under existing industry practice, in the event an owner of a beneficial
interest in a Global Security desires to take any action that the Depositary,
as the holder of such Global Security, is entitled to take, the Depositary
would authorize the participants to take such action, and that the
participants would authorize beneficial owners owning through such
participants to take such action or would otherwise act upon the instructions
of beneficial owners owning through them.
Any payment of principal or interest due on the Notes on any interest
payment date or at maturity will be made available by the Company to the
Trustee by such date. As soon as possible thereafter, the Trustee will make
such payments to the Depositary or its nominee, as the case may be, as the
registered owner of the Global Notes representing such Notes in accordance
with existing arrangements between the Trustee and the Depositary.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal or interest in respect of the Global Notes, will credit
immediately the accounts of the related participants with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such Global Note as shown on the records of the Depositary. The Company
also expects that payments by participants to owners of beneficial interests
in the Global Securities held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of such participants.
None of the Company, the Trustee or any payment agent for the Global
Securities will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial
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ownership interests in any of the Global Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for other aspects of the relationship between the Depositary and
its participants or the relationship between such participants and the owners
of beneficial interests in the Global Securities owning through such
participants.
As long as the Notes are represented by a Global Note, DTC's nominee will be
the holder of the Notes and therefore will be the only entity that can
exercise a right to repayment or repurchase of the Notes. See "Description of
the Notes -- Change of Control" and "-- Certain Covenants -- Limitation on
Sales of Assets and Subsidiary Stock." Notice by participants or by owners of
beneficial interests in a Global Note held through such participants of the
exercise of the option to elect repayment of beneficial interests in Notes
represented by a Global Note must be transmitted to DTC in accordance with its
procedures on a form required by DTC and provided to participants. In order to
ensure that DTC's nominee will timely exercise a right to repayment with
respect to a particular Note, the beneficial owner of such Note must instruct
the broker or other participant to exercise a right to repayment. Different
firms have cut-off times for accepting instructions from their customers and,
accordingly, each beneficial owner should consult the broker or other
participant through which it holds an interest in a Note in order to ascertain
the cut-off time by which such an instruction must be given in order for
timely notice to be delivered to DTC. The Company will not be liable for any
delay in delivery of notices of the exercise of the option to elect repayment.
Unless and until exchanged in whole or in part for Notes in definitive form
in accordance with the terms of the Notes, the Global Notes may not be
transferred except as a whole by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary of any such nominee to a successor of the
Depositary or a nominee of each successor.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Securities among participants
of the Depositary, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the Trustee nor the Company will have any responsibility for the performance
by the Depositary or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations. The Company and the Trustee may conclusively rely on, and shall be
protected in relying on, instructions from the Depositary for all purposes.
CERTIFICATED SECURITIES
Global Units, Global Notes and Global Warrants shall be exchangeable for
corresponding Certificated Securities registered in the name of persons other
than the Depositary or its nominee only if (A) the Depositary (i) notifies the
Company that it is unwilling or unable to continue as Depositary for any of
the Global Securities or (ii) at any time ceases to be a clearing agency
registered under the Exchange Act, (B) there shall have occurred and be
continuing an Event of Default (as defined in the Indenture) with respect to
the Notes or (C) the Company executes and delivers to the Trustee or the
Warrant Agent, as appropriate, an order that the Global Units, Global Notes or
Global Warrants shall be so exchangeable. Any Certificated Securities will be
issued only in fully registered form, and in the case of Certificated Notes,
shall be issued without coupons in denominations of $1,000 and integral
multiples thereof. Any Certificated Securities so issued will be registered in
such names and in such denominations as the Depositary shall request.
THE CLEARING SYSTEM
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a clearing corporation within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depositary was created to hold securities of institutions that have accounts
with the Depositary ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such
securities through electronic book-entry
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changes in accounts of participants, thereby eliminating the need for physical
movement of securities certificates. The Depositary's participants include
securities brokers and dealers (which may include the Underwriters), banks,
trust companies, clearing corporations and certain other organizations. Access
to the Depositary's book-entry system is also available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, whether directly or indirectly.
SETTLEMENT
Initial settlement in the Units will be in same-day funds. Investors holding
their Units through the Depositary will follow settlement practices applicable
to United States corporate debt obligations. The Indenture will require that
payments in respect of Notes (including principal, premium and accrued and
unpaid interest) be made by wire transfer of same-day funds to the accounts
specified by the holders thereof or, if no such account is specified, by
mailing a check to each such holder's registered address.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain material federal income tax
considerations relevant to the acquisition, ownership and disposition of the
Units, Notes and Warrants by initial holders acquiring Units, Notes and
Warrants at original issue for cash as part of the initial offering. This does
not purport to be a complete analysis or listing of all potential tax
considerations that may be relevant to initial holders, and does not purport
to discuss tax considerations that may be relevant to subsequent holders
(which considerations may differ from those described herein) of the Units,
Notes, or Warrants. The discussion does not include the special rules that may
apply to certain holders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign corporations
and persons who are not citizens or residents of the United States), and does
not address the tax consequences of the laws of any state, locality or foreign
jurisdiction. The discussion is based upon currently existing provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed Treasury regulations promulgated thereunder, and current practice,
administrative rulings, and court decisions, all of which are subject to
change and any such change could affect the continuing validity of this
discussion. The Company has not sought and will not seek any rulings from the
Internal Revenue Service ("IRS") with respect to the positions of the Company
discussed below. There can be no assurance that the IRS will not take a
different position concerning the tax consequences of the acquisition,
ownership or disposition of the Units, Notes or Warrants or that any such IRS
position would not be sustained. This discussion applies only to a holder that
will hold Units, Notes and Warrants as "capital assets" within the meaning of
Section 1221 of the Code.
EACH PURCHASER IS URGED TO CONSULT HIS OWN TAX ADVISER AS TO THE PARTICULAR
TAX CONSEQUENCES OF ACQUIRING, OWNING AND DISPOSING OF THE UNITS, NOTES AND
WARRANTS, INCLUDING THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE OR
FOREIGN INCOME AND OTHER TAX LAWS.
UNITED STATES FEDERAL INCOME TAXATION OF U.S. HOLDERS
This section discusses certain rules applicable to a holder of Notes,
Warrants and shares of stock received upon exercise of the Warrants ("Warrant
Shares") that is a U.S. Holder. For purposes of this discussion, a "U.S.
Holder" means a holder of Notes, Warrants or Warrant Shares who or which is
(i) an individual who is a citizen or resident of the United States for U.S.
Federal income tax purposes, (ii) a corporation or other entity taxable as a
corporation created or organized in the United States or under the laws of the
United States or any political subdivision thereof (including the States and
the District of Columbia), (iii) any trust if a court within the United States
is able to exercise primary supervision over the administration of such trust
and one or more U.S. fiduciaries have the authority to control all substantial
decisions of such trust, or (iv) a person whose income or gain with respect to
a Note, Warrant or Warrant Share is otherwise subject to U.S. Federal income
taxation on a net income basis.
ALLOCATION OF ISSUE PRICE
For federal income tax purposes, each Unit will be treated as an investment
unit, consisting of a Note and Warrant. The issue price of a Unit will be the
first price at which a substantial amount of the Units are sold to purchasers
for money (excluding sales to bond houses, brokers, or similar persons acting
in the capacity of an underwriter, placement agent or wholesaler).
The issue price of a Unit has been allocated between the Notes and the
Warrants, $ to each Note and $ to each Warrant, based on the Company's
best judgment of the relative fair market values of each such component of the
Units on the issue date. This allocation will be used to determine the
holders' income tax basis in the Warrants and the issue price of the Notes, as
discussed below. The Company's allocation is not binding on the IRS, which may
challenge such allocation. A holder of a Unit is bound by the Company's
allocation unless the holder discloses a different allocation on a statement
attached to the holder's timely filed federal income tax return for the
holder's taxable year that includes the acquisition date of the Unit.
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TAX TREATMENT OF THE NOTES
Original Issue Discount. The Notes will be issued with original issue
discount for federal income tax purposes. The amount of original issue
discount ("OID") on a Note is the excess of the stated redemption price at
maturity over its issue price. The "issue price" of each Note will be that
portion of the issue price of the investment unit allocated to the Note, as
described above. The "stated redemption price at maturity" of each Note will
include all payments to be made in respect thereof, including payments of
principal, but not including (i) qualified stated interest (defined generally
as stated interest that is unconditionally payable in cash or property (other
than debt instruments of the issuer) at least annually at a single fixed rate
that appropriately takes into account the length of intervals between
payments) and (ii) payments subject to remote or incidental contingencies
(which include certain redemption premiums). Each holder (whether a cash or
accrual method taxpayer) will be required to include in income such OID as it
accrues, in advance of the receipt of some or all of the related cash
payments.
The amount of OID includable in income by the initial holder of a Note is
the sum of the "daily portions" of OID with respect to the Note for each day
during the taxable year or portion of the taxable year on which such holder
held such Note ("accrued OID"). The daily portion is determined by allocating
to each day in any accrual period a ratable portion of the OID allocable to
that accrual period. The amount of OID allocable to any accrual period other
than the initial short accrual period and the final accrual period is an
amount equal to the excess of (i) the product of a Note's adjusted issue price
at the beginning of such accrual period and its yield to maturity (determined
on the basis of compounding at the close of each accrual period and properly
adjusted for the length of the accrual period) over (ii) the amount of any
qualified stated interest payments allocable to such accrual period. The
"yield to maturity" is the discount rate that, when applied to all payments
under a Note, results in a present value equal to the issue price. The amount
of OID allocable to the final accrual period is the difference between the
amount payable at maturity (other than qualified stated interest) and the
adjusted issue price of the Note at the beginning of the final accrual period.
The amount of OID allocable to the initial short accrual period may be
computed under any reasonable method. The adjusted issue price of the Note at
the start of any accrual period is equal to its issue price increased by the
accrued OID for each prior accrual period. The Issuer is required to report to
the IRS and record holders other than corporations and other exempt holders
the amount of OID accrued on Notes.
Sale, Retirement or Other Taxable Disposition. A holder of a Note will
recognize gain or loss upon the sale, retirement or other taxable disposition
of such Note. Such gain or loss will generally be equal to the difference
between (i) the amount of cash and the fair market value of property received
for such Note (other than amounts representing accrued but unpaid stated
interest) and (ii) the holder's adjusted tax basis in the Note. The adjusted
tax basis of a Note in the hands of an original holder generally will be equal
to the Note's issue price, increased by the amount of OID, if any, on the Note
that is previously includable in the holder's income pursuant to these rules.
Such gain or loss generally will be capital gain or loss, and will be long-
term capital gain or loss if the holder has held such Notes for more than one
year.
TAX TREATMENT OF THE WARRANTS
A holder of a Warrant will recognize gain or loss upon the sale or other
taxable disposition of a Warrant in an amount equal to the difference between
the amount of cash and fair market value of property received and the holder's
adjusted tax basis in the Warrant. An initial holder's tax basis in a Warrant
will be the portion of the initial offering price of a Unit allocable to a
Warrant, as described above, adjusted as described below. Such gain or loss
generally will be capital gain or loss if the gain or loss from a taxable
disposition of Common Stock received upon exercise of a Warrant would be
capital gain or loss, and will be long-term capital gain or loss if the holder
has held the Warrant for more than one year.
In general, upon redemption or repurchase by the Company of the Warrants, a
holder will recognize capital gain or loss in an amount equal to the
difference between the amount realized in the redemption or repurchase and the
holder's adjusted tax basis in such Warrants.
120
<PAGE>
The exercise of a Warrant will not result in a taxable event to the holder
of a Warrant (except (i) with respect to the receipt of cash in lieu of a
fractional share of Common Stock or (ii) subject to the discussion below,
where a cashless exercise occurs). The receipt of cash in lieu of a fractional
share of Common Stock will be taxable as if the fractional share had been
issued and then redeemed for cash. As a result, a holder would recognize gain
or loss in an amount equal to the difference between the amount of cash
received for the fractional share and the holder's tax basis (described below)
in the fractional share. It is unclear whether a cashless exercise of a
Warrant will result in the recognition of gain or loss to the holder.
Accordingly, holders should consult with their own tax advisors before
exercising the Warrants in such manner.
A holder's federal income tax basis in the Common Stock received upon
exercise of a Warrant pursuant to the payment of the exercise price (including
any fractional share interest) will be equal to the sum of the holder's
federal income tax basis in the Warrant immediately prior to exercise plus the
amount of any cash paid upon exercise. The holder's holding period for the
Common Stock (including any fractional share interest) would begin on the day
after the date of exercise.
Upon the expiration of an unexercised Warrant, a holder will generally
recognize a capital loss equal to the adjusted tax basis of such Warrant. Such
loss generally will be long-term capital loss if the holder has held the
Warrant for more than one year.
An adjustment in the exercise price or conversion ratio with respect to the
Warrants made pursuant to the anti-dilution provisions of the Warrants may, in
certain circumstances, result in constructive distributions to the holders of
the Warrants which could be taxable as dividends to the holders under section
305 of the Code. A holder's federal income tax basis in a Warrant would
generally be increased by the amount of any such dividend.
BACKUP WITHHOLDING
Under certain circumstances, the failure of a holder of a Note to provide
sufficient information to establish that such holder is exempt from the backup
withholding provisions of the Code will subject such holder to backup
withholding at a rate of 31 percent. In general, backup withholding applies if
a holder fails to furnish a correct taxpayer identification number, fails to
report dividend and interest income in full, or fails to certify that such
holder has provided a correct taxpayer identification number and that the
holder is not subject to withholding. An individual's taxpayer identification
number is such person's Social Security number.
Any amount withheld from a payment to a holder under the backup withholding
rules is allowable as a credit against such holder's U.S. Federal income tax
liability, provided that the required information is furnished to the IRS.
Certain holders (including, among others, corporations and foreign individuals
who comply with certain certification requirements) are not subject to backup
withholding. Holders should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
REPORTING REQUIREMENTS
The Company will provide annual information statements to holders other than
corporations and other exempt holders of the Notes and to the IRS, setting
forth the amount of original issue discount determined to be attributable to
the Notes for that year.
121
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions of the underwriting agreement (the form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part) (the "Underwriting Agreement"), to purchase from the
Company, and the Company has agreed to sell to the Underwriters, the number of
Units set forth opposite their respective names below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF UNITS
------------ ----------------
<S> <C>
Lehman Brothers Inc......................................... $
Donaldson, Lufkin & Jenrette Securities Corporation.........
------------
Total..................................................... $125,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the Units are subject to the approval of certain legal matters by
their counsel and to certain conditions, and that if any Units are purchased
by the Underwriters pursuant to the Underwriting Agreement, all of the Units
agreed to be purchased by the Underwriters pursuant to the Underwriting
Agreement must be so purchased.
The Company has been advised by the Underwriters that they propose to offer
the Units offered hereby initially at the public offering price set forth on
the cover page of this Prospectus and to certain selected dealers (who may
include the Underwriters) at such public offering price less a concession not
to exceed $ per Unit. The Underwriters or such selected dealers may reallow
a commission to certain other dealers not to exceed $ per Unit. After the
initial public offering of the Units the public offering price, the concession
to selected dealers and the reallowance to other dealers may be changed by the
Underwriters.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The offering price for the Units and the provisions of the Notes and the
Warrants have been determined by negotiations between the Company and the
Underwriters. Among the factors considered in such negotiations were
prevailing market conditions, the results of operations of the Company in
recent periods, the market capitalizations and stages of development of other
companies which the Company and the Underwriters believed to be comparable to
the Company, estimates of business potential of the Company and the present
stage of the Company's development.
In order to facilitate the Offering of the Units, the Underwriters may
engage in transactions that stabilize, maintain, or otherwise affect the price
of the Units. Specifically, the Underwriters may overallot in connection with
the Offering, creating a short position in the Units for their own account. In
addition, to cover overallotments or to stabilize the price of the Units, the
Underwriters may bid for and purchase Units in the open market. Any of these
activities may stabilize or maintain the market price of the Units above
independent market levels.
The Company has agreed, for a period of 180 days after the date of this
Prospectus, not to, directly or indirectly, offer for sale, sell or otherwise
dispose of (or enter into any transaction or device which is designed to, or
could be expected to, result in the disposition by any person at any time in
the future of) any debt securities or shares of Common Stock (other than (A)
the Units, the Notes, the Warrants, the Warrant Shares and shares issued
pursuant to employee benefit plans, qualified stock option plans or other
employee compensation plans existing on the date hereof or pursuant to
currently outstanding options, warrants or rights, or (B) equity or debt
securities issued in connection with an acquisition), or sell or grant
options, rights or warrants with respect to any shares of Common Stock (other
than the grant of options pursuant to option plans existing on (A) the date
hereof, or (B) the grant of options, rights or warrants in connection with an
acquisition), without the prior written consent of Lehman Brothers Inc.
Certain of the Underwriters have provided certain financial advisory and
investment banking services to the Company in the past. Lehman Brothers Inc.
was the lead underwriter for the Initial Public Offering by the Company of its
Common Stock in November 1996 for which it received customary commissions.
122
<PAGE>
LEGAL MATTERS
The validity of the Notes and Warrants offered hereby and certain United
States tax matters are being passed upon for the Company by Pepper, Hamilton &
Scheetz llp, Philadelphia, Pennsylvania. The validity of the Notes and
Warrants offered hereby are being passed upon for the Underwriters by Shearman
& Sterling, New York, New York. Mr. John DePodesta, "of counsel" to Pepper,
Hamilton & Scheetz llp, is a director and an Executive Vice President of the
Company, and the beneficial owner of 319,690 shares of Common Stock.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31, 1995
and 1996, and for the period from inception (February 4, 1994) to December 31,
1994, and the years ended December 31, 1995 and 1996 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report appearing herein. Such Consolidated Financial
Statements have been included herein in reliance upon the report of such firm
given their authority as experts in accounting and auditing.
The Financial Statements of Axicorp, as of March 31, 1995 and 1996, and for
the nine months ended March 31, 1995 and the twelve months ended March 31,
1996 included in this Prospectus have been audited by Price Waterhouse,
independent chartered accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in accounting and auditing.
123
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED:
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheet as of December 31, 1995 and 1996 and March
31, 1997 (unaudited)................................................... F-3
Consolidated Statement of Operations for the period from February 4,
1994 (inception) to December 31, 1994, the years ended December 31,
1995 and 1996 and the three months ended March 31, 1996 (unaudited) and
1997 (unaudited)....................................................... F-4
Consolidated Statement of Stockholders' Equity (Deficit) for the period
from February 4, 1994 (inception) to December 31, 1994, the years ended
December 31, 1995 and 1996 and the three months ended March 31, 1997
(unaudited)............................................................ F-5
Consolidated Statement of Cash Flows for the period from February 4,
1994 (inception) to December 31, 1994, the years ended December 31,
1995 and 1996 and the three months ended March 31, 1996 (unaudited) and
1997 (unaudited)....................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
AXICORP PTY., LTD.:
Report of Independent Accountants....................................... F-17
Balance Sheet as of March 31, 1995 and 1996............................. F-18
Statement of Operations for the nine months ended March 31, 1995 and for
the twelve months ended March 31, 1996................................. F-19
Statement of Stockholders' Equity for the nine months ended March 31,
1995 and for the twelve months ended March 31, 1996.................... F-20
Statement of Cash Flows for the nine months ended March 31, 1995 and for
the twelve months ended March 31, 1996................................. F-21
Notes to Financial Statements........................................... F-22
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Primus Telecommunications Group,
Incorporated:
We have audited the accompanying consolidated balance sheet of Primus
Telecommunications Group, Incorporated and subsidiaries (the "Company") as of
December 31, 1995 and 1996, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the period from
February 4, 1994 (date of incorporation) to December 31, 1994 and the years
ended December 31, 1995 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December
31, 1995 and 1996, and the results of their operations and their cash flows
for the period from February 4, 1994 (date of incorporation) to December 31,
1994 and the years ended December 31, 1995 and 1996, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Washington, D.C.
February 5, 1997, except for Note
15, as to which the date is April
8, 1997
F-2
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1995 1996 1997
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................... $ 2,296 $ 35,474 $ 43,612
Short term investments........................ -- 25,125 5,359
Accounts receivable (net of allowance of $132
and $2,585 at December 31, 1995 and 1996,
respectively, and $3,227 (unaudited) at March
31, 1997).................................... 665 35,217 41,626
Prepaid expenses and other current assets..... 388 910 1,560
------- -------- --------
Total current assets........................ 3,349 96,726 92,157
PROPERTY AND EQUIPMENT--Net..................... 949 16,596 25,262
INTANGIBLES--Net................................ -- 21,246 20,546
DEFERRED INCOME TAXES........................... -- 4,951 4,951
OTHER ASSETS.................................... 744 1,041 1,223
------- -------- --------
TOTAL ASSETS.................................... $ 5,042 $140,560 $144,139
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.............................. $ 1,284 $ 32,675 $ 44,190
Accrued expenses and other current
liabilities.................................. 668 8,778 10,060
Deferred income taxes......................... -- 5,419 5,359
Current portion of long-term obligations...... 102 10,572 11,200
------- -------- --------
Total current liabilities................... 2,054 57,444 70,809
LONG-TERM OBLIGATIONS........................... 426 6,676 1,935
------- -------- --------
Total liabilities........................... 2,480 64,120 72,744
------- -------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value--2,455,000
shares authorized; none issued and
outstanding.................................. -- -- --
Common stock, $.01 par value--authorized
16,905,000 shares at December 31, 1995 and
40,000,000 shares at December 31, 1996 and
March 31, 1997 (unaudited); issued and
outstanding, 7,063,491 shares at December 31,
1995; 17,778,731 shares at December 31, 1996
and March 31, 1997 (unaudited)............... 71 178 178
Additional paid-in capital.................... 5,496 88,106 88,106
Accumulated deficit........................... (3,002) (11,766) (16,673)
Cumulative translation adjustment............. (3) (78) (216)
------- -------- --------
Total stockholders' equity.................. 2,562 76,440 71,395
------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...... $ 5,042 $140,560 $144,139
======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 4, THREE MONTHS ENDED
1994 TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------------- --------------------
1994 1995 1996 1996 1997
------------ ----------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUE................ $ -- $ 1,167 $ 172,972 $ 17,137 $ 59,036
COST OF REVENUE............ -- 1,384 158,845 15,528 55,034
------ ----------- ------------ --------- ---------
GROSS MARGIN (DEFICIT)..... -- (217) 14,127 1,609 4,002
OPERATING EXPENSES:
Selling, general, and
administrative.......... 557 2,024 20,114 1,874 8,829
Depreciation and
amortization............ 12 160 2,164 226 797
------ ----------- ------------ --------- ---------
Total operating
expenses.............. 569 2,184 22,278 2,100 9,626
------ ----------- ------------ --------- ---------
LOSS FROM OPERATIONS....... (569) (2,401) (8,151) (491) (5,624)
INTEREST EXPENSE........... (13) (59) (857) (97) (151)
INTEREST INCOME............ 5 35 785 47 785
OTHER INCOME (EXPENSE)..... -- -- (345) (213) 119
------ ----------- ------------ --------- ---------
LOSS BEFORE INCOME TAXES... (577) (2,425) (8,568) (754) (4,871)
INCOME TAXES............... -- -- 196 367 36
------ ----------- ------------ --------- ---------
NET LOSS................... $ (577) $ (2,425) $ (8,764) $ (1,121) $ (4,907)
====== =========== ============ ========= =========
NET LOSS PER COMMON AND
COMMON SHARE EQUIVALENTS.. $(0.07) $ (0.22) $ (0.63) $ (0.09) $ (0.28)
====== =========== ============ ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON SHARE
EQUIVALENTS OUTSTANDING... 8,560 10,892 13,869 12,048 17,779
====== =========== ============ ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE STOCKHOLDERS'
--------------- --------------- PAID-IN ACCUMULATED TRANSLATION EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT (DEFICIT)
------ ------ ------ ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 4, 1994 (DATE OF
INCORPORATION)................... -- $ -- -- $-- $ -- $ -- $ -- $ --
Issuance of "founder's stock" to
the Company's incorporator...... -- -- 179 2 (1) -- -- 1
Investment made by Chairman and
Chief Executive Officer......... -- -- 3,393 34 216 -- -- 250
Common shares issued for services
performed....................... -- -- 71 1 4 -- -- 5
Shares purchased by outside
investors in the form of a
trust........................... -- -- 397 4 246 -- -- 250
Net loss......................... -- -- -- -- -- (577) -- (577)
------ ------ ------ ----- -------- --------- ----- -------
BALANCE, DECEMBER 31, 1994........ -- -- 4,040 41 465 (577) -- (71)
Common shares sold through
private placement, net of
transaction costs............... -- -- 2,234 22 3,996 -- -- 4,018
Conversion of related party debt
to common stock................. -- -- 556 6 344 -- -- 350
Common shares issued for services
performed....................... -- -- 234 2 691 -- -- 693
Foreign currency translation
adjustment...................... -- -- -- -- -- -- (3) (3)
Net loss......................... -- -- -- -- -- (2,425) -- (2,425)
------ ------ ------ ---- -------- -------- ----- -------
BALANCE, DECEMBER 31, 1995........ -- -- 7,064 71 5,496 (3,002) (3) 2,562
Common shares sold through
private placement, net of
transaction costs............... -- -- 3,148 31 21,837 -- -- 21,868
Common shares issued for services
performed....................... -- -- 279 3 987 -- -- 990
Preferred shares issued for
Axicorp Pty., Ltd. acquisition.. 455 5 -- -- 5,455 -- -- 5,460
Common shares sold through
initial public offering, net of
transaction costs............... -- -- 5,750 58 54,341 -- -- 54,399
Conversion of preferred shares to
common shares................... (455) (5) 1,538 15 (10) -- -- --
Foreign currency translation
adjustment...................... -- -- -- -- -- -- (75) (75)
Net loss......................... -- -- -- -- -- (8,764) -- (8,764)
------ ------ ------ ---- ------- -------- ----- -------
BALANCE, DECEMBER 31, 1996........ -- -- 17,779 178 88,106 (11,766) (78) 76,440
Foreign currency translation
adjustment...................... -- -- -- -- -- -- (138) (138)
Net loss......................... -- -- -- -- -- (4,907) -- (4,907)
------ ------ ------ ---- ------- -------- ----- -------
BALANCE, MARCH 31, 1997
(UNAUDITED)...................... -- $ -- 17,779 $178 $88,106 $(16,673) $(216) $71,395
====== ====== ====== ==== ======= ======== ===== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 4, YEAR ENDED THREE MONTHS ENDED
1994 TO DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------- --------------------
1994 1995 1996 1996 1997
------------ ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $(577) $(2,425) $ (8,764) $(1,121) $(4,907)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................... 12 160 2,164 226 797
Sales allowance..................................... -- 132 1,960 302 716
Foreign currency transaction (gain) loss............ -- -- 345 213 (119)
Deferred income taxes............................... -- -- 196 -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable...... -- (797) (19,405) (5,963) (7,522)
(Increase) decrease in prepaid expenses and
other current assets.......................... (68) (62) (227) 250 (661)
(Increase) decrease in other assets............. (81) (533) (1,621) (3,602) (247)
Increase (decrease) in accounts payable......... 92 1,195 11,729 3,219 11,876
Increase (decrease) in accrued expenses and
other liabilities............................. 136 322 6,683 5,354 1,886
---- ------ ------- -------- --------
Net cash provided by (used in) operating
activities................................ (486) (2,008) (6,940) (1,122) 1,819
----- ------- -------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment..................... (106) (396) (12,745) (216) (8,774)
Sale (purchase) of investments......................... -- -- (25,125) -- 19,766
Cash used in business acquisition, net of cash
acquired............................................. -- -- (1,701) (1,667) --
----- ------- -------- --------- ---------
Net cash provided by (used in) investing
activities................................ (106) (396) (39,571) (1,883) 10,992
----- ------- -------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease.................... (2) (64) (112) (25) (55)
Principal payments on long-term obligations............ -- -- (396) -- (4,356)
Principal borrowed from Chairman and Chief Executive
Officer.............................................. 315 -- --
Sale of common stock, net of transaction costs......... 500 4,543 77,576 7,058 --
Proceeds from notes payable............................ -- -- 2,407 2,000 --
----- ------- -------- --------- ---------
Net cash provided by (used in) financing
activities................................ 813 4,479 79,475 9,033 (4,411)
----- ------- -------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................. -- -- 214 129 (262)
----- ------- -------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................ 221 2,075 33,178 6,157 8,138
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........... 0 221 2,296 2,296 35,474
----- ------- -------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD................. $ 221 $ 2,296 $ 35,474 $ 8,453 $ 43,612
===== ======= ======== ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................................. $ -- $ 36 $ 149 $ 20 $ --
----- ------- -------- --------- ---------
Non-cash investing and financing activities:
Common stock issued for services................... $ 5 $ 693 $ 990 $ 990 $ --
----- ------- -------- --------- ---------
Conversion of related party debt to common stock... $ -- $ 350 $ -- $ -- $ --
----- ------- -------- --------- ---------
Increase in capital lease liability for acquisition
of equipment..................................... $ 15 $ 578 $ 3,214 $ -- $ 367
----- ------- -------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Primus Telecommunications Group, Incorporated (the "Company") is a
multinational telecommunications company providing domestic and international
long-distance switched voice, private network and value-added services.
Incorporated in Delaware in February 1994, the Company's customers include,
small- and medium-sized businesses, residential consumers and other
telecommunication carriers in North America, Europe and the Pacific Rim. The
company operates as a holding company and has wholly-owned subsidiaries in the
United States, United Kingdom, Australia, and Mexico.
In 1994, the Company, as a development stage enterprise, was involved in
various start-up activities including raising capital, obtaining licenses,
acquiring equipment, leasing space, developing markets, and recruiting and
training personnel. During 1995, the Company began revenue generating
operations and is no longer in the development stage.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated.
Revenue Recognition--Revenues from long distance telecommunications services
are recognized when the services are provided.
Cost of Revenue--Cost of revenue includes network costs which consist of
access, transport, and termination costs. Such costs are recognized when
incurred in connection with the provision of telecommunications services.
Foreign Currency Translation--The assets and liabilities of the Company's
foreign subsidiaries are translated at the exchange rates in effect on the
reporting date, and income and expenses are translated at the average exchange
rate during the period. The net effect of such translation gains and losses
are accumulated as a separate component of stockholders' equity. Foreign
currency transaction gains and losses are included in Other Income (Expense)
in the consolidated statements of operations.
Cash and Cash Equivalents--The Company considers cash on hand, deposits in
banks, certificates of deposit, and overnight repurchase agreements with
original maturities of three months or less to be cash and cash equivalents.
Short Term Investments--Highly liquid investments in U.S. Federal Government
backed obligations with original maturities in excess of three months are
classified as available-for-sale and reported at fair value. Cost approximates
fair value for all components of short-term investments; unrealized gains and
losses are reflected in stockholders' equity and are not material.
Property and Equipment--Property and equipment, which consists of furniture,
leasehold improvements, purchased software, fiber optic cable and
telecommunications equipment, is stated at cost less accumulated depreciation
and amortization. Expenditures for maintenance and repairs that do not
materially extend the useful lives of the assets are charged to expense.
Depreciation and amortization are computed using the straight-line method over
estimated useful lives of the assets, less their net salvage value, which
range from three to twenty-five years, or for leasehold improvements and
leased equipment, over the terms of the leases, whichever is shorter.
Intangible Assets--At December 31, 1996 and March 31, 1997, intangible
assets, net of accumulated amortization, consist of goodwill of $17,434,000
and $16,963,000 (unaudited) and customer list of $3,812,000 and $3,583,000
(unaudited), respectively. Goodwill is being amortized over 30 years on a
straight-line basis and
F-7
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
customer list over the estimated run-off of the customer base not to exceed
five years. Accumulated amortization at December 31, 1996 and March 31, 1997,
was $498,000 and $647,000 (unaudited) and $762,000 and $991,000 (unaudited),
related to goodwill and customer list, respectively. The Company periodically
evaluates the realizability of intangible assets. In making such evaluations,
the Company compares certain financial indicators such as expected
undiscounted future revenues and cash flows to the carrying amount of
goodwill. The Company believes that no impairments of intangible assets
existed at December 31, 1996 or March 31, 1997.
Stock-Based Compensation--In 1996, the Company adopted Statement of
Financial Accounting Standard No. 123 ("SFAS 123"), Accounting for Stock-Based
Compensation. Upon adoption of SFAS 123, the Company continues to measure
compensation expense for its stock-based employee compensation plans using the
intrinsic value method prescribed by Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, and has provided in Note 10 pro
forma disclosures of the effect on net loss and loss per share as if the fair
value-based method prescribed by SFAS 123 had been applied in measuring
compensation expense.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of net revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
Concentration of Credit Risk--Financial instruments that potentially subject
the Company to concentration of credit risk principally consists of trade
accounts receivable. The Company's six largest customer receivables account
for approximately 6% and 52% of gross accounts receivable as of December 31,
1996 and 1995, respectively. As of March 31, 1997, no customer accounted for
more than 10% (unaudited) of accounts receivable. The Company performs ongoing
credit evaluations of its customers but generally does not require collateral
to support customer receivables.
Income Taxes--The Company recognizes income tax expense for book purposes
following the asset and liability approach for computing deferred income
taxes. Under this method, the deferred tax asset and liability are determined
based on the difference between financial reporting and tax basis of assets
and liabilities based on enacted tax rates. Deferred tax assets are reduced by
a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized.
Net Loss Per Share--Net loss per common and common share equivalent has been
computed based upon the weighted average number of common and common share
equivalents outstanding during each period. Common share equivalents consist
of stock options and warrants calculated using the treasury stock method.
Primary and fully diluted loss per share are approximately the same. Pursuant
to Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
stock and options to purchase common stock issued within one year prior to the
original filing of the initial public offering Registration Statement at
prices below the initial public offering price are included as outstanding for
all periods through the date of the initial public offering, using the
treasury stock method at the initial public offering price per share even
though the effect is to reduce the net loss per share. After the date of the
initial public offering, earnings per share calculations exclude anti-dilutive
common share equivalents.
Interim Financial Information--The interim financial data as of March 31,
1997 and for the three-month periods ended March 31, 1996 and 1997, is
unaudited. The information reflects all adjustments, consisting only of normal
recurring adjustments that, in the opinion of management, are necessary to
present fairly the financial position and results of operations of the Company
for the periods indicated. Results of operations for the interim periods are
not necessarily indicative of the results of operations for the full year.
F-8
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
New Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
Share," was recently issued by the Financial Accounting Standards Board. SFAS
No. 128 is effective for periods ending after December 15, 1997 and early
adoption is not permitted. SFAS No. 128 requires the company to compute and
present basic and diluted earnings per share. Had the company computed
earnings per share in accordance with SFAS No. 128 the basic and diluted
amounts would have been the same as the reported amounts in all periods.
3. ACQUISITION OF AXICORP
On March 1, 1996, the Company completed the acquisition of the outstanding
capital stock of Axicorp Pty., Ltd. ("Axicorp"), the fourth largest
telecommunications carrier in Australia. The purchase price consisted of cash,
Company stock, and seller financing. The Company paid $5.7 million cash,
including transaction costs, and issued 455,000 shares of its Series A
Convertible Preferred Stock which were subsequently converted to 1,538,355
common shares. The Company also issued two notes to the sellers. One note is
for $4.1 million due in February 1997, and the other note is for a total of
$4.0 million due in two equal installments in February 1997, and February
1998. These notes have been recorded at their discounted value at the date of
acquisition at an interest rate of 10.18%. As security for payment of the
seller financing, the sellers have collateral security interests in the
outstanding Axicorp shares.
For accounting purposes, the Company has treated the acquisition as a
purchase. Accordingly, the results of Axicorp's operations are included in the
consolidated results of operations of the Company beginning March 1, 1996.
Pro forma operating results for the years ended December 31, 1995 and 1996
and for the three months ended March 31, 1996, as if Axicorp had been acquired
as of January 1, 1995, are as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
------------------ MARCH 31,
1995 1996 1996
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue.................................... $125,628 $199,340 $43,505
Net loss....................................... $ (4,685) $ (8,832) $(1,188)
Loss per share................................. $ (0.41) $ (0.63) $ (0.10)
</TABLE>
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would
have occurred had the acquisition been consummated as of the above dates, nor
are they necessarily indicative of future operations.
The following summarizes the allocation of the purchase price to the major
categories of assets acquired and liabilities assumed (in thousands):
<TABLE>
<S> <C>
Current assets........................................................ $ 20,136
Customer lists........................................................ 4,574
Goodwill.............................................................. 17,932
Other assets.......................................................... 1,506
--------
44,148
Liabilities assumed................................................... (24,863)
Notes payable......................................................... (8,110)
--------
Cash paid and preferred shares issued................................. $ 11,175
========
</TABLE>
F-9
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1995 1996 1997
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Network equipment............................. $ 849 $ 4,109 $ 4,138
Furniture and equipment....................... 161 1,272 2,470
Leasehold improvements........................ 89 508 843
Construction in progress...................... -- 12,008 19,514
------ ------- -------
1,099 17,897 26,965
Less: Accumulated depreciation and
amortization................................. (150) (1,301) (1,703)
------ ------- -------
$ 949 $16,596 $25,262
====== ======= =======
</TABLE>
Equipment under capital leases totaled $578,000, $966,000 and $1,334,000
(unaudited) with accumulated depreciation of $76,000, $207,000 and $261,000
(unaudited) at December 31, 1995 and 1996 and March 31, 1997, respectively.
5. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1995 1996 1997
----- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Obligations under capital leases and
equipment financing......................... $ 528 $ 3,614 $ 3,485
Note payable--stockholder.................... -- 2,000 2,000
Notes payable relating to Axicorp
acquisition................................. -- 8,455 6,340
Settlement obligation........................ 3,179 1,310
----- -------- --------
Subtotal..................................... 528 17,248 13,135
Less: Current portion of long-term
obligations................................. (102) (10,572) (11,200)
----- -------- --------
$ 426 $ 6,676 $ 1,935
===== ======== ========
</TABLE>
At March 31, 1997, the following describes the components of long-term
obligations:
Obligations under capital leases and equipment financing include vendor
financing of network switching equipment for use in the Company's Australian
network. Beginning in January 1997, sixteen monthly payments of approximately
$100,000 are due to the vendor. In addition, a payment of approximately $1.3
million is due in May 1998. Interest will accrue at the Corporate Overdraft
Reference Rate plus 1%. At March 31, 1997, the Corporate Overdraft Reference
Rate was 9.25%. The debt is secured by all of the assets of the Company's
Australian subsidiary.
In connection with an investment agreement, in February 1996 the Company
issued a $2.0 million note payable to Teleglobe, due February 9, 1998 which
bears interest at 6.9% per annum payable quarterly. The debt is secured by all
the assets of the Company.
In connection with the acquisition of Axicorp on March 1, 1996, the Company
issued two notes to the sellers for a total of $8.5 million which have been
recorded on a discounted basis at a rate of 10.18%.
In addition, in conjunction with the Axicorp acquisition, the Company
accrued approximately $3.5 million to settle a pre-acquisition contingency
between Axicorp and one of its competitors. Payments of $400,000 and
F-10
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$1,583,000 were made in December 1996 and January 1997, respectively. The
remaining balance is due in 12 equal monthly payments beginning in February
1997.
6. INCOME TAXES
The tax expense recorded of $196,000, $367,000 (unaudited) and $36,000
(unaudited) for the year ended December 31, 1996 and the three months ended
March 31, 1996 and 1997, respectively, results from foreign taxes on earnings
at the Company's Australian and United Kingdom subsidiaries. During the three
months ended March 31, 1997 a valuation allowance was recorded equal to the
United States net operating loss carryforward.
The differences between the tax provision (benefit) calculated at the
statutory federal income tax rate and the actual tax provision (benefit) for
each period is shown in the table below (in thousands):
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31,
-----------------------
1994 1995 1996
------ ----- --------
<S> <C> <C> <C>
Tax benefit at federal statutory rate............... $ (196) $(825) $ (2,913)
State income tax, net of federal benefit............ (23) (91) (491)
Foreign taxes....................................... -- -- 196
Unrecognized benefit of net operating losses........ 219 911 3,387
Other............................................... -- 5 17
------ ----- --------
Income taxes........................................ $ -- $ -- $ 196
====== ===== ========
</TABLE>
The significant components of the Company's deferred tax asset and liability
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- -------
<S> <C> <C>
Deferred tax asset (non-current):
Cash to accrual basis adjustments (U.S.)................. $ 367 $ 168
Accrued expenses......................................... -- 1,456
Net operating loss carryforward.......................... 720 6,055
Valuation allowance...................................... (1,087) (2,728)
------- -------
$ -- $ 4,951
======= =======
Deferred tax liability (current):
Accrued income........................................... $ -- $ 4,934
Other.................................................... -- 139
Depreciation............................................. -- 346
------- -------
$ -- $ 5,419
======= =======
</TABLE>
At December 31, 1995 and 1996 and March 31, 1997, the Company had a U.S.
Federal net operating loss carryforward of approximately $2.0, $6.4 and $8.1
million (unaudited), respectively, that may be applied against future U.S.
taxable income until it expires between the years 2009 and 2011. The Company
also has an Australian Federal net operating loss carryforward of
approximately $12.2 and $14.1 (unaudited) million at December 31, 1996 and
March 31, 1997, respectively.
Due to a deemed "ownership change" of the Company as a result of the
Company's initial public offering and private placements, pursuant to Section
382 of the Internal Revenue Code, the utilization of the net operating loss
carryforwards of approximately $4.0 million that expire in the year 2009 will
be limited to approximately $1.3 million per year during the carryforward
period.
F-11
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the balance sheets for cash and cash
equivalents, investments, accounts receivable, accounts payable and long term
obligations approximates fair value.
8. COMMITMENTS AND CONTINGENCIES
The Company has entered into an employment contract with its Chairman and
Chief Executive Officer through May 30, 1999. Total minimum payments over the
remaining period approximate $604,000 as of December 31, 1996.
Future minimum lease payments under capital lease obligations and operating
leases as of December 31, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31 LEASES LEASES
----------------------- ------- ---------
<S> <C> <C>
1997....................................................... $ 303 $1,685
1998....................................................... 297 1,570
1999....................................................... 291 1,479
2000....................................................... 53 485
2001....................................................... -- 326
Thereafter................................................. -- 986
----- ------
Total minimum lease payments............................... 944 $6,531
======
Less: Amount representing interest......................... (156)
-----
$ 788
=====
</TABLE>
Rent expense under operating leases was $38,000, $215,000 and $1,050,000 for
the periods ended December 31, 1994, 1995 and 1996, respectively.
9. STOCKHOLDERS' EQUITY
On November 7, 1996, the Company completed an initial public offering of
5,000,000 shares of its Common Stock and on November 21, 1996 sold an
additional 750,000 shares to satisfy the Underwriter's overallotment. The net
proceeds to the Company (after deducting Underwriter discounts and offering
expenses) was $54.4 million.
In connection with the Company's initial public offering, the Board approved
a split of all shares of Common Stock at a ratio of 3.381 to one as of
November 7, 1996 and amended the Company's Amended and Restated Certificate of
Incorporation (the "Certificate") to increase the authorized Common Stock to
40,000,000 shares.
On July 31, 1996 four affiliated institutional investors purchased 965,999
shares of the Company's common stock for $8 million, and for an additional $8
million received warrants to purchase an additional $10 million of common
stock (measured on the basis of fair market value of the common stock on the
date of exercise) and up to another 627,899 shares of Common Stock.
In February 1996, the Company's Certificate was amended to authorize
2,455,000 shares of Preferred Stock (nonvoting) with a par value of $0.01 per
share. On March 1, 1996, 455,000 shares of Series A Convertible Preferred
Stock were issued in connection with the purchase of Axicorp. The outstanding
Preferred Stock was converted to Common Stock prior to the date of the
Company's initial public offering.
F-12
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In January 1996, the Company raised approximately $4.7 million net of
transaction costs, in a private placement. This placement included the sale of
1,771,194 shares of common stock to numerous investors. The Company also
issued 278,899 shares of common stock for services rendered in conjunction
with this offering.
Also, in January 1996, the Company entered into an agreement with Teleglobe
USA, Inc., sold 410,808 shares of Common Stock for approximately $1.4 million
and borrowed $2.0 million (see Note 5).
In December 1995, $359,000 was committed to the Company in exchange for
121,209 shares of the Company's common stock in conjunction with a private
placement. The shares were sold in December 1995 and the physical certificates
were issued in January 1996. This amount, net of transaction costs, is
recorded in Prepaid Expenses and Other Current Assets at December 31, 1995.
Effective March 13, 1995, the Company's Certificate was amended to increase
the number of authorized shares of the Company's common stock from 1,000,000
shares to 5,000,000 shares and to split each share of common stock outstanding
on March 13, 1995, into 2.1126709 shares of common stock.
All share amounts have been restated to give effect to the November 7, 1996
and the March 13, 1995 stock splits.
10. STOCK-BASED COMPENSATION
During 1995, the Company established an Employee Stock Option Plan (the
"Employee Plan"). The total number of shares of common stock authorized to be
issued under the Employee Plan is 1,690,500. Under the Employee Plan, awards
may be granted to key employees of the Company and its subsidiaries in the
form of Incentive Stock Options or Nonqualified Stock Options. The Employee
Plan allows the granting of options at an exercise price of no less than 100%
(110% in the case of Incentive Stock Options granted to employees holding more
than ten percent of the voting stock of the Company at the date of grant) of
the stock's fair value at the date of grant. The options vest over a period of
up to three years, and no option will be exercisable more than ten years from
the date it is granted.
During 1995, the Board of Directors authorized the Director Stock Option
Plan (the "Director Plan") for nonemployee directors. Under the Director Plan,
an option is automatically granted to each nonemployee director to purchase
50,715 shares of common stock, which vests over a two-year period. The option
price per share is the fair market value of a share of common stock on the
date the option is granted. No option will be exercisable more than ten years
from the date of grant. An aggregate of 338,100 shares of common stock were
reserved for issuance under the Director Plan.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------ THREE MONTHS ENDED
1995 1996 MARCH 31, 1997
---------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- --------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Options outstanding--
beginning of period... -- $ -- 722,013 $2.64 1,583,661 $3.14
Exercised during the
period................. -- $ -- -- $ -- -- $ --
Forfeitures during the
period................. -- $ -- (51,898) $3.55 (6,762) $3.55
Granted during the
period................. 722,013 $ 2.64 913,546 $3.35 229,500 $8.25
------- --------- ---------
Outstanding--end of
period................. 722,013 $ 2.64 1,583,661 $3.14 1,806,399 $3.68
======= ========= =========
Eligible for exercise--
end of period......... 219,765 $ 2.96 511,149 $2.81 829,923 $2.90
======= ========= =========
</TABLE>
F-13
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------ --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
TOTAL LIFE EXERCISE TOTAL EXERCISE
EXERCISE PRICES OUTSTANDING IN YEARS PRICE EXERCISABLE PRICE
--------------- ----------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.67................... 101,430 3.0 $0.67 33,810 $0.67
$2.96................... 924,873 4.0 $2.96 477,339 $2.96
$3.55................... 557,358 4.3 $3.55 -- $3.55
--------- -------
Total................. 1,583,661 511,149
========= =======
</TABLE>
If compensation cost for the Company's 1995 and 1996 grants for stock-based
compensation had been determined consistent with the fair value-based method
of accounting per SFAS 123, the Company's pro forma net loss, and pro forma
net loss per share for the years ending December 31, would be as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Net loss (amounts in thousands)
As reported............................................. $(2,425) $(8,764)
Pro forma............................................... $(2,702) $(9,242)
Net loss per share
As reported............................................. $ (0.22) $ (0.63)
Pro forma............................................... $ (0.25) $ (0.67)
</TABLE>
The weighted average fair value at date of grant for options granted during
1995 and 1996 was $1.04 and $1.38 per option, respectively. The fair value of
the option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Expected dividend yield...................................... 0% 0%
Expected stock price volatility.............................. 49% 49%
Risk-free interest rate...................................... 5.8% 6.0%
Expected option term......................................... 4 years 4 years
</TABLE>
11. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) employee benefit plan (the "401(k) Plan") that
covers substantially all U.S. based employees. The 401(k) Plan provides that
employees may contribute amounts not to exceed statutory limitations. No
employer contributions were made during 1995 or 1996.
12. RELATED PARTIES
In connection with the Company's private placements, a former director of
the Company received 71,430 shares of common stock during 1994 for services
rendered. During 1995, the former director received commissions of 110,944
shares of common stock and was paid $542,000 in connection with the Company's
first private placement. Commissions due to the former director under the
first private placement was $41,000 at December 31, 1995. Consulting fees
earned under this placement equal $169,000. During early 1996, the same former
director received 82,774 shares of common stock and fees equal to $425,000
which relate to a second private placement. Consulting fees earned in
connection with this second placement equal $157,000. Total
F-14
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
consulting fees due the former director are $220,000 and $145,000 at December
31, 1996 and 1995, respectively. The stock and cash commissions and consulting
fees relate to services provided in conjunction with the private placements
and, as such, have been netted against the proceeds of the respective
placements.
Debt owed to the Company's Chairman and Chief Executive Officer of $331,000
at December 31, 1994 was converted into 555,559 shares of the Company's common
stock at $0.63 per share in March 1995, for a balance due at the time of
conversion of $350,000.
At December 31, 1995, deferred salary owed to the Company's Chairman and
Chief Executive Officer was $201,000. This was subsequently paid in 1996.
Deferred salary of $40,000 owed to an officer of the Company for services
performed during 1995 was accrued at December 31, 1995. This balance was paid
in early 1996.
13. VALUATION AND QUALIFYING ACCOUNTS
Activity in the Company's allowance accounts for the year ended December 31,
1995 and 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
DOUBTFUL ACCOUNTS
------------------------------------------------------------------------
BALANCE AT CHARGED TO BALANCE AT
PERIOD BEGINNING OF PERIOD COSTS AND EXPENSES DEDUCTIONS OTHER(1) END OF PERIOD
- ------ ------------------- ------------------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
1995.. $ -- $ 132 $ -- $-- $ 132
1996.. $ 132 $1,960 $(377) $870 $2,585
<CAPTION>
DEFERRED TAX ASSET VALUATION
------------------------------------------------------------------------
BALANCE AT CHARGED TO BALANCE AT
PERIOD BEGINNING OF PERIOD COSTS AND EXPENSES DEDUCTIONS OTHER END OF PERIOD
- ------ ------------------- ------------------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
1995.. $ -- $1,087 $ -- $-- $1,087
1996.. $1,087 $1,641 $ -- $-- $2,728
</TABLE>
- --------
(1) Other additions represent the balance of Axicorp's allowance for doubtful
accounts, which was recorded March 1, 1996 in conjunction with the
acquisition.
F-15
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. GEOGRAPHIC DATA
The company has subsidiaries in various foreign countries that provide
domestic and international long-distance operations in these regions. Summary
information with respect to the Company's geographic operations for the
periods ended December 31, 1994, 1995 and 1996 and for the three months ended
March 31, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------
1994 1995 1996 1996 1997
---------------- --------- --------- ---------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Revenue
North America................. $ -- $ 1,167 $ 16,573 $ 1,856 $ 8,271
Europe........................ -- -- 5,146 75 3,879
Pacific Rim................... -- -- 151,253 15,206 46,886
------ -------- --------- -------- ---------
Total....................... $ -- $ 1,167 $ 172,972 $ 17,137 $ 59,036
====== ======== ========= ======== =========
Operating Income (Loss)
North America................. $ (569) $ (2,276) $ (6,364) $ (1,385) $ (2,926)
Europe........................ -- (125) (2,312) (210) (892)
Pacific Rim................... -- -- 525 1,104 (1,806)
------ -------- --------- -------- ---------
Total....................... $ (569) $ (2,401) $ (8,151) $ (491) $ (5,624)
====== ======== ========= ======== =========
Assets
North America................. $ 487 $ 4,996 $ 72,526 $ 7,337 $ 63,963
Europe........................ -- 46 5,211 531 7,446
Pacific Rim................... -- -- 62,823 53,002 72,730
------ -------- --------- -------- ---------
Total....................... $ 487 $ 5,042 $ 140,560 $ 60,870 $ 144,139
====== ======== ========= ======== =========
</TABLE>
15. SUBSEQUENT EVENT
On April 8, 1997, the Company acquired selected assets, including the
customer base and accounts receivable, of Cam-Net Communications Network, Inc.
and its subsidiaries, a provider of domestic and international long distance
services in Canada for approximately $5,000,000 in cash. The Company intends
to account for this transaction as a purchase business combination.
F-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors andStockholders of Axicorp Pty., Ltd.
In our opinion, the accompanying balance sheets and the related statements
of operations, of cash flows and of stockholders' equity present fairly, in
all material respects, the financial position of Axicorp Pty., Ltd. at
March 31, 1995 and 1996, and the results of its operations and its cash flows
for the period from July 1, 1994 to March 31, 1995 and for the year ended
March 31, 1996, all expressed in United States Dollars, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE
Melbourne, Australia
July 31, 1996
F-17
<PAGE>
AXICORP PTY., LTD.
BALANCE SHEETS
(IN US DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 1,435,723 $ 3,218,079
Accounts receivable--trade, net of allowances of
$1,171 and $377,699, respectively.................. 7,893,146 23,715,321
Other current assets................................ 299,126 300,928
----------- -----------
Total current assets.............................. 9,627,995 27,234,328
Plant, equipment and computer software, net........... 365,532 844,337
Deferred tax assets................................... 320,774 2,997,919
Other non-current assets.............................. 7,275 7,785
----------- -----------
Total assets...................................... $10,321,576 $31,084,369
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable--trade creditors................... $ 8,633,069 $23,616,272
Accrued expenses and other liabilities.............. 677,156 1,229,173
Deferred tax liabilities............................ 324,380 3,517,062
Note payable to related party....................... 261,879 1,677,668
----------- -----------
Total current liabilities......................... 9,896,484 30,040,175
----------- -----------
Total liabilities................................. 9,896,484 30,040,175
----------- -----------
Commitments and Contingencies (Note 7)
Stockholders' equity:
Ordinary Shares, AUS$1 par value; 10,000,000 shares
authorized; 590,000 shares issued and outstanding
at March 31,1995, and
March 31, 1996..................................... 427,514 427,514
Special Cumulative Redeemable Preference Shares,
AUS$1 par value; 100,000 shares authorized; 1,180
shares issued at March 31, 1995 and March 31,
1996............................................... -- 855
Retained (loss) earnings.............................. (5,931) 560,751
Cumulative translation adjustment..................... 3,509 55,074
----------- -----------
Total stockholders' equity........................ 425,092 1,044,194
----------- -----------
Total liabilities and stockholders' equity........ $10,321,576 $31,084,369
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
AXICORP PTY., LTD.
STATEMENTS OF OPERATIONS
(IN US DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1995 1996
----------- -------------
<S> <C> <C>
Net Revenue........................................... $44,796,839 $144,344,739
Cost of Revenue....................................... 40,404,651 131,712,076
----------- ------------
Gross Margin.......................................... 4,392,188 12,632,663
----------- ------------
Operating Expenses
Selling, General and Administrative................. 4,276,902 11,558,216
Depreciation and Amortization....................... 42,955 234,610
----------- ------------
Total Operating Expenses.............................. 4,319,857 11,792,826
----------- ------------
Income from Operations................................ 72,331 839,837
Interest Income....................................... 29,654 219,300
----------- ------------
Income before Income Taxes............................ 101,985 1,059,137
Income Tax Provision.................................. 3,753 492,455
----------- ------------
Net Income............................................ $ 98,232 $ 566,682
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
AXICORP PTY,. LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN US DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
REDEEMABLE SUBSCRIPTION
ORDINARY SHARES PREFERENCE RECEIVABLE RETAINED CUMULATIVE TOTAL
---------------- SHARE CAPITAL FROM EARNINGS TRANSLATION STOCKHOLDERS'
SHARES AMOUNT AMOUNT STOCKHOLDERS (DEFICIT) ADJUSTMENT EQUITY
------- -------- ------------- ------------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 1,
1994................... 590,000 $427,514 $ -- $ -- $(104,163) $ -- $ 323,351
Issuance of Shares...... -- -- 855 (855) -- -- --
Foreign currency
translation
adjustment............. -- -- -- -- -- 3,509 3,509
Net income.............. -- -- -- -- 98,232 -- 98,232
------- -------- ----- ----- --------- ------- ----------
BALANCE AT MARCH 31,
1995................... 590,000 427,514 855 (855) (5,931) 3,509 425,092
Issuance of shares...... -- -- -- 855 -- -- 855
Foreign currency
translation
adjustment............. -- -- -- -- -- 51,565 51,565
Net income.............. -- -- -- -- 566,682 -- 566,682
------- -------- ----- ----- --------- ------- ----------
BALANCE AT MARCH 31,
1996................... 590,000 $427,514 $ 855 $ -- $ 560,751 $55,074 $1,044,194
======= ======== ===== ===== ========= ======= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
AXICORP PTY., LTD.
STATEMENTS OF CASH FLOWS
(IN US DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1995 1996
----------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 98,232 $ 566,682
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation....................................... 42,955 234,610
Allowance for bad and doubtful accounts............ 1,201 359,569
Deferred tax expense............................... 3,729 492,746
Changes in assets and liabilities:
Accounts receivable.............................. (7,688,030) (15,822,175)
Other current assets............................. (99,137) 36,895
Accounts payable................................. 9,066,970 14,983,203
---------- -----------
Net cash provided by operating activities.......... 1,425,920 851,530
---------- -----------
Cash flows from investing activities:
Purchase of plant, equipment and software.......... (342,030) (667,526)
Purchase of investments............................ (161,325) --
Proceeds from investments.......................... -- 150,355
---------- -----------
Net cash used in investing activities.............. (503,355) (517,171)
---------- -----------
Cash flows from financing activities:
Proceeds from issuance of shares................... 22,374 877
Proceeds from notes payable--due to related party.. 268,429 1,637,800
Payments on short-term debt--due to related party.. -- (267,637)
---------- -----------
Net cash provided by financing activities.......... 290,803 1,371,040
---------- -----------
Effect of exchange rate changes on cash.............. (26,687) 76,957
Increase in cash..................................... 1,213,368 1,705,399
Cash at the beginning of the period................ 249,042 1,435,723
---------- -----------
Cash at the end of the period........................ $1,435,723 $ 3,218,079
========== ===========
Supplemental disclosures:
Cash paid for interest............................. $ 2,008 $ --
Cash paid for income taxes......................... -- 139,726
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
The accompanying notes are an integral part of these statements.
AXICORP PTY., LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--THE COMPANY
The Company
Axicorp Pty., Ltd. ("Axicorp") was incorporated in Victoria, Australia in
1993. Axicorp's principal line of business is the provision of
telecommunication services.
On March 1, 1996 Primus Telecommunications International, Inc. ("PTII"), a
wholly owned subsidiary of Primus Telecommunications Group Incorporated
("Primus"), a United States based long-distance telephone company, acquired
beneficial ownership of all of the outstanding capital stock in Axicorp in
issue at that date.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States.
Revenue recognition
Axicorp's revenues are derived primarily from long-distance, mobile, local
and data telecommunication charges and are recognized when such services are
provided. Axicorp also derives revenue from sale of mobile equipment and sale
of valued added services. Revenue from such services are recognized when
delivered and provided.
Cost of revenue
Cost of revenue comprises telecommunications network usage charges and other
direct costs incurred in providing telecommunication services to customers,
and are recognized as services are provided.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Plant, Equipment and Computer Software
Plant, equipment and computer software are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization is computed using
the straight line basis over the estimated useful lives of the assets.
Axicorp has capitalized external software costs in relation to the
development of certain computer software, including a billing system, used by
Axicorp in its operations. As of March 31, 1995 and 1996 the accumulated
amortization for computer software is $20,145 and $137,404, respectively.
Plant, equipment and computer software classes and their respective useful
lives are as follows:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
. Computer equipment............................................... 3
. Furniture, leasehold improvements and equipment.................. 5 to 7
. Computer software................................................ 2 to 3
</TABLE>
F-22
<PAGE>
AXICORP PTY., LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The accompanying notes are an integral part of these statements.
Foreign currency translation
To date, Axicorp has conducted most of its business in Australian dollars.
The financial statements have been presented herein in U.S. dollars because
Primus's reporting currency is the U.S. dollar. All assets and liabilities are
translated into the U.S. dollar at the rate effective at the reporting date
and elements of the income statement are translated at average exchange rates
for the period. Translation differences are included in the foreign currency
translation adjustment (a component of stockholders' equity).
Income Taxes
Income taxes are computed using the asset and liability method. Under the
asset and liability method, deferred tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of
assets and liabilities and are measured using the currently enacted tax rates
and laws.
Concentration of credit risk
Financial instruments that potentially subject Axicorp to credit risk
consist principally of trade receivables from its customers in Australia.
Axicorp generally requires no collateral from its customers. However, Axicorp
maintains an allowance for bad and doubtful accounts receivable based on the
expected collectibility of all accounts receivable. At March 31, 1995 and 1996
no customer accounted for more than 10% of accounts receivable.
Accounting for impairment of long-lived assets
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." SFAS 121 requires impairment losses to be recorded for
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the asset's carrying amount. SFAS 121 also addresses the accounting
for impairment losses associated with long-lived assets to be disposed of.
Axicorp adopted SFAS 121 in the first quarter of fiscal 1996. Adoption of SFAS
121 did not have a material impact on Axicorp's results of operations.
Dividends
Any dividend payments made by Axicorp would, under Australian Corporation
Law, be limited to Axicorp's retained earnings, which aggregated $560,751 at
March 31, 1996.
Cash Equivalents
Axicorp considers all liquid investments with a maturity of three months or
less to be cash equivalents.
NOTE 3--PLANT, EQUIPMENT AND COMPUTER SOFTWARE
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1995 1996
--------- ---------
<S> <C> <C>
Plant, equipment and computer software:
Computer software.................................... $157,028 $ 479,414
Computer hardware.................................... 143,372 429,057
Furniture, leasehold improvement and equipment....... 112,224 232,929
-------- ---------
412,624 1,141,400
Less: accumulated depreciation and amortization........ (47,092) (297,063)
-------- ---------
Net plant and equipment................................ $365,532 $ 844,337
======== =========
</TABLE>
F-23
<PAGE>
AXICORP PTY., LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The accompanying notes are an integral part of these statements.
NOTE 4--INCOME TAXES
The provision for income taxes is attributable to:
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1995 1996
----------- -------------
<S> <C> <C>
Current............................................ $ -- $ --
Deferred........................................... 3,753 492,455
------ --------
$3,753 $492,455
====== ========
</TABLE>
The provision for income taxes differs from the amount computed by applying
the Australian statutory federal income tax rate to income before provision
for income taxes. The sources and tax effect of the differences are as
follows:
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1995 1996
----------- -------------
<S> <C> <C>
Income tax at the Australian federal statutory
rate of 36%
(1995--33%)...................................... $33,655 $381,289
Nondeductible expenses............................ -- 86,764
Other............................................. (29,902) 24,402
------- --------
$ 3,753 $492,455
======= ========
</TABLE>
Net deferred tax liabilities and assets reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Significant components of Axicorp's deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1995 1996
--------- ----------
<S> <C> <C>
Deferred tax liabilities:
Accrued income..................................... $541,325 $4,234,068
Capitalized software............................... 41,321 171,305
-------- ----------
Total deferred tax liabilities..................... 582,646 4,405,373
-------- ----------
Deferred tax assets:
Plant and equipment................................ -- 47,570
Accrued employee entitlement....................... 20,520 59,797
Other accruals..................................... 196,425 657,920
Net tax loss carry forward......................... 362,095 3,120,943
-------- ----------
Total deferred tax assets.......................... 579,040 3,886,230
-------- ----------
Net deferred tax liabilities......................... $ (3,606) $ (519,143)
======== ==========
</TABLE>
Axicorp's carry forward tax losses of $8,669,286 are available to be offset
against future taxable income, without limitation, provided Axicorp continues
to maintain the same business in the year of loss recoupment which it carried
on prior to its acquisition by PTII. The losses arise principally because of
the treatment for
F-24
<PAGE>
AXICORP PTY., LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The accompanying notes are an integral part of these statements.
taxation purposes of amounts recorded as income receivable at year end which
are not taxable until their receipt in the following year of income.
Management believes that, based on the evidence of the performance of Axicorp
and other factors, the weight of available evidence indicates that it is more
likely than not that Axicorp will be able to utilize the carry forward tax
loss.
NOTE 5--RELATED PARTY TRANSACTIONS
During the period April 1, 1994 to March 31, 1995 and the twelve months
ended March 31, 1996 Axicorp paid management fees of $616,000 and $426,000,
respectively, to a company owned primarily by officers and directors of
Axicorp. At March 31, 1995, Axicorp owed management fees of $238,000.
At March 31, 1995 and 1996 Axicorp owed related parties $262,000 and
$1,678,000 respectively. The balance at March 31, 1996 is an unsecured loan,
interest at the prime rate of 12% and is repayable on demand.
NOTE 6--EMPLOYEE BENEFIT PLAN
Axicorp is currently required by law to contribute 6% of each employee's
salary to a pension fund for the employee's retirement. Axicorp's contribution
to the pension fund aggregated approximately $44,000 and $157,000 during the
period July 1, 1994 to March 31, 1995 and the twelve months ended March 31,
1996, respectively.
NOTE 7--COMMITMENTS AND CONTINGENCIES
Leases
Axicorp leases its office facility and certain equipment under cancellable
lease arrangements. The cancellable office facility lease expires in 1997.
Rental expense under all leases totalled $88,000 for the period from July 1,
1994 to March 31, 1995 and $238,000 during the twelve months ended March 31,
1996.
NOTE 8--SALES BY GEOGRAPHIC AREA
Substantially all of the sales of Axicorp have been to customers in
Australia.
F-25
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS, IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SECURI-
TIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAW-
FUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COM-
PANY SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information.................................................... ii
Summary.................................................................. 1
Note Regarding Forward-Looking Statements................................ 9
Risk Factors............................................................. 10
Recent Quarterly Results................................................. 22
Use of Proceeds.......................................................... 22
Common Stock Price Range................................................. 23
Dividend Policy.......................................................... 23
Capitalization........................................................... 24
Selected Financial Data.................................................. 25
Unaudited Pro Forma Consolidated Statements of Operations................ 26
Management's Discussion and Analysis of Financial Condition and Results
of Operation............................................................ 29
Business................................................................. 43
Management............................................................... 67
Certain Transactions..................................................... 76
Principal Stockholders................................................... 79
Description of Capital Stock............................................. 82
Shares Eligible for Future Sale.......................................... 85
Description of Senior Credit Commitment.................................. 86
Description of Units..................................................... 87
Description of Notes..................................................... 87
Description of Warrants.................................................. 111
Book-Entry, Delivery and Form............................................ 116
Certain Federal Income Tax Considerations................................ 119
Underwriting............................................................. 122
Legal Matters............................................................ 123
Experts.................................................................. 123
Index to Financial Statements............................................ F-1
</TABLE>
================================================================================
================================================================================
$125,000,000
[LOGO OF PRIMUS APPEARS HERE]
UNITS CONSISTING OF $
% SENIOR NOTES DUE 2004 AND
WARRANTS TO PURCHASE SHARES
OF COMMON STOCK
------------------
PROSPECTUS
, 1997
------------------
LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated expenses, all
of which will be paid by the Company, in connection with the issuance and
distribution of the securities being registered:
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- --------
<S> <C>
SEC Registration Fee............................................ $ 37,879
NASD Filing Fee................................................. 13,000
Printing and engraving fees..................................... 150,000
Registrant's counsel fees and expenses.......................... 175,000
Accounting fees and expenses.................................... 75,000
Blue Sky expenses and counsel fees.............................. 12,000
Trustee and Warrant Agent fees.................................. 3,000
Miscellaneous................................................... 159,121
--------
TOTAL......................................................... $625,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") permits
each Delaware business corporation to indemnify its directors, officers,
employees and agents against liability for each such person's acts taken in
his or her capacity as a director, officer, employee or agent of the
corporation if such actions were taken in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interests of
the corporation, and with respect to any criminal action, if he or she had no
reasonable cause to believe his or her conduct was unlawful. Article X of the
Company's Amended and Restated By-Laws provides that the Company, to the full
extent permitted by Section 145 of the DGCL, shall indemnify all past and
present directors or officers of the Company and may indemnify all past or
present employees or other agents of the Company. To the extent that a
director, officer, employee or agent of the Company has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to
in such Article X, or in defense of any claim, issue or matter therein, he or
she shall be indemnified by the Company against actually and reasonably
incurred expenses in connection therewith. Such expenses may be paid by the
Company in advance of the final disposition of the action upon receipt of an
undertaking to repay the advance if it is ultimately determined that such
person is not entitled to indemnification.
As permitted by Section 102(b)(7) of the DGCL, Article 11 of the Company's
Amended and Restated Certificate of Incorporation provides that no director of
the Company shall be liable to the Company for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for the unlawful payment of dividends on or
redemption of the Company's capital stock, or (iv) for any transaction from
which the director derived an improper personal benefit.
The Company has obtained a policy insuring it and its directors and officers
against certain liabilities, including liabilities under the Securities Act.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company issued 178,574 shares of Common Stock to John F. DePodesta, its
incorporator, on February 4, 1994 for consideration of $250. Additionally, Mr.
Singh purchased 3,392,905 shares of Common Stock from
II-1
<PAGE>
the Company on June 1, 1994 for $250,000. A trust, the voting power of which
is vested in Mr. Singh, purchased 396,828 shares of Common Stock from the
Company on September 30, 1994 for $250,000. During the fourth quarter of 1994,
the Company issued to Mr. Krieger, a former director of the Company, in
recognition of the support he gave to the Company, 71,430 shares of Common
Stock. No underwriter or placement agent participated in any of the foregoing
issuances of securities.
During the first quarter of 1995, the Company sold its Common Stock to a
group of private investors consisting of certain family members and colleagues
of Mr. Singh and Mr. DePodesta. The investors paid $300,000 for 476,204 shares
of Common Stock in this transaction. On March 31, 1995, pursuant to an
agreement whereby Mr. Singh forgave certain indebtedness in the amount of
$350,000 owed him by the Company, the Company issued Mr. Singh 555,559 shares
of Common Stock. No underwriter or placement agent participated in any of the
foregoing issuances of securities.
As of December 31, 1995, 1,757,613 shares of the Company's Common Stock were
sold for an aggregate price of $5,198,500 to investors familiar with Mr. Singh
and the Company. This sale was placed by Northeast Securities, Inc. ("NSI"),
which used Andrew Krieger, a former director, as a selling agent. Underwriting
commissions and other expenses in this transaction were $787,440 and 234,378
shares of the Company's Common Stock. On January 31, 1996, NSI and Mr.
Krieger, both acting as placement agents, privately placed 1,771,194 shares of
the Company's Common Stock for an aggregate price of $6,286,404 to other
investors familiar with Mr. Singh and the Company. Underwriting commissions
and other expenses in this transaction totaled $613,167 and 278,899 shares of
the Company's Common Stock.
On February 15, 1996, Teleglobe USA, Inc. invested in the Company by
purchasing 410,808 shares of the Company's Common Stock for $1,458,060. On
March 1, 1996, in connection with the Company's purchase of Axicorp, former
stockholders of Axicorp received 455,000 shares of the Company's Series A
Convertible Preferred Stock, par value $.01 per share. No underwriter or
placement agent participated in any of the foregoing issuances of securities
and no commission were paid.
In addition, on July 31, 1996, Primus completed the sale of 965,999 shares
of Common Stock to the (i) Quantum Industrial Partners LDC, the principal
operating subsidiary of Quantum Industrial Holdings Ltd., an investment fund
advised by Soros Fund Management, a private investment firm owned by Mr.
George Soros, (ii) Winston Partners II LDC, the principal operating subsidiary
of Winston Partners II Offshore Ltd., an investment fund advised by Chatterjee
Management Company, a private entity owned by Dr. Purnendu Chatterjee, (iii)
Winston Partners II LLC, an investment fund advised by Chatterjee Management
Company and (iv) S-C Phoenix Holdings, L.L.C., an investment vehicle owned by
affiliates of Mr. Soros and Dr. Chatterjee (collectively, the
"Soros/Chatterjee Group"), for an aggregate purchase price of approximately
$8.0 million. The Soros/Chaterjee Group also purchased, for an additional $8.0
million, warrants ("Soros/Chatterjee Warrants") which afford the
Soros/Chatterjee Group the right to receive, upon exercise, an indeterminate
number of shares of Common Stock with a fair market value of $10.0 million as
of the date of exercise, plus up to 627,899 additional shares of Common Stock.
Except for 338,100 shares which are currently exercisable, the
Soros/Chatterjee Warrants are exercisable on or after July 31, 1997 and until
July 31, 1999. The Soros/Chatterjee Warrants are entitled to certain customary
antidilution protection in the event of stock splits, stock dividends,
reorganizations and other similar events. No underwriter or placement agent
participated in any of the foregoing issuances of securities and no commission
were paid.
The Company believes that the transactions described above were exempt from
registration under Section 4 (2) of the Securities Act because the subject
securities were, respectively sold to a limited group of persons, each of whom
was believed to have been a sophisticated investor or to have had a
preexisting business or personal relationship with the Company or its
management and was purchasing for investment without a view to further
distribution.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Amended Certificate of Incorporation (Incorporated herein by
reference to Exhibit 3.1 to the Company's Registration Statement
No. 333-10875 on Form S-1).
3.2 Certificate of Amendment to the Certificate of Incorporation
(Incorporated herein by reference to Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996).
3.3 Amended and Restated By-Laws (Incorporated herein by reference to
Exhibit 3.2 of the Company's Registration Statement No. 333-10875
on Form S-1).
3.4 Amendment No. 1 to Amended and Restated By-Laws.**
4.1 Form of Indenture. *
4.2 Form of Warrant Agreement. *
5.1 Opinion of Pepper, Hamilton & Scheetz LLP.*
10.1 Share Acquisition Deed, dated March 1, 1996, between the Company
and the shareholders of Axicorp Pty., Ltd. (Incorporated herein
by reference to Exhibit 10.1 of the Company's Registration
Statement No. 333-10875 on Form S-1).
10.2 Switched Transit Agreement, dated June 5, 1995, between Teleglobe
USA, Inc. and the Company for the provision of services to India
(Incorporated herein by reference to Exhibit 10.2 to the
Company's Registration Statement No. 333-10875 on Form S-1).
10.3 Hardpatch Transit Agreement, dated February 29, 1996, between
Teleglobe USA, Inc. and the Company for the provision of services
to Iran (Incorporated herein by reference to Exhibit 10.3 to the
Company's Registration Statement No. 333-10875 on Form S-1).
10.4 Agreement for Billing and Related Services, dated February 23,
1995, between the Company and Electronic Data System Inc.
(Incorporated herein by reference to Exhibit 10.4 to the
Company's Registration Statement No. 333-10875 on Form S-1).
10.5 Employment Agreement, dated June 1, 1994, between the Company and
K. Paul Singh (Incorporated herein by reference to Exhibit 10.5
to the Company's Registration Statement No. 333-10875 on
Form S-1).
10.6 Primus Telecommunications Group, Incorporated Stock Option Plan--
Amended and Restated Effective March 21, 1997.**
10.7 Primus Telecommunications Group, Incorporated 1995 Director Stock
Option Plan (Incorporated herein by reference to Exhibit 10.7 to
the Company's Registration Statement No. 333-10875 on Form S-1).
10.8 Shareholders Agreement dated February 22, 1996, among Teleglobe
USA, Inc., K. Paul Singh and the Company (Incorporated herein by
reference to Exhibit 10.9 to the Company's Registration Statement
No. 333-10875 on Form S-1).
10.9 Securityholders' Agreement, dated July 31, 1996, among the
Company, K. Paul Singh, Quantum Industrial Partners LDC, S-C
Phoenix Holdings, L.L.C., Winston Partners II LDC and Winston
Partners LLC (Incorporated herein by reference to Exhibit 10.10
to the Company's Registration Statement No. 333-10875 on
Form S-1).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.10 Registration Rights Agreement, dated July 31, 1996, among the
Company, Quantum Industrial Partners LDC, S-C Phoenix Holdings,
L.L.C., Winston Partners II LDC and Winston Partners LLC
(Incorporated herein by reference to Exhibit 10.11 to the
Company's Registration Statement No. 333-10875 on Form S-1).
10.11 Service Provider Agreement between Telstra Corporation Limited and
Axicorp Pty., Ltd. dated May 3, 1995 (Incorporated herein by
reference to Exhibit 10.12 to the Company's Registration
Statement No. 333-10875 on Form S-1).
10.12 Dealer Agreement between Telstra Corporation Limited and Axicorp
Pty., Ltd. dated January 8, 1996 (Incorporated herein by
reference to Exhibit 10.13 to the Company's Registration
Statement No. 333-10875 on Form S-1).
10.13 Hardpatch Transit Agreement dated October 5, 1995 between
Teleglobe USA, Inc. and the Company for the provision of services
to India (Incorporated herein by reference to Exhibit 10.14 to
the Company's Registration Statement No. 333-10875 on Form S-1).
10.14 Securities Purchase Agreement dated as of July 31, 1996 among the
Company, Quantum Industrial Partners LDC, S-C Phoenix Holdings
L.L.C, Winston Partners II LLC, and Winston Partners II, LDC
(Incorporated herein by reference to Exhibit 10.15 to the
Company's Registration Statement No. 333-10875 on Form S-1).
10.15 Primus Telecommunications Group, Inc. Employee Stock Purchase
Plan.**
10.16 Commitment Letter dated July 14, 1997 with Lehman Brothers
Commercial Paper Inc.*
10.17 Form of Collateral Pledge and Security Agreement.*
11.1 Statement re Computation of Earnings Per Share (Incorporated
herein by reference to Exhibit 11 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996).
11.2 Statement re Computation of Earnings Per Share (Incorporated
herein by reference to Exhibit 11 to the Company's Quarterly
Report on Form 10-Q for the Three Months Ended March 31, 1997).
12.1 Schedule of Earnings to Fixed Charges.**
21.1 Subsidiaries of the Registrant.**
23.1 Consent of Deloitte & Touche llp (included on page II-6 of this
Registration Statement).
23.2 Consent of Price Waterhouse (included on page II-7 of this
Registration Statement).
23.3 Consent of Pepper, Hamilton & Scheetz llp (to be included in
Exhibit 5.1).*
24.1 Power of Attorney.**
25.1 Statement of Eligibility of Trustee.*
</TABLE>
* Filed herewith.
** Previously filed.
(B) Consolidated Financial Statement Schedules:
All schedules have been omitted because they are not applicable, not
required, or the required information is included in the Financial Statements
or the notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant undertakes that insofar as indemnification for
liabilities arising under the Act 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
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit
II-4
<PAGE>
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon 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 Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Act, 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.
II-5
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to the Registration Statement
of Primus Telecommunications Group, Incorporated on Form S-1 (No. 333-30195)
of our report dated February 5, 1997, except for Note 15, as to which the date
is April 8, 1997, appearing in the Prospectus, which is part of this
Registration Statement, and to the references to us under the headings
"Selected Financial Data" and "Experts" in such Prospectus.
Deloitte & Touche LLP
Washington, D.C.
July 25, 1997
II-6
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form S-1 (File No. 333-30195) of our report dated
July 31, 1996, relating to the financial statements of Axicorp Pty., Ltd.,
which appears in such Prospectus. We also consent to the references to us under
the headings "Experts" and "Selected Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse has not prepared or certified
such "Selected Financial Data."
Price Waterhouse
Melbourne, Australia
July 25, 1997
II-7
<PAGE>
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-1 and has duly caused this Amendment to its
Registration Statement (No. 333-30195) to be signed on its behalf by the
undersigned, thereunto duly authorized, in Vienna, Virginia, on July 24, 1997.
Primus Telecommunications Group,
Incorporated
By: /s/ K. Paul Singh
----------------------------------
K. PAUL SINGH
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ K. Paul Singh Chairman, President July 24, 1997
- ------------------------------------- and Chief Executive
K. PAUL SINGH Officer (principal
executive officer)
and Director
/s/ Neil L. Hazard Executive Vice July 24, 1997
- ------------------------------------- President and Chief
NEIL L. HAZARD Financial Officer
(principal
financial officer
and principal
accounting officer)
JOHN F. DEPODESTA Directors July 24, 1997
HERMAN FIALKOV
DAVID E. HERSHBERG
JOHN PUENTE
By: /s/ K. Paul Singh
----------------------------------
K. PAUL SINGH
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
$125,000,000
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
Units Consisting of $__% Senior Notes
due 2004 and Warrants to Purchase
___ Shares of Common Stock
UNDERWRITING AGREEMENT
----------------------
July __, 1997
Lehman Brothers Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Ladies & Gentlemen:
Primus Telecommunications Group, Incorporated, a Delaware corporation
(the "Company"), proposes to issue and sell __________ Units consisting of $____
aggregate principal amount of ___% Senior Notes due 2004 (the "Notes") and
Warrants (the "Warrants") to purchase shares (the "Warrant Shares") of Common
Stock, par value $1.00, of the Company (the "Common Stock") (the Units, Notes
and Warrants are referred to collectively as the "Securities"). The Notes are
to be issued pursuant to an Indenture dated as of July __, 1997 (the
"Indenture") to be entered into between the Company and First Union National
Bank of Virginia, as trustee (the "Trustee"), substantially in the form which
has been filed as an exhibit to the Registration Statement. The Warrants are to
be issued pursuant to a Warrant Agreement (the "Warrant Agreement"), dated as of
July __, 1997, to be entered into between the Company and First Union National
Bank of Virginia, as warrant agent (the "Warrant Agent"), substantially in the
form of which has been filed as an exhibit to the Registration Statement. The
Company will pledge pursuant to a Collateral Pledge and Security Agreement dated
as of July __, 1997 (the "Pledge Agreement"), between the Company and the
Trustee, a portion of the net proceeds of the issuance and sale of the Notes as
security for payment of the first six scheduled interest payments due on the
Notes. This is to confirm the agreement concerning the purchase of the
Securities from the Company by the Underwriters.
1. Representations, Warranties and Agreements of the Company. The
Company represents, warrants and agrees that:
(a) A registration statement on Form S-1 (File No. 333-30195), and
one or more amendments thereto, with respect to the Securities have (i)
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933 (the
<PAGE>
2
"Securities Act") and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, (ii) been filed with the Commission under the Securities Act
and (iii) become effective under the Securities Act. Copies of such
registration statement and the amendments thereto have been delivered by
the Company to you as the representatives (the "Representatives") of the
Underwriters. As used in this Agreement, "Effective Time" means the date
and the time as of which such registration statement, or the most recent
post-effective amendment thereto, if any, was declared effective by the
Commission; "Effective Date" means the date of the Effective Time;
"Preliminary Prospectus" means each prospectus included in such
registration statement, or amendments thereof, before it became effective
under the Securities Act and any prospectus filed with the Commission by
the Company with the consent of the Representatives pursuant to Rule 424(a)
of the Rules and Regulations; "Registration Statement" means such
registration statement, as amended at the Effective Time, including a final
prospectus and including any registration statement relating to the Stock
that is filed and declared effective pursuant to Rule 462(b) under the
Securities Act; and "Prospectus" means such final prospectus included in
the Registration Statement at the time it became effective. The Commission
has not issued any order preventing or suspending the use of any
Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all respects to the requirements
of the Securities Act and the Rules and Regulations and do not and will
not, as of the applicable effective date (as to the Registration Statement
and any amendment thereto) and as of the applicable filing date (as to the
Prospectus and any amendment or supplement thereto) contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information
concerning the Underwriters furnished to the Company through the
Representatives by or on behalf of any Underwriter specifically for
inclusion therein.
(c) The Company and each of its subsidiaries (as defined in Section
15) have been duly incorporated and are validly existing as corporations in
good standing under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business and are in good standing
as foreign corporations in each jurisdiction in which their respective
ownership or lease of property or the conduct of their respective
businesses as currently conducted requires such qualification, and have all
power and authority necessary to own or hold their respective properties
and to conduct the businesses in which they are engaged; and none of the
subsidiaries of the Company (other than Primus Telecommunications, Inc. and
Axicorp Pty., Ltd. (collectively, the "Significant Subsidiaries")) is a
"significant subsidiary," as such term is defined in Rule 405 of the Rules
and Regulations.
(d) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and non-
assessable and conform to the description thereof contained in the
Prospectus; and all of the issued shares of capital
<PAGE>
3
stock of each subsidiary of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable and (except for
directors' qualifying shares) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims
(except for those described in the Prospectus).
(e) All of the Warrant Shares issuable upon exercise of the Warrants
have been duly and validly authorized and reserved for issuance upon such
exercise and, when issued and delivered upon exercise of the Warrants in
accordance with the terms of the Warrant Agreement, will be duly and
validly issued, fully paid and non-assessable and free of any preemptive or
similar rights and will be entitled to the benefits of the Warrant
Agreement; and the Securities and Warrant Shares issuable upon exercise of
the Warrants will conform to the description of the Units, Notes, Warrants
and Warrant Shares contained in the Prospectus. The Company has a
sufficient number of authorized but unissued shares of Common Stock to
enable the Company to issue, without further stockholder action, the
Warrant Shares.
(f) This Agreement has been duly authorized, executed and delivered
by the Company.
(g) The execution, delivery and performance of this Agreement, the
Indenture, the Warrant Agreement, the Securities and the Pledge Agreement
by the Company and the consummation of the transactions contemplated hereby
and thereby, and the issuance and delivery of the Notes, the Warrants and
Warrant Shares issuable upon exercise of the Warrants, will not conflict
with or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such actions result
in any violation of the provisions of the charter or by-laws of the Company
or any of its subsidiaries or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties or assets;
and except for the registration of the Securities and the Warrant Shares
issuable upon exercise of the Warrants under the Securities Act, the
qualification of the Indenture under the Trust Indenture Act and such
consents, approvals, authorizations, registrations or qualifications as may
be required under the Securities Exchange Act of 1934 (the "Exchange Act")
and applicable state securities laws in connection with the purchase and
distribution of the Securities by the Underwriters or the issuance of the
Warrant Shares upon exercise of the Warrants, no consent, approval,
authorization or order of, or filing or registration with, any such court
or governmental agency or body is required for the execution, delivery and
performance of this Agreement, the Indenture, the Warrant Agreement, or the
Pledge Agreement by the Company and the consummation of the transactions
contemplated hereby and thereby, and the issuance of the Warrant Shares
upon exercise of the Warrants.
(h) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the
Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
<PAGE>
4
Registration Statement.
(i) The Indenture has been duly qualified under the Trust Indenture
Act of 1939, as amended, and the Indenture and the Warrant Agreement have
been duly authorized by the Company, and when duly executed by the proper
officers of the Company (assuming due execution and delivery of the
Indenture by the Trustee and the Warrant Agreement by the Warrant Agent)
and delivered by the Company, will constitute valid and binding agreements
of the Company enforceable against the Company in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally, by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law) or by an implied covenant
of good faith and fair dealing, and the Securities and the Warrant Shares
have been duly authorized, and when duly executed, authenticated, issued
and delivered as provided in the Indenture and the Warrant Agreement, will
be duly and validly issued and outstanding and will constitute valid and
binding obligations of the Company entitled to the benefits of the
Indenture and the Warrant Agreement and enforceable against the Company in
accordance with their respective terms, except as enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors'
rights generally, by general equitable principles (regardless of whether
such enforceability is considered in a proceeding in equity or at law) or
by an implied covenant of good faith and fair dealing.
(j) The Pledge Agreement has been duly authorized by the Company and
when executed and, delivered by the Company, will be a valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws relating to or affecting creditors' rights
generally, by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing; and upon the Closing Date,
the pledge of Collateral (as defined in the Pledge Agreement) securing the
payment of the Obligations (as defined in the Pledge Agreement) for the
benefit of the Trustee and the holders of the Notes will constitute a first
priority perfected security interest in such Collateral, enforceable
against all creditors of the Company and any persons purporting to purchase
any of the Collateral from the Company.
(k) Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements included in the
Prospectus, any material loss or interference with its business (x) from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or (y) from any labor dispute or court or governmental action,
order or decree, in either case otherwise than as set forth or contemplated
in the Prospectus; and, since such date, there has not been any change in
the capital stock or long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus.
<PAGE>
5
(l) The historical financial statements (including the related notes
and supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly in all material respects the
financial condition and results of operations of the entities purported to
be shown thereby, at the dates and for the periods indicated, and have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved, except that
the unaudited historical financial statements are subject to normal year-
end adjustments. The unaudited pro forma financial information set forth
in the Prospectus presents fairly, on the basis stated in the Prospectus,
the information set forth therein, has been prepared in accordance with the
Rules and Regulations and the guidelines of the Commission with respect to
pro forma financial statements, has been properly compiled on the pro forma
bases set forth therein and the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate to give
effect to the transactions or circumstances referred to therein.
(m) Deloitte & Touche LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and who
have delivered the initial letter referred to in Section 7(k) hereof, are
independent public accountants as required by the Securities Act and the
Rules and Regulations; and Price Waterhouse, whose report appears in the
Prospectus and who have delivered the initial letter referred to in Section
7(l) hereof, are independent public accountants as required by the
Securities Act and the Rules and Regulations during the periods covered by
the financial statements on which they reported contained in the
Prospectus.
(n) The Company and each of its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to
all personal property owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and all real property
and buildings held under lease by the Company and its subsidiaries are held
by them under valid, subsisting leases, with such exceptions as do not
materially interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries.
(o) The Company and each of its subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their
respective properties and as is customary for companies engaged in similar
businesses in similar industries with properties of a similar value.
(p) The Company and each of its subsidiaries (i) own or possess
adequate rights to use all patents, patent applications, trademarks,
service marks, trade names, trademark registrations, service mark
registrations, copyrights and licenses ("Intellectual Property") which are
both material and necessary for the conduct of their respective businesses,
and (ii) have no reason to believe that the conduct of their respective
businesses as currently conducted will conflict with, and have not received
any notice of any claim of conflict with, any Intellectual Property of
others.
<PAGE>
6
(q) There are no legal or governmental proceedings pending to which
the Company or any of its subsidiaries is a party or of which any property
or assets of the Company or any of its subsidiaries is the subject which,
if determined adversely to the Company or any of its subsidiaries, might
have a material adverse effect on the consolidated financial position,
stockholders' equity, results of operations, business or prospects of the
Company and its subsidiaries taken as a whole; and to the best of the
Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(r) There are no contracts or other documents which are required by
the Securities Act or by the Rules and Regulations to be described in the
Prospectus or filed as exhibits to the Registration Statement which have
not been described in the Prospectus or filed as exhibits to the
Registration Statement.
(s) No relationship, direct or indirect, exists between or among the
Company on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company on the other hand, which is required
to be described in the Prospectus which is not so described.
(t) No labor disturbance by the employees of the Company exists or,
to the knowledge of the Company, is imminent which might be expected to
have a material adverse effect on the consolidated financial position,
stockholders' equity, results of operations, business or prospects of the
Company and its subsidiaries taken as a whole.
(u) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA
with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Section 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether
by action or by failure to act, which would cause the loss of such
qualification.
(v) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof and has
paid all taxes due thereon, and no tax deficiency has been determined
adversely to the Company or any of its subsidiaries which has had (nor does
the Company have any knowledge of any tax deficiency which, if determined
adversely to the Company or any of its subsidiaries, might have) a material
adverse effect on the consolidated financial position, stockholders'
equity, results of operations, business or prospects of the Company and its
subsidiaries taken as a whole.
(w) Since the date as of which information is given in the Prospectus
through
<PAGE>
7
the date hereof, and except as may otherwise be disclosed in the
Prospectus, the Company has not (i) issued or granted any securities, (ii)
incurred any liability or obligation, direct or contingent, other than
liabilities and obligations which were incurred in the ordinary course of
business, (iii) entered into any transaction not in the ordinary course of
business or (iv) declared or paid any dividend on its capital stock.
(x) The Company (i) makes and keeps books and records and (ii)
maintains internal accounting controls which provide reasonable assurance
that (A) transactions are executed in accordance with management's
authorization, (B) transactions are recorded as necessary to permit
preparation of its financial statements and to maintain accountability for
its assets, (C) access to its assets is permitted only in accordance with
management's authorization and (D) the reported accountability for its
assets is compared with existing assets at reasonable intervals.
(y) Neither the Company nor any of its subsidiaries (i) is in
violation of its charter or by-laws, (ii) is in default in any material
respect, and no event has occurred which, with notice or lapse of time or
both, would constitute such a default, in the due performance or observance
of any term, covenant or condition contained in any material indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which it is a party or by which it is bound or to which any of its
properties or assets is subject or (iii) is in violation of any law,
ordinance, governmental rule, regulation or court decree to which it or its
property or assets may be subject or has failed to obtain any license,
permit, certificate, franchise or other governmental authorization or
permit necessary to the ownership of its property or to the conduct of its
business, where any such violation or failure, in the case of this
subclause (iii), might have a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations, business
or prospects of the Company and its subsidiaries taken as a whole.
(z) Neither the Company nor any of its subsidiaries, nor any
director, officer, employee or, to the knowledge of the Company any agent
or other person associated with or acting on behalf of the Company or any
of its subsidiaries, has used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating to
political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment.
(aa) There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the Company or any of
its subsidiaries (or, to the knowledge of the Company, any of their
predecessors in interest) at, upon or from any of the property now or
previously owned or leased by the Company or its subsidiaries in violation
of any applicable law, ordinance, rule, regulation, order, judgment, decree
or permit or which would require remedial action under any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit, except for
any violation or remedial action which would not have, or could not be
reasonably likely to have, singularly or in the aggregate with all such
violations and remedial actions, a material adverse effect on the
consolidated financial position, stockholders' equity, results of
operations, business or prospects of the Company and its subsidiaries taken
as a whole; there has been no
<PAGE>
8
material spill, discharge, leak, emission, injection, escape, dumping or
release of any kind onto such property or into the environment surrounding
such property of any toxic wastes, medical wastes, solid wastes, hazardous
wastes or hazardous substances due to or caused by the Company or any of
its subsidiaries or with respect to which the Company or any of its
subsidiaries have knowledge, except for any such spill, discharge, leak,
emission, injection, escape, dumping or release which would not have or
would not be reasonably likely to have, singularly or in the aggregate with
all such spills, discharges, leaks, emissions, injections, escapes,
dumpings and releases, a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations, business
or prospects of the Company and its subsidiaries taken as a whole; and the
terms "hazardous wastes," "toxic wastes," "hazardous substances" and
"medical wastes" shall have the meanings specified in any applicable local,
state, federal and foreign laws or regulations with respect to
environmental protection.
(bb) Neither the Company nor any subsidiary is an "investment company"
nor "a company controlled by an investment company" within the meaning of
such terms under the United States Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
(cc) The Company and its subsidiaries posses all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses as currently conducted, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a material adverse change in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, except as
described in or contemplated by the Prospectus.
(dd) The Company has complied and will comply with all of the
provisions of Florida H.B. 1771, codified as Section 517.075 of the Florida
Statutes, and all regulations promulgated thereunder relating to issuers
doing business in Cuba.
2. Purchase of the Securities by the Underwriters. On the basis of
the representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell to the several
Underwriters and each of the Underwriters, severally and not jointly, agrees to
purchase from the Company at a purchase price of $__ per Unit, the respective
number of Units set forth opposite that Underwriter's name in Schedule 1 hereto.
The Company shall not be obligated to deliver any of the Securities to
be delivered on the Delivery Date (as hereinafter defined), except upon payment
for all the Units to be purchased on the Delivery Date as provided herein.
3. Offering of Units by the Underwriters. Upon authorization by the
Representatives of the release of the Units, the several Underwriters propose to
offer the Units for sale upon the terms and conditions set forth in the
Prospectus.
4. Delivery of and Payment for the Securities. Delivery of and
payment for
<PAGE>
9
the Securities shall be made at the office of Shearman & Sterling, 599 Lexington
Avenue, New York, New York, at 10:00 A.M., New York City time, on the third full
business day (as defined in Section 15) following the date of this Agreement
(fourth, if the pricing occurs after 4:30 P.M. (New York City time) on any given
day) or at such other date or place as shall be determined by agreement between
the Representatives and the Company. This date and time are sometimes referred
to as the "Delivery Date." On the Delivery Date, the Company shall deliver or
cause to be delivered certificates representing the Securities to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by certified or official bank
check or checks payable in immediately available funds. Time shall be of the
essence, and delivery at the time and place specified pursuant to this Agreement
is a further condition of the obligation of each Underwriter hereunder. Upon
delivery, the Securities shall be registered in such names and in such
denominations as the Representatives shall request in writing not less than two
full business days prior to the Delivery Date. For the purpose of expediting the
checking and packaging of the certificates for the Securities, the Company shall
make the certificates representing the Securities available for inspection by
the Representatives in New York, New York, not later than 2:00 P.M., New York
City time, on the business day prior to the Delivery Date.
5. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to make no further amendment or any supplement to the
Registration Statement or to the Prospectus except as permitted herein; to
advise the Representatives, promptly after it receives notice thereof, of
the time when any amendment to the Registration Statement has been filed or
becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish the Representatives with copies
thereof; to advise the Representatives, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, of the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, of the initiation or threatening of
any proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; and, in the event of the issuance
of any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and to counsel
for the Underwriters a signed copy of the Registration Statement as
originally filed with the Commission, and each amendment thereto filed with
the Commission, including all consents and exhibits filed therewith;
<PAGE>
10
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with the
Commission and each amendment thereto (in each case excluding exhibits
other than this Agreement, the Indenture, the Warrant Agreement and the
Pledge Agreement and the computation of per share earnings) and (ii) each
Preliminary Prospectus, the Prospectus and any amended or supplemented
Prospectus; and, if the delivery of a prospectus is required by law at any
time after the Effective Time in connection with the offering or sale of
the Securities or any other securities relating thereto and if at such time
any events shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any
other reason it shall be necessary to amend or supplement the Prospectus in
order to comply with the Securities Act, to notify the Representatives and,
upon their request, to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as the
Representatives may from time to time reasonably request of an amended or
supplemented Prospectus which will correct such statement or omission or
effect such compliance;
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the reasonable judgment of the Company or the
Representatives, be required by the Securities Act or requested by the
Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any Prospectus
pursuant to Rule 424 of the Rules and Regulations, to furnish a copy
thereof to the Representatives and counsel for the Underwriters and obtain
the consent of the Representatives to the filing;
(f) As soon as practicable after the Effective Date, to make
generally available to the Company's security holders and to deliver to the
Representatives an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Securities
Act and the Rules and Regulations (including, at the option of the Company,
Rule 158);
(g) For the period ending on the earlier of (i) five years following
the Effective Date or (ii) such date as the Company is no longer required
to file reports under the Exchange Act, to furnish to the Representatives
copies of all materials furnished by the Company to its shareholders and
all public reports and all reports and financial statements furnished by
the Company to the principal national securities exchange upon which the
Common Stock may be listed pursuant to requirements of or agreements with
such exchange or to the Commission pursuant to the Exchange Act or any rule
or regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Securities and the
Warrant Shares for offering and sale under the securities laws of such
jurisdictions as the Representatives may request and to
<PAGE>
11
comply with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to complete
the distribution of the Securities; provided that in no event shall the
Company be required to qualify as a foreign corporation or otherwise
subject itself to taxation in any jurisdiction in which it is not otherwise
qualified or so subject;
(i) For a period of 180 days from the date of the Prospectus, not
to, directly or indirectly, offer for sale, sell or otherwise dispose of
(or enter into any transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any time in the
future of) any debt securities or shares of Common Stock (other than (A)
the Securities, the Warrant Shares and shares issued pursuant to employee
benefit plans, qualified stock option plans or other employee compensation
plans existing on the date hereof or pursuant to currently outstanding
options, warrants or rights, or (B) equity or debt securities issued in
connection with an acquisition), or sell or grant options, rights or
warrants with respect to any shares of Common Stock (other than the grant
of options pursuant to option plans existing on (A) the date hereof, or (B)
the grant of options, rights or warrants in connection with an
acquisition), without the prior written consent of Lehman Brothers Inc.;
(j) To take such steps as shall be necessary to ensure that neither
the Company nor any subsidiary thereof shall become an "investment company"
within the meaning of such term under the Investment Company Act of 1940
and the rules and regulations of the Commission thereunder;
(k) Prior to filing with the Commission any reports on Form SR
pursuant to Rule 463 of the Rules and Regulations, to furnish a copy
thereof to the counsel for the Underwriters and receive and consider its
comments thereon, and to deliver promptly to the Representatives a signed
copy of each report on Form SR filed by it with the Commission; and
(l) To apply the net proceeds from the sale of the Stock being sold
by the Company substantially as set forth in the Prospectus.
6. Expenses. The Company agrees to pay (a) the costs incident to
the authorization, and the original issuance, sale and delivery, of the
Securities and the Warrant Shares, and any taxes payable in that connection; (b)
the costs incident to the preparation, printing and filing under the Securities
Act of the Registration Statement and any amendments and exhibits thereto; (c)
the costs of distributing the Registration Statement as originally filed and
each amendment thereto and any post-effective amendments thereof (including, in
each case, exhibits), any Preliminary Prospectus, the Prospectus and any
amendment or supplement to the Prospectus, all as provided in this Agreement;
(d) the costs of producing and distributing this Agreement and any other related
documents in connection with the offering, purchase, sale and delivery of the
Securities; (e) the fees and expenses (including reasonable legal fees) incident
to securing any required review by the National Association of Securities
Dealers, Inc. of the terms of sale of the Securities; (f) any applicable listing
or other fees; (g) the fees and expenses (including reasonable legal fees) of
qualifying the Securities under the securities laws of the several jurisdictions
as provided in Section 5(h) and of preparing, printing and distributing a Blue
Sky Memorandum (including related fees and expenses of counsel to the
Underwriters); (h) all fees and expenses of the Trustee, the Warrant Agent; and
(i) all other costs and expenses incident
<PAGE>
12
to the performance of the obligations of the Company under this Agreement, the
Indenture, the Warrant Agreement and the Pledge Agreement; provided that, except
as provided in this Section 6 and in Section 11 the Underwriters shall pay their
own costs and expenses, including the costs and expenses of their counsel, any
transfer taxes on the Securities which they may sell and the expenses of
advertising any offering of the Securities made by the Underwriters.
7. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
contained herein, to the performance by the Company of its obligations
hereunder, and to each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission
in accordance with Section 5(a) and the Indenture shall have been qualified
under the Trust Indenture Act, and the Representatives shall have received
notice thereof, not later than the first full business day next following
the date of this Agreement; no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued and
no proceeding for that purpose shall have been initiated or threatened by
the Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement or the Prospectus or
otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the
Company on or prior to such Delivery Date that the Registration Statement
or the Prospectus or any amendment or supplement thereto contains an untrue
statement of a fact which, in the opinion of Shearman & Sterling, counsel
for the Underwriters, is material or omits to state a fact which, in the
opinion of such counsel, is material and is required to be stated therein
or is necessary to make the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident to
the authorization, form and validity of this Agreement, the Indenture, the
Warrant Agreement, the Pledge Agreement, the Securities, the Registration
Statement and the Prospectus, and all other legal matters relating to this
Agreement and the transactions contemplated hereby shall be reasonably
satisfactory in all material respects to counsel for the Underwriters, and
the Company shall have furnished to such counsel all documents and
information that they may reasonably request to enable them to pass upon
such matters.
(d) Pepper, Hamilton & Scheetz LLP shall have furnished to the
Representatives its written opinion, as counsel to the Company, addressed
to the Underwriters and dated such Delivery Date, in the form attached
hereto as Exhibit A.
(e) Swidler & Berlin, Chartered shall have furnished to the
Representatives its written opinion, as special United States
telecommunications counsel for the Company, addressed to the Underwriters
and dated such Delivery Date, in the form attached hereto as Exhibit B.
(f) Rakisons Solicitors shall have furnished to the Representatives
its written opinion, as British regulatory counsel for the Company,
addressed to the Underwriters
<PAGE>
13
and dated such Delivery Date, in the form attached hereto as Exhibit C.
(g) Rawling & Company Solicitors shall have furnished to the
Representatives its written opinion, as Australian regulatory counsel for
the Company, addressed to the Underwriters and dated such Delivery Date, in
the form attached hereto as Exhibit D.
(h) Osler, Hoskins & Harcourt shall have furnished to the
Representatives its written opinion, as Canadian regulatory counsel for the
Company, addressed to the Underwriters and dated such Delivery Date, in the
form attached hereto as Exhibit E.
(i) Osler, Hoskins & Harcourt shall have furnished to the
Representatives its written opinion, as Canadian regulatory counsel for the
Company, addressed to the Underwriters and dated such Delivery Date, in the
form attached hereto as Exhibit F.
(j) The Representatives shall have received from Shearman &
Sterling, counsel for the Underwriters, such opinion or opinions, dated
such Delivery Date, with respect to the issuance and sale of the Securities
and the Warrant Shares, the Registration Statement, the Prospectus and
other related matters as the Representatives may reasonably require, and
the Company shall have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass upon such
matters.
(k) At the time of execution of this Agreement, the Representatives
shall have received from Deloitte & Touche LLP a letter, in form and
substance satisfactory to the Representatives, addressed to the
Underwriters and dated the date hereof (i) confirming that they are
independent public accountants within the meaning of the Securities Act and
are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date hereof (or, with respect to
matters involving changes or developments since the respective dates as of
which specified financial information is given in the Prospectus, as of a
date not more than five days prior to the date hereof), the conclusions and
findings of such firm with respect to the financial information and other
matters ordinarily covered by accountants' "comfort letters" to
underwriters in connection with registered public offerings.
(l) At the time of execution of this Agreement, the Representatives
shall have received from Price Waterhouse a letter, in form and substance
satisfactory to the Representatives, addressed to the Underwriters and
dated the date hereof (i) confirming that they are independent public
accountants within the meaning of the Securities Act and are in compliance
with the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the Commission, (ii)
stating, as of the date hereof (or, with respect to matters involving
changes or developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date not more
than five days prior to the date hereof), the conclusions and findings of
such firm with respect to the financial information and other matters
ordinarily covered by accountants' "comfort letters" to underwriters in
connection with registered public offerings.
<PAGE>
14
(m) With respect to the letter of Deloitte & Touche LLP referred to
in paragraph (k) of this Section 7 and delivered to the Representatives
concurrently with the execution of this Agreement (the "D&T initial
letter"), the Company shall have furnished to the Representatives a letter
(the "bring-down letter") of such accountants, addressed to the
Underwriters and dated such Delivery Date (i) confirming that they are
independent public accountants within the meaning of the Securities Act and
are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date of the bring-down letter (or, with
respect to matters involving changes or developments since the respective
dates as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior to the date of the
bring-down letter), the conclusions and findings of such firm with respect
to the financial information and other matters covered by the D&T initial
letter and (iii) confirming in all material respects the conclusions and
findings set forth in the initial letter.
(n) With respect to the letter of Price Waterhouse referred to in
paragraph (l) of this Section 7 and delivered to the Representatives
concurrently with the execution of this Agreement (the "PW initial
letter"), the Company shall have furnished to the Representatives a letter
(the "bring-down letter") of such accountants, addressed to the
Underwriters and dated such Delivery Date (i) confirming that they are
independent public accountants within the meaning of the Securities Act and
are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date of the bring-down letter (or, with
respect to matters involving changes or developments since the respective
dates as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior to the date of the
bring-down letter), the conclusions and findings of such firm with respect
to the financial information and other matters covered by the PW initial
letter and (iii) confirming in all material respects the conclusions and
findings set forth in the initial letter.
(o) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board, its
President or a Vice President and its chief financial officer stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Delivery Date;
the Company has complied with all its agreements contained herein; and
the conditions set forth in Sections 7(a) and 7(p) have been
fulfilled; and
(ii) They have carefully examined the Registration Statement and
the Prospectus and, in their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include any untrue
statement of a material fact and did not omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (B) since the Effective Date no event has
occurred which should have been set forth in a supplement or amendment
to the Registration Statement or the Prospectus.
(o) (i) Neither the Company nor any of its subsidiaries shall have
sustained
<PAGE>
15
since the date of the latest audited financial statements included in the
Prospectus any loss or interference with its business (x) from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
(y) from any labor dispute or court or governmental action, order or
decree, in either case otherwise than as set forth or contemplated in the
Prospectus or (ii) since such date there shall not have been any change in
the capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and
its subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in clause (i)
or (ii), is, in the judgment of the Representatives, so material and
adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Securities being delivered on such
Delivery Date on the terms and in the manner contemplated in the
Prospectus.
(p) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or
in the over-the-counter market, or trading in any securities of the Company
on any exchange or in the over-the-counter market, shall have been
suspended or minimum prices shall have been established on any such
exchange or such market by the Commission, by such exchange or by any other
regulatory body or governmental authority having jurisdiction, (ii) a
banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have occurred
such a material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the
reasonable judgment of a majority in interest of the several Underwriters,
impracticable or inadvisable to proceed with the public offering or
delivery of the Securities being delivered on such Delivery Date on the
terms and in the manner contemplated in the Prospectus.
(r) As of the date hereof, (i) the "Seller Financing" in connection
with the Company's acquisition of Axicorp Pty., Ltd., and consisting of
$4.1 million payable to Fujitsu Australia Limited and $4.0 million payable
to individual stockholder sellers, shall have been repaid and the
collateral security interests therein of outstanding shares of Axicorp
Pty., Ltd shall have been released and (ii) Axicorp Pty., Ltd. shall be a
wholly-owned subsidiary of the Company.
(s) As of the date hereof, the loan by Teleglobe to the Company of
$2 million, due February 9, 1998, and secured by assets of the Company,
shall have been prepaid.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
8. Indemnification and Contribution. (a) The Company and Primus
Telecommunications, Inc., a Delaware corporation, and Axicorp Pty., Ltd., a
company organized
<PAGE>
16
under the laws of Australia (collectively, the "Principal Subsidiaries"),
jointly and severally, shall indemnify and hold harmless each Underwriter, its
officers and employees and each person, if any, who controls any Underwriter
within the meaning of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or action
relating to purchases and sales of Securities), to which that Underwriter,
officer, employee or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or supplement
thereto or (B) in any blue sky application or other document prepared or
executed by the Company (or based upon any written information furnished by the
Company) specifically for the purpose of qualifying any or all of the Securities
or Warrant Shares under the securities laws of any state or other jurisdiction
(any such application, document or information being hereinafter called a "Blue
Sky Application"), (ii) the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or in any
amendment or supplement thereto, or in any Blue Sky Application any material
fact required to be stated therein or necessary to make the statements therein
not misleading or (iii) any act or failure to act or any alleged act or failure
to act by any Underwriter in connection with, or relating in any manner to, the
Securities or the offering contemplated hereby, and which is included as part of
or referred to in any loss, claim, damage, liability or action arising out of or
based upon matters covered by clause (i) or (ii) above (provided that the
Company and the Principal Subsidiaries shall not be liable under this clause
(iii) to the extent that it is determined in a final judgment by a court of
competent jurisdiction that such loss, claim, damage, liability or action
resulted directly from any such acts or failures to act undertaken or omitted to
be taken by such Underwriter through its gross negligence or willful
misconduct), and shall reimburse each Underwriter and each such officer,
employee or controlling person promptly upon demand for any legal or other
expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company and the Principal
Subsidiaries shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of, or is based upon, any
untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or in any such amendment or supplement, or in any Blue Sky
Application, in reliance upon and in conformity with written information
concerning such Underwriter furnished to the Company through the Representatives
by or on behalf of any Underwriter specifically for inclusion therein, which
information is comprised solely of the information set forth in Section 8(e)
hereof, and provided further, that the Company and the Principal Subsidiaries
shall not be liable under clauses (i), (ii) and (iii) above to the extent that
any such loss, claim, damage, or liability of such Underwriter results from the
fact that a copy of the Prospectus was not sent or given to such person by such
Underwriter as required and within the time required by the Securities Act and
if the untrue statement or omission shall have been corrected in the Prospectus,
subject to the following: (a) the burden of showing that a copy of the
Prospectus was not so sent or given shall be on the Company and (b) the failure
to deliver a copy of the Prospectus does not result from non-compliance by the
Company with Section 5(c)(ii) hereof. The foregoing indemnity agreement is in
addition to any liability which the Company or the Principal Subsidiaries may
otherwise have to any Underwriter or to any officer, employee or controlling
person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall indemnify and
hold
<PAGE>
17
harmless the Company, its officers and employees, each of its directors, and
each person, if any, who controls the Company within the meaning of the
Securities Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which the Company or any such
director, officer or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or supplement
thereto, or (B) in any Blue Sky Application or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to make
the statements therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information concerning
such Underwriter furnished to the Company through the Representatives by or on
behalf of that Underwriter specifically for inclusion therein, and shall
reimburse the Company and any such director, officer or controlling person for
any legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred. The foregoing indemnity agreement is in
addition to any liability which any Underwriter may otherwise have to the
Company or any such director, officer, employee or controlling person.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has
been materially prejudiced by such failure and provided further that the failure
to notify the indemnifying party shall not relieve it from any liability which
it may have to an indemnified party otherwise than under this Section 8. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable out-of-pocket costs of investigation; provided,
however, that the Representatives shall have the right to employ counsel to
represent jointly the Representatives and those other Underwriters and their
respective officers, employees and controlling persons who may be subject to
liability arising out of any claim in respect of which indemnity may be sought
by the Underwriters against the Company or the Principal Subsidiaries under this
Section 8 if, in the reasonable judgment of the Representatives, it is advisable
for the Representatives and those Underwriters, officers, employees and
controlling persons to be jointly represented by separate counsel, and in that
event the fees and expenses of such separate counsel shall be paid by the
Company or the Principal Subsidiaries. No indemnifying party shall (i) without
the prior written consent of the indemnified parties (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of
<PAGE>
18
which indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding, or (ii) be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with the consent of the indemnifying party or if there
be a final judgment of the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 8(a) or 8(b) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Principal Subsidiaries on the one hand and the
Underwriters on the other from the offering of the Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Principal Subsidiaries on the one hand and the Underwriters on the other
with respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Principal Subsidiaries, on the one hand, and the Underwriters on the other with
respect to such offering shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Securities purchased under this
Agreement (before deducting expenses) received by the Company, on the one hand,
and the total underwriting discounts and commissions received by the
Underwriters with respect to the Securities purchased under this Agreement, on
the other hand, bear to the total gross proceeds from the offering of the
Securities under this Agreement, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault shall be determined by
reference to whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company and the Principal Subsidiaries or the Underwriters, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. For purposes of
the preceding two sentences, the net proceeds deemed to be received by the
Company shall be deemed to be also for the benefit of the Principal Subsidiaries
and information supplied by the Company shall also be deemed to have been
supplied by the Principal Subsidiaries. The Company and the Principal
Subsidiaries and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take into
account the equitable considerations referred to herein. The amount paid or
payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this Section shall
be deemed to include, for purposes of this Section 8(d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(d), no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
Securities underwritten by it and distributed to the public was offered to the
public exceeds the amount of any damages which such Underwriter has
<PAGE>
19
otherwise paid or become liable to pay by reason of any untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute as
provided in this Section 8(d) are several in proportion to their respective
underwriting obligations and not joint.
(e) The Underwriters severally confirm and the Company acknowledges
that the statements with respect to the public offering of the Securities by the
Underwriters set forth on the cover page of, and the concession and reallowance
figures appearing under the caption "Underwriting" in, the Prospectus are
correct and constitute the only information concerning such Underwriters
furnished in writing to the Company by or on behalf of the Underwriters
specifically for inclusion in the Registration Statement and the Prospectus.
9. Defaulting Underwriters. If, on either Delivery Date, any
Underwriter defaults in the performance of its obligations under this Agreement,
the remaining non-defaulting Underwriters shall be obligated to purchase the
Securities which the defaulting Underwriter agreed but failed to purchase on
such Delivery Date in the respective proportions which the number of Securities
set opposite the name of each remaining non-defaulting Underwriter in Schedule 1
hereto bears to the total number of Securities set opposite the names of all the
remaining non-defaulting Underwriters in Schedule 1 hereto; provided, however,
that the remaining non-defaulting Underwriters shall not be obligated to
purchase any of the Securities on such Delivery Date if the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase on such
date exceeds 9.09% of the total number of Securities to be purchased on such
Delivery Date, and any remaining non-defaulting Underwriter shall not be
obligated to purchase more than 110% of the number of Securities which it agreed
to purchase on such Delivery Date pursuant to the terms of Section 2. If the
foregoing maximums are exceeded, the remaining non-defaulting Underwriters, or
those other underwriters satisfactory to the Representatives who so agree, shall
have the right, but shall not be obligated, to purchase, in such proportion as
may be agreed upon among them, all the Securities to be purchased on such
Delivery Date. If the remaining Underwriters or other underwriters satisfactory
to the Representatives do not elect to purchase the shares which the defaulting
Underwriter or Underwriters agreed but failed to purchase on such Delivery Date,
this Agreement shall terminate without liability on the part of any non-
defaulting Underwriter or the Company, except that the Company will continue to
be liable for the payment of expenses to the extent set forth in Sections 6 and
11. As used in this Agreement, the term "Underwriter" includes, for all purposes
of this Agreement unless the context requires otherwise, any party not listed in
Schedule 1 hereto who, pursuant to this Section 9, purchases Securities which a
defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company for damages caused by its default. If other
underwriters are obligated or agree to purchase the Securities of a defaulting
or withdrawing Underwriter, either the Representatives or the Company may
postpone the Delivery Date for up to seven full business days in order to effect
any changes that in the opinion of counsel for the Company or counsel for the
Underwriters may be necessary in the Registration Statement, the Prospectus or
in any other document or arrangement.
10. Termination. The obligations of the Underwriters hereunder may
be
<PAGE>
20
terminated by the Representatives by notice given to and received by the Company
prior to delivery of and payment for the Securities if, prior to that time, any
of the events described in Section 7(p) or 7(q), shall have occurred or if the
Underwriters shall decline to purchase the Securities for any reason permitted
under this Agreement.
11. Reimbursement of Underwriters' Expenses. If the Company shall
fail to tender the Securities for delivery to the Underwriters at the Delivery
Date by reason of any failure, refusal or inability on the part of the Company
to perform any agreement on its part to be performed, or because any other
condition of the Underwriters' obligations hereunder required to be fulfilled by
the Company is not fulfilled, the Company will reimburse the Underwriters for
all reasonable out-of-pocket expenses (including reasonable fees and
disbursements of counsel) incurred by the Underwriters in connection with this
Agreement and the proposed purchase of the Securities, and upon demand the
Company shall pay the full amount thereof to the Representatives. If this
Agreement is terminated pursuant to Section 9 by reason of the default of one or
more Underwriters, the Company shall not be obligated to reimburse any
defaulting Underwriter on account of those expenses.
12. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex
or facsimile transmission to Lehman Brothers Inc., Three World Financial
Center, New York, New York 10285, Attention: Syndicate Department
(Fax: 212-526-6588), with a copy, in the case of any notice pursuant to
Section 8(c), to the Director of Litigation, Office of the General Counsel,
Lehman Brothers Inc., 3 World Financial Center, 10th Floor, New York, NY
10285; and
(b) if to the Company or to the Principal Subsidiaries, shall be
delivered or sent by mail or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: K. Paul Singh,
Chairman and Chief Executive Officer (Fax: (703) 902-2814);
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Underwriters by Lehman Brothers Inc. on behalf of the
Representatives.
13. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Company, and
their respective successors. This Agreement and the terms and provisions hereof
are for the sole benefit of only those persons, except that (A) the
representations, warranties, indemnities and agreements of the Company contained
in this Agreement shall also be deemed to be for the benefit of the person or
persons, if any, who control any Underwriter within the meaning of Section 15 of
the Securities Act and (B) the indemnity agreement of the Underwriters contained
in Section 8(b) of this Agreement shall be deemed to be for the benefit of
directors of the Company, officers of the Company who have signed the
Registration Statement and any person controlling the Company
<PAGE>
21
within the meaning of Section 15 of the Securities Act. Nothing in this
Agreement is intended or shall be construed to give any person, other than the
persons referred to in this Section 13, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained herein.
14. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Principal Subsidiaries and the
Underwriters contained in this Agreement or made by or on behalf on them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Stock and shall remain in full force and effect, regardless of
any investigation made by or on behalf of any of them or any person controlling
any of them.
15. Definition of the Terms "Business Day" and "Subsidiary." For
purposes of this Agreement, (a) "business day" means any day on which the New
York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
16. Governing Law. This Agreement shall be governed by the laws of
the State of New York.
17. Consent to Jurisdiction. Each party irrevocably agrees that any
legal suit, action or proceeding arising out of or based upon this Agreement or
the transactions contemplated hereby ("Related Proceedings") may be instituted
in the federal courts of the United States of America located in the City of New
York or the courts of the State of New York in each case located in the Borough
of Manhattan in the City of New York (collectively, the "Specified Courts"), and
irrevocably submits to the exclusive jurisdiction (except for proceedings
instituted in regard to the enforcement of a judgment of any such court (a
"Related Judgment"), as to which such jurisdiction is non-exclusive) of such
courts in any such suit, action or proceeding. The parties further agree that
service of any process, summons, notice or document by mail to such party's
address set forth above shall be effective service of process for any lawsuit,
action or other proceeding brought in any such court. The parties hereby
irrevocably and unconditionally waive any objection to the laying of venue of
any lawsuit, action or other proceeding in the Specified Courts, and hereby
further irrevocably and unconditionally waive and agree not to plead or claim in
any such court that any such lawsuit, action or other proceeding brought in any
such court has been brought in an inconvenient forum. Axicorp Pty., Ltd. hereby
irrevocably appoints CT Corporation System, which currently maintains a New York
City office at 1633 Broadway, New York, New York 10019, United States of
America, as its agent to receive service of process or other legal summons for
purposes of any such action or proceeding that may be instituted in any state or
federal court in the City and State of New York.
18. Waiver of Immunity. With respect to any Related Proceeding, each
party irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment, including, without limitation, any immunity
pursuant to the United States Foreign Sovereign Immunities Act of 1976, as
amended.
<PAGE>
22
19. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
<PAGE>
23
If the foregoing correctly sets forth the agreement between the
Company, the Principal Subsidiaries and the Underwriters, please indicate your
acceptance in the space provided for that purpose below.
Very truly yours,
Primus Telecommunications Group,
Incorporated
By
-------------------------------------------
Title
---------------
Primus Telecommunications, Incorporated
By
-------------------------------------------
Title
---------------
Axicorp Pty., Ltd.
By
-------------------------------------------
Title
---------------
Accepted:
Lehman Brothers Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
For themselves and as Representatives
of the several Underwriters named in
Schedule 1 hereto
By Lehman Brothers Inc.
By
-------------------------------------------
Authorized Representative
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Number of
Underwriters Units
------------ ---------
<S> <C>
Lehman Brothers Inc...........................................
Donaldson, Lufkin & Jenrette Securities Corporation...........
Total......................................................
=========
</TABLE>
<PAGE>
EXHIBIT A
July ___, 1997
LEHMAN BROTHERS INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
as Representatives of the Several Underwriters
named in Schedule 1 to the Underwriting Agreement
referred to below
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Re: Primus Telecommunications Group, Incorporated
---------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Primus Telecommunications Group,
Incorporated, a Delaware corporation (the "Company"), in connection with the
execution and delivery by the Company of the Underwriting Agreement dated July
__, 1997 (the "Underwriting Agreement") by and among the Company, the
Subsidiaries (as defined below) and you, as representatives (the
"Representatives") of the several Underwriters listed on Schedule 1 attached
thereto (the "Underwriters"), and the filing by the Company with the United
States Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended (the "Securities Act"), of the Company's registration statement
on Form S-1 (No. 333-30195), as amended to date, relating to __ units (the
"Units), each Unit consisting of ___ ___% Senior Notes due 2004 (each, a "Note")
and ___ warrants (the "Warrants") to purchase ___ shares of Common Stock, par
value $0.01 per share, of the Company (the "Warrant Shares"). The Notes are to
be issued under an Indenture dated as of July __, 1997 (the "Indenture") between
the Company and First Union National Bank of Virginia, as trustee (the
"Trustee"). The Warrants are to be issued pursuant to a Warrant Agreement dated
as of July __, 1997 between the Company and First Union National Bank of
Virginia, as warrant agent (the "Warrant Agent"). The Company will pledge
pursuant to a Collateral Pledge and Security Agreement dated as of July __, 1997
(the "Pledge Agreement"), between the Company and the Trustee, a portion of the
net proceeds of the issuance and sale of the Notes as security for payment of
the first six scheduled interest payments due on the Notes. This opinion is
delivered to you pursuant to Section 7(d) of the Underwriting Agreement.
Capitalized terms used herein but not otherwise defined have the meanings
ascribed to them in the Underwriting Agreement.
In connection with this opinion, we have examined the Underwriting
Agreement, the Indenture, the Warrant Agreement, the Pledge Agreement
(collectively, the "Transaction Documents"), the Registration Statement and
originals, or copies reproduced or certified to our satisfaction, of such
corporate records of the Company, Primus Telecommunications, Inc. and Axicorp
Pty., Ltd. (each, a "Subsidiary" and, collectively, the "Subsidiaries") as we
have deemed necessary to form the basis for the opinions hereinafter expressed.
We have also made such examination of laws, of certificates of public officials,
and of certificates of officers of the Company and the Subsidiaries, as we have
deemed necessary to enable us to render this opinion. As to matters of fact
relevant to the opinions herein expressed, we have assumed the accuracy and
completeness of, and have relied solely upon, the representations and warranties
of the Company contained in the Agreements and in such certificates of officers
of the Company and the
<PAGE>
Subsidiaries, and of certificates of public officials. To the extent that our
opinion is based on matters "to our knowledge" or otherwise "known to us", or
words of similar import and for the purposes of ascertaining our belief as to
any matters contained herein, our knowledge is based solely upon the actual
knowledge of the partners and associates of this firm who have performed
substantive legal services for the Company and its subsidiaries. We hereby
advise you that John DePodesta, Esq., of counsel to this firm, is a stockholder,
an executive officer and a member of the board of directors of the Company, and
that the opinions and statements expressed herein, with your permission, do not
include or otherwise reflect such knowledge which Mr. DePodesta may have
obtained solely in his capacity as a stockholder, executive officer or director
of the Company.
We have assumed (i) the due execution and delivery, pursuant to due
authorization, of the Transaction Documents by the parties thereto other than
the Company, (ii) the due authentication of the Notes by the Trustee and the
Warrants by the Warrant Agent, (iii) the genuineness of the signatures of, and
the authority of, persons signing the Transaction Documents on behalf of all
parties other than the Company, (iv) the genuineness of all signatures and the
authenticity and completeness of all records, certificates, instruments and
documents submitted to us as originals, and (v) the conformity to authentic
originals of all records, certificates, instruments and documents submitted to
us as certified, conformed, photostatic or facsimile copies thereof.
This opinion is limited solely to matters governed by the laws of the
State of New York, the General Business Corporation Law of the State of Delaware
and the federal laws of the United States, without regard to conflict or choice
of law principles; provided, however, this letter does not address federal,
-------- -------
state, or local statutes, laws, rules, regulations, or orders of any
governmental authority relating to governmental regulation of telecommunications
companies. In connection with the opinions set forth in paragraph (i) below, we
have relied exclusively upon a copy of the Company's and each Subsidiary's
charter, as certified by the Secretary of State of their respective
jurisdictions of incorporation, and certificates of good standing issued by
various Secretaries of State, copies of which are attached to this opinion.
Based upon the foregoing assumptions, and subject to the
qualifications set forth below, we are of the opinion that:
(i) The Company and each of its U.S. subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation, are duly qualified to
do business and are in good standing as foreign corporations in each
jurisdiction in which their respective ownership or lease of property or the
conduct of their respective businesses requires such qualification (except where
the failure to so qualify, singly or in the aggregate, would not have a material
adverse effect on the consolidated financial position, stockholders' equity,
results of operations or business of the Company and its subsidiaries taken as a
whole), and have all power and authority necessary to own or hold their
respective properties and conduct the businesses in which they are engaged;
(ii) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description thereof contained in the Prospectus; and all of
the issued shares of capital stock of each U.S. subsidiary of the Company have
been duly and validly authorized and issued and are fully paid, non-assessable
and (except for directors' qualifying shares and except as set forth in the
Prospectus) are owned of record and, to our knowledge, beneficially directly or
indirectly by the Company, free and clear of all liens,
<PAGE>
encumbrances, equities or claims;
(iii) There are no preemptive or other rights to subscribe for or to
purchase, nor any restriction upon the voting or transfer of, any shares of
Common Stock of the Company pursuant to the Company's charter or by-laws or any
agreement or other instrument known to such counsel;
(iv) To our knowledge, there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a party or of which
any property or assets of the Company or any of its subsidiaries is the subject
which, if determined adversely to the Company or any of its subsidiaries, might
have a material adverse effect on the consolidated financial position,
stockholders' equity, results of operations or business of the Company and its
subsidiaries [or on the ability of the Company to perform its obligations under
the Transaction Documents, the Notes or the Warrants]; and, to the best of such
counsel's knowledge, no such proceedings are threatened by governmental
authorities or others;
(v) The Registration Statement was declared effective under the
Securities Act as of ____ p.m. on July ____, 1997, the Prospectus was filed with
the Commission pursuant to subparagraph ____ of Rule 424(b) of the Rules and
Regulations on July ___, 1997 and no stop order suspending the effectiveness of
the Registration Statement has been issued and, to the knowledge of such
counsel, no proceeding for that purpose is pending or threatened by the
Commission;
(vi) (i) The Underwriting Agreement has been duly authorized,
executed and delivered by the Company, and (ii) each of the other transaction
Documents has been duly authorized, executed and delivered by the Company and,
assuming due authorization, execution and delivery of the Indenture by the
Trustee, the Warrant Agreement by the Warrant Agent and the Pledge Agreement by
the Trustee, constitutes a valid legally binding instrument of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency or fraudulent
conveyance, reorganization, moratorium or similar laws of general applicability
affecting the enforcement of creditors' rights and (ii) the application of
general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(vii) The Units, Notes, Warrants and Warrant Shares, assuming (i) due
authorization, execution and delivery of the Indenture by the Trustee and the
Warrant Agreement by the Warrant Agent and (ii) due authentication of the Notes
by the Trustee and the Warrants by the Warrant Agent, each constitutes a valid
legally binding instrument of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency or fraudulent conveyance, reorganizations, moratorium or
similar laws of general applicability affecting the enforcement of creditors'
rights and (ii) the application of general principles of equity (regardless of
whenever such enforcement is considered in a proceeding in equity or at law).
(viii) The Registration Statement and the Prospectus and any further
amendments or supplements thereto made by the Company prior to such Delivery
Date (other than the financial statements and related schedules therein, as to
which we express no opinion) comply as to form in all material respects with the
requirements of the Securities Act and the Rules and Regulations;
(ix) The statements contained in the Registration Statement and
Prospectus under the captions "Certain Transactions," "Management - Employment
Contract," "Management - Stock
<PAGE>
Plans," "Shares Eligible for Future Sale" and "Certain Income Tax
Considerations - United States Federal Income Taxation of U.S. Holders," insofar
as they describe statutes, regulations, legal or governmental proceedings,
contracts or other documents referred to therein are accurate and fairly
summarize, in each case in all material respects, the information called for
with respect to such documents and matters and, insofar as such statements
constitute matters of law or legal conclusions, have been reviewed by us and
fairly present the information disclosed therein in all material respects;
(x) The statements contained in the Registration Statement and
Prospectus under the captions "Description of Units," "Description of Notes" and
"Description of Warrants," insofar as they purport to describe certain of the
terms of the documents referred to therein, fairly summarize such terms of such
documents in all material respects.
(xi) To the best of our knowledge, there are no contracts or other
documents which are required to be described in the Prospectus or filed as
exhibits to the Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described or filed as exhibits to the
Registration Statement;
(xii) The issue and sale of the Units, Notes and Warrants being
delivered on the date hereof by the Company and the issuance and sale of the
Warrant Shares upon exercise of the Warrants and the compliance by the Company
with all of the provisions of each of the Transaction Documents will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument known to us to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such actions result in
any violation of the provisions of the charter or by-laws of the Company or any
of its subsidiaries or any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their properties or assets which is known to us to be
binding on the Company, any of its subsidiaries or any of their respective
properties or assets; and, except for the registration of the Units, Notes,
Warrants and Warrant Shares under the Securities Act and such consents,
approvals, authorizations, registrations or qualifications as may be required
under the Exchange Act and applicable state securities laws in connection with
the purchase and distribution of the Units, Notes and Warrants by the
Underwriters, no consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is required for
the execution, delivery and performance of the Transaction Documents by the
Company and the consummation of the transactions contemplated thereby;
(xiii) Assuming the Trustee and the Company have taken or caused to
be taken all actions set forth in Article [Ten] of the Indenture and Sections
[1,3,4,6 and 16] of the Pledge Agreement, and assuming that the Trustee is the
"entitlement holder" (as defined in Section 8-102 of the UCC) of a "security
entitlement" (as defined in Section 8-102 of the UCC) to the Collateral
Investments as provided in the Pledge Agreement, the Indenture and the Pledge
Agreement are sufficient under the UCC to create in favor of the Trustee for the
benefit of the Holders (as defined in the Indenture) of the Notes, as security
for the Obligations (as defined in the Pledge Agreement), a valid and perfected
security interest under the UCC in all of the Company's right, title and
interest in and to such security entitlement to the Collateral Investments and
the "proceeds" (as defined in Section 9-306 of the UCC) thereof. No recording
or filing with any New York governmental body, agency or official is necessary
to perfect the foregoing security interest. Assuming that the Trustee,
<PAGE>
on behalf of the Holders, has obtained its security entitlement to the
Collateral Investments in good faith and without notice of any "adverse claim"
(as defined in Section 8-102 of the UCC) in respect of such security entitlement
and assuming that the Trustee's "control" (as defined in Section 8-106 of the
UCC) of such security entitlement remains exclusive (as required under the
Collateral and Securities Pledge Agreement), such a perfected security interest
in favor of the Trustee under the Pledge Agreement in the Company's right, title
and interest in and to such security entitlement will have priority over any
other security interest in such security entitlement under the UCC hereafter
created by or arising through the Company, except as hereafter stated.
(xiv) Assuming compliance with Section [4] of the Pledge Agreement,
the Trustee's sole control and dominion over the Cash Collateral Account
results in the creation of a valid and enforceable security interest in respect
of such account created by the Pledge Agreement.
(xv) The Indenture has been duly qualified under the Trust Indenture
Act.
(xvi) To our knowledge, there are no contracts, agreements or
understandings between the Company and any person granting such person the right
(other than rights which have been duly waived or which have been described in
the Prospectus) to require the Company to file a registration statement under
the Securities Act with respect to any securities of the Company owned or to be
owned by such person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement filed
by the Company under the Securities Act; and
(xvii) There are no legal or, to our knowledge, contractual
restrictions on the ability of the Company and its subsidiaries to declare and
pay any dividends or make any payment or transfer of property or assets to its
stockholders other than those described in the Prospectus and such restrictions
as would not have a material adverse effect on the condition, financial or
otherwise, or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole; and such descriptions, if any, fairly summarize
such restrictions in all material respects.
The opinions expressed above are subject to the following additional
qualification:
(a) no opinion is rendered as to matters not specifically referred to
herein and under no circumstances are you to infer from anything stated or not
stated herein any opinion with respect to which such reference is not made; and
(b) no opinion is given with respect to the validity of the
indemnification or contribution provisions, or any other provisions which may be
deemed in violation of public policy, contained in the Underwriting Agreement.
In addition, we hereby advise you that we have participated in
conferences with officers and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although we have not undertaken to determine independently, and we do not assume
any responsibility for, the accuracy or completeness of the statements contained
in the Registration Statement or the Prospectus (other than as set out in
paragraph (vii) above), based upon those conferences and reviews and upon our
participation in the preparation of the Registration Statement and Prospectus,
no facts have come to our attention which cause us to believe that, (i) at the
time
<PAGE>
the Registration Statement became effective and at all times subsequent thereto
up to and on the Closing Date, the Registration Statement and any amendment or
supplement thereto (other than the financial statements, including supporting
schedules, and financial and statistical data as to which this statement does
not apply) contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) as of the date hereof, or the date of
the Prospectus, the Prospectus and any amendment or supplement thereto (except
as aforesaid), contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
This opinion is rendered only to the addressees set forth above and is
solely for the benefit of such addressees and may not be quoted to or relied
upon by any other person or entity without the express written consent of a
partner of this firm. In addition, Shearman & Sterling may rely upon this
opinion in connection with the delivery of its opinion to the addressees in
connection with the Underwriting Agreement.
Very truly yours,
PEPPER, HAMILTON & SCHEETZ LLP
<PAGE>
EXHIBIT B
LEHMAN BROTHERS INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
as Representatives of the Several Underwriters
named in Schedule I to the Underwriting Agreement
referred to below
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
July __, 1997
Ladies and Gentlemen:
We have acted as special United States telecommunications counsel to
Primus Telecommunications Group, Incorporated, a Delaware corporation (the
"Company"), in connection with the execution and delivery by the Company of the
Underwriting Agreement dated July __, 1997 (the "Underwriting Agreement") by and
among the Company and you, as representatives (the "Representatives") of the
several Underwriters listed on Schedule I attached thereto (the "Underwriters"),
and the filing by the Company with the United States Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), of the Company's registration statement on Form S-1 (No. 333-30195), as
amended to date, relating to ___ Units (the "Units"), each Unit consisting of
___ ___% Senior Notes due 2004 (each, a "Note" and ___ warrants (each, a
"Warrant") to purchase ___ shares of Common Stock, par value $0.01 per share, of
the Company (the "Warrant Shares"). This opinion is delivered to you pursuant
to Section 7(e) of the Underwriting Agreement. Capitalized terms used herein
but not otherwise defined have the meanings ascribed to them in the Underwriting
Agreement.
Our opinion is limited to certain telecommunication regulatory matters
involving the Federal Communications Commission (the "FCC"), the Communications
Act of 1934, as amended (including amendments made by the Telecommunications Act
of 1996, 47 U.S.C. (S) 151 et seq.), and the rules and regulations of the FCC
-- ---
(collectively the "Communications Act") and comparable state statutes governing
telecommunications and the rules and regulations of comparable state regulatory
commissions ("State Regulatory Agencies") with primary regulatory jurisdiction
over telecommunications matters (collectively "State Telecommunications Laws").
Except as indicated, we express no opinion and assume no responsibility as to
the applicability of any other local, foreign, supranational or regional laws or
regulations, including, but not limited to, laws governing the corporate
organization, authority to transact business, or tax liability of the Company
and its subsidiaries. Although we have acted as special regulatory counsel in
specific regulatory matters to Primus Telecommunications, Inc. ("PTI"), we draw
your attention to the fact that we have not undertaken any on-site or other
physical inspections of the business or properties of the Company or PTI, and
with respect to business practices, operations, accounts, personnel or day-to-
day affairs have not independently verified the manner in which their respective
businesses are operated.
For purposes of this opinion, we have reviewed the Underwriting
Agreement, the Registration Statement, and such documents issued by government
agencies, as we have deemed necessary to form the basis for the opinions
hereinafter expressed. We have also made such examination of laws, of
certificates of public officials and of the Certificate of Officer of the
<PAGE>
Company's subsidiary PTI attached hereto (the "Certificate") as we have deemed
necessary to enable us to render this opinion. In our review, we have assumed
the conformity with originals of all documents submitted to us as copies. We
have also assumed, without independent inquiry, that there are no agreements or
understandings between or among the Company and other parties than those
disclosed in the Underwriting Agreement that would expand, modify, or otherwise
affect the terms of the Underwriting Agreement or the rights or obligations
thereunder of the parties thereto, and that those documents accurately and
completely set forth the agreements of all parties thereto. Notwithstanding the
foregoing sentence, with respect to the opinions set out in paragraphs (i), (iv)
and (v) below, we assume that none of the entities purchasing stock is directly
or indirectly owned or controlled by a foreign carrier to an extent that the
purchase of Common Stock contemplated by the Underwriting Agreement would result
in an aggregate of 10% or more of the Company's stock being held by any one
foreign carrier.
In connection with this opinion as to matters of fact (including but
not limited to representations made regarding PTI's business operations and
strategy, pricing, costs, advertising and marketing), other than factual matters
relating to the existence of the Communications Act and State Telecommunications
Laws, we have relied upon the statements contained in the attached Certificate.
Whenever in this opinion we limit our opinion to the "best of our knowledge,"
our statements are based solely on the Certificate and on any information that
became known to the attorneys of this firm who are involved in representing the
Company and/or PTI in the course of their performance of such services.
Wherever in our opinion we state that PTI has filed a tariff at the FCC or the
State Regulatory Agencies, we express no opinion whatsoever concerning whether,
and to what extent, such tariffs reflect the Company's current actual rates and
services or comply with the specific format, rate structure and other tariff
rules of the FCC or the State Regulatory Agencies.
For purposes of this opinion, we have made such examination of the
Communications Act, and the State Telecommunications Laws as we have deemed
necessary. In the course of developing this opinion, we have examined only
actions and approvals arising out of, relating to, or taken pursuant to, the
provisions of the Communications Act and State Telecommunications Laws. We have
not undertaken to determine the existence of any actions, approvals, or
proceedings, whether outstanding, pending or threatened, before persons or
entities other than the FCC or the State Regulatory Agencies.
This opinion is given as of the date hereof, and we assume no
obligation to update or supplement this opinion to reflect any facts or
circumstances which may hereafter occur or come to our attention or to assess
the likelihood of any event, including any proceeding or appeal which hereafter
may be initiated by or before the FCC, any State Regulatory Agency, or any
federal or state court or government agency or any changes in laws, rules or
regulations or the interpretation of such, which may hereafter occur, or any
materials changes in the terms of the Agreements.
Based upon and limited to such examination and subject to the
assumptions and qualifications set forth in this letter, it is our opinion as of
the date hereof that:
(i) (A) The execution and delivery of the Underwriting Agreement by
the Company and the issue and sale of the shares contemplated thereby do not
violate (1) the Communications Act, (2) any rules or regulations of the FCC
applicable to the Company [or PTI], (3) any State Telecommunications Laws
applicable to the Company and/or to PTI, and (4) to the best of our knowledge,
any decree from any court, and (B) no authorization of or filing with the FCC or
any
<PAGE>
State Regulatory Agency is necessary for the execution and delivery of the
Agreements by the Company and the issue and sale of the shares contemplated
thereby in accordance with the terms thereof;
(ii) PTI is a nondominant carrier authorized by the FCC to provide
interstate interexchange telecommunications services pursuant to 47 C.F.R.
(S) 63.07(a) (1995) without any further order, license, permit or other
authorization by the FCC. PTI has been granted Section 214 authority by the FCC
to provide international message telecommunications services and private line
services through the resale of international switched voice and private line
services and/or by using its own facilities and has on file with the FCC tariffs
applicable to its domestic interstate and international services;
(iii) PTI is certified, registered or otherwise authorized, or is not
required to obtain authority to resell intrastate interexchange
telecommunications services in the respective states listed on Schedule A
hereto. PTI has a tariff on file in each of the states in which a tariff is
required to be filed;
(iv) (A) PTI (1) to the best of our knowledge after due inquiry has
made all reports and filings, and paid all fees, required by the FCC and the
State Regulatory Agencies; and (2) based on our understanding of PTI's
operations from the Certificate, has all certificates, orders, permits,
licenses, authorizations, consents and approvals of and from, and has made all
filings and registrations with, the FCC and the State Regulatory Agencies
necessary to own, lease, license and use its properties and assets and to
conduct its business in the manner described in the Prospectus; and (B) to the
best of our knowledge after due inquiry, PTI has not received any notice of
proceedings relating to the revocation or modification of any such certificates,
orders, permits, licenses, authorizations, consents or approvals, or the
qualification or rejection of any such filing or registration, the effect of
which, singly or in the aggregate, would have a material adverse effect on the
prospects, condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries taken as a whole;
(v) Based on our understanding of PTI's operations from the
Certificate, neither the Company nor PTI is in violation of, or in default under
the Communications Act, the telecommunications rules or regulations of the FCC
or State Telecommunications Law, the effect of which, singly or in the
aggregate, would have a material adverse effect on the prospects, condition,
financial or otherwise, or in the earnings, business or operations of the
Company and its subsidiaries taken as a whole;
(vi) To the best of our knowledge after due inquiry (A) as of the
date hereof, no decree or order of the FCC or any State Regulatory Agency is
outstanding against the Company or any of its subsidiaries and (B) except as set
forth in the Certificate, no litigation, proceeding, inquiry or investigation
has been commenced or threatened, and no notice of violation or order to show
cause has been issued, against the Company or any of its subsidiaries before or
by the FCC or any State Regulatory Agency; and
(vii) The statements in the Prospectus under the captions "Risk
Factors - Potential Adverse Effects of Regulation - United States" and
"Business - Government Regulation - United States," insofar as such statements
constitute a summary of the legal matters, documents or proceedings of the FCC
and State Regulatory Agencies with respect to telecommunications regulation
referred to therein, are accurate in all material respects and fairly summarize
all matters
<PAGE>
referred to therein.
The opinions expressed in this letter are subject in all respects to
the following qualifications: (1) this opinion speaks only to the transactions
that are being consummated on the date hereof and does not address any
transaction that may take place after the Closing Date; (2) any action that
would transfer de facto or de jure legal control of PTI is subject to the
-- ----- -- ----
requirement for prior approval from the FCC and/or State Regulatory Agencies;
(3) no opinion is rendered as to matters not specifically referred to herein or
to events which have not yet occurred and under no circumstances are you to
infer from anything stated or not stated herein any opinion with respect to such
matters; and (4) all opinions expressed in this letter are limited solely to the
effect of the Communications Act and State Telecommunications Laws on the
telecommunications business of the Company and PTI and we express no opinion as
to the effect of any other federal or state statute or equitable doctrine or
common law or of the regulations of any other agency or administrative body.
Other than as expressly stated in paragraphs [one (i) through seven
(vii)], no opinion is rendered as to the compliance of PTI in the past or in the
future with any or all conditions or other requirements of the FCC and the State
Regulatory Agencies contained in the orders, if any, authorizing the operations
of the Company or PTI or otherwise imposed by statute, rule, regulation or
policy, and we assume no obligation to ensure that the Company or PTI comply
with such conditions or requirements. We are admitted to the District of
Columbia Bar and, with respect to any matters concerning the law of the States,
we draw your attention to the fact that the members of the firm involved in the
preparation of this opinion letter, although generally familiar with the
telecommunications laws of the States, are not admitted to the Bars of the
States and are not experts in the laws of those jurisdictions.
This opinion is given solely for the benefit of, and may be relied
upon only by, the Underwriters and international managers and may not be quoted,
used, relied upon, or referred to by any other party, nor redelivered to or
relied upon by any governmental agency or any other person or entity without the
prior written consent of this firm.
------------------------------------
Swidler & Berlin, Chartered
Very Truly Yours,
Swidler & Berlin, Chartered
<PAGE>
EXHIBIT C
July __, 1997
LEHMAN BROTHERS INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
as Representatives of the Several Underwriters
named in Schedule I to the Underwriting Agreement
referred to below
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
RE: PRIMUS TELECOMMUNICATIONS, INC. ("PRIMUS") - OPINION LETTER
- ----------------------------------------------------------------
We have acted as special counsel to Primus Telecommunications Group,
Incorporated, a Delaware corporation ("Primus"), in connection with the
execution and delivery by Primus of the Underwriting Agreement dated July __,
1997 (the "Underwriting Agreement") by and among Primus and you, as
representatives (the "Representatives") of the several Underwriters listed on
Schedule I attached thereto (the "Underwriters") and the filing by Primus with
the United States Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), of Primus' registration
statement on Form S-1 (No. 333-30195), as amended to date, relating to __ Units
(the "Units"), each Unit consisting of __ __% Senior Notes due 2004 (each, a
"Note") and __ Warrants to purchase __ shares of Common Stock, par value $0.01
per share, of the Company. This opinion is delivered to you pursuant to the
Underwriting Agreement.
In connection with this opinion, we have examined the Underwriting
Agreement, the Registration Statement and originals, or copies reproduced or
certified to our satisfaction, of such corporate records of Primus
Telecommunications, Limited. ("PTL") as we have deemed necessary to form the
basis for the opinions hereinafter expressed. We have also made such
examination of laws, of certificates of public officials, and of certificates of
officers of Primus and PTL, as we have deemed necessary to enable us to render
this opinion. As to matters of fact relevant to the opinions herein expressed,
we have assumed the accuracy and completeness of, and have relied solely upon,
the representations and warranties of Primus and PTL and certificates of
officers of Primus and PTL, and of certificates of public officials.
We have assumed (i) the due execution and delivery, pursuant to due
authorization, of the Underwriting Agreement by the parties thereto, (ii) the
genuineness of the signatures of, and the authority of, persons signing the
Underwriting Agreement on behalf of all parties, (iii) the genuineness of all
signatures and the authenticity and completeness of all records, certificates,
instruments and documents submitted to us as originals, and (iv) the conformity
to authentic originals of all records, certificates, instruments and documents
submitted to us as certified, conformed, photostatic or facsimile copies
thereof.
This opinion is limited solely to matters governed by the laws of
England and Wales.
Based upon the foregoing assumptions, and subject to the
qualifications set forth below, we are of the opinion that:
<PAGE>
1 (a) Primus' subsidiary, Primus Telecommunications, Inc. ("PTI"), has been
duly incorporated and is validly existing as a [public limited
company] under the laws of [England], and has the corporate power and
authority under such laws to own its property, and, operating Primus'
business in the United Kingdom, has all necessary approvals, licenses,
designations and specifications from the Secretary of State for Trade
and Industry ("permissions") to conduct its business in the United
Kingdom in the manner described in the Prospectus and no such other
approvals or permissions are required from any other governmental
entity in the United Kingdom for Primus, PTI or PTL to conduct their
business as currently conducted in the United Kingdom in the manner
described in the Prospectus;
(b) neither Primus, PTI nor PTL has received any notice of proceedings
relating to revocation or modification of any permissions save for the
designation and specification attached herewith and the notice of
intention also attached herewith;
(c) neither Primus, PTI nor PTL is in violation of, or in default under,
English or Welsh law, regulation, order, or judgment applicable to any
of them; and
(d) there are no restrictions contained in any permission on the ability
of PTL to declare or pay any dividends or make any payment or transfer
any property or assets to its shareholders.
(e) to the best of our knowledge and belief Primus, PTI and PTL have not
been issued with any notifications by the Commission of the European
Communities informing any of them that they are in breach of any
applicable provision of European law as established under the Treaty
of Rome as it relates to the provision of telecommunications services.
(f) PTI is the registered beneficial owner of 100% of the shares of PTL;
PTL is a wholly owned subsidiary of PTI.
<PAGE>
2 Insofar as the following statements in the Prospectus related to the UK,
namely those under the captions "Risk Factors - Potential Adverse Effects
of Regulation"; "Business -Government Regulation - United Kingdom" and "-
Competition" and insofar as they constitute summaries of the legal matters,
documents or proceedings referred to therein, they are accurate in all
material respects and fairly summarize all matters referred to therein.
Yours faithfully,
Rakisons Solicitors
<PAGE>
EXHIBIT D
July __, 1997
LEHMAN BROTHERS INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
as Representatives of the Several Underwriters
named in Schedule I to the Underwriting Agreement
referred to below
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
We have acted as special counsel to Primus Telecommunications Group,
Incorporated, a Delaware corporation ("Primus"), in connection with the
execution and delivery by Primus of the Underwriting Agreement dated July __,
1997 (the "Underwriting Agreement") by and among Primus and you, as
representatives (the "Representatives") of the several Underwriters listed on
Schedule I attached thereto (the "Underwriters"), and the filing by Primus with
the United States Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), of Primus' registration
statement on Form S-1 (No. 333-30195), as amended to date, relating to __ Units
(the "Units"), each Unit consisting of __ __% Senior Notes due 2004 (each, a
"Note") and __ Warrants (each, a "Warrant") to purchase ___ shares of Common
Stock, par value $0.01 per share, of the Company (the "Warrant Shares"). This
opinion is delivered to you pursuant to Section 7(g) of the Underwriting
Agreement. Capitalized terms used herein but not otherwise defined have the
meanings ascribed to them in the Underwriting Agreement.
In connection with this opinion, we have examined the Underwriting
Agreement, the Registration Statement and originals, or copies reproduced or
certified to our satisfaction, of such corporate records of Primus
Telecommunications Pty. Ltd. ("Primus Australia") and Axicorp Pty., Ltd.
("Axicorp") as we have deemed necessary to form the basis for the opinions
hereinafter expressed. We have also made such examination of laws, of
certificates of public officials, and of certificates of officers of Primus,
Primus Australia and Axicorp, as we have deemed necessary to enable us to render
this opinion. As to matters of fact relevant to the opinions herein expressed,
we have assumed the accuracy and completeness of, and have relied solely upon,
the representations and warranties of Primus contained in the Agreements and in
such certificates of officers of Primus, Primus Australia and Axicorp, and of
certificates of public officials.
We have assumed (i) the due execution and delivery, pursuant to due
authorization, of the Agreements by the parties thereto other than Primus, (ii)
the genuineness of the signatures of, and the authority of, persons signing the
Underwriting Agreement on behalf of all parties other than Primus, (iii) the
genuineness of all signatures and the authenticity and completeness of all
records, certificates, instruments and documents submitted to us as originals,
and (iv) the conformity to authentic originals of all records, certificates,
instruments and documents submitted to us as certified, conformed, photostatic
or facsimile copies thereof.
This opinion is limited solely to matters governed by the laws of the
Commonwealth of Australia ("Australia").
<PAGE>
References to:
1. "$" in this report are to Australian dollars, except where specified as
US$.
2. the "Prospectus" are to a prospectus of Primus dated July __, 1997, a copy
of which is attached to this letter.
We have inspected:
(a) the company statutory records of Axicorp Pty., Ltd. ("Axicorp"), undertaken
a full historical company search with the Australian Securities Commission
and inspected a certified copy of a Share Acquisition Deed dated 1 March
1996 between Primus Telecommunications International, Incorporated ("Primus
International") as purchaser and certain parties as vendors in relation to
all the shares in Axicorp.
(b) the company statutory records of Primus Telecommunications Pty. Ltd.
("Primus Australia") and undertaken a full historical company search with
the Australian Securities Commission.
Based upon our investigations and interview and (in relation to paragraphs 3, 5
and 8.3) our opinion of the laws of Australia, we are able to say:
1. AXICORP PTY., LTD. ACN 061 754 943
1.1 Axicorp has an authorized share capital of $__________ divided into
__________ shares of $1.00 and has an issued share capital of $__________,
comprising _______ fully paid ordinary shares of $1.00 each.
Primus International is the registered beneficial owner of __________
shares (100%) in Axicorp, none of which are mortgaged to any party, and has
options to purchase the balance of the shares in Axicorp.
Axicorp is a wholly owned subsidiary of Primus.
<PAGE>
12 We are instructed that Axicorp conducts the business of providing local,
domestic and international long distance, mobile, voice, data, facsimile,
enhanced facsimile, calling card, debit card and prepaid card, and ISDN
carriage telecommunications services to business and residential customers
through direct sales force, dealerships, agents, resellers, associations,
affinity groups, direct marketing and others and providing voicemail
equipment to carriers, in Australia and that Axicorp only does business in
Australia.
2. PRIMUS TELECOMMUNICATIONS PTY. LTD. ACN 071 191 396
21 Primus Australia has an authorized share capital of $[1,000,000] divided
into
1,000,000 shares classified as follows:
909,998 Ordinary shares of $1.00 each
10,000 "A" class shares of $1.00 each
10,000 "B" class shares of $1.75 each
10,000 "C" class shares of $1.50 each
10,000 "D" class shares of $1.25 each
10,000 "E" class shares of $1.00 each
10,000 "F" class shares of $0.75 each
10,000 "G" class shares of $0.50 each
10,000 "H" class shares of $0.25 each
10,000 "I" class redeemable preference shares of $1.00 each
2 Subscriber shares of $1.00 each
Primus Australia has an issued share capital of $1,001, comprising 1,001
shares of $1.00 each, made up of 999 fully paid ordinary shares and 2 fully
paid Subscriber shares.
Primus is the registered beneficial owner of all the shares in Primus
Australia. Primus Australia is a wholly-owned subsidiary of Primus.
2.2 We are instructed that Primus Australia conducts the business of [..] and
that Primus Australia only does business in Australia.
3. INCORPORATION, STANDING AND POWER & AUTHORITY
3.1 Each of Axicorp and Primus Australia:
(a) has been duly incorporated; and
(b) is validly existing as a corporation in good standing under the laws
of, in the case of Axicorp, Victoria and, in the case of Primus
Australia, New South Wales; and
(c) has all necessary power and authority to own or hold its properties
and conduct the business in which it is engaged in Australia.
4. AUTHORISATIONS TO CONDUCT BUSINESS & COMPLIANCE WITH LAWS
Each of Axicorp and Primus Australia:
(a) has all necessary certificates, orders, permits, licenses,
authorisations, consents and approvals of and from, and has made all
declarations and filings with, all Australian governmental
authorities, all self-regulatory organizations and all courts and
tribunals to own, lease, license and use its properties and assets and
to conduct its business in the manner described in the Prospectus;
<PAGE>
(b) has not received any notice of proceedings relating to revocation or
modification of any such certificates, orders, permits, licenses,
authorisations, consents or approvals;
(c) is not in violation of, or in default under, any federal, state or
local law, regulation, rule, decree, order or judgement applicable to
it, the effect of which, singly or in the aggregate, would have a
material adverse effect on the prospects, condition, financial or
otherwise, or on the earnings, business or operations of Primus and
its subsidiaries, taken as a whole, except as described in the
Prospectus.
5. REGULATORY ENVIRONMENT
The statements in the Prospectus under the captions:
* "Risk Factors - Potential Adverse Effects of Regulation" and
* "Business - Government Regulation"
in each case insofar as such statements constitute summaries of the
Australian legal matters, documents or proceedings referred to therein, are
accurate in all material respects and fairly summarize all matters referred
to therein.
6. RESTRICTIONS ON REPATRIATION OF FUNDS
There are no restrictions (legal, contractual or otherwise) on the ability
of Axicorp or Primus Australia to declare and pay any dividends or make any
payment or transfer of property or assets to its stockholders other than
those described in the Prospectus and such restrictions as would not have a
material adverse effect on the prospects, condition, financial or
otherwise, or on the earnings, business or operations of Primus and its
subsidiaries, taken as a whole; and such descriptions, if any, fairly
summarize such restrictions.
7. LITIGATION
Each of Axicorp and Primus Australia is not aware of any actual or pending
legal proceeding in which it is a party or which is threatened against it
that would be likely, if successful, to have a material adverse effect on
Primus's business, financial condition or results of operations.
Very Truly Yours,
Rawling & Company Solicitors
<PAGE>
EXHIBIT E
July __, 1997
LEHMAN BROTHERS INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
as Representatives of the Several Underwriters
named in Schedule I to the Underwriting Agreement
referred to below
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
We have acted as special Canadian counsel to Primus Telecommunications
Group, Incorporated, a Delaware corporation ("Primus"), in connection with the
execution and delivery by Primus of the Underwriting Agreement dated July __,
1997 (the "Underwriting Agreement") by and among Primus and you, as
representatives (the "Representatives") of the several Underwriters listed on
Schedule I attached thereto (the "Underwriters"), and the filing by Primus with
the United States Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), of Primus' registration
statement on Form S-1 (No. 333-30195), as amended to date, relating to __ Units
(the "Units"), each consisting of __ __% Senior Notes due 2004 (each, a "Note")
and the Warrants (each, a "Warrant") to purchase __ shares of Common Stock, par
value $0.01 per share, of the _______ (the "Warrant Shares"). This opinion is
delivered to you pursuant to Section 7(h) of the Underwriting Agreement.
Capitalized terms used herein but not otherwise defined have the meanings
ascribed to them in the Underwriting Agreement.
In connection with this opinion, we have examined the Underwriting
Agreement, the Registration Statement and originals, or copies reproduced or
certified to our satisfaction, of such corporate records of Primus and
3362426 Canada Inc., doing business as Primus Telecommunications Canada ("Primus
Canada") as we have deemed necessary to form the basis for the opinions
hereinafter expressed. We have also made such examination of laws, of
certificates of public officials, and of Primus and CS-1, as we have deemed
necessary to enable us to render this opinion. As to matters of fact relevant to
the opinions herein expressed, we have assumed the accuracy and completeness of,
and have relied solely upon, the representations and warranties of Primus
contained in the Underwriting Agreement and in such certificates of officers of
Primus and Primus Canada, and of certificates of public officials.
We have assumed (i) the due execution and delivery, pursuant to due
authorization, of the Underwriting Agreement by the parties thereto other than
Primus, (ii) the genuineness of the signatures of, and the authority of, persons
signing the Underwriting Agreement on behalf of all parties other than Primus,
(iii) the genuineness of all signatures and the authenticity and completeness of
all records, certificates, instruments and documents submitted to us as
originals, and (iv) the conformity to authentic originals of all records,
certificates, instruments and documents submitted to us as certified, conformed,
photostatic or facsimile copies thereof.
This opinion is limited solely to matters governed by the laws of
Canada.
Based upon the foregoing assumptions, and subject to the
qualifications set forth
<PAGE>
below, we are of the opinion that:
(i) The statements in the Prospectus under the captions "Risk Factors --
Potential Adverse Effects of Regulation," and "Business -- Government
Regulation -- Canada", in each case insofar as such statements constitute
summaries of the Canadian legal matters, documents or proceedings referred
to therein, are accurate in all material respects and fairly summarize all
matters referred to therein.
Very truly yours,
Osler, Hoskins & Harcourt
<PAGE>
EXHIBIT F
July __, 1997
LEHMAN BROTHERS INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
as Representatives of the Several Underwriters
named in Schedule I to the Underwriting Agreement
referred to below
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
We have acted as special Canadian counsel to Primus Telecommunications
Group, Incorporated, a Delaware corporation ("Primus"), in connection with the
execution and delivery by Primus of the Underwriting Agreement dated July __,
1997 (the "Underwriting Agreement") by and among Primus and you, as
representatives (the "Representatives") of the several Underwriters listed on
Schedule I attached thereto (the "Underwriters"), and the filing by Primus with
the United States Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), of Primus' registration
statement on Form S-1 (No. 333-30195), as amended to date, relating to __ Units
(the "Units"), each consisting of __ __% Senior Notes due 2004 (each, a "Note")
and the Warrants (each, a "Warrant") to purchase __ shares of Common Stock, par
value $0.01 per share, of the _______ (the "Warrant Shares"). This opinion is
delivered to you pursuant to Section 7(h) of the Underwriting Agreement.
Capitalized terms used herein but not otherwise defined have the meanings
ascribed to them in the Underwriting Agreement.
In connection with this opinion, we have examined the Underwriting
Agreement, the Registration Statement and originals, or copies reproduced or
certified to our satisfaction, of such corporate records of Primus and
3362426 Canada Inc., doing business as Primus Telecommunications Canada ("Primus
Canada") as we have deemed necessary to form the basis for the opinions
hereinafter expressed. We have also made such examination of laws, of
certificates of public officials, and of Primus and CS-1, as we have deemed
necessary to enable us to render this opinion. As to matters of fact relevant to
the opinions herein expressed, we have assumed the accuracy and completeness of,
and have relied solely upon, the representations and warranties of Primus
contained in the Underwriting Agreement and in such certificates of officers of
Primus and Primus Canada, and of certificates of public officials.
We have assumed (i) the due execution and delivery, pursuant to due
authorization, of the Underwriting Agreement by the parties thereto other than
Primus, (ii) the genuineness of the signatures of, and the authority of, persons
signing the Underwriting Agreement on behalf of all parties other than Primus,
(iii) the genuineness of all signatures and the authenticity and completeness of
all records, certificates, instruments and documents submitted to us as
originals, and (iv) the conformity to authentic originals of all records,
certificates, instruments and documents submitted to us as certified, conformed,
photostatic or facsimile copies thereof.
This opinion is limited solely to matters governed by the laws of
Canada.
<PAGE>
Based upon the foregoing assumptions, and subject to the
qualifications set forth below, we are of the opinion that:
(i) Primus Canada has been duly incorporated and is validly existing as a
corporation in good standing under the laws of [ ___________ ], is duly
qualified to do business and is in good standing in each jurisdiction in
which its ownership or lease of property or the conduct of its respective
businesses require such qualification (except where the failure to so
qualify, singly or in the aggregate, would not have a material adverse
effect on the financial position, stockholders' equity, results of
operations or business of Cam-Net), and has all power and authority
necessary to own or hold its respective properties and conduct the
businesses in which they are engaged;
(ii) Primus is the registered beneficial owner of ____ shares (____%) in
Primus Canada.
Very truly yours,
Goodman, Phillips & Vineberg
<PAGE>
Exhibit 4.1
================================================================================
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED,
Issuer
TO
FIRST UNION NATIONAL BANK OF VIRGINIA,
Trustee
--------------------
Indenture
Dated as of July ___, 1997
--------------------
$___,000,000
_____% Senior Notes Due 2004
================================================================================
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of _______________
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
(S) 310(a)(1) ...................................... 607
(a)(2) ...................................... 607
(b) ...................................... 608
(S) 312(c) ...................................... 701
(S) 314(a) ...................................... 703
(a)(4) ...................................... 1008(a)
(c)(1) ...................................... 102
(c)(2) ...................................... 102
(e) ...................................... 102
(S) 315(b) ...................................... 601
(S) 316(a)(last
sentence) ...................................... 101 ("Outstanding")
(a)(1)(A) ...................................... 502, 512
(a)(1)(B) ...................................... 513
(b) ...................................... 508
(c) ...................................... 104(d)
(S) 317(a)(1) ...................................... 503
(a)(2) ...................................... 504
(b) ...................................... 1003
(S) 318(a) ...................................... 111
</TABLE>
- --------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PARTIES.................................................................... 1
RECITALS OF THE COMPANY.................................................... 1
<CAPTION>
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
<S> <C>
SECTION 101. Definitions...................................... 2
-----------
Act........................................................... 2
Acquired Indebtedness......................................... 2
Affiliate..................................................... 3
Asset Acquisition............................................. 3
Asset Disposition............................................. 3
Asset Sale.................................................... 3
Average Life.................................................. 3
Board of Directors............................................ 4
Board Resolution.............................................. 4
Business Day.................................................. 4
Capital Stock................................................. 4
Capitalized Lease............................................. 4
Change of Control............................................. 4
Closing Date.................................................. 5
Commission.................................................... 5
Common Stock.................................................. 5
Company....................................................... 5
Company Request" or "Company Order............................ 5
Consolidated Cash Flow........................................ 5
Consolidated Fixed Charges.................................... 5
Consolidated Interest Expense................................. 5
Consolidated Net Income....................................... 6
Consolidated Net Worth........................................ 6
Corporate Trust Office........................................ 6
Corporation................................................... 7
Credit Facilities............................................. 7
Currency Agreement............................................ 7
</TABLE>
- ------------------
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
ii
<TABLE>
<CAPTION>
Page
<S> <C>
Default....................................................... 7
Defaulted Interest............................................ 7
Eligible Accounts Receivable.................................. 7
Eligible Institution.......................................... 7
Employment Agreements......................................... 7
Event of Default.............................................. 7
Excess Proceeds Offer......................................... 7
Existing Indebtedness......................................... 8
Fair Market Value............................................. 8
Federal Bankruptcy Code....................................... 8
GAAP.......................................................... 8
Guarantee..................................................... 8
Government Securities......................................... 8
Holder........................................................ 8
Incur......................................................... 8
Indebtedness.................................................. 9
Indenture..................................................... 9
Interest Payment Date......................................... 9
Interest Rate Agreement....................................... 9
Investment.................................................... 9
Lien.......................................................... 10
Marketable Securities......................................... 10
Maturity...................................................... 10
Net Cash Proceeds............................................. 11
Notes......................................................... 11
Note Register" and "Note Registrar............................ 11
Officer's Certificate......................................... 11
Opinion of Counsel............................................ 11
Outstanding................................................... 12
Paying Agent.................................................. 12
Payment Account............................................... 12
Permitted Business............................................ 13
Permitted Investment.......................................... 13
Permitted Liens............................................... 13
Person........................................................ 14
Pledge Account................................................ 14
Pledge Agreement.............................................. 15
Pledged Securities............................................ 15
Predecessor Note.............................................. 15
Preferred Stock............................................... 15
Pro Forma Consolidated Cash Flow.............................. 15
Public Equity Offering........................................ 15
</TABLE>
<PAGE>
iii
<TABLE>
<CAPTION>
Page
<S> <C>
Purchase Money Obligations.................................... 15
Redeemable Stock.............................................. 15
Redemption Date............................................... 16
Redemption Price.............................................. 16
Regular Record Date........................................... 16
Responsible Officer........................................... 16
Restricted Payments........................................... 16
Restricted Subsidiary......................................... 16
Securities Act................................................ 16
Significant Subsidiary........................................ 16
Special Record Date........................................... 17
Stated Maturity............................................... 17
Subsidiary.................................................... 17
Trade Payables................................................ 17
Transaction Date.............................................. 17
Trust Indenture Act" or "TIA.................................. 17
Trustee....................................................... 17
Underwriting Agreement........................................ 17
Units......................................................... 17
Unrestricted Subsidiary....................................... 17
Unrestricted Subsidiary Indebtedness.......................... 18
U.S. Subsidiary............................................... 18
Vice President................................................ 18
Voting Stock.................................................. 18
Warrants...................................................... 18
Warrant Agent................................................. 18
Warrant Agreement............................................. 18
Wholly Owned.................................................. 18
SECTION 102. Compliance Certificates and Opinions............ 19
SECTION 103. Form of Documents Delivered to Trustee.......... 19
SECTION 104. Acts of Holders................................. 20
SECTION 105. Notices, etc., to Trustee, Company.............. 21
SECTION 106. Notice to Holders; Waiver....................... 21
SECTION 107. Effect of Headings and Table of Contents........ 22
SECTION 108. Successors and Assigns.......................... 22
SECTION 109. Separability Clause............................. 22
SECTION 110. Benefits of Indenture........................... 22
SECTION 111. Governing Law................................... 23
SECTION 112. Legal Holidays.................................. 23
SECTION 113. Currency Indemnity.............................. 23
</TABLE>
<PAGE>
iv
Page
ARTICLE TWO
NOTE FORMS
<TABLE>
<CAPTION>
<S> <C>
SECTION 201. Forms Generally................................ 24
SECTION 202. Form of Face of Note........................... 24
SECTION 203. Form of Reverse of Note........................ 26
SECTION 204. Form of Trustee's Certificate of
Authentication............................................. 29
<CAPTION>
ARTICLE THREE
THE NOTES
<S> <C>
SECTION 301. Title and Terms................................ 30
SECTION 302. Denominations.................................. 30
SECTION 303. Execution, Authentication, Delivery
and Dating................................................. 30
SECTION 304. Temporary Notes................................ 31
SECTION 305. Registration, Registration of
Transfer and Exchange...................................... 32
SECTION 306. Mutilated, Destroyed, Lost and Stolen
Notes...................................................... 33
SECTION 307. Payment of Interest; Interest Rights
Preserved.................................................. 34
SECTION 308. Persons Deemed Owners.......................... 35
SECTION 309. Cancellation................................... 35
SECTION 310. Computation of Interest........................ 35
<CAPTION>
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of
Indenture.................................................. 36
SECTION 402. Application of Trust Money..................... 37
</TABLE>
<PAGE>
v
Page
ARTICLE FIVE
REMEDIES
<TABLE>
<CAPTION>
<S> <C>
SECTION 501. Events of Default.............................. 37
SECTION 502. Acceleration of Maturity; Rescission
and Annulment.............................................. 39
SECTION 503. Collection of Indebtedness and Suits
for Enforcement by Trustee................................. 40
SECTION 504. Trustee May File Proofs of Claim............... 41
SECTION 505. Trustee May Enforce Claims Without
Possession of Notes........................................ 42
SECTION 506. Application of Money Collected................. 42
SECTION 507. Limitation on Suits............................ 42
SECTION 508. Unconditional Right of Holders to
Receive Principal, Premium and Interest.................... 43
SECTION 509. Restoration of Rights and Remedies............. 43
SECTION 510. Rights and Remedies Cumulative................. 43
SECTION 511. Delay or Omission Not Waiver................... 44
SECTION 512. Control by Holders............................. 44
SECTION 513. Waiver of Past Defaults........................ 44
SECTION 514. Waiver of Stay or Extension Laws............... 45
<CAPTION>
ARTICLE SIX
THE TRUSTEE
<S> <C>
SECTION 601. Notice of Defaults............................. 45
SECTION 602. Certain Rights of Trustee...................... 46
SECTION 603. Trustee Not Responsible for Recitals
or Issuance of Notes....................................... 47
SECTION 604. May Hold Notes................................. 47
SECTION 605. Money Held in Trust............................ 47
SECTION 606. Compensation and Reimbursement................. 48
SECTION 607. Corporate Trustee Required;
Eligibility................................................ 49
SECTION 608. Resignation and Removal;
Appointment of Successor................................... 49
SECTION 609. Acceptance of Appointment by
Successor.................................................. 50
SECTION 610. Merger, Conversion, Consolidation or
Succession to Business..................................... 51
</TABLE>
<PAGE>
vi
<TABLE>
<CAPTION>
Page
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
<S> <C>
SECTION 701. Disclosure of Names and Addresses of
Holders.......................................................... 51
SECTION 702. Reports by Trustee.................................... 51
SECTION 703. Reports by Company.................................... 52
<CAPTION>
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
<S> <C>
SECTION 801. Company May Consolidate, etc., Only
on Certain Terms................................................. 53
SECTION 802. Successor Substituted................................ 54
SECTION 803. Notes to Be Secured in Certain Events................ 54
<CAPTION>
ARTICLE NINE
SUPPLEMENTAL INDENTURES
<S> <C>
SECTION 901. Supplemental Indentures Without
Consent of Holders............................................... 55
SECTION 902. Supplemental Indentures with Consent
of Holders....................................................... 55
SECTION 903. Execution of Supplemental Indentures................. 56
SECTION 904. Effect of Supplemental Indentures.................... 56
SECTION 905. Conformity with Trust Indenture Act.................. 57
SECTION 906. Reference in Notes to Supplemental
Indentures....................................................... 57
SECTION 907. Notice of Supplemental Indentures.................... 57
</TABLE>
<PAGE>
vii
<TABLE>
<CAPTION>
Page
ARTICLE TEN
COVENANTS
<S> <C>
SECTION 1001. Payment of Principal, Premium, if
any, and Interest............................................... 57
SECTION 1002. Maintenance of Office or Agency.................... 57
SECTION 1003. Money for Note Payments to Be
Held in Trust................................................... 58
SECTION 1004. Corporate Existence................................ 59
SECTION 1005. Payment of Taxes and Other Claims.................. 59
SECTION 1006. Maintenance of Properties.......................... 60
SECTION 1008. Statement by Officers As to Default................ 60
SECTION 1009. Provision of Financial Statements.................. 60
SECTION 1021. Waiver of Certain Covenants........................ 73
<CAPTION>
ARTICLE ELEVEN
REDEMPTION OF NOTES
<S> <C>
SECTION 1101. Right of Redemption................................ 74
SECTION 1102. Applicability of Article........................... 74
SECTION 1103. Election to Redeem; Notice to
Trustee......................................................... 74
SECTION 1104. Selection by Trustee of Notes to Be
Redeemed........................................................ 74
SECTION 1105. Notice of Redemption............................... 75
SECTION 1106. Deposit of Redemption Price........................ 75
SECTION 1107. Notes Payable on Redemption Date................... 76
SECTION 1108. Notes Redeemed in Part............................. 76
<CAPTION>
ARTICLE TWELVE
SECURITY
<S> <C>
SECTION 1201. Security........................................... 77
</TABLE>
<PAGE>
viii
<TABLE>
<CAPTION>
Page
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
<S> <C>
SECTION 1301. Company's Option to Effect
Defeasance or Covenant Defeasance.............................. 78
SECTION 1302. Defeasance and Discharge.......................... 78
SECTION 1303. Covenant Defeasance............................... 79
SECTION 1304. Conditions to Defeasance or
Covenant Defeasance............................................ 79
SECTION 1305. Deposited Money and U.S.
Government Obligations to Be Held in Trust; Other
Miscellaneous Provisions....................................... 81
SECTION 1306. Reinstatement..................................... 81
TESTIMONIUM................................................................ 84
SIGNATURES AND SEALS....................................................... 84
</TABLE>
<PAGE>
INDENTURE, dated as of July__ , 1997 between PRIMUS
TELECOMMUNICATIONS GROUP, INCORPORATED, a corporation duly organized and
existing under the laws of the State of Delaware (herein called the "Company"),
having its principal office at 2070 Chain Bridge Road, Suite 425, Vienna,
Virginia 22182, and FIRST UNION NATIONAL BANK OF VIRGINIA, a national banking
association, duly organized and existing under the laws of the United States, as
Trustee (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of ___% Senior
Notes Due 2004 (the "Notes"), of substantially the tenor and amount hereinafter
set forth, and to provide therefor the Company has duly authorized the execution
and delivery of this Indenture.
Pursuant to the terms of an Underwriting Agreement dated as of July __,
1997 (the "Underwriting Agreement") between the Company and Lehman Brothers Inc.
and Donaldson, Lufkin & Jenrette Securities Corporation, as representatives
(the "Representatives") for itself and the several underwriters named on
Schedule I thereto , the Company has agreed to issue and sell (i) $____ Units
(the "Units"), each Unit consisting of $1,000 principal amount of the Notes and
____ warrants (the "Warrants") to purchase shares of common stock, par value
$.01 per share, of the Company, issuable pursuant to the terms of a Warrant
Agreement dated as of the date hereof (the "Warrant Agreement") between the
Company and First Union National Bank of Virginia, as the warrant agent (the
"Warrant Agent"). The Notes will be partially secured pursuant to the terms of
a Pledge Agreement (as defined herein) by Government Securities as provided by
Article Ten of this Indenture.
This Indenture is subject to the provisions of the Trust Indenture Act of
1939, as amended, that are required to be part of this Indenture and shall, to
the extent applicable, be governed by such provisions.
All things necessary have been done to make the Notes, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
agreement of the Company, in accordance with their and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes by
the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
<PAGE>
2
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and "self-
liquidating paper", as used in TIA Section 311, shall have the meanings
assigned to them in the rules of the Commission adopted under the Trust
Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as
are generally accepted at the date of such computation; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Ten, are defined in that
Article.
"Act", when used with respect to any Holder, has the meaning specified
in Section 104.
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary or assumed in connection with
an Asset Acquisition by the Company or a Restricted Subsidiary and not incurred
in connection with, or in anticipation of, such Person becoming a Restricted
Subsidiary or such Asset Acquisition; provided that Indebtedness of such Person
--------
which is redeemed, defeased, retired or otherwise repaid at the time of or
immediately upon the consummation of the transactions by which such Person
becomes a Restricted Subsidiary or such Asset Acquisition shall not be
Indebtedness.
<PAGE>
3
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise. For purposes of the
Indenture "Affiliate" shall be deemed to include Mr. K. Paul Singh.
"Asset Acquisition" means (i) an investment by the Company or any of
its Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or shall be merged into or
consolidated with the Company or any of its Restricted Subsidiaries or (ii) an
acquisition by the Company or any of its Restricted Subsidiaries of the property
and assets of any Person other than the Company or any of its Restricted
Subsidiaries that constitute substantially all of a division or line of business
of such Person.
"Asset Disposition" means the sale or other disposition by the Company
or any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary of the Company) of (i) all or substantially all of the
Capital Stock of any Restricted Subsidiary of the Company or (ii) all or
substantially all of the assets that constitute a division or line of business
of the Company or any of its Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transactions) in one
transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets of the Company or any of its Restricted
Subsidiaries outside the ordinary course of business of the Company or such
Restricted Subsidiary and, in each case, that is not governed by the provisions
of the Indenture applicable to mergers, consolidations and sales of assets of
the Company and which, in the case of any of clause (i), (ii) or (iii) above,
whether in one transaction or a series of related transactions, (a) have a fair
market value in excess of $1.0 million or (b) are for net proceeds in excess of
$1.0 million; provided that sales or other dispositions of inventory,
--------
receivables and other current assets in the ordinary course of business shall
not be included within the meaning of "Asset Sale."
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
<PAGE>
4
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
or Richmond, Virginia are authorized or obligated by law or executive order to
close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether now outstanding or
issued after the date of this Indenture, including, without limitation, all
Common Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "Capitalized
Lease Obligation" means the discounted present value of the rental obligations
under such lease.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes
the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of more than 50% of the total voting power of the then outstanding Voting
Stock of the Company on a fully diluted basis; (ii) individuals who at the
beginning of any period of two consecutive calendar years constituted the Board
of Directors (together with any directors who are members of the Board of
Directors on the date hereof and any new directors whose election by the Board
of Directors or whose nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the members of the Board of
Directors then still in office who either were members of the Board of Directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
members of such board of directors then in office; (iii) the sale, lease,
transfer, conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any such "person" or "group" (other than to the Company or a Restricted
Subsidiary); (iv) the merger or consolidation of the Company with or into
another corporation or the merger of another corporation with or into the
Company with the effect that immediately after such transaction any such
"person" or "group" of persons or entities shall have become the beneficial
owner of securities of the surviving corporation of such merger or consolidation
representing a majority of the total
<PAGE>
5
voting power of the then outstanding Voting Stock of the surviving corporation;
or (v) the adoption of a plan relating to the liquidation or dissolution of the
Company.
"Closing Date" means the date on which the Notes are originally issued
under this Indenture.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations and other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the date of this Indenture, including, without limitation, all
series and classes of such common stock.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Cash Flow" means, for any period, the sum of the amounts
for such period of (i) Consolidated Net Income, (ii) Consolidated Interest
Expense, (iii) income taxes, to the extent such amount was deducted in
calculating Consolidated Net Income (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or
sales of assets), (iv) depreciation expense, to the extent such amount was
deducted in calculating Consolidated Net Income, (v) amortization expense, to
the extent such amount was deducted in calculating Consolidated Net Income, and
(vi) all other non-cash items reducing Consolidated Net Income (excluding any
non-cash charge to the extent that it represents an accrual of or reserve for
cash charges in any future period), less all non-cash items increasing
Consolidated Net Income, all as determined on a consolidated basis for the
Company and its Restricted Subsidiaries in conformity with GAAP.
"Consolidated Fixed Charges" means, for any period, Consolidated
Interest Expense plus dividends declared and payable on Preferred Stock.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including capitalized interest,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment
<PAGE>
6
obligation, calculated in accordance with the effective interest method of
accounting; all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing; the net costs
associated with Interest Rate Agreements; and interest on Indebtedness that is
Guaranteed or secured by the Company or any of its Restricted Subsidiaries) and
all but the principal component of rentals in respect of Capitalized Lease
Obligations paid, accrued or scheduled to be paid or to be accrued by the
Company and its Restricted Subsidiaries during such period.
"Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
--------
excluded in computing Consolidated Net Income (without duplication): (i) solely
for the purposes of calculating the amount of Restricted Payments that may be
made pursuant to clause (C) of the first paragraph of Section 1012, the net
income (or loss) of any Person accrued prior to the date it becomes a Restricted
Subsidiary or is merged into or consolidated with the Company or any of its
Restricted Subsidiaries or all or substantially all of the property and assets
of such Person are acquired by the Company or any of its Restricted
Subsidiaries; (ii) any gains or losses (on an after-tax basis) attributable to
Asset Sales; (iii) except for purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of
Section 1012, any amount paid or accrued as dividends on Preferred Stock of the
Company or Preferred Stock of any Restricted Subsidiary owned by Persons other
than the Company and any of its Restricted Subsidiaries; (iv) all extraordinary
gains and extraordinary losses; and (v) the net income (or loss) of any Person
(other than net income (or loss) attributable to a Restricted Subsidiary) in
which any Person (other than the Company or any of its Restricted Subsidiaries)
has a joint interest, except to the extent of the amount of dividends or other
distributions actually paid to the Company or any of its Restricted Subsidiaries
by such other Person during such period.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days prior to the date of such
computation), less any amounts attributable to Redeemable Stock or any equity
security convertible into or exchangeable for Indebtedness, the cost of treasury
stock and the principal amount of any promissory notes receivable from the sale
of the Capital Stock of the Company or any of its Restricted Subsidiaries, each
item to be determined in conformity with GAAP (excluding the effects of foreign
currency exchange adjustments under Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 52).
"Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be administered, which office at the date of execution of this Indenture is
located at 901 East Cary Street, Richmond, Virginia 23219, Attention: Corporate
Trust, except that with respect to presentation of Notes for payment or for
registration of transfer or exchange, such term shall
<PAGE>
7
mean the office or agency of the Trustee at which, at any particular time, its
corporate agency business shall be conducted.
"Corporation" includes corporations, associations, companies and
business trusts.
"Credit Facilities" means, with respect to the Company, one or more
debt facilities or commercial paper facilities with banks or other institutional
lenders providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement and any other arrangement and agreement designed to provide
protection against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Eligible Accounts Receivable" means the accounts receivables (net of
any reserves and allowances for doubtful accounts in accordance with GAAP) of
any Person that are not more than 60 days past their due date and that were
entered into in the ordinary course of business on normal payment terms as shown
on the most recent consolidated balance sheet of such Person filed with the
Commission, all in accordance with GAAP.
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A-3" or higher or "A-" or higher
according to Moody's Investors Services, Inc. or Standard & Poor's Ratings Group
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act) respectively, at the time as of which any investment or rollover therein is
made.
"Employment Agreements" means the employment agreements between the
Company and Mr. K. Paul Singh, dated June 1994.
"Event of Default" has the meaning specified in Section 501.
"Excess Proceeds Offer" has the meaning specified in Section 1017.
<PAGE>
8
"Existing Indebtedness" means Indebtedness outstanding on the date of
the Indenture.
"Fair Market Value" means, with respect to any asset or property, the
sale value that would be obtained in an arm's length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the
United States Code, as amended from time to time.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term "Guarantee" shall
--------
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Government Securities" means direct obligations of, obligations fully
guaranteed by, or participation in pools consisting solely of obligations of or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States of
America is pledged and which are not callable or redeemable at the option of the
issuer thereof.
"Holder" means a Person in whose name a Note is registered in the Note
Register.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an Incurrence of Indebtedness by reason of the
acquisition of more than 50% of the Capital Stock of any
<PAGE>
9
Person; provided that neither the accrual of interest nor the accretion of
--------
original issue discount shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, except Trade Payables, (v) all obligations of such Person as
lessee under Capitalized Leases, (vi) all Indebtedness of other Persons secured
by a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by such Person; provided that the amount of such Indebtedness shall be
--------
the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness, (vii) all Indebtedness of
other Persons Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person, (viii) the maximum fixed redemption or repurchase
price of Redeemable Stock of such Person at the time of determination and (ix)
to the extent not otherwise included in this definition, obligations under
Currency Agreements and Interest Rate Agreements. The amount of Indebtedness of
any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the contingency giving
rise to the obligation, provided (i) that the amount outstanding at any time of
--------
any Indebtedness issued with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with GAAP
and (ii) that Indebtedness shall not include any liability for federal, state,
local or other taxes.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.
"Interest Rate Agreement" means interest rate swap agreements,
interest rate cap agreements, interest rate insurance, and other arrangements
and agreements designed to provide protection against fluctuations in interest
rates.
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of the
<PAGE>
10
Company or its Restricted Subsidiaries) or capital contribution to (by means of
any transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, bonds, notes, debentures or other similar instruments issued by,
such Person. For purposes of the definition of "Unrestricted Subsidiary" and
Sections 1012 and 1014, (i) "Investment" shall include (a) the fair market value
of the assets (net of liabilities) of any Restricted Subsidiary of the Company
at the time that such Restricted Subsidiary of the Company is designated an
Unrestricted Subsidiary and shall exclude the fair market value of the assets
(net of liabilities) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary of the Company and
(b) the fair market value, in the case of a sale of Capital Stock in accordance
with Section 1014 such that a Person no longer constitutes a Restricted
Subsidiary, of the remaining assets (net of liabilities) of such Person after
such sale, and shall exclude the fair market value of the assets (net of
liabilities) of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary of the Company and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
by the Board of Directors in good faith.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller, or any agreement to
give any security interest).
"Marketable Securities" means: (i) Government Securities which have a
remaining weighted average life to maturity of not more than one year from the
date of Investment therein; (ii) any time deposit account, money market deposit
and certificate of deposit maturing not more than 180 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution; (iii)
commercial paper maturing not more than 90 days after the date of acquisition
issued by a corporation (other than an Affiliate of the Company) with a rating,
at the time as of which any investment therein is made, of "P-1" or higher
according to Moody's Investors Service, Inc., or "A-1" or higher according to
Standard & Poor's Rating Group (or such similar equivalent rating by at least
one "nationally recognized statistical rating organization" (as defined in Rule
436 under the Securities Act)); (iv) any banker's acceptance or money market
deposit accounts issued or offered by an Eligible Institution; (v) repurchase
obligations with a term of not more than 7 days for Government Securities
entered into with an Eligible Institution; and (vi) any fund investing
exclusively in investments of the types described in clauses (i) through (v)
above.
"Maturity", when used with respect to any Notes, means the date on
which the principal of such Notes or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption or otherwise.
<PAGE>
11
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary of the Company as a reserve against any
liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP and
(b) with respect to any issuance or sale of Capital Stock, the proceeds of such
issuance or sale in the form of cash or cash equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary of the Company)
and proceeds from the conversion of other property received when converted to
cash or cash equivalents, net of attorney's fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees incurred in connection with such issuance or sale and
net of taxes paid or payable as a result thereof.
"Notes" means any of the notes as defined in the first recital of this
Indenture and more particularly means any Notes authenticated and delivered
under this Indenture.
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 305.
"Officer's Certificate" means a certificate signed by the Chairman,
the President, a Vice President, the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall be
acceptable to the Trustee.
<PAGE>
12
"Outstanding", when used with respect to Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Notes, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside
and segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Notes; provided that, if such Notes
--------
are to be redeemed, notice of such redemption has been duly given pursuant
to this Indenture or provision therefor satisfactory to the Trustee has
been made;
(iii) Notes, except to the extent provided in Sections 1302 and 1303,
with respect to which the Company has effected defeasance and/or covenant
defeasance as provided in Article Thirteen; and
(iv) Notes which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Notes have been authenticated and
delivered pursuant to the Indenture, other than any such Notes in respect
of which there shall have been presented to the Trustee proof satisfactory
to it that such Notes are held by a bona fide purchaser in whose hands the
Notes are valid obligations of the Company.
provided, however, that in determining whether the Holders of the requisite
- -------- -------
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in making
such calculation or in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which the Trustee actually
knows to be so owned shall be so disregarded. Notes so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such Notes and that the pledgee is not the Company or any other obligor upon the
Notes or any Affiliate of the Company or such other obligor.
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium, if
any) or interest on any Notes on behalf of the Company.
"Payment Account" has the meaning set forth in Section 402.
<PAGE>
13
"Permitted Business" means any business involving voice, data and
other telecommunications services.
"Permitted Investment" means (i) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment, become a
Restricted Subsidiary or be merged or consolidated with or into or transfer or
convey all or substantially all its assets to, the Company or a Restricted
Subsidiary; (ii) any Investment in Marketable Securities or Pledged Securities;
(iii) payroll, travel and similar advances to cover matters that are expected at
the time of such advances ultimately to be treated as expenses in accordance
with GAAP; (iv) loans or advances to employees made in the ordinary course of
business in accordance with past practice of the Company or its Restricted
Subsidiaries and that do not in the aggregate exceed $1.0 million at any time
outstanding; (v) stock, obligations or securities received in satisfaction of
judgments; (vi) Investments in any Person received as consideration for Asset
Sales to the extent permitted under Section 1017; and (vii) Investments in any
Person at any one time outstanding (measured on the date each such Investment
was made without giving effect to subsequent changes in value) in an aggregate
amount not to exceed 5.0% of the Company's total consolidated assets.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights-of-way,
municipal and zoning ordinances and similar charges, encumbrances, title defects
or other irregularities that do not materially interfere with the ordinary
course of business of the Company or any of its Restricted Subsidiaries; (vi)
Liens (including extensions and renewals thereof) upon real or personal property
purchased or leased after the Closing Date; provided that (a) such Lien is
--------
created solely for the purpose of securing Indebtedness Incurred in compliance
with Section 1011 (1) to finance the cost (including the cost of design,
development, construction, acquisition, installation or integration) of the item
of property or assets subject thereto and such Lien is created prior to, at the
time of or within six months after the later of the acquisition, the completion
of construction or the commencement of full operation of such property or (2) to
refinance any Indebtedness previously so secured, (b) the principal amount
<PAGE>
14
of the Indebtedness secured by such Lien does not exceed 100% of such cost and
(c) any such Lien shall not extend to or cover any property or assets other than
such item of property or assets and any improvements on such item; (vii) leases
or subleases granted to others that do not materially interfere with the
ordinary course of business of the Company and its Restricted Subsidiaries,
taken as a whole; (viii) Liens encumbering property or assets under construction
arising from progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such property or assets; (ix) any interest
or title of a lessor in the property subject to any Capitalized Lease or
operating lease; (x) Liens arising from filing Uniform Commercial Code financing
statements regarding leases; (xi) Liens on property of, or on shares of stock or
Indebtedness of, any corporation existing at the time such corporation becomes,
or becomes a part of, any Restricted Subsidiary; provided that such Liens do not
--------
extend to or cover any property or assets of the Company or any Restricted
Subsidiary other than the property or assets acquired and were not created in
contemplation of such transaction; (xii) Liens in favor of the Company or any
Restricted Subsidiary; (xiii) Liens arising from the rendering of a final
judgment or order against the Company or any Restricted Subsidiary of the
Company that does not give rise to an Event of Default; (xiv) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the products
and proceeds thereof; (xv) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods; (xvi) Liens encumbering customary initial
deposits and margin deposits and other Liens that are either within the general
parameters customary in the industry or incurred in the ordinary course of
business, in each case, securing Indebtedness under Interest Rate Agreements and
Currency Agreements; (xvii) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of goods entered
into by the Company or any of its Restricted Subsidiaries in the ordinary course
of business in accordance with the past practices of the Company and its
Restricted Subsidiaries prior to the Closing Date; (xviii) Liens existing on the
Closing Date or securing the Notes or any Guarantee of the Notes; (xix) Liens
granted after the Closing Date on any assets or Capital Stock of the Company or
its Restricted Subsidiaries created in favor of the holders; (xx) Liens securing
Indebtedness which is incurred to refinance secured Indebtedness which is
permitted to be Incurred under clause (iv) of paragraph (b) of Section 1011;
provided that such Liens do not extend to or cover any property or assets of the
- --------
Company or any Restricted Subsidiary other than the property or assets securing
the Indebtedness being refinanced; and (xxi) Liens securing Indebtedness under a
Credit Facility incurred in compliance with clauses (i) and (ix) of paragraph
(b) of Section 1011.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Pledge Account" means an account established with the Trustee
pursuant to the terms of the Pledge Agreement for the deposit of the Pledged
Securities purchased by the Company with a portion of the proceeds from the sale
of the Notes.
<PAGE>
15
"Pledge Agreement" means the Collateral Pledge and Security Agreement,
dated as of the date of this Indenture, made by the Company in favor of the
Trustee, governing the disbursement of funds from the Pledge Account, as such
Pledge Agreement may be amended, restated, supplemented or otherwise modified
from time to time.
"Pledged Securities" means the securities originally purchased by the
Company with a portion of the proceeds from the sale of the Notes, which shall
consist of Government Securities, to be deposited in the Pledge Account, all in
accordance with the terms of the Pledge Agreement.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 306 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's preferred or preference stock,
whether now outstanding or issued after the date of this Indenture, including,
without limitation, all series and classes of preferred or preference stock.
"Pro Forma Consolidated Cash Flow" means, for any period, the
Consolidated Cash Flow of the Company for such period calculated on a pro forma
basis to give effect to any Asset Disposition or Asset Acquisition not in the
ordinary course of business (including acquisitions of other Persons by merger,
consolidation or purchase of Capital Stock) during such period as if such Asset
Disposition or Asset Acquisition had taken place on the first day of such
period.
"Public Equity Offering" means an underwritten primary public offering
of Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Purchase Money Obligations" means, with respect to each Person,
obligations, other than those under Capitalized Leases, Incurred or assumed in
the ordinary course of business in connection with the purchase of property to
be used in the business of such Person.
"Redeemable Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
--------
Stock that
<PAGE>
16
would not constitute Redeemable Stock but for provisions thereof giving holders
thereof the right to require such Person to repurchase or redeem such Capital
Stock upon the occurrence of an "asset sale" or "change of control" occurring
prior to the Stated Maturity of the Notes shall not constitute Redeemable Stock
if the "asset sale" or "change of control" provisions applicable to such Capital
Stock are no more favorable to the holders of such Capital Stock than the
provisions contained in Section 1017 and Section 1010 and such Capital Stock
specifically provides that such Person will not repurchase or redeem any such
stock pursuant to such provision prior to the Company's repurchase of such Notes
as are required to be repurchased pursuant to Section 1017 and Section 1010.
"Redemption Date", when used with respect to any Note to be redeemed,
in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price", when used with respect to any Note to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the [date] or [date] (whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date.
"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above-designated
officers and having direct responsibility for the administration of this
Indenture or the Pledge Agreement, and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Restricted Payments" has the meaning specified in Section 1012.
"Restricted Subsidiary" means any Subsidiary of the Company other than
an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means, at any date of determination, any
Subsidiary of the Company that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company or (ii) as of the end of such fiscal year,
was the owner of more than 10% of the consolidated assets
<PAGE>
17
of the Company, all as set forth on the most recently available consolidated
financial statements of the Company for such fiscal year.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" means, (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the outstanding
Voting Stock is owned, directly or indirectly, by such Person and one or more
other Subsidiaries of such Person.
"Trade Payables" means any accounts payable or any other indebtedness
or monetary obligation to trade creditors created, assumed or Guaranteed by the
Company or any of its Restricted Subsidiaries arising in the ordinary course of
business in connection with the acquisition of goods and services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force at the date as of which this Indenture was executed, except as
provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Underwriting Agreement" has the meaning provided in the recitals to
this Indenture.
"Units" has the meaning provided in the recitals to this Indenture.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds
<PAGE>
18
any Lien on any property of, the Company or any Restricted Subsidiary; provided
--------
that either (A) the Subsidiary to be so designated has total assets of $1,000 or
less, (B) if such Subsidiary has assets greater than $1,000, that such
designation would be permitted under Section 1012, or (C) such Subsidiary is not
liable, directly or indirectly, with respect to any Indebtedness other than
Unrestricted Subsidiary Indebtedness. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided
--------
that immediately after giving effect to such designation (x) the Company could
Incur $1.00 of additional Indebtedness under Section 1011 and (y) no Default or
Event of Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the Board Resolution giving effect to such designation
and an Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"Unrestricted Subsidiary Indebtedness" means Indebtedness of any
Unrestricted Subsidiary (i) as to which neither the Company nor any Subsidiary
is directly or indirectly liable (by virtue of the Company or any such
Subsidiary being the primary obligor on, guarantor of, or otherwise liable in
any respect to, such Indebtedness), and (ii) which, upon the occurrence of a
default with respect thereto, does not result in, or permit any holder of any
Indebtedness of the Company or any Subsidiary to declare, a default on such
Indebtedness of the Company or any Subsidiary or cause the payment thereof to be
accelerated or payable prior to its Stated Maturity.
"U.S. Government Obligations" has the meaning specified in Section
1304.
"U.S. Subsidiary" means any corporation or other entity incorporated
or organized under the laws of the United States or any state thereof.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Warrants" has the meaning provided in the recitals to this Indenture.
"Warrant Agent" has the meaning provided in the recitals to this
Indenture.
"Warrant Agreement" has the meaning provided in the recitals to this
Indenture.
"Wholly Owned", with respect to any Subsidiary, means a Subsidiary of
the Company if all of the outstanding Capital Stock in such Subsidiary (other
than any director's
<PAGE>
19
qualifying shares or Investments by foreign nationals mandated by applicable
law) is owned by the Company or one or more Wholly Owned Subsidiaries of the
Company.
SECTION 102. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officer's Certificate stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel,
<PAGE>
20
unless such officer knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to the matters
upon which his certificate or opinion is based are erroneous. Any such
certificate or Opinion of Counsel may be based, insofar as it relates to factual
matters, upon a certificate or opinion of, or representations by, an officer or
officers of the Company stating that the information with respect to such
factual matters is in the possession of the Company, unless such counsel knows,
or in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Notes held by any
Person, and the date of holding the same, shall be proved by the Note Register.
(d) If the Company shall solicit from the Holders of Notes any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction,
<PAGE>
21
notice, consent, waiver or other Act, but the Company shall have no obligation
to do so. Notwithstanding TIA Section 316(c), such record date shall be the
record date specified in or pursuant to such Board Resolution, which shall be a
date not earlier than the date 30 days prior to the first solicitation of
Holders generally in connection therewith and not later than the date such
solicitation is completed. If such a record date is fixed, such request,
demand, authorization, direction, notice, consent, waiver or other Act may be
given before or after such record date, but only the Holders of record at the
close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
Outstanding Notes have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Notes shall be computed as of such record date;
provided that no such authorization, agreement or consent by the Holders on such
- --------
record date shall be deemed effective unless it shall become effective pursuant
to the provisions of this Indenture not later than eleven months after the
record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such Note.
SECTION 105. Notices, etc., to Trustee, Company.
----------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust, 901 East Cary Street, 2nd Floor, Richmond, Virginia 23219, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this Indenture, or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder
<PAGE>
22
affected by such event, at his address as it appears in the Note Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. In any case where notice to Holders is given by
mail, neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder shall affect the sufficiency of such notice
with respect to other Holders. Any notice mailed to a Holder in the manner
herein prescribed shall be conclusively deemed to have been received by such
Holder, whether or not such Holder actually receives such notice. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
SECTION 107. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
-------------------
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto, any Paying Agent, any Notes
Registrar and their successors hereunder, and the Holders, any benefit or any
legal or equitable right, remedy or claim under this Indenture.
<PAGE>
23
SECTION 111. Governing Law.
-------------
This Indenture and the Notes shall be governed by and construed in
accordance with the law of the State of New York. This Indenture is subject to
the provisions of the Trust Indenture Act that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
Each of the parties hereto submits to the jurisdiction of the U.S. federal and
any New York state court located in the Borough of Manhattan, City and State of
New York with respect to any actions brought against it as defendant in any
suit, action or proceeding arising out of or relative to this Indenture or the
Notes and waives any rights to which it may be entitled on account of place of
residence or domicile.
SECTION 112. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date, sinking
fund payment date or Stated Maturity or Maturity of any Note shall not be a
Business Day, then (notwithstanding any other provision of this Indenture or of
the Notes) payment of principal (or premium, if any) or interest need not be
made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on the Interest Payment Date, Redemption Date
or sinking fund payment date, or at the Stated Maturity or Maturity; provided
--------
that no interest shall accrue for the period from and after such Interest
Payment Date, Redemption Date, sinking fund payment date, Stated Maturity or
Maturity, as the case may be.
SECTION 113. Currency Indemnity.
------------------
U.S. dollars are the sole currency of account and payment for all sums
payable by the Company under or in connection with the Notes, including damages.
Any amount received or recovered in a currency other than dollars (whether as a
result of, or of the enforcement of, a judgment or order of a court of any
jurisdiction, in the winding-up or dissolution of the Company or otherwise) by
any Holder of a Note in respect of any sum expressed to be due to it from the
Company shall only constitute a discharge to the Company to the extent of the
dollar amount which the recipient is able to purchase with the amount so
received or recovered in that other currency on the date of that receipt or
recovery (or, if it is not practicable to make that purchase on that date, on
the first date on which it is practicable to do so). If that dollar amount is
less than the dollar amount expressed to be due to the recipient under any Note,
the Company shall indemnify the recipient against any loss sustained by it as a
result. In any event, the Company shall indemnify the recipient against the
cost of making any such purchase. For the purposes of this Section 113, it will
be sufficient for the Holder of a Note to certify in a satisfactory manner
(indicating the sources of information used) that it would have suffered a loss
had an actual purchase of dollars been made with the amount so received in that
other currency on the date of receipt or recovery (or, if a purchase of dollars
on such date had not been practicable, on the first
<PAGE>
24
date on which it would have been practicable, it being required that the need
for a change of date be certified in the manner mentioned above). These
indemnities constitute a separate and independent obligation from the Company's
other obligations, shall give rise to a separate and independent cause of
action, shall apply irrespective of any indulgence granted by any Holder of a
Note and shall continue in full force and effect despite any other judgment,
order, claim or proof for a liquidated amount in respect of any sum due under
any Note.
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally.
---------------
The Notes and the Trustee's certificate of authentication shall be in
substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution of the Notes. Any portion of the text of any Note
may be set forth on the reverse thereof, with an appropriate reference thereto
on the face of the Note.
The definitive Notes shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as determined
by the officers of the Company executing such Notes, as evidenced by their
execution of such Notes.
SECTION 202. Form of Face of Note.
--------------------
THE NOTES EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED AS PART OF AN
ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF ONE NOTE WITH A PRINCIPAL
AMOUNT AT MATURITY OF $1,000 AND ____ WARRANTS INITIALLY ENTITLING THE
HOLDER THEREOF TO PURCHASE _____ SHARES OF COMMON STOCK, PAR VALUE $.01 PER
SHARE, OF PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED. (THE "COMMON
STOCK"). PRIOR TO THE CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (i)
_______, 1998, (ii) SUCH DATE AS LEHMAN BROTHERS INC. MAY IN ITS DISCRETION
DEEM APPROPRIATE AND IS IDENTIFIED IN A WRITTEN NOTICE TO THE TRUSTEE OR
(iii) UPON AN EXERCISE EVENT, THE NOTES EVIDENCED BY THIS CERTIFICATE MAY
NOT BE TRANSFERRED OR
<PAGE>
25
EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY
TOGETHER WITH, THE WARRANTS.
Primus Telecommunications Group, Incorporated
___% Senior Note Due 2004
No. __________ $________
Primus Telecommunications Group, Incorporated, a Delaware corporation
(herein called the "Company", which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to ____________________ or registered assigns, the principal sum of
____________________ Dollars on [______,] 2004, at the office or agency of the
Company referred to below, and to pay interest thereon on [______, 1998] and
semi-annually thereafter, on [date] and [date] in each year, from [July __ ,
1998], or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, at the rate of ____% per annum, until the principal
hereof is paid or duly provided for, and (to the extent lawful) to pay on demand
interest on any overdue interest at the rate borne by the Notes from the date on
which such overdue interest becomes payable to the date payment of such interest
has been made or duly provided for. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in
such Indenture, be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the Regular Record
Date for such interest, which shall be the [date] or [date] (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for shall forthwith
cease to be payable to the Holder on such Regular Record Date, and such
defaulted interest, and (to the extent lawful) interest on such defaulted
interest at the rate borne by the Notes, may be paid to the Person in whose name
this Note (or one or more Predecessor Notes) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Notes not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any, on) and interest on this Note
will be made at the office or agency of the Company maintained for that purpose
in The City of New York, or at such other office or agency of the Company as may
be maintained for such purpose, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
-------- -------
option of the Company (i) by check mailed to the address of the Person entitled
thereto as such address shall appear on the Note Register or (ii) by transfer to
an account maintained by the payee located in the United States.
<PAGE>
26
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: PRIMUS TELECOMMUNICATIONS
GROUP, INCORPORATED
By
----------------------------------
Attest:
- ------------------------------
Authorized Signature
SECTION 203. Form of Reverse of Note.
-----------------------
This Note is one of a duly authorized issue of securities of the
Company designated as its _____% Senior Notes Due 2004 (herein called the
"Notes"), limited (except as otherwise provided in the Indenture referred to
below) in aggregate principal amount to $[__,000,000], which may be issued under
an indenture (herein called the "Indenture") dated as of July __, 1997 between
the Company and First Union National Bank of Virginia, trustee (herein called
the "Trustee", which term includes any successor trustee under the Indenture),
to which Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Trustee and the
Holders of the Notes, and of the terms upon which the Notes are, and are to be,
authenticated and delivered.
The Notes are subject to redemption upon not less than 30 nor more
than 60 days notice, at any time after [______, 2001], as a whole or in part, at
the election of the Company, at a Redemption Price equal to the percentage of
the principal amount set forth below if redeemed during the 12-month period
beginning [date], of the years indicated:
<PAGE>
27
<TABLE>
<CAPTION>
=====================================================================
Redemption
Year Price
---- ----------
---------------------------------------------------------------------
<S> <C>
2001 %
---------------------------------------------------------------------
2002 %
---------------------------------------------------------------------
2003 100.00%
=====================================================================
</TABLE>
and thereafter at 100% of the principal amount, together in the case of any such
redemption with accrued interest, if any, to the Redemption Date, all as
provided in the Indenture.
Notwithstanding the foregoing, during the first 36 months after the
date of the Indenture, the Company may on any one or more occasions redeem up to
35% of the originally issued principal amount of Notes at a redemption price of
% of the principal amount thereof, plus accrued and unpaid interest thereon to
the redemption date, with the Net Cash Proceeds of one or more Public Equity
Offerings; provided that at least 65% of the originally issued principal amount
of Notes remains outstanding immediately after the occurrence of such
redemption; and provided further that notice of such redemption shall be given
within 60 days of the closing of such Public Equity Offerings of common stock of
the Company.
Upon the occurrence of a Change of Control, the Holder of this Note
may require the Company, subject to certain limitations provided in the
Indenture, to repurchase this Note at a purchase price in cash in an amount
equal to 101% of the principal amount thereof plus accrued and unpaid interest.
In the case of any redemption of Notes, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to the
Holders of such Notes, or one or more Predecessor Notes, of record at the close
of business on the relevant Record Date referred to on the face hereof. Notes
(or portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption of this Note in part only, a new Note or
Notes for the unredeemed portion hereof shall be issued in the name of the
Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal of
all the Notes may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (a)
the entire indebtedness of the Company on this Note and (b) certain restrictive
covenants and the related
<PAGE>
28
Defaults and Events of Default, upon compliance by the Company with certain
conditions set forth therein, which provisions apply to this Note.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture at any time by the
Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Notes at the time Outstanding. The Indenture
also contains provisions permitting the Holders of specified percentages in
aggregate principal amount of the Notes at the time Outstanding, on behalf of
the Holders of all the Notes, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by or on behalf of the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herewith or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registerable on the Note
Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company maintained for such purpose The
City of New York, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Note Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to the time of due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered on the Note Register
as the owner hereof for all purposes,
<PAGE>
29
whether or not this Note be overdue, and neither the Company, the Trustee nor
any agent shall be affected by notice to the contrary.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
SECTION 204. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
The Trustee's certificate of authentication shall be in substantially
the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
Dated: ____________________
This is one of the Notes referred to in the within-mentioned
Indenture.
FIRST UNION NATIONAL BANK
OF VIRGINIA,
as Trustee
By
----------------------------------
Authorized Officer
<PAGE>
30
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms.
---------------
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $125,000,000, except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Section 304, 305, 306, 906, 1010,
1017 or 1108.
The Notes shall be known and designated as the "_____% Senior Notes
Due 2004" of the Company. Their Stated Maturity shall be [______,] 2004, and
they shall bear interest at the rate of _____% per annum from [____] 1998, or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, payable on [date and year] and semi-annually thereafter on
[date] and [date] in each year and at said Stated Maturity, until the principal
thereof is paid or duly provided for.
The principal of (and premium, if any) and interest on the Notes shall
be payable at the office or agency of the Company maintained for such purpose in
The City of New York, or at such other office or agency of the Company as may be
maintained for such purpose; provided, however, that, at the option of the
-------- -------
Company, interest may be paid by check mailed to addresses of the Persons
entitled thereto as such addresses shall appear on the Note Register.
The Notes shall be redeemable as provided in Article Eleven.
SECTION 302. Denominations.
-------------
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Notes shall be executed on behalf of the Company by its Chairman,
its President or a Vice President, under its corporate seal reproduced thereon
and attested by its Secretary or an Assistant Secretary. The signature of any
of these officers on the Notes may be manual or facsimile signatures of the
present or any future such authorized officer and may be imprinted or otherwise
reproduced on the Notes.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
<PAGE>
31
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Notes, and the Trustee in accordance with such Company
Order shall authenticate and deliver such Notes.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder and is
entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be consolidated
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Notes authenticated or
delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be exchanged for other Notes executed in the name of the successor
Person with such changes in phraseology and form as may be appropriate, but
otherwise in substance of like tenor as the Notes surrendered for such exchange
and of like principal amount; and the Trustee, upon Company Request of the
successor Person, shall authenticate and deliver Notes as specified in such
request for the purpose of such exchange. If Notes shall at any time be
authenticated and delivered in any new name of a successor Person pursuant to
this Section in exchange or substitution for or upon registration of transfer of
any Notes, such successor Person, at the option of the Holders but without
expense to them, shall provide for the exchange of all Notes at the time
Outstanding for Notes authenticated and delivered in such new name.
SECTION 304. Temporary Notes.
---------------
Pending the preparation of definitive Notes, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Notes which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Notes in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Notes may determine, as conclusively evidenced by their execution
of such Notes.
<PAGE>
32
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 1002, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Notes, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Notes of
authorized denominations. Until so exchanged, the temporary Notes shall in all
respects be entitled to the same benefits under this Indenture as definitive
Notes.
SECTION 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Note Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Notes and of transfers of Notes. The Note Register shall be in written form
or any other form capable of being converted into written form within a
reasonable time. At all reasonable times, the Note Register shall be open to
inspection by the Trustee. The Trustee is hereby initially appointed as
security registrar (the "Note Registrar") for the purpose of registering Notes
and transfers of Notes as herein provided.
Upon surrender for registration of transfer of any Note at the office
or agency of the Company designated pursuant to Section 1002, the Company shall
execute, and upon Company Order the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferees, one or more new Notes of
any authorized denomination or denominations of a like aggregate principal
amount.
At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denomination and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and upon
Company Order the Trustee shall authenticate and deliver, the Notes which the
Holder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall be duly endorsed and be accompanied by a written instrument
of transfer, in form satisfactory to the Company and the Note Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
<PAGE>
33
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 304, 906, 1010, 1017 or 1108 not involving any
transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Note during a period beginning at the opening of business 15
days before the selection of Notes to be redeemed under Section 1104 and ending
at the close of business on the day of such mailing of the relevant notice of
redemption, or (ii) to register the transfer of or exchange any Note so selected
for redemption in whole or in part, except the unredeemed portion of any Note
being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes.
-------------------------------------------
If (i) any mutilated Note is surrendered to the Trustee, or (ii) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, and there is delivered to the Company
and the Trustee such security or indemnity as may be required by them to save
each of them harmless, then, in the absence of written notice to the Company or
the Trustee that such Note has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Note or in lieu of any such
destroyed, lost or stolen Note, a new Note of like tenor and principal amount,
bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and shall require the payment of
a sum sufficient to pay any other expenses (including the fees and expenses of
the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all benefits of this Indenture equally and proportionately
with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
<PAGE>
34
SECTION 307. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name such Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest at the office or agency of
the Company maintained for such purpose pursuant to Section 1002; provided,
--------
however, that each installment of interest may at the Company's option be paid
- -------
by (i) mailing a check for such interest, payable to or upon the written order
of the Person entitled thereto pursuant to Section 308, to the address of such
Person as it appears in the Note Register or (ii) transferring the interest
payment to an account located in the United States maintained by the payee.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the Regular Record Date by virtue of having been such
Holder, and such defaulted interest and (to the extent lawful) interest on such
defaulted interest at the rate borne by the Notes (such defaulted interest and
interest thereon herein collectively called "Defaulted Interest") may be paid by
the Company, at its election in each case, as provided in clause (1) or (2)
below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Notes (or their respective Predecessor
Notes) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Note and the date
of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Company, with the written consent of the
Trustee, shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days
prior to the date of the proposed payment and not less than 10 days after
the receipt by the Trustee of the notice of the proposed payment. The
Trustee, in the name and at the expense of the Company, shall cause notice
of the proposed payment of such Defaulted Interest and the Special Record
Date therefor to be given in the manner provided for in Section 106, not
less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor having been so given, such Defaulted Interest shall be paid to the
Persons in whose names the Notes (or their respective Predecessor Notes)
are registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which
<PAGE>
35
the Notes may be listed, and upon such notice as may be required by such
exchange, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause, such manner of payment shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
SECTION 308. Persons Deemed Owners.
---------------------
Prior to the due presentment of a Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Note is registered as the owner of such Note for
the purpose of receiving payment of principal of (and premium, if any) and
(subject to Sections 305 and 307) interest on such Note and for all other
purposes whatsoever, whether or not such Note be overdue, and none of the
Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 309. Cancellation.
------------
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to, and promptly cancelled by, the Trustee. The Company may at any
time deliver to the Trustee for cancellation any Notes previously authenticated
and delivered hereunder which the Company may have acquired in any manner
whatsoever, and may deliver to the Trustee (or to any other Person for delivery
to the Trustee) for cancellation any Notes previously authenticated hereunder
which the Company has not issued and sold, and all Notes so delivered shall be
promptly cancelled by the Trustee. If the Company shall so acquire any of the
Notes, however, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Notes unless and until the
same are surrendered to the Trustee for cancellation. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
this Section, except as expressly permitted by this Indenture. All cancelled
Notes held by the Trustee shall be disposed of by the Trustee in accordance with
its customary procedures and certification of their disposal delivered to the
Company unless by Company Order the Company shall direct that cancelled Notes be
returned to it after being appropriately designated as cancelled.
SECTION 310. Computation of Interest.
-----------------------
Interest on the Notes shall be computed on the basis of a 360-day year
of twelve 30-day months.
<PAGE>
36
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall upon Company Request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Notes expressly provided for herein or pursuant hereto) and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(1) either
(a) all Notes theretofore authenticated and delivered (other than
(i) Notes which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 306 and (ii) Notes for
whose payment money has theretofore been deposited in trust with the
Trustee or any Paying Agent or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such
trust, as provided in Section 1003) have been delivered to the Trustee
for cancellation; or
(b) all such Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount sufficient to pay and
discharge the entire indebtedness on such Notes not theretofore
delivered to the Trustee for cancellation, for principal (and premium,
if any) and interest to the date of such deposit (in the case of Notes
which have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
<PAGE>
37
(3) the Company has delivered to the Trustee an Officer's Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606 and, if money shall
have been deposited with the Trustee pursuant to subclause (b) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
--------------------------
On or prior to the effective date of this Indenture, the Trustee shall
establish a segregated, non-interest bearing corporate trust account (the
"Payment Account") maintained by the Trustee for the benefit of the Holders in
which all amounts paid to the Trustee for the benefit of the Holders in respect
of the Notes will be held (except for amount designated to be deposited into the
Pledge Account) and from which the Trustee (if the Trustee is the Paying Agent)
shall make payments to the Holders in accordance with this Indenture and the
Notes. Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 and otherwise pursuant
to this Indenture shall be held in trust and applied by it, in accordance with
the provisions of the Notes and this Indenture, to the payment, either directly
or through any Paying Agent (including the Company acting as its own Paying
Agent) as the Trustee may determine, to the Persons entitled thereto, of the
principal (and premium, if any) and interest for whose payment such money has
been deposited with the Trustee.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of any interest on any Note when it becomes
due and payable as to any Interest Payment Date falling on or prior to
_____, 2000, and any such failure continued for a period of 30 days as to
any Interest Payment Date thereafter; or
(2) default in the payment of the principal of (or premium, if any,
on) any Note at its Stated Maturity, upon acceleration, redemption or
otherwise; or
<PAGE>
38
(3) default in the payment of principal or interest on any Note
required to be purchased pursuant to an Excess Proceeds Offer set forth in
Section 1017 or pursuant to a Change of Control Offer set forth in Section
1010; or
(4) failure to perform or comply with the provisions in Section 801;
or
(5) default in the performance or breach of any covenant or agreement
of the Company in this Indenture or under the Notes (other than a default
in the performance, or breach, of a covenant or agreement which is
specifically dealt with elsewhere in this Section), and continuance of such
default or breach for a period of 30 consecutive days after there has been
given, by registered or certified mail, to the Company by the Trustee or to
the Company and the Trustee by the Holders of at least 25% in principal
amount of the Outstanding Notes a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder; or
(6) (A) there shall have occurred with respect to any issue or issues
of Indebtedness of the Company or any Restricted Subsidiary having an
outstanding principal amount of $5.0 million or more in the aggregate for
all such issues of all such Persons, whether such Indebtedness now exists
or shall hereafter be created, (I) an event of default that has caused the
holder thereof to declare such Indebtedness to be due and payable prior to
its Stated Maturity and such Indebtedness has not been discharged in full
or such acceleration has not been rescinded or annulled by the earlier of
(x) the expiration of any applicable grace period or (y) the thirtieth day
after such default and/or (II) the failure to make a principal payment at
the final (but not any interim) fixed maturity and such defaulted payment
shall not have been made, waived or extended by the earlier of (x) the
expiration of any applicable grace period or (y) the thirtieth day after
such default; or
(7) any final judgment or order (not covered by insurance) for the
payment of money in excess of $5.0 million in the aggregate for all such
final judgments or orders (treating any deductibles, self-insurance or
retention as not so covered) shall be rendered against the Company or any
Restricted Subsidiary and shall not be paid or discharged, and there shall
be any period of 30 consecutive days following entry of the final judgment
or order that causes the aggregate amount for all such final judgments or
orders outstanding and not paid or discharged against all such Persons to
exceed $5.0 million during which a stay of enforcement of such final
judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect; or
(8) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any of its Significant
Subsidiaries in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (B) appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Company or any of its Significant Subsidiaries or
for all or substantially all of the property and assets of the Company or
<PAGE>
39
any of its Significant Subsidiaries or (C) the winding up or liquidation of
the affairs of the Company or any of its Significant Subsidiaries and, in
each case, such decree or order shall remain unstayed and in effect for a
period of 30 consecutive days;
(9) the Company or any of its Significant Subsidiaries (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
of its Significant Subsidiaries or for all or substantially all of the
property and assets of the Company or any of its Significant Subsidiaries
or (C) effects any general assignment for the benefit of creditors; or
(10) the Company asserts in writing that the Pledge Agreement ceases
to be in full force and effect.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than an Event of Default specified in
Section 501(8) or 501(9)) occurs and is continuing, then and in every such case
the Trustee or the Holders of not less than 25% in principal amount of the Notes
Outstanding may, and the Trustee at the request of such Holders shall, declare
the principal of, premium, if any, and accrued but unpaid interest on all the
Notes to be due and payable immediately, by a notice in writing to the Company
(and to the Trustee if given by Holders), and upon any such declaration of
acceleration, such principal of, premium, if any, and accrued interest shall
become immediately due and payable. If an Event of Default specified in Section
501(8) or 501(9) occurs and is continuing, then the principal amount of all the
Notes shall ipso facto become and be immediately due and payable without any
---- -----
declaration or other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made, the
Holders of a majority in principal amount of the Notes Outstanding, by written
notice to the Company and the Trustee, may waive all past defaults and rescind
and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(A) all overdue interest on all Outstanding Notes,
(B) all unpaid principal of (and premium, if any, on) any
Outstanding Notes which has become due otherwise than by such
declaration of acceleration, and interest on such unpaid principal at
the rate borne by the Notes,
<PAGE>
40
(C) to the extent that payment of such interest is lawful,
interest on overdue interest at the rate borne by the Notes, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, fees, expenses, disbursements and advances of
the Trustee, its agents and counsel and any amounts due the Trustee
under Section 606;
(2) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) and accrued and unpaid interest on
the Notes which have become due solely by such declaration of acceleration,
have been cured or waived as provided in Section 513; and
(3) the recision would not conflict with any judgment or decrees of a
court of competent jurisdiction.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the preceding paragraph, if an Event of Default
specified in Section 501(6) occurs and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to Section 501(6) shall be
remedied or cured by the Company and/or the relevant Significant Subsidiaries or
waived by the holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
- -------
The Company covenants that if
(a) default is made in the payment of any installment of interest on
any Note when such interest becomes due and payable and such default
continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or premium, if
any, on) any Note at the Maturity thereof,
the Company will pay to the Trustee for the benefit of the Holders of such
Notes, the whole amount then due and payable on such Notes for principal (and
premium, if any) and interest, and interest on any overdue principal (and
premium, if any) and, to the extent that payment of such interest shall be
legally enforceable, upon any overdue installment of interest, at the rate borne
by the Notes, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, fees expenses, disbursements and advances of the
Trustee, its agents and counsel and any amounts due the Trustee under Section
606.
<PAGE>
41
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company or any other obligor upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes
or the property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand on the Company for the payment
of overdue principal, premium, if any, or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Notes and
to file such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for the
reasonable compensation, fees, expenses, disbursements and advances of the
Trustee, its agents and counsel and any amounts due the Trustee under
Section 606) and of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization,
<PAGE>
42
arrangement, adjustment or composition affecting the Notes or the rights of any
Holder thereof, or to authorize the Trustee to vote in respect of the claim of
any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.
------------------------------------------------------
All rights of action and claims under this Indenture or the Notes may
be prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name and as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, fees, expenses, disbursements
and advances of the Trustee, its agents and counsel, be for the ratable benefit
of the Holders of the Notes in respect of which such judgment has been
recovered.
SECTION 506. Application of Money Collected.
------------------------------
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Notes and the notation thereon of
the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
606;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due
and payable on such Notes for principal (and premium, if any) and interest,
respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 507. Limitation on Suits.
-------------------
Except to enforce the right to receive payment of principal or,
premium, if any, or interest when due, no Holder of any Notes shall have any
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
<PAGE>
43
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority or
more in principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
- --------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment, as provided herein (including, if applicable, Article Thirteen) and in
such Note of the principal of (and premium, if any) and (subject to Section 307)
interest on such Note on the respective Stated Maturities expressed in such Note
(or, in the case of redemption, on the Redemption Date) and to institute suit
for the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now
<PAGE>
44
or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
------------------
The Holders of not less than a majority in principal amount of the
Outstanding Notes shall 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, provided that
--------
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or which, in the good faith determination of the
Trustee, may be unjustly prejudicial to the Holders not consenting.
SECTION 513. Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in principal amount of the
Outstanding Notes may on behalf of the Holders of all the Notes waive any past
default hereunder and its consequences, except a default
(1) in respect of the payment of the principal of (or premium, if any)
or interest on any Note, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Note affected.
<PAGE>
45
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
------------------
Within 90 days after the occurrence of any Default hereunder, the
Trustee shall transmit in the manner and to the extent provided in TIA Section
313(c), notice of such Default hereunder actually known to the corporate trust
officer having responsibility for the administration of this Indenture on behalf
of the Trustee, unless such Default shall have been cured or waived; provided,
--------
however, that, except in the case of a Default in the payment of the principal
- -------
of (or premium, if any) or interest on any Note, the Trustee shall be protected
in withholding such notice if and so long as the board of directors, the
executive committee or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determines that the withholding of such
notice is in the interest of the Holders; and provided further that in the case
-------- -------
of any Default of the character specified in Section 501(5), no such notice to
Holders shall be given until at least 30 days after the corporate trust officer
having responsibility for the administration of this Indenture on behalf of
Trustee has actual knowledge of the occurrence thereof.
In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
<PAGE>
46
SECTION 602. Certain Rights of Trustee.
-------------------------
Subject to the provisions of TIA Sections 315(a) through 315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officer's Certificate;
(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
<PAGE>
47
(8) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture; and
(9) the Trustee shall have no duty to inquire as to the performance of
the Company's covenants herein.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 603. Trustee Not Responsible for Recitals or Issuance of
---------------------------------------------------
Notes.
- -----
The recitals contained herein and in the Notes, except for the
Trustees certificates of authentication, shall be taken as the statements of the
Company, and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Notes, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Notes and
perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. The Trustee shall
not be accountable for the use or application by the Company of Notes or the
proceeds thereof.
SECTION 604. May Hold Notes.
--------------
The Trustee, any Paying Agent, any Note Registrar or any other agent
of the Company or of the Trustee, in its individual or any other capacity, may
become the owner or pledgee of Notes and, subject to TIA Sections 310(b) and
311, may otherwise deal with the Company with the same rights it would have if
it were not Trustee, Paying Agent, Note Registrar or such other agent.
SECTION 605. Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder shall be segregated from
other funds. The Trustee shall be under no liability for interest on any money
received by it hereunder.
<PAGE>
48
SECTION 606. Compensation and Reimbursement.
------------------------------
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder and under the Pledge Agreement
(which compensation shall not be limited by any provision of law in regard
to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture and under the Pledge Agreement (including the reasonable
compensation and the expenses and disbursements of its agents, accountants,
experts and counsel), except any such expense, disbursement or advance as
may be attributable to its gross negligence or bad faith; and
(3) to indemnify the Trustee and each of its officers, directors,
employees, attorneys-in-fact and agents for, and to hold it harmless
against, any claim, demand, loss, liability or expense (including but not
limited to reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel) incurred without gross negligence or bad
faith on its part, arising out of or in connection with the offering and
sale of the Notes, the acceptance and administration of its duties under
the Pledge Agreement or the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder and enforcing this indemnification provision.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the Notes
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the payment of principal of (and premium, if any) or
interest on particular Notes.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(8) or (9), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the resignation or
removal of the Trustee or the termination of this Indenture.
<PAGE>
49
SECTION 607. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of Federal, State, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 608. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
required by Section 609 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in principal amount of the Outstanding Notes, delivered
in writing to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
or
(2) the Trustee shall cease to be eligible under Section 607 and shall
fail to resign after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
<PAGE>
50
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Notes delivered to
the Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to the Holders of
Notes in the manner provided for in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 609. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
<PAGE>
51
SECTION 610. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
- --------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In case at
that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect which this Indenture provides
for the certificate of authentication of the Trustee shall have; provided,
--------
however, that the right to adopt the certificate of authentication of any
- -------
predecessor Trustee or to authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.
--------------------------------------------
Every Holder of Notes, by receiving and holding the same, agrees with
the Company and the Trustee that none of the Company or the Trustee or any agent
of either of them shall be held accountable by reason of the disclosure of any
such information as to the names and addresses of the Holders in accordance with
TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
SECTION 702. Reports by Trustee.
------------------
Within 60 days after [May 15] of each year commencing with the first
[May 15] after the first issuance of Notes, the Trustee shall transmit to the
Holders, in the manner and to the extent provided in TIA Section 313(c), a brief
report dated as of such [May 15] if required by TIA Section 313(a).
<PAGE>
52
SECTION 703. Reports by Company.
------------------
The Company shall:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934; or, if the Company is not required to file
information, documents or reports pursuant to either of said Sections, then
it shall file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Securities Exchange Act of 1934 in
respect of a security listed and registered on a national securities
exchange as may be prescribed from time to time in such rules and
regulations;
(2) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations; and
(3) transmit by mail to all Holders, in the manner and to the extent
provided in TIA Section 313(c), within 30 days after the filing thereof
with the Trustee, such summaries of any information, documents and reports
required to be filed by the Company pursuant to paragraphs (1) and (2) of
this Section as may be required by rules and regulations prescribed from
time to time by the Commission.
<PAGE>
53
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain Terms.
----------------------------------------------------
The Company shall not consolidate with or merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially as an entirety in one
transaction or a series of related transactions) to any Person or permit any
Person to merge with or into the Company and the Company will not permit any of
its Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in the sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets of the
Company or the Company and its Restricted Subsidiaries, taken as a whole, to any
other Person or Persons, unless:
(1) either (A) the Company shall be the continuing Person or (B) the
Person (if other than the Company) formed by such consolidation or into
which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the Company
substantially as an entirety (i) shall be a corporation, partnership or
trust organized and validly existing under the laws of the United States of
America, or any jurisdiction thereof and (ii) shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the Company's obligation for the due
and punctual payment of the principal of (and premium, if any) and interest
on all the Notes and the performance and observance of every covenant of
this Indenture on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Company or a Subsidiary
in connection with or as a result of such transaction as having been
incurred at the time of such transaction), no Default or Event of Default
shall have occurred and be continuing;
(3) immediately after giving effect to such transaction on a pro forma
basis, the Company, or any Person becoming the successor obligor of the
Notes, shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such
transaction;
(4) immediately after giving effect to such transaction on a pro forma
basis, the Company, or any Person becoming the successor obligor of the
Notes, could incur at least $1.00 of Indebtedness under paragraph (a) of
Section 1011; and
(5) the Company or such Person shall have delivered to the Trustee an
Officer's Certificate (attaching the arithmetic computations to demonstrate
compliance
<PAGE>
54
with clauses (3) and (4) above) and an Opinion of Counsel, each stating
that such consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such transaction,
such supplemental indenture, comply with this Article and that all
conditions precedent herein provided for relating to such transaction have
been complied with;
provided, however, that clauses (3) and (4) above shall not apply if, in the
good faith determination of the Board of Directors of the Company as evidenced
by a Board Resolution, the principal purpose of such transaction is to change
the state of incorporation of the Company; and provided further, that any such
transaction shall not have as one of its purposes the evasion of the foregoing
limitations.
SECTION 802. Successor Substituted.
---------------------
Upon any consolidation of the Company with or merger of the Company
with or into any other corporation or any conveyance, transfer or lease of the
properties and assets of the Company substantially as an entirety to any Person
in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and in the event of any such conveyance or transfer, the Company (which term
shall for this purpose mean the Person named as the "Company" in the first
paragraph of this Indenture or any successor Person which shall theretofore
become such in the manner described in Section 801), except in the case of a
lease, shall be discharged of all obligations and covenants under this Indenture
and the Notes and may be dissolved and liquidated.
SECTION 803. Notes to Be Secured in Certain Events.
-------------------------------------
If, upon any such consolidation of the Company with or merger of the
Company into any other corporation, or upon any conveyance, lease or transfer of
the property of the Company substantially as an entirety to any other Person,
any property or assets of the Company would thereupon become subject to any
Lien, then unless such Lien could be created pursuant to Section 1016 without
equally and ratably securing the Notes, the Company, prior to or simultaneously
with such consolidation, merger, conveyance, lease or transfer, will as to such
property or assets, secure the Notes Outstanding (together with, if the Company
shall so determine any other Indebtedness of the Company now existing or
hereinafter created which is not subordinate in right of payment to the Notes)
equally and ratably with (or prior to) the Indebtedness which upon such
consolidation, merger, conveyance, lease or transfer is to become secured as to
such property or assets by such Lien, or will cause such Notes to be so secured.
<PAGE>
55
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company
contained herein and in the Notes; or
(2) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company; or
(3) to add any additional Events of Default; or
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section
609; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture; provided that such action shall not adversely affect
--------
the interests of the Holders in any material respect; or
(6) to secure the Notes pursuant to the requirements of Section 803 or
Section 1016 or otherwise.
SECTION 902. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Notes, by Act of said Holders delivered to
the Company and the Trustee, the Company, when authorized by a Board Resolution,
and the Trustee may enter into an indenture or indentures supplemental hereto
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the Holders under this Indenture; provided, however, that
-------- -------
no such supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby:
(1) change the Stated Maturity of the principal of or any installment
of interest on any Note, or reduce the principal amount thereof (or
premium, if any) or the rate of
<PAGE>
56
interest thereon or change the coin or currency in which any Note or any
premium or the interest thereon is payable or extend the time for the
payment of interest on any Note, or impair the right of any Holder of the
Notes to receive payment of , principal of and interest on Holder's Notes
on or after the due dates therefor or to institute suit for the enforcement
of any payment on or after the Stated Maturity (or, in the case of
redemption, on or after the Redemption Date) of any Note, or
(2) reduce the percentage in principal amount of the Outstanding
Notes, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver of
compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences provided for in this Indenture, or
(3) waive a default in the payment of principal of (or premium, if
any) or accrued and unpaid interest on the Notes, or
(4) modify any provision of any Guarantees in a manner adverse to the
Holders, or
(5) modify any of the provisions of this Section or Sections 513 and
Section 1021, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Note affected
thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustees own rights, duties or
immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
<PAGE>
57
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Notes to Supplemental Indentures.
---------------------------------------------
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and upon Company Order authenticated and delivered by the Trustee in
exchange for Outstanding Notes.
SECTION 907. Notice of Supplemental Indentures.
---------------------------------
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Note affected, in
the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest.
---------------------------------------------------
The Company covenants and agrees for the benefit of the Holders that
it will duly and punctually pay the principal of (and premium, if any) and
interest on the Notes in accordance with the terms of the Notes and this
Indenture.
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company will maintain in The City of New York, an office or agency
where Notes may be presented or surrendered for payment, where Notes may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Corporate Trust Office of the Trustee shall be such office or
agency of the Company, unless the Company shall designate and maintain some
other office or agency for one or more of such purposes. The Company will give
prompt written notice to the Trustee of any change in the location of any such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and
<PAGE>
58
demands may be made or served at the Corporate Trust Office of the Trustee, and
the Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Notes may
be presented or surrendered for any or all such purposes and may from time to
time rescind any such designation; provided, however, that no such designation
-------- -------
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in The City of New York for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and any change in the location of any such other office or agency.
SECTION 1003. Money for Note Payments to Be Held in Trust.
-------------------------------------------
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (or premium, if any) or interest
on any of the Notes, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal of (or premium, if any)
or interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee in
writing of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it will, on or before each due date of the principal of (or premium, if
any) or interest on any Notes, deposit with a Paying Agent a sum sufficient to
pay the principal (and premium, if any) or interest so becoming due, such sum to
be held in trust for the benefit of the Persons entitled to such principal,
premium or interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee in writing of such action or any failure so to
act.
The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Notes in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal
(and premium, if any) or interest on the Notes; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
<PAGE>
59
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (or premium, if
any) or interest on any Note and remaining unclaimed for two years after such
principal, premium or interest has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Note shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
- -------- -------
to make any such repayment, may at the expense of the Company cause to be
published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 1004. Corporate Existence.
-------------------
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
Subsidiary; provided, however, that the Company shall not be required to
-------- -------
preserve any such right or franchise if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
---------------------------------
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; provided,
--------
however, that the Company shall not be required to pay or discharge or cause to
- -------
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
<PAGE>
60
SECTION 1006. Maintenance of Properties.
-------------------------
The Company will cause all properties owned by the Company or any
Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
-------- -------
prevent the Company from discontinuing the maintenance of any of such properties
if such discontinuance is, in the judgment of the Company, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
SECTION 1007. Insurance.
---------
The Company will at all times keep all of its and its Subsidiaries
properties which are of an insurable nature insured with insurers, believed by
the Company to be responsible, against loss or damage to the extent that
property of similar character is usually so insured by corporations similarly
situated and owning like properties.
SECTION 1008. Statement by Officers As to Default.
-----------------------------------
(a) The Company will deliver to the Trustee, within 90 days after the
end of each fiscal year, a brief certificate from the principal executive
officer, principal financial officer or principal accounting officer as to his
or her knowledge of the Company's compliance with all conditions and covenants
under this Indenture. For purposes of this Section 1008(a), such compliance
shall be determined without regard to any period of grace or requirement of
notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $1,000,000) shall deliver to
the Trustee by registered or certified mail or by telegram, telex or facsimile
transmission an officers certificate specifying such event, notice or other
action within five Business Days of its occurrence.
SECTION 1009. Provision of Financial Statements.
---------------------------------
(a) The Company will file on a timely basis with the Commission, to
the extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the Exchange Act.
All such annual reports shall include the geographic segment financial
<PAGE>
61
information contemplated by Item 101(d) of Regulation S-K under the Securities
Act/SFAS 14, and all such quarterly reports shall provide the same type of
interim financial information that, as of the date of this Indenture, currently
is the Company's practice to provide.
(b) The Company will also be required (i) to file with the Trustee,
and provide to each holder, without cost to such holder, copies of such reports
and documents within 15 days after the date on which the Company files such
reports and documents with the Commission or the date on which the Company would
be required to file such reports and documents if the Company were so required,
and (ii) if filing such reports and documents with the Commission is not
accepted by the Commission or is prohibited under the Exchange Act, to supply at
the Company's cost copies of such reports and documents to any prospective
Holder promptly upon request.
SECTION 1010. Repurchase of Notes upon Change of Control.
------------------------------------------
(a) Upon the occurrence of a Change of Control and subject to the
compliance by the Company with the requirements of paragraph (b) of this Section
1010, then each Holder shall have the right to require that the Company
repurchase such Holder's Notes in whole or in part (the "Change of Control
Offer"), at a purchase price (the "Purchase Price") in cash in an amount equal
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase, (subject to the right of holders of record to
receive interest on the relevant interest payment date) (the "Change of Control
Payment") in accordance with the procedures set forth in paragraphs (c) and (d)
of this Section.
(b) [Reserved]
(c) Within 30 days following any Change of Control, the Company shall
give to each Holder of the Notes and the Trustee in the manner provided in
Section 106 a notice stating:
(i) that a Change of Control has occurred, that the Change of Control
Offer is being made pursuant to this Section 1010 and that all Notes
validly tendered will be accepted for payment;
(ii) the circumstances and relevant facts regarding such Change of
Control (including but not limited to information with respect to pro forma
historical income, cash flow and capitalization after giving effect to such
Change of Control);
(iii) the Purchase Price and a purchase date (the "Change of Control
Payment Date") which shall be no earlier than 30 days nor later than 60
days from the date such notice is mailed;
(iv) that any Note not tendered will continue to accrue interest
pursuant to its terms;
<PAGE>
62
(v) that, unless the Company defaults in the payment of the Change
of Control Payment, any Note accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest on and after the Change of
Control Payment Date;
(vi) that Holders electing to have any Note or portion thereof
purchased pursuant to the Change of Control Offer will be required to
surrender such Note, together with the form entitled "Option of the Holder
to Elect Purchase" on the reverse side of such Note completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the Business Day immediately preceding the Change of Control
Payment Date;
(vii) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name
of such holder, the principal amount of Notes delivered for purchase and a
statement that such holder is withdrawing his election to have such Notes
purchased; and
(viii) that Holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered; provided that each Note purchased and each new Note
--------
issued shall be in a principal amount of $1,000 or integral multiples
thereof.
(d) [Reserved].
(e) On the Change of Control Payment Date, the Company shall:
(i) accept for payment Notes or portions thereof tendered pursuant
to the Change of Control Offer;
(ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so accepted; and
(iii) deliver, or cause to be delivered, to the Trustee, all Notes or
portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the
Company. The Paying Agent shall promptly mail, to the Holders of Notes so
accepted, payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such Holders a new Note equal in
principal amount to any unpurchased portion of the Notes surrendered;
provided that each Note purchased and each new Note issued shall be in a
--------
principal amount of $1,000 or integral multiples thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date. For purposes of
this Section 1010, the Trustee shall act as Paying Agent.
<PAGE>
63
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control occurs and the
Company is required to repurchase the Notes under this Section 1010.
SECTION 1011. Limitation on Indebtedness.
--------------------------
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes and Existing
Indebtedness); provided, however, that the Company may Incur Indebtedness, and
-------- -------
any Restricted Subsidiary may Incur Acquired Indebtedness, if immediately
thereafter the ratio of (i) the aggregate principal amount (or accreted value,
as the case may be) of Indebtedness of the Company and its Restricted
Subsidiaries on a consolidated basis outstanding as at the Transaction Date to
(ii) the Pro Forma Consolidated Cash Flow for the preceding two full fiscal
quarters multiplied by two, determined on a pro forma basis as if any such
Indebtedness had been Incurred and the proceeds thereof had been applied at the
beginning of such two fiscal quarters, would be greater than zero and less than
5.0 to 1.
(b) Notwithstanding the foregoing, the Company and (except for
Indebtedness under subsections (v) and (vii) below) any Restricted Subsidiary
may Incur each and all of the following:
(i) Indebtedness, including Acquired Indebtedness and Indebtedness
under one or more Credit Facilities, in an aggregate principal amount at
any one time outstanding not to exceed $75 million, subject to any
permanent reductions required by any other terms of the Indenture;
(ii) Indebtedness (other than Acquired Indebtedness) Incurred to
finance the cost (including the cost of design, development, construction,
acquisition, installation or integration) of equipment used in the
telecommunications business or ownership rights with respect to
indefeasible rights of use or minimum investment units (or similar
ownership interests) in transnational fiber optic cable or other
transmission facilities, in each case purchased or leased by the Company or
a Restricted Subsidiary after the Closing Date;
(iii) Indebtedness of any Restricted Subsidiary to the Company or
Indebtedness of the Company or any Restricted Subsidiary to any other
Restricted Subsidiary; provided that any subsequent issuance or transfer of
--------
any Capital Stock which results in any such Restricted Subsidiary ceasing
to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or another Restricted Subsidiary)
shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness, and provided further that Indebtedness of the Company to a
--------
Restricted Subsidiary must be subordinated in right of payment to the
Notes;
<PAGE>
64
(iv) Indebtedness of the Company or a Restricted Subsidiary issued in
exchange for, or the net proceeds of which are used to refinance or refund,
then outstanding Indebtedness of the Company or a Restricted Subsidiary,
other than Indebtedness Incurred under clauses (i), (iii), (v), (vi),
(viii) and (ix) above, and any refinancings thereof in an amount not to
exceed the amount so refinanced or refunded (plus premiums, accrued
interest, and reasonable fees and expenses); provided that such new
--------
Indebtedness shall only be permitted under this clause (iv) if (A) in case
the Notes are refinanced in part or the Indebtedness to be refinanced is
pari passu with the Notes, such new Indebtedness, by its terms or by the
---- -----
terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made pari passu
---- -----
with, or subordinate in right of payment to, the remaining Notes, (B) in
case the Indebtedness to be refinanced is subordinated in right of payment
to the Notes, such new Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such new Indebtedness is issued
or remains outstanding, is expressly made subordinate in right of payment
to the Notes at least to the extent that the Indebtedness to be refinanced
is subordinated to the Notes and (C) such new Indebtedness, determined as
of the date of Incurrence of such new Indebtedness, does not mature prior
to the Stated Maturity of the Indebtedness to be refinanced or refunded,
and the Average Life of such new Indebtedness is at least equal to the
remaining Average Life of the Indebtedness to be refinanced or refunded;
and provided further that in no event may Indebtedness of the Company be
-------- -------
refinanced by means of any Indebtedness of any Restricted Subsidiary
pursuant to this clause (iv);
(v) Indebtedness of the Company not to exceed, at any one time
outstanding, 2.00 times the Net Cash Proceeds from the issuance and sale,
other than to a Subsidiary, of Common Stock (other than Redeemable Stock)
of the Company (less the amount of such proceeds used to make Restricted
Payments as provided in clause (C)(2) of the first paragraph or clause
(iii) of the second paragraph of Section 1012; provided that such
--------
Indebtedness does not mature prior to the Stated Maturity of the Notes and
the Average Life of such Indebtedness is longer than that of the Notes;
(vi) Indebtedness of the Company or any Restricted Subsidiary (A) in
respect of performance, surety or appeal bonds or letters of credit
supporting trade payables, in each case provided in the ordinary course of
business, (B) under Currency Agreements and Interest Rate Agreements;
provided that such agreements do not increase the Indebtedness of the
--------
obligor outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates or interest rates or by reason of fees,
indemnities and compensation payable thereunder; and (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds
or performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred
in connection with the disposition of any business, assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness Incurred
by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for
<PAGE>
65
the purpose of financing such acquisition), in a principal amount not to
exceed the gross proceeds actually received by the Company or any
Restricted Subsidiary in connection with such disposition;
(vii) Indebtedness of the Company, to the extent that the net
proceeds thereof are promptly (A) used to repurchase Notes tendered in a
Change of Control Offer or (B) deposited to defease all of the Notes as set
forth in Article Thirteen;
(viii) Indebtedness of a Restricted Subsidiary represented by a
Guarantee of the Notes permitted by and made in accordance with Section
1018; and
(ix) Indebtedness of the Company or any Restricted Subsidiary under
one or more Credit Facilities, provided that if any Indebtedness is
--------
incurred pursuant to this clause (ix), total Indebtedness under this clause
(ix) and clause (i) above does not exceed 65% of Eligible Accounts
Receivable at any one time outstanding.
(c) For purposes of determining any particular amount of Indebtedness
under this Section 1011, Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included. For purposes of
determining compliance with this Section 1011 that an item of Indebtedness meets
the criteria of more than one of the types of Indebtedness described in the
above clauses, the Company, in its sole discretion, shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses and (B) the principal amount of Indebtedness
issued at a price that is less than the principal amount thereof shall be equal
to the amount of the liability in respect thereof determined in conformity with
GAAP.
SECTION 1012. Limitation on Restricted Payments.
---------------------------------
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, (i) (A) declare or pay any dividend or make any
distribution in respect of the Company's Capital Stock to the holders thereof
(other than dividends or distributions payable solely in shares of Capital Stock
(other than Redeemable Stock) of the Company or in options, warrants or other
rights to acquire such shares of Capital Stock) or (B) declare or pay any
dividend or make any distribution in respect of the Capital Stock of any
Restricted Subsidiary to any Person other than dividends and distributions
payable to the Company or any Restricted Subsidiary or to all holders of Capital
Stock of such Restricted Subsidiary on a pro rata basis, (ii) purchase, redeem,
retire or otherwise acquire for value any shares of Capital Stock of the Company
(including options, warrants or other rights to acquire such shares of Capital
Stock) held by any Person or any shares of Capital Stock of any Restricted
Subsidiary (including options, warrants and other rights to acquire such shares
of Capital Stock) held by any Affiliate of the Company (other than a wholly
owned Restricted Subsidiary) or any holder (or any Affiliate thereof) of 5% or
more of the Company's Capital Stock, (iii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase, defeasance,
or
<PAGE>
66
other acquisition or retirement for value, of Indebtedness of the Company that
is subordinated in right of payment to the Notes, or (iv) make any Investment,
other than a Permitted Investment, in any Person (such payments or any other
actions described in clauses (i) through (iv) being collectively "Restricted
Payments") if, at the time of, and after giving effect to, the proposed
Restricted Payment:
(A) a Default or Event of Default shall have occurred and be
continuing;
(B) the Company could not Incur at least $1.00 of Indebtedness under
paragraph (a) of Section 1011; or
(C) the aggregate amount expended for all Restricted Payments (the
amount so expended, if other than in cash, to be determined in good
faith by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution) after the date of the
Indenture shall exceed the sum of (1) the remainder of (a) 100% of the
aggregate amount of the Consolidated Cash Flow (determined by
excluding income resulting from transfers of assets received by the
Company or a Restricted Subsidiary from an Unrestricted Subsidiary)
accrued on a cumulative basis during the period (taken as one
accounting period) beginning on the first day of the last fiscal
quarter immediately preceding the Closing Date and ending on the last
day of the last fiscal quarter preceding the Transaction Date minus
(b) the product of 2.00 times cumulative Consolidated Fixed Charges
accrued on a cumulative basis during the period (taken as one
accounting period) beginning on the first day of the last fiscal
quarter immediately preceding the Closing Date and ending on the last
day of the last fiscal quarter preceding the Transaction Date plus (2)
----
the aggregate Net Cash Proceeds received by the Company after the
Closing Date from the issuance and sale permitted by the Indenture of
its Capital Stock (other than Redeemable Stock) to a Person who is not
a Subsidiary of the Company (except to the extent such Net Cash
Proceeds are used to incur new Indebtedness outstanding pursuant to
clause (v) of paragraph (b) of Section 1011) plus (3) the aggregate
----
Net Cash Proceeds received after the date of the Indenture by the
Company from the issuance or sale of debt securities that have been
converted into or exchanged for Capital Stock of the Company (other
than Redeemable Stock) together with the aggregate cash received by
the Company at the time of such conversion or exchange plus (4)
----
without duplication of any amount included in the calculation of
Consolidated Cash Flow, in the case of repayment of, or return of
capital in respect of, any Investment constituting a Restricted
Payment made after the Closing Date, an amount equal to the lesser of
the return of capital with respect to such Investment and the cost of
such Investment, in either case less the cost of the disposition of
such Investment.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at said date of declaration, such
<PAGE>
67
payment would comply with the foregoing paragraph; (ii) the redemption,
repurchase, defeasance or other acquisition or retirement for value of
Indebtedness that is subordinated in right of payment to the Notes including
premium, if any, and accrued and unpaid interest, with the proceeds of, or in
exchange for, Indebtedness Incurred under clause (iv) of the paragraph (b) of
Section 1011; (iii) the repurchase, redemption or other acquisition of Capital
Stock of the Company in exchange for, or out of the proceeds of a substantially
concurrent offering of, shares of Capital Stock (other than Redeemable Stock) of
the Company (except to the extent such proceeds are used to incur new
Indebtedness outstanding pursuant to clause (v) of paragraph (b) of Section
1011); (iv) the acquisition of Indebtedness of the Company which is subordinated
in right of payment to the Notes in exchange for, or out of the proceeds of, a
substantially concurrent offering of, shares of the Capital Stock of the Company
(other than Redeemable Stock); (v) payments or distributions, to dissenting
stockholders pursuant to applicable law, pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with the provisions of
the Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of the Company; (vi) cash payments
in lieu of the issuance of fractional shares issued in connection with the
exercise of any of the Warrants; and (vii) other Restricted Payments not to
exceed $2.5 million; provided that, except in the case of clause (i), no Default
or Event of Default shall have occurred and be continuing or occur as a
consequence of the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the immediately
preceding paragraph (other than the Restricted Payment referred to in clause
(ii) thereof) and the Net Cash Proceeds from any issuance of Capital Stock
referred to in clauses (iii) and (iv), shall be included in calculating whether
the conditions of clause (C) of the first paragraph of this Section 1012 have
been met with respect to any subsequent Restricted Payments. In the event the
proceeds of an issuance of Capital Stock of the Company are used for the
redemption, repurchase or other acquisition of the Notes, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first paragraph
of this Section 1013 only to the extent such proceeds are not used for such
redemption, repurchase or other acquisition of the Notes.
SECTION 1013. Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Restricted Subsidiaries.
- ---------------------------------
So long as any of the Notes are outstanding, the Company will not, and
will not permit any Restricted Subsidiary to, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any Restricted Subsidiary to
(i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by
the Company or any other Restricted Subsidiary;
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary;
<PAGE>
68
(iii) make loans or advances to the Company or any other Restricted
Subsidiary; or
(iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions:
(i) existing on the Closing Date or in this Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the encumbrances
--------
and restrictions in any such extensions, refinancings, renewals or
replacements are no less favorable in any material respect to the holders
than those encumbrances or restrictions that are then in effect and that
are being extended, refinanced, renewed or replaced;
(ii) contained in the terms of any Indebtedness or any agreement
pursuant to which such Indebtedness was issued if the encumbrance or
restriction applies only in the event of a default with respect to a
financial covenant contained in such Indebtedness or agreement and such
encumbrance or restriction is not materially more disadvantageous to the
holders of the Notes than is customary in comparable financings (as
determined by the Company) and the Company determines that any such
encumbrance or restriction will not materially affect the Company's ability
to make principal or interest payments on the Notes;
(iii) existing under or by reason of applicable law;
(iv) existing with respect to any Person or the property or assets of
such Person acquired by the Company or any Restricted Subsidiary, existing
at the time of such acquisition and not incurred in contemplation thereof,
which encumbrances or restrictions are not applicable to any Person or the
property or assets of any Person other than such Person or the property or
assets of such Person so acquired;
(v) in the case of clause (iv) of the first paragraph of this
Section 1013, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is, or is subject to,
a lease, purchase mortgage obligation, license, conveyance or contract or
similar property or asset, (B) existing by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by the Indenture or (C) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness, and that do
not, individually or in the aggregate, detract from the value of property
or assets of the Company or any Restricted Subsidiary in any manner
material to the Company or any Restricted Subsidiary; or (vi) with respect
to a Restricted Subsidiary and imposed pursuant to an agreement that has
been entered into for the sale or disposition of all or substantially all
of the Capital Stock of, or property
<PAGE>
69
and assets of, such Restricted Subsidiary. Nothing contained in this
Section 1013 shall prevent the Company or any Restricted Subsidiary from
(1) creating, incurring, assuming or suffering to exist any Liens otherwise
permitted in Section 1016 or (2) restricting the sale or other disposition
of property or assets of the Company or any of its Restricted Subsidiaries
that secure Indebtedness of the Company or any of its Restricted
Subsidiaries.
SECTION 1014. Limitation on the Issuance and Sale of Capital Stock of
-------------------------------------------------------
Restricted Subsidiaries.
- -----------------------
The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue, transfer, convey, sell, lease or otherwise
dispose of any shares of Capital Stock (including options, warrants or other
rights to purchase shares of such Capital Stock) of such or any other Restricted
Subsidiary to any Person (other than to the Company or a Restricted Subsidiary)
unless (A) the Net Cash Proceeds from such issuance, transfer, conveyance, sale,
lease or other disposition are applied in accordance with the provisions of
Section 1017, (B) immediately after giving effect to such issuance, transfer,
conveyance, sale, lease or other disposition, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary, and (C) any Investment in such
Person remaining after giving effect to such issuance, transfer, conveyance,
sale, lease or other disposition would have been permitted to be made under
Section 1012 if made on the date of such issuance, transfer, conveyance, sale,
lease or other disposition (valued as provided in the definition of
"Investment").
SECTION 1015. Limitation on Transactions with Shareholders and
------------------------------------------------
Affiliates.
- ----------
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 5% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary,
unless
(i) such transaction or series of transactions is on terms no less
favorable to the Company or such Restricted Subsidiary than those that
could be obtained in a comparable arm's-length transaction with a Person
that is not such a holder or an Affiliate;
(ii) if such transaction or series of transactions involves aggregate
consideration in excess of $2.0 million, then such transaction or series of
transactions is approved by a majority of the Board of Directors of the
Company, including the approval of a majority of the independent,
disinterested directors, and is evidenced by a resolution of the Board of
Directors of the Company; and
(iii) if such transaction or series of transactions involves
aggregate consideration in excess of $10.0 million, then the Company or
such Restricted Subsidiary
<PAGE>
70
will deliver to the Trustee a written opinion as to the fairness to the
Company or such Restricted Subsidiary of such transaction from a financial
point of view from a nationally recognized investment banking firm (or, if
an investment banking firm is generally not qualified to give such an
opinion, by a nationally recognized appraisal firm or accounting firm).
Any such transaction or series of transactions shall be conclusively deemed
to be on terms no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained in an arm's-length transaction
if such transaction or transactions are approved by a majority of the Board
of Directors of the Company, including a majority of the independent
disinterested directors, and are evidenced by a resolution of the Board of
Directors of the Company.
The foregoing limitation does not limit, and will not apply to (i) any
transaction between the Company and any of its Restricted Subsidiaries or
between Restricted Subsidiaries; (ii) the payment of reasonable and customary
regular fees to directors of the Company who are not employees of the Company;
(iii) any Restricted Payments not prohibited by Section 1012; (iv) transactions
provided for in the Employment Agreements as in effect on the Closing Date; and
(v) loans and advances to employees of the Company not exceeding at any one time
outstanding $1.0 million in the aggregate, in the ordinary course of business
and in accordance with past practice.
SECTION 1016. Limitation on Liens.
-------------------
Under the terms of the Indenture, the Company will not, and will not
permit any Restricted Subsidiary to, create, incur, assume or suffer to exist
any Lien (other than Permitted Liens) on any of its assets or properties of any
character (including, without limitation, licenses and trademarks), or any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without
making effective provision for all of the Notes and all other amounts due under
the Indenture to be directly secured equally and ratably with (or prior to) the
obligation or liability secured by such Lien.
SECTION 1017. Limitation on Asset Sales.
-------------------------
The Company will not, and will not permit any Restricted Subsidiary
to, make any Asset Sale unless (i) the Company or the Restricted Subsidiary, as
the case may be, receives consideration at the time of such sale or other
disposition at least equal to the fair market value of the assets sold or
disposed of as determined by the good-faith judgment of the Board of Directors
evidenced by a Board Resolution and (ii) at least 85% of the consideration
received for such sale or other disposition consists of cash or cash equivalents
or the assumption of unsubordinated Indebtedness.
The Company shall, or shall cause the relevant Restricted Subsidiary
to, within 270 days after the date of receipt of the Net Cash Proceeds from an
Asset Sale (A), (i) apply an amount equal to such Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of the Company or Indebtedness of
any Restricted Subsidiary, in each case owing to a Person
<PAGE>
71
other than the Company or any of its Restricted Subsidiaries or (B) invest an
equal amount, or the amount not so applied pursuant to clause (A) in property or
assets of a nature or type or that are used in a business (or in a company
having property and assets of a nature or type, or engaged in a business)
similar or related to the nature or type of the property and assets of, or the
business of, the Company and its Restricted Subsidiaries existing on the date of
such investment (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) and (ii)
apply (no later than the end of the 270-day period referred to above) such
excess Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as
provided in the following paragraphs of this Section 1017. The amount of such
Net Cash Proceeds required to be applied (or to be committed to be applied)
during such 270-day period as set forth in clause (i) of the preceding sentence
and not applied as so required by the end of such period shall constitute
"Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined
below) totals at least $10.0 million, the Company must, not later than the
thirtieth Business Day thereafter, make an offer (an "Excess Proceeds Offer") to
purchase from the holders on a pro rata basis an aggregate principal amount of
Notes equal to the Excess Proceeds on such date, at a purchase price equal to
100% of the principal amount of the Notes, plus, in each case, accrued and
unpaid interest to the date of purchase (the "Excess Proceeds Payment").
The Company shall commence an Excess Proceeds Offer by mailing a
notice to the Trustee and each holder stating: (i) that the Excess Proceeds
Offer is being made pursuant to this Section 1017 and that all Notes validly
tendered will be accepted for payment on a pro rata basis; (ii) the purchase
price and the date of purchase (which shall be a Business Day no earlier than 30
days nor later than 60 days from the date such notice is mailed) (the "Excess
Proceeds Payment Date"); (iii) that any Note not tendered will continue to
accrue interest pursuant to its terms; (iv) that, unless the Company defaults in
the payment of the Excess Proceeds Payment, any Note accepted for payment
pursuant to the Excess Proceeds Offer shall cease to accrue interest on and
after the Excess Proceeds Payment Date; (v) that holders electing to have a Note
purchased pursuant to the Excess Proceeds Offer will be required to surrender
the Note, together with the form entitled "Option of the Holder to Elect
Purchase" on the reverse side of the Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the Business
Day immediately preceding the Excess Proceeds Payment Date; (vi) that holders
will be entitled to withdraw their election if the Paying Agent receives, not
later than the close of business on the third Business Day immediately preceding
the Excess Proceeds Payment Date, a telegram, facsimile transmission or letter
setting forth the name of such holder, the principal amount of Notes delivered
for purchase and a statement that such holder is withdrawing his election to
have such Notes purchased; and (vii) that holders whose Notes are being
purchased only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered; provided that each Note purchased
--------
and each new Note issued shall be in a principal amount of $1,000 or integral
multiples thereof.
<PAGE>
72
On the Excess Proceeds Payment Date, the Company shall (i) accept for
payment on a pro rata basis Notes or portions thereof tendered pursuant to the
Excess Proceeds Offer; (ii) deposit with the Paying Agent money sufficient to
pay the purchase price of all Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee all Notes or portions thereof
so accepted together with an Officers' Certificate specifying the Notes or
portions thereof accepted for payment by the Company. The Paying Agent shall
promptly mail to the holders of Notes so accepted payment in an amount equal to
the purchase price, and the Trustee shall upon Company Order promptly
authenticate and mail to such holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; provided that each Note
--------
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of
the Excess Proceeds Offer as soon as practicable after the Excess Proceeds
Payment Date. For purposes of this Section 1017, the Trustee shall act as the
Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that such Excess Proceeds are received
by the Company under this Section 1017 and the Company is required to repurchase
Notes as described above.
SECTION 1018. Limitation on Issuances of Guarantees of Indebtedness
-----------------------------------------------------
by Restricted Subsidiaries.
- --------------------------
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company, other than Indebtedness under Credit
Facilities incurred under clauses (i) and (ix) in paragraph (b) of Section 1011,
unless (i) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Guarantee of the Notes
on terms substantially similar to the guarantee of such Indebtedness, except
that if such Indebtedness is by its express terms subordinated in right of
payment to the Notes, any such assumption, Guarantee or other liability of such
Restricted Subsidiary with respect to such Indebtedness shall be subordinated in
right of payment to such Restricted Subsidiary's assumption, Guarantee of other
liability with respect to the Notes substantially to the same extent as such
Indebtedness is subordinated to the Notes and (ii) such Restricted Subsidiary
waives, and will not in any manner whatsoever claim or take the benefit or
advantage of, any rights or reimbursement, indemnity or subrogation or any other
rights against the Company or any other Restricted Subsidiary as a result of any
payment by such Restricted Subsidiary under its Guarantee.
Notwithstanding the foregoing, any Guarantee by a Restricted
Subsidiary may provide by its terms that it will be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all of the
assets of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the guarantee
which resulted in the creation
<PAGE>
73
of such Guarantee, except a discharge or release by or as a result of payment
under such guarantee.
SECTION 1019. Business of the Company; Restriction on Transfers of
----------------------------------------------------
Existing Business.
- -----------------
The Company will not, and will not permit any Restricted Subsidiary
to, be principally engaged in any business or activity other than a Permitted
Business. In addition, the Company and any Restricted Subsidiary will not be
permitted to, directly or indirectly, transfer to any Unrestricted Subsidiary
(i) any of the licenses, permits or authorizations used in the Permitted
Business of the Company and any Restricted Subsidiary on the Closing Date or
(ii) any material portion of the "property and equipment" (as such term is used
in the Company's consolidated financial statements) of the Company or any
Restricted Subsidiary used in the licensed service areas of the Company and any
Restricted Subsidiary as they exist on the Closing Date.
SECTION 1020. Limitation on Investments in Unrestricted Subsidiaries.
------------------------------------------------------
The Company will not make, and will not permit any of its Restricted
Subsidiaries to make, any Investments in Unrestricted Subsidiaries if, at the
time thereof, the aggregate amount of such Investments would exceed the amount
of Restricted Payments then permitted to be made pursuant to Section 1012. Any
Investments in Unrestricted Subsidiaries permitted to be made pursuant to this
covenant (i) will be treated as the making of a Restricted Payment in
calculating the amount of Restricted Payments made by the Company or a
Subsidiary and (ii) may be made in cash or property (if made in property, the
Fair Market Value thereof as determined by the Board of Directors of the Company
(whose determination shall be conclusive and evidenced by a Board Resolution)
shall be deemed to be the amount of such Investment for the purpose of clause
(i)).
SECTION 1021. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Section 803 or Sections 1007 through
1020, inclusive, if before or after the time for such compliance the Holders of
at least a majority in principal amount of the Outstanding Notes, by Act of such
Holders, waive such compliance in such instance with such term, provision or
condition, but no such waiver shall extend to or affect such term, provision or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such term, provision or condition shall remain in full force
and effect.
<PAGE>
74
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption.
-------------------
The Notes may be redeemed, at the election of the Company, as a whole
or from time to time in part, at any time after [_____, 2001], subject to the
conditions and at the Redemption Prices specified in the form of Note, together
with accrued interest to the Redemption Date.
SECTION 1102. Applicability of Article.
------------------------
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Notes pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed and shall deliver to the Trustee
such documentation and records as shall enable the Trustee to select the Notes
to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.
--------------------------------------------
If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 60 days prior to the Redemption Date
by the Trustee, from the Outstanding Notes not previously called for redemption,
in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed or, if the Notes are not listed
on a national securities exchange, on a pro rata basis, by lot or by such method
as the Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions of the principal of Notes; provided,
--------
however, that no such partial redemption shall reduce the portion of the
- -------
principal amount of a Note not redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Notes selected for partial
redemption, the principal amount thereof to be redeemed.
<PAGE>
75
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of the
principal amount of such Note which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Notes to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Notes are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Notes to be redeemed,
(4) in case any Note is to be redeemed in part only, the notice which
relates to such Note shall state that on and after the Redemption Date,
upon surrender of such Note, the holder will receive, without charge, a new
Note or Notes of authorized denominations for the principal amount thereof
remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) will become due and payable upon each such Note, or the portion
thereof, to be redeemed, and that interest thereon will cease to accrue on
and after said date,
(6) the place or places where such Notes are to be surrendered for
payment of the Redemption Price and accrued interest, if any.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
---------------------------
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in
<PAGE>
76
trust as provided in Section 1003) an amount of money sufficient to pay the
Redemption Price of, and accrued interest on, all the Notes which are to be
redeemed on that date.
SECTION 1107. Notes Payable on Redemption Date.
--------------------------------
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such Notes
shall cease to bear interest. Upon surrender of any such Note for redemption in
accordance with said notice, such Note shall be paid by the Company at the
Redemption Price, together with accrued interest, if any, to the Redemption
Date; provided, however, that installments of interest whose Stated Maturity is
-------- -------
on or prior to the Redemption Date shall be payable to the Holders of such
Notes, or one or more Predecessor Notes, registered as such at the close of
business on the relevant Record Dates according to their terms and the
provisions of Section 307.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate borne by the Notes.
SECTION 1108. Notes Redeemed in Part.
----------------------
Any Note which is to be redeemed only in part (pursuant to the
provisions of this Article) shall be surrendered at the office or agency of the
Company maintained for such purpose pursuant to Section 1002 (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or such Holders attorney duly authorized in writing), and
the Company shall execute, and the Trustee shall upon Company Order authenticate
and deliver to the Holder of such Note without service charge, a new Note or
Notes, of any authorized denomination as requested by such Holder, in aggregate
principal amount equal to and in exchange for the unredeemed portion of the
principal of the Note so surrendered.
<PAGE>
77
ARTICLE TWELVE
SECURITY
SECTION 1201. Security.
--------
On the Closing Date, the Company shall purchase, and, at all times,
subject to the Pledge Agreement, shall maintain Pledged Securities pledged to
the Trustee for the benefit of the Holders in such amount as will be sufficient
upon receipt of scheduled interest and/or principal payments of such Pledged
Securities, in the opinion of a nationally recognized firm of independent public
accountants selected by the Company, to provide for payment in full of the first
six scheduled interest payments due on the outstanding Notes. The Pledged
Securities shall be pledged by the Company to the Trustee for the benefit of the
Holders and shall be held by the Trustee in the Pledge Account pending
disposition pursuant to the Pledge Agreement.
(b) Each Holder, by its acceptance of a Note, consents and agrees to
the terms of the Pledge Agreement (including, without limitation, the provisions
providing for foreclosure and release of the Pledged Securities) as the same may
be in effect or may be amended from time to time in accordance with its terms,
and authorizes and directs the Trustee to enter into the Pledge Agreement and to
perform its respective obligations and exercise its respective rights thereunder
in accordance therewith. The Company will do or cause to be done all such acts
and things as may be necessary or proper, or as may be required by the
provisions of the Pledge Agreement, to assure and confirm to the Trustee the
security interest in the Pledged Securities contemplated hereby, by the Pledge
Agreement or any part thereof, as from time to time constituted, so as to render
the same available for the security and benefit of this Indenture and of the
Notes secured hereby, according to the intent and purposes herein expressed.
The Company shall take, or shall cause to be taken, any and all actions
reasonably required (and any action reasonably requested by the Trustee) to
cause the Pledge Agreement to create and maintain, as security for the
obligations of the Company under this Indenture and the Notes, valid and
enforceable first priority liens in and on all the Pledged Securities, in favor
of the Trustee, superior to and prior to the rights of third Persons and subject
to no other Liens.
(c) The release of any Pledged Securities pursuant to the Pledge
Agreement will not be deemed to impair the security under this Indenture in
contravention of the provisions hereof if and to the extent the Pledged
Securities are released pursuant to this Indenture and the Pledge Agreement. To
the extent applicable, the Company shall cause TIA Section 314(d) relating to
the release of property or securities from the Lien and security interest of the
Pledge Agreement (other than pursuant to Section 7(e) and 7(g) thereof) and
relating to the substitution therefor of any property or securities to be
subjected to the Lien and security interest of the Pledge Agreement to be
complied with. Any certificate or opinion required by TIA Section 314(d) may be
made by an Officer of the Company, except in cases where TIA Section 314(d)
requires that such certificate or opinion be made by an independent Person,
which Person shall be an independent engineer, appraiser or other expert
selected by the Company.
<PAGE>
78
(d) The Trustee, in its sole discretion and without the consent of
the Holders, may, and at the request of the Holders of at least 25% in aggregate
principal amount of Notes then outstanding shall, on behalf of the Holders, take
all actions it deems necessary or appropriate in order to (i) enforce any of the
terms of the Pledge Agreement and (ii) collect and receive any and all amounts
payable in respect of the obligations of the Company thereunder. The Trustee
shall have power to institute and to maintain such suits and proceedings as the
Trustee may deem expedient to preserve or protect its interests and the
interests of the Holders in the Pledged Securities (including power to institute
and maintain suits or proceedings to restrain the enforcement of or compliance
with any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the security interest hereunder or be
prejudicial to the interests of the Holders or of the Trustee).
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance.
- ----------
The Company may, at its option by Board Resolution, at any time, with
respect to the Notes, elect to have either Section 1302 or Section 1303 be
applied to all Outstanding Notes upon compliance with the conditions set forth
below in this Article Thirteen.
SECTION 1302. Defeasance and Discharge.
------------------------
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1302, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Notes on the
date the conditions set forth in Section 1304 are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall
be deemed to have paid and discharged the entire indebtedness represented by the
Outstanding Notes, which shall thereafter be deemed to be "Outstanding" only for
the purposes of Section 1305 and the other Sections of this Indenture referred
to in (A) and (B) below, and to have satisfied all its other obligations under
such Notes and this Indenture insofar as such Notes are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of Holders of
Outstanding Notes to receive, solely from the trust fund described in Section
1304 and as more fully set forth in such Section, payments in respect of the
principal of (and premium, if any, on) and interest on such Notes when such
payments are due, (B) the Company's obligations with respect to such Notes under
Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers, trusts, duties
and immunities of the Trustee
<PAGE>
79
hereunder and (D) this Article Thirteen. Subject to compliance with this
Article Thirteen, the Company may exercise its option under this Section 1302
notwithstanding the prior exercise of its option under Section 1303 with respect
to the Notes.
SECTION 1303. Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company shall be released from its
obligations under any covenant contained in Section 801(3) and (4) and Section
803 and in Sections 1007 through 1021 with respect to the Outstanding Notes on
and after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"), and the Notes shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Outstanding Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section
501(5), but, except as specified above, the remainder of this Indenture and such
Notes shall be unaffected thereby.
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.
-----------------------------------------------
The following shall be the conditions to application of either Section
1302 or Section 1303 to the Outstanding Notes:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 607 who shall agree to comply with the provisions of this
Article Thirteen applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Notes, (A) cash in
United States dollars, or (B) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment, money in an amount, or (C) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered
to the Trustee, to pay and discharge, and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge, (i) the
principal of (and premium, if any) and interest on the Outstanding Notes on
the Stated Maturity (or Redemption Date, if applicable) of such principal
(and premium, if any) or installment of interest and (ii) any mandatory
sinking fund payments or analogous payments applicable to the Outstanding
Notes on the day on which such payments are due and payable in accordance
with the terms of this Indenture and of such Notes; provided that
--------
<PAGE>
80
the Trustee shall have been irrevocably instructed to apply such money or
the proceeds of such U.S. Government Obligations to said payments with
respect to the Notes. Before such a deposit, the Company may give to the
Trustee, in accordance with Section 1103 hereof, a notice of its election
to redeem all of the Outstanding Notes at a future date in accordance with
Article Eleven hereof, which notice shall be irrevocable. Such irrevocable
redemption notice, if given, shall be given effect in applying the
foregoing. For this purpose, "U.S. Government Obligations" means
securities that are (x) direct obligations of the United States of America
for the timely payment of which its full faith and credit is pledged or (y)
obligations of a Person controlled or supervised by and acting as an agency
or instrumentality of the United States of America the timely payment of
which is unconditionally guaranteed as a full faith and credit obligation
by the United States of America, which, in either case, are not callable or
redeemable at the option of the issuer thereof, and shall also include a
depository receipt issued by a bank (as defined in Section 3(a)(2) of the
Securities Act of 1933, as amended), as custodian with respect to any such
U.S. Government Obligation or a specific payment of principal of or
interest on any such U.S. Government Obligation held by such custodian for
the account of the holder of such depository receipt, provided that (except
--------
as required by law) such custodian is not authorized to make any deduction
from the amount payable to the holder of such depository receipt from any
amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal of or interest on the U.S.
Government Obligation evidenced by such depository receipt.
(2) No Default or Event of Default with respect to the Notes shall
have occurred and be continuing on the date of such deposit or, insofar as
paragraphs (8) and (9) of Section 501 hereof are concerned, at any time
during the period ending on the 123rd day after the date of such deposit
(it being understood that this condition shall not be deemed satisfied
until the expiration of such period).
(3) [Reserved]
(4) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the Company is
a party or by which it is bound.
(5) In the case of an election under Section 1302, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since July [__], 1997, there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the Holders
of the Outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred.
<PAGE>
81
(6) In the case of an election under Section 1303, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such covenant defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred.
(7) The Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section 1302
or the covenant defeasance under Section 1303 (as the case may be) have
been complied with.
SECTION 1305. Deposited Money and U.S. Government Obligations to Be
-----------------------------------------------------
Held in Trust; Other Miscellaneous Provisions.
- ---------------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1305, the "Trustee") pursuant to Section 1304 in respect of the
Outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Holders of such Notes of
all sums due and to become due thereon in respect of principal (and premium, if
any) and interest, but such money need not be segregated from other funds except
to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Notes.
Anything in this Article Thirteen to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1304 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance, as applicable, in accordance with this Article.
SECTION 1306. Reinstatement.
-------------
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1305 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had
<PAGE>
82
occurred pursuant to Section 1302 or 1303, as the case may be, until such time
as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 1305; provided, however, that if the Company makes any
-------- -------
payment of principal of (or premium, if any) or interest on any Note following
the reinstatement of its obligations, the Company shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money held
by the Trustee or Paying Agent.
This Indenture may be signed in any number of counterparts each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Indenture.
<PAGE>
83
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
PRIMUS TELECOMMUNICATIONS
GROUP, INCORPORATED
[SEAL] By
-----------------------
Title:
Attest:
---------------------
Title:
FIRST UNION NATIONAL BANK
OF VIRGINIA
[SEAL] By
-----------------------
Title:
Attest:
---------------------
Title:
<PAGE>
Draft
WARRANT AGREEMENT
Dated as of
July __, 1997
between
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
and
FIRST UNION NATIONAL BANK OF VIRGINIA
as the Warrant Agent
--------------------------------------------------------------
Warrants for
Common Stock of
Primus Telecommunications Group, Incorporated
--------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions
<S> <C> <C>
SECTION 1.01. Definitions............................................................................. 1
SECTION 1.02. Other Definitions....................................................................... 4
SECTION 1.03. Rules of Construction................................................................... 5
ARTICLE 2
Warrant Certificates
SECTION 2.01. Form and Dating......................................................................... 5
SECTION 2.02. Legends................................................................................. 6
SECTION 2.03. Execution and Countersignature.......................................................... 7
SECTION 2.04. Certificate Register................................................................... . 7
SECTION 2.05. Separation of Warrants and Notes........................................................ 8
SECTION 2.06. Transfer and Exchange................................................................... 8
SECTION 2.07. Replacement Certificates................................................................ 9
SECTION 2.08. Temporary Certificates.................................................................. 9
SECTION 2.09. Cancellation............................................................................ 10
ARTICLE 3
Exercise Terms
SECTION 3.01. Exercise Price.......................................................................... 10
SECTION 3.02. Exercise Periods; Restrictions on Exercise.............................................. 10
SECTION 3.03. Expiration.............................................................................. 11
SECTION 3.04. Manner of Exercise...................................................................... 11
SECTION 3.05. Issuance of Warrant Shares.............................................................. 11
SECTION 3.06. Fractional Warrant Shares............................................................... 12
SECTION 3.07. Reservation of Warrant Shares........................................................... 12
SECTION 3.08. Compliance with Law..................................................................... 13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ii
Page
----
ARTICLE 4
Antidilution Provisions
<S> <C> <C>
SECTION 4.01. Changes in Common Stock................................................................. 13
SECTION 4.02. Cash Dividends and Other Distributions.................................................. 14
SECTION 4.03. Rights Issue to All Holders of Common Stock............................................. 14
SECTION 4.04. Other Issuances of Common Stock or Rights............................................... 15
SECTION 4.05. Combination; Liquidation................................................................ 16
SECTION 4.06. Other Events............................................................................ 17
SECTION 4.07. Superseding Adjustment.................................................................. 17
SECTION 4.08. Minimum Adjustment...................................................................... 17
SECTION 4.09. Notice of Adjustment.................................................................... 18
SECTION 4.10. Notice of Certain Transactions.......................................................... 18
SECTION 4.11. Adjustment to Warrant Certificate....................................................... 19
SECTION 4.12. Exceptions to Antidilution Provisions................................................... 19
ARTICLE 5
Registration Rights
SECTION 5.01. Effectiveness of Registration Statement................................................. 20
SECTION 5.02. Suspension.............................................................................. 21
SECTION 5.03. Demand Registration; Repurchase of Warrants............................................. 21
SECTION 5.04. Blue Sky................................................................................ 23
SECTION 5.05. Accuracy of Disclosure.................................................................. 24
SECTION 5.06. Indemnification......................................................................... 24
SECTION 5.07. Additional Acts......................................................................... 25
SECTION 5.08. Expenses................................................................................ 25
SECTION 5.09 Listing of Warrant Shares................................................................26
ARTICLE 6
Warrant Agent
SECTION 6.01. Appointment of Warrant Agent............................................................ 26
SECTION 6.02. Right and Duties of Warrant Agent....................................................... 26
SECTION 6.03. Individual Rights of Warrant Agent...................................................... 27
SECTION 6.04. Warrant Agent's Disclaimer.............................................................. 27
SECTION 6.05. Compensation and Indemnity.............................................................. 27
SECTION 6.06. Successor Warrant Agent................................................................. 28
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
iii
Page
----
ARTICLE 7
Remedies
<S> <C> <C>
SECTION 7.01 Defaults................................................................................ 29
SECTION 7.02 Payment Obligations..................................................................... 30
SECTION 7.03 Remedies................................................................................ 30
ARTICLE 8
Miscellaneous
SECTION 8.01. Financial Statements and Reports of the Company......................................... 30
SECTION 8.02. Persons Benefitting..................................................................... 30
SECTION 8.03. Rights of Holders....................................................................... 30
SECTION 8.04. Amendment............................................................................... 31
SECTION 8.05. Notices................................................................................. 31
SECTION 8.06. Governing Law........................................................................... 32
SECTION 8.07. Successors.............................................................................. 32
SECTION 8.08. Multiple Originals...................................................................... 32
SECTION 8.09. Table of Contents....................................................................... 32
SECTION 8.10. Severability............................................................................ 32
</TABLE>
EXHIBIT A Form of Face of Warrant Certificate
APPENDIX A List of Financial Experts
<PAGE>
WARRANT AGREEMENT dated as of July __, 1997 (this
"Agreement"), between PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED, a Delaware
corporation (the"Company"), and First Union National Bank of Virginia, as
Warrant Agent (the "Warrant Agent").
The Company desires to issue the warrants (the "Warrants") described
herein which will initially entitle the holders thereof (the "Holders") to
purchase in the aggregate _________ shares of common stock, par value $0.01 per
share (the "Common Stock"), of the Company at a purchase price of $____ per
share in connection with an offering of _______ units (the "Units"). Each Unit
will consist of (i) $_____ aggregate principal amount of ____% Senior Notes due
2004 (collectively, the "Notes") issued by the Company pursuant to the
provisions of an Indenture (as defined below), and (ii) ___ Warrants issued by
the Company. Each Warrant will entitle the Holder to purchase _____ shares of
Common Stock, subject to adjustment as provided herein. In connection with the
sale of the Units, _______ Warrants will be issued to the purchasers of the
Units.
The Notes and Warrants included in each Unit will not become
separately transferable until the earliest of (i) _________, 1998, (ii) an
Exercise Event or (iii) such other date, as Lehman Brothers Inc. shall determine
(the "Separation Date").
The Company further desires the Warrant Agent to act on behalf of the
Company in connection with the issuance of the Warrants as provided herein and
the Warrant Agent is willing to so act.
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of Warrants:
ARTICLE I
Definitions
SECTION 1.01. Definitions.
"Affiliate" of any Person means any other Person, directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control" when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; provided, however, that
beneficial ownership of 10% or more of the voting securities of a Person shall
be decreed to be control of such Person. The terms "controlling" and
"controlled" have meanings correlative to the foregoing.
<PAGE>
"Board" means the Board of Directors of the Company or any committee
thereof duly authorized to act on behalf of such Board of Directors.
"Business Day" means each day that is not a Saturday, a Sunday or a
day on which banking institutions are not required to be open in the State of
New York.
"Cashless Exercise Ratio" means a fraction, the numerator of which is
the excess of the Current Market Value per share of Common Stock on the Exercise
Date over the Exercise Price per share as of the Exercise Date and the
denominator of which is the Current Market Value per share of the Common Stock
on the Exercise Date.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes
the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of more than 50% of the total voting power of the then outstanding Voting
Stock of the Company on a fully diluted basis; (ii) individuals who at the
beginning of any period of two consecutive calendar years constituted the Board
of Directors (together with any directors who are members of the Board of
Directors on the date hereof and any new directors whose election by the Board
of Directors or whose nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the members of the Board of
Directors then still in office who either were members of the Board of Directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
members of such board of directors then in office; (iii) the sale, lease,
transfer, conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any such "person" or "group" (other than to the Company or a Restricted
Subsidiary); (iv) the merger or consolidation of the Company with or into
another corporation or the merger of another corporation with or into the
Company with the effect that immediately after such transaction any such
"person" or "group" of persons or entities shall have become the beneficial
owner of securities of the surviving corporation of such merger or consolidation
representing a majority of the total voting power of the then outstanding Voting
Stock of the surviving corporation; or (v) the adoption of a plan relating to
the liquidation or dissolution of the Company.
"Combination" means an event in which the Company consolidates with,
merges with or into, or sells all or substantially all of its assets to another
Person.
"Commission" means the Securities and Exchange Commission, or any
successor agency or body performing substantially similar functions.
"Current Market Value" per share of Common Stock or any other security
at any date means: (i) if the security is not registered under the Exchange Act,
(a) the value of the security, determined in good faith by the Board and
certified in a board resolution, based
2
<PAGE>
on the most recently completed arm's-length transaction between the Company and
a Person other than an Affiliate of the Company, the closing of which occurred
on such date or within the six-month period preceding such date, or (b) if no
such transaction shall have occurred on such date or within such six-month
period, the value of the security as determined by an independent financial
expert; or (ii) if the security is registered under the Exchange Act, the
average of the last reported sale price of the Common Stock (or the equivalent
in an over-the-counter market) for each Business Day during the period
commencing 15 Business Days before such date and ending on the date one day
prior to such date, or if the security has been registered under the Exchange
Act for less than 15 consecutive Business Days before such date, the average of
the daily closing bid prices (or such equivalent) for all of the Business Days
before such date for which daily closing bid prices are available (provided,
however, that if the closing bid price is not determinable for at least 10
Business Days in such period, the "Current Market Value" of the security shall
be determined as if the security were not registered under the Exchange Act).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Date" means, for a given Warrant, the day on which such
Warrant is exercised pursuant to Section 3.04.
"Exercise Event" means, with respect to each Warrant as to which such
event is applicable, the earlier of: (i) a Change of Control and (ii) any date
when the Company (A) consolidates or merges into or with another Person (but
only where holders of Common Stock receive consideration in exchange for all or
part of such Common Stock other than common stock in the surviving Person) if
the Common Stock (or other securities) thereafter issuable upon exercise of the
Warrants will not be registered under the Exchange Act or (B) sells all or
substantially all of its assets to another Person if the Common Stock (or other
securities) thereafter issuable upon exercise of the Warrants will not be
registered under the Exchange Act; provided, that the events in (A) and (B) will
not be deemed to have occurred if the consideration for the Common Stock in
either such transaction consists solely of cash.
"Financial Expert" means one of the Persons listed in Appendix A
hereto.
"Indenture" means the Indenture dated as of July __, 1997, between the
Company, and the Trustee, with respect to the Notes, as it may be amended or
supplemented from time to time.
"Independent Financial Expert" means a Financial Expert that does not,
and whose directors, executive officers and 5% stockholders do not, have a
direct or indirect financial interest in the Company or any of its subsidiaries
or Affiliates, which has not been for at least five years and, at the time it is
called upon to give independent financial advice to the Company, is not (and
none of its directors, executive officers or 5% stockholders is) a promoter,
director, or officer of the Company or any of its subsidiaries or Affiliates.
The
3
<PAGE>
Independent Financial Expert may be compensated and indemnified by the Company
for opinions or services it provides as an Independent Financial Expert.
"Issue Date" means the date on which Warrants are initially issued.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer, or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Company.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Securities Act" means the Securities Act of 1933, as amended.
"Trustee" means First Union National Bank of Virginia, or any
successor trustee under the Indenture.
"Voting Stock" is defined to mean with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote for the election
of directors, managers or other voting members of the governing body of such
Person.
"Warrant Certificates" mean the registered certificates (including
without limitation, the global certificates) issued by the Company under this
Agreement representing the Warrants.
"Warrant Shares" mean the shares of Common Stock (and any other
securities) for which the Warrants are exercisable.
SECTION 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
"Agreement"....................................... Recitals
"Cashless Exercise"............................... 3.04
"Certificate Registrar............................ 2.04
"Common Shelf Registration Statement"............. 5.01
"Common Stock".................................... Recitals
"Company"......................................... Recitals
"Demand Registration"............................. 5.03
"DTC"............................................. 2.02(b)
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
"Exercise Price".................................. 3.01
"Expiration Date"................................. 3.02(b)
"Holders"......................................... Recitals
"Notes"........................................... Recitals
"Registrar"....................................... 3.07
"Separability Legend"............................. 2.02(a)
"Separation Date"................................. Recitals
"Successor Company"............................... 4.05(a)
"Transfer Agent".................................. 3.05
"Units"........................................... Recitals
"Warrant Agent"................................... Recitals
"Warrants"........................................ Recitals
</TABLE>
SECTION 1.03. Rules of Construction. Unless the text otherwise
requires:
(i) a defined term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles
as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation; and
(v) words in the singular include the plural and words in the
plural include the singular.
ARTICLE 2
Warrant Certificates
SECTION 2.01. Form and Dating. Each Warrant Certificate shall be
issued in registered form only substantially in the form of Exhibit A, which is
hereby incorporated in and expressly made a part of this Agreement. The Warrant
Certificates may have notations, legends or endorsements required by law, stock
exchange rule, agreements to which the Company is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Company) and shall bear the legends required by Section 2.02. Each
Warrant Certificate shall be dated the date of its countersignature. The terms
of the Warrant Certificate set forth in Exhibit A are part of the terms of this
Agreement.
5
<PAGE>
The Warrants shall be issued initially in the form of one or more
permanent global Warrant Certificates in definitive, fully registered form,
substantially in the form set forth in Exhibit A (the "Global Warrant"),
deposited with the Warrant Agent, as custodian for DTC, duly executed by the
Company and countersigned by the Warrant Agent as hereinafter provided.
The definitive Warrant Certificates shall be typed, printed,
lithographed or engraved or produced by any combination of these methods or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Warrants may be listed, all as determined by the officers
executing such Warrant Certificates, as evidenced by their execution of such
Warrant Certificates.
SECTION 2.02. Legends. (a) Each Warrant Certificate issued prior to
the Separation Date shall bear the following legend (the "Separability Legend"):
THE WARRANTS REPRESENTED BY THIS CERTIFICATE WERE INITIALLY ISSUED AS PART
OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF ______ AGGREGATE
PRINCIPAL AMOUNT OF ___ % SENIOR NOTES DUE 2004 OF PRIMUS
TELECOMMUNICATIONS GROUP, INCORPORATED (THE "NOTES") AND A WARRANT. THE
WARRANTS AND THE NOTES WILL NOT BE SEPARATELY TRANSFERABLE UNTIL THE
EARLIEST OF (I) ____, 1998, (II) AN EXERCISE EVENT AND (III) SUCH OTHER
DATE AS LEHMAN BROTHERS INC. MAY DETERMINE.
(b) Each Global Warrant issued in global form and deposited with DTC
shall bear the following legend:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS
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OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE WARRANT AGREEMENT
REFERRED TO HEREIN.
(c) Each Warrant Certificate shall bear the following legend:
THE EXERCISE OF THIS WARRANT (AND THE OWNERSHIP OF COMMON STOCK
ISSUABLE UPON THE EXERCISE THEREOF) MAY BE LIMITED BY PRIMUS
TELECOMMUNICATIONS GROUP, INCORPORATED IN ORDER TO ENSURE COMPLIANCE WITH
THE RULES, REGULATIONS AND POLICIES OF THE FEDERAL COMMUNICATIONS
COMMISSION, AND THIS WARRANT WILL NOT BE EXERCISABLE BY ANY HOLDER IF SUCH
EXERCISE WOULD CAUSE PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED TO BE IN
VIOLATION OF THE COMMUNICATIONS ACT OF 1934 OR THE RULES, REGULATIONS AND
POLICIES OF THE FEDERAL COMMUNICATIONS COMMISSION.
SECTION 2.03. Execution and Countersignature. Two Officers shall sign
the Warrant Certificates for the Company by manual or facsimile signature. If an
Officer whose signature is on a Warrant Certificate no longer holds that office
at the time the Warrant Agent countersigns the Warrant Certificate, the Warrant
Certificate shall nevertheless be valid. A Warrant Certificate shall not be
valid until an authorized signatory of the Warrant Agent manually countersigns
the Warrant Certificate. Such authorized signature shall be conclusive evidence
that the Warrant Certificate has been countersigned under this Agreement.
The Warrant Agent shall initially countersign and deliver Warrant
Certificates entitling the Holders thereof to purchase in the aggregate not more
than ___________ Warrant Shares upon a written order of the Company signed by
two Officers or by an Officer and either an Assistant Treasurer or an Assistant
Secretary of the Company.
The Warrant Agent may appoint an agent reasonably acceptable to the
Company to countersign the Warrant Certificates. Unless limited by the terms of
such appointment, such agent may countersign Warrant Certificates whenever the
Warrant Agent may do so. Each reference in this Agreement to countersignature by
the Warrant Agent includes countersignature by such agent. Such agent will have
the same rights as the Warrant Agent for service of notices and demands.
SECTION 2.04. Certificate Register. The Warrant Agent shall keep a
register ("Certificate Register") of the Warrant Certificates and of their
transfer and exchange. The Certificate Registers shall show the names and
addresses of the respective Holders and the date and number of Warrants
represented on the face of each Warrant Certificate. The Company and the Warrant
Agent may deem and treat the Person in whose name a Warrant Certificate is
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registered as the absolute owner of such Warrant Certificate for all purposes
whatsoever and neither the Company nor the Warrant Agent shall be affected by
notice to the contrary.
SECTION 2.05. Separation of Warrants and Notes. (a) Prior to the
Separation Date no Warrant may be sold, assigned or otherwise transferred to any
Person unless, simultaneously with such transfer, the Warrant Agent receives
confirmation from the Trustee for the Notes that the Holder thereof has
requested a transfer of the related Notes to the same transferee.
(b) On or after the Separation Date, the holder of a Warrant
Certificate containing a Separability Legend may surrender such Warrant
Certificate accompanied by a written application to the Warrant Agent, duly
executed by the Holder thereof, for a new Warrant Certificate or certificates
not containing the Separability Legend.
SECTION 2.06. Transfer and Exchange. (a) The Warrant Certificates
shall be issued in registered form only and shall be transferable only upon the
surrender of such Warrant Certificate for registration of transfer. When a
Warrant Certificate is presented to the Warrant Agent with a request to register
a transfer, the Warrant Agent shall register the transfer as requested if the
reasonable requirements of the Warrant Agent and of Section 8-401(1) of the
Uniform Commercial Code as in effect in the State of New York are met; provided,
however, that prior to the Separation Date the Warrant Agent shall not register
a transfer of a Warrant Certificate and such transfer will be void and of no
effect unless the Notes that are a part of the same Unit as the Warrants
represented by the Warrant Certificate to be transferred are simultaneously
transferred to the same transferee. To permit the registration of transfers and
exchanges, the Company shall execute and the Warrant Agent shall countersign
Warrant Certificates at the Warrant Agent's request. All Warrant Certificates
issued upon any registration of transfer or exchange of Warrant Certificates
shall be valid obligations of the Company, entitled to the same benefits under
this Agreement as the Warrant Certificates surrendered upon such registration of
transfer or exchange. No service charge will be made to a Holder for any
registration of transfer or exchange upon surrender of any Warrant Certificate
at the office of the Warrant Agent maintained for that purpose. However, the
Company may require payment of a sum sufficient to cover any tax, assessment or
other governmental charge that may be imposed in connection with any
registration of transfer or exchange of Warrant Certificates but not for any
exchange or original issuance (not involving a transfer) pursuant to Section
2.08, 3.04 or 3.05.
(b) Notwithstanding any other provisions of this Section 2.06,
unless and until it is exchanged in whole or in part for Warrants in definitive
registered form, the Global Warrant may not be transferred except as a whole by
DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC
or by DTC or any such nominee to a successor depositary or a nominee of such
successor depositary. Interests of beneficial owners in the Global Warrant may
be transferred in accordance with the rules and procedures of DTC. Members of,
or participants in, DTC ("Participants") shall have no rights under this
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Agreement with respect to the Global Warrant held on their behalf by DTC or the
Warrant Agent as its custodian, and DTC may be treated by the Company, the
Warrant Agent and any agent of the Company or the Warrant Agent as the absolute
owner of such Global Warrant for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Warrant Agent or any
agent of the Company or the Warrant Agent from giving effect to any written
certification, proxy or other authorization furnished by DTC or impair, as
between DTC and its Participants, the operation of customary practices governing
the exercise of the rights of a Holder of any Warrants. The registered holder of
the Global Warrant may grant proxies and otherwise authorize any person,
including Participants and persons that may hold interests through Participants,
to take any action which a Holder is entitled to take under this Agreement or
the Warrants.
If DTC notifies the Company that it is unwilling or unable to continue
as depositary for the Global Warrant or Warrants or if at any time DTC shall no
longer be eligible under the next sentence of this paragraph, the Company shall
appoint a successor depositary with respect to the Warrants. Each depositary
appointed pursuant to this Section 2.06 must, at the time of its appointment and
at all times while it serves as depositary, be a clearing agency registered
under the Exchange Act and any other applicable statute or regulation. The
Company will execute, and the Warrant Agent, upon receipt of written
instructions from the Company, will countersign and deliver, Warrants in
definitive registered form in any authorized denominations, in an aggregate
amount equal to the amount of the Global Warrant or Warrants representing such
Warrants in exchange for such Global Warrant or Warrants if DTC notifies the
Company that it is unwilling or unable to continue as depositary for the Global
Warrant or Warrants or if at any time DTC shall no longer be eligible to serve
as depositary and a successor depositary for the Warrants is not appointed by
the Company within 60 days after the Company receives such notice or becomes
aware of such ineligibility.
SECTION 2.07. Replacement Certificates. If a mutilated Warrant
Certificate is surrendered to the Warrant Agent or if the Holder of a Warrant
Certificate claims that the Warrant Certificate has been lost, destroyed or
wrongfully taken, the Company shall issue and the Warrant Agent shall
countersign a replacement Warrant Certificate if the reasonable requirements of
the Warrant Agent and of Section 8-405 of the Uniform Commercial Code as in
effect in the State of New York are met. Such Holder shall furnish an indemnity
bond sufficient in the judgment of the Company and the Warrant Agent to protect
the Company and the Warrant Agent from any loss which either of them may suffer
if a Warrant Certificate is replaced. the Company and the Warrant Agent may
charge the Holder for their expenses in replacing a Warrant Certificate. Every
replacement Warrant Certificate is an additional obligation of the Company.
SECTION 2.08. Temporary Certificates. Until definitive Warrant
Certificates are ready for delivery, the Company may prepare and the Warrant
Agent shall countersign temporary Warrant Certificates. Temporary Warrant
Certificates shall be substantially in the
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form of definitive Warrant Certificates but may have variations that the Company
considers appropriate for temporary Warrant Certificates. Without unreasonable
delay, the Company shall prepare and the Warrant Agent shall countersign
definitive Warrant Certificates and deliver them in exchange for temporary
Warrant Certificates.
SECTION 2.09. Cancellation. (a) In the event the Company shall
purchase or otherwise acquire Warrant Certificates, the same shall thereupon be
delivered to the Warrant Agent for cancellation.
(b) The Warrant Agent and no one else shall cancel and may, but shall
not be required to, destroy all Warrant Certificates surrendered for transfer,
exchange, replacement, exercise or cancellation unless the Company directs the
Warrant Agent to deliver canceled Warrant Certificates to the Company. The
Company may not issue new Warrant Certificates to replace Warrant Certificates
to the extent they represent Warrants which have been exercised or Warrants
which the Company has purchased or otherwise acquired.
ARTICLE 3
Exercise Terms
SECTION 3.01. Exercise Price. Each Warrant shall initially entitle the
Holder thereof, subject to adjustment pursuant to the terms of this Agreement,
to purchase ________ shares of Common Stock for a per share exercise price (the
"Exercise Price") of $________.
SECTION 3.02. Exercise Periods; Restrictions on Exercise. (a) Subject
to the terms and conditions set forth herein, the Warrants shall be exercisable
at any time or from time to time after __________, 1998; provided, however, that
holders of Warrants will be able to exercise their Warrants only if (i) the
Common Shelf Registration Statement relating to the Warrant Shares is effective,
or (ii) the exercise of such Warrants is exempt from the registration
requirements of the Securities Act, and the Warrant Shares are qualified for
sale or exempt from qualification under the applicable securities laws of the
states or other jurisdictions in which such holders reside.
(b) Notwithstanding anything to the contrary in this Agreement
or the Warrants, the Company shall have the right not to allow an exercise of
the Warrants (or any portion thereof) to the extent necessary in order to ensure
compliance with the rules, regulations and policies of the Federal
Communications Commission ("FCC Rules"), and Warrants will not be exercisable by
any Holder if such exercise would cause the Company to be in violation of the
Communications Act of 1934 (the "Communications Act") or FCC Rules. The Company
will have the right prior to the exercise of any Warrant to require the Holder
thereof to furnish the Company with such certificates or other information as it
may reasonably
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require to confirm that such exercise would not cause the Company to be in
violation of the Communications Act or FCC Rules.
(c) No Warrant shall be exercisable after __________, 2004 (the
"Expiration Date").
SECTION 3.03. Expiration. Each Warrant shall terminate and become void
as of the earlier of (i) the close of business on the Expiration Date or (ii)
the date such Warrant is exercised. The Company shall give notice not less than
90 and not more than 120 days prior to the Expiration Date to the Holders of all
then outstanding Warrants to the effect that the Warrants will terminate and
become void as of the close of business on the Expiration Date; provided,
however, that if the Company fails to give notice as provided in this Section
3.03, the Warrants will nevertheless expire and become void on the Expiration
Date.
SECTION 3.04. Manner of Exercise. Warrants may be exercised upon (i)
surrender to the Warrant Agent at the principal corporate trust office of the
Warrant Agent of the related Warrant Certificate, together with the form of
election to purchase Common Stock on the reverse thereof duly filled in and
signed by the Holder thereof, and (ii) payment to the Warrant Agent, for the
account of the Company, of the Exercise Price for each Warrant Share issuable
upon the exercise of such Warrants then exercised. Such payment shall be made
(i) in cash or by certified or official bank check payable to the order of the
Company or by wire transfer of funds to an account designated by the Company for
such purpose or (ii) without the payment of cash, by reducing the number of
shares of Common Stock obtainable upon the exercise of a Warrant so as to yield
a number of shares of Common Stock upon the exercise of such Warrant equal to
the product of (a) the number of shares of Common Stock issuable as of the
Exercise Date upon the exercise of such Warrant (if payment of the Exercise
Price were being made in cash) and (b) the Cashless Exercise Ratio. An exercise
of a Warrant in accordance with the immediately preceding sentence is herein
called a "Cashless Exercise". Upon surrender of a Warrant Certificate
representing more than one Warrant in connection with the holder's option to
elect a Cashless Exercise, the number of shares of Common Stock deliverable upon
a Cashless Exercise shall be equal to the number of shares of Common Stock
issuable upon the exercise of Warrants that the Holder specifies are to be
exercised pursuant to a Cashless Exercise multiplied by the Cashless Exercise
Ratio. All provisions of this Agreement shall be applicable with respect to a
surrender of a Warrant Certificate pursuant to a Cashless Exercise for less than
the full number of Warrants represented thereby. Subject to Section 3.02, the
rights represented by the Warrants shall be exercisable at the election of the
Holders thereof either in full at any time or from time to time in part and in
the event that a Warrant Certificate is surrendered for exercise of less than
all the Warrants represented by such Warrant Certificate at any time prior to
the Expiration Date, a new Warrant Certificate representing the remaining
Warrants shall be issued. The Warrant Agent shall countersign and deliver the
required new Warrant Certificates, and the Company, at the Warrant Agent's
request, shall supply the Warrant Agent with Warrant Certificates duly signed on
behalf of the Company for such purpose.
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SECTION 3.05. Issuance of Warrant Shares. Subject to Section 2.07,
upon the surrender of Warrant Certificates and payment of the per share Exercise
Price, as set forth in Section 3.04, the Company shall issue and cause the
Warrant Agent or, if appointed, a transfer agent for the Common Stock ("Transfer
Agent") to countersign and deliver to or upon the written order of the Holder
and in such name or names as the Holder may designate a certificate or
certificates for the number of full Warrant Shares so purchased upon the
exercise of such Warrants or other securities or property or which it is
entitled, registered or otherwise, to the Person or Persons entitled to receive
the same, together with cash as provided in Section 3.06 in respect of any
fractional Warrant Shares otherwise issuable upon such exercise. Such
certificate or certificates shall be deemed to have been issued and any Person
so designated to be named therein shall be deemed to have become a holder of
record of such Warrant Shares as of the date of the surrender of such Warrant
Certificates and payment of the per share Exercise Price, as aforesaid;
provided, however, that if, at such date, the transfer books for the Warrant
Shares shall be closed, the certificates for the Warrant Shares in respect of
which such Warrants are then exercised shall be issuable as of the date on which
such books shall next be opened and until such date the Company shall be under
no duty to deliver any certificates for such Warrant Shares; provided further,
however, that such transfer books, unless otherwise required by law, shall not
be closed at any one time for a period longer than 20 calendar days.
SECTION 3.06. Fractional Warrant Shares. The Company shall not be
required to issue fractional Warrant Shares on the exercise of Warrants. If more
than one Warrant shall be exercised in full at the same time by the same Holder,
the number of full Warrant Shares which shall be issuable upon such exercise
shall be computed on the basis of the aggregate number of Warrant Shares
purchasable pursuant thereto. If any fraction of a Warrant Share would, except
for the provisions of this Section 3.06, be issuable on the exercise of any
Warrant (or specified portion thereof), the Company shall pay at the time of
exercise an amount in cash equal to the Current Market Value per Warrant Share,
as determined on the day immediately preceding the date the Warrant is
exercised, multiplied by such fraction, computed to the nearest whole cent.
SECTION 3.07. Reservation of Warrant Shares. The Company shall at all
times keep reserved out of its authorized shares of Common Stock a number of
shares of Common Stock sufficient to provide for the exercise of all outstanding
Warrants. The registrar for the Common Stock (the "Registrar") shall at all
times until the Expiration Date reserve such number of authorized shares as
shall be required for such purpose. The Company will keep a copy of this
Agreement on file with the Transfer Agent. All Warrant Shares which may be
issued upon exercise of Warrants shall, upon issue, be fully paid,
nonassessable, free of preemptive rights and free from all taxes, liens, charges
and security interests with respect to the issue thereof. The Company will
supply such Transfer Agent with duly executed stock certificates for such
purpose and will itself provide or otherwise make available any cash which may
be payable as provided in Section 3.06. The Company will furnish to such
Transfer Agent a copy of all notices of adjustments (and certificates related
thereto) transmitted to each Holder.
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Before taking any action which would cause an adjustment pursuant to
Article 4 to reduce the Exercise Price below the then par value (if any) of the
Common Stock, the Company shall take any and all corporate action which may, in
the opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock at the
Exercise Price as so adjusted.
The Company covenants that all shares of Common Stock which may be
issued upon exercise of Warrants will, upon issue, be fully paid, nonassessable,
free of preemptive rights, free from all taxes and free from all liens, charges
and security interests, created by or through the Company, with respect to the
issue thereof.
SECTION 3.08. Compliance with Law. Notwithstanding anything in this
Agreement to the contrary, in no event shall a Holder be entitled to exercise a
Warrant unless (i) a registration statement filed under the Securities Act in
respect of the issuance of the Warrant Shares is then effective or (ii) in the
opinion of counsel to the Company addressed to the Warrant Agent the exercise of
such Warrants is exempt from the registration requirements of the Securities Act
and such securities are qualified for sale or exempt from qualification under
the applicable securities laws of the States or other jurisdictions in which
such holders reside.
ARTICLE 4
Antidilution Provisions
SECTION 4.01. Changes in Common Stock. In the event that at any time
or from time to time the Company shall (i) pay a dividend or make a distribution
on its Common Stock payable in shares of its Common Stock or other equity
interests of the Company, (ii) subdivide its outstanding shares of Common Stock
into a larger number of shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares of Common Stock or (iv)
increase or decrease the number of shares of Common Stock outstanding by
reclassification of its Common Stock, then the number of shares of Common Stock
issuable upon exercise of each Warrant immediately after the happening of such
event shall be adjusted to a number determined by multiplying the number of
shares of Common Stock that such holder would have owned or have been entitled
to receive upon exercise had such Warrants been exercised immediately prior to
the happening of the events described above (or, in the case of a dividend or
distribution of Common Stock or other shares of capital stock, immediately prior
to the record date therefor) by a fraction, the numerator of which shall be the
total number of shares of Common Stock outstanding immediately after the
happening of the events described above and the denominator of which shall be
the total number of shares of Common Stock outstanding immediately prior to the
happening of the events described above; and subject to Section 4.08, the
Exercise Price for each Warrant shall be adjusted to a number determined by
dividing the Exercise Price immediately prior to such
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event by the aforementioned fraction. An adjustment made pursuant to this
Section 4.01 shall become effective immediately after the effective date of such
event, retroactive to the record date therefor in the case of a dividend or
distribution in shares of Common Stock or other shares of the Company's capital
stock.
SECTION 4.02. Cash Dividends and Other Distributions. In the event
that at any time or from time to time the Company shall distribute to all
holders of Common Stock (i) any dividend or other distribution of cash,
evidences of its indebtedness, shares of its capital stock or any other assets,
properties or debt securities or (ii) any options, warrants or other rights to
subscribed for or purchase any of the foregoing (other than, in each case, (w)
the issuance of any rights under a shareholder rights plan, (x) any dividend or
distribution described in Section 4.01, (y) any rights, options, warrants or
securities described in Section 4.03 and (z) any cash dividends or other cash
distributions from current or retained earnings), then the number of shares of
Common Stock issuable upon the exercise of each Warrant shall be increased to a
number determined by multiplying the number of shares of Common Stock issuable
upon the exercise of such Warrant immediately prior to the record date for any
such dividend or distribution by a fraction, the numerator of which shall be the
Current Market Value per share of Common Stock on the record date for such
dividend or distribution and the denominator of which shall be such Current
Market Value per share of Common Stock on the record date for such dividend or
distribution less the sum of (x) the amount of cash, if any, distributed per
share of Common Stock and (y) the fair value (as determined in good faith by the
Board, whose determination shall be evidenced by a board resolution filed with
the Warrant Agent, a copy of which will be sent to Holders upon request) of the
portion, if any, of the distribution applicable to one share of Common Stock
consisting of evidences of indebtedness, shares of stock, securities, other
assets or property, warrants, options or subscription or purchase rights; and,
subject to Section 4.08, the Exercise Price shall be adjusted to a number
determined by dividing the Exercise Price immediately prior to such record date
by the aforementioned fraction. Such adjustments shall be made whenever any
distribution is made and shall become effective as of the date of distribution,
retroactive to the record date for any such distribution; provided, however,
that the Company is not required to make an adjustment pursuant to this Section
4.02 if at the time of such distribution the Company makes the same distribution
to Holders of Warrants as it makes to holders of Common Stock pro rata based on
the number of shares of Common Stock for which such Warrants are exercisable
(whether or not currently exercisable). No adjustment shall be made pursuant to
this Section 4.02 which shall have the effect of decreasing the number of shares
of Common Stock issuable upon exercise of each Warrant or increasing the
Exercise Price.
SECTION 4.03. Rights Issue to All Holders of Common Stock. In the
event that at any time or from time to time the Company shall issue to all
holders of Common Stock without any charge, rights, options or warrants
entitling the holders thereof to subscribe for shares of Common Stock, or
securities convertible into or exchangeable or exercisable for Common Stock,
entitling such holders to subscribe for or purchase shares of Common Stock at a
price per share that is lower at the record date for such issuance than the then
Current Market
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Value per share of Common Stock other than in connection with the adoption of a
shareholder rights plan by the Company, then the number of shares of Common
Stock issuable upon the exercise of each Warrant shall be increased to a number
determined by multiplying the number of shares of Common Stock theretofore
issuable upon exercise of each Warrant by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights, options, warrants or securities plus the number of
additional shares of Common Stock offered for subscription or purchase or into
or for which such securities that are issued are convertible, exchangeable or
exercisable, and the denominator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of such rights, options,
warrants or securities plus the total number of shares of Common Stock which the
aggregate consideration expected to be received by the Company (assuming the
exercise or conversion of all such rights, options, warrants or securities)
would purchase at the then Current Market Value per share of Common Stock.
Subject to Section 4.08, in the event of any such adjustment, the Exercise Price
shall be adjusted to a number determined by dividing the Exercise Price
immediately prior to such date of issuance by the aforementioned fraction. Such
adjustment shall be made immediately after such rights, options or warrants are
issued and shall become effective, retroactive to the record date for the
determination of stockholders entitled to receive such rights, options, warrants
or securities. Notwithstanding anything to the contrary in this Article IV, no
adjustment to the number of Warrant Shares issuable upon exercise of the
Warrants or to the Exercise Price shall be made as a result of the offering by
the Company to all holders of its Common Stock of the Company Rights (or as a
result of any exercise of the Company Rights), including as a result of the
issuance of additional shares of Common Stock, or securities convertible into or
exchangeable or exercisable for shares of Common Stock, resulting from the
operation of any anti-dilution provision in any warrant or other security of the
Company convertible into, exercisable or exchangeable for Common Stock of the
Company, which such warrant or security is outstanding on the date of this
Agreement. No adjustment shall be made pursuant to this Section 4.03 which shall
have the effect of decreasing the number of shares of Common Stock purchasable
upon exercise of each Warrant or of increasing the Exercise Price.
SECTION 4.04. Other Issuances of Common Stock or Rights. In the event
that at any time or from time to time the Company shall issue (i) shares of
Common Stock (subject to the provisions below), (ii) rights, options or warrants
entitling the holder thereof to subscribe for shares of Common Stock (provided,
however, that no adjustment shall be made upon the exercise of such rights,
options or warrants), or (iii) securities convertible into or exchangeable or
exercisable for Common Stock (provided, however, that no adjustment shall be
made upon the conversion, exchange or exercise of such securities (other than
issuances specified in (i), (ii) or (iii) which are made as the result of anti-
dilution adjustments in such securities)), at a price per share at the record
date of such issuance that is less than the then Current Market Value per share
of Common Stock, then the number of shares of Common Stock issuable upon the
exercise of each Warrant shall be increased to a number determined by
multiplying the number of shares of Common Stock theretofore issuable upon
exercise of each Warrant by a fraction, the numerator of which shall be the
number of shares of Common Stock
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outstanding immediately after such sale or issuance plus the number of
additional shares of Common Stock offered for subscription or purchase or into
or for which such securities that are issued are convertible, exchangeable or
exercisable, and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such sale or issuance plus the
total number of shares of Common Stock which the aggregate consideration
expected to be received by the Company (assuming the exercise or conversion of
all such rights, options, warrants or securities, if any) would purchase at the
then Current Market Value per share of Common Stock, and subject to Section 4.08
the Exercise Price shall be adjusted to a number determined by dividing the
Exercise Price immediately prior to such date of issuance by the aforementioned
fraction; provided, however, that no adjustment to the number of Warrant Shares
issuable upon the exercise of the Warrants or to the Exercise Price shall be
made as a result of (i) the issuance of shares of Common Stock under any
warrants, options or other rights existing on the date hereof, (ii) the issuance
of shares of Common Stock in bona fide public offerings that are underwritten or
in which a placement agent is retained by the Company or (iii) the issuance of
options, or shares of Common Stock pursuant to any option, under any employee
benefit plans approved by the Board of Directors. Such adjustments shall be made
whenever such rights, options or warrants or convertible securities are issued.
No adjustment shall be made pursuant to this Section 4.04 which shall have the
effect of decreasing the number of shares of Common Stock issuable upon exercise
of each warrant or of increasing the Exercise Price. For purposes of Section
4.04 only, any issuance of Common Stock, or rights, options or warrants to
subscribe for, or other securities convertible into or exercisable or
exchangeable for, Common Stock, which issuance (or agreement to issue) (A) is in
exchange for or otherwise in connection with the acquisition of the property
(excluding any such exchange exclusively for cash) of any Person and (B) is at a
price per share equal to the lower of the Current Market Value at the time an
agreement in principle is reached or at the time a definitive agreement is
entered into, shall be deemed to have been made at a price per share equal to
the Current Market Value per share at the record date with respect to such
issuance (the time of closing or consummation of such exchange or acquisition)
if such definitive agreement is entered into within 90 days of the date of such
agreement in principle.
SECTION 4.05. Combination; Liquidation. (a) Except as provided in
Section 4.05(b), in the event of a Combination, each Holder shall have the right
to receive upon exercise of the Warrants the kind and amount of shares of
capital stock or other securities or property which such Holder would have been
entitled to receive upon or as a result of such Combination had such Warrant
been exercised immediately prior to such event. Unless paragraph (b) is
applicable to a Combination, the Company shall provide that the surviving or
acquiring Person (the "Successor Company") in such Combination will enter into
an agreement with the Warrant Agent confirming the Holders' rights pursuant to
this Section 4.05(a) and providing for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Article
4. The provisions of this Section 4.05(a) shall similarly apply to successive
Combinations involving any Successor Company.
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(b) In the event of (i) a Combination where consideration to the
holders of Common Stock in exchange for their shares is payable solely in cash
or (ii) the dissolution, liquidation or winding-up of the Company, the holders
of the Warrants shall be entitled to receive, upon surrender of their Warrant
Certificates, distributions on an equal basis with the holders of Common Stock
or other securities, issuable upon exercise of the Warrants, as if the Warrants
had been exercised immediately prior to such event, less the Exercise Price.
In case of any Combination described in this Section 4.05(b), the
surviving or acquiring Person and, in the event of any dissolution, liquidation
or winding-up of the Company, the Company shall deposit promptly with the
Warrant Agent the funds, if any, necessary to pay to the holders of the Warrants
the amounts to which they are entitled as described above. After such funds and
the surrendered Warrant Certificates are received, the Warrant Agent is required
to deliver a check in such amount as is appropriate (or, in the case of
consideration other than cash, such other consideration as is appropriate) to
such Person or Persons as it may be directed in writing by the Holders
surrendering such Warrants.
SECTION 4.06. Other Events. If any event occurs as to which the
foregoing provisions of this Article 4 are not strictly applicable or, if
strictly applicable, would not, in the good faith judgment of the Board, fairly
and adequately protect the purchase rights of the Warrants in accordance with
the essential intent and principles of such provisions, then such Board shall
make such adjustments in the application of such provisions, in accordance with
such essential intent and principles, as shall be reasonably necessary, in the
good faith opinion of such Board, to protect such purchase rights as aforesaid,
but in no event shall any such adjustment have the effect of increasing the
Exercise Price or decreasing the number of shares of Common Stock issuable upon
exercise of any Warrant.
SECTION 4.07. Superseding Adjustment. Upon the expiration of any
rights, options, warrants or conversion or exchange privileges which resulted in
adjustments pursuant to this Article 4, if any thereof shall not have been
exercised, the number of Warrant Shares issuable upon the exercise of each
Warrant shall be readjusted pursuant to the applicable section of Article 4 as
if (A) the only shares of Common Stock issuable upon exercise of such rights,
options, warrants, conversion or exchange privileges were the shares of Common
Stock, if any, actually issued upon the exercise of such rights, options,
warrants or conversion or exchange privileges and (B) shares of Common Stock
actually issued, if any, were issuable for the consideration actually received
by the Company upon such exercise plus the aggregate consideration, if any,
actually received by the Company for the issuance, sale or grant of all such
rights, options, warrants or conversion or exchange privileges whether or not
exercised and the Exercise Price shall be readjusted inversely; provided,
however, that no such readjustment shall (except by reason of an intervening
adjustment under Section 4.01) have the effect of decreasing the number of
Warrant Shares purchasable upon the exercise of each Warrant or increase the
Exercise Price by an amount in excess of the amount of the adjustment initially
made in respect of the issuance, sale or grant of such rights, options, warrants
or conversion or exchange privileges.
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SECTION 4.08. Minimum Adjustment. The adjustments required by the
preceding Sections of this Article 4 shall be made whenever and as often as any
specified event requiring an adjustment shall occur, except that no adjustment
of the Exercise Price or the number of shares of Common Stock issuable upon
exercise of Warrants that would otherwise be required shall be made unless and
until such adjustment either by itself or with other adjustments not previously
made increases or decreases by at least 1% the Exercise Price or the number of
shares of Common Stock issuable upon exercise of Warrants immediately prior to
the making of such adjustment. Any adjustment representing a change of less than
such minimum amount shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this Article 4 and not
previously made, would result in a minimum adjustment. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence. In computing adjustments under this
Article 4, fractional interests in Common Stock shall be taken into account to
the nearest one-hundredth of a share.
SECTION 4.09. Notice of Adjustment. Whenever the Exercise Price or the
number of shares of Common Stock and other property, if any, issuable upon
exercise of the Warrants is adjusted, as herein provided, the Company shall
deliver to the Warrant Agent a certificate of a firm of independent accountants
selected by the Board (who may be the regular accountants employed by the
Company) setting forth, in reasonable detail, the event requiring the adjustment
and the method by which such adjustment was calculated (including a description
of the basis on which (i) the Board determined the fair value of any evidences
of indebtedness, other securities or property or warrants, options or other
subscription or purchase rights and (ii) the Current Market Value of the Common
Stock was determined, if either of such determinations were required), and
specifying the Exercise Price and the number of shares of Common Sock issuable
upon exercise of Warrants after giving effect to such adjustment. the Company
shall promptly cause the Warrant Agent to mail a copy of such certificate to
each Holder in accordance with Section 7.06. The Warrant Agent shall be entitled
to rely on such certificate and shall be under no duty or responsibility with
respect to any such certificate, except to exhibit the same from time to time,
to any Holder desiring an inspection thereof during reasonable business hours.
The Warrant Agent shall not at any time be under any duty or responsibility to
any Holder to determine whether any facts exist which may require any adjustment
of the Exercise Price or the number of shares of Common Stock or other stock or
property issuable on exercise of the Warrants, or with respect to the nature or
extent of any such adjustment when made, or with respect to the method employed
in making such adjustment or the validity or value of any shares of Common
Stock, evidences of indebtedness, warrants, options, or other securities or
property.
SECTION 4.10. Notice of Certain Transactions. In the event that the
Company shall propose to (a) pay any dividend payable in securities of any class
to the holders of its Common Stock or to make any other non-cash dividend or
distribution to the holders of its Common Stock, (b) offer the holders of its
Common Stock rights to subscribe for or to purchase any securities convertible
into shares of Common Stock or shares of stock of any
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class or any other securities, rights or options, (c) issue any (i) shares of
Common Stock, (ii) rights, options or warrants entitling the holders thereof to
subscribe for shares of Common Stock, or (iii) securities convertible into or
exchangeable or exercisable for Common Stock (in the case of (i), (ii) and
(iii), if such issuance or adjustment would result in an adjustment hereunder),
(d) effect any capital reorganization, reclassification, consolidation or
merger, (e) effect the voluntary or involuntary dissolution, liquidation or
winding-up of the Company or (f) make a tender offer or exchange offer with
respect to the Common Stock, the Company shall within 5 days send to the Warrant
Agent and the Warrant Agent shall within 5 days send the Holder a notice (in
such form as shall be furnished to the Warrant Agent by the Company) of such
proposed action or offer. Such notice shall be mailed by the Warrant Agent to
the Holders at their addresses as they appear in the Certificate Register, which
shall specify the record date for the purposes of such dividend, distribution or
rights, or the date such issuance or event is to take place and the date of
participation therein by the holders of Common Stock, if any such date is to be
fixed, and shall briefly indicate the effect of such action on the Common Stock
and on the number and kind of any other shares of stock and on other property,
if any, and the number of shares of Common Stock and other property, if any,
issuable upon exercise of each Warrant and the Exercise Price after giving
effect to any adjustment pursuant to Article 4 which will be required as a
result of such action. Such notice shall be given as promptly as possible and
(x) in the case of any action covered by clause (a) or (b) above, at least 10
days prior to the record date for determining holders of the Common Stock for
purposes of such action or (y) in the case of any other such action, at least 20
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of Common Stock, whichever shall be the
earlier.
SECTION 4.11. Adjustment to Warrant Certificate. The form of Warrant
Certificate need not be changed because of any adjustment made pursuant to this
Article 4, and Warrant Certificates issued after such adjustment may state the
same Exercise Price and the same number of shares of Common Stock issuable upon
exercise of the Warrants as are stated in the Warrant Certificates initially
issued pursuant to this Agreement. The Company, however, may at any time in its
sole discretion make any change in the form of Warrant Certificate that it may
deem appropriate to give effect to such adjustments and that does not affect the
substance of the Warrant Certificate, and any Warrant Certificate thereafter
issued or countersigned, whether in exchange or substitution for an outstanding
Warrant Certificate or otherwise, may be in the form as so changed.
SECTION 4.12. Exceptions to Antidilution Provisions. Without limiting
any other exception contained in this Article 4, and in addition thereto, no
adjustment need be made for:
(i) grants or exercises of rights granted to employees of the
Company or any of its subsidiaries or shares of Common Stock issued or
granted to such employees under the stock incentive plan or otherwise,
whether or not upon the exercise, exchange or conversion of any such
rights;
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(ii) options, warrants or other agreements or rights to purchase
capital stock of the Company entered into prior to the date of the issuance
of the Warrants and any issuance of shares of Common Stock in connection
therewith;
(iii) rights to purchase shares of Common Stock pursuant to a Company
plan for reinvestment of dividends or interest;
(iv) a change in the par value of shares of Common Stock (including
a change from par value to no par value or vice versa); and
(v) bona fide public offerings or private placements pursuant
to Section 4(2) of the Securities Act, Regulation D thereunder or
Regulation S of any security trading on any national securities exchange or
in the over the counter market, or of a security directly or indirectly
convertible or exchangeable for any such security (the latter security
being a "Reference Security"), involving at least one investment bank of
national reputation, if such security is sold to investors at a price equal
to the closing sale, bid or ask price (whichever is customary) of such
security or the Reference Security on the date of the public offering or
private placement.
ARTICLE 5
Registration Rights
SECTION 5.01. Effectiveness of Registration Statement. Subject to
Section 5.02, the Company shall cause to be filed pursuant to Rule 415 (or any
successor provision) of the Securities Act a shelf registration statement
covering the issuance of Warrant Shares to the Holders upon exercise of the
Warrants by the Holders thereof (the "Common Shelf Registration Statement") and
shall use its reasonable efforts to cause the Common Shelf Registration
Statement to be declared effective on or before 180 days after the Issue Date.
Subject to Section 5.02, the Company shall cause the Common Shelf Registration
Statement to remain effective until the earlier of (i) such time as all Warrants
have been exercised and (ii) the Expiration Date. In connection the Common Shelf
Registration Statement, (i) the Company shall furnish to the Warrant Agent,
prior to the filing with the Commission, a copy of the Common Shelf Registration
Statement, and each amendment thereof and each amendment or supplement, if any,
to the prospectus included therein and shall use its reasonable best efforts to
reflect in each such document, when filed with the Commission, such comments as
the Warrant Agent may reasonably propose, (ii) the Company shall furnish to each
Holder, without charge, at least one copy of the Common Shelf Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, and, if the Holder so requests in writing, all
exhibits thereto (including those incorporated by reference), (iii) the Company
shall, for so long as the Common Shelf Registration Statement is effective,
deliver to each Holder, without charge, as many copies of the prospectus
(including each preliminary
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prospectus) included in the Common Shelf Registration Statement and any
amendment or supplement thereto as such Holder may reasonably request, and the
Company consents to the proper use of the prospectus therein and any amendment
or supplement thereto by each of the selling Holders in connection with the
offering and sale of the Warrant Shares covered by such prospectus and any
amendment or supplement thereto, (iv) the Company may require each Holder of
Warrants to be exercised in connection with the Common Shelf Registration
Statement to furnish to the Company such information regarding the Holder and
the distribution of such Warrants or Warrant Shares as the Company may from time
to time reasonably request for inclusion in the Common Shelf Registration
Statement, (v) the Company shall, if requested, promptly incorporate in a
prospectus supplement or post-effective amendment to the Common Shelf
Registration Statement such information as a majority in interest of the Holders
reasonably agree should be included therein and shall make all required filings
of such prospectus supplement or post-effective amendment as soon as notified of
the matters to be incorporated in such prospectus supplement or post-effective
amendment, and (vi) the Company shall enter into such agreements (including
underwriting agreements) as are appropriate, customary and reasonably necessary
in connection with the Common Shelf Registration Statement. The Company will
furnish the Warrant Agent with current prospectuses meeting the requirements of
the Securities Act in sufficient quantity to permit the Warrant Agent to
deliver, at the Company's expense, a prospectus to each holder of a Warrant upon
the exercise thereof. The Company shall promptly inform the Warrant Agent of any
change in the status of the effectiveness or availability of the Common Shelf
Registration Statement.
SECTION 5.02. Suspension. During any consecutive 365-day period, the
Company shall be entitled to suspend the availability of the Common Shelf
Registration Statement for up to two 45 consecutive-day periods (except during
the 45 consecutive-day period immediately prior to the Expiration Date) if the
Company's Board determines in the exercise of its reasonable judgement that
there is a valid business purpose for such suspension and provides notice that
such determination was made by the Company's board to the holders of the
Warrants; provided, however, that in no event shall the Company be required to
disclose the business purpose for such suspension if the Company determines in
good faith that such business purpose must remain confidential.
SECTION 5.03. Demand Registration; Repurchase of Warrants. (a) In
connection with an Exercise Event, the Company will give notice thereof to all
Holders as soon as practicable but in no event later than five Business Days
following such Exercise Event. Upon request from Holders of at least 25% of
Warrants outstanding, the Company shall be required to use its best efforts to
prepare, file and cause to be declared effective on or before 120 days of such
demand a registration statement (the "Demand Registration Statement") covering
the underwritten offer and sale of Warrant Shares, and shall cause the Demand
Registration Statement to remain effective for 180 days or until all Warrant
Shares registered thereunder are sold, whichever shall occur first; provided,
that the Company will
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use its best efforts to cause such Demand Registration Statement to become
effective prior to the occurrence of the Exercise Event.
(b) The right of any Holder to include its Warrant Shares in
the Demand Registration Statement shall be conditioned upon such Holder's
participation and inclusion of such Holder's Warrant Shares in the underwritten
offering. All Holders proposing to distribute Warrant Shares through such
underwritten offering shall enter into an underwriting agreement in customary
form with the underwriter or underwriters which shall be selected by a majority
in interest of the Holders and shall be approved by the Company, which approval
shall not be unreasonably withheld; provided, (i) that all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of the underwriters shall also be made to and for
the benefit of such Holders, (ii) that any or all of the conditions precedent to
the obligations of the underwriters shall be conditions precedent to the
obligations of such Holders, and (iii) that no Holder shall be required to make
any representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
Holder or the Warrant Shares of such Holder and such Holder's intended method of
distribution and any other representations required by law or reasonably
required by the underwriter. If any such Holder disapproves of the terms of the
underwriting, such Holder may elect to withdraw all its Warrant Shares by
written notice to the Company and the managing underwriter. The Warrant Shares
so withdrawn shall also be withdrawn from registration.
(c) In connection with the Demand Registration Statement, (i)
the Company shall furnish to the Holders distributing Warrant Shares pursuant to
the Demand Registration Statement, prior to the filing with the Commission, a
copy of the Demand Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and all exhibits thereto
(including those incorporated by reference), and each amendment or supplement,
if any, to the prospectus included therein and shall use its reasonable best
efforts to reflect in each such document, when filed with the Commission, such
comments as such Holders may reasonably propose, (ii) the Company shall, for so
long as the Demand Registration Statement is effective, deliver to such Holders,
without charge, as many copies of the prospectus (including each preliminary
prospectus) included in the Demand Registration Statement and any amendment or
supplement thereto as such Holders may reasonably request, and the Company
consents to the proper use of the prospectus therein and any amendment or
supplement thereto by the underwriter in connection with the offering and sale
of the Warrant Shares covered by such prospectus and any amendment or supplement
thereto, (iii) the Company may require such Holder to furnish to the Company
such information regarding such Holder and the distribution of such Warrants or
Warrant Shares as the Company may from time to time reasonably request for
inclusion in the Demand Registration Statement, (iv) the Company shall, if
requested, promptly incorporate in a prospectus supplement or post-effective
amendment to the Demand Registration Statement such information as a majority in
interest of such Holders reasonably agree should be included therein and shall
make all required filings of such prospectus supplement or post-effective
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amendment as soon as notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment, (v) the Company shall enter
into such agreements (including underwriting agreements) as are appropriate,
customary and reasonably necessary in connection with the Demand Registration
Statement and (vi) the Company shall (A) make available all material customary
for reasonable due diligence examinations in connection with such Demand
Registration Statement, (B) make such representations and warranties to such
Holders as are customary and reasonable in connection with the Demand
Registration Statement, (C) obtain such opinions of counsel to the Company
addressed to and reasonably satisfactory to such Holders and the underwriters as
are customary and reasonable in connection with the Demand Registration
Statement and (D) obtain such "comfort" letters and updates thereof from the
independent certified public accountants of the Company addressed to such
Holders and the underwriters as are customary and reasonable in connection with
the Demand Registration Statement. The Company shall promptly inform such
Holders of any change in the status of the effectiveness or availability of the
Demand Registration Statement.
(d) Notwithstanding the foregoing, in lieu of completing the
obligation to file the Demand Registration Statement as set forth in subsection
(a) above, the Company may offer to repurchase for cash all Warrants, at the
Current Market Value per Warrant, of Holders requesting the Demand Registration
Statement.
(e) If the Company elects to repurchase Warrant Shares
pursuant to subsection (d) above, the Company shall give notice of such
repurchase offer to all Holders and to the Warrant Agent. The repurchase offer
shall commence on the date on which the Company gives such notice (the "Notice
Date"), and such repurchase offer shall expire at 5:00 p.m., New York City time,
on a date determined by the Company (the "expiration date") that is at least 30
but not more than 60 calendar days after the Notice Date. The Company shall
offer to repurchase for cash at Current Market Value the Warrant Shares or
Warrants pursuant to subsection (d) above, provided that proper tender must be
made to the Warrant Agent by the Holders prior to the expiration date for such
repurchase offer.
(f) Each Holder may, but shall not be obligated to, accept
the Company's offer to repurchase pursuant to Section 5.03(d), by tendering to
the Warrant Agent, on or prior to the expiration date for such repurchase offer,
the Warrant Shares or Warrant such Holder desires to have repurchased in such
offer, and in the case of Warrants tendered, together with a completed
Certificate for Surrender in substantially the form attached to the Warrant
Certificate. A Holder may withdraw all or a portion of the Warrant Shares or
Warrants tendered to the Warrant Agent at any time prior to the expiration date
for such repurchase offer. If less than all the Warrants represented by a
Warrant Certificate shall be tendered, such Warrant Certificate shall be
surrendered and a new Warrant Certificate of the same tenor and for the number
of Warrants which were not tendered shall be executed by the Company and
delivered to the Warrant Agent and the Warrant Agent shall countersign the new
Warrant Certificate to the Person or Persons entitled to receive the same;
provided that the Holder of
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such Warrants shall be responsible for the payment of any transfer taxes
required as a result of any change in ownership of such Warrants.
SECTION 5.04. Blue Sky. The Company shall use its reasonable
efforts to register or qualify the Warrant Shares under all applicable
securities laws, blue sky laws or similar laws of all jurisdictions in the
United States and Canada in which any Holder may or may be deemed to purchase
Warrant Shares upon the exercise of Warrants and shall use its reasonable
efforts to maintain such registration or qualification through the earlier of
(i) such time as all Warrants have been exercised and (ii) the Expiration Date
provided, however, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 5.04 or to take any action which would subject it
to general service of process or to taxation in any such jurisdiction where it
is not then so subject.
SECTION 5.05. Accuracy of Disclosure. The Company represents
and warrants to each Holder and agrees for the benefit of each Holder that (i)
the Common Shelf Registration Statement or the Demand Registration Statement and
any amendment thereto will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading; and (ii) each of the
prospectus furnished to such Holder for delivery in connection with the exercise
of Warrants or in connection with the sale of Warrant Shares, as the case may
be, and the documents incorporated by reference therein will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading; provided,
however, that the Company shall have no liability under clause (i) or (ii) of
this Section 5.05 with respect to any such untrue statement or omission made in
the Common Shelf Registration Statement or the Demand Registration Statement in
reliance upon and in conformity with information furnished to the Company by or
on behalf of the Holders specifically for inclusion therein.
SECTION 5.06. Indemnification. (a) In connection with either
the Common Shelf Registration Statement or the Demand Registration Statement,
the Company agrees to indemnify and hold harmless each Holder of the Warrants
and each person, if any, who controls such Holder within the meaning of the
Securities Act or the Exchange Act (each Holder and such controlling persons
being referred to collectively as the "Indemnified Parties") from and against
any losses, damages or liabilities, joint or several, or any actions in respect
thereof (including but not limited to any losses, claims, damages, liabilities
or actions relating to purchases and sales of the Warrant Shares) to which each
Indemnified Party may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages, liabilities or actions
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Common Shelf Registration Statement or
Demand Registration Statement or their related prospectuses or in any amendment
or supplement thereto, or arise out of, or are based upon, the omission or
alleged omission to
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state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, and shall reimburse, as incurred, the Indemnified Parties
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action in
respect thereof; provided, however, that (i) the Company shall not be liable in
any such case to the extent that such loss, claim, damage or liability arises
out of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in the Common Shelf Registration Statement or
the Demand Registration Statement or any preliminary or final prospectus or in
any amendment or supplement thereto in reliance upon and in conformity with
written information pertaining to such Holder and furnished to the Company by or
on behalf of such Holder specifically for inclusion therein, (ii) with respect
to any untrue statement or omission or alleged untrue statement or omission made
in any prospectus relating to the Common Shelf Registration Statement or the
Demand Registration Statement, the indemnity agreement contained in this
subsection (a) shall not inure to the benefit of any person as to which there is
a prospectus delivery requirement (a "Delivering Seller") that sold the Warrants
or the Warrant Shares, as the case may be, to the person asserting any such
losses, claims, damages or liabilities to the extent that any such loss, claim,
damage or liability of such Delivering Seller results from the fact that there
was not sent or given to such person, on or prior to the written confirmation of
such sale, a copy of the relevant prospectus, as amended and supplemented,
provided that (I) the Company shall have previously furnished copies thereof to
such Delivering Seller in accordance with this Agreement and (II) such furnished
prospectus, as amended and supplemented, would have corrected any such untrue
statement or omission or alleged untrue statement or omission, and (iii) this
indemnity agreement will be in addition to any liability which the Company may
otherwise have to such Indemnified Party.
(b) The agreements contained in this section shall survive
the exercise of the Warrants pursuant to the Common Shelf Registration Statement
and the sale of the Warrant Shares pursuant to the Demand Registration
Statement, and shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement or any investigation made by or on
behalf of any indemnified party.
SECTION 5.07. Additional Acts. If the issuance or sale of any
Common Stock or other securities issuable upon the exercise of the Warrants
requires registration or approval of any governmental authority (other than the
registration requirements under the Securities Act), or the taking of any other
action under the laws of the United States of America or any political
subdivision thereof before such securities may be validly offered or sold in
compliance with such laws, then the Company covenants that it will, in good
faith and as expeditiously as reasonably possible, use all reasonable efforts to
secure and maintain such registration or approval or to take such other action,
as the case may be.
SECTION 5.08. Expenses. All expenses incident to the Company's
performance of or compliance with its obligations under this Article 5 will be
borne by the
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Company, including, without limitation: (i) all Commission, stock exchange or
National Association of Securities Dealers, Inc. registration and filing fees,
(ii) all reasonable fees and expenses incurred in connection with compliance
with state securities or blue sky laws, (iii) all reasonable expenses of any
Persons incurred by or on behalf of the Company in preparing or assisting in
preparing, printing and distributing the Common Shelf Registration Statement,
the Demand Registration Statement or any other registration statement,
prospectus, any amendments or supplements thereto and other documents relating
to the performance of and compliance with this Article 5, (iv) the fees and
disbursements of the Warrant Agent, (v) the fees and disbursements of counsel
for the Company and the Warrant Agent and, in the case of a Demand Registration
Statement, of counsel for the underwriters (vi) the fees and disbursements of
the independent public accountants of the Company, including the expenses of any
special audits or comfort letters required by or incident to such performance
and compliance. The Holders selling Warrant Shares pursuant to the Demand
Registration Statement shall be responsible for any expenses customarily borne
by selling securityholders, including underwriting discounts and commissions and
fees and expenses of counsel to the selling securityholders.
SECTION 5.09. Listing of Warrant Shares. The Company shall use
its best efforts to register the Warrant Shares on the Nasdaq National Market by
_________, 1997.
ARTICLE 6
Warrant Agent
SECTION 6.01. Appointment of Warrant Agent. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the express provisions of this Agreement and the Warrant Agent hereby accepts
such appointment.
SECTION 6.02. Right and Duties of Warrant Agent. (a) Agent for
the Company. In acting under this Warrant Agreement and in connection with the
Warrant Certificates, the Warrant Agent is acting solely as agent for the
Company and does not assume any obligation or relationship or agency or trust
for or with any of the holders of Warrant Certificates or beneficial owners of
Warrants.
(b) Counsel. The Warrant Agent may consult with counsel
satisfactory to it (who may be counsel to the Company), and the advice of such
counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
accordance with the advice of such counsel.
(c) Documents. The Warrant Agent shall be protected and shall
incur no liability for or in respect of any action taken or thing suffered by it
in reliance upon any Warrant Certificate, notice, direction, consent,
certificate, affidavit, statement, opinion or
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other paper or document reasonably believed by it to be genuine and to have been
presented or signed by the proper parties.
(d) No Implied Obligations. The Warrant Agent shall be
obligated to perform only such duties as are specifically set forth herein and
in the Warrant Certificates, and no implied duties or obligations of the Warrant
Agent shall be read into this Agreement or the Warrant Certificates. The Warrant
Agent shall not be under any obligation to take any action hereunder which may
tend to involve it in any expense or liability for which it does not receive
indemnity if such indemnity is reasonably requested. The Warrant Agent shall not
be accountable or under any duty or responsibility for the use by the Company of
any of the Warrant Certificates countersigned by the Warrant Agent and delivered
by it to the Holders or on behalf of the Holders pursuant to this Agreement or
for the application by the Company of the proceeds of the Warrants. The Warrant
Agent shall have no duty or responsibility in case of any default by the Company
in the performance of its covenants or agreements contained herein or in the
Warrant Certificates or in the case of the receipt of any written demand from a
Holder with respect to such default, including any duty or responsibility to
initiate or attempt to initiate any proceedings at law or otherwise.
(e) Not Responsible for Adjustments or Validity of Stock. The
Warrant Agent shall not at any time be under any duty or responsibility to any
Holder to determine whether any facts exist that may require an adjustment of
the number of shares of Common Stock issuable upon exercise of each Warrant or
the Exercise Price, or with respect to the nature or extent of any adjustment
when made or with respect to the method employed or provided to be employed
herein or in any supplemental agreement in making the same. The Warrant Agent
shall not be accountable with respect to the validity or value of any shares of
Common Stock or of any securities or property which may at any time be issued or
delivered upon the exercise of any Warrant or upon any adjustment pursuant to
Article 4, and it makes no representation with respect thereto. The Warrant
Agent shall not be responsible for any failure of the Company to make any cash
payment or to issue, transfer or deliver any shares of Common Stock or stock
certificates upon the surrender of any Warrant Certificate for the purpose of
exercise or upon any adjustment pursuant to Article 4, or to comply with any of
the covenants of the Company contained in Article 4.
SECTION 6.03. Individual Rights of Warrant Agent. The Warrant
Agent and any stockholder, director, officer or employee of the Warrant Agent
may buy, sell or deal in any of the Warrants or other securities of the Company
or its affiliates or become pecuniarily interested in transactions in which the
Company or its affiliates may be interested, or contract with or lend money to
the Company or its affiliates or otherwise act as fully and freely as though it
were not the Warrant Agent under this Agreement. Nothing herein shall preclude
the Warrant Agent from acting in any other capacity for the Company or for any
other legal entity.
SECTION 6.04. Warrant Agent's Disclaimer. The Warrant Agent
shall not be responsible for and makes no representation as to the validity or
adequacy of this Agreement or
27
<PAGE>
the Warrant Certificates and it shall not be responsible for any statement in
this Agreement or the Warrant Certificates other than its countersignature
thereon.
SECTION 6.05. Compensation and Indemnity. The Company and the
Warrant Agent have entered into an agreement pursuant to which the Company
agrees to pay the Warrant Agent from time to time compensation for its services
and to reimburse the Warrant Agent upon request for all reasonable out-of-pocket
expenses incurred by it, including the reasonable compensation and expenses of
the Warrant Agent's agents and counsel. The Company shall indemnify the Warrant
Agent against any and all loss, liability, damage, claim or expense (including
agents' and attorneys' fees and expenses) incurred by it without gross
negligence, bad faith or wilful misconduct on its part arising out of or in
connection with the acceptance or performance of its duties under this
Agreement. The Warrant Agent shall notify the Company promptly of any claim for
which it may seek indemnity. The Company need not reimburse any expense or
indemnify against any loss or liability incurred by the Warrant Agent through
wilful misconduct, negligence or bad faith. The Company's payment obligations
pursuant to this Section 6.05 shall survive the termination of this Agreement.
To secure the Company's payment obligations under this
Agreement, the Warrant Agent shall have a lien prior to the Holders on all money
or property held or collected by the Warrant Agent.
SECTION 6.06. Successor Warrant Agent. The Company agrees for
the benefit of the Holders that there shall at all times be a Warrant Agent
hereunder until all the Warrants have been exercised or are no longer
exercisable.
(b) Resignation and Removal. The Warrant Agent may at any
time resign by giving written notice to the Company of such intention on its
part, specifying the date on which its desired resignation shall become
effective; provided, however, that such date shall not be less than 60 days
after the date on which such notice is given unless the Company otherwise
agrees. The Warrant Agent hereunder may be removed at any time by the filing
with it of an instrument in writing signed by or on behalf of the Company and
specifying such removal and the date when it shall become effective, which date
shall not be less than 60 days after such notice is given unless the Warrant
Agent otherwise agrees. Any removal under this Section 6.06 shall take effect
upon the appointment by the Company as hereinafter provided of a successor
Warrant Agent (which shall be a bank or trust company authorized under the laws
of the jurisdiction of its organization to exercise corporate trust powers) and
the acceptance of such appointment by such successor Warrant Agent. If a
successor Warrant Agent does not take office within 60 days after the retiring
Warrant Agent resigns or is removed, the retiring Warrant Agent or the Holders
of 10% of the Warrants may petition, at the expense of the Company, any court of
competent jurisdiction for the appointment of a successor.
(c) The Company to Appoint Successor. In the event that at
any time the Warrant Agent shall resign, or shall be removed, or shall become
incapable of acting, or shall
28
<PAGE>
be adjudged a bankrupt or insolvent, or shall commence a voluntary case under
Federal bankruptcy laws, as now or hereafter constituted, or under any other
applicable Federal or state bankruptcy, insolvency or similar law, or shall
consent to the appointment of or taking possession by a receiver, custodian,
liquidator, assignee, trustee, sequestrator (or other similar official) of the
Warrant Agent or its property of affairs, or shall make an assignment for the
benefit of creditors, or shall admit in writing its inability to pay its debts
generally as they become due, or shall take corporate action in furtherance of
any such action, or a decree or order for relief by a court having jurisdiction
in the premises shall have been entered in respect of the Warrant Agent in an
involuntary case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or State bankruptcy, insolvency or
similar law, or a decree order by a court having jurisdiction in the premises
shall have been entered for the appointment of a receiver, custodian,
liquidator, assignee, trustee, sequestrator (or similar official) of the Warrant
Agent or of its property or affairs, or any public officer shall take charge or
control of the Warrant Agent or of its property or affairs for the purpose of
rehabilitation, conservation, winding up or liquidation, a successor Warrant
Agent, qualified as aforesaid, shall be appointed by the Company by an
instrument in writing filed with the successor Warrant Agent. Upon the
appointment as aforesaid of a successor Warrant Agent and acceptance by the
successor Warrant Agent of such appointment, the Warrant Agent shall cease to be
the Warrant Agent hereunder; provided, however, that in the event of the
resignation of the Warrant Agent hereunder, such resignation shall be effective
on the earlier of (i) the date specified in the Warrant Agent's notice of
resignation and (ii) the appointment and acceptance of a successor Warrant Agent
hereunder.
(d) Successor To Expressly Assume Duties. Any successor
Warrant Agent appointed hereunder shall execute, acknowledge and deliver to its
predecessor and to the Company an instrument accepting such appointment
hereunder, and thereupon such successor Warrant Agent, without any further act,
deed or conveyance, shall become vested with all the rights and obligations of
such predecessor with like effect as if originally named as Warrant Agent
hereunder, and such predecessor, upon payment of its charges and disbursements
then unpaid, shall thereupon become obligated to transfer, deliver and pay over,
and such successor Warrant Agent shall be entitled to receive, all monies,
securities and other property on deposit with or held by such predecessor, as
Warrant Agent hereunder.
(e) Successor by Merger. Any corporation into which the
Warrant Agent hereunder may be merged or consolidated, or any corporation
resulting from any merger or consolidation to which the Warrant Agent shall be a
party, or any corporation to which the Warrant Agent shall sell or otherwise
transfer all or substantially all the corporate trust or stock transfer assets
and business of the Warrant Agent, provided that it shall be qualified as
aforesaid, shall be the successor Warrant Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto.
29
<PAGE>
ARTICLE 7
Remedies
SECTION 7.01. Defaults. It shall be deemed a "Default" with
respect to the Company's (or its successor's) obligations under this Agreement
if an Exercise Event occurs and, (i) following the request of at least 25% of
Holders of Warrants outstanding, the Company fails to use its best efforts to
have declared effective and kept effective a Demand Registration Statement as
set forth in Section 5.03(a), or (ii) the Company fails to repurchase the
Warrants in lieu of having a Demand Registration Statement declared effective,
as set forth in Section 5.03(b).
SECTION 7.02. Payment Obligations. In the event of a Default
under this Agreement, the Company shall be obligated to increase the amounts
payable under Section 5.03(b) in respect of which such Default relates by an
amount equal to interest thereon at a rate per annum equal to __% from the date
of the Default to the date of payment, which interest shall compound quarterly
(all such payment obligations in respect of amounts payable under Section 5.03,
together with all such increased amounts, being the "Repurchase Obligations").
SECTION 7.03. Remedies. Notwithstanding any other provision of
this Agreement, if a Default occurs and is continuing, the Holders may pursue
any available remedy to collect the Repurchase Obligations or to enforce the
performance of any provision of this Agreement. A delay or omission by any
Holder of a Warrant in exercising, or a failure to exercise, any right or remedy
arising out of a Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Default. All remedies are cumulative to the
extent permitted by law.
ARTICLE 8
Miscellaneous
SECTION 8.01. Financial Statements and Reports of the Company.
The Company agrees (a) to provide to each Holder, without cost to such Holder,
copies of the annual and quarterly reports and documents that the Company files
with the Commission (to the extent such filings are accepted by the Commission
and whether or not the Company has a class of securities registered under the
Securities Exchange Act of 1934 (the "Exchange Act")) or that the Company would
be required to file were it subject to Section 13 or 15 of the Exchange Act,
within 15 days after the date of such filing or the date on which the Company
would be required to file such reports or documents, and all such annual or
quarterly reports shall include the geographic segment financial information as
has heretofore been disclosed by the Company in its public filings with the
Commission, and (b) if filing such reports and
30
<PAGE>
documents is not accepted by the Commission or is prohibited under the Exchange
Act, to supply at the Company's expense copies of such reports and documents to
any prospective Holder promptly upon request.
SECTION 8.02. Third Party Beneficiaries. The Holders shall be
third party beneficiaries to the agreements made hereunder between the Company,
on the one hand, and the Warrant Agent, on the other hand, and each Holder shall
have the right to enforce such agreements directly to the extent it deems such
enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder.
SECTION 8.03. Rights of Holders. Holders of unexercised
Warrants are not entitled to (i) receive dividends or other distributions, (ii)
receive notice of or vote at any meeting of the stockholders, (iii) consent to
any action of the stockholders, (iv) receive notice as stockholders of any other
proceedings of the Company, (v) exercise any preemptive rights or (vi) exercise
any other rights whatsoever as stockholders of the Company.
SECTION 8.04. Amendment. This Agreement may be amended by the
parties hereto without the consent of any Holder for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective provision
contained herein or adding or changing any other provisions with respect to
matters or questions arising under this Agreement as the Company and the Warrant
Agent may deem necessary or desirable (including without limitation any addition
or modification to provide for compliance with the transfer restrictions set
forth herein); provided, however, that such action shall not adversely affect
the rights of any of the Holders. Any amendment or supplement to this Agreement
that has an adverse effect on the interests of the Holders shall require the
written consent of the Holders of a majority of the then outstanding Warrants.
The consent of each Holder affected shall be required for any amendment pursuant
to which the Exercise Price would be increased or the number of Warrant Shares
issuable upon exercise of Warrants would be decreased (other than pursuant to
adjustments provided herein) or the exercise period with respect to the Warrants
would be shortened. In determining whether the Holders of the required number of
Warrants have concurred in any direction, waiver or consent, Warrants owned by
the Company or by any Person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company shall be disregarded
and deemed not to be outstanding, except that, for the purpose of determining
whether the Warrant Agent shall be protected in relying on any such direction,
waiver or consent, only Warrants which the Warrant Agent actually knows are so
owned shall be so disregarded. Also, subject to the foregoing, only Warrants
outstanding at the time shall be considered in any such determination.
SECTION 8.05. Notices. Any notice or communication shall be
in writing and delivered in Person or mailed by first-class mail addressed as
follows:
31
<PAGE>
if to the Company:
2070 Chain Bridge Road
Suite 425
Vienna, Virginia 22182
Attention: ___
with a copy to:
Pepper, Hamilton & Scheetz LLP
3000 Two Logan Square
Philadelphia, Pennsylvania 19103
Attention: James D. Epstein, Esq.
if to the Warrant Agent:
First Union National Bank of Virginia
901 East Cary Street, 2nd Floor
Richmond, Virginia 23219
Attention: ___
The Company or the Warrant Agent by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed to a Holder shall be mailed
to the Holder at the Holder's address as it appears on the Certificate Register
and shall be sufficiently given if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
SECTION 8.06. Governing Law. The laws of the State of New
York shall govern this Agreement and the Warrant Certificates.
SECTION 8.07. Successors. All agreements of the Company in
this Agreement and the Warrant Certificates shall bind its successors. All
agreements of the Warrant Agent in this Agreement shall bind its successors.
SECTION 8.08. Multiple Originals. The parties may sign any
number of copies of this Agreement. Each signed copy shall be an original, but
all of them together represent the same agreement. One signed copy is enough to
prove this Agreement.
32
<PAGE>
SECTION 8.09. Table of Contents. The table of contents and
headings of the Articles and Sections of this Agreement have been inserted for
convenience of reference only, are not intended to be considered a part hereof
and shall not modify or restrict any of the terms or provisions hereof.
SECTION 8.10. Severability. The provisions of this Agreement
are severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
33
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the date first written above.
PRIMUS TELECOMMUNICATIONS GROUP,
INCORPORATED,
by
----------------------------
Name:
Title:
FIRST UNION NATIONAL BANK OF
VIRGINIA, as Warrant Agent,
by
----------------------------
Name:
Title:
34
<PAGE>
EXHIBIT A
{FORM OF FACE OF WARRANT CERTIFICATE}
[THE WARRANTS REPRESENTED BY THIS CERTIFICATE WERE INITIALLY ISSUED AS
PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $_______ AGGREGATE
PRINCIPAL AMOUNT OF ___% SENIOR NOTES DUE 2004 OF PRIMUS TELECOMMUNICATIONS
GROUP, INCORPORATED (THE "COMPANY") (THE "NOTES") AND ___ WARRANTS TO PURCHASE
_____ SHARES OF THE COMPANY AT AN EXERCISE PRICE OF $_________. THE WARRANTS AND
THE NOTES WILL NOT BE SEPARATELY TRANSFERABLE UNTIL THE EARLIER OF (I)
_________, 1998, (II) AN EXERCISE EVENT OR (III) SUCH OTHER DATE AS LEHMAN
BROTHERS INC. MAY DETERMINE.]*
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THE EXERCISE OF THIS WARRANT (AND THE OWNERSHIP OF COMMON STOCK
ISSUABLE UPON THE EXERCISE THEREOF) MAY BE LIMITED BY PRIMUS TELECOMMUNICATIONS
GROUP, INCORPORATED IN ORDER TO ENSURE COMPLIANCE WITH THE RULES, REGULATIONS
AND POLICIES OF THE FEDERAL COMMUNICATIONS COMMISSION, AND THIS WARRANT WILL NOT
BE EXERCISABLE BY ANY HOLDER IF SUCH EXERCISE WOULD CAUSE PRIMUS
TELECOMMUNICATIONS GROUP, INCORPORATED TO BE IN VIOLATION OF THE
- -----------------
* To be included on Warrants issued prior to the Separation Date.
<PAGE>
COMMUNICATIONS ACT OF 1934 OR THE RULES, REGULATIONS AND POLICIES OF THE FEDERAL
COMMUNICATIONS COMMISSION.
2
<PAGE>
No. { } Certificate for _____ Warrants
WARRANTS TO PURCHASE COMMON STOCK OF
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
THIS CERTIFIES THAT __________, or its registered assigns, is the
registered holder of the number of Warrants set forth above (the "Warrants").
Each Warrant entitles the holder thereof (the "Holder"), at its option and
subject to the provisions contained herein and in the Warrant Agreement referred
to below, to purchase from Primus Telecommunications Group, Incorporated, a
Delaware corporation ("the Company"), ______ shares of Common Stock, par value
of $0.01 per share, of the Company (the "Common Stock") at the per share
exercise price of $______ (the "Exercise Price"), or by Cashless Exercise
referred to below. This Warrant Certificate shall terminate and become void as
of the close of business on ________ __, 2004 (the "Expiration Date") or upon
the exercise hereof as to all the shares of Common Stock subject hereto. The
number of shares issuable upon exercise of the Warrants and the Exercise Price
per share shall be subject to adjustment from time to time as set forth in the
Warrant Agreement.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement dated as of July __, 1997 (the "Warrant Agreement"), between
the Company and First Union National Bank of Virginia (the "Warrant Agent",
which term includes any successor Warrant Agent under the Warrant Agreement),
and is subject to the terms and provisions contained in the Warrant Agreement,
to all of which terms and provisions the Holder of this Warrant Certificate
consents by acceptance hereof. The Warrant Agreement is hereby incorporated
herein by reference and made a part hereof. Reference is hereby made to the
Warrant Agreement for a full statement of the respective rights, limitations of
rights, duties and obligations of the Company, the Warrant Agent and the Holders
of the Warrants. Capitalized terms used but not defined herein shall have the
meanings ascribed thereto in the Warrant Agreement. A copy of the Warrant
Agreement may be obtained for inspection by the Holder hereof upon written
request to the Warrant Agent at [Address].
Subject to the terms of the Warrant Agreement, the Warrants may be
exercised in whole or in part (i) by presentation of this Warrant Certificate
with the Election to Purchase attached hereto duly executed and with the
simultaneous payment of the Exercise Price in cash (subject to adjustment) to
the Warrant Agent for the account of the Company at the office of the Warrant
Agent or (ii) by Cashless Exercise. Payment of the Exercise Price in cash shall
be made by certified or official bank check payable to the order of the Company
or by wire transfer of funds to an account designated by the Company for such
purpose. Payment by Cashless Exercise shall be made without the payment of cash
by reducing the amount of Common Stock that would be obtainable upon the
exercise of a Warrant and payment of the Exercise Price in cash so as to yield a
number of shares of Common Stock upon the exercise of such Warrant equal to the
product of (1) the number of shares of Common Stock for which
<PAGE>
such Warrant is exercisable as of the Exercise Date (if the Exercise Price were
being paid in cash) and (2) a fraction, the numerator of which is the excess of
the Current Market Value per share of Common Stock on the Exercise Date over the
Exercise Price per share as of the Exercise Date and the denominator of which is
the Current Market Value per share of the Common Stock on the Exercise Date.
As provided in the Warrant Agreement and subject to the terms and
conditions therein set forth, the Warrants shall be exercisable at any time on
or after ________ __, 1998; provided, however, that Holders of Warrants will be
able to exercise their Warrants only if a shelf registration statement relating
to the Common Stock underlying the Warrants is effective or the exercise of such
Warrants is exempt from the registration requirements of the Securities Act of
1933 and such securities are qualified for sale or exempt from qualification
under the applicable securities laws of the states or other jurisdictions in
which such Holders reside; provided further, however, that no Warrant shall be
exercisable after ________ __, 2004.
In the event the Company enters into a Combination, the Holder hereof
will be entitled to receive upon exercise of the Warrants the kind and amount of
shares of capital stock or other securities or other property of such surviving
entity as the Holder would have been entitled to receive upon or as a result of
the combination had the Holder exercised its Warrants immediately prior to such
Combination; provided, however, that in the event that, in connection with such
Combination, consideration to holders of Common Stock in exchange for their
shares is payable solely in cash or in the event of the dissolution, liquidation
or winding-up of the Company, the Holder hereof will be entitled to receive such
cash distributions as the Holder would have received had the Holder exercised
its Warrants immediately prior to such Combination, less the Exercise Price.
As provided in the Warrant Agreement, the number of shares of Common
Stock issuable upon the exercise of the Warrants and the Exercise Price are
subject to adjustment upon the happening of certain events.
The Company may require payment of a sum sufficient to pay all taxes,
assessments or other governmental charges in connection with the transfer or
exchange of the Warrant Certificates pursuant to Section 2.06 of the Warrant
Agreement, but not for any exchange or original issuance (not involving a
transfer) with respect to temporary Warrant Certificates, the exercise of the
Warrants or the issuance of the Warrant Shares.
Upon any partial exercise of the Warrants, there shall be
countersigned and issued to the Holder hereof a new Warrant Certificate
representing those Warrants which were not exercised. This Warrant Certificate
may be exchanged at the office of the Warrant Agent by presenting this Warrant
Certificate properly endorsed with a request to exchange this Warrant
Certificate for other Warrant Certificates evidencing an equal number of
Warrants. No fractional Warrant Shares will be issued upon the exercise of the
Warrants, but the Company shall pay an amount in cash equal to the Current
Market Value per Warrant Share on
2
<PAGE>
the day immediately preceding the date the Warrant is exercised, multiplied by
the fraction of a Warrant Share that would be issuable on the exercise of any
Warrant.
All shares of Common Stock issuable by the Company upon the exercise
of the Warrants shall, upon such issue, be duly and validly issued and fully
paid and non-assessable.
The holder in whose name the Warrant Certificate is registered may be
deemed and treated by the Company and the Warrant Agent as the absolute owner of
the Warrant Certificate for all purposes whatsoever and neither the Company nor
the Warrant Agent shall be affected by notice to the contrary.
The Warrants do not entitle any holder hereof to any of the rights of
a shareholder of the Company.
This Warrant Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Warrant Agent.
PRIMUS TELECOMMUNICATIONS GROUP,
INCORPORATED
By
--------------------------------
By
--------------------------------
DATED:
Countersigned:
- ---------------------------
FIRST UNION NATIONAL BANK OF VIRGINIA
as Warrant Agent,
By
---------------------------
Authorized Signatory
3
<PAGE>
FORM OF ELECTION TO PURCHASE WARRANT SHARES
(to be executed only upon exercise of Warrants)
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
The undersigned hereby irrevocably elects to exercise Warrants
at an exercise price per Warrant (subject to adjustment) of $______ to acquire
_____ shares of Common Stock, par value $0.01 per share, of Primus
Telecommunications Group, Incorporated on the terms and conditions specified
within the Warrant Certificate and the Warrant Agreement therein referred to,
surrenders this Warrant Certificate and all right, title and interest therein to
Primus Telecommunications Group, Incorporated and directs that the shares of
Common Stock deliverable upon the exercise of such Warrants be registered or
placed in the name and at the address specified below and delivered thereto.
Date: , 19
----------- --
-----------------------------------
(Signature of Owner)
-----------------------------------
(Street Address)
-----------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
-----------------------------------
{Signature must be guaranteed by an
eligible Guarantor Institution (banks,
stock brokers, savings and loan
associations and credit unions) with
membership in an approved guarantee
medallion program pursuant to
Securities and Exchange Commission
Rule 17Ad-5}
- ----------
4
<PAGE>
1. The signature must correspond with the name as written upon the face of
the within Warrant Certificate in every particular, without alteration or
enlargement or any change whatsoever, and must be guaranteed.
5
<PAGE>
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:____________________________________________
Street Address:__________________________________
City, State and Zip Code:________________________
Any unexercised Warrants represented by the Warrant Certificate to be issued to:
Please insert social security or identifying number:
Name:____________________________________________
Street Address:__________________________________
City, State and Zip Code:________________________
6
<PAGE>
APPENDIX A
LIST OF FINANCIAL EXPERTS
- -------------------------
Alex Brown & Sons
Bear, Stearns & Co., Inc.
Credit Suisse First Boston Corporation
Dillon, Read & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Furman Selz, LLP
Goldman, Sachs & Co.
Lazard Freres & Co.
Lehman Brothers
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
Oppenheimer & Co., Inc.
PaineWebber Incorporated
Prudential Securities Inc.
Salomon Brothers Inc
Smith Barney Inc.
7
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF PEPPER, HAMILTON & SCHEETZ LLP APPEARS HERE]
July 24, 1997
Primus Telecommunications Group, Incorporated
2070 Chain Bridge Road
Suite 425
Vienna, VA 22182
Re: Registrations Statement No. 333-30195 on Form S-1
-------------------------------------------------
Ladies and Gentlemen:
Reference is made to the Registration Statement on Form S-1 (No. 333-
30195) of Primus Telecommunications Group, Incorporated, a Delaware Corporation
(the "Company"), as amended by Amendment No. 1 thereto and Amendment No. 2
thereto, to which this opinion is attached as an exhibit (as so amended, the
"Registration Statement"). The Registration Statement relates to the offering
and sale by the Company of up to an aggregate of $125 million of units (the
"Units") consisting of senior notes (the "Notes") and warrants (the "Warrants")
to purchase shares of common stock, par value $.01 per share, of the Company.
The opinions expressed herein may be incorporated by reference in any
registration statement filed pursuant to Rule 462(b) of the Securities Act of
1933, as amended (the "Act"), that incorporates by reference therein the
Registration Statement. Capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Registration Statement.
In this connection, we have examined the Registration Statement,
including the exhibits thereto, the originals or copies, certified or otherwise
identified to our satisfaction, of the Articles of Incorporation and the By-Laws
of the Company as amended to date, and such other documents and corporate
records relating to the Company as we have deemed appropriate for the purpose of
rendering the opinion expressed herein. We express no opinion concerning the
laws of any jurisdiction other than the federal law of the United States and the
Delaware General Corporation Law.
In all examinations of documents, instruments and other papers, we
have assumed the genuineness of all signatures on original and certified
documents and the conformity with original and certified documents of all copies
submitted to us as conformed, photostatic or other
<PAGE>
PEPPER, HAMILTON & SHEETZ LLP
Primus Telecommunications Group, Incorporated
July 24, 1997
Page 2
copies. As to matters of fact which have not been independently established, we
have relied upon representations of officers of the Company.
On the basis of the foregoing, we are of the opinion that (i)
appropriate corporate action has been taken to authorize the sale and issuance
of up to an aggregate of $125 million of Units, (ii) when issued and sold
pursuant to the terms of the Underwriting Agreement among the Company and the
several Underwriters, the Units will be legally issued, fully paid and
nonassessable, (iii) when issued and sold pursuant to the Underwriting
Agreement, the Warrants will be legal, valid and binding obligations of the
Company, except as such enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law), and (iv) when issued and sold pursuant to the Underwriting Agreement, the
Notes will be legal, valid and binding obligations of the Company, except as
such enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. This consent also applies to any registration statement
filed by the Company pursuant to Rule 462(b) of the Act that incorporates by
reference therein the Registration Statement. Such consent does not constitute a
consent under Section 7 of the Securities Act, since we have not certified any
part of the Registration Statement and do not otherwise come within the
categories of persons whose consent is required under Section 7 of the Act or
the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Pepper, Hamilton & Scheetz LLP
-------------------------------------------
PEPPER, HAMILTON & SCHEETZ LLP
<PAGE>
Exhibit 10.16
Lehman Commercial Paper Inc.
3 World Financial Center
New York, New York 10285
July 14, 1997
Primus Telecommunications Group, Incorporated
2070 Chain Bridge Road
Suite 425
Vienna, VA 22182
Attention: Mr. Paul Singh
Ladies and Gentlemen:
You ("Primus") have requested that Lehman Commercial Paper Inc.
------
("LCPI") arrange a senior secured loan facility of up to $50,000,000 to finance
----
approved capital expenditures, to provide working capital and for other general
corporate purposes of Primus and its subsidiaries.
LCPI is pleased to offer to commit to provide the full amount of the
requested senior secured loan facility up to $50,000,000 on the terms and
conditions set forth herein, in the Term Sheet annexed hereto as Exhibit A (the
"Term Sheet") and in the letter of even date herewith (the "Fee Letter")
---------- ----------
addressed by LCPI to you providing, among other things, for certain fees
relating to such senior secured loan facility (the "Facility"). Without limiting
--------
LCPI's commitment contained in the preceding sentence, LCPI intends to arrange a
syndicate of banks and/or other financial institutions acceptable to LCPI and to
you (including LCPI, the "Lenders") to provide the Facility.
-------
LCPI has submitted this letter after reviewing certain historical
financial statements and other information provided to LCPI by you. LCPI may
terminate its obligations under the preceding paragraph to provide the Facility:
(i) if any information submitted to LCPI proves to have been inaccurate or
incomplete in any material respect or if any material adverse change occurs, or
any additional information is disclosed to or discovered by LCPI, that LCPI
deems materially adverse in respect of the condition (financial or otherwise),
business, operations or prospects of Primus and its subsidiaries; (ii) if any of
the fees provided for by the Fee Letter are not paid when due; and
<PAGE>
- 2 -
(iii) if any material adverse change shall occur in loan syndication or capital
market conditions generally.
You hereby indemnify and hold harmless each of LCPI and the other
Lenders and each director, officer, employee and affiliate thereof (each, an
"indemnified person") from and against any and all losses, claims, damages,
------------------
liabilities (or actions or other proceedings commenced or threatened in respect
thereof) and expenses that arise out of, result from or in any way relate to
this letter, the Term Sheet or the Fee Letter, or in connection with the
transactions contemplated hereby or the provision or syndication of the
Facility, and to reimburse each indemnified person, upon its demand, for any
legal or other expenses incurred in connection with investigating, defending or
participating in any such loss, claim, damage, liability or action or other
proceeding (whether or not such indemnified person is a party to any action or
proceeding out of which any such expenses arise), other than any of the
foregoing claimed by any indemnified person to the extent incurred by reason of
the gross negligence or willful misconduct of such person. Neither LCPI nor any
other Lender shall be responsible or liable to you or any other person for any
consequential damages that may be alleged as a result of this letter. In
addition, you hereby agree to reimburse LCPI from time to time upon LCPI's
demand for LCPI's reasonable out-of-pocket costs and expenses (including,
without limitation, fees and expenses of U.S. and foreign legal counsel, travel
expenses, appraisal fees and printing, reproduction, document delivery,
communication and publicity costs) incurred in connection with syndication of
the Facility and the preparation, review, negotiation, execution and delivery of
this letter, the Term Sheet, the Fee Letter, the definitive financing agreements
and the other transactions contemplated hereby. Your obligations under this
paragraph are joint and several and shall survive any termination of this letter
and shall be effective regardless of whether the definitive financing agreements
are executed.
From the date of delivery of this letter by LCPI until the earlier of
the completion of primary syndication of the Facility or July 31, 1998, you will
ensure that, other than the Facility, no financing (other than a senior notes
financing led by Lehman Brothers, Inc. or any of its affiliates) for Primus or
any of its subsidiaries shall be syndicated or privately placed among any
financial institutions that would have a detrimental effect upon the primary
syndication of the Facility.
<PAGE>
- 3 -
You acknowledge that LCPI may be providing financing or other services
to other companies in respect of which you or your affiliates may have
conflicting interests and that LCPI has no obligation to use in connection with
the transactions contemplated by this letter, or to furnish to you or any of
your affiliates, confidential information obtained from other companies.
This letter is delivered to you upon the condition that, without the
written consent of LCPI, neither the existence of this letter, the Term Sheet or
the Fee Letter nor any of their contents shall be disclosed, directly or
indirectly, to any other person except (i) as may be compelled to be disclosed
in a judicial or administrative proceeding or as otherwise required by law (in
which case you agree to inform us promptly thereof prior to such disclosure) or
(ii) on a confidential and "need to know" basis, to your directors, officers,
employees, advisors and agents, provided, that the foregoing restrictions shall
--------
not apply (except in respect of the Fee Letter and its terms and substance) (a)
to disclosure contained in Primus' registration statement on Form S-1 (No. 333-
30195) or (b) after this Commitment Letter has been accepted by you.
LCPI and you shall have the right to review and approve all public
announcements and filings relating to the Facility that refer to LCPI or the
other Lenders before they are made (such approval not to be unreasonably
withheld).
LCPI's offer set forth in this letter will terminate at 5:00 p.m. (New
York City time) on July 14, 1997 unless you accept this letter and the Fee
Letter at or prior to that time by signing and returning to LCPI counterparts of
this letter and the Fee Letter. LCPI's commitment under this letter, if
accepted by you, will in any event terminate at 5:00 p.m. (New York City time)
on August 31, 1997 if the initial borrowings under the Facility shall not have
occurred on or prior to such date.
This letter and the Fee Letter may be executed in any number of
counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one agreement, and this letter, the Term Sheet and
the Fee Letter may not be assigned by you without the prior written consent of
LCPI and may not be amended or any provision hereof or thereof waived or
modified except by an instrument in writing signed by each of the parties
hereto. No person or entity other than the parties hereto shall have any rights
under or be entitled to rely upon this letter, the Term Sheet or the Fee Letter.
This letter, the
<PAGE>
- 4 -
Term Sheet and the Fee Letter shall be governed by and construed in accordance
with the law of the State of New York.
<PAGE>
- 5 -
We look forward to working with you to complete this transaction.
Very truly yours,
LEHMAN COMMERCIAL PAPER INC.
By
----------------------------
Title:
ACCEPTED AND AGREED:
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
By
----------------------------
Title:
Date:
-------------------------
<PAGE>
EXHIBIT A
TERM SHEET
Capitalized terms used herein and not defined herein have the meanings
set forth in the letter (the "Commitment Letter") to which this Term
-----------------
Sheet is annexed.
Borrowers: Primus Telecommunications Group, Incorporated ("Primus") and
- --------- ------
Primus' subsidiaries in Australia and the United Kingdom.
Arranger and
Underwriter: Lehman Commercial Paper Inc. ("LCPI" or the "Arranger").
- ----------- ---- --------
Administrative
Agent: LCPI or another financial institution mutually acceptable to
- ----- the Arranger and Primus (in such capacity, the
"Administrative Agent").
--------------------
Purpose: To finance capital expenditures and working capital and
- ------- (after the issuance of the Senior Notes referred to below)
for other general corporate purposes of Primus and its
subsidiaries.
Facility: $50,000,000 five-year reducing revolving credit facility.
- --------
Final Maturity: Five years from the execution and delivery of the definitive
- -------------- credit agreement, at which time all outstanding loans shall
be repaid in full.
Availability: Drawings may be made at any time from the Closing Date to
- ------------ but excluding the Final Maturity, provided that (a) until
such date (the "Issue Date"), if any, that Primus receives
----------
net proceeds of at least $50,000,000 from its issuance of
senior unsecured notes
<PAGE>
- 2 -
(the "Senior Notes"), (i) borrowings may not exceed
------------
$31,000,000 at any one time outstanding, (ii) $2,500,000 of
the Facility may be used only to pay interest and fees with
respect thereto, (iii) not more than $17,000,000 of the
Facility may be borrowed by Primus, (iv) not more than
$10,000,000 of the Facility may be borrowed by Primus'
Australian subsidiaries and (v) not more than $4,000,000 of
the Facility may be borrowed by Primus' UK subsidiaries, (b)
after the Issue Date, no further borrowings may be made
unless and until Primus and its subsidiaries has paid more
than $50,000,000 after the Closing Date in respect of
capital expenditures and permitted acquisitions and (c)
commitments shall be reduced in equal quarterly installments
in the following years of the Facility in the following
annual amounts for such years:
<TABLE>
<CAPTION>
Year Amount
---- -------
<S> <C>
3 $ 5,000,000
4 $10,000,000
5 $35,000,000
</TABLE>
Interest: At the respective Borrower's option, Base Rate and LIBOR
- -------- loans will be available as follows:
A. Base Rate Option
----------------
Interest shall be at the Base Rate of LCPI plus the
applicable interest margin, calculated on the basis of
the actual number of days elapsed in a year of 360
days, payable quarterly in arrears. The Base Rate is
defined as the higher of (i) the Federal Funds Rate, as
published by the Federal Reserve Bank of New York plus
1/2 of 1%, and (ii) the prime commercial lending rate
of The Chase Manhattan Bank, or its successors, as
announced from time to time at its head office. Base
Rate drawings shall be made available on a
<PAGE>
- 3 -
same-day basis if requested prior to 10:00 A.M. New
York time and shall be in minimum amounts to be
determined.
B. LIBOR Option
------------
Interest shall be determined for periods ("Interest
--------
Periods") of one, two, three or six months (as selected
-------
by the respective Borrower) and shall be at an annual
rate equal to the London Interbank Offered Rate
("LIBOR") for the corresponding deposits of U.S.
-----
Dollars plus the applicable interest margin. LIBOR will
be determined by reference to the Telerate Screen at
the start of each Interest Period. Interest will be
paid at the end of each Interest Period or quarterly,
whichever is earlier, and will be calculated on the
basis of the actual number of days elapsed in a year of
360 days. LIBOR will be adjusted for Regulation D
reserve requirements. LIBOR drawings shall require
three business days' prior notice and shall be in
minimum amounts to be determined.
Interest on any amount not paid when due will accrue at a
rate of 2% in excess of the rate otherwise applicable to the
related loan (or, if not related to a loan, 2% above the
Base Rate plus the Interest Margin on Base Rate Loans) and
will be payable on demand. Subject to the preceding
sentence, interest on loans will accrue at a rate of 2% in
excess of the respective rates otherwise applicable to the
loans if any specified default occurs and continues for 30
days.
Interest Margins: The applicable interest margins shall be as follows:
- ----------------
For the first six months following the Closing Date, the
Applicable Margin will be (i) in the case of Eurodollar
Loans, 4.00% prior to the Issue Date and 3.00% on and after
the Issue Date and (ii) in the case of
<PAGE>
- 4 -
Base Rate Loans, 3.00% prior to the Issue Date and 2.00% on
and after the Issue Date. Thereafter, the Applicable Margins
will be as follows:
<TABLE>
<CAPTION>
=============================================
Applicable Applicable
Margin for Margin for
Eurodollar Base Rate
Loans Loans
---------------------------------------------
<S> <C> <C>
Before the 4.00% 3.00%
Issue Date
---------------------------------------------
On and after 3.00% 2.00%
the Issue Date
while EBITDA is
less than zero
---------------------------------------------
On and after 2.75% 1.75%
the Issue Date
while the ratio
of Total Debt
to EBITDA is
greater than
6.00x
---------------------------------------------
On and after 2.50% 1.50%
the Issue Date
while the ratio
of Total Debt
to EBITDA is
greater than
zero and less
than or equal
to 6.00x
=============================================
</TABLE>
Commitment Fees: Commitment fees of 1/2 of 1% per annum on the unused amounts
- --------------- of the commitments under the Facility (to the extent
available to be borrowed as provided above opposite the
caption "Availability") shall be payable to the
Administrative Agent, for account of the Lenders, from the
date of signing of the definitive credit agreement. Accrued
commitment fees will be payable quarterly in arrears
(calculated on a 360 day basis).
Mandatory
Prepayments: Amounts equal to (i) 50% of Excess Cash Flow (defined as
- ----------- EBITDA minus the sum of debt service, taxes and capital
expenditures) for each fiscal year of the Company (beginning
<PAGE>
- 5 -
with its fiscal year ending December 31, 1997), (ii) 100% of
the proceeds of assets sales (in excess of $25,000 per event
and $500,000 per annum), casualty events (to the extent not
used to repair or replace the affected property within
twelve months) and condemnation proceedings and (iii) 100%
of the net proceeds of any issuance or incurrence of debt
shall be used to reduce the Facility permanently, provided
that the amount of such net proceeds of the issuance of the
Senior Notes shall be used to repay outstanding loans
(although the Lenders' lending commitments will not be
required to be reduced).
Voluntary
Prepayments: Permitted in whole or in part, with prior notice but without
- ----------- premium or penalty (except for LIBOR breakage costs, if
any), subject to limitations as to minimum amounts of
prepayments. LIBOR loans may only be prepaid on the last
days of Interest Periods.
Security: The Facility will be secured by a first priority perfected
- -------- security interest in all of the domestic assets of Primus
and its subsidiaries, including the New York and Los Angeles
switches and stock of all of the direct and indirect
domestic and foreign subsidiaries of Primus to the extent
that (in the case of the stock of foreign subsidiaries of
Primus) such security interest does not create a deemed
dividend or other adverse tax consequence for Primus. In
addition, the obligations of each subsidiary of Primus that
is a Borrower will be secured by a first priority security
interest in all of its assets.
Guarantees: The Facility will be guaranteed, on a joint and several
- ---------- basis, by all of Primus' direct and indirect domestic and
foreign subsidiaries to the extent that (in the case of
foreign subsidiaries of Primus) such guaranties do not
create a deemed dividend or other adverse tax consequence
for Primus. In
<PAGE>
- 6 -
addition, the obligations of each subsidiary of Primus that
is a Borrower will be guaranteed by Primus.
Documentation: The Facility will be subject to the negotiation, execution
- ------------- and delivery of a definitive credit agreement (including
schedules, exhibits and ancillary documentation) and related
security agreements, guarantees and other support
documentation satisfactory to the Lenders. Such credit
agreement will contain representations and warranties,
funding and yield protection provisions (including, without
limitation, requirements for compensation for the cost of
compliance by the Lenders with capital adequacy and similar
requirements and gross-ups for all foreign and U.S.
withholding taxes), conditions precedent, covenants, events
of default and other provisions appropriate for transactions
of this type and others determined by the Lenders to be
appropriate, including (without limitation) the following:
A. Conditions
Precedent: 1. The Lenders' review of and satisfaction with Primus'
--------- projections and pro forma financial statements
reflecting the forecasted financial condition, income
and expenses of Primus and its subsidiaries. (LCPI
confirms that the projections and pro forma financial
statements it has heretofore received are satisfactory
to it.)
2. The Lenders' review of and satisfaction with (a)
Primus' tax assumptions, (b) the ownership, capital,
corporate, organizational and legal structure of Primus
and its subsidiaries, (c) the value, scope and extent
of the collateral available to secure the Facility and
(d) the material contracts of Primus and its
subsidiaries, including, without limitation, (i) all
documents evidencing or otherwise
<PAGE>
- 7 -
relating to any material amount of indebtedness
(including guarantees and other contingent obligations)
of Primus and its subsidiaries, and (ii) agreements
relating to management and/or profit-sharing between or
involving Auscorp and Axicorp Pty Limited ("Axicorp").
-------
3. Evidence that the debt relating to the Teleglobe and
British Telecom Australian switches has been repaid.
4. Receipt of evidence satisfactory to the Lenders as to
Primus and its subsidiaries possessing or otherwise
entitled to the benefits of all governmental licenses,
permits, approvals, franchises, concessions and similar
authorizations (including, without limitation, under
the Australian Telecommunications Act 1991) necessary
or desirable to conduct their businesses as presently
conducted or as proposed to be conducted (collectively,
"Material Licenses").
-----------------
5. The Lenders' satisfaction that the borrowings under
the Facility shall be in full compliance with all
legal requirements, including without limitation
Regulations G, T, U and X of the Board of Governors of
the Federal Reserve System.
6. Evidence of compliance with all applicable U.S.
federal, state, local and foreign laws and
regulations.
7. The Lenders' review of and satisfaction with the
insurance program of Primus and its subsidiaries.
<PAGE>
- 8 -
8. The Lenders' satisfaction with all agreements
(including, without limitation, any collective
bargaining agreements) covering, and all employee
savings, retirement and benefit plans relating to, the
employees of Primus and its subsidiaries.
9. Satisfactory completion of environmental and other due
diligence for a transaction of this type.
10. Receipt of a satisfactory solvency analysis with
respect to Primus and its subsidiaries.
11. Receipt of favorable legal opinions, including,
without limitation, as to the validity and
enforceability of the guarantees of the Facility
provided by Primus' subsidiaries and as to the
creation, perfection and priority of the security
interests securing such guarantees.
Conditions precedent to each borrowing under the Facility
will be customary for a transaction of this type and others
determined by the Lenders to be appropriate, including,
without limitation, (i) the absence of any continuing
default or event of default and (ii) the continuing accuracy
in all material respects of representations and warranties
(including, without limitation, the occurrence of any
material adverse change in the condition (financial and
other), operations, assets, nature of assets, liabilities
(including, without limitation, tax, ERISA and environmental
liabilities) or prospects of Primus and its subsidiaries).
B. Representations
and Warranties: i. Corporate existence and power;
--------------
<PAGE>
- 9 -
ii. Corporate authority to execute the
definitive credit documentation, validity,
no conflict with charter documents, laws or
agreements and no governmental approvals;
iii. Financial information;
iv. No material adverse change in the financial
condition, or business of Primus and its
subsidiaries taken as a whole, from the
date of the most recent audited financial
statements prior to the execution of the
credit agreement;
v. No material undisclosed litigation;
vi. Filing and payment of all material taxes
(subject to customary appeal and protest
rights);
vii. Compliance with ERISA and environmental
laws and margin regulations;
viii. Not an investment company or public utility
holding company.
C. Affirmative
Covenants: Delivery of financial statements, reports,
--------- accountants' letters, officers' certificates and
other information requested by any Lender;
payment of other obligations in the ordinary
course; continuation of business and maintenance
of existence and material rights and privileges;
compliance with laws and material contractual
obligations; maintenance of property and
insurance; maintenance of books and records;
right of any Lender to inspect property and
books and records; notices of defaults,
litigation and other material events; and
agreement to grant security interests in after-
acquired
<PAGE>
- 10 -
property, consistent with the terms of permitted
vendor and seller financing.
D. Financial
Covenants: Customary for facilities of this type including
--------- (without limitation): restrictions on Total
Debt/EBITDA; EBITDA/Interest Expense;
EBITDA/Fixed Charges; Minimum Net Worth; Minimum
Revenue, and Minimum EBITDA (Maximum EBITDA
losses).
E. Negative
Covenants: Limitation on: indebtedness (subject to
--------- mutually acceptable carveouts); liens; capital
expenditures; guarantees (subject to mutually
acceptable carveouts); mergers, consolidations,
liquidations and dissolutions; dividends and
other payments in respect of capital stock;
investments, loans and advances (subject to
mutually acceptable carveouts); modifications of
debt instruments; transactions with affiliates;
dispositions of assets and leasebacks; changes
in fiscal year; negative pledge clauses; and
changes in line of business. The Australian
subsidiaries of Primus may have no debt other
than existing seller notes and obligations
relating to this Facility. Primus and its
subsidiaries may incur purchase money
indebtedness to finance telecommunication assets
and seller financing in an amount not to exceed
$10,000,000 before the Issue Date or $25,000,000
on or after the Issue Date, provided, that the
--------
obligations of Primus (and any subsidiary other
than the purchaser of the relevant assets) in
respect of such debt shall be subordinated to
this Facility on terms satisfactory to the
Lenders and the Administrative Agent, and the
provider of such purchase money indebtedness or
seller financing may be granted a first priority
security interest in the
<PAGE>
- 11 -
purchased assets. Such debt may be secured by
the assets purchased (but no ancillary equipment
or other assets).
E. Events of Default: Nonpayment of principal when due; nonpayment of
----------------- interest, fees or other amounts after a grace
period; material inaccuracy of representations
and warranties; violation of covenants; cross-
default; bankruptcy; ERISA; material
environmental liabilities; judgments; loss or
impairment of any Material License or right or
eligibility to use any Material License or
receipt of notice from any governmental
authority threatening to suspend or revoke any
Material License or any such right or
eligibility; change in key management (subject
to customary provision); and a change of
control.
Assignments and
Participations: Each Lender may assign all or a portion of its
- -------------- loans and commitments under the Facility, or
sell participations therein, to another person
or persons provided that (i) each such
assignment shall be in a minimum amount equal to
$5,000,000 and shall be subject to certain
conditions (including, without limitation, the
consents of Primus and the Administrative Agent,
which consents shall not be unreasonably
withheld) and (iii) no purchaser of a
participation shall have the right to exercise
or to cause the selling Lender to exercise
voting rights in respect of the Facility (except
as to certain basic issues).
Expenses and
Indemnification: As specified in the Commitment Letter (with
- --------------- appropriate additions and other modifications
for inclusion in the definitive financing
agreements).
Majority Lenders: 60%
- ----------------
<PAGE>
- 12 -
Governing Law: The law of the State of New York
- -------------
LCPI's
New York Counsel: Milbank, Tweed, Hadley & McCloy
- ----------------
<PAGE>
ANNEX I
Indicative Primus Covenants
<TABLE>
<CAPTION>
Min. Quarterly Min. Quarterly Total Debt/ EBITDA/ EBITDA/Fixed
Revenue EBITDA EBITDA Int. Exp. Charges
------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C>
97Q2 $45,000 N/A N/A N/A N/A
97Q3 $56,000 N/A N/A N/A N/A
97Q4 $62,500 N/A N/A N/A N/A
98Q1 $75,000 N/A N/A N/A N/A
98Q2 $81,000 N/A N/A N/A N/A
98Q3 $87,500 N/A N/A N/A N/A
98Q4 N/A $2,000 N/A N/A N/A
99Q1 $3,125 N/A N/A N/A
99Q2 $3,750 N/A N/A N/A
99Q3 $4,380 N/A N/A N/A
99Q4 $5,000 N/A N/A N/A
00Q1 7.00x 2.00x 1.05x
00Q2 7.00x 2.00x 1.05x
00Q3 7.00x 2.00x 1.05x
00Q4 7.00x 2.00x 1.05x
01Q1 and 5.00x 3.00x 1.05x
thereafter
</TABLE>
<PAGE>
Exhibit 10.17
COLLATERAL PLEDGE AND
SECURITY AGREEMENT
Dated as of July __, 1997
From
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
as Pledgor
----------
to
FIRST UNION NATIONAL BANK
as Trustee
----------
<PAGE>
<TABLE>
<CAPTION>
T A B L E O F C O N T E N T S
- - - - - - - - - - - - - - -
Page
<S> <C>
SECTION 1. Definitions; Appointment; Deposit and Investment............ 2
------------------------------------------------
1.1 Definitions........................................................ 2
-----------
1.2 Appointment of the Trustee......................................... 3
--------------------------
1.3 Pledge and Grant of Security Interest.............................. 3
-------------------------------------
1.4 Deposit of Escrowed Funds.......................................... 3
-------------------------
SECTION 2. Security for Obligation..................................... 3
-----------------------
SECTION 3. Delivery of Collateral...................................... 3
----------------------
SECTION 4. Maintaining the Cash Collateral Account..................... 4
---------------------------------------
SECTION 5. Investing of Amounts in the Cash Collateral Account......... 4
---------------------------------------------------
SECTION 6. Delivery of Collateral Investments.......................... 5
----------------------------------
SECTION 7. Disbursements............................................... 6
-------------
SECTION 8. Representations and Warranties.............................. 8
------------------------------
SECTION 9. Further Assurances.......................................... 9
------------------
SECTION 10. Covenants................................................... 10
---------
SECTION 11. Power of Attorney........................................... 10
-----------------
SECTION 12. No Assumption of Duties: Reasonable Care.................... 11
----------------------------------------
SECTION 13. Indemnity................................................... 11
---------
SECTION 14. Remedies upon Event of Default.............................. 12
------------------------------
SECTION 15. Expenses.................................................... 13
--------
</TABLE>
<PAGE>
ii
<TABLE>
<CAPTION>
Section Page
<S> <C>
SECTION 16. Security Interest Absolute...................................... 13
SECTION 17. Miscellaneous Provisions........................................ 13
17.1. Notices............................................................... 13
17.2. No Adverse Interpretation of Other Agreements......................... 14
17.3. Severability.......................................................... 14
17.4. Headings.............................................................. 15
17.5. Counterpart Originals................................................. 15
17.6. Benefits of Pledge Agreement.......................................... 15
17.7. Amendments, Waivers and Consents...................................... 15
17.8. Interpretation of Agreement........................................... 15
17.9. Continuing Security Interest; Termination............................. 15
17.10. Survival Provisions.................................................. 16
17.11. Waivers.............................................................. 16
17.12. Authority of the Trustee............................................. 16
17.13. Final Expression..................................................... 17
17.14. Rights of Holders of the Notes....................................... 17
17.15. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL; WAIVER OF DAMAGES............................................. 17
EXHIBIT A: Form of Collateral Investments Account Letter................... A-1
EXHIBIT B: Officer's Certificate........................................... B-1
EXHIBIT C: Independent Public Accountant's Report.......................... C-1
</TABLE>
<PAGE>
COLLATERAL PLEDGE AND SECURITY AGREEMENT
----------------------------------------
This COLLATERAL PLEDGE AND SECURITY AGREEMENT (the "Pledge
------
Agreement") is made and entered into as of July __, 1997 by and between PRIMUS
- ---------
TELECOMMUNICATIONS GROUP, INCORPORATED, a Delaware corporation (the "Pledgor"),
-------
having its principal office at 2070 Chain Bridge Road, Suite 425, Vienna,
Virginia 22182, in favor of FIRST UNION NATIONAL BANK, a [Type of Association]
duly organized and existing under the laws of [Jurisdiction], having its
principal corporate trust office at [Address], as trustee (the "Trustee") for
-------
the holders (the "Holders") of the Notes (as defined herein) issued by the
-------
Pledgor under the Indenture referred to below.
WITNESSETH
WHEREAS, the Pledgor and the Underwriters (as defined in the
Underwriting Agreement) are parties to an Underwriting Agreement dated July __,
1997 (the "Underwriting Agreement"), pursuant to which the Pledgor will issue
----------------------
and sell to the Underwriters $125,000,000 of Units (the "Units") consisting of
-----
__% Senior Notes due 2004 (the "Notes") and Warrants (the "Warrants") to
----- --------
purchase ___ Shares of Common Stock, par value $0.01 of the Company (the
"Common Stock");
------------
WHEREAS, the Pledgor and the Trustee, have entered into that certain
indenture dated as of the date hereof (as amended, restated, supplemented or
otherwise modified from time to time, the "Indenture"), pursuant to which the
---------
Pledgor is issuing the Notes on the date hereof;
WHEREAS, pursuant to the Indenture, the Pledgor is required to
purchase and pledge to the Trustee for the benefit of the Holders of the Notes
on the Closing Date (as defined in the Underwriting Agreement) U.S. Government
securities in an amount (the "Escrowed Funds") as will be sufficient upon
--------------
receipt of scheduled interest and principal payments of such securities, in the
opinion of a nationally recognized firm of independent public accountants
selected by the Company, to provide for payment in full of the first six
scheduled interest payments due on the Notes to secure the Pledgor's obligation
to (i) provide for payment in full of the first six scheduled interest payments
due on the Notes and (ii) repay the principal, premium and interest on the Notes
in the event that the Notes become due and payable prior to such time as the
first six scheduled interest payments thereon shall have been paid in full
(collectively, the "Obligations");
-----------
WHEREAS, the Pledgor has opened an interest bearing cash collateral
account (the "Cash Collateral Account") with First Union National Bank at its
-----------------------
office at [Address], Account No. ___ in the name of the Pledgor but under the
sole dominion and control of the Trustee and subject to the terms of this Pledge
Agreement; and
WHEREAS, to secure the Obligations of the Pledgor, the Pledgor has
agreed to (i) pledge to the Trustee for its benefit and the ratable benefit of
the Holders of the Notes, a security
<PAGE>
interest in the Escrowed Funds and the Collateral (as hereinafter defined) and
(ii) execute and deliver this Pledge Agreement in order to secure the payment by
the Pledgor of all the Obligations.
AGREEMENT
NOW, THEREFORE, in consideration of the premises herein contained, and
in order to induce the Holders of the Notes to purchase the Notes, the Pledgor,
the Underwriters and the Trustee hereby agree, for the benefit of the Trustee
and for the ratable benefit of the Holders of the Notes, as follows:
SECTION 1. Definitions; Appointment; Deposit and Investment.
------------------------------------------------
1.1 Definitions.
-----------
"Cash Equivalents" means any of the following, to the extent owned by
----------------
the Pledgor free and clear of all liens other than liens created hereunder:
(a) U.S. Government obligations, (b) insured certificates of deposit of or
time deposits with any commercial bank that (i) is a member of the Federal
Reserve System, (ii) issues (or the parent of which issues) commercial
paper rated as described in clause (c), (iii) is organized under the laws
of the United States or any State thereof and (iv) has combined capital and
surplus of at least $1 billion or (c) commercial paper in an aggregate
amount of no more than $5 million per issuer outstanding at any time,
issued by any corporation organized under the laws of any State of the
United States and rated at least "Prime-1" (or the then equivalent grade)
by Moody's Investors Service, Inc. or "A-1" (or the then equivalent grade)
by Standard & Poor's Ratings Service.
"Revised Article 8" means the Uniform Commercial Code, revised
-----------------
Article 8, Investment Securities (with Conforming and Miscellaneous
Amendments to Articles 1,3,4,5,9 and 10) 1994 Official Text.
"UCC" means the Uniform Commercial Code as in effect in New York State
---
but, for purposes of perfection and priority of the security interest
granted to the Trustee, the UCC as though Revised Article 8 had been
adopted in New York State.
"Trustee" shall mean the Person named as the "Trustee" in the first
-------
paragraph of this Agreement until a successor Trustee shall have become
such, and thereafter "Trustee" shall mean the Person who is then the
Trustee hereunder.
All capitalized terms used herein without definition shall have the
respective meanings ascribed to them in the Indenture. Unless otherwise
defined herein or in the Indenture, terms used herein which are defined in
the UCC are used herein as therein defined.
<PAGE>
3
1.2 Appointment of the Trustee. The Pledgor hereby appoints the
--------------------------
Trustee as Trustee in accordance with the terms and conditions set forth
herein and the Trustee hereby accepts such appointment.
1.3 Pledge and Grant of Security Interest. The Pledgor hereby
-------------------------------------
pledges to the Trustee for its benefit and for the ratable benefit of the
Holders of the Notes, and grants to the Trustee for its benefit and for the
ratable benefit of the Holders of the Notes, a continuing first priority
security interest in and to all of the Pledgor's right, title and interest
in, to and under the following (hereinafter collectively referred to as the
"Collateral"), whether characterized as investment property, general
----------
intangibles or otherwise: (a) the Cash Collateral Account, all funds held
therein and all certificates and instruments, if any, from time to time
representing or evidencing the Cash Collateral Account, (b) all Collateral
Investments (as hereinafter defined) and all certificates and instruments,
if any, representing or evidencing the Collateral Investments, and any and
all security entitlement to the Collateral Investments, and any and all
related securities accounts in which any security entitlement to the
Collateral Investments is carried, (c) all notes, certificates of deposit,
deposit accounts, checks and other instruments, if any, from time to time
hereafter delivered to or otherwise possessed by the Trustee for or on
behalf of the Pledgor in substitution for or in addition to any or all the
then existing Collateral, (d) all interest, dividends, cash, instruments
and other property, if any, from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the
then existing Collateral, and (e) all proceeds of any and all of the
foregoing Collateral (including, without limitation, proceeds that
constitute property of the types described in clauses (a) - (d) of this
Section 1.3) and, to the extent not otherwise included, all cash.
1.4 Deposit of Escrowed Funds. The Pledgor shall deposit, or cause to
-------------------------
be deposited, all Escrowed Funds into the Cash Collateral Account.
SECTION 2. Security for Obligation. This Pledge Agreement secures the
-----------------------
prompt and complete payment when due (whether at stated maturity, by
acceleration or otherwise) of the Obligations.
SECTION 3. Delivery of Collateral. If and to the extent the Collateral
----------------------
is represented or evidenced by certificates or instruments, all such
certificates or instruments representing or evidencing the Collateral,
including, without limitation, amounts invested as provided in Section 5, shall
be delivered to and held by or on behalf of the Trustee pursuant hereto and
shall be in suitable form for transfer by delivery, or shall be accompanied by
duly executed instruments of transfer or assignment in blank, all in form and
substance sufficient to convey a valid security interest in such Collateral to
the Trustee or shall be credited to a securities account (the "Collateral
----------
Investments Account") designated by the Trustee. For the better perfection of
- -------------------
the Trustee's rights in and to the Collateral, the Pledgor shall forthwith, upon
the pledge of any Collateral hereunder, cause all such Collateral, including the
Collateral Investments Account and all other accounts representing a
<PAGE>
4
security entitlement to or containing any Collateral (including, without
limitation, any Collateral Investments) to be registered in the name of the
Trustee or such of its nominees as the Trustee shall direct and the pledgor
shall approve (which approval shall not be unreasonably withheld), and to be
under the sole dominion and control of the Trustee, which dominion and control
shall be agreed to and acknowledged by any securities intermediary holding any
such account in an acknowledgement in the form of Exhibit A hereto, subject
---------
only to the revocable rights specified in Section 7. In addition, the Trustee
shall have the right at any time to exchange certificates or instruments
representing or evidencing the Collateral for certificates or instruments of
smaller or larger denominations.
SECTION 4. Maintaining the Cash Collateral Account. So long as any
---------------------------------------
Obligation shall remain unpaid:
(a) The pledgor will maintain the Cash Collateral Account with
[Bank]; and
(b) It shall be a term and condition of the Cash Collateral Account,
notwithstanding any term or condition to the contrary in any other agreement
relating to the Cash Collateral Account, and except as otherwise provided by the
provisions of Section 5, Section 7 and Section 14, that no amount (including
interest on collateral Investments) shall be paid or released to or for the
account of, or withdrawn by or for the account of, the Pledgor or any other
Person from the Cash Collateral Account.
The Cash Collateral Account shall be subject to such applicable laws, and such
applicable regulations of the Board of Governors of the Federal Reserve System
and of any other appropriate banking or governmental authority, as may now or
hereafter be in effect.
SECTION 5. Investing of Amounts in the Cash Collateral Account.
---------------------------------------------------
Immediately upon deposit of the Escrowed Funds, the Trustee shall invest all
amounts on deposit in the Cash Collateral Account in such U.S. Government
Obligations, in the name of the Trustee, as the Pledgor may select in an amount
sufficient to pay the first six scheduled interest payments on all the Notes. If
requested by the pledgor, the Trustee will, subject to the provisions of
Section 7 and Section 14, from time to time (a) invest amounts on deposit in the
Cash Collateral Account in such Cash Equivalents in the name of the Trustee as
the Pledgor may select and (b) invest interest paid on the Cash Equivalents
referred to in clause (a) above, and reinvest other proceeds of any such Cash
Equivalents that may mature or be sold, in each case in such Cash Equivalents in
the name of the Trustee, as the Pledgor may select and the Trustee may approve
(the Cash Equivalents referred to in clauses (a) and (b) above being
collectively "Collateral Investments"); provided, however, that the amount on
---------------------- -------- -------
deposit in the Collateral Investments Account and the Cash Collateral Account,
collectively, at any time during the term of this Pledge Agreement, must be
sufficient to provide for the payment in full of the remaining interest payments
at such time on the Notes up to and including the sixth scheduled interest
payment. Interest and proceeds that are not invested or reinvested in Collateral
Investments as provided above shall be deposited and held in the Cash Collateral
Account.
<PAGE>
5
Except as otherwise provided in Sections 12 and 13, the Trustee shall not be
liable for any loss in the investment or reinvestment of amounts held in the
Cash Collateral Account.
SECTION 6. Delivery of Collateral Investments. (a) The Trustee shall
----------------------------------
become the holder or entitlement holder, as the case may be, of the Collateral
Investments and of any and all security entitlements to the Collateral
Investments, through action by the Federal Reserve Bank of New York ("FRBNY") or
-----
another securities intermediary, as confirmed (in writing or electronically or
otherwise in accordance with standard industry practice) to the Trustee by FRBNY
or such other securities intermediary (i) indicating by book-entry that the
Collateral Investments or a security entitlement thereto has been credited to
the Collateral Investments Account, or (ii) acquiring the Collateral Investments
or a security entitlement thereto for the Trustee and accepting the same for
credit to the Collateral Investments Account.
(b) Prior to or concurrently with the execution and delivery hereof
and prior to the transfer to the Trustee of Collateral Investments (or
acquisition by the Trustee of any security entitlement thereto), as provided in
subsection (a) of this Section 6, the Trustee shall establish the Collateral
Investments Account on its books as an account segregated from all other
custodial or collateral accounts at its office at [Address]. Upon transfer of
the Collateral Investments to the Trustee (or the Trustee's acquisition of a
security entitlement thereto), as confirmed to the Trustee by FRBNY or another
securities intermediary, the Trustee shall make appropriate book entries
indicating that the Collateral Investments and/or such security entitlement have
been credited to and are held in the Collateral Investments Account. Subject to
the other terms and conditions of this Pledge Agreement, all Collateral
Investments held by the Trustee pursuant to this Pledge Agreement shall be held
in the Collateral Investments Account subject (except as expressly provided in
Section 7 hereof) to the exclusive dominion and control of the Trustee and
exclusively for the benefit of the Trustee and for the ratable benefit of the
Holders of the Notes and segregated from all other funds or other property
otherwise held by the Trustee.
(c) All Collateral shall be retained in the Cash Collateral Account
and the Collateral Investments Account pending disbursement pursuant to the
terms hereof.
(d) Concurrently with the execution and delivery of this
Agreement, the Trustee is delivering to the Pledgor and the Placement Agents a
duly executed certificate, in the form of Exhibit B hereto, of an officer of the
---------
Trustee, confirming the Trustee's establishment and maintenance of the Cash
Collateral Account and the Collateral Investments Account and its receipt and
holding of the Escrowed Funds and the Collateral Investments or a security
entitlement thereto and the crediting or the Escrowed Funds and the Collateral
Investments or such security entitlement to the Cash Collateral Account and the
Collateral Investments Account, all in accordance with this Pledge Agreement.
<PAGE>
6
(e) Concurrently with the execution and delivery of the Pledge
Agreement, the Pledgor is delivering to the Trustee an opinion of a nationally
recognized firm of independent public accounts, selected by the Pledgor,
substantially in the form of Exhibit C hereto.
---------
SECTION 7. Disbursements. The Trustee shall hold the assets in the
-------------
Cash Collateral Account and the Collateral Investments Account and release the
same, or a portion thereof, only as follows:
(a) At least one Business Day prior to the due date of any of the first
six scheduled interest payments on the Notes, the Pledgor may, pursuant to
written instructions executed by the Pledgor (an "Issuer Order"), direct the
------------
Trustee to release from the Cash Collateral Account and/or liquidate Collateral
in the Collateral Investments Account, and pay to the Holders of the Notes
proceeds sufficient to provide for payment in full of such interest then due
on the Notes; provided that in the event Collateral is required to be
liquidated, the Pledgor will give the Trustee at least three Business Days
notice. Upon receipt of an Issuer Order, the Trustee will take any action
necessary to provide for the payment of the interest on the Notes to the Holders
of the Notes in accordance with the payment provisions of the Indenture from
(and to the extent of) proceeds of the Escrowed Funds in the Cash Collateral
Account or the Collateral Investments Account, as the case may be. Nothing in
this Section 7 shall affect the Trustee's rights to apply the Collateral to the
payments of amounts due on the Notes upon acceleration thereof.
(b) If the Pledgor makes any interest payment or portion of an interest
payment for which the Collateral is security from a source of funds other than
the Cash Collateral Account or the Collateral Investments Account ("Pledgor
-------
Funds"), the Pledgor may, after payment in full of such interest payment or
- -----
portion thereof from proceeds of the Collateral or such Pledgor Funds or both,
direct the Trustee to release to the Pledgor or to another party at the
direction of the Pledgor (the "Pledgor's Designee") proceeds from the Cash
------------------
Collateral Account in an amount less than or equal to the amount of Pledgor
Funds applied to such interest payment. Upon receipt of an Issuer Order by the
Trustee, the Trustee shall pay over to the Pledgor or the Pledgor's Designee, as
the case may be, the requested amount from proceeds in the Cash Collateral
Account or the Collateral Investments Account, as the case may be. Concurrently
with any release of funds to the Pledgor pursuant to this Section 7(b), the
Pledgor shall deliver to the Trustee a certificate signed by an officer of the
Pledgor stating that such release has been duly authorized by the Pledgor and
will not contravene any provision of applicable law or the Certificate of
Incorporation or the By-laws of the Pledgor or any material agreement or other
material instrument binding upon the Pledgor or any of its subsidiaries or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Pledgor or any of its subsidiaries or result in the
creation or imposition of any Lien on any assets of the Pledgor, except for the
security interest granted under the Pledge Agreement.
(c) At least one Business Day prior to the due date of any of the first
six scheduled interest payments on the Notes, the Pledgor covenants to give the
Trustee (by Issuer
<PAGE>
7
Order) notice as to whether payment of interest will be made pursuant to Section
7(a) or 7(b) and as to the respective amounts of interest that will be paid
pursuant to Section 7(a) or 7(b); provided that, in the event Collateral is
required to be liquidated, the Pledgor will give the Trustee at least three
Business Days notice. If no such notice is given, the Trustee will act pursuant
to Section 7(a) as if it had received an Issuer Order pursuant thereto for the
payment in full of the interest then due.
(d) The Trustee shall not be required to liquidate any Collateral
Investments in order to make any scheduled payment of interest or any release
hereunder unless instructed to do so by Issuer Order or pursuant to Section 14
hereof.
(e) Upon payment in full of the first six scheduled interest payments
on the Notes in a timely manner, the security interest in the Collateral
evidenced by this Pledge Agreement will automatically terminate and be of no
further force and effect and the Collateral shall promptly be paid over and
transferred to the Pledgor.
(f) In the event that the Collateral held in the Cash Collateral
Account and the Collateral Investments Account exceeds the amount sufficient, in
the opinion of the nationally recognized firm of independent public accountants
selected by the Company, to provide for payment in full of the first six
scheduled interest payments due on the Notes (or, in the event an interest
payment or payments have been made, an amount sufficient to provide for payment
in full of all interest payments remaining, up to and including the sixth
scheduled interest payment), the Trustee shall release to the Company at the
Company's request any such excess Collateral.
(g) Upon the release of any Collateral from the Cash Collateral
Account or the Collateral Investments Account, in accordance with the terms of
this Pledge Agreement, the security interest evidenced by this Pledge Agreement
in such released Collateral will automatically terminate and be of no further
force and effect.
(h) Nothing contained in Section 1, Section 5, this Section 7 or any
other provision of this Agreement shall (i) afford the Pledgor any right to
issue entitlement orders with respect to any security entitlement to the
Collateral Investments or any securities account in which any such security
entitlement may be carried, or otherwise afford the Pledgor control of any such
security entitlement or (ii) otherwise give rise to any rights of the Pledgor
with respect to the Collateral Investments, any security entitlement thereto or
any securities account in which any such security entitlement may be carried,
other than the Pledgor's rights under this Pledge Agreement as the beneficial
owner of collateral pledged to and subject to the exclusive dominion and control
(except as expressly provided in this Section 7) of the Trustee in its capacity
as such (and not as a securities intermediary). The Pledgor acknowledges,
confirms and agrees that the Trustee holds a security entitlement to the
Collateral Investments solely as trustee for the Holders of the Notes and not as
a securities intermediary.
<PAGE>
8
SECTION 8. Representations and Warranties. The Pledgor hereby
------------------------------
represents and warrants, as of the date hereof, that:
(a) The execution and delivery by the Pledgor of, and the performance
by the Pledgor of its obligations under, this Pledge Agreement will not
contravene any provision of applicable law or the Certificate of
Incorporation or the By-laws of the Pledgor or any material agreement or
other material instrument binding upon the Pledgor or any of its
subsidiaries or any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Pledgor or any of its
subsidiaries, or result in the creation or imposition of any Lien on any
assets of the Pledgor, except for the security interests granted under this
Pledge Agreement; no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required (i) for the
performance by the Pledgor of its obligations under this Pledge Agreement,
(ii) for the pledge by the Pledgor of the Collateral pursuant to this
Pledge Agreement or (iii) except for any such consents, approvals,
authorizations or orders required to be obtained by the Trustee (or the
Holders) for reasons other than the consummation of this transaction, for
the exercise by the Trustee of the rights provided for in this Pledge
Agreement or the remedies in respect of the Collateral pursuant to this
Pledge Agreement.
(b) The Pledgor is the beneficial owner of the collateral, free and
clear of any Lien or claims of any person or entity (except for the
security interests granted under this Pledge Agreement). No financing
statement covering the Pledgor's interest in the Collateral is on file in
any public office.
(c) This Pledge Agreement has been duly authorized, validly executed
and delivered by the Pledgor and (assuming the due authorization and valid
execution and delivery of this Pledge Agreement by the Trustee and
enforceability of the Pledge Agreement against the Trustee in accordance
with its terms) constitutes a valid and binding agreement of the Pledgor,
enforceable against the Pledgor in accordance with its terms except as (i)
the enforceability hereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, preference, reorganization, moratorium or similar
laws now or hereafter in effect relating to or affecting creditors' rights
or remedies generally, (ii) the availability of equitable remedies may be
limited by equitable principles of general applicability and the discretion
of the court before which any proceeding therefor may be brought, (iii) the
exculpation provisions and rights to indemnification hereunder may be
limited by U.S. federal and state securities laws and public policy
considerations and (iv) the waiver of rights and defenses contained in
Section 14(b), Section 17.11 and Section 17.15 hereof may be limited by
applicable law.
(d) Upon the delivery to the Trustee of the certificates or
instruments, if any, representing or evidencing the Collateral, and the
transfer and pledge to the Trustee of the Collateral and the acquisition
by the Trustee of a security entitlement thereto, in accordance with
Section 3, the pledge of and grant of a security interest in the Collateral
securing the
<PAGE>
9
payment of the Obligations for the benefit of the Trustee and the Holders
of the Notes will constitute a first priority perfected security interest
in such Collateral (except, with respect to proceeds, only to the extent
permitted by Section 9-306 of the UCC), enforceable as such against all
creditors of the Pledgor and any persons purporting to purchase any of the
Collateral from the Pledgor, except in each case as enforcement may be
affected by general equitable principles (whether considered in a
proceeding in equity or at law) and other than as permitted by the
Indenture.
(e) There are no legal or governmental proceedings pending or, to the
best of the Pledgor's knowledge, threatened to which the Pledgor or any of
its subsidiaries is a party or to which any of the properties of the
Pledgor or any of its subsidiaries is subject that would materially
adversely affect the power or ability of the Pledgor to perform its
obligations under this Pledge Agreement or to consummate the transactions
contemplated hereby.
(f) The pledge of the Collateral pursuant to this Pledge Agreement is
not prohibited by law or governmental regulation (including, without
limitation, Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System) applicable to the Pledgor.
(g) No Event of Default (as defined herein) exists.
SECTION 9. Further Assurances. The Pledgor will, promptly upon
------------------
request by the Trustee (which request the Trustee may submit at the direction of
the Holders of a majority in principal amount of the Notes then outstanding),
execute and deliver or cause to be executed and delivered, or use its reasonable
best efforts to procure, all assignments, instruments and other documents,
deliver any instruments to the Trustee and take any other actions that are
necessary or desirable to perfect, continue the perfection of, or protect the
first priority of the Trustee's security interest in and to the Collateral, to
protect the Collateral against the rights, claims, or interests of third persons
(other than any such rights, claims or interests created by or arising through
the Trustee) or to effect the purposes of this Pledge Agreement. The Pledgor
also hereby authorizes the Trustee to file any financing or continuation
statements in the United States with respect to the Collateral without the
signature of the Pledgor (to the extent permitted by applicable law). The
Pledgor will promptly pay all reasonable costs incurred in connection with any
of the foregoing within 45 days of receipt of an invoice therefor. The Pledgor
also agrees, whether or not requested by the Trustee, to take all actions that
are necessary to perfect or continue the perfection of, or to protect the first
priority of, the Trustee's security interest in and to the Collateral, and to
protect the Collateral against the rights, claims, or interests of third persons
(other than any such rights, claims or interests created by or arising through
the Trustee).
SECTION 10. Covenants. The Pledgor covenants and agrees with the
---------
Trustee and the Holders of the Notes that from and after the date of this Pledge
Agreement until the earlier of payment in full cash of (x) each of the first six
scheduled interest payments due on the Notes
<PAGE>
10
under the terms of the Indenture of (y) all obligations due and owing under the
Indenture and the Notes in the event such obligations become due and payable
prior to the payment of the first six scheduled interest payments on the Notes:
(a) that (i) it will not (and will not purport to) sell or
otherwise dispose of, or grant any option or warrant with respect to, any
of the Collateral or (ii) it will not create or permit to exist any Lien
upon or with respect to any of the Collateral (except for the security
interest granted under this Pledge Agreement and any Lien created by or
arising through the Trustee) and at all times will be the sole beneficial
owner of the Collateral; or
(b) that it will not (i) enter into any agreement or understanding
that restricts or inhibits or purports to restrict or inhibit the Trustee's
rights or remedies hereunder, including, without limitation, the Trustee's
right to sell or otherwise dispose of the Collateral or (ii) fail to pay or
discharge any tax, assessment or levy of any proposed sale under any
judgment, writ or warrant of attachment with respect to the Collateral.
SECTION 11. Power of Attorney. In addition to all of the powers
-----------------
granted to the Trustee pursuant to the Indenture, the Pledgor hereby appoints
and constitutes the Trustee as the Pledgor's attorney-in-fact (with full power
of substitution) to exercise to the fullest extent permitted by law all of the
following powers upon and at any time after the occurrence and during the
continuance of an Event of Default: (a) collection of proceeds of any
Collateral; (b) conveyance of any item of Collateral to any purchaser thereof;
(c) giving of any notices or recording of any Liens under Section 6 hereof; and
(d) paying or discharging taxes or Liens levied or placed upon the Collateral,
the legality or validity hereof and the amounts necessary to discharge the same
to be determined by the Trustee in its sole reasonable discretion,a nd such
payments made by the trustee to become part of the Obligations of the Pledgor to
the Trustee, due and payable immediately upon demand. The Trustee's authority
under this Section 11 shall include, without limitation, the authority to
endorse and negotiate any checks or instruments representing proceeds of
Collateral in the name of the Pledgor, execute and give receipt for any
certificate of ownership or any document constituting Collateral, transfer title
to any item of Collateral, sign the Pledgor's name on all financing statements
(to the extent permitted by applicable law) or any other documents deemed
necessary or appropriate by the Trustee to preserve, protect or perfect the
security interest in the Collateral and to file the same, prepare, file and sign
the Pledgor's name on any notice of Lien, and to take any other actions arising
from or incident to the powers granted to the Trustee in this Pledge Agreement.
This power of attorney is coupled with an interest and is irrevocable by the
Pledgor.
SECTION 12. No Assumption of Duties: Reasonable Care. The rights and
----------------------------------------
powers granted to the Trustee hereunder are being granted in order to preserve
and protect the security interest of the Trustee and the Holders of the Notes in
and to the Collateral granted hereby and shall not be interpreted to, and shall
not impose any duties on the Trustee in connection therewith other than those
expressly provided herein or imposed under applicable law. Except as provided
by
<PAGE>
EXHIBIT 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------
FORM T-1
------------------------------------------
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT FOR 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an application to determine eligibility of a trustee pursuant to
Section 305(b) (2) _____
-----------------------------------------
FIRST UNION NATIONAL BANK OF VIRGINIA
(Exact name of Trustee as specified in its charter)
213 SOUTH JEFFERSON STREET
ROANOKE, VIRGINIA 24011 54-0211320
(Address of principal (Zip Code) (I.R.S. Employer
executive office) Identification No.)
Dante M. Monakil, (804) 788-9659
901 E. Cary Street, Richmond, Virginia 23219
-------------------------------------------------
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
(Exact name of obligor as specified in its charter)
Delaware 54-1708481
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2070 Chain Bridge Road, Suite 425
Vienna, VA 22182
(Address of principal executive offices) (Zip Code)
-----------------------------------------------
% SENIOR NOTES DUE 2004
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information.
(a) The following are the names and addresses of each examining or
supervising authority to which the Trustee is subject:
The Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Richmond, Richmond, Virginia.
Federal Deposit Insurance Corporation, Washington, D.C.
Securities and Exchange Commission, Division of Market Regulation,
Washington, D.C.
(b) The Trustee is authorized to exercise corporate trust powers.
2. Affiliations with obligor.
The obligor is not an affiliate of the Trustee.
3. Voting Securities of the Trustee.
Not applicable
(See answer to Item 13)
4. Trusteeships under other indentures.
Not applicable
(See answer to Item 13)
5. Interlocking directorates and similar relationships with the obligor or
underwriters.
Not applicable
(See answer to Item 13)
6. Voting securities of the Trustee owned by the obligor or its officials.
Not applicable
(See answer to Item 13)
7. Voting securities of the Trustee owned by underwriters or their officials.
Not applicable
(See answer to Item 13)
8. Securities of the obligor owned or held by the Trustee.
Not applicable
(See answer to Item 13)
9. Securities of underwriters owned or held by the Trustee.
Not applicable
(See answer to Item 13)
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10. Ownership or holdings by the Trustee of voting securities of certain
affiliates or security holders of the obligor.
Not applicable
(See answer to Item 13)
11. Ownership of holders by the Trustee of any securities of a person owning 50
percent or more of the voting securities of the obligor.
Not applicable
(See answer to Item 13)
12. Indebtedness of the obligor to the Trustee.
Not applicable
(See answer to Item 13)
13. Defaults by the obligor.
A. None
B. None
14. Affiliations with the underwriters.
Not applicable
(See answer to Item 13)
15. Foreign trustee.
Trustee is a national banking association organized under the laws of
the United States.
16. List of Exhibits.
(1) Articles of Incorporation. (Incorporated by reference from Exhibit 25
to Registration 33-57401, filed January 25, 1995.)
(2) Certificate of Authority of the Trustee to conduct business.
(Incorporated by reference from Exhibit 25 to Registration 33-57401,
filed January 25, 1995.)
(3) Certificate of Authority of the Trustee to exercise corporate trust
powers. (Incorporated by reference from Exhibit 25 to Registration 33-
57401, filed January 25, 1995.)
(4) By-Laws. (Incorporated by reference from Exhibit 25 to Registration 33-
57401, filed January 25, 1995.)
(5) Inapplicable.
(6) Consent by the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939. Included at Page 4 of this Form T-1 Statement.
(7) Report of condition of Trustee. (Incorporated by reference from
Exhibit 25 to Registration 333-29293, filed June 16, 1997)
(8) Inapplicable.
(9) Inapplicable.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, FIRST UNION NATIONAL BANK OF VIRGINIA, a national
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility and qualification to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of Richmond, and Commonwealth of Virginia on the _______ day of July,
1997.
FIRST UNION NATIONAL BANK OF VIRGINIA
(Trustee)
BY:/s/ DANTE M. MONAKIL
-----------------------------------------
Dante M. Monakil, Vice President
EXHIBIT T-1 (6)
CONSENTS OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939 and in
connection with the proposed issuance by Primus Telecommunications Group, Inc.,
of its Senior Notes due 2004, First Union National Bank of Virginia, as the
Trustee herein named, hereby consents that reports of examinations of said
Trustee by Federal, State, Territorial or District authorities may be furnished
by such authorities to the Securities and Exchange Commission upon requests
therefor.
FIRST UNION NATIONAL BANK OF VIRGINIA
BY:/s/ JOHN M. TURNER
------------------------------
John M. Turner, Vice President and Managing Director
Dated: July __, 1997
4
